SCHEDULE 14A INFORMATION
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Exchange Act of 1934
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Interchange Financial Services Corporation
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(Name of Registrant as Specified In Its Charter)
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Notice of 2004 Annual Meeting of Shareholders
and Proxy Statement
Interchange
[LOGO] Financial Services
Corporation
[Logo] Interchange
Financial Services
Corporation
Park 80 West/Plaza II
Saddle Brook, NJ 07663
Dear Fellow Shareholders:
Please accept this invitation to attend our 2004 Annual Shareholders'
Meeting. The meeting will be held Thursday, April 22 at 3:00 p.m. at the
Marriott Hotel, Garden State Parkway at Route 80 in Saddle Brook, New Jersey.
Our agenda will include the election of seven directors and the
ratification of the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the year ending December 31, 2004.
In order to ensure that your shares are represented at the Annual Meeting,
please promptly vote, date, sign and return your proxy for the meeting even if
you plan to attend. You may vote in person at that time if you so desire.
Please accept our thanks for your continued confidence in our Company. We
look forward to seeing you at the meeting.
Sincerely,
/s/ Anthony S. Abbate
-------------------------
Anthony S. Abbate
President and Chief Executive Officer
March 25, 2004
Table of Contents
NOTICE OF THE 2004 ANNUAL MEETING OF SHAREHOLDERS . . . . . . . . . . . . . . 1
PROXY STATEMENT
Questions and Answers . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Proposal No. 1 - Election of Directors . . . . . . . . . . . . . . . . . 5
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recommendation of the Company's Board of Directors . . . . . . . . . . . 5
Nominees and Directors . . . . . . . . . . . . . . . . . . . . . . . . . 5
Committees and Meetings of the Board of Directors . . . . . . . . . . . . 7
Compensation/Stock Option Committee Interlocks and Insider Participation . 8
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Proposal No. 2 - Ratification of Appointment of Independent Public Auditors .9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Recommendation of the Company's Board of Directors . . . . . . . . . . . . 10
The Company's Executive Officers, Executive Compensation and
Other Company Information. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Stock Option Grants in Last Fiscal Year. . . . . . . . . . . . . . . . . . 12
Aggregated Option Exercises in Last Fiscal Year and Year End
Option Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Pension Plan and Supplemental Executives' Retirement Plan . . . . . . . . 12
Capital Investment Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Change-in-Control Arrangements . . . . . . . . . . . . . . . . . . . . . . 13
Compensation/Stock Option Committee Report on Executive Compensation. . . . 14
Compensation Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Annual Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Stock Option and Incentive Plan . .. . . . . . . . . . . . . . . . . . . 15
Chief Executive Officer Compensation . . . . . . . . . . . . . . . . . . 15
Audit Committee Report. . . . . . . . . . . . . . . . . . .. . . . . . . . . 16
Fees Paid to Our Independent Auditors. . . . . . . . . . . . . . . . . . . 17
Five Year Performance Comparison . . . . . . . . . . . . . . . . . . . . . . 18
Principal Shareholders and Holdings of Management of the Company. . . . . . 19
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . 19
Certain Relationships and Related Party Transactions of the Company. . . . . 20
Transactions with Management . . . . . . . . . . . . . . . . . . . . . . 20
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Shareholder Communication . . . . . . . . . . . . . . . . . . . . . . . . 20
Nominating Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Directors Attendance at Meetings . . . . . . . . . . . . . . . . . . . . . 21
Submission of Shareholder Proposals . . . . . . . . . . . . . . . . . . . 21
Solicitation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Financial Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Where You Can Find More Information . . . . . . . . . . . . . . . . . . . 21
Notice of the 2004 Annual Meeting of Shareholders
[Logo] Interchange
Financial Services
Corporation
March 25, 2004
To Our Shareholders:
The Annual Meeting of Shareholders of Interchange Financial Services
Corporation will be held at 3:00 p.m. on Thursday, April 22, 2004 at the
Marriott Hotel, Garden State Parkway at Route 80 in Saddle Brook, New Jersey to
consider and take action on the following proposals:
1. Elect seven directors: Anthony D. Andora, Gerald A. Calabrese, Jr., David
R. Ficca, Nicholas R. Marcalus and Benjamin Rosenzweig for a term of three
years; John A. Schepisi for a term of two years and Joseph C. Parisi for a
term of one year;
2. Ratify the Board's appointment of Deloitte & Touche LLP as our independent
auditors for 2004; and
3. Such other business as may properly come before the Meeting.
Shareholders who owned shares of our stock at the close of business on
March 12, 2004 are entitled to notice of and to vote at the Annual Meeting. This
notice, the proxy statement, a proxy and voting instruction card, and the 2003
Annual Report are being distributed on or about March 25, 2004.
Regardless of whether you plan to attend the meeting in person, we urge you
to vote in favor of each of the proposals as soon as possible.
By Order of the Board of Directors
/s/ Benjamin Rosenzweig
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Benjamin Rosenzweig
Secretary
Your vote is important. Please complete, date, sign, and return promptly the
enclosed proxy in the postage-paid envelope provided even if you plan to attend
the Annual Meeting in person. If you do attend the Annual Meeting, you may then
withdraw your proxy and vote in person, if you wish.
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Questions and Answers
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Q: Why did I receive this Proxy Statement?
A: The board of directors of Interchange Financial Services Corporation (the
"Company" or "we" or "us") is soliciting proxies to be voted at the Annual
Meeting of Shareholders ("annual meeting") to be held on Thursday, April
22, 2004, and at any adjournment of the annual meeting. When the Company
asks for your proxy, we must provide you with a proxy statement that
contains certain information specified by law.
Q: Who is entitled to vote?
A: Shareholders who own Company stock as of the close of business on March 12,
2004 (the "Record Date") may vote at the annual meeting. Each share is
entitled to one vote with respect to each matter considered at the annual
meeting. There were 12,738,449 shares of our stock outstanding on the
Record Date.
Q: What is the proxy card?
A: The proxy card enables you to appoint Eleanore S. Nissley, Anthony R.
Coscia and John J. Eccleston as your representatives at the annual meeting.
By completing and returning the proxy card, you are authorizing them to
vote your shares at the meeting as you instructed on your proxy card. This
way, your shares will be voted whether or not you attend the meeting. Even
if you plan to attend the meeting, it is a good idea to complete and return
your proxy card before the meeting date just in case your plans change.
Q: What am I voting on?
A: You are voting on:
|X| the election of seven directors (Anthony D. Andora, Gerald A.
Calabrese, Jr., David R. Ficca, Nicholas R. Marcalus, Benjamin
Rosenzweig, John A. Schepisi and Joseph C. Parisi); and
|X| the ratification of the board's appointment of Deloitte & Touche LLP
as our independent auditors for the 2004 fiscal year.
Q: Will there be any other items of business on the agenda?
A: We do not expect any other items of business because the deadlines for
shareholder proposals and nominations have already passed. Nonetheless, in
case there is an unforeseen need, the accompanying proxy gives
discretionary authority to the persons named on the proxy with respect to
any other matters that might be brought before the annual meeting. Those
persons intend to vote that proxy in accordance with their best judgment.
Q: How do I vote?
A: You may vote by mail. Mark your choices on the enclosed proxy card and
sign, date and return it in the enclosed, self-addressed envelope. If you
sign your proxy card but do not make any selections, your shares will be
voted:
|X| FOR the seven named nominees for directors; and
|X| FOR the ratification of the independent auditors.
You may vote in person at the meeting. We will distribute written ballots
to anyone who wants to vote at the meeting. If you submitted a proxy, you
will first need to revoke it before you may vote in person at the meeting.
If you hold your shares in street name, you must request a proxy from your
stockbroker in order to vote at the meeting. Holding shares in "street
name" means you hold them in an account at a brokerage firm.
Q: What does it mean if I get more than one proxy card?
A: Your shares are probably registered differently or are in more than one
account. Vote all proxy cards to ensure that all your shares are voted.
Unless you need multiple accounts for specific purposes, we recommend that
you consolidate as many of your accounts as possible under the same name
and address. If the shares are registered in your name, contact our
transfer agent, Continental Stock Transfer and Trust Company
(212-509-4000); otherwise, contact your brokerage firm.
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Q: How do I revoke my proxy?
A: You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:
|X| filing with the Secretary of the Company at or before the annual
meeting a written notice of revocation bearing a later date than the
proxy;
|X| duly executing a subsequent proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the annual
meeting; or
|X| attending the annual meeting and voting in person (although attendance
at the annual meeting will not in itself constitute revocation of a
proxy). You would first need to notify the Secretary of the Company of
your desire to revoke your proxy.
Any written notice revoking a proxy should be delivered to Benjamin
Rosenzweig, Secretary, Interchange Financial Services Corporation, Park 80
West/Plaza II, Saddle Brook, New Jersey, 07663.
Q: Will my shares be voted if I do not return my proxy card?
A: If your shares are held in your name, they will not be voted at the meeting
unless you either submit a signed proxy, or attend the meeting and vote in
person.
If your shares are held in street name, your brokerage firm, under certain
circumstances, may vote your shares. Under NASD rules, brokerage firms have
authority to vote customers' unvoted shares on "routine" matters.
If you do not give a proxy to vote your shares, your brokerage firm may
either:
|X| vote your shares on routine matters, or
|X| leave your shares unvoted.
You may have granted to your stockbroker discretionary voting authority
over your account. Depending on the terms of your agreement with your
stockbroker, the firm may be able to vote your shares. We encourage you to
provide instructions to your brokerage firm by giving your proxy. This
ensures your shares will be voted at the meeting.
Q: How are abstentions, withholding of votes and broker non-votes treated?
A: The affirmative vote of the holders of a majority of the shares of our
common stock present and voting at the meeting is required to approve the
proposals (other than the election of directors). Abstentions and
withholding of votes as to any proposal will not be counted as votes cast
in favor of or against the proposal. In addition, shares held in street
name which have been designated by brokers on proxy cards as not voted as
to any proposal (so-called broker non-votes) will not be counted as votes
cast with respect to the proposal. Proxies marked as abstentions, withhold
or as broker non-votes, however, will be treated as shares present for
purposes of determining whether a quorum is present.
Q: How many shares must be present to hold the meeting?
A: To hold the meeting and conduct business, a majority of our shares
outstanding as of March 12, 2004, must be present at the meeting. This is
called a quorum. Shares are counted as present at the meeting if the
shareholder:
|X| is present and votes in person at the meeting, or
|X| has properly submitted a proxy card.
Q: How many votes must the nominees have to be elected as directors?
A: The seven nominees receiving the highest number of "yes votes" will be
elected as directors. This number is called a plurality. (We use the phrase
"yes vote" to mean a vote for a proposal.)
Q: What happens if a nominee is unable to stand for election?
A: The Board may reduce the number of directors or select a substitute
nominee. In the latter case, if you have completed and returned your proxy
card, Mrs. Nissley, Messrs. Coscia and Eccleston can vote your shares for a
substitute nominee. They cannot vote for more than seven nominees.
3
Q: How many votes must the proposal to ratify the auditors have to pass?
A: To pass, the proposal must receive the "yes vote" of a majority of the
shares present at the meeting in person or by proxy, but not less than a
majority of the shares required for a quorum.
Q: How are votes counted?
A: On the proposal to elect directors, you may vote "for" all nominees (except
as marked), or "withhold" your vote from all nominees and to ratify the
auditors, you may vote "for," "against" or "abstain."
If you abstain and withhold your vote as to any proposal, it will not be
counted as a vote cast in favor of or against the proposal. If you return
your proxy without voting instructions, your shares will be counted as a
"yes vote" for each nominee and for the ratification of the auditors.
Voting results are tabulated and certified by our transfer agent,
Continental Stock Transfer and Trust Company.
Q: Is my vote kept confidential?
A: Proxies, ballots and voting tabulations identifying shareholders are kept
confidential and will not be disclosed except as may be necessary to meet
legal requirements.
Q: Where do I find the voting results of the meeting?
A: We will announce preliminary voting results at the meeting. Final results
will be published in our quarterly report on Form 10-Q for the second
quarter of 2004. We will file that report with the Securities and Exchange
Commission. You may obtain a copy by calling Shareholder Relations (201)
703-2265 or the SEC at (800) SEC-0330 for the location of its nearest
public reference room. You can also get a copy on the Internet through the
SEC's electronic data system called EDGAR at www.sec.gov
4
Proposal No. 1 - Election of Directors
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General
The first item to be acted upon at the annual meeting is the election of
seven directors to serve until the 2005, 2006 and 2007 annual meeting of
shareholders. The Company's board of directors currently consists of fifteen
members. In accordance with the Company's restated certificate of incorporation
and bylaws, the board is divided into three classes, each of which contains
approximately one-third of the board. Approximately one-third of the directors
are elected annually. Directors of the Company are generally elected to serve
for three-year terms or until their respective successors are elected and
qualified.
Each nominee is currently a director of the Company and was elected by the
shareholders at a previous annual meeting with the exception of Gerald A.
Calabrese, Jr., Joseph C. Parisi and John A. Schepisi who were appointed to the
board in connection with the Company's acquisition of Bridge View Bancorp. Each
nominee for director and each continuing director also serves as director of
Interchange Bank (the "Bank"), a subsidiary of the Company. If a nominee should
become unavailable to serve as a director for any reason, which management does
not anticipate, the proxy will be voted for a substitute nominee selected by the
board of directors or, if no substitute is selected, the number of directors may
be reduced. There are no arrangements or understandings between any director or
nominee and any other person pursuant to which such director or nominee was
selected. Jeremiah F. O'Connor, the Company's Vice Chairman of the Board, is the
father of Jeremiah F. O'Connor, Jr., a director of the Bank.
Recommendation of the Company's Board of Directors
The Company's board of directors recommends that you vote "for" election of
the seven nominees listed below. Unless contrary instruction is given, it is
intended that the named proxies will vote in favor of each of the seven nominees
listed below.
Nominees and Directors
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Nominees to be elected Directors for terms of three years expiring in 2007
Anthony D. Andora, age 73, is a member of Andora & Romano, LLC, a law firm in
Paramus, New Jersey. Mr. Andora has been a director of the Company since 1984
and of the Bank since 1969. He is Chairman of the Board and Chairman of the
Nominating Committee, and is a member of the Executive Committee, the Corporate
Planning and Finance Committee and serves in an ex-officio capacity on all
committees.
Gerald A. Calabrese, Jr., age 54, is President of Century 21, Calabrese Realty
and Chairman and Chief Executive Officer of Metropolitan Mortgage Company. Mr.
Calabrese has been a director of the Company and the Bank since 2003. He serves
as a member of the Nominating Committee, the Governance Committee and is an
alternate member of the Executive Committee.
David R. Ficca, age 72, is a retired director of Richton International
Corporation and the retired Vice Chairman of Kidde, Inc, a multi-market
manufacturing and service organization. He has been a director of the Company
since 1984 and of the Bank since 1983. He is a member of the Executive
Committee, the Governance Committee, the Corporate Planning and Finance
Committee and the Compensation/Stock Option Committee.
Nicholas R. Marcalus, age 60, is President and Chief Executive Officer of Marcal
Paper Mills, Inc., a manufacturer of paper products, in Elmwood Park, New
Jersey, and serves on the board of directors of that organization. Mr. Marcalus
has been a director of the Company and the Bank since 1997, and serves on the
Nominating Committee, Governance Committee and is an alternate member of the
Executive Committee.
5
Benjamin Rosenzweig, age 78, is Vice President of Azco Steel Company, a division
of Bushwick Steel Corp. He has been a director of the Company since 1984 and of
the Bank since 1976 and is Secretary of the Company and the Bank. He serves as a
member of the Executive Committee, the Nominating Committee and the Governance
Committee.
Nominees to be elected Directors for terms of two years expiring in
2006
John A. Schepisi, age 59, is Senior Partner of Schepisi & McLaughlin, Attorneys
at Law. Mr. Schepisi has been a director of the Company and the Bank since 2003.
He serves as a member of the Corporate Planning and Finance Committee and is an
alternate member of the Executive Committee.
Nominees to be elected Directors for terms of one year expiring in 2005
Joseph C. Parisi, age 78, is President and Chief Executive Officer of Otterstedt
Insurance Agency. Mr. Parisi has been a director of the Company and the Bank
since 2003. He serves as a member of the Audit Committee, the Compensation
Committee and is an alternate member of the Executive Committee.
Directors to continue in office for terms expiring in 2006
Donald L. Correll, age 53, is President and CEO of Pennichuck Corporation (PNNW:
NASDAQ) since August 4, 2003, a holding company whose subsidiaries are active in
public water supply, water related services and real estate. He is also a Senior
Advisor and Advisory Director of Underground Solutions Inc. (UGSI: pink sheets).
Mr. Correll retired as Chairman and CEO of United Water Resources, Inc. in 2001.
Mr. Correll has been a director of the Company and the Bank since 1994 and
serves on the Audit Committee, Compensation/Stock Option Committee, Corporate
Planning and Finance Committee and is an alternate member of the Executive
Committee.
James E. Healey, age 62, is a practicing Certified Public Accountant in Park
Ridge, New Jersey and is also a Director of Marcal Paper Mills, Inc. In
addition, he is a Trustee of Pace University in New York City, a Trustee of St.
Joseph's Hospital and Medical Center in Paterson, New Jersey, and Chairman of
the Board of Trustees of the United Way of Bergen County, in Oradell, New
Jersey. In December 2000, Mr. Healey retired as Executive Vice President and
Chief Financial Officer of Nabisco Holdings Corp., a position he held since June
1997, and retired as Senior Vice President and Chief Financial Officer of
Nabisco Group Holdings, Inc., a position he held since June 1999. Mr. Healey has
been a director of the Company and the Bank since 1993. He is Chairman of the
Compensation/Stock Option Committee and serves on the Audit Committee, Corporate
Planning and Finance Committee and the Executive Committee.
Jeremiah F. O'Connor, age 70, is currently a principal of NW Financial Group
(since 1996), a financial advisory firm. Mr. O'Connor was formerly a Managing
Director of NatWest Financial Markets Group (since 1994). Mr. O'Connor has been
a director of the Company since 1984 and the Bank since 1969. He is Vice
Chairman of the Board. He is Chairman of the Governance Committee and serves on
the Executive Committee, Nominating Committee and Compensation/Stock Option
Committee.
Robert P. Rittereiser, age 65, is Chairman and Chief Executive Officer of
GFinancial, L.L.C., formerly known as Gruntal Financial, L.L.C., and GCO
Services, L.L.C., formerly known as Gruntal & Co., L.L.C., which are related
investment services firms based in New York City. On October 29, 2002, each of
GFinancial, L.L.C., and GCO Services, L.L.C, filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code for the Southern
District of New York. Both bankruptcy proceedings are presently in progress. Mr.
Rittereiser also serves as Chairman of Yorkville Associates Corp., a private
investment and financial advisory concern formed in April 1989. He served as a
Trustee of the DBL Liquidating Trust from April 1992 until April 1996. He has
been a Director of the Company and of the Bank since July 1989. He is Chairman
of the Corporate Planning and Finance Committee and a member of the
Compensation/Stock Option Committee and the Executive Committee
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6
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Directors to continue in office for terms expiring in 2005
Anthony Abbate, age 64, is President and Chief Executive Officer of the Company.
Mr. Abbate has been a director of the Company since 1984 and the Bank since
1981. He is Chairman of the Executive Committee and a member of the Corporate
Planning and Finance Committee and serves in an ex-officio capacity on all
committees. Mr. Abbate also serves (since February 2004) as an independent
director to the Board of K-Sea General Partner GP LLC, (NYSE:KSP) and a member
of the company's Audit Committee.
Anthony R. Coscia, age 44, is a partner and executive committee member of the
law firm of Windels Marx Lane & Mittendorf, LLP in New York and New Brunswick,
New Jersey. He currently serves as the Chairman of Port Authority of New York
and New Jersey. Mr. Coscia has been a director of the Company and the Bank since
1997. He serves on the Audit Committee, Nominating Committee and Governance
Committee and is an alternate member of the Executive Committee.
John J. Eccleston, age 78, retired principal of R.D. Hunter & Company, L.L.C.,
Certified Public Accountants. Prior to January 1995, he was Senior Partner of
John J. Eccleston & Company, Certified Public Accountants and Registered
Municipal Accountants. Mr. Eccleston has been a director of the Company since
1984 and the Bank since 1969. He is Chairman of the Audit Committee and a member
of the Executive Committee and Corporate Planning and Finance Committee.
Eleanore S. Nissley, age 71, is a commercial real estate investor, and she
serves as Vice Chairperson of Hackensack Meadowlands Development Commission.
Mrs. Nissley has been a director of the Company and of the Bank since 1992. She
is a member of the Audit Committee, the Nominating Committee and Governance
Committee and is an alternate member of the Executive Committee.
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Committees and Meetings of the Board of Directors
During 2003, the board of directors of the Company held 5 meetings and the
Bank held 12 meetings. All incumbent directors attended at least 75% of the
aggregate meetings of each board and the committees of each board on which they
served that were held during fiscal year 2003.
The Company's board of directors has determined that Mr. Eccleston,
chairman, Messrs. Correll and Healey, members of the Company's audit committee
are financial experts.
The following committees serve both the Company and the Bank.
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Name of Committee and Members Functions of the Committee Meetings in 2003
- ----------------------------- ---------------------------------------------------------- ----------------
Audit
John J. Eccleston, Chairman Reviews significant audit, accounting and other principles, 9
Donald L. Correll policies and practices, the activities of independent auditors
Anthony R. Coscia and of the Company's internal auditors, and the conclusion and
James E. Healey recommendations of auditors and the reports of regulatory
Eleanore S. Nissley examiners upon completion of their respective audits and
Joseph C. Parisi examinations.
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Compensation/Stock Option Administers management incentive compensation plans, 4
James E. Healey, Chairman including the Company's stock option and incentive plan. The
Donald L. Correll committee makes recommendations to the Board of Directors
David R. Ficca with respect to compensation of directors and executive
Jeremiah F. O'Connor officers.
Joseph C. Parisi
Robert P. Rittereiser
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7
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Name of Committee and Members Functions of the Committee Meetings in 2003
- ----------------------------- ---------------------------------------------------------- ----------------
Corporate Planning and Responsible for the review of the annual budget, capital 2
Finance expenditures and other financial transactions.
Robert P. Ritterreiser,
Chairman
Anthony S. Abbate
Anthony D. Andora
Donald L. Correll
John J. Eccleston
David R. Ficca
James E. Healey
John A. Schepisi
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Executive Has authority to exercise all of the powers of the Board 12
Anthony S. Abbate, Chairman of Directors with respect to the affairs of the Company, except
Anthony D. Andora that the Executive Committee may not: (1) Exercise such
John J. Eccleston powers while a quorum of the Board of Directors is actively
David R. Ficca convened for the conduct of business; (2) Declare a dividend or
James E. Healey approve any other distribution to stockholders; (3) Elect or
Jeremiah F. O'Connor appoint any officer or director; and (4) Make, alter or repeal
Robert P. Rittereriser the By-Laws of the Bank.
Benjamin Rosenzweig
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Governance
Jeremiah F. O'Connor, Develops and recommends to the Board of Directors a Code of 1
Chairman Business Conduct and Ethics and considers any waivers from
Gerald A. Calabrese, Jr. the Company's Code of Business Conduct and Ethics. The
Anthony R. Coscia committee will arbitrate any issues involving conflicts of
David R. Ficca interest which are not in conformance with the Corporate
Nicholas R. Marcalus Governance Guidelines of the Company and its subsidiaries.
Eleanore S. Nissley
Benjamin Rosenzweig
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Nominating Advises and makes recommendations to the Board of Directors 1
Anthony D. Andora, Chairman concerning the selection of candidates as nominees for election
Gerald A. Calabrese, Jr. as directors. The committee will consider nominations
Anthony R. Coscia recommended by shareholders. In accordance with the
Nicholas R. Marcalus Company's by-laws, such nominations, together with
Eleanore S. Nissley accompanying biographical material, must be in writing and
Jeremiah F. O'Connor should be addressed to the Secretary of the Company and must
Benjamin Rosenzweig be received not later than January 2 of the year of the annual
meeting of shareholders.
- ------------------------------------------------------------------------------------------------------------------------------------
Compensation/Stock Option Committee Interlocks and Insider Participation
No member of the Compensation/Stock Option Committee was, during 2003, an
employee of the Company. During 2003, no executive officer of the Company (i)
served as a member of the compensation committee of another entity, one of whose
executive officers served on the Compensation/Stock Option Committee of the
Company, (ii) served as a director of another entity, one of whose executive
officers served on the Compensation/Stock Option Committee of the Company, or
(iii) was a member of the compensation committee of another entity, one of whose
executive officers served as a Director of the Company.
Director Compensation
In 2003, each director of the Company not employed by the Company was paid
a retainer of $1,000. The Company's Chairman of the Board, Vice-Chairman of the
Board and Secretary of the Board received additional retainers of $1,500, $500
and $250, respectively. In addition, each director of the Bank not employed by
the Bank was paid a retainer at an annual rate of $10,000, a
8
fee of $500 for each board meeting attended, a fee of $400 for each executive
committee meeting attended and a fee of $300 for attendance at other committee
meetings. The Bank's Chairman of the Board, the Vice-Chairman of the Board and
Secretary of the Company and the Bank received additional retainers of $16,500,
$13,500 and $4,000, respectively. Directors who are chairmen of committees,
which act in a dual capacity for the Company and the Bank, receive an additional
retainer of $3,000 annually for the Company and $4,000 for the Bank. A director
who is an employee of the Company or any subsidiary receives no retainer or
fees.
Directors, excluding directors who are employed by the Company or the Bank
and participate in a separate plan, participate in a retirement benefit plan
that entitles the director to receive upon retirement an amount equal to the
annual retainer being paid directors (exclusive of additional amounts paid to
the Chairman of the Board, the Vice Chairman of the Board, the Secretary of the
Company and the Bank and to committee chairmen) multiplied by his or her years
of service on the board, multiplied by his or her vested percentage.
Notwithstanding the foregoing, the benefits payable to a participant who was a
participant on January 1, 2002, shall not be less than the greater of: (i) the
benefits such participant had accrued as of such date under the terms and
provision of the plan in effect prior to its restatement on January 2, 2002, or
(ii) the cash value of any life insurance policy that was purchased and owned by
the Company or the Bank for that participant under the terms and provisions of
the plan in effect prior to its restatement. The benefit may be paid in a lump
sum or paid out in five annual installment payments at the election of the
participant.
The Outside Director Incentive Compensation Plan is designed to attract
qualified personnel to accept positions of responsibility as outside directors
with the Company and to provide incentives for persons to remain on the board,
as outside directors. The Compensation/Stock Option Committee administers the
Outside Director Incentive Compensation Plan, reviews the awards and submits
recommendations to the full board of directors for action. Options to acquire
1,500 shares of the Company's common stock are granted to each outside director
of the Company each year on the anniversary date of the initial grant. Each
option represents the right to purchase, upon exercise, one share of the
Company's common stock at an exercise price equal to the price of a share of
stock at the close of business on the date of the grant as reported by the
Nasdaq National Market. Stock options may be exercisable between one and ten
years from the date granted. All options granted under the Outside Director
Incentive Compensation Plan shall be non-qualified stock options and are not
entitled to special tax treatment under the Internal Revenue Code of 1986, as
amended.
A total of 150,000 shares of common stock were made available for option
awards under the Outside Director Incentive Compensation Plan, of which options
to purchase 67,500 shares have been granted to date. In 2003, options to
acquire 18,000 shares were granted to the outside directors.
Proposal No. 2 - Ratification of Appointment of Independent Public Auditors
- --------------------------------------------------------------------------------
General
The Company's board of directors has selected Deloitte & Touche LLP,
independent public auditors to audit the Company's consolidated financial
statements for the current fiscal year ending December 31, 2004. The Company
expects that a representative of Deloitte & Touche LLP will be present at the
Company's annual meeting, will have the opportunity to make a statement if he or
she desires to do so and will be available to answer any appropriate questions.
Shareholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent public auditors is not required by the Company's bylaws or
other applicable law. However, the Company's board of directors is submitting
the appointment of Deloitte & Touche LLP to the shareholders for ratification as
a matter of good corporate practice. If the shareholders fail to ratify the
appointment, the Audit Committee and the board of directors in their discretion
will reconsider whether or not to retain Deloitte & Touche LLP. Even if the
appointment is ratified, the board of directors, in its discretion, may
nevertheless appoint a different independent public accounting firm at any time
during the year if it determines that such a change would be in the Company's
best interests and in the best interest of its shareholders.
9
Recommendation of the Company's Board of Directors
The board of directors has unanimously approved the appointment of Deloitte
& Touche LLP as independent public auditors and unanimously recommends that
shareholders vote "FOR" the ratification of the appointment of Deloitte & Touche
LLP as the Company's independent public auditors for the fiscal year ending
December 31, 2004. Unless contrary instruction is given, it is intended that the
named proxies will vote in favor of this proposal.
The Company's Executive Officers, Executive Compensation and Other Company
Information
- --------------------------------------------------------------------------------
Executive Officers
The following tables sets forth the names, ages, and present positions of
the Company's principal executive officers:
Executive Officers
Name Age Positions Held with Interchange
- ---- --- -------------------------------
Anthony S. Abbate 64 President and Chief Executive Officer
Anthony J. Labozzetta 40 Executive Vice President and Chief Operating Officer
Patricia D. Arnold 45 Senior Vice President - Chief Credit Officer
Albert F. Buzzetti 64 Senior Vice President
Charles T. Field 39 Senior Vice President - Chief Financial Officer
Frank R. Giancola 50 Senior Vice President - Operations
Business Experience
- --------------------------------------------------------------------------------
Anthony S. Abbate, age 64, is President and Chief Executive Officer of the Bank
since 1981; Senior Vice President and Controller from October 1980. Engaged in
the banking industry since 1959.
Anthony J. Labozzetta, age 40, Executive Vice President and Chief Operating
Officer since February 2003; Executive Vice President and Chief Financial
Officer from September 1997 to February 2003; Senior Vice President & Treasurer
from 1995 to 1997. Engaged in the banking industry since 1989. Formerly a senior
manager with an international accounting firm, specializing in the financial
services industry.
Patricia D. Arnold, age 45, Senior Vice President & Chief Credit Officer from
August 1998, 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.
Albert F. Buzzetti, age 64, Senior Vice President since May 2003. Formerly
President, Chief Executive Officer and Director of Bridge View Bancorp and
Bridge View Bank from 1988 to 2003.
Charles T. Field, age 39, Senior Vice President and Chief Financial Officer
since February 2003. Formerly Vice President Finance and Treasurer of Viatel,
Inc. from 1999 to 2002 and Treasurer from 1998 to 1999, Corporate Controller of
Horsehead Industries, Inc. from 1995 to 1998 and a manager specializing in
financial institutions at an international accounting firm from 1987 to 1995.
Frank R. Giancola, age 50, Senior Vice President - Operations from 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.
- --------------------------------------------------------------------------------
10
Executive Compensation
The following table sets forth compensation paid by the Company and its
subsidiaries during the years ended December 31, 2003, 2002 and 2001, for
services in all capacities, to Mr. Abbate, the Company's chief executive
officer, and all other executive officers of the Company whose total salary and
bonus exceeded $100,000 during 2003.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-term Compensation
----------------------------------------- ------------------------
Other All Other Restricted Options
Annual Compensation Stock (No. of
Name and Principal Position (1) Year Salary($) Bonus($) Compensation($) ($) (2) Awards($)(3) Shares)
_______________________________
---------- ---------- ---------- ---------------- ---------------- ----------- ---------
Anthony S. Abbate . . . . . . . . . . .2003 $390,000 $60,450 - $111,515 $53,625 52,500
President and CEO 2002 375,000 187,500 - 68,418 168,750 52,500
2001 360,000 166,680 - 46,118 148,680 30,000
Anthony Labozzetta . . . . . . . . . . 2003 190,000 22,800 $7,599 8,124 33,250 18,750
Executive Vice President and 2002 175,000 61,250 20,417 7,474 37,625 18,750
Chief Operating Officer 2001 162,000 52,650 17,552 6,539 34,425 7,000
Patricia D. Arnold . . . . . . . . . . 2003 170,000 20,400 2,789 7,466 25,500 14,000
Senior Vice President 2002 160,000 56,000 5,100 4,928 31,600 15,000
2001 140,000 46,150 2,756 4,627 23,075 7,000
Albert F. Buzzetti . . . . . . . . . . 2003 105,981 10,560 - 6,912 - 2,000
Senior Vice President 2002 - - - - - -
2001 - - - - - -
Charles T. Field . . . . . . . . . . . 2003 146,961 19,800 - 4,253 28,875 5,000
Senior Vice President and 2002 - - - - - -
Chief Financial Officer 2001 - - - - - -
Frank R. Giancola . . . . . . . . . . .2003 150,000 18,000 - 6,713 21,750 14,000
Senior Vice President 2002 144,000 50,400 - 6,443 15,000 15,000
2001 139,500 45,338 - 6,115 22,320 7,000
_______________________________
<FN>
(1)Includes the President and CEO and all other executive officers whose total annual salary and bonus exceeded $100,000 in 2003.
(2)Represents payments as shown below:
</FN>
Year Abbate Labozzetta Arnold Buzzetti Field Giancola
---------- ---------- ----------- ------------- ------------ --------- ---------
Amounts contributed to 401(k) plan 2003 $ 8,000 $7,584 $6,656 $4,239 $3,852 $5,993
2002 7,799 6,988 4,412 - - 5,756
2001 6,533 6,070 4,183 - - 5,473
Value of life insurance 2003 3,564 540 810 2,673 401 720
premium paid in respect 2002 3,564 486 516 - - 688
to coverage excess of 2001 3,564 470 444 - - 643
$50,000
Premium on disability 2003 7,860 - - - - -
policy 2002 7,860 - - - - -
2001 7,860 - - - - -
Contribution to 2003 92,091 - - - - -
Supplemental 2002 49,195 - - - - -
Executies' Retirement 2001 28,162 - - - - -
Plan (4)
_______________________________
<FN>
(3) The unvested restricted stock awards granted, to date, totaled 22,083,
11,783, 1,100, 3,229 and 6,023 for Messrs. Abbate, Labozzetta, Field,
Giancola and Mrs. Arnold, respectively. The value of such awards at
December 31, 2003, were $558,700, $298,110, $27,830, $81,694 and $152,382,
respectively. The value of these shares at the date of grant is reflected
in the table above. The awards for Messrs. Abbate, Labozzetta, Field,
Giancola and Mrs. Arnold vest in three years following the date of grant
provided they do not terminate their employment during that period.
Dividends will be paid on all restricted stock awards.
(4) In 1998, the Board of Directors amended the Supplemental Executives'
Retirement Plan to provide Mr. Abbate with the retirement benefits he is
entitled to as a member of the Board of Directors.
</FN>
11
Stock Option Grants in Last Fiscal Year *
The following table sets forth certain information concerning grants of
stock options awarded to the named executive officers during the year ended
December 31, 2003. All options granted during the year were incentive stock
options:
Potential Realized Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise or For Option Term (3)
Options Employees in Base Price Expiration ----------------------------------
Name Granted Fiscal Year ($/Sh) (1) Date (2) 5% 10%
- --------------------------- ------------- -------------- ------------- ------------ ---------------- ---------------
Anthony S. Abbate 52,500 30.0 $26.25 1/22/2014 $2,244,820 $3,574,501
Anthony Labozzetta 18,750 10.7 26.25 1/22/2014 801,722 1,276,608
Frank R. Giancola 14,000 8.0 26.25 1/22/2014 598,619 953,200
Albert Buzzetti 2,000 1.1 26.25 1/22/2014 85,517 136,171
Patricia Arnold 14,000 8.0 26.25 1/22/2014 598,619 953,200
Charles T. Field 5,000 2.9 26.25 1/22/2014 213,792 340,429
- ---------------------------
<FN>
* The grant of stock options presented in this table was made in early 2004
based upon 2003 performance criteria.
(1) The exercise price was based on the closing price of a share of the
Company's stock on the date of grant as reported on the NASDAQ National
Market.
(2) Options are exercisable starting one year from the date of grant and become
vested 1/3 each year from the grant date. Options expire if not exercised
within 10 years of grant date.
(3) Pre-tax gain. The dollar amounts under these columns are the result of
calculations at the 5% and 10% rates set by the Securities and Exchange
Commission in the proxy disclosure rules and, therefore, are not intended
to forecast possible future appreciation, if any, of the Company's stock
price. The Company's per share stock price would be $42.76 and $68.09 if
the increase was 5% and 10%, respectively, compounded annually over the
option term.
</FN>
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Year End In-the-Money Options
No. Shares ------------------------------ at Year-end (2)
Acquired on Value Shares Shares -----------------------------------
Name Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ----------- ------------- ------------- -------------- ---------------- --------------
Anthony S. Abbate (3) 16,991 $429,855 111,000 102,500 $1,364,671 $449,500
Anthony J. Labozzetta 500 12,639 40,875 34,750 513,806 140,850
Patricia D. Arnold - - 36,750 27,500 461,360 120,100
Albert F. Buzzetti - - - 2,000 - -
Charles T. Field - - - 5,000 - -
Frank R. Giancola 15,592 394,473 36,750 27,500 461,360 120,100
- -------------------------
<FN>
(1) Pre-tax gain. Amounts shown represent the difference between the stock
option grant price and the market value of the stock on the date of
exercise.
(2) Pre-tax gain. Value of unexercised in-the-money options based on the
December 31, 2003 closing price of $25.30 as reported on the NASDAQ.
(3) Mr. Abbate's exercise of options was previously disclosed in the Notice of
2003 Annual Meeting of Shareholders and Proxy Statement.
</FN>
Pension Plan and Supplemental Executives' Retirement Plan
The Company, through the Bank, maintains a non-contributory defined benefit
pension plan covering all eligible employees including Mrs. Arnold, Messrs.
Abbate, Buzzetti, Field, Giancola and Labozzetta. Retirement income is based on
years of service under the Plan and, subject to certain limits, on final average
compensation.
The Company maintains a Supplemental Executives' Retirement Plan, a
non-qualified plan intended to provide retirement income that would have been
paid but for limitations imposed by the Internal Revenue Code under the
qualified plan. In 1998, the Company amended the Supplemental Executives'
Retirement Plan to include the director related retirement benefits relating to
Mr. Abbate's membership on the board of directors. Benefits under the
Supplemental Executives' Retirement Plan are paid from the general assets of the
Company.
12
The following table shows the annual benefits payable based on a range of
average compensation (comprised solely of base salary) and years of future
service at normal retirement date.
5-Year Years of Service at Normal Retirement Date
Average -------------------------------------------------------------
Compensation 5 10 20 30 35
- -------------- ----------- -------------- ------------ ------------- ---------
$100,000 $ 5,670 $11,340 $22,680 $ 34,020 $ 39,690
150,000 9,420 18,840 37,680 56,520 65,940
200,000 13,170 26,340 52,680 79,020 92,190
250,000 16,920 33,840 67,680 101,520 118,440
300,000 20,670 41,340 82,680 124,020 144,690
400,000 28,170 56,340 112,680 169,020 197,190
- -------------
<FN>
1. This Plan was effective January 1, 1993.
2. Benefits calculated are based on base salary and total credited service at
normal retirement date from the later of (a) January 1, 1993 or (b) date of
hire. The benefits above are inclusive of both benefits from the qualified
defined benefit plan and from the defined benefit portion of the
supplemental plan. Currently, the supplemental plan only covers Mr. Abbate.
3. Average compensation is the average of base salary over the five (5)
consecutive calendar years producing the highest average.
4. The chart reflects a Social Security integration level based on the average
age of the executive officer group, which was 51 years as of December 31,
2003.
5. Annual benefit shown in the table above is payable as a life annuity which
is the normal form of retirement benefit for non-married participants. For
married participants, the normal form of benefit is an actuarial equivalent
joint and 50% survivor annuity.
6. At December 31, 2003, the estimated credited years of service for purposes
of computing the retirement benefits under the Pension Plan and the SERP
for the named executive officers are as follows: Mr. Abbate - 11 years; Mr.
Labozzetta - 8 years; Mrs. Arnold - 11 years; Mr. Buzzetti - 1 year; Mr.
Field - 1 year; and Mr. Giancola - 11 years.
</FN>
Capital Investment Plan
The Company also maintains a Capital Investment Plan covering all eligible
employees, including the named executive officers. Retirement income is based on
the value of each participant's account balance and is paid upon retirement,
termination of employment, disability or death. The Supplemental Executive
Retirement Plan also supplements the retirement benefits payable to certain
participants under the Capital Investment Plan. Only Mr. Abbate participates in
the Supplemental Executives' Retirement Plan. These benefits are intended to
provide participants with an amount (plus earnings) that the Company would have
contributed under the Capital Investment Plan as matching employer contributions
and for fixed employer contributions (in excess of the amounts the Company
actually contributed) if it were not for certain limitations imposed by the
Internal Revenue Code under the Capital Investment Plan. The benefits under the
Supplemental Executives' Retirement Plan with respect to the Capital Investment
Plan are to be paid in lump sum in cash at the same time as the distribution of
a participant's account balance is made under the Capital Investment Plan.
Change-in-Control Arrangements
The Company has a Change-in-Control Agreement with each of Mrs. Arnold and
Messrs. Abbate, Giancola and Labozzetta. The agreements provide, among other
things, that if the executive is terminated during the two years after a "change
in control", or if they voluntarily terminate during the two years following a
"change in control", unless such termination is (i) because of the executive's
death or retirement, (ii) by the Company for cause or disability or (iii) by the
executive for other than for good reason, they shall receive an amount equal to
two times their highest annualized base salary plus an amount equal to the sum
of the bonuses paid for the previous two years, except for Mr. Abbate who shall
receive three times his highest annualized base salary plus an amount equal to
the greater of (i) the sum of the bonuses paid for the previous three years, or
(ii) $300,000, for the prior twelve months immediately
13
proceeding the date of termination. In addition, the executives will receive
their unpaid base salary up to termination, accrued vacation pay, a portion of
the bonus in the year of termination which has not yet been awarded or paid
under the management incentive plan, benefits and continuation of health and
welfare benefits, "grossed up" to cover any excise tax imposed by Section 4999
of the Internal Revenue Code.
Compensation/Stock Option Committee Report on Executive Compensation
- --------------------------------------------------------------------------------
The Compensation/Stock Option Committee is responsible for reviewing and
recommending executive compensation to the full board of directors for action
and administering the Company's executive compensation programs and plans. The
Committee reports regularly to the board of directors. During 2003, the
Committee consisted of six directors who were not employees of the Company and,
therefore, not eligible to participate in such programs and plans.
Compensation Strategy
The objectives of this Committee are to attract and retain top quality
executives and provide compensation programs designed to motivate and reward
executives to achieve business goals that foster both the enhancement of
long-term shareholder value through stock appreciation and dividend yield, and
the long-term best interests of the organization. Compensation programs for
executives are designed to link compensation to the various performance measures
of the Company discussed in this report and generally provide competitive
compensation for executives at the seventy-fifth percentile of peer group banks
(as determined by the Committee with the assistance of an independent
consultant) and other organizations of similar size, performance and geographic
location. The committee utilizes professional surveys prepared by outside
consultants focusing on compensation levels of this peer group in order to
assure competitiveness in its compensation programs. The compensation mix
reflects a balance of cash awards, including incentive awards, and equity-based
incentives. Annual cash compensation (base salary and annual bonus) is
established based on the achievement of corporate financial targets and
individual performance. The Stock Option and Incentive Plan, approved by
shareholders in 1997, is intended to function as the basis for fostering
alignment of executive compensation with the interests of shareholders.
The policies with respect to each of these compensation elements as well as
the basis for determining the compensation level of executive officers,
including the President and Chief Executive Officer, Mr. Abbate, are described
below.
Base Salary
Base salaries for executive officers are based on the salary ranges that
are established by the Committee annually for each position. The salary ranges
for each position are determined by evaluating the responsibilities and
accountabilities of the position and comparing it with other executive officer
positions in the market place on an annual basis. The base salary of each
executive officer, including President and Chief Executive Officer, is reviewed
annually and adjusted within the position range based upon a performance
evaluation. Evaluations of other executive officers are submitted to the
Committee by the President and Chief Executive Officer. These evaluations, and
an evaluation of the President and Chief Executive Officer by the Committee, are
reviewed and submitted together with the Committee's recommendations to the full
board of directors for action. Salary increases are generally based upon the
extent to which the executive is considered to have contributed to a furtherance
of the Company's goals and/or met objectives specifically assigned to that
individual.
Annual Bonus
The Management Incentive Plan is an incentive plan designed to reward key
management employees for achievement of specific financial, individual and
business results for the year. The specific financial targets, which are
weighted equally, are primarily based upon (i) the year-to-year increase in the
Company's net after-tax earnings and (ii) achievement of a targeted return on
equity. The targeted goal is established annually through the budgeting
14
process, which is reviewed and approved by the board of directors, using input
relating to performance opportunities for the year and the historical
performance results of the Company. Individual and business results are
pre-established targets for specific objectives relating to the executives' area
of responsibility. An objective of the Management Incentive Plan is to relate a
portion of the executives' compensation to the overall financial results of the
Company for the year. The bonus for 2003 (paid in 2004) reflects the attainment
of 96.75 percent of the financial targets set in 2003. The board of directors
reserves the right to award discretionary bonus awards in the event the
financial target is either not met or is exceeded. In so doing, the Committee,
among other matters, will take into account whether the Company, while not
reaching its threshold target, has performed better on a comparable basis than
its peers. In addition to the attainment of the earnings target, the level of
the President and Chief Executive Officer's annual bonus award is also based
upon performance-related factors including various predetermined strategic
objectives.
A portion of the incentive compensation awarded to executive management is
in the form of restricted stock. The restriction is for three years and the
restricted stock is forfeitable upon termination of employment during that time
period. In addition, executive officers were given the option to utilize their
cash bonus to purchase two-year restricted, forfeitable stock at a twenty-five
percent discount. The excess of market value over the purchase price is included
in the Summary Compensation Table as Other Annual Compensation.
Stock Option and Incentive Plan
The Stock Option and Incentive Plan of 1997, as amended, is designed to
align shareholders' and executive officers' interests. The Compensation/Stock
Option Committee administers the plan, reviews the awards and submits
recommendations to the full board of directors for action. Stock options are
granted on a discretionary basis with an exercise price equal to the price of a
share of stock at the close of business on the date of the grant as reported by
the Nasdaq National Market. Stock options may be exercisable between one and ten
years from the date granted. Such stock options provide a retention and
motivational program for executives and an incentive for the creation of
shareholder value over the long-term since their full benefit cannot be realized
unless an appreciation in the price of the common stock occurs over a specified
number of years.
The Stock Option and Incentive Plan also provides for the issuance of
incentive stock awards as determined by the board of directors of the Company.
Certain key executives may be awarded incentive compensation in the form of
3-year restricted stock, which is forfeitable upon termination of employment
during that time period. Key employees may also use their cash bonus to purchase
two-year restricted stock at a twenty-five percent discount. All amounts in
excess of the purchase price of this stock are forfeitable should they terminate
their employment during that time period. Incentive stock awards are an
important factor in attracting and motivating key executives who will dedicate
their maximum efforts toward the advancement of the Company.
A total of 1,384,313 shares of common stock were made available for option
and incentive awards under the Stock Option and Incentive Plan. Options to
purchase 1,010,389 shares (net of forfeitures) and 168,064 shares of restricted
stock have been granted to date. Options granted to the executives in 2003 and
those granted in 2004 as a result of 2003's performance are included in the
Summary Compensation Table.
Chief Executive Officer Compensation
The compensation of the Company's President and Chief Executive Officer,
Mr. Abbate, is reviewed by the Compensation/Stock Option Committee, which
presents its recommendations to the board for action. Mr. Abbate participates in
the same plans as the other executive officers, including the base salary
program, the Management Incentive Plan, the Stock Option and Incentive Plan, and
the staff benefit programs as outlined elsewhere in this proxy statement. Mr.
Abbate also participates in the Supplemental Executives' Retirement Plan. Mr.
Abbate receives no compensation for his duties as a director. The committee
bases Mr. Abbate's compensation on the same criteria used for all executive
officers with particular emphasis on
15
the factors which will promote the Company's long-term growth, organization
stability, and financial strength. Mr. Abbate's salary was at the seventy-fifth
percentile of the 2003 salary range for his position and his annual cash bonus
for 2003 performance was based upon achieving 96.75 percent of targeted
financial goals for that year. Mr. Abbate continues to provide the Company and
the Bank with exemplary leadership, vision and commitment, and strives to meet
the Company's long-term strategic goals.
Submitted by the Compensation/Stock
Option Committee:
James E. Healey, Chairman
Donald L. Correll
David R. Ficca
Jeremiah F. O'Connor
Joseph C. Parisi
Robert P. Rittereiser
Audit Committee Report
- --------------------------------------------------------------------------------
The Audit Committee consists of six directors, each of whom is independent
as defined in the listing standards of the National Association of Securities
Dealers. A brief description of the responsibilities of the Audit Committee is
set forth above under the caption "Proposal No. 1 - Election of Directors -
Committees and Meetings of the Board of Directors".
In accordance with its written charter adopted by the board of directors,
the Audit Committee assists the board in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the Company. The Committee met nine times during 2003.
The Committee discussed the interim financial information contained in each
quarterly earnings announcement with the Chief Financial Officer and the
independent auditors prior to the public release of this information. The
Chairman also discussed matters described in Statement on Auditing Standards No.
61, as amended "Communication with Audit Committees" ("SAS 61") with the
independent auditors prior to the filing of the Company's quarterly report on
Form 10-Q.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained, from the independent auditors, a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with the Independence
Standards Board No. 1, "Independence Discussion with Audit Committees",
discussed with auditors any relationships that may impact their objectivity and
independence and satisfied itself as to the auditors' independence. The
Committee also discussed with management, the internal auditors and the
independent auditors the quality and adequacy of the Company's internal controls
and the internal audit function's organization, responsibilities, budget and
staffing and concurred in the appointment of internal audit staff. The Committee
reviewed with the independent and the internal auditors their audit plans, audit
scope and identification of audit risks.
The Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in SAS 61 and, with and without management present, discussed
and reviewed the results of the independent auditors' examination of the
financial statements. The Committee also discussed the results of the internal
audit examinations.
The Committee reviewed the audited financial statements of the Company as
of, and for, the fiscal year ended December 31, 2003 with management and the
independent auditors. Management has the responsibility for the preparation of
the Company's financial statements and the independent auditors have the
responsibility for the examination of those statements.
Based on the review and discussions with management and the independent
auditors, the Committee recommended to the board that the Company's audited
financial statements be included in its annual report on Form 10-K for the
fiscal year ended December 31, 2003 and for filing with the Securities and
Exchange Commission. The Committee also recommended the reappointment, subject
to
16
shareholder ratification, of the independent auditors, and the board
concurred in such recommendation.
The Audit Committee:
John J. Eccleston, Chairman
Donald L. Correll
Anthony R. Coscia
James E. Healey
Eleanore S. Nissley
Joseph C. Parisi
Fees Paid to Our Independent Auditors
The following table summarizes the aggregate fees billed to the Company by
Deloitte & Touche, LLP our independent auditors: ($ in thousands)
2003 2002
------------ -----------
Audit Fees (a) $266,020 $260,120
Audit-Related Fees (b) 44,550 54,375
Tax Fees (c) 3,000 21,000
All Other Fees - -
------------ -----------
Total $313,570 $335,495
============ ===========
(a) Fees for audit services billed in 2003 consisted of:
o Audit of the Company's annual financial statements
o Reviews of the Company's quarterly financial statements
o Attestation of management's assessment of internal control, as
required by section 112 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA)
o New Jersey State Bank Directors Examination
Fees for audit services billed in 2002 consisted of:
o Audit of the Company's annual financial statements
o Reviews of the Company's quarterly financial statements
(b) Fees for audit-related services billed in 2003 and 2002 consisted of:
o Due diligence associated with mergers/acquisitions
o Employee benefit plan audits
o Examination of management's assertion regarding the Company's
compliance with its minimum servicing standards under the Uniform
Single Attestation Program for Mortgage Bankers (USAP)
(c) Fees for tax services billed in 2003 and 2002 consisted of tax compliance:
o Tax compliance services are services rendered based upon facts already
in existence or transactions that have already occurred to document,
compute, and obtain government approval for amounts to be included in
tax filings and consisted of:
i. Federal, state and local income tax return assistance
ii. Sales and use, property and other tax return assistance
In considering the nature of the services provided by the independent auditor,
the Audit Committee determined that such services are compatible with the
provision of independent audit services. The Audit Committee discussed these
services with the independent auditor and Company management to determine that
they are permitted under the rules and regulations concerning auditor
independence promulgated by the U.S. Securities and Exchange Commission (the
"SEC") to implement the Sarbanes-Oxley Act of 2002, as well as the American
Institute of Certified Public Accountants.
Pre-Approval Policy
- -------------------
The services performed by the independent auditor in 2003 were pre-approved in
accordance with the pre-approval policy and procedures adopted by the Audit
Committee at its January 23, 2003 meeting. This policy describes the permitted
audit, audit-related, tax, and other services (collectively, the "Disclosure
Categories") that the independent auditor may perform.
Any requests for audit, audit-related, tax, and other services not contemplated
must be submitted to the Audit Committee for specific pre-approval and cannot
commence until such approval has been granted.
The policy contains a de minimis provision that operates to provide retroactive
approval for permissible non-audit services under certain circumstances. During
2003 no such fees were incurred.
17
FIVE-YEAR PERFORMANCE COMPARISON
The graph below provides an indicator of cumulative total stockholder returns
for the Company as compared with a Peer Group (1), the Nasdaq Stock Market
(U.S.) Index and the Nasdaq Bank Index
[Graph]
Assumes $100 invested on December 31, 1998 in the Company Common Stock, the
Nasdaq Stock Market (U.S.) Index, the Nasdaq Bank Index and Peer Group
Common Stock. Total stockholder returns assumes reinvestment of dividends.
____________________
(1) The Peer Group is comprised of 17 banking institutions in Connecticut, New
Jersey and New York with asset size of at least $250 million, but less than
$1 billion, as of June 30, 2003 the most recently available information as
reported in the SNL Quarterly Bank Digest of December 2003. The banking
institutions include are: First Litchfield Financial (CT); Center Bancorp
Inc. (NJ), Community Bancorp of New Jersey (NJ), Greater Community Bancorp
(NJ), Stewardship Financial Corp (NJ), SVB Financial Services Inc. (NJ) and
Unity Bancorp Inc. (NJ); Alliance Financial Corp. (NY) Berkshire Bancorp
Inc. (NY), Bridge Bancorp Inc. (NY), CNB Bancorp Inc. (NY), Evans Bancorp
Inc. (NY), First of Long Island Corporation (NY), Intervest Bancshares
Corp. (NY), Jeffersonville Bancorp (NY), Long Island Financial Corp. (NY)
and Smithtown Bancorp Inc. (NY).
Cumulative Total Return
---------------------------------------------------------------
12/98 12/99 12/00 12/01 12/02 12/03
---------- -------- -------- ------- ------ -------
Interchange Financial Services Corp. 100.00 103.60 90.22 128.57 167.79 269.59
Peer Group 100.00 88.48 91.64 109.51 147.63 198.15
Nasdaq Stock Market (U.S.) 100.00 192.96 128.98 67.61 62.17 87.61
Nasdaq Bank 100.00 216.79 113.10 88.84 61.04 80.89
18
Principal Shareholders and Holdings of Management of the Company
- --------------------------------------------------------------------------------
The following table sets forth the beneficial ownership of the Company's
common stock by (a) each beneficial owner of more than five percent of the
common stock, (b) each director, (c) each named executive officer, and (d) all
current directors and executive officers of the Company as a group. Beneficially
owned shares include shares over which the named person exercised either sole or
shared voting power or sole or shared investment power. It also includes shares
owned (i) by spouse, minor children or by relatives sharing the same home, or
(ii) by entities owned or controlled by the named person. Unless otherwise
noted, all shares are owned of record and beneficially by the named person,
either directly or through the dividend reinvestment plan as of February 27,
2004.
Beneficially Right to Deferral Percent
Name and Address (1) Owned Acquire (2) Plans (3) Total of Class
------------------------------------------ ---------------- ------------- ----------- --------------- -----------
(a)
Banc Funds Company, LLC
208 South Lasalle Street, Suite 1680
Chicago, IL 60604. . . . . . . . . . . . 844,344 (4) - - 844,344 6.6
(b)
Anthony S. Abbate. . . . . . . . . . . . . 253,029 111,000 22,083 386,112 3.0
Anthony D. Andora. . . . . . . . . . . . . 206,948 3,000 - 209,948 1.6
Gerald A. Calabrese, Jr. . . . . . . . . . 140,269 - - 140,269 1.1
Donald L. Correll. . . . . . . . . . . . . 12,153 3,000 - 15,153 *
Anthony R. Coscia. . . . . . . . . . . . . 12,075 3,000 - 15,075 *
John J. Eccleston. . . . . . . . . . . . . 117,275 500 - 117,775 *
David R. Ficca. . . . . . . . . . . . . . 87,257 3,000 - 90,257 *
James E. Healey. . . . . . . . . . . . . . 57,066 1,500 - 58,566 *
Nicholas R. Marcalus. . . . . . . . . . . . 13,422 500 - 13,922 *
Eleanore S. Nissley. . . . . . . . . . . . 68,989 2,500 - 71,489 *
Jeremiah F. O'Connor. . . . . . . . . . . . 80,198 - - 80,198 *
Joseph C. Parisi . . . . . . . . . . . . . 155,132 - - 155,132 1.2
Robert P. Rittereiser. . . . . . . . . . . 40,752 3,000 - 43,752 *
Benjamin Rosenzweig. . . . . . . . . . . . 175,374 3,000 - 178,374 1.4
John A. Schepisi . . . . . . . . . . . . . 158,808 - - 158,808 1.2
(c)
Patricia D. Arnold . . . . . . . . . . . . 12,921 36,750 20,775 70,446 *
Albert F. Buzzetti . . . . . . . . . . . . 72,002 - 33 72,035 *
Charles T. Field . . . . . . . . . . . . . - - 1,154 1,154 *
Frank R. Giancola. . . . . . . . . . . . . 18,590 36,750 30,327 85,667 *
Anthony Labozzetta . . . . . . . . . . . . 42,490 40,875 12,733 96,098 *
(d)
Directors and executive officers as a
group (20 persons). . . . . . . . . . . 1,724,930 248,375 87,105 2,060,410 16.1
------------------------------------------
<FN>
* Does not exceed one percent of class
1. The address for all persons listed under sections (b) and (c) is c/o Interchange Financial Services Corporation, Park 80
West Plaza Two, Saddle Brook, New Jersey 07663.
2. Includes stock acquirable by exercise of stock options exercisable within 60 days of the date of the Proxy Statement.
3. Shares held in deferred compensation accounts to which individuals have sole power to vote but no investment power.
4. As reported on Form 13F for the period ended December 31, 2003.
</FN>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's equity securities, to file reports of security
ownership and changes in such ownership with the Securities and Exchange
Commission. These persons are also required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file. The Company believes
that all Section 16(a) forms were filed on a timely basis during and for 2003.
19
Certain Relationships and Related Party Transactions of the Company
- --------------------------------------------------------------------------------
Transactions with Management
Officers and directors of the Company and their affiliated companies are
customers of and are engaged in transactions with the Company and its
subsidiaries in the ordinary course of business on substantially the same terms
(including interest rates on loans, collateral and collectibility
considerations) as those prevailing at the time for comparable transactions with
other unaffiliated borrowers and suppliers.
Mr. Andora, a director of the Company and the Bank, is a member of Andora &
Romano, LLC, a firm that renders various legal services to the Company and its
subsidiaries. During 2003, Andora & Romano received fees for legal services of
$329,214, including $95,000 paid pursuant to retainer contracts and $205,950
representing fees for loan related matters, the bulk of which was reimbursed to
the Bank by its customers. The Company expects to transact business with this
firm in the future.
Mr. Calabrese, Jr., a director of the Company and the Bank, is a member of
Gerald A. Calabrese, Jr. & Company, a firm that renders real estate appraisal
services to the Company and its subsidiaries. During 2003, Gerald A. Calabrese,
Jr. & Company received $7,775 for real estate appraisals. The Company expects to
transact business with this firm in the future.
Mr. Marcalus, a director of the Company and the Bank, is a member of Marcal
Paper Mills, Inc. During 2003, Marcal Paper Mills, Inc. received $62,350 for
subletting space to the Bank. The Company expects to transact business with this
firm in the future.
Mr. Parisi, a director of the Company and the Bank, is a member of
Otterstedt Insurance Company, a firm that renders various insurance services to
the Company and its subsidiaries. During 2003, Otterstedt Insurance Company
received $17,051 for insurance services. The Company expects to transact
business with this firm in the future.
Mr. Schepisi, a director of the Company and the Bank, is a member of
Schepisi & McLaughlin, a firm that renders various legal services to the Company
and its subsidiaries. During 2003, Schepisi & McLaughlin received fees for legal
services of $26,906. The Company expects to transact business with this firm in
the future.
Other Matters
The board of directors is not aware of any other matters to be presented at
the annual meeting. If any other matter proper for action at the annual meeting
should be presented, the persons named in the accompanying proxy will vote the
shares represented by the proxy on such matter in accordance with their best
judgment pursuant to discretionary authority granted in the proxy. If any matter
not proper for action at the annual meeting should be presented, the named
proxies will vote against consideration thereof or action thereon.
Shareholder Communication
The Company has also adopted a procedure by which shareholders may send
communications as defined within Item 7(h) of Schedule 14A under the Exchange
Act to one or more members of the board of directors by writing to such
director(s) or to the whole Board of Directors in care of the Interchange
Financial Services Corporation, Park 80 West/Plaza Two, Saddle Brook, NJ 07663,
Attention: Secretary of the Board. Any such communications will be promptly
distributed by the Secretary to such individual director(s) or to all directors
if addressed to the whole board of directors.
Nominating Committee
Our Nominating Committee has authority to nominate individuals for election
as directors. Our Nominating Committee Charter provides procedures to nominate
directors. Nominations may be made by the board of directors or by any
shareholder who holds stock in the Company and is entitled to vote. Nominations
for the 2005 Annual Meeting (other than those approved by the Board) should be
made in writing and mailed no later than the 120th calendar day before the first
anniversary of the date of the Corporation's proxy statement for the previous
year's annual meeting to the Nominating Committee, care of Interchange Financial
Services Corporation, Park 80 West, Plaza II, Saddle Brook, NJ 07663, Attention:
Secretary of the Board.
20
The criteria and qualifications of director nominees are based upon the
needs of the Company at the time the nominees are considered. A candidate must
possess the ability to apply good business judgment and must be in a position to
properly exercise his or her duties of loyalty and care. Candidates should also
exhibit proven leadership capabilities, high integrity and experience with a
high level of responsibilities within their chosen fields.
A written statement from the nominee is required consenting to serve as
director if elected. Nominations must include the nominee's name, mailing
address, telephone number, email address, resume, business history, listing of
other past and present directorships and director committees, banking industry
experience, number of shares owned, and other relevant information.
Directors Attendance at Meetings
The board of directors of the Company is composed of a majority of
independent directors (as independence is defined in the NASD Listing
Standards). During the fiscal year ended December 31, 2003, the board of
directors of the Company and the Bank held a total of 16 regular meetings.
Various committees of the Board held meetings as needed. Each director attended
at least seventy-five percent (75%) of the total meetings of the Boards of
Directors and meetings of the committees on which they served. The Company also
encourages all members of the Board to attend the Company's annual meeting of
shareholders each year. All members of the board of directors of the Company
attended the Company's 2003 annual meeting.
Submission of Shareholders Proposals
Proposals intended for inclusion in the proxy statement for next year's
annual meeting of shareholders must be in writing and must be received by the
Secretary of the Company at Park 80 West/Plaza Two, Saddle Brook, NJ 07663, not
later than December 18, 2004. To be considered for inclusion in the Company's
proxy statement and form of proxy for an annual meeting, a shareholder proposal
must be submitted on a timely basis and the proposal and proponent thereof must
meet the requirements established by the Securities and Exchange Commission for
shareholder proposals.
Solicitation Expenses
The Company is paying for distributing and soliciting proxies. As part of
this process, we reimburse brokers, nominees, fiduciaries and other custodians
reasonable fees and expenses in forwarding proxy materials to shareholders.
Employees do not receive additional compensation for soliciting proxies.
Financial Materials
Consolidated financial statements of the Company and its subsidiaries are
included in the Company's Annual Report to Shareholders for the year 2003.
Additional copies of the Annual Report to Shareholders and the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange Commission may be
obtained without charge from the Secretary of the Company, Park 80 West/Plaza
Two, Saddle Brook, NJ 07663
Where You Can Find More Information
The Company files annual, quarterly and current special reports, proxy
statements and other information with the SEC under the Securities Exchange Act
of 1934, as amended. The Company's SEC filings are available to the public on
the SEC's website at http://www.sec.gov. These filings are also available to the
public from commercial document retrieval services.
You can also read and copy reports, statements or other information filed
by the Company with the SEC at the SEC's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C., 20549, at prescribed rates. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room.
21
(Front)
PROXY INTERCHANGE FINANCIAL SERVICES CORPORATION
Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Eleanore S. Nissley, Anthony R. Coscia and
John J. Eccleston as proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of Interchange Financial Services Corporation held of
record by the undersigned on March 12, 2004, at the annual meeting of
shareholders to be held April 22, 2004, or any adjournment thereof.
1. ELECTION OF DIRECTORS
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed
For terms of three years: Anthony D. Andora, Gerald A. Calabrese, Jr., David R.
Ficca, Nicholas R. Marcalus and Benjamin Rosenzweig. For terms of two years:
John A. Schepisi and for terms of one year: Joseph C. Parisi
(INSTRUCTION: To withhold authority to vote for an individual nominee write that
nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(Back)
(Continued from other side)
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
FOR AGAINST ABSTAIN
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR Proposals 1 and 2.
Please sign exactly as name appears below. When shares
are held by joint tenants, both should sign. When signing as
an attorney, as executor, administrator, trustee or
guardian, please give full title as such. If a corporation,
please sign in full corporate name by president or other
authorized officer. If a partnership, please sign in
partnership name by authorized person.
DATED: ,2004
--------------------
---------------------------
Signature
---------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.