UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 703-2265
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------
Common Stock (no par value)
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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes _X_ No ___
The aggregate market value of registrant's voting stock held by
non-affiliates of the registrant computed June 30, 2004 based on the average bid
and asked price for such stock on that date was approximately $315,241,000.
The number of outstanding shares of the Registrant's common stock, no
par value per share, as of February 28, 2005, was as follows:
Class Number of Outstanding Shares
----- ----------------------------
Common Stock
(No par value) 19,126,446
Documents incorporated by reference:
Portions of registrant's definitive Proxy Statement for the 2005 Annual Meeting
of Shareholders (the "2005 annual Meeting Proxy Statement") to be filed on or
about March 30, 2005 are incorporated by reference to Part III of this Annual
Report on Form 10-K.
Portions of registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 2004 (the "2004 Annual Report to Shareholders") are incorporated by
reference to Parts II and IV of this Annual Report on Form 10-K.
With the exception of information specifically incorporated by reference, the
2005 Annual Meeting Proxy Statement and the 2004 Annual Report to Shareholders
are not deemed to be part of the report.
INTERCHANGE FINANCIAL SERVICES CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
PART I PAGE
Item 1. Business................................................... 1
Item 2. Properties................................................. 11
Item 3. Legal Proceedings.......................................... 11
Item 4. Submission of Matters to a Vote of Security Holders........ 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 12
Item 6. Selected Financial Data.................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk............................................ 15
Item 8. Financial Statements and Supplementary Data................ 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................. 15
Item 9A Controls and Procedures.................................... 15
Item 9B Other Information.......................................... 18
PART III
Item 10. Directors and Executive Officers........................... 18
Item 11. Executive Compensation..................................... 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters......... 20
Item 13. Certain Relationships and Related Transactions............. 21
Item 14. Principal Accounting Fees and Services..................... 21
PART IV
Item 15. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................ 22
Exhibit Index ........................................................... 22
Signatures ........................................................... 24
PART I
Item 1. Business
General
_______
Interchange Financial Services Corporation (the "Company"), a New Jersey
business corporation, is a bank holding company registered with the Board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956, as amended. The Company was incorporated in the State of New Jersey on
October 15, 1984. It acquired all of the outstanding stock of Interchange Bank
(formerly known as Interchange State Bank), a New Jersey state chartered bank
(the "Bank" or "Interchange"), in 1986. The Bank is the Company's principal
operating subsidiary. In addition to the Bank, the Company owns all of the
outstanding capital stock of Clover Leaf Mortgage Company, a New Jersey
Corporation established in 1988, which is not currently engaged in any business
activity.
The Company's principal executive office is located at Park 80 West/ Plaza
Two, Saddle Brook, New Jersey 07663, and the telephone number is (201) 703-2265.
As of December 31, 2004, the Company had consolidated assets of
approximately $1.5 billion, deposits of approximately $1.2 billion and
shareholders' equity of approximately $150.2 million.
As a holding company, the Company provides support services to its direct
and indirect subsidiaries. These include executive management, personnel and
benefits, risk management, data processing, strategic planning, legal, and
accounting and treasury.
Banking Subsidiary
__________________
The Bank, established in 1969, is a full-service New Jersey-chartered
commercial bank headquartered in Saddle Brook, New Jersey. The Bank is a member
of the Federal Reserve System and its deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC"). It offers banking services for
individuals and businesses through twenty-nine (29) banking offices and one (1)
supermarket mini-branch in Bergen County, New Jersey. The Bank maintains
thirty-two (32) automated teller machines (operating within the Star(TM),
Plus(TM), CIRRUS(TM), VISA(TM), NYCE(TM), and MasterCard(TM) networks), which
are located at twenty-nine of the banking offices, a supermarket, and the Bank's
operations center.
Subsidiaries of the Bank include: Clover Leaf Investment Corporation,
established in 1988 to engage in the business of an investment company pursuant
to New Jersey law; Clover Leaf Insurance Agency, Inc., established in 1990 to
engage in sales of tax-deferred annuities; Clover Leaf Management Realty
Corporation, established in 1998 as 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., established in 1999 to engage in equipment
lease financing. All of the
1
Bank's subsidiaries are organized under New Jersey law and 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.
Growth of the Company and the Bank
__________________________________
On April 30, 2003, the Company completed its acquisition of Bridge View
Bancorp ("Bridge View"), a bank holding company headquartered in Englewood
Cliffs, New Jersey for approximately $33.5 million in cash and 2.9 million in
shares with an approximate value of $85.7 million. Bridge View's primary asset
was Bridge View Bank which operated eleven branches in Bergen County, New
Jersey. As of the acquisition date Bridge View had approximately $291 million in
total assets, $184 million in loans and $259 million in deposits without giving
effect to any purchase accounting adjustments. The transaction was accounted for
as a purchase and the assets and liabilities of former Bridge View were recorded
at their respective fair values as of April 30, 2003. Based on the fair values,
the Company recorded purchase accounting adjustments related to: loans of $1.6
million; securities of $376 thousand; other assets of $1.9 million; other
liabilities of $3.7 million; core deposit intangibles of $4.3 million and
goodwill of $54.4 million.
On January 16, 2002, the Company acquired certain assets and assumed
certain liabilities of Monarch Capital Corporation ("Monarch"). In this asset
purchase transaction, the Company acquired certain loans and leases valued at
approximately $12.8 million. In addition, the Company assumed certain
liabilities (borrowings) of Monarch, valued at approximately $12.7 million,
which had been used to fund the loans and leases. The purchase price of $1.6
million was paid in cash and shares of Company common stock, subject to certain
adjustments.
On May 31, 1998, the Company completed its acquisition of Jersey Bank for
Savings. At that date, Jersey Bank had total assets of approximately $78.6
million and total deposits of approximately $69.8 million. The transaction was
accounted for as a pooling of interests. In the transaction, each share of stock
of Jersey Bank for Savings, including shares of common stock that had been
converted from shares of preferred stock, was converted into 1.5 shares of the
Company's common stock. The Company issued 780,198 shares of its common stock in
the transaction.
Description of Banking and Related Operations
_____________________________________________
Through the Bank, the Company offers a wide range of consumer banking
products and services including checking and savings accounts, money market
accounts, certificates of deposit, individual retirement accounts, residential
mortgages, home equity loans and lines of credit, home improvement loans and
2
automobile loans. The Bank also offers a VISA Credit Card and convenience
services; such as, the Interchange Debit Card which allows our customers to make
purchases wherever the Visa Debit Card is accepted and is also used as an ATM
card to perform basic banking transactions.
Other services that the Bank offers are InterBank(SM) online banking and
Bill Paying. InterBank(SM) allows our customers to access account information,
process transfers between accounts, view paid check images, place a stop payment
and much more. The InterBank(SM) Bill Paying service lets customers pay bills
online - controlling which merchants they pay, the amount they pay and when they
pay all with safety, speed, simplicity and confidence. When customers are not
able to get to a branch or do their banking online, they can be in touch with
their accounts by phone 24 hours a day, 7 days a week with Interchange
Bank-Line.
The Bank's online services can be accessed through the Bank's web site at
www.interchangebank.com. As discussed herein, additional products and services
may be accessed through the Bank's web site.
The Bank also is engaged in the financing of local business and industry,
providing credit facilities and related services for smaller businesses,
typically those with $1 million to $5 million in annual sales. Commercial loan
customers of the Bank are businesses ranging from light manufacturing and local
wholesale and distribution companies to medium-sized service firms and local
retail businesses. Most types of commercial loan products are offered, including
working capital lines of credit, small business administration loans, term loans
for fixed asset acquisitions, commercial mortgages, equipment lease financing
and other forms of asset-based financing. In addition, the Bank offers a full
line of cash management services for the corporate customer, including online
banking through Interbanking(SM), Business Check Card, Merchant Services,
Lockbox and Escrow Management. The Bank also specializes in developing corporate
retirement plans for it's customers through the Bank's Investment Services
Department.
In addition to its origination activities, the Bank purchases packages of
loans. These loans are subjected to the Bank's independent credit analysis prior
to purchase. The Bank has experienced opportunities to sell its other products
and services to the borrowers whose loans are purchased and believes that
purchasing loans will continue to be a desirable way to augment its portfolios
as opportunities arise.
The Bank also engages in mutual fund and annuities sales and brokerage
services. An Investment Services Program is offered through an alliance between
the Bank and ICBA Financial Services Corporation ("ICBA"), under which mutual
funds and annuities offered by ICBA are made available to the Bank's customers.
The Bank has also expanded its product offerings by entering into an agreement
with a third party provider to offer discount brokerage services to its
customers. The Bank offers securities trading through its web site, which is
hyperlinked to FISERV Securities, Inc., member NASD/SIPC, so that customers can
access their brokerage
3
accounts via the Internet. There is also a direct link from the Company's web
site to the Nasdaq National Market to allow investors to keep informed of the
daily quotes and market activity for the Company's common stock.
Additional information about the Bank and the Company may be found on our
web site at www.interchangebank.com. Information contained on our Internet web
site is not part of this Annual Report on Form 10-K and is not being
incorporated by reference into this report.
Market Areas
____________
The Company's principal market for its deposit gathering and loan
origination activities covers major portions of Bergen County in the
northeastern corner of New Jersey adjacent to New York City. Bergen County has a
relatively large affluent base for the Company's services. The principal service
areas of the Company represent a diversified mix of stable residential
neighborhoods with a wide range of per household income levels; offices, service
industries and light industrial facilities; and large shopping malls and small
retail outlets.
Competition
___________
Competition in the banking and financial services industry within the
Company's primary market area is strong. The Bank actively competes with
national and state-chartered commercial banks, operating on a local and national
scale, and other financial institutions, including savings and loan
associations, mutual savings banks, and credit unions. In addition, the Bank
faces competition from less heavily regulated entities such as brokerage
institutions, money management firms, consumer finance and credit card companies
and various other types of financial services companies. Many of these
institutions are larger than the Bank, some are better capitalized, and a number
pursue community banking strategies similar to those of the Bank.
The Bank believes that opportunities continue to exist to satisfy the
deposit and borrowing needs of small and middle market businesses. Larger banks
continued to show an appetite for only the largest loans, finding themselves
challenged to administer smaller loans profitably. Interchange has the desire
and the ability to give smaller and mid-sized businesses the service they
require. Many small businesses eventually become midsize businesses, with a
corresponding change in their financial requirements. By designing programs to
accommodate the changing needs of growing businesses, Interchange believes it is
extending the longevity of valuable customer relationships. For example, through
our subsidiary, Interchange Capital Company, L.L.C., we are able to extend
cost-effective equipment leasing solutions for a variety of expansion and
upgrading projects. The Bank believes that it is able to maintain its
relationship with these growing businesses because of its ability to be
responsive to both small and midsize business constituencies.
4
Personnel
_________
The Company had 326 full-time-equivalent employees at year-end 2004. The
Company believes its relationship with employees to be good.
Regulation and Supervision
__________________________
Banking is a complex, highly regulated industry. The primary goals of the
bank regulatory structure are to maintain a safe and sound banking system and to
facilitate the conduct of sound monetary policy. In furtherance of those goals,
Congress has created several largely autonomous regulatory agencies and enacted
myriad legislation that governs banks, bank holding companies and the banking
industry. Descriptions and references to the statutes and regulations below are
brief summaries thereof and do not purport to be complete. The descriptions are
qualified in their entirety by reference to the specific statutes and
regulations discussed.
The Company
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and as such, is subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve"). As a bank holding company, the Company is
required to file an annual report with the Federal Reserve and such additional
information as the Federal Reserve may require pursuant to the BHCA and Federal
Regulation Y. The Federal Reserve may conduct examinations of the Company or any
of its subsidiaries.
The BHCA requires every bank holding company to obtain the prior approval
of the Federal Reserve before it may acquire all or substantially all of the
assets of any bank (although the Federal Reserve may not assert jurisdiction in
certain bank mergers that are regulated under the Bank Merger Act), or ownership
or control of any voting shares of any bank if after such acquisition it would
own or control directly or indirectly more than 5% of the voting shares of such
bank.
The BHCA also provides that, with certain limited exceptions, a bank
holding company may not (i) engage in any activities other than those of banking
or managing or controlling banks and other authorized subsidiaries or (ii) own
or control more than five percent (5%) of the voting shares of any company that
is not a bank, including any foreign company. A bank holding company is
permitted, however, to acquire shares of any company the activities of which the
Federal Reserve, after due notice and opportunity for hearing, has determined to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. The Federal Reserve has issued regulations setting
forth specific activities that are permissible under the exception. A bank
holding company and its subsidiaries are also prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services.
5
Under certain circumstances, prior approval of the Federal Reserve is
required under the BHCA before a bank holding company may purchase or redeem any
of its equity securities.
Traditionally, the activities of bank holding companies have been limited
to the business of banking and activities closely related or incidental to
banking. The Gramm-Leach-Bliley Financial Services Modernization Act of 1999
(the "Modernization Act"), enacted on November 11, 1999, with an effective date
of March 11, 2000, expanded the types of activities in which a bank holding
company may engage. Subject to various limitations, the Modernization Act
generally permits a bank holding company to elect to become a "financial holding
company." A financial holding company may affiliate with securities firms and
insurance companies and engage in other activities that are "financial in
nature." Among the activities that are deemed "financial in nature" are, in
addition to traditional lending activities, securities underwriting, dealing in
or making a market in securities, sponsoring mutual funds and investment
companies, insurance underwriting and agency activities, certain merchant
banking activities, and activities that the Federal Reserve considers to be
closely related to banking.
A bank holding company may become a financial holding company under the
Modernization Act if each of its subsidiary banks is "well capitalized" under
the Federal Reserve guidelines (See "Capital Adequacy Guidelines" below), is
well managed and has at least a satisfactory rating under the Community
Reinvestment Act. In addition, the bank holding company must file a declaration
with the Federal Reserve that the bank holding company wishes to become a
financial holding company. A bank holding company that falls out of compliance
with such requirements may be required to cease engaging in certain activities
permitted only for financial holding companies. Any bank holding company that
does not elect to become a financial holding company remains subject to the
current restrictions of the BHCA.
Under the Modernization Act, the Federal Reserve serves as the primary
"umbrella" regulator of financial holding companies, with supervisory authority
over each parent company and limited authority over its subsidiaries. Expanded
financial activities of financial holding companies will generally be regulated
according to the type of such financial activity: banking activities by banking
regulators, securities activities by securities regulators, and insurance
activities by insurance regulators. The Modernization Act also imposes
additional restrictions and heightened disclosure requirements regarding private
information collected by financial institutions.
Presently, the Company has not chosen to become a financial holding
company.
6
Monetary Policy
The banking industry is affected by the monetary and fiscal policies of
the Federal Reserve. An important function of the Federal Reserve is to regulate
the national supply of bank credit to moderate recessions and to curb inflation.
Among the instruments of monetary policy used by the Federal Reserve to
implement its objectives are: open-market operations in U. S. government
securities, changes in the discount rate and the federal funds rate (which is
the rate banks charge each other for overnight borrowings), and changes in
reserve requirements on bank deposits.
Sarbanes-Oxley Act
On July 30, 2002, the Sarbanes-Oxley Act of 2002 was signed into law. The
Act addresses many aspects of financial accounting, corporate governance and
public company disclosure. Among other things, it establishes a comprehensive
framework for the oversight of public company auditing and for strengthening the
independence of auditors and audit committees. Under the Act, audit committees
are responsible for the appointment, compensation and oversight of the work of
the auditors. The non-audit services that can be provided to a company by its
auditor are limited. Audit committee members are subject to new rules addressing
their independence. The Act also requires enhanced and accelerated financial
disclosures, and it establishes various responsibility measures (including, for
example, requiring the chief executive officer and chief financial officer to
certify to the quality of a company's financial reporting). The Act imposes new
restrictions on and accelerated reporting requirements for certain insider
trading activities. It imposes a variety of new penalties for fraud and other
violations and creates a new federal felony for securities fraud. Various
sections of the Act are applicable to the Company. Portions of the Act were
effective immediately; others became effective or are in the process of becoming
effective through rulings by the Securities and Exchange Commission, based on
timelines set forth in the law.
Capital Adequacy Guidelines
The Federal Reserve issued guidelines establishing risk-based capital
requirements for bank holding companies having more than $150 million in assets
and member banks of the Federal Reserve System. The guidelines established a
risk-based capital framework consisting of (1) a definition of capital and (2) a
system for assigning risk weights. Capital consists of Tier 1 capital, which
includes common shareholders' equity less certain intangibles and a
supplementary component called Tier 2, which includes a portion of the allowance
for loan losses. Effective October 1, 1998, the Federal Reserve adopted an
amendment to its risk-based capital guidelines that permits insured depository
institutions to include in their Tier 2 capital up to 45% of the pre-tax net
unrealized gains on certain available for sale equity securities. All assets and
off-balance-sheet items are
7
assigned to one of four weighted risk categories ranging from 0% to 100%. Higher
levels of capital are required for the categories perceived as representing the
greater risks. The Federal Reserve established a minimum risk-based capital
ratio of 8% (of which at least 4% must be Tier 1). An institution's risk-based
capital ratio is determined by dividing its qualifying capital by its
risk-weighted assets. The guidelines make regulatory capital requirements more
sensitive to differences in risk profiles among banking institutions, take
off-balance sheet items into account in assessing capital adequacy, and minimize
disincentives to holding liquid, low-risk assets. Banking organizations are
generally expected to operate with capital positions well above the minimum
rates. Institutions with higher levels of risk, or which experience or
anticipate significant growth, are also expected to operate well above minimum
capital standards. In addition to the risk-based guidelines discussed above, the
Federal Reserve requires that a bank holding company and bank which meet the
regulator's highest performance and operational standards and which are not
contemplating or experiencing significant growth maintain a minimum leverage
ratio (Tier 1 capital as a percent of quarterly average adjusted assets) of 3%.
For those financial institutions with higher levels of risk or that are
experiencing or anticipating significant growth, the minimum leverage ratio will
be increased. At December 31, 2004, the Company and the Bank satisfied these
ratios to be categorized as a "well-capitalized" institutions, which in the
regulatory framework for prompt corrective action imposes the lowest level of
supervisory restraints.
Capital adequacy guidelines focus principally on broad categories of
credit risk although the framework for assigning assets and off-balance sheet
items to risk categories does incorporate elements of transfer risk. The
risk-based capital ratio does not, however, incorporate other factors that may
affect a company's financial condition, such as overall interest rate exposure,
liquidity, funding and market risks, the quality and level of earnings,
investment or loan concentrations, the quality of loans and investments, the
effectiveness of loan and investment policies and management's ability to
monitor and control financial and operating risks.
The Federal Reserve is vested with broad enforcement powers over bank
holding companies to forestall activities that represent unsafe or unsound
practices or constitute violations of law. These powers may be exercised through
the issuance of cease and desist orders or other actions. The Federal Reserve is
also empowered to assess civil money penalties against companies or individuals
that violate the BHCA, to order termination of non-banking activities of
non-banking subsidiaries of bank holding companies and to order termination of
ownership and control of non-banking subsidiaries by bank holding companies.
Neither the Company nor any of its affiliates has ever been the subject of any
such actions by the Federal Reserve.
8
The Bank
As a New Jersey state-chartered bank, the Bank's operations are subject to
various requirements and restrictions of state law pertaining to, among other
things, lending limits, reserves, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital adequacy. The Bank is subject to primary supervision,
periodic examination and regulation by the New Jersey Department of Banking and
Insurance ("NJDBI"). If, as a result of an examination of a bank, the NJDBI
determines that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity, or other aspects of the bank's
operations are unsatisfactory or that the bank or its management is violating or
has violated any law or regulation, various remedies are available to the NJDBI.
Such remedies include the power to enjoin "unsafe and unsound" practices, to
require affirmative action to correct any conditions resulting from any
violation or practice, to issue an administrative order that can be judicially
enforced, to, among other things, direct an increase in capital, to restrict the
growth of the Bank, to assess civil penalties and to remove officers and
directors. The Bank has never been the subject of any administrative orders,
memoranda of understanding or any other regulatory action by the NJDBI. The Bank
also is a member of the Federal Reserve System and therefore subject to
supervisory examination by and regulations of the Federal Reserve Bank of New
York.
The Bank's deposits are insured by the Bank Insurance Fund ("BIF")
administered by the FDIC up to a maximum of $100,000 per depositor. For this
protection, the Bank pays a quarterly statutory deposit insurance assessment to,
and is subject to the rules and regulations of, the FDIC.
The Bank's ability to pay dividends is subject to certain statutory and
regulatory restrictions. The New Jersey Banking Act of 1948, as amended,
provides that no state-chartered bank may pay a dividend on its capital stock
unless, following the payment of each such dividend, the capital stock of the
bank will be unimpaired, and the bank will have a surplus of not less than 50%
of its capital, or, if not, the payment of such dividend will not reduce the
surplus of the bank. In addition, the payment of dividends is limited by the
requirement to meet the risk-based capital guidelines issued by the Federal
Reserve Board and other regulations.
To the extent that the foregoing information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the full
text of those provisions. Also, as such statutes, regulations and policies are
continually under review by Congress and state legislature and federal and state
regulatory agencies. A change in statutes, regulations or regulatory policies
applicable to the Company or the Bank could have a material effect on the
business of the Company.
9
Available Information
_____________________
The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available
free of charge through the Company's web site as soon as reasonably practicable
after such material is electronically filed or furnished to the Securities and
Exchange Commission. The documents can also be obtained on the Securities and
Exchange Commission website at www.sec.gov. The Company's web site address is
www.interchangebank.com.
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)
disruptions caused by terrorism, such as the events of September 11, 2001, or
military actions in the Middle East or other areas; (v) legislation or
regulatory requirements or changes adversely affecting the business of the
Company; and (vi) 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.
10
Item 2. Properties
The Company leases nineteen banking offices, one mini-branch within a
supermarket, one operations/support facility and one administrative/executive
facility. It owns eight banking offices and leases land on which it owns two
bank buildings. All of the facilities are located in Bergen County, New Jersey,
which constitutes the Company's primary market area.
In the opinion of management, the physical properties of the Company and
its subsidiaries are suitable and adequate.
Item 3. Legal Proceedings
In the ordinary course of business, the Company and its subsidiaries are
involved in routine litigation involving various aspects of its business, none
of which, individually or in the aggregate, in the opinion of management and its
legal counsel, is expected to have a material adverse impact on the consolidated
financial condition, results of operations or liquidity of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the three months ended
December 31, 2004.
11
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is presently listed for quotation on the Nasdaq
National Market System under the symbol "IFCJ". At February 28, 2005, there were
approximately 1,281 shareholders of record. A portion of the Company's common
stock is held in "street name" by nominees for beneficial owners, so the actual
number of shareholders is probably higher. The following table sets forth, for
the periods indicated, the reported high and low sales prices by quarter:
Quarterly Common Stock Price Range
for the years ended December 31,
- --------------------------------------------------------------------------------
High Low Cash
Sales Sales Dividends
Price Price Declared
----- ----- --------
2004
First quarter .............. $ 18.33 $ 14.80 $ 0.08
Second quarter ............. 16.89 14.85 0.08
Third quarter .............. 17.15 15.33 0.08
Fourth quarter ............. 17.97 15.82 0.08
2003
First quarter .............. $ 12.02 $ 10.73 $ 0.07
Second quarter ............. 15.00 11.47 0.07
Third quarter .............. 15.01 12.89 0.07
Fourth quarter ............. 17.79 13.63 0.07
All per share data was restated to reflect a 3-for-2 stock split declared on
January 18, 2005 and paid on February 18, 2005.
A cash dividend of $0.07 and $0.08 was declared on each common share
outstanding in each quarter during 2003 and 2004, respectively.
The Company intends, subject to its financial results, contractual, legal,
and regulatory restrictions, and other factors that its Board of Directors may
deem relevant, to declare and pay a quarterly cash dividend on its common stock
in the future. The principal source of the funds to pay any dividends on the
Company's common stock is dividends received from the Bank. Certain federal and
state regulators impose restrictions on the payment of dividends by banks. See
"Business - Regulation and Supervision" for a discussion of these restrictions.
See Note 18 of Notes to Consolidated Financial Statement for additional
information.
12
Item 6. Selected Financial Data
The following selected financial data are derived from the Company's
audited Consolidated Financial Statements. The information set forth below
should be read in conjunction with the Consolidated Financial Statements and the
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The Consolidated Statements of Financial Condition
as of December 31, 2004 and 2003, and the Consolidated Statements of Income,
Changes in Stockholders' Equity and Cash Flows for each of the years in the
three-year period ended December 31, 2004 and the report thereon of Deloitte &
Touche LLP are included on pages 13 through 52 of the Company's 2004 Annual
Report to Shareholders filed as Exhibit 13 hereto, which pages are incorporated
herein by reference.
CONSOLIDATED FINANCIAL HIGHLIGHTS
Years Ended December 31,
- --------------------------------------------------------------------------------
2004 2003 (1) 2002 2001 2000
------------- ------------- ------------- ------------- -------------
Income Statement Data (in thousands)
Interest income $ 66,100 $ 60,267 $ 56,500 $ 57,402 $ 55,621
Interest expense 13,654 13,874 17,478 23,444 24,227
------------- ------------- ------------- ------------- -------------
Net interest income 52,446 46,393 39,022 33,958 31,394
Provision for loan losses 1,200 1,815 1,500 1,075 750
------------- ------------- ------------- ------------- -------------
Net interest income after provision
for loan losses 51,246 44,578 37,522 32,883 30,644
Non-interest income 11,457 10,645 6,514 5,578 4,381
Non-interest expenses 36,008 31,239 25,063 22,873 21,177
------------- ------------- ------------- ------------- -------------
Income before income taxes 26,695 23,984 18,973 15,588 13,848
Income Taxes 8,481 7,618 6,096 5,048 4,592
------------- ------------- ------------- ------------- -------------
Net income $ 18,214 $ 16,366 $ 12,877 $ 10,540 $ 9,256
============= ============= ============= ============= =============
Per Share Data (2)
Basic earnings per common share $ 0.95 $ 0.92 $ 0.88 $ 0.72 $ 0.63
Diluted earnings per common share 0.94 0.91 0.86 0.72 0.63
Cash dividends declared 0.33 0.29 0.27 0.24 0.22
Special Cash Dividend - - 0.03 - -
Book value 7.85 7.45 5.48 4.69 4.22
Tangible book value (3) 4.74 4.39 5.37 4.69 4.21
Weighted average shares outstanding
(in thousands)
Basic 19,124 17,724 14,714 14,667 14,715
Diluted 19,476 17,987 14,899 14,734 14,756
Balance Sheet Data-end of year
(in thousands)
Total assets $ 1,464,141 $ 1,385,872 $ 936,332 $ 830,949 $ 770,244
Securities held-to-maturity and
securities available-for-sale 388,729 452,060 252,512 193,902 161,354
Loans and leases 934,181 796,581 615,641 581,323 560,879
Allowance for loan and lease losses 9,797 9,641 7,207 6,569 6,154
Total deposits 1,246,138 1,156,797 815,672 726,483 668,860
Securities sold under agreements
to repurchase 4,401 15,618 17,390 6,700 18,500
Short-term borrowings 24,600 46,491 - 18,100 13,000
Long-term borrowings 30,000 10,000 10,000 - -
Total stockholders' equity $ 150,155 $ 143,193 $ 80,680 $ 68,233 $ 61,984
Selected Performance Ratios
Return on average total assets 1.29% 1.35% 1.43% 1.31% 1.24%
Return on average total
stockholders' equity 12.54 13.54 17.35 16.06 16.18
Dividend Payout 35.03 30.37 33.56 33.37 35.24
Average total stockholders' equity
to average total assets 10.25 9.95 8.27 8.13 7.64
Net yield on interest earning assets
(taxable equivalent) (4) 4.16 4.29 4.68 4.49 4.41
Non-interest income to average
total assets 0.81 0.88 0.73 0.69 0.59
Non-interest expense to average
total assets 2.54 2.57 2.79 2.83 2.83
Asset Quality-end of year
(in thousands)
Nonaccrual loans and leases to total
loans and leases 0.98% 1.08% 0.97% 0.37% 0.25%
Nonperforming assets to total assets 0.63 0.63 0.66 0.34 0.21
Allowance for loan and lease losses
to nonaccrual loans and leases 107.27 112.50 120.86 304.12 441.15
Allowance for loan and lease losses
to total loans and leases 1.05 1.21 1.17 1.13 1.10
Net charge-offs to average loans
and leases 0.12 0.13 0.14 0.11 0.01
Liquidity and Capital
Average loans and leases to
average deposits 72.63% 69.39% 78.21% 81.77% 82.81%
Total stockholders' equity to
total assets 10.26 10.33 8.62 8.21 8.05
Tier 1 capital to risk weighted assets 9.36 9.34 12.16 11.74 11.75
Total capital to risk weighted assets 10.35 10.46 13.33 12.89 12.92
Tier 1 capital to average assets 6.49 6.24 8.12 8.09 8.02
- --------------------------------------------------------------------------------
13
(1) On April 30, 2003, the Company completed its acquisition of Bridge View
Bancorp ("Bridge View"). Bridge View's primary asset was Bridge View Bank
which operated eleven branches in Bergen County, New Jersey. At
acquisition date Bridge View had approximately $291 million in total
assets, $184 million in loans and $259 million in deposits without giving
effect to any purchase accounting adjustments. The Company's results of
operations include Bridge View from acquisition date. The transaction was
accounted for as a purchase and the assets and liabilities of former
Bridge View were recorded at their respective fair values as of April 30,
2003. Based on the fair values, the Company recorded purchase accounting
adjustments related to: loans of $1.6 million; securities of $376
thousand; other assets of $1.9 million; other liabilities of $2.5 million;
core deposit intangibles of $4.3 million and goodwill of $54.4 million.
(2) All per share data and weighted average shares were restated to reflect a
3-for-2 stock split declared on May 23, 2002 and January 18, 2005 and paid
on July 12, 2002 and February 18, 2005, respectively.
(3) Tangible book value is calculated by tangible capital (total stockholders'
equity less goodwill and other intangible assets) by total shares issued.
This measure represents a non-GAAP measurement and may not be consistently
calculated throughout the industry. Management believes that this non-GAAP
measurement provides a meaningful way to analyze the Company's tangible
book value year over year and versus the industry.
2004 2003 (1) 2002 2001 2000
--------- --------- --------- --------- ---------
Total stockholders' equity $ 150,155 $ 143,193 $ 80,680 $ 68,233 $ 61,984
Less: goodwill and other
intangible assets 59,612 58,826 1,678 - 81
--------- --------- --------- --------- ---------
Total tangible capital $ 90,543 $ 84,367 $ 79,002 $ 68,233 $ 61,903
========= ========= ========= ========= =========
Total shares issued (2) 19,120 19,215 14,723 14,536 14,694
Tangible book value per share (2) $ 4.74 $ 4.39 $ 5.37 $ 4.69 $ 4.21
(4) Net yield on interest earning assets (taxable equivalent) is calculated by
dividing net interest income (on a fully taxable equivalent basis
utilizing a 34% effective tax rate) by average interest earning assets.
This measure represents a non-GAAP measure
2004 2003 (1) 2002 2001 2000
---------- ---------- ---------- ---------- ----------
Net interest income $ 52,446 $ 46,393 $ 39,022 $ 33,958 $ 31,394
Tax-equivalent basis adjustment 643 533 376 324 158
---------- ---------- ---------- ---------- ----------
Net interest income (on a
fully taxable equivalent
basis) $ 53,089 $ 46,926 $ 39,398 $ 34,282 $ 31,552
========== ========== ========== ========== ==========
Average interest earning assets $1,275,734 $1,093,373 $ 842,191 $ 764,218 $ 715,113
Net yield on interest earning
assets (taxable equivalent) 4.16% 4.29% 4.68% 4.49% 4.41%
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information contained in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 13
through 30 of the Company's 2004 Annual Report to Shareholders filed as Exhibit
13 hereto is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The information regarding the market risk of the Company's financial
instruments, contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 25 of the Company's 2004 Annual
Report to Shareholders filed as Exhibit 13 hereto is incorporated herein by
reference.
Item 8. Financial Statements and Supplemental Data
The financial statements required by this Item are included in the
Company's 2003 Annual Report to Shareholders on pages 31 through 52, filed as
Exhibit 13 hereto and incorporated herein by reference.
Page of Annual
Report to
Shareholders
--------------
Report of Independent Registered Public Accounting Firm 31
Interchange Financial Services Corporation
and Subsidiaries
Consolidated Balance Sheets 32
Consolidated Statements of Income 33
Consolidated Statements of Changes in
Stockholders' Equity 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements
(Notes 1 - 22) 36 - 52
No supplementary data is included in this report as it is inapplicable,
not required, or the information is included elsewhere in the financial
statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no changes in or disagreements with accountants on accounting
and financial disclosure as defined by item 304 of Regulation S-K.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in our filings under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported accurately
within the time periods specified in the Securities and Exchange Commission's
(SEC) rules and forms. As of the end of the period covered by this report, an
evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of the design and operation of our
disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based
upon this evaluation, the CEO and CFO concluded that our disclosure controls and
procedures are effective. The conclusions of the CEO and CFO from this
evaluation were communicated to the Audit Committee.
15
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting
that occurred during the three months ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Report on Internal Control Over Financial Reporting.
The management of Interchange Financial Services Corporation (the
"Company"), is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of, the Company's
principal executive and principal financial officers and effected by the
Company's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and
procedures that:
o Pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
Company;
o Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company;
o Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may change.
The Company's management assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004. In making this
assessment, the Company's management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control-Integrated Framework.
Based on our assessment, management determined that, as of December 31, 2004,
the Company's internal control over financial reporting was effective based on
those criteria.
Management's assessment of the effectiveness of the Company's internal control
over financial reporting as of December 31, 2004 has been audited by Deloitte &
Touche LLP, an independent registered public accounting
16
firm, as stated in their report which appears herein:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Interchange Financial Services Corporation
Saddle Brook, New Jersey
We have audited management's assessment, included in the accompanying
management's assertion report, that Interchange Financial Services Corporation
and subsidiaries (the "Company"), maintained effective internal control over
financial reporting as of December 31, 2004, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing, and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States America. A
company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2004 of the Company and our
report dated March 11, 2005 expressed an unqualified opinion on those financial
statements.
/s/ Deloitte & Touche LLP
New York, New York
March 11, 2005
17
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors and Executive Officers
a. Directors
The information contained in the section entitled "INTERCHANGE
PROPOSAL NO. 1 - ELECTION OF DIRECTORS - Nominees and Directors" in the
Company's 2005 Annual Meeting Proxy Statement to be filed on or before
March 30, 2005 is incorporated herein by reference in response to this
item.
b. Executive Officers
The following table sets forth the names, ages, and present
positions of the Company's and the Bank's principal executive officers:
Name Age Positions Held with the Company and the Bank
---- --- --------------------------------------------
ANTHONY S. ABBATE ...... 65 President and Chief Executive Officer
ANTHONY J. LABOZZETTA .. 41 Executive Vice President and Chief
Operating Officer
PATRICIA D. ARNOLD ..... 46 Senior Vice President and Chief
Lending Officer
CHARLES T. FIELD ....... 40 Senior Vice President and Chief
Financial Officer
FRANK R. GIANCOLA ...... 51 Senior Vice President and
Compliance Officer
Business Experience
ANTHONY S. ABBATE, President and Chief Executive Officer of the Bank
since 1981; Senior Vice President and Controller from October 1980 to
1981. Engaged in the banking industry since 1959.
ANTHONY J. LABOZZETTA, 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 and
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, Senior Vice President and Chief Lending Officer
since August 1997; First Vice President from 1995 to 1997; Department Head
Vice President from 1986 to 1995; Assistant Vice President from 1985 to
1986; Commercial Loan Officer-Assistant Treasurer from 1983 to 1985.
18
Engaged in the banking industry since 1981.
CHARLES T. FIELD, 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, Senior Vice President and Compliance Officer
since September 1997; Senior Vice President-Retail Banking from 1993 to
1997; Senior Vice President-Operations of the Bank from 1984 to 1993;
Senior Operations Officer from 1982 to 1984; Vice President/Branch
Administrator from 1981 to 1982. Engaged in the banking industry since
1971.
Officers are elected annually by the Board of Directors and serve at
the discretion of the Board of Directors. Management is not aware of any
family relationship between any director or executive officer. No
executive officer was selected to his or her position pursuant to any
arrangement or understanding with any other person.
c. Compliance with Section 16(a)
Information contained in the section entitled "PRINCIPAL
SHAREHOLDERS AND HOLDINGS OF MANAGEMENT OF INTERCHANGE - Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 2005 Annual
Meeting Proxy Statement to be filed on or before March 30, 2005 is
incorporated herein by reference in response to this item.
d. Code of Ethics
We have adopted Codes of Ethics for our Board of Directors and
employees. The Code of Ethics is available free of charge by contacting
the Company.
Item 11. Executive Compensation
Information contained in the section entitled "INTERCHANGE EXECUTIVE
COMPENSATION AND OTHER INTERCHANGE INFORMATION - Executive Compensation" in the
Company's 2005 Annual Meeting Proxy Statement to be filed on or before March 30,
2005 is incorporated herein by reference in response to this item.
19
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information contained in the section entitled "Principal Shareholders
and Holdings of Management of Interchange" in the Company's 2005 Annual Meeting
Proxy Statement to be filed on or before March 30, 2005 is incorporated herein
by reference in response to this item.
Equity Compensation Plan Information
The table below summarizes information about our common stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2004.
- ----------------------------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
Number of securities to be Weighted-average future issuance under
issued upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
- ----------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
- ----------------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved
by security holders 782,293 $16.82 271,575
Equity compensation plans not
approved by security holders - - -
------- ------ -------
Total 782,293 $16.82 271,575
======= ====== =======
The Outside Director Incentive Compensation Plan
The Outside Director Incentive Compensation Plan is designed to attract
qualified personnel to accept positions of responsibility as outside directors
with Interchange 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 (2,250 shares after giving effect for the 3-for-2 stock split
declared on January 18, 2005) of Interchange common stock are granted to each
outside director of Interchange each year on the anniversary date of the initial
grant. Each option represents the right to purchase, upon exercise, one share of
Interchange 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 are non-qualified stock options and are not entitled
to special tax treatment under the Internal Revenue Code of 1986, as amended.
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 Interchange.
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 discounted purchase price of this stock are
20
forfeitable should the employee's employment terminate 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.
Item 13. Certain Relationships and Related Transactions
The information contained in the section entitled "Certain Relationships
and Related Party Transactions of Interchange" in the Company's 2005 Annual
Meeting Proxy Statement to be filed on or before March 30, 2005 is incorporated
herein by reference in response to this item.
Item 14. Principal Accounting Fees and Services
The items required by Part III, Item 14 are incorporated herein by
reference from the Company's 2005 Annual Meeting Proxy Statement to be filed on
or before March 30, 2005.
21
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements: The Financial Statements listed under
Item 8 to this Report are set forth at pages 31 through 34,
and the Notes to Consolidated Financial Statements are set
forth at pages 35 through 51, of the 2005 Annual Report to
Shareholders (See Exhibit 13 under paragraph (a)3 of this Item
14).
2. Financial Statement Schedules: All required schedules for the
Company and its subsidiaries have been included in the
Consolidated Financial Statements or related Notes thereto.
3. Exhibits: Exhibits followed by a parenthetical reference are
incorporated by reference herein from the document described
in such parenthetical reference.
Exhibit 2.1 Agreement and Plan of Merger, dated as of
November 18, 2002, by and between Registrant
and Bridge View Bancorp (Incorporated by
reference to Exhibit 2.1 to Registrant's
Form S-4, filed February 14, 2003,
Registration Statement No. 333-103256)
Exhibit 3(a) Restated Certificate of Incorporation of
Registrant (Incorporated by reference to
Exhibit 3.1 to Registrant's Form S-4, filed
February 14, 2003, Registration Statement
No. 333-103256)
Exhibit 3(b) Amended and Restated Bylaws of Registrant,
dated October 24, 2002(Incorporated by
reference to Exhibit 4(b) to the
Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002)
* Exhibit 10(a) Agreement for legal services between Andora
and Romano and Registrant, dated April 22,
2004.
(1) Exhibit 10(b) Outside Director Incentive Compensation Plan
(Incorporated by reference to Exhibit 4(a)
to Registrant's Form S-8, filed June 26,
2000, Registration Statement No. 33-40098)
(1) Exhibit 10(c) Stock Option and Incentive Plan of 1997, as
Amended (Incorporated by reference to
Exhibit 4(a) to Registrant's Form S-8, filed
August 26, 2002, Registration Statement No.
33-98705)
(1) Exhibit 10(d) Directors' Retirement Plan, as Amended 2003
(Incorporated by reference to Exhibit 10(d)
to Annual Report on Form 10-K for fiscal
year ended December 31, 2003)
(1) Exhibit 10(e) Executives' Supplemental Pension Plan
(Incorporated by reference to Exhibit 10(i)
(4) to Annual Report on Form 10-K for fiscal
year ended December 31, 1994)
(1) Exhibit 10(f) Change-in-Control Agreements for the
Registrant's principal executive officers,
and Amendment dated June 14, 2001
(Incorporated by reference to Exhibit 10(f)
to Annual Report on Form 10-K for fiscal
year ended December 31, 2001)
* Exhibit 10(f)(1) Change-in-Control Agreement for the
Registrant's principal financial officer,
dated April 12, 2004.
* Exhibit 11 Statement regarding computation of per share
earnings
* Exhibit 13 Portion of the Annual Report to Shareholders
for the year ended December 31, 2004
* Exhibit 21 Subsidiaries of Registrant
* Exhibit 31.1 Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
22
* Exhibit 31.2 Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
* Exhibit 32 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K during the quarter ended December 31, 2004:
Form 8-K filed October 20, 2004, reporting
dividends for the fourth quarter period
ending December 31, 2004.
Form 8-K filed October 29, 2004, reporting
earnings for the third quarter period ending
September 30, 2004.
Form 8-K filed November 22, 2004, reporting
the resignation of Joseph C. Parisi from the
Board of Directors of the Registrant.
Form 8-K filed December 2, 2004, reporting
the passing of Benjamin Rosenzweig, Director
and Secretary of the Board of Directors of
the Registrant and its subsidiary,
Interchange Bank.
- ----------
(1) Pursuant to Item 14(a) - 3 of Form 10-K, this exhibit represents a
management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this item.
* Filed herewith
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Interchange Financial Services Corporation
By: /s/Anthony S. Abbate By:/s/Charles T. Field
------------------------------------------------- -------------------------------------------------
Anthony S. Abbate Charles T. Field
President and Chief Executive Officer Senior Vice President and Chief Financial Officer
(principal executive officer) (principal financial and accounting officer)
March 16, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
/s/Anthony S. Abbate /s/Charles T. Field
- ----------------------------------------------------- -----------------------------------------------------
Anthony S. Abbate March 16, 2005 Charles T. Field March 16, 2005
Director Senior Vice President and
President and Chief Executive Officer Chief Financial Officer
/s/Anthony D. Andora /s/James E. Healey
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Anthony D. Andora March 16, 2005 James E. Healey March 16, 2005
Director Director
Chairman of the Board
/s/Gerald A. Calabrese Jr. /s/Nicholas R. Marcalus
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Gerald A. Calabrese, Jr. March 16, 2005 Nicholas R. Marcalus March 16, 2005
Director Director
/s/Donald L. Correll /s/Eleanore S. Nissley
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Donald L. Correll March 16, 2005 Eleanore S. Nissley March 16, 2005
Director Director
/s/Anthony R. Coscia /s/Jeremiah F. O'Connor
- ----------------------------------------------------- -----------------------------------------------------
Anthony R. Coscia March 16, 2005 Jeremiah F. O'Connor March 16, 2005
Director Director
/s/John J. Eccleston /s/Robert P. Rittereiser
- ----------------------------------------------------- -----------------------------------------------------
John J. Eccleston March 16, 2005 Robert P. Rittereiser March 16, 2005
Director Director
/s/David R. Ficca /s/John A. Schepisi
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David R. Ficca March 16, 2005 John A. Schepisi March 16, 2005
Director Director
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