UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED, March 31, 2004
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)
(201) 703-2265
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
--- ---
The number of outstanding shares of the Registrant's common stock, no par
value per share, as of April 30, 2004, was 12,740,782 shares.
INTERCHANGE FINANCIAL SERVICES CORPORATION
INDEX
PART I FINANCIAL INFORMATION
Page No.
--------
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2004 and December 31, 2003 ........................1
Condensed Consolidated Statements of Income for
the three months ended March 31, 2004 and 2003 ..............2
Condensed Consolidated Statements of Changes in
Stockholders' Equity for the three months ended
March 31, 2004 and 2003 .....................................3
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2004 and
2003 ........................................................4
Notes to Condensed Consolidated Financial
Statements ..................................................5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations ..............16
Item 3 Quantitative and Qualitative Disclosures About
Market Risk (Disclosures about quantitative and
qualitative market risk are located in
Management's Discussion and Analysis of
Financial Condition and Results of Operation in
the section on Market Risk) ................................29
Item 4 Controls and Procedures ....................................34
PART II OTHER INFORMATION
Item 1 Legal Proceedings ..........................................35
Item 2 Changes in Securities and Use of Proceeds ..................35
Item 3 Defaults upon Senior Securities ............................35
Item 4 Submission of Matters to a Vote of Security
Holders ....................................................35
Item 5 Other Information ..........................................35
Item 6 Exhibits and Reports on Form 8-K ...........................35
Signatures .................................................36
Item 1: Financial Statements
Interchange Financial Services Corporation
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(dollars in thousands)
March 31, December 31,
2004 2003
---------- ------------
(unaudited)
Assets
Cash and due from banks $ 35,488 $ 31,423
Interest earning deposits 11 12
Federal funds sold 20,700 --
---------- ----------
Total cash and cash equivalents 56,199 31,435
---------- ----------
Securities held to maturity at amortized cost (estimated market value
of $19,088 and $20,223 for March 31, 2004 and December 31, 2003,
respectively) 17,916 19,107
---------- ----------
Securities available for sale at estimated market value (amortized
cost of $363,655 and $428,597 for March 31, 2004 and
December 31, 2003, respectively) 370,239 432,953
---------- ----------
Loans and leases (net of unearned income and deferred fees of $5,809
and $6,057 for March 31, 2004 and December 31, 2003,
respectively) 831,286 796,581
Less: Allowance for loan and lease losses 9,635 9,641
---------- ----------
Net loans and leases 821,651 786,940
---------- ----------
Bank owned life insurance 22,114 21,853
Premises and equipment, net 20,217 20,343
Foreclosed real estate and other repossesed assets 219 230
Goodwill 55,952 55,924
Intangible assets 4,039 4,165
Accrued interest receivable and other assets 10,219 12,922
---------- ----------
Total assets $1,378,765 $1,385,872
========== ==========
Liabilities
Deposits
Non-interest bearing $ 228,547 $ 223,745
Interest bearing 937,579 933,053
---------- ----------
Total deposits 1,166,126 1,156,798
---------- ----------
Securities sold under agreements to repurchase 13,242 15,618
Short-term borrowings 10,000 46,491
Long-term borrowings 30,000 10,000
Accrued interest payable and other liabilities 14,579 13,772
---------- ----------
Total liabilities 1,233,947 1,242,679
---------- ----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, without par value; 22,500,000 shares authorized;
12,740,407 and 12,810,193 shares issued and outstanding at
March 31, 2004 and December 31, 2003, respectively 5,397 5,397
Capital surplus 73,325 73,231
Retained earnings 77,094 74,710
Accumulated other comprehensive income 3,549 2,434
---------- ----------
159,365 155,772
Less: Treasury stock 14,547 12,579
---------- ----------
Total stockholders' equity 144,818 143,193
---------- ----------
Total liabilities and stockholders' equity $1,378,765 $1,385,872
========== ==========
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
3
Interchange Financial Services Corporation
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
- --------------------------------------------------------------------------------
(dollars in thousands, except per share data)
(unaudited)
2004 2003
------- -------
Interest income
Interest and fees on loans $12,707 $10,857
Interest on federal funds sold 6 63
Interest on interest earning deposits -- 12
Interest and dividends on securities
Taxable interest income 2,650 2,283
Interest income exempt from federal income taxes 269 179
Dividends 39 56
------- -------
Total interest income 15,671 13,450
------- -------
Interest expense
Interest on deposits 2,827 3,407
Interest on securities sold under agreements to repurchase 42 86
Interest on short-term borrowings 70 --
Interest on long-term borrowings 198 105
------- -------
Total interest expense 3,137 3,598
------- -------
Net interest income 12,534 9,852
Provision for loan and lease losses 375 265
------- -------
Net interest income after provision for loan and lease losses 12,159 9,587
------- -------
Non-interest income
Service fees on deposit accounts 842 653
Net gain on sale of securities 514 --
Net gain on sale of loans and leases 76 198
Bank owned life insurance 261 278
Commissions on sale of annuities and mutual funds 212 213
Other 610 502
------- -------
Total non-interest income 2,515 1,844
------- -------
Non-interest expense
Salaries and benefits 4,848 3,628
Occupancy 1,365 928
Furniture and equipment 334 253
Advertising and promotion 393 315
Amortization of intangible assets 126 19
Other 1,851 1,384
------- -------
Total non-interest expense 8,917 6,527
------- -------
Income before income taxes 5,757 4,904
Income taxes 1,771 1,548
------- -------
Net income $ 3,986 $ 3,356
======= =======
Basic earnings per common share $ 0.31 $ 0.34
======= =======
Diluted earnings per common share $ 0.31 $ 0.34
======= =======
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
4
Interchange Financial Services Corporation
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31,
- --------------------------------------------------------------------------------
(dollars in thousands, except per share data)
(unaudited)
Accumulated
Other
Comprehensive Retained Comprehensive Common
Income Earnings Income Stock
-------- -------- ------------- --------
Balance at January 1, 2003 $ 63,314 $ 3,596 $ 5,397
Comprehensive income
Net Income $ 3,356 3,356
Other comprehensive income, net of taxes
Unrealized gains on AFS debt securities 143
Minimum pension liability adjustment (19)
--------
Other comprehensive income 124 124
--------
Comprehensive income $ 3,480
========
Dividends on common stock (1,082)
Issued 20,833 shares of common stock in connection
with Executive Compensation Plan
Exercised 3,740 option shares
-------- -------- --------
Balance at March 31, 2003 65,588 3,720 5,397
Comprehensive income
Net Income $ 13,010 13,010
Other comprehensive income, net of taxes
Unrealized gains on AFS debt securities (617)
Less: realized gains on disposition of securities (820)
Unrealized gains on equity securities 137
Minimum pension liability adjustment 14
--------
Other comprehensive income (1,286) (1,286)
--------
Comprehensive income $ 11,724
========
Dividends on common stock (3,888)
Exercised 55,955 option shares
Issued 2,949,719 shares of common stock in connection with
the acquisition of Bridge View Bancorp
Reacquired 35,959 shares in lieu of non-performing asset
-------- -------- --------
Balance at December 31, 2003 74,710 2,434 5,397
Comprehensive income
Net Income $ 3,986 3,986
Other comprehensive income, net of taxes
Unrealized gains on AFS debt securities 1,402
Less: realized gains on disposition of securities (287)
--------
Other comprehensive income 1,115 1,115
--------
Comprehensive income $ 5,101
========
Dividends on common stock (1,602)
Issued 7,793 shares of common stock in connection
with Executive Compensation Plan
Exercised 7,207 option shares
Purchased 84,786 shares of common stock
-------- -------- --------
Balance at March 31, 2004 $ 77,094 $ 3,549 $ 5,397
======== ======== ========
Capital Treasury
Surplus Stock Total
--------- -------- --------
Balance at January 1, 2003 $ 21,097 $(12,724) $ 80,680
Comprehensive income
Net Income 3,356
Other comprehensive income, net of taxes
Unrealized gains on AFS debt securities
Minimum pension liability adjustment
Other comprehensive income 124
Comprehensive income
Dividends on common stock (1,082)
Issued 20,833 shares of common stock in connection
with Executive Compensation Plan 109 245 354
Exercised 3,740 option shares (28) 38 10
-------- -------- --------
Balance at March 31, 2003 21,178 (12,441) 83,442
Comprehensive income
Net Income 13,010
Other comprehensive income, net of taxes
Unrealized gains on AFS debt securities
Less: realized gains on disposition of securities
Unrealized gains on equity securities
Minimum pension liability adjustment
Other comprehensive income (1,286)
Comprehensive income
Dividends on common stock
Exercised 55,955 option shares (127) 555 428
Issued 2,949,719 shares of common stock in connection with
the acquisition of Bridge View Bancorp 52,180 52,180
Reacquired 35,959 shares in lieu of non-performing asset (693) (693)
-------- -------- --------
Balance at December 31, 2003 73,231 (12,579) 143,193
Comprehensive income
Net Income 3,986
Other comprehensive income, net of taxes
Unrealized gains on AFS debt securities
Less: realized gains on disposition of securities
Other comprehensive income 1,115
Comprehensive income
Dividends on common stock (1,602)
Issued 7,793 shares of common stock in connection
with Executive Compensation Plan 103 102 205
Exercised 7,207 option shares (9) 84 75
Purchased 84,786 shares of common stock (2,154) (2,154)
-------- -------- -------
Balance at March 31, 2004 $ 73,325 $(14,547) $144,818
======== ======== =======
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
5
Interchange Financial Services Corporation
- --------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
- --------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
2004 2003
-------- --------
Cash flows from operating activities
Net income $ 3,986 $ 3,356
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 498 357
Amortization of securities premiums 1,590 776
Accretion of securities discounts (58) (77)
Amortization of premiums in connection with acquisition 375 18
Provision for loan losses 375 265
Increase in cash surrender value of Bank Owned Life Insurance (261) (277)
Origination of Loans available for sale (880) (4,068)
Sale of loans available for sale 941 4,173
Net gain on sale of securities (514) --
Net gain on sale of loans (76) (198)
Net gain on sale of fixed assets -- 10
Net gain on sale of foreclosed assets (14) --
Decrease (increase) in operating assets
Accrued interest receivable 425 (209)
Other 1,074 (725)
(Decrease) increase in operating liabilities
Accrued interest payable (29) 12
Other 836 (49)
-------- --------
Cash provided by operating activities 8,268 3,364
-------- --------
Cash flows from investing activities
(Payments for) proceeds from
Purchase of loans (20,608) --
Net repayments (originations) of loans (15,005) 7,499
Sale of loans 282 1,196
Purchase of securities available-for-sale (2,799) (12,947)
Maturities of securities available-for-sale 21,990 13,893
Sale of securities available-for-sale 44,793 --
Maturities of securities held-to-maturity 1,119 1,311
Purchase of fixed assets (328) (413)
Sale of reposessed assets 59 33
-------- --------
Cash used in investing activities 29,503 10,572
-------- --------
Cash flows from financing activities
Proceeds from (payments for)
Deposits in excess of withdrawals 9,336 25,243
Decrease in short-term debt (18,867) (1,433)
Minimum pension liability, net of taxes -- (19)
Dividends (1,602) (1,082)
Treasury stock (2,154) --
Common stock issued 205 354
Exercise of option shares 75 10
-------- --------
Cash provided by financing activities (13,007) 23,073
-------- --------
Increase in cash and cash equivalents 24,764 37,009
Cash and cash equivalents, beginning of year 31,435 33,916
-------- --------
Cash and cash equivalents, end of period $ 56,199 $ 70,925
======== ========
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 3,168 $ 3,586
Income taxes -- 45
Supplemental disclosure of non-cash investing activities:
Loans transferred to foreclosed real estate and other
repossessed assets 34 54
- --------------------------------------------------------------------------------
See notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
include the accounts of Interchange Financial Services Corporation and its
wholly owned subsidiaries (on a consolidated basis, the "Company") including its
principal operating subsidiary, Interchange Bank (the "Bank"), and have been
prepared in conformity with accounting principles generally accepted in the
United States of America ("GAAP") and in accordance with the rules and
regulations of the Securities and Exchange Commission. Pursuant to such rules
and regulations, certain information or footnotes necessary for a complete
presentation of financial condition, results of operations and cash flows in
conformity with GAAP have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and schedules thereto included in the annual report on Form
10-K of the Company for the year ended December 31, 2003.
The consolidated financial data for the three month periods ended March 31,
2004 and 2003, are unaudited but reflect all adjustments consisting of only
normal recurring adjustments which are, in the opinion of management, considered
necessary for a fair presentation of the financial condition and results of
operations for the interim periods. The results of operations for interim
periods are not necessarily indicative of results to be expected for any other
period or the full year.
Use of estimates: The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The most significant estimates
pertain to the allowance for loan and lease losses, the fair value of financial
instruments, goodwill, intangibles and retirement benefits.
Stock Based Compensation: The Company accounts for stock option plans under the
recognition and measurement principles of Accounting Principles Board ("APB")
Opinion No. 25. "Accounting for Stock Issued to Employees," and related
interpretations. No stock-based employee compensation costs are reflected in net
income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and diluted earnings per
common share if the Company had applied the fair value recognition provisions of
Financial Accounting Standards Board ("FASB") Statement No. 123, " Accounting
for Stock-Based Compensation," to stock-based compensation for the three months
ended March 31, 2004 and 2003: (in thousands, except share data) (unaudited)
7
--------------------------
For the three months ended
March 31,
2004 2003
----------- ----------
Net Income
As reported $ 3,986 $ 3,356
Less: Total stock-based
compensation expense determined
under the fair value method for all
rewards, net of related tax effects 128 84
---------- ----------
Pro-forma $ 3,858 $ 3,272
========== ==========
Earnings per share:
Basic:
As reported 0.31 0.34
Pro forma 0.30 0.33
Diluted:
As reported 0.31 0.34
Pro forma 0.30 0.33
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The following weighted-average
assumptions were used for option grants issued during the three months ended
March 31, 2004: dividend yield of 2.22%; expected volatility of 24.92%;
risk-free interest rate of 3.34%; and expected lives of 7 years. Prior period
assumptions are described in Note 13 "Stock Option and Incentive Plan" in the
Notes to Condensed Consolidated Financial Statements in the Company's 2003
Annual Report on Form 10-K. The effects of applying these assumptions in
determining the pro-forma net income may not be representative of the effects on
pro-forma net income for future years.
2. Acquisition and Pro Forma Disclosure
On April 30, 2003 the Company completed its acquisition of 100% of the
common stock of Bridge View Bancorp ("Bridge View"), a Bergen County-based bank
holding company with eleven locations, which expanded the Company's presence
into eastern Bergen County. The results of Bridge View's operations have been
included in the consolidated financial statements since that date. At April 30,
2003, Bridge View had approximately $291 million of total assets, $184 million
of loans and $259 million of deposits. The aggregate purchase price paid to
Bridge View shareholders was approximately $85.7 million and consisted of
approximately 2.9 million shares of the Company's common stock with an
approximate market value of $52.2 million, based upon the average closing price
over the periods three days prior to and after the
8
acquisition date, and $33.5 million in cash. The transaction was accounted for
as a purchase and the cost in excess of net assets acquired of approximately
$58.7 million was allocated to net identified intangibles of approximately $4.3
million and goodwill of approximately $54.4 million.
The following pro forma condensed consolidated statements of income for
the three months ended March 31, 2003 give effect to the merger as if the merger
had been consummated on January 1, 2003.
The unaudited pro forma information is not necessarily indicative of the
results of operations in the future or the results of operations, which would
have been realized had the merger been consummated during the periods or as of
the dates for which the unaudited pro forma information is presented.
Interchange Financial Services Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
----------------------
2004 2003
------- -------
Pro Forma
Interest income $15,671 $16,637
Interest expense 3,137 4,197
------- -------
Net interest income 12,534 12,440
------- -------
Provision for loan and lease losses 375 280
------- -------
Net interest income after provision
for loan and lease losses 12,159 12,160
Non-interest income 2,515 2,395
Non-interest expense
Salaries and benefits 4,848 4,644
Occupancy and FF&E 1,699 1,630
Other expenses 2,370 2,256
------- -------
8,917 8,530
Net income before taxes 5,757 6,025
Income Taxes 1,771 1,991
------- -------
Net income $ 3,986 $ 4,034
======= =======
Earnings per common share:
Basic 0.31 0.32
Diluted 0.31 0.32
3. Earnings Per Common Share
Basic earnings per common share represents income available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings per common share reflects additional common
shares that would have been outstanding if dilutive potential
9
common shares had been issued, as well as any adjustment to income that would
result from the assumed issuance. Potential common shares that may be issued by
the Company relate solely to outstanding stock options, and are determined using
the treasury stock method.
4. Commitments and Contingent Liabilities
Legal Proceedings
The Company is a party to routine litigation involving various aspects of
its business, none of which, in the opinion of management, is expected to have a
material adverse impact on the consolidated financial condition, results of
operations or liquidity of the Company.
Commitments to Extend Credit
At March 31, 2004, the Company had commitments of approximately $260.3
million to extend credit, of which approximately $2.5 million represents standby
letters of credit.
5. Goodwill and Other Intangibles
With the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), on January 1,
2002, goodwill is no longer amortized to expense, but rather is tested for
impairment periodically. Other intangible assets are amortized to expense using
straight-line methods over their respective estimated useful lives. At least
annually, management reviews goodwill and other intangible assets and evaluates
events or changes in circumstances that may indicate impairment in the carrying
amount of such assets. If the sum of the expected undiscounted future cash
flows, excluding interest charges, is less than the carrying amount of the
asset, an impairment loss is recognized. Impairment, if any, is measured on a
discounted future cash flow basis. Goodwill is reviewed for impairment annually
and on an interim basis when conditions require. If necessary an impairment
charge is recognized in the period that goodwill has been deemed to be impaired.
At the date of adoption, there was no unamortized goodwill.
At March 31, 2004 and December 31, 2003, gross intangible assets amounted
to $4.6 million at the end of each period while accumulated amortization
amounted to $556 thousand and $430 thousand, respectively. Amortization of
intangible assets as a result of acquisitions, which is included in non-interest
expense, amounted to $126 thousand, and $19 thousand for the three months ended
March 31, 2004 and 2003, respectively. During the second quarter of 2003, the
Company recorded a core deposit intangible of $4.3 million in connection with
the Bridge View merger. The core deposit intangible has an estimated life of 10
years and the Company amortized $107 thousand for the three months ended March
31, 2004. The core deposit intangible will be periodically reviewed for
impairment. In addition, the Company recorded goodwill of $54.4 million in
connection with the Bridge View merger. The goodwill will be tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
10
The estimated aggregate annual amortization expense for core deposit intangible
is summarized as follows: (in thousands)
2005 $ 430
2006 430
2007 430
2008 430
2009 430
thereafter 1,429
--------
Total $ 3,579
========
6. Segment Reporting
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"), requires disclosures for each reportable
operating segment. As a community-oriented financial institution, substantially
all of the Company's operations entail the delivery of loan and deposit products
and various other financial services to customers in its primary market area,
which is Bergen County, New Jersey. The Company's community-banking operation
constitutes the Company's only operating segment for financial reporting
purposes under SFAS No. 131.
7. Recent Accounting Pronouncements
On December 23, 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised 2003), Employers' Disclosures about Pensions and
Other Postretirement Benefits ("SFAS 132"). The revised SFAS 132 retains the
disclosure requirements in the original statement and requires additional
disclosures about pension plan assets, benefit obligations, benefit costs and
other relevant information. The Company has included the new interim disclosures
that are required for financial statements for periods ending after December 15,
2003.
8. Cash Dividend
The Company paid a cash dividend of $0.125 per share on February 20, 2004
to holders of record as of January 30, 2004.
9. Securities Held-to-Maturity and Securities Available-for-Sale
Securities held-to-maturity ("HTM") and securities available-for-sale
("AFS") consist of the following: (in thousands)
11
------------------------------------------------
March 31, 2004
------------------------------------------------
(unaudited)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities HTM
Mortgage-backed securities $ 8,824 $ 318 $ 1 $ 9,141
Obligations of states & political subdivisions 9,092 855 -- 9,947
-------- ------ -------- --------
$ 17,916 $1,173 $ 1 $ 19,088
-------- ------ -------- --------
Securities AFS
Mortgage-backed securities $101,439 $1,752 $ 23 $103,168
Obligations of U.S. agencies 223,768 3,716 67 227,417
Obligations of states & political subdivisions 34,034 1,099 30 35,103
Other debt securities -- -- -- --
Equity securities 4,414 137 -- 4,551
-------- ------ -------- --------
363,655 6,704 120 370,239
-------- ------ -------- --------
Total securities $381,571 $7,877 $ 121 $389,327
======== ====== ======== ========
------------------------------------------------
December 31, 2003
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities HTM
Mortgage-backed securities $ 9,850 $ 330 $ 1 $ 10,179
Obligations of states & political subdivisions 9,257 787 -- 10,044
-------- ------ -------- --------
$ 19,107 $1,117 $ 1 $ 20,223
-------- ------ -------- --------
Securities AFS
Obligations of U.S. Treasury $ 6,032 $ 5 $ 2 $ 6,035
Mortgage-backed securities 112,981 1,363 157 114,187
Obligations of U.S. agencies 271,339 2,583 762 273,160
Obligations of states & political subdivisions 33,849 1,257 68 35,038
Equity securities 4,396 137 -- 4,533
-------- ------ -------- --------
428,597 5,345 989 432,953
-------- ------ -------- --------
Total securities $447,704 $6,462 $ 990 $453,176
======== ====== ======== ========
At March 31, 2004, the contractual maturities of securities HTM and securities
AFS are as follows: (in thousands) (unaudited)
12
Securities Securities
HTM AFS
-------------------- ----------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------------- -----------------------
Within 1 year $ 1,150 $ 1,190 $ 19,474 $ 19,510
After 1 but within 5 years 10,130 10,606 296,481 301,833
After 5 but within 10 years 5,667 6,217 31,167 31,786
After 10 years 969 1,075 12,119 12,559
Equity securities -- -- 4,414 4,551
-------------------- ----------------------
Total $17,916 $19,088 $363,655 $370,239
==================== ======================
Proceeds from the sale of securities AFS amounted to $44.8 million for the
three months ended March 31, 2004, which resulted in gross realized gains of
$520 thousand and gross realized losses of $6 thousand. These amounts are
included in net gain on sale of securities in the Consolidated Statements of
Income. There were no sales of securities for the three months ended March 31,
2003.
The investment portfolio is evaluated at least quarterly to determine if
there are any securities with losses that are other than temporary. One criteria
in assessing for an other than temporary impairment charge is if a security has
an unrealized loss that exceeds one year. At March 31, 2004, the Company had
$2.8 million of securities with unrealized losses of $8 thousand that were in
excess of one year. It is expected that the Company will recover all amounts due
under the contractual obligations of those securities and as such, no other than
temporary impairment charge was necessary. The following table summarizes all
securities that have an unrealized loss and the duration of the unrealized loss
at March 31, 2004: (in thousands) (unaudited)
--------------------- --------------------- ---------------------
12 months or less 12 months or longer Totals
--------------------- --------------------- ---------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
--------------------- --------------------- ---------------------
AVAILABLE-FOR-SALE
Obligations of U.S. agencies $39,091 $ 67 -- -- $39,091 $ 67
Mortgage-backed securities 4,467 15 $2,808 $ 8 7,275 23
Obligations of states and
political subdivisions 3,372 30 -- -- 3,372 30
--------------------- --------------------- ---------------------
$46,930 $ 112 $2,808 $ 8 $49,738 $120
===================== ===================== =====================
HELD-TO-MATURITY
Mortgage-backed securities $ 229 $ 1 -- -- $ 229 $ 1
--------------------- --------------------- ---------------------
$ 229 $ 1 $ 0 $ 0 $ 229 $ 1
===================== ===================== =====================
Securities with carrying amounts of $51.1 million and $46.1 million at
March 31, 2004 and December 31, 2003, respectively, were pledged for public
deposits, Federal Home Loan Bank advances, securities sold under repurchase
agreements and other purposes required by law.
13
10. Loans
The composition of the loan portfolio is summarized as follows: (in
thousands)
----------- -----------
March 31, December 31,
2004 2003
----------- -----------
(unaudited)
Amount of loans by type
Real estate-mortgage
1-4 family residential
First liens $119,224 $100,286
Junior liens 3,722 4,138
Home equity 145,085 136,477
Commercial 333,212 330,040
Construction 26,253 31,077
-------- --------
627,496 602,018
-------- --------
Commercial loans
Commercial and financial 160,497 149,462
Lease financing 29,737 28,440
-------- --------
190,234 177,902
-------- --------
Consumer loans
Lease financing 9,794 12,416
Installment 3,762 4,245
-------- --------
13,556 16,661
-------- --------
Total $831,286 $796,581
======== ========
Nonperforming Assets
Nonperforming loans include loans that are accounted for on a nonaccrual
basis and troubled debt restructurings. Nonperforming loans are as follows: (in
thousands)
----------- ------------
March 31, December 31,
2004 2003
----------- ------------
(unaudited)
Nonaccrual loans
Residential real estate $1,502 $1,364
Commercial real estate 1,685 1,603
Commercial and financial 2,808 2,858
Commercial lease financing 1,848 2,365
Consumer 622 380
------ ------
$8,465 $8,570
====== ======
14
11. Allowance for Loan and Lease Losses
The Company's recorded investment in impaired loans is as follows: (in
thousands)
--------------------- ---------------------
March 31, December 31,
2004 2003
--------------------- ---------------------
(unaudited)
Investment Related Investment Related
in Allowance in Allowance
Impaired for Loan Impaired for Loan
Loans Losses Loans Losses
--------------------- ---------- ---------
Impaired loans
With a related allowance for loan losses
Commercial and financial $2,820 $ 429 $2,864 $463
Commercial real estate 1,685 42 1,603 40
Residential mortgages 824 124 816 122
Consumer 205 5 -- --
Without a related allowance for loan losses -- -- -- --
------ ------ ------ ----
$5,534 $ 600 $5,283 $625
====== ====== ====== ====
- --------------------------------------------------------------------------------
The impairment of the above loans was measured based on the fair value of
collateral.
Changes in the allowance for loan and lease losses are summarized as follows:
(in thousands)
-----------------------------
Three months ended March 31,
-----------------------------
2004 2003
------------- -------------
(unaudited)
Balance at beginning of period $9,641 $7,207
Additions (deductions)
Provision for loan and lease losses 375 265
Recoveries on loans previously charged off 36 1
Loans charged off (417) (247)
------------- -------------
Balance at end of year $9,635 $7,226
============= =============
12. Other Non-interest Expense
Expenses included in other non-interest expense which exceed one percent of
the aggregate of total interest income and non-interest income for the periods
noted, are as follows: (in thousands) (unaudited)
15
--------------------------
Three months
ended March 31,
--------------------------
2004 2003
----------- ------
(unaudited)
Professional fees $ 317 $ 204
Data processing 281 193
Directors's fees, retirement
and travel 216 128
Legal Fees 210 80
Other 827 779
------ ------
$1,851 $1,384
====== ======
13. Long-term Borrowings
Long-term borrowings consist of the following FHLB advances: (in
thousands)
Maturity March 31, December 31,
Date Rate 2004 2003
- --------------- ------- ----------- ------------
(unaudited)
January 2006 2.09% $10,000 --
January 2007(a) 4.22 10,000 $10,000
January 2007 2.69 10,000 --
------ ------- -------
3.00% $30,000 $10,000
====== ======= =======
(a) The FHLB has an option to call this advance on a quarterly basis if the
3-month LIBOR resets above 7.50%.
14. Benefit Plans
In 1993, the Bank established a non-contributory defined benefit pension
plan covering all eligible employees (the "Pension Plan"). In 1994, the Bank
established a supplemental plan covering all eligible employees (the
"Supplemental Plan") that provides for income that would have been paid out but
for the limitation under the qualified Pension Plan. Also in 1994, the Company
established a retirement plan for all directors of the Bank who are not
employees of Interchange or of any subsidiary or affiliate of Interchange (the
"Directors' Plan").
The following table shows the aggregated components of net periodic
benefit costs for the periods noted: (in thousands) (unaudited)
16
------------------
Three Months Ended
March 31,
------------------
2004 2003
------- -------
Service Cost $ 166 $ 151
Interest Cost 95 79
Expected return on plan assets (39) (31)
Amortization of prior service cost 1 1
Amortization of net (gain) loss -- --
------ ------
Net periodic benefit cost $ 223 $ 200
====== ======
For the year ended December 31, 2004, the Bank anticipates contributing
approximately $775 thousand to the Pension Plan.
17
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion is an analysis of the consolidated financial
condition and results of operations of the Company for the three month periods
ended March 31, 2004 and 2003, and should be read in conjunction with the
consolidated financial statements and notes thereto included in Item 1 hereof.
In addition, you should read this section in conjunction with Management's
Discussion and Analysis and Results of Operations included in the Company's 2003
Annual Report on Form 10-K.
On April 30, 2003, the Company completed its acquisition of Bridge View
Bancorp ("Bridge View"). Accordingly the results of operations for the three
month period ending March 31, 2004 include the results of Bridge View.
Forward Looking Information
In addition to discussing historical information, certain statements
included in or incorporated into this report relating to the financial
condition, results of operations and business of the Company which are not
historical facts may be deemed "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 other similar
expressions (including when preceded or followed by the word "not") are
generally intended to identify such forward-looking statements. Such statements
are intended to be covered by the safe harbor provisions for forward-looking
statements contained in such Act, and we are including this statement for
purposes of invoking these safe harbor provisions. Such forward-looking
statements include, but are not limited to, statements about the operations of
the Company, the adequacy of the Company's allowance for losses associated with
the loan and lease portfolio, the quality of the loan and lease portfolio, the
prospects of continued loan and deposit growth, and improved credit quality. The
forward-looking statements in this report involve certain estimates or
assumptions, known and unknown risks and uncertainties, many of which are beyond
the control of the Company, 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, reducing interest margins or
increasing interest rate risk; (iii) deterioration in general economic
conditions, internationally, nationally, or in the State of New Jersey; (iv) the
occurrence of acts of terrorism, such as the events of September 11, 2001, or
acts of war; (v) legislation or regulatory requirements or changes adversely
affecting the business of the Company; (vi) losses in the Company's leasing
subsidiary exceeding management's expectations; (vii) expected revenue synergies
from the Company's acquisition of Bridge View may not be fully realized or
realized within the expected time frame; (viii) revenues following the Company's
acquisition of Bridge View may be lower than expected; (ix) deposit attrition,
operating costs, customer loss and business disruption following the Company's
18
acquisition of Bridge View, including, without limitation, difficulties in
maintaining relationships with employees, may be greater than expected and (x)
other risks detailed in reports filed by the Company with the Securities and
Exchange Commission. 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 to be no longer
accurate, whether as a result of new information, what actually happens in the
future or for any other reason.
Company
The Company is a bank holding company headquartered in Bergen County, New
Jersey. The Company's principal operating subsidiary is Interchange Bank, a New
Jersey-chartered commercial bank. In addition to the Bank, the Company has one
other wholly owned direct subsidiary: Clover Leaf Mortgage Company, a New Jersey
corporation, which is not currently engaged in any business activity. The Bank
has five direct subsidiaries: Clover Leaf Investment Corporation, an investment
company operating pursuant to New Jersey law; Clover Leaf Insurance Agency,
Inc., a New Jersey corporation engaged in the sale of tax-deferred annuities and
insurance; Clover Leaf Management Realty Corporation, a Real Estate Investment
Trust ("REIT"), which manages certain real estate assets of the Company; Bridge
View Investment Company, an investment company operating pursuant to New Jersey
law; and Interchange Capital Company, L.L.C. ("ICC"), a New Jersey limited
liability company which engages in equipment lease financing. All of the Bank's
subsidiaries are 100% owned by the Bank, except for the REIT, which is 99% owned
by the Bank. Bridge View Investment Company has one wholly owned subsidiary,
Bridge View Delaware, Inc. ("BVDI"). BVDI is an investment company operating
pursuant to Delaware law.
Critical Accounting Policies and Judgments
The Company's consolidated financial statements are prepared based on the
application of certain accounting policies, the most significant of which are
described in Note 1 "Accounting Policies in the Notes to Consolidated Financial
Statements and in the Management's Discussion and Analysis of Financial
Condition and Results of Operations: Critical Accounting Policies and
Judgements" in our 2003 Annual Report on Form 10-K. Certain of these policies
require numerous estimates and strategic or economic assumptions that may prove
inaccurate or subject to variations and may significantly affect the Company's
reported results and financial position for the period or in future periods. The
use of estimates, assumptions, and judgments are necessary when financial assets
and liabilities are required to be recorded at, or adjusted to reflect, fair
value. Assets and liabilities carried at fair value inherently result in more
financial statement volatility. Fair values and the information used to record
valuation adjustments for certain assets and liabilities are based on either
quoted market prices or are provided by other independent third-party sources,
when available. When such information is not available, management estimates
valuation adjustments primarily by using internal cash flow and other financial
modeling techniques. Changes in underlying factors, assumptions, or estimates in
any of these areas could have a material impact on the Company's future
financial condition and results of operations.
19
Allowance for Loan and Lease Losses: The ALLL is generally established through
periodic charges to income. Loan losses are charged against the ALLL when
management believes that the probable future collection of principal is
unlikely. Subsequent recoveries, if any, are credited to the ALLL. If the ALLL
is considered inadequate to absorb future loan losses on existing loans, based
on, but not limited to, increases in the size of the loan portfolio, increases
in charge-offs or changes in the risk characteristics of the loan portfolio,
then the provision for loan and lease losses is increased.
The Company considers the ALLL of $9.6 million adequate to cover estimated
losses inherent in the loan portfolio that may become uncollectible based on
management's periodic evaluations of the loan portfolio and other relevant
factors. The evaluations are inherently subjective as it requires material
estimates including such factors as potential loss factors, changes in trend of
non-performing loans, current state of local and national economy, value of
collateral changes in the composition and volume of the loan portfolio, review
of specific problem loans and management's assessment of the inherent risk and
overall quality of the loan portfolio. All of these factors may be susceptible
to significant change. Also, the allocation of the allowance for credit losses
to specific loan pools is based on historical loss trends and management's
judgment concerning those trends.
Business Combinations: Business combinations are accounted for using the
purchase method of accounting, the net assets of the companies acquired are
recorded at their estimated fair value at the date of acquisition and include
the results of operations of the acquired business from the date of acquisition.
The excess of the purchase price over the estimated fair value of the net assets
acquired is recognized as goodwill.
Goodwill: With the adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"), on January 1, 2002, goodwill is no longer amortized to
expense, but rather is tested for impairment periodically. Other intangible
assets are amortized to expense using straight-line methods over their
respective estimated useful lives. At least annually, management reviews
goodwill and other intangible assets and evaluates events or changes in
circumstances that may indicate impairment in the carrying amount of such
assets. If the sum of the expected undiscounted future cash flows, excluding
interest charges, is less than the carrying amount of the asset, an impairment
loss is recognized. Impairment, if any, is measured on a discounted future cash
flow basis. Goodwill is reviewed for impairment annually and on an interim basis
when conditions require. If necessary, an impairment charge is recognized in the
period that goodwill has been deemed to be impaired. At the date of adoption,
there was no unamortized goodwill.
20
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
RESULTS OF OPERATIONS
Summary
On April 30, 2003, the Company completed its acquisition of Bridge View.
Accordingly the results of operations for the three month period ending March
31, 2004 include the results of Bridge View.
Net income for the three months ended March 31, 2004 was approximately $4.0
million, an increase of $0.6 million, or 18.8%, over the same period last year.
The increase in earnings resulted from the acquisition of Bridge View during the
second quarter of 2003 and an increase in non-interest income. For the first
quarter of 2004, the Company reported earnings per diluted common share of
$0.31, as compared to $0.34 for the same period in 2003. The decline in diluted
earnings per share was a result of a compression in the net interest margin as
compared to the first quarter in 2003 and an increase in average diluted shares
outstanding as a result of the Bridge View transaction.
For the three months ended March 31, 2004 and 2003, the Company's Return
on Average Assets ("ROA") was 1.16% and 1.42%, respectively. The change in ROA
for the quarter was a result of a decline in net interest margin. Return on
Average Equity ("ROE") was 11.13% a decline from 16.38% when compared to the
same period last year. ROE declined principally due to an increase in equity as
a result of the acquisition of Bridge View and, to a lesser extent, compression
in net interest margin.
Net Interest Income
Net interest income is the most significant source of the Company's
operating income. A portion of the Company's total interest income is derived
from investments that are exempt from federal taxation. The amount of pretax
income realized from those investments, due to the tax exemption, is less than
the amount of pretax income realizable from comparable investments subject to
federal taxation. For purposes of the following discussion, interest income
exempt from federal taxation has been restated to a fully tax-equivalent basis
using the corporate federal tax rate of 34% for the three months ended March 31,
2004 and 2003. This was accomplished by adjusting this income upward to make it
equivalent to the level of taxable income required to earn the same amount after
taxes.
Net interest income on a tax-equivalent basis increased $2.7 million, or
27.5%, to $12.7 million for the quarter ended March 31, 2004 as compared to the
same quarter in 2003. The tax equivalent basis adjustments for the quarters
ended March 31, 2004 and 2003, were $160 thousand and $108 thousand,
respectively. The increase in net interest income was due mostly to a 40.0%
growth in interest earning assets. This interest earning asset growth was funded
primarily by deposit liabilities, which grew 40.4% on average for the first
quarter of 2004 as compared to the same quarter in 2003. The growth in interest
earning assets and deposits were primarily attributed to the acquisition and the
Company's internal growth. The Company's average deposits grew 11.0%
organically. The margin for the first quarter of 2004 was 4.11%, a decline of 40
basis points as compared to the same quarter in 2003 due to earning
21
asset yields declining faster than the Company's cost of funds. The decline in
asset yields was mainly attributable to maturities and prepayments in the loan
and securities portfolio, while the Company's deposit pricing reached historical
lows and appears to have become inelastic. However, we would anticipate that as
market interest rates rise we would experience assets repricing more quickly, at
least in the short-term, as deposit pricing typically lags increases in market
rates.
Interest income, on a tax-equivalent basis, totaled $15.8 million for the
first quarter of 2004, an increase of $2.3 million, or 16.8%, as compared to the
same quarter in 2003. The increase was mostly attributed to a $352.9 million, or
40.0%, growth in interest earning assets. The growth in interest earning assets
was the result of increases in average loans and average investments of $192.1
million and $184.2 million, respectively. The increase in interest income was
partly offset by a 101 basis point decline in interest earning asset yields for
the first quarter of 2004 as compared to the same quarter in 2003. The decline
in interest earning asset yields was largely attributed to the historically low
market interest rate environment.
Interest expense, which totaled $3.1 million for the first quarter of
2004, decreased $461 thousand, or 12.8%, as compared to the same period in 2003.
The decrease in interest expense was a byproduct of the decline in market
interest rates, particularly short-term rates, during 2003. In addition, a
beneficial shift in the composition of the Company's deposits, which is
discussed further in the analysis of financial condition below, also had a
favorable impact on the Company's interest expense. The improved deposit mix
combined with lower short-term interest rates reduced the average rate paid on
interest bearing liabilities by 71 basis points to 1.26% for the quarter ended
March 31, 2004 as compared to the same period in 2003. The magnitude of the
benefit derived from the decrease in rates paid on interest bearing liabilities
was partially reduced by the positive growth of deposits. Interest bearing
deposits grew on average $227.6 million, or 32.2%, for the first quarter of 2004
as compared to the same period in 2003.
22
- --------------------------------------------------------------------------------
Analysis of Net Interest Income
- --------------------------------------------------------------------------------
for the quarter ended March 31,
(dollars in thousands)
(unaudited)
2004 2003
----------------------------------- ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- --------- ------- -------- -------- -------
Assets
Interest earning assets:
Loans (1) $ 806,387 $ 12,748 6.32% $614,301 $10,897 7.10%
Taxable securities (4) 397,591 2,689 2.71 221,386 2,339 4.23
Tax-exempt securities (2) (4) 28,898 388 5.37 20,940 247 4.72
Interest earning deposits 12 -- -- 4,333 12 1.11
Federal funds sold 2,507 6 0.96 21,585 63 1.17
----------- --------- ---- -------- ------- ----
Total interest-earning assets 1,235,395 15,831 5.13 882,545 13,558 6.14
--------- -------
Non-interest earning assets:
Cash and due from banks 35,547 22,167
Allowance for loan and lease losses (9,636) (7,207)
Other assets 118,933 47,958
----------- --------
Total assets $ 1,380,239 $945,463
=========== ========
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest bearing deposits $ 933,522 2,827 1.21 $705,960 3,407 1.93
Borrowings 65,364 310 1.90 26,229 191 2.90
----------- --------- ---- -------- ------- ----
Total interest-bearing liabilities 998,886 3,137 1.26 732,189 3,598 1.97
--------- -------
Non-interest bearing liabilities
Demand deposits 224,100 118,779
Other liabilities 14,013 12,521
----------- --------
Total liabilities (3) 1,236,999 863,489
Stockholders' equity 143,240 81,974
----------- --------
Total liabilities and stockholders' equity $ 1,380,239 $945,463
=========== ========
Net interest income (tax-equivalent basis) 12,694 3.87 9,960 4.17
Tax-equivalent basis adjustment (160) (108)
--------- -------
Net interest income $ 12,534 $ 9,852
========= =======
Net interest income as a percent of interest-
earning assets (tax-equivalent basis) 4.11% 4.51%
- --------------------------------------------------------------------------------
(1) Nonaccrual loans and any related interest recorded have been included in
computing the average rate earned on the loan portfolio. When applicable, tax
exempt loans are computed on a fully taxable equivalent basis using the
corporate federal tax rate of 34%.
(2) Computed on a fully taxable equivalent basis using the corporate federal tax
rate of 34%.
(3) All deposits are in domestic bank offices.
(4) The average balances are based on historical cost and do not reflect
unrealized gains or losses.
Provision for Loan and Lease Losses
The provision for loan and lease losses represents management's
calculation of the amount necessary to bring the allowance for loan and lease
losses ("ALLL") to a level that management considers adequate to reflect the
risk of estimated losses inherent in the Company's loan portfolio as of the
balance sheet date. A more detailed discussion of the evaluation of the ALLL can
be found in the section titled "Critical Accounting Policies and Judgements:
Allowance for Loan and Lease Losses" above. In the first quarter of 2004 and
2003, the Company's provision for loan and lease losses was $375 thousand and
$265 thousand, respectively.
23
Non-interest Income
For the quarter ended March 31, 2004, non-interest income totaled $2.5
million, an increase of $671 thousand, or 36.4%, as compared to the same period
in 2003. The improvement in non-interest income, excluding net gains from the
sales of securities, was mostly due to increases in service charges on deposits
and "other" non-interest income of $189 thousand and $108 thousand,
respectively. The growth in service charges on deposits was mostly due to the
acquisition.
During the quarter, the Company recognized net gains on the sale of
securities of $514 thousand while there were no gains recorded for the same
period in 2003. The funds generated from the sales of securities were mainly
utilized to fund loan growth.
Non-interest Expense
For the quarter ended March 31, 2004, non-interest expense was $8.9 million
an increase of $2.4 million, or 36.6%, when compared to the same period one year
ago. The increase was due largely to the additional operating costs resulting
from the merger with Bridge View. Also contributing to the increase were normal
increases related to salaries, benefits and occupancy expense.
Income Taxes
Income tax expense as a percentage of pre-tax income was 30.8% for the
three months ended March 31, 2004 as compared to 31.6% for the first quarter of
2003.
24
FINANCIAL CONDITION
Cash and Cash Equivalents
At March 31, 2004, cash and cash equivalents increased $24.8 million to
$56.2 million as compared to December 31, 2003. This was primarily attributed to
federal funds sold increasing to $20.7 million while the Company was in a net
borrowing position at December 31, 2003.
Securities Portfolio
Under Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), each security
is classified as either trading, available for sale ("AFS"), or held to maturity
("HTM"). The Company has no securities held in a trading account. The securities
AFS are recorded at their estimated fair value. The after-tax difference between
amortized cost and estimated fair value of securities AFS is recorded as
"accumulated other comprehensive income" in the equity section of the balance
sheet. The tax impact of such adjustment is recorded as an adjustment to the
amount of the deferred tax liability. The securities HTM are carried at cost
adjusted for the amortization of premiums and accretion of discounts, which are
recognized as an adjustment to income. Under SFAS No. 115, securities HTM, with
some exceptions, may only be sold within three months of maturity.
The Company uses its securities portfolio to ensure liquidity for cash
flow requirements, to manage interest rate risk, provide a source of income,
ensure collateral is available for pledging requirements and manage asset
quality diversification. At March 31, 2004, investment securities totaled $388.2
million and represented 28.2% of total assets, as compared to $452.1 million and
32.6%, respectively, at December 31, 2003. Securities AFS comprised 95.4% of the
total securities portfolio at March 31, 2004 as compared to 95.8% at December
31, 2003. During the first quarter of 2004, the Company sold securities with a
book value of approximately $44.3 million and recognized $520 thousand in gross
gains and $6 thousand in gross losses. There were no sales of securities during
the first quarter of 2003.
25
The following table reflects the composition of the securities portfolio:
(dollars in thousands)
----------------------------------------------
March 31, 2004
----------------------------------------------
(unaudited)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities HTM
Mortgage-backed securities $ 8,824 $ 318 $ 1 $ 9,141
Obligations of states & political
subdivisions 9,092 855 -- 9,947
-------- ------ -------- --------
$ 17,916 $1,173 $ 1 $ 19,088
======== ====== ======== ========
Securities AFS
Mortgage-backed securities $101,439 $1,752 $ 23 $103,168
Obligations of U.S. agencies 223,768 3,716 67 227,417
Obligations of states & political
subdivisions 34,034 1,099 30 35,103
Equity securities 4,414 137 -- 4,551
-------- ------ -------- --------
363,655 6,704 120 370,239
-------- ------ -------- --------
Total securities $381,571 $7,877 $ 121 $389,327
======== ====== ======== ========
----------------------------------------------
December 31, 2003
----------------------------------------------
(unaudited)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities HTM
Mortgage-backed securities $ 9,850 $ 330 $ 1 $ 10,179
Obligations of states & political
subdivisions 9,257 787 -- 10,044
-------- ------ -------- --------
$ 19,107 $1,117 $ 1 $ 20,223
======== ====== ======== ========
Securities AFS
Obligations of U.S. Treasury $ 6,032 $ 5 $ 2 $ 6,035
Mortgage-backed securities 112,981 1,363 157 114,187
Obligations of U.S. agencies 271,339 2,583 762 273,160
Obligations of states & political
subdivisions 33,849 1,257 68 35,038
Equity securities 4,396 137 -- 4,533
-------- ------ -------- --------
428,597 5,345 989 432,953
-------- ------ -------- --------
Total securities $447,704 $6,462 $ 990 $453,176
======== ====== ======== ========
At March 31, 2004, the contractual maturities of securities HTM and
securities AFS are as follows: (dollars in thousands) (unaudited)
26
Securities Securities
HTM AFS
-------------------- --------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------- --------------------
Within 1 year $ 1,150 $ 1,190 $ 19,474 $ 19,510
After 1 but within 5 years 10,130 10,606 296,481 301,833
After 5 but within 10 years 5,667 6,217 31,167 31,786
After 10 years 969 1,075 12,119 12,559
Equity securities -- -- 4,414 4,551
------------------ --------------------
Total $17,916 $19,088 $363,655 $370,239
================== ====================
Loans
Total loans amounted to $831.3 million at March 31, 2004, an increase of
$34.7 million from $796.6 million at December 31, 2003. The growth was
predominately in residential mortgage loans which increased $27.1 million. Also
contributing to the increase were commercial and financial loans and commercial
mortgages which increased $11.0 million and $3.2 million, respectively for the
three month period ended March 31, 2004. Somewhat offsetting the aforementioned
increases were decreases in construction loans and consumer leases of $4.8
million and $2.6 million, respectively.
The following table reflects the composition of the loan and lease
portfolio: (dollars in thousands)
----------- ------------
March 31, December 31,
2004 2003
----------- ------------
(unaudited)
Amount of loans by type
Real estate-mortgage
Residential $268,031 $240,901
Commercial 333,212 330,040
Construction 26,253 31,077
-------- --------
627,496 602,018
-------- --------
Commercial loans
Commercial and financial 160,497 149,462
Lease financing 29,737 28,440
-------- --------
190,234 177,902
-------- --------
Consumer loans
Lease financing 9,794 12,416
Installment 3,762 4,245
-------- --------
13,556 16,661
-------- --------
Total $831,286 $796,581
======== ========
27
Nonperforming Assets
Nonperforming assets are comprised of nonaccrual loans, restructured
loans, foreclosed real estate and other repossessed assets. With the completion
of the Bridge View acquisition, the Company's, nonperforming assets at March 31,
2004 amounted to $8.7 million as compared to $8.8 million at December 31, 2003.
The ratio of nonperforming assets to total loans and foreclosed real estate and
other repossessed assets decreased to 1.04% at March 31, 2004 from 1.10% at
December 31, 2003.
The following table lists nonaccrual loans, restructured loans and
foreclosed real estate and other repossessed assets at March 31, 2004, and
December 31, 2003: (dollars in thousands)
----------- ------------
March 31, December 31,
2004 2003
----------- ------------
(unaudited)
Nonperforming loans $8,465 $8,570
Foreclosed real estate and
other repossessed assets 219 230
------ ------
$8,684 $8,800
====== ======
Allowance for Loan and Lease Losses
The ALLL is generally established through periodic charges to income.
During the three months ended March 31, 2004, the ALLL remained relatively
stable at $9.6 million. Loan losses are charged against the ALLL when management
believes that the probable future collection of principal is unlikely.
Subsequent recoveries, if any, are credited to the ALLL. If the ALLL is
considered inadequate to absorb future loan losses on existing loans, based on,
but not limited to, increases in the size of the loan portfolio, increases in
charge-offs or changes in the risk characteristics of the loan portfolio, then
the provision for loan and lease losses is increased.
The Company considers the ALLL of $9.6 million adequate to cover estimated
losses inherent in the loan portfolio that may become uncollectible based on
management's periodic evaluations of the loan portfolio and other relevant
factors. The evaluations are inherently subjective as they require material
estimates including such factors as potential loss factors, changes in trend of
non-performing loans, current state of local and national economy, value of
collateral changes in the composition and volume of the loan portfolio, review
of specific problem loans and management's assessment of the inherent risk and
overall quality of the loan portfolio. All of these factors may be susceptible
to significant change. Also, the allocation of the allowance for credit losses
to specific loan pools is based on historical loss trends and management's
judgment concerning those trends.
28
The following table presents the provisions for loan and lease losses,
loans charged off and recoveries on loans previously charged off, the amount of
the allowance, the average loans outstanding and certain pertinent ratios for
the three months ended March 31, 2004 and 2003: (dollars in thousands)
(unaudited)
Three months ended
March 31,
----------------------
2004 2003
-------- ---------
Average loans outstanding $806,387 $614,301
======== ========
Allowance at beginning of period 9,641 7,207
-------- --------
Loans charged off
Real estate 67 --
Commercial and financial 55 25
Commercial lease financing 277 208
Consumer loans 18 14
-------- --------
Total 417 247
-------- --------
Recoveries of loans previously charged off
Real Estate -- --
Commercial and financing -- --
Commercial lease financing 36 --
Consumer loans -- 1
-------- --------
Total 36 1
-------- --------
Additions due to merger -- --
Provision for loan and lease losses 375 265
-------- --------
Allowance at end of period $ 9,635 $ 7,226
======== ========
Allowance to total loans (end of period) 1.16% 1.19%
Ratio of net charge-offs to average loans (annualized) 0.19% 0.16%
Deposits
Deposits, which include non-interest-bearing demand deposits, time
deposits and other interest-bearing deposits are an essential and cost-effective
funding source for the Company. The Company attributes its success in growing
deposits to the emphasis it places on building core customer relationships by
offering a variety of products designed to meet the financial needs of its
customers based on their identifiable "life stages".
At March 31, 2004, total deposits increased $9.3 million, or 0.8%,
remaining relatively stable at $1.2 billion at December 31, 2003. We benefited
from a change in the mix as we experienced a growth in core deposits (non time
deposits) of $14.9 million, or 1.7%, while time deposits decreased $5.6 million,
or 2.0%, respectively, at March 31, 2004 as compared to December 31, 2003. Other
interest-bearing deposits, which include interest-bearing demand, money market
and savings accounts, comprise the largest segment of the Company's total
deposits. At March 31, 2004, such deposits amounted to $661.2
29
million representing 56.7% of total deposits compared to 56.3% of total deposits
at December 31, 2003. The growth in core deposits was due to increases in
interest bearing demand, money market savings and non-interest demand of $8.3
million, $4.8 million and $4.8 million, respectively, offset somewhat by a
decrease in savings accounts of $3.0 million. Time deposits amounted to $276.4
million, or 23.7%, of total deposits at March 31, 2004, as compared to $282.0
million, or 24.4%, at December 31, 2003.
For the three months ended March 31, 2004, the Company's overall yield on
deposits declined by 72 basis points from 1.93% to 1.21%, as compared to the
same period last year. The decrease was attributed predominately to changes in
market interest rates and a change in the composition of deposit liabilities.
The following table reflects the composition of deposit liabilities:
(dollars in thousands)
----------- ---------
March 31, March 31,
2004 2003
----------- ---------
(Unaudited)
Non-interest Demand $ 228,547 $118,218
Interest Bearing Demand 455,098 332,322
Savings 117,121 83,873
Money Market Savings 88,997 65,617
Time Deposits <$100,000 260,446 221,492
Time Deposits >$100,000 15,917 19,393
---------- --------
Total $1,166,126 $840,915
========== ========
30
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Market risk is generally described as the sensitivity of income to adverse
changes in interest rates, foreign currency exchange rates, commodity prices,
and other relevant market rates or prices. Market rate sensitive instruments
include: financial instruments such as investments, loans, mortgage-backed
securities, deposits, borrowings and other debt obligations; derivative
financial instruments, such as futures, forwards, swaps and options; and
derivative commodity instruments, such as commodity futures, forwards, swaps and
options that are permitted to be settled in cash or another financial
instrument.
The Company does not have any material exposure to foreign currency
exchange rate risk or commodity price risk. The Company did not enter into any
market rate sensitive instruments for trading purposes nor did it engage in any
trading or hedging transactions utilizing derivative financial instruments
during the first three months of 2004. The Company's real estate loan portfolio,
concentrated primarily in northern New Jersey, is subject to risks associated
with the local and regional economies. The Company's primary source of market
risk exposure arises from changes in market interest rates ("interest rate
risk").
Interest Rate Risk
Interest rate risk is generally described as the exposure to potentially
adverse changes in current and future net interest income resulting from:
fluctuations in interest rates; product spreads; and imbalances in the repricing
opportunities of interest-rate-sensitive assets and liabilities. Therefore,
managing the Company's interest rate sensitivity is a primary objective of the
Company's senior management. The Company's Asset/Liability Committee ("ALCO") is
responsible for managing the exposure to changes in market interest rates. ALCO
attempts to maintain stable net interest margins by periodically evaluating the
relationship between interest-rate-sensitive assets and liabilities. The
evaluation, which is performed at least quarterly and presented to the Board,
attempts to determine the impact on net interest margin from current and
prospective changes in market interest rates.
The Company manages interest rate risk exposure with the utilization of
financial modeling and simulation techniques. These methods assist the Company
in determining the effects of market rate changes on net interest income and
future economic value of equity. The objective of the Company is to maximize net
interest income within acceptable levels of risk established by policy. The
techniques utilized for managing exposure to market rate changes involve a
variety of interest rate, pricing and volume assumptions. These assumptions
include projections on growth, prepayment and withdrawal levels as well as other
embedded options inherently found in financial instruments. The Company reviews
and validates these assumptions at least annually or more frequently if economic
or other conditions change. At March 31, 2004, the Company simulated the effects
on net interest income given an instantaneous and parallel shift in the yield
curve of up to a 200 basis point rising interest rate environment and a 100
basis point declining interest rate environment. Based on that simulation, it
was estimated that net interest income, over a twelve-month horizon, would not
decrease by more than 5.6%. At March 31, 2004, the Company was within policy
limits established by the board of directors for changes in net interest income
and future economic value of equity. The following table illustrates the effects
on net interest income given
31
an instantaneous and parallel shift in the yield curve of up to a 200 basis
point rising interest rate environment and a 100 basis point declining interest
rate environment: (unaudited)
Net Interest Income Sensitivity Simulation
Percentage Change in Estimated Net Interest
Income over a twelve month horizon
-------------------------------------------
March 31,
2004 2003
------------ -------------
+200 basis points -5.6% -1.3%
+100 basis points -1.7 0.7
- -100 basis points -4.8 -6.7
The simulation described above does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including: the
nature and timing of interest rate levels including yield curve shape;
prepayments on loans and securities; deposit decay rates; pricing decisions on
loans and deposits; reinvestment/replacement of asset and liability cashflows;
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change.
Further, as market conditions vary from those assumed in the simulation,
actual results will also differ due to: prepayment/refinancing levels deviating
from those assumed; the varying impact of interest rate changes on caps or
floors on adjustable rate assets; the potential effect of changing debt service
levels on customers with adjustable rate loans; depositor early withdrawals and
product preference changes; and other internal/external variables. Furthermore,
the simulation does not reflect actions that ALCO might take in response to
anticipated changes in interest rates or competitive conditions in the market
place.
In addition to the above-mentioned techniques, the Company utilizes
sensitivity gap analysis as an interest rate risk measurement. Sensitivity gap
is determined by analyzing the difference between the amount of interest-earning
assets maturing or repricing within a specific time period and the amount of
interest bearing liabilities maturing or repricing within that same period of
time. Sensitivity gap analysis
32
provides an indication of the extent to which the Company's net interest income
may be affected by future changes in market interest rates. The cumulative gap
position expressed as a percentage of total assets provides one relative measure
of the Company's interest rate exposure.
The cumulative gap between the Company's interest-rate-sensitive assets
and its interest-rate-sensitive liabilities repricing within a one-year period
was a negative 11.06% at March 31, 2004. Since the cumulative gap was negative,
the Company has a "negative gap" position, which theoretically will cause its
assets to reprice more slowly than its deposit liabilities. In a declining
interest rate environment, interest costs may be expected to fall faster than
the interest received on earning assets, thus increasing the net interest
spread. If interest rates increase, a negative gap means that the interest
received on earning assets may be expected to increase more slowly than the
interest paid on the Company's liabilities therefore decreasing the net interest
spread.
Capital Adequacy
The Company is subject to capital adequacy requirements imposed by the
Board of Governors of the Federal Reserve System (the "Federal Reserve"); and
the Bank is subject to similar capital adequacy requirements imposed by the
Federal Deposit Insurance Corporation (the "FDIC"). The Federal Reserve and the
FDIC have adopted risk-based capital requirements for assessing bank holding
company and bank capital adequacy. These standards define capital and establish
minimum capital requirements in relation to assets and off-balance sheet
exposure, adjusted for credit risk. The risk-based capital standards currently
in effect are designed to make regulatory capital requirements more sensitive to
differences in risk profiles among bank holding companies and banks, to account
for off-balance sheet exposure and to minimize disincentives for holding liquid
assets. Assets and off-balance sheet items are assigned to broad risk
categories, each with appropriate relative risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
offbalance sheet items.
A banking organization's total qualifying capital includes two components:
core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core
capital, which must comprise at least half of total capital, includes common
shareholders' equity, qualifying perpetual preferred stock, trust preferred
securities (subject to certain limitations) and minority interests, less
goodwill and any unrealized gains or losses. Supplementary capital includes the
allowance for loan losses (subject to certain limitations), other perpetual
preferred stock, trust preferred securities that exceed Tier 1 limits, certain
other capital instruments and term subordinated debt. Total capital is the sum
of core and supplementary capital.
At March 31, 2004, the minimum risk-based capital requirements to be
considered adequately capitalized were 4% for Tier 1 capital and 8% for total
capital.
Federal banking regulators have also adopted leverage capital guidelines
to supplement the risk-based measures. The leverage ratio is determined by
dividing Tier 1 capital as defined under the risk-based guidelines by average
total assets (non risk-adjusted) for the preceding quarter. At March 31, 2004,
the minimum leverage ratio requirement to be considered adequately capitalized
was 3%.
33
The capital levels of the Company and the Bank at March 31, 2004, and the
two highest capital adequacy levels recognized under the guidelines established
by the federal banking agencies are included in the following table. The
Company's and the Bank's ratios all exceeded the well-capitalized guidelines
shown in the table.
The Company's and the Bank's capital amounts and ratios are as follows:
(dollars in thousands)
To Be "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- -------- ------ ------- -----
As of March 31, 2004: (unaudited)
Total Capital (to Risk Weighted Assets):
The Company $92,264 10.32% $71,522 8.00% N/A N/A
The Bank 91,411 10.20% 71,680 8.00% 89,600 10.00%
Tier 1 Capital (to Risk Weighted Assets):
The Company 82,489 9.23% $35,761 4.00% N/A N/A
The Bank 81,636 9.11% 35,840 4.00% 53,760 6.00%
Tier 1 Capital (to Average Assets):
The Company 82,489 6.21% $39,825 3.00% N/A N/A
The Bank 81,636 6.20% 39,526 3.00% 65,877 5.00%
As of December 31, 2003:
Total Capital (to Risk Weighted Assets):
The Company $91,694 10.46% $70,146 8.00% N/A N/A
The Bank 91,358 10.35% 70,637 8.00% $88,296 10.00%
Tier 1 Capital (to Risk Weighted Assets):
The Company 81,913 9.34% 35,073 4.00% N/A N/A
The Bank 81,576 9.24% 35,319 4.00% 52,978 6.00%
Tier 1 Capital (to Average Assets):
The Company 81,913 6.24% 39,367 3.00% N/A N/A
The Bank 81,576 6.22% 39,318 3.00% 65,530 5.00%
Liquidity
Liquidity is the ability to provide sufficient resources to meet all
current financial obligations and finance prospective business opportunities.
The Company's liquidity position over any given period of time is a product of
its operating, financing and investing activities. The extent of such activities
is often shaped by such external factors as competition for deposits and demand
for loans.
The Company's most liquid assets are cash and cash equivalents. At March
31, 2004, the total of such assets amounted to $56.2 million, or 4.1%, of total
assets, compared to $31.4 million, or 2.3%, of total assets at December 31,
2003. The increase in cash and cash equivalents was due largely to the sales of
securities, deposit growth and loan prepayments, which produced funds that were
placed in federal funds sold or interest earning deposits pending investment in
loans and securities.
Financing for the Company's loans and investments is derived primarily
from deposits, along with interest and principal payments on loans and
investments. At March 31, 2004 and December 31, 2003, total deposits amounted to
$1.2 billion. In addition, the Company supplemented the more traditional funding
sources with borrowings from the Federal Home Loan Bank of New York ("FHLB") and
with securities sold under agreements to repurchase ("REPOS"). At March 31,
2004, advances from the FHLB
34
and REPOS amounted to $40.0 million and $13.2 million, respectively, as compared
to $56.5 million and $15.6 million, respectively, at December 31, 2003.
Net loans and leases at March 31, 2004 amounted to $821.7 million, an
increase of $34.7 million, from $786.9 million at December 31, 2003. Another
significant liquidity source is the Company's securities portfolio. Total
securities at March 31, 2004 amounted to $388.2 million, a decrease of $63.9
million, from $452.1 million at December 31, 2003. At March 31, 2004 securities
AFS amounted to $370.2 million, or 95.4%, of total securities compared to $433.0
million, or 95.8%, of total securities at December 31, 2003.
In addition to the aforementioned sources of liquidity, the Company has
available various other sources of liquidity, including federal funds purchased
from other banks and the Federal Reserve discount window. The Bank also has a
$96.3 million line of credit available through its membership in the FHLB.
The Company is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These instruments, which include commitments to extend credit and standby
letters of credit, involve, to a varying degree, elements of credit and interest
rate risk in excess of the amount recognized in the Condensed Consolidated
Balance Sheets. Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates and may require
collateral from the borrower if deemed necessary by the Company. Standby letters
of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party up to a stipulated amount and with
specified terms and conditions. Commitments to extend credit and standby letters
of credit are not recorded on the Company's condensed consolidated balance sheet
until the instrument is exercised. At March 31, 2004 outstanding commitments to
fund loans totaled $260.3 million and outstanding standby letters of credit
totaled $2.5 million.
The Company historically paid quarterly cash dividends and anticipates
continuing paying quarterly dividends in the future. The Company could, if
necessary, modify the amount or frequency, of dividends as an additional source
of liquidity. There are imposed dividend restrictions on the Bank, which are
described in Note 18 "Restrictions of Subsidiary Bank Dividends" in the Notes to
Consolidated Financial Statements in the Company's 2003 Annual Report on Form
10-K. Management believes that the Company has sufficient cash flow and
borrowing capacity to fund all outstanding commitments and letters of credit and
to maintain proper levels of liquidity.
35
Item 4. Controls and Procedures
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934
(the "Exchange Act"), as of the end of the quarter ended March 31, 2004, we
carried out an evaluation under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.
Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are
effective.
The Company maintains internal control over financial reporting. During
the quarter ended March 31, 2004, there have been no changes in our internal
controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Reference is also made to Note 4 of the Company's Consolidated Financial
Statements in this Form 10-Q.
Item 2. Change in Securities and Use of Proceeds
Total Number Maximum
of Shares Number of
Purchased as Shares That
Part of the May Yet Be
Total Number Average 2001 Stock Purchased
of Shares Price Paid Repurchase Under the
Period Purchased per Share Plan Plan
- --------------------------------------------------------------------------------
2/1/04-2/29/04 84,786 $25.41 256,104 193,896
=========================================================
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are furnished herewith:
Exhibit.
--------
11 Statement re computation of per share earnings
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certifications Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
During the quarter ended March 31, 2004, the Company filed the
following Current Report on Form 8-K:
Form 8-K filed January 23, 2004, reporting earnings for the year
ending December 31, 2003.
37
Form 8-K filed March 31, 2004, reporting expected increase in net
income for first quarter 2004 versus 2003 and expected decrease in
diluted earnings per share for first quarter 2004 versus 2003.
SIGNATURES
Pursuant to the requirements 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.
Interchange Financial Services Corporation
By: /s/ Charles T. Field
--------------------------------------
Charles T. Field
Senior Vice President and CFO
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Dated: May 10, 2004
38