-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dq7TZxyk8TocOrOv/I9/dfirHjLznxkFLNUUHabjFEpFIr2IbYte9HaUOkCanpEm kZIONktUv09ykeef/bMcWQ== 0000755933-00-000008.txt : 20000515 0000755933-00-000008.hdr.sgml : 20000515 ACCESSION NUMBER: 0000755933-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCHANGE FINANCIAL SERVICES CORP /NJ/ CENTRAL INDEX KEY: 0000755933 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 222553159 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10518 FILM NUMBER: 627891 BUSINESS ADDRESS: STREET 1: PARK 80 WEST PLAZA TWO STREET 2: ATTN INTERCHANGE STATE BANK CITY: SADDLE BROOK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2017032265 MAIL ADDRESS: STREET 1: PARK 80 WEST STREET 2: PLAZA II CITY: SADDLE BROOK STATE: NJ ZIP: 07663 FORMER COMPANY: FORMER CONFORMED NAME: INTERCHANGER STATE BANK DATE OF NAME CHANGE: 19870416 FORMER COMPANY: FORMER CONFORMED NAME: INTERCHANGE FINANCIAL SERVICES CORP DATE OF NAME CHANGE: 19861209 10-Q 1 FORM 10-Q 03/31/00 Interchange Financial Services Corporation - ----------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - ----------------------------------------------------------------------------------------------------- (dollars in thousands)
March 31, December 31, 2000 1999 ------------ -------------- (unaudited) Assets Cash and due from banks $ 19,184 $ 17,669 Federal funds sold 11,400 - ------------ -------------- Total cash and cash equivalents 30,584 17,669 ------------ -------------- Securities held to maturity at amortized cost (estimated market value of $50,526 and $53,784 for March 31, 2000 and December 31, 1999, respectively) 51,318 54,540 ------------ -------------- Securities available for sale at estimated market value (amortized cost of $110,078 and $108,399 for March 31, 2000 and December 31, 1999, respectively) 108,503 107,349 ------------ -------------- Loans 516,876 511,976 Less: Allowance for loan losses 5,766 5,476 ------------ -------------- Net loans 511,110 506,500 ------------ -------------- Premises and equipment, net 10,577 10,289 Foreclosed real estate 250 250 Accrued interest receivable and other assets 9,754 9,528 ------------ -------------- Total assets $722,096 $706,125 ============ ============== Liabilities Deposits Non-interest bearing $107,295 $102,392 Interest bearing 523,795 496,600 ------------ -------------- Total deposits $631,090 $598,992 ------------ -------------- Securities sold under agreements to repurchase 16,481 16,431 Short-term borrowings - 13,975 Long-term borrowings 13,000 13,000 Accrued interest payable and other liabilities 6,069 5,451 ------------ -------------- Total liabilities $666,640 $647,849 ------------ -------------- Commitments and contingent liabilities Stockholders' equity: Common stock, without par value; 15,000,000 shares authorized; 6,513,864 and 6,728,098 shares issued and outstanding at March 31, 2000 and December 31, 1999, respectively 5,397 5,397 Capital surplus 21,201 21,244 Retained earnings 42,816 41,741 Accumulated other comprehensive (loss) (993) (675) ------------ -------------- 68,421 67,707 Less: Treasury stock 12,965 9,431 ------------ -------------- Total stockholders' equity 55,456 58,276 ------------ -------------- Total liabilities and stockholders' equity $722,096 $706,125 ============ ============== - ----------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. 1
Interchange Financial Services Corporation - ---------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended March 31, - ---------------------------------------------------------------------------------------------------------------------- (dollars in thousands except per share data) (unaudited)
2000 1999 ------------- ------------- Interest income Interest and fees on loans $ 10,384 $ 9,507 Interest on federal funds sold 100 219 Interest and dividends on securities Taxable interest income 2,222 1,944 Interest income exempt from federal income taxes 159 109 Dividends 61 71 ------------- ------------- Total interest income 12,926 11,850 ------------- ------------- Interest expense Interest on deposits 4,822 4,275 Interest on securities sold under agreements to repurchase 221 92 Interest on short-term borrowings 76 145 Interest on long-term borrowings 207 - ------------- ------------- Total interest expense 5,326 4,512 ------------- ------------- Net interest income 7,600 7,338 Provision for loan losses 300 300 ------------- ------------- Net interest income after provision for loan losses 7,300 7,038 ------------- ------------- Non-interest income Service fees on deposit accounts 547 569 Net gain on sale of securities 97 527 Other 303 251 ------------- ------------- Total non-interest income 947 1,347 ------------- ------------- Non-interest expenses Salaries and benefits 2,759 2,540 Occupancy 740 659 Furniture and equipment 282 250 Advertising and promotion 295 246 Federal Deposit Insurance Corporation assessment 32 20 Foreclosed real estate 6 1 Other 1,300 1,209 ------------- ------------- Total non-interest expenses 5,414 4,925 ------------- ------------- Income before income taxes 2,833 3,460 Income taxes 943 1,174 ------------- ------------- Net income $ 1,890 $ 2,286 ============= ============= Basic earnings per common share $0.29 $0.32 Diluted earnings per common share $0.29 $0.32 - ---------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. 2
Interchange Financial Services Corporation - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ (dollars in thousands, except share data)
Accumulated Other Comprehensive Retained Comprehensive Common Capital Treasury Income Earnings Income Stock Surplus Stock Total ------------- --------- ------------ --------- -------- --------- ------- Balance at January 1, 1999 $35,482 $1,192 $5,397 $21,256 $ (955) $62,372 Comprehensive income Net Income $2,286 2,286 2,286 Other comprehensive income, net of taxes Unrealized losses on AFS debt securities (97) Unrealized gains securities transferred from held to maturity to available to sale - Acquisition 32 Unrealized loss on equity securities (29) Less: gains on disposition of equity securities (316) ----------- Other comprehensive loss (410) (410) (410) ----------- Comprehensive income $1,876 =========== Dividends on common stock (866) (866) Issued 14,489 shares of common stock in connection with Executive Compensation Plan 60 176 236 --------- ------------ --------- -------- --------- ------- Balance at March 31, 1999 36,902 782 5,397 21,316 (779) 63,618 Net Income $7,349 7,349 7,349 Other comprehensive income, net of taxes Unrealized losses on AFS debt securities (1,257) Less: gains on disposition of securities (excludes equities)(90) Unrealized gains securities transferred from held to maturity to available to sale - Acquisition (9) Unrealized loss on equity securities 11 Less: gains on disposition of equity securities (112) ----------- Other comprehensive loss (1,457) (1,457) (1,457) ----------- Comprehensive income $5,892 =========== Dividends on common stock (2,510) (2,510) Issued 620 shares of common stock in connection with Executive Compensation Plan 2 8 10 Exercised 7,836 option shares (74) 121 47 Purchased 494,360 shares of common stock (8,781) (8,781) --------- ------------ --------- -------- --------- ------- Balance at December 31, 1999 41,741 (675) 5,397 21,244 (9,431) 58,276 Net Income $1,890 1,890 1,890 Other comprehensive income, net of taxes Unrealized losses on AFS debt securities (257) Less: gains on disposition of securities (61) ----------- Other comprehensive loss (318) (318) (318) ----------- Comprehensive income $1,572 =========== Dividends on common stock (815) (815) Issued 11,406 shares of common stock in connection with Executive Compensation Plan (6) 196 190 Exercised 4,134 option shares (37) 67 30 Purchased 225,640 shares of common stock (3,797) (3,797) -------- ------------ --------- -------- --------- ------- Balance at March 31, 2000 $42,816 $ (993) $5,397 $21,201 $(12,965) $55,456 ======== ============ ========= ======== ========= ======= 3
Interchange Financial Services Corporation - ----------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, - ----------------------------------------------------------------------------------------------------------------------- (dollars in thousands) (unaudited)
2000 1999 ------------- ------------ Cash flows from operating activities Net income $ 1,890 $ 2,286 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 349 366 Amortization of securities premiums 91 244 Accretion of securities discounts (54) (40) Amortization of premiums in connection with acquisition 78 78 Provision for loan losses 300 300 Net gain on sale of securities (97) (527) Net loss on disposal of fixed assets - 2 Decrease (increase) in operating assets Accrued interest receivable 140 151 Other (357) 624 (Decrease) increase in operating liabilities Accrued interest payable 298 (45) Other 320 112 ------------- ------------ Cash provided by operating activities 2,958 3,551 ------------- ------------ Cash flows from investing activities (Payments for) proceeds from Net originations of loans (4,910) (5,856) Repayment of term federal funds - 5,000 Purchase of securities available for sale (21,325) (13,812) Maturities of securities available for sale 2,020 5,331 Sale of securities available for sale 17,696 955 Purchase of securities held to maturity (523) (622) Maturities of securities held to maturity 1,733 5,816 Sale of securities held to maturity 2,002 - Purchase of fixed assets (517) (217) Sale of fixed assets - 2 ------------- ------------ Cash used in investing activities (3,824) (3,403) ------------- ------------ Cash flows from financing activities Proceeds from (payments for) Deposits less than/in excess of withdrawals 32,098 (9,332) Securities sold under agreements to repurchase and other borrowings 50 6,250 Retirement of securities sold under agreement to repurchase and other borrowings (13,975) (7,809) Dividends (815) (866) Treasury stock (3,797) - Common stock issued from treasury 190 236 Exercise of option shares 30 - ------------- ------------ Cash provided by (used in) financing activities 13,781 (11,521) ------------- ------------ Increase (Decrease) in cash and cash equivalents 12,915 (11,373) Cash and cash equivalents, beginning of year 17,669 43,284 ------------- ------------ Cash and cash equivalents, end of period $30,584 $31,911 ============= ============ Supplemental disclosure of cash flow information: Cash paid for: Interest $5,028 $4,557 Income taxes 3 1,335 Supplemental disclosure of non-cash investing activities: Decrease - market valuation of securities available for sale 318 675 - ----------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements. 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of Interchange Financial Services Corporation and its wholly owned subsidiaries (the "Company") including its principal operating subsidiary, Interchange Bank (the "Bank") and have been prepared in conformity with generally accepted accounting principles and in accordance with the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations certain information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows in conformity with generally accepted accounting principles have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and schedules thereto included in the annual report on Form 10-K of the Company for the year ended December 31, 1999. The consolidated financial data for the three months ended March 31, 2000 and 1999, are unaudited but reflect all adjustments consisting of only normal recurring adjustments which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the interim periods. The results of operations for interim periods are not necessarily indicative of results to be expected for any other period or the full year. 2. Earnings Per Common Share Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per common share is similar to the computation of basic earnings per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. 3. Legal Proceedings The Company is a party to routine litigation involving various aspects of its business, none of which, 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. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is an analysis of the consolidated financial condition and results of operations of the Company for the three months ended March 31, 2000 and 1999, and should be read in conjunction with the consolidated financial statements and notes thereto included in Item 1 hereof. Forward Looking Information In addition to discussing historical information, certain matters included in or incorporated into this report relate to the financial condition, results of operations and business of the Company which are not historical facts, but which are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used herein, the words "anticipate," "believe," "estimate," "expect," "will" and similar expressions are generally intended to identify forward looking statements. These forward looking statements include, but are not limited to, statements about the operations of the Company, the adequacy of the Company's allowance for future losses associated with the loan portfolio. The forward looking statements in this report involve known and unknown risks and uncertainties and reflect what we currently anticipate will happen in each case. What actually happens could differ materially from what we currently anticipate will happen due to a variety of factors, including, among others, (i) increased competitive pressures among financial services companies; (ii) changes in the interest rate environment; (iii) general economic conditions, internationally, nationally, or in the State of New Jersey; and (iv) legislation or regulatory requirements or changes adversely affecting the business of the Company. Readers should not place undue expectations on any "forward looking statements." We are not promising to make any public announcement when we consider "forward looking statements" in this document are no longer accurate, whether as a result of new information, what actually happens in the future or for any other reason. 6 THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999 Earnings Summary For the first quarter of 2000, the Company reported net income of $1.9 million or $0.29 diluted earnings per common share, as compared with $2.3 million or $0.32 diluted earnings per common share for the same period in 1999, a decrease of $396 thousand or 17.3%. The decrease was due largely to a decline of $400 thousand or 29.7% in non-interest income, which was precipitated by a $430 thousand decrease in net gain on sale of securities. In addition, net income was affected by an increase of $489 thousand or 9.9% in non-interest expenses of which $329 thousand can be attributed to expansionary growth (new lease financing subsidiary and call center - see Non-interest Expenses) and a legal settlement relating to the interpretation of past rental adjustments on a branch office. Net interest income, which grew $283 thousand, on a tax equivalent basis, helped offset the effects of the decline in non-interest income and the increase in non-interest expenses. Adjusting for the net change in gain on sale of securities, the expansionary growth and the legal settlement, net income for the first quarter of 2000 increased $82 thousand or 4.2% and diluted earnings per common share increased $.04 per share or 14.3% as compared to the same period in 1999. RESULTS OF OPERATIONS Net Interest Income Net interest income is the most significant source of the Company's operating income. Net interest income on a tax equivalent basis increased $283 thousand to $7.7 million for the quarter ended March 31, 2000 as compared to the same quarter of 1999. The increase in net interest income is due to higher levels of interest earning assets, particularly loans. The earnings benefit associated with the growth in loans was offset in part by a decline in the net interest margin ("margin"). For the quarter ended March 31, 2000, average loans increased $40.3 million or 8.5% over the same period in 1999, which facilitated a growth in average earning assets of $40.5 7 million or 6.3%. The loan growth was funded largely by a $29.9 million or 5.1% growth in average deposits for the first quarter 2000 as compared to the same period in 1999. Furthermore, a portion of the growth in earning assets was funded by borrowings, which increased $18.6 million or 107.5% for the first quarter 2000 as compared to the same period in 1999. Higher market interest rates and a growth in borrowings resulted in a 28 basis points increase in the Company's cost of funds to 3.27% for the first quarter of 2000 as compared to the same period in 1999 and was principally responsible for the decline in the margin. The margin was 4.49% for the first quarter of 2000 as compared to 4.59% for the same quarter in 1999. Non-interest Income For the quarter ended March 31, 2000, non-interest income amounted to $947 thousand, a decrease of $400 thousand or 29.7% as compared to the same period in 1999. The decline was largely due to a $430 thousand decrease in net gain on the sale of securities. In addition, service fees on deposits for the first quarter of 2000 decreased $22 thousand or 3.9% as compared to the same period in 1999. The decrease in service fees on deposits was more than offset by a growth of $65 thousand in fee income from the sale of mutual funds and annuities. Non-interest Expenses For the quarter ended March 31, 2000, non-interest expenses amounted to $5.4 million, an increase of $489 thousand or 9.9% as compared to the same period in 1999 due largely to expansionary growth. Interchange Capital Company, LLC ("ICC"), a wholly owned equipment lease financing subsidiary of the Company and the Company's new Bank-line Center, a fully staffed in-bound and out-bound call center, began operations in the fourth quarter of 1999. Expenses necessary to start and operate ICC and the Bank-line Center during the first quarter of 2000 amounted to approximately $166 thousand and $45 thousand, respectively. In addition, in the first quarter of 2000, the Company paid $118 thousand for a legal settlement relating to the interpretation of past rental adjustments on a branch office. Excluding the start-up costs and operating expenses associated with ICC and the Bank-line Center and the legal settlement, non-interest expenses increased $160 thousand or 3.2% as compared to the same period in 1999, which can be attributed to normal corporate growth. 8 Income Taxes Income tax expense as a percentage of pre-tax income was 33.3% for the three months ended March 31, 2000 as compared to 33.9% for the first quarter of 1999. FINANCIAL CONDITION At March 31, 2000, the Company's total assets were $722.1 million, an increase of $16.0 million or 2.3% from $706.1 million at December 31, 1999. At March 31, 2000, cash and cash equivalents increased $12.9 million as compared to December 31, 1999. This is principally the result of financing activities (reflecting principally deposit growth less repayments of borrowings) and operating activities (reflecting net income and changes in other assets) generating cash more rapidly than the investing activities (funding loans and investment growth) can utilize it. This can be seen more completely on the accompanying unaudited Statements of Cash Flows. 9 At March 31, 2000, the contractual maturities of securities held to maturity and securities available for sale are as follows: (dollars in thousands)
Securities Securities held to maturity and securities available for sale consist of the following: (dollars in thousands) ---------------------------------------------------------- March 31, 2000 ---------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value -------------- ----------- ------------ -------------- Securities held to maturity Obligations of U.S. Treasury $7,998 - $8 $ 7,990 Mortgage-backed securities 13,189 $41 265 12,965 Obligations of U.S. agencies 12,983 - 165 12,818 Obligations of states & political subdivisions 16,583 9 412 16,180 Other debt securities 565 8 - 573 -------------- ----------- ------------ -------------- 51,318 58 850 50,526 -------------- ----------- ------------ -------------- Securities available for sale Obligations of U.S. Treasury 1,994 - 2 1,992 Mortgage-backed securities 65,674 43 1,250 64,467 Obligations of U.S. agencies 29,921 5 144 29,782 Obligations of states & political subdivisions 7,799 - 238 7,561 Other debt securities 735 11 - 746 Equity securities 3,955 - - 3,955 -------------- ----------- ------------ -------------- 110,078 59 1,634 108,503 -------------- ----------- ------------ -------------- Total securities $161,396 $117 $2,484 $159,029 ============== =========== ============ ============== ---------------------------------------------------------- December 31, 1999 ---------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value -------------- ----------- ------------ -------------- Securities held to maturity Obligations of U.S. Treasury $ 9,997 $ 5 $ 8 $ 9,994 Mortgage-backed securities 20,232 60 289 20,003 Obligations of U.S. agencies 7,992 8 51 7,949 Obligations of states & political subdivisions 16,195 - 481 15,714 Other debt securities 124 - - 124 -------------- ----------- ------------ -------------- 54,540 73 829 53,784 -------------- ----------- ------------ -------------- Securities available for sale Obligations of U.S. Treasury 6,016 87 - 6,103 Mortgage-backed securities 68,331 104 982 67,453 Obligations of U.S. agencies 27,141 51 112 27,080 Obligations of states & political subdivisions 3,139 - 198 2,941 Equity securities 3,772 - - 3,772 -------------- ----------- ------------ -------------- 108,399 242 1,292 107,349 -------------- ----------- ------------ -------------- Total securities $162,939 $315 $2,121 $161,133 ============== =========== ============ ============== 10
At March 31, 2000, the contractual maturities of securities held to maturity and securities available for sale are as follows: (dollars in thousands)
Securities Securities Held to Maturity Available for Sale -------------------- ------------------------- Amortized Market Amortized Market Cost Value Cost Value -------------------- ------------------------- Within 1 year $ 19,108 $ 19,087 - - After 1 but within 5 years 10,065 9,887 $ 38,195 $ 38,020 After 5 but within 10 years 9,523 9,382 26,303 25,517 After 10 years 12,622 12,170 41,625 41,011 Equity securities - - 3,955 3,955 -------------------- ------------------------- Total $ 51,318 $ 50,526 $110,078 $108,503 ==================== =========================
During the first quarter of 2000, the Company sold certain securities in an effort to improve the risk/reward characteristics of the securities portfolio. Available-for-sale ("AFS") securities with a book value of $17.6 million were sold. Gains of $126 thousand and losses of $31 thousand were recognized from the sale. One held-to-maturity ("HTM") security with a book value of $2.0 million was sold. A gain of $2 thousand was recognized from the sale. The HTM security had a remaining maturity of less than two months, therefore, it is considered as a "maturity" for purposes of classification of securities under Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities. Loans Total loans amounted to $516.9 million and $512.0 million at March 31, 2000 and December 31, 1999, respectively. Total loans at March 31, 2000 increased $4.9 million or 1.0% as compared to December 31, 1999. The growth was predominately in commercial and financial loans, which increased $3.8 million. 11 The following table reflects the composition of the loan portfolio:
-------------------- ------------------ March 31, December 31, 2000 1999 -------------------- ------------------ Amount of loans by type (dollars in thousands) Real estate-mortgage Commercial $166,613 $166,354 1-4 family residential First liens 110,712 110,269 Junior liens 9,100 9,829 Home equity 144,016 144,747 Commercial and financial 67,448 63,684 Real estate-construction 4,436 4,008 Installment Credit cards and related plans 860 947 Other 2,763 2,756 Lease financing 10,928 9,382 -------------------- ------------------ Total $516,876 $511,976 ==================== ==================
Deposits At March 31, 2000, total deposits increased $32.1 million or 5.4% to $631.1 million from $599.0 million at December 31, 1999. The growth was principally in time deposits, which grew $13.6 million or 8.4% as a result of promotional campaigns. Money market savings accounts and interest-bearing demand deposits grew $13.6 million or 5.2%. Non-interest bearing deposits increased $4.9 million or 4.8%. At March 31, 2000, time deposits represent 27.9% of all deposits, as compared to 27.1% at December 31, 1999. Nonperforming Assets Nonperforming assets are comprised of nonaccrual loans, restructured loans and foreclosed real estate. At March 31, 2000, nonperforming assets amounted to $1.4 million, a decrease of $149 thousand or 9.4% from $1.6 million at December 31, 1999. Nonperforming assets decreased by $1.5 million or 50.3% from $2.9 million at March 31, 1999. The ratio of nonperforming assets to total loans and foreclosed real estate decreased to 0.28% at March 31, 2000 from 0.31% and 0.60% at December 31, 1999 and March 31, 1999, respectively. 12 The decrease in nonperforming assets is comprised almost entirely of a commercial loan of which $1.1 million was charged-off during the second and third quarters of 1999. Provision for Loan Losses and Loan Loss Experience The provision for loan losses represents management's determination of the amount necessary to bring the allowance for loan losses to a level that management considers adequate to reflect the risk of future losses inherent in the Company's loan portfolio. In its evaluation of the adequacy of the allowance for loan losses, management considers past loan loss experience, changes in the composition of performing and nonperforming loans, the condition of borrowers facing financial pressure, the relationship of the current level of the allowance to the credit portfolio and to nonperforming loans and existing economic conditions. However, the process of determining the adequacy of the allowance is necessarily judgmental and subject to changes in external conditions. Accordingly, there can be no assurance that existing levels of the allowance will ultimately prove adequate to cover actual loan losses. The allowance for loan losses was $5.8 million at March 31, 2000, and $5.5 million at December 31, 1999, representing 485.4% and 409.6% of nonperforming loans at those dates, respectively. In the first quarter of 2000 and 1999, the Company's provision for loan losses was $300 thousand. Market Risk The Company's primary source of market risk exposure arises from changes in market interest rates ("interest rate risk"). The Company's success is largely dependent upon its ability to manage interest rate risk. Interest rate risk can be defined as the exposure of the Company's net interest income to adverse movements in interest rates. Although the Company manages other risks, as in credit and liquidity risk, in the normal course of its business, management considers interest rate risk to be its most significant market risk and could potentially have the largest material effect on the Company's financial condition. The primary objective of the asset/liability management process is to measure the effect of changing interest rates on net interest income and market value and adjust the balance sheet (if necessary) to minimize the inherent risk and maximize income. The Company's exposure to market risk and interest rate risk is reviewed on a regular basis by the Asset/Liability Committee of the Board of Directors. Tools used by management to evaluate risk include an asset/liability simulation model. At March 31, 2000, the Company simulated the effects on net interest income given an instantaneous and parallel shift in the yield curve of 200 basis points in either direction. Based on the simulation, 13 the results did not materially change from December 31, 1999. At March 31, 2000, the Company was within policy limits established by the Board of Directors for changes in net interest income and future economic value. The Company does not have any material exposure to foreign currency exchange rate risk or commodity price risk. The Company did not enter into any market rate sensitive instruments for trading purposes nor did it engage in any hedging transactions utilizing derivative financial instruments during the first quarter of 2000. The Company is, however, a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These instruments, which include commitments to extend credit and standby letters of credit, involve to varying degrees elements of credit and interest rate risk in excess of the amount recognized in the consolidated statement of condition. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates and may require collateral from the borrower if deemed necessary by the Company. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party up to a stipulated amount and with specified terms and conditions. Commitments to extend credit and standby letters of credit are not recorded on the Company's consolidated balance sheet until the instrument is exercised. 14 Capital Adequacy
The Company's and the Bank's capital amounts and ratios are as follows: (dollars in thousands) To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions -------------------------- ------------------------- ----------------------- Amount Ratio Amount Ratio Amount Ratio ------------- ------------ ------------- ----------- ----------- ----------- As of March 31, 2000: Total Capital (to Risk Weighted Assets): The Company $62,058 12.57 % $39,500 8.00 % N/A N/A The Bank 61,095 12.66 38,592 8.00 $48,241 10.00% Tier 1 Capital (to Risk Weighted Assets): The Company 56,292 11.40 19,750 4.00 N/A N/A The Bank 55,329 11.47 19,296 4.00 28,944 6.00 Tier 1 Capital (to Average Assets): The Company 56,292 7.87 21,463 3.00 N/A N/A The Bank 55,329 7.72 21,499 3.00 35,831 5.00 As of December 31, 1999: Total Capital (to Risk Weighted Assets): The Company $64,209 13.91 % $36,925 8.00 % N/A N/A The Bank 64,877 14.01 37,054 8.00 $46,318 10.00% Tier 1 Capital (to Risk Weighted Assets): The Company 58,733 12.72 18,463 4.00 N/A N/A The Bank 59,401 12.82 18,527 4.00 27,791 6.00 Tier 1 Capital (to Average Assets): The Company 58,733 8.32 21,167 3.00 N/A N/A The Bank 59,401 8.45 21,080 3.00 35,133 5.00
15 Liquidity Liquidity is the ability to provide sufficient resources to meet all financial obligations and finance prospective business opportunities. Liquidity levels over any given period of time are a product of the Company's operating, financing and investing activities. The extent of such activities are often shaped by such external factors as competition for deposits and demand for loans. Financing for the Company's loans and investments is derived primarily from deposits, along with interest and principal payments on loans and investments. At March 31, 2000, total deposits amounted to $631.1 million, an increase of $32.1 million or 5.4% from December 31, 1999. In addition, the Company supplemented the more traditional funding sources with borrowings from the Federal Home Loan Bank of New York ("FHLB") and with securities sold under agreements to repurchase ("REPOS"). At March 31, 2000, advances from the FHLB and REPOS amounted to $13.0 million and $16.5 million, respectively, as compared to $27.0 million and $16.4 million, respectively, at December 31, 1999. The decrease in advances from the FHLB was due to the repayment of overnight borrowings resulting from the growth in deposit liabilities. In 2000, despite heightened competition for loans, loan production continued to be the Company's principal investing activity. Net loans at March 31, 2000 amounted to $511.1 million, an increase of $4.6 million or 0.9% from $506.5 million at December 31, 1999. The Company's most liquid assets are cash and due from banks and federal funds sold. At March 31, 2000, the total of such assets amounted to $30.6 million or 4.2% of total assets, compared to $17.7 million or 2.5% of total assets at year-end 1999. The increase in cash and cash equivalents was due largely to the deposit growth. This cash was temporarily in Federal Funds, awaiting investment in loans and securities. Another significant liquidity source is the Company's AFS securities. At March 31, 2000, AFS securities amounted to $108.5 million or 67.9% of total securities, compared to $107.3 million or 66.3% of total securities at year-end 1999. In addition to the aforementioned sources of liquidity, the Company has available various other sources of liquidity, including federal funds purchased from other banks and the Federal Reserve discount window. The Bank also has a $67.5 million line of credit available through its membership in the FHLB. Management believes that the Company's sources of funds are sufficient to meet its funding requirements. 16 Year 2000 The Company has successfully implemented all phases of its Year 2000 Compliance Plan as scheduled. There were no known adverse effects from Year 2000 related issues on the Company, including its systems and operations, nor does management expect any adverse effects in the future. However, management has decided to maintain a Year 2000 specific contingency in an effort to mitigate the adverse effects of any unforeseen risks. 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Note 3 of the Company's Consolidated Financial Statements of this Form 10-Q. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are furnished herewith: Exhibit No. 11 Statement re computation of per share earnings 27 Financial Data Schedule (b) Reports on Form 8-K None filed for the quarter ended March 31, 2000 18 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Interchange Financial Services Corporation By: /s/ Anthony Labozzetta ______________________ Anthony Labozzetta Executive Vice President & CFO (Duly Authorized Officer and Principal Financial and Accounting Officer) Dated: May 12, 2000 19 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Exhibit 11. Statement re computation of per share earnings (dollars in thousands, except per share amounts) (unaudited)
-------------------------------------------------------------------------------- Three Months Ended, -------------------------------------------------------------------------------- March 31, 2000 March 31, 1999 --------------------------------------- -------------------------------------- Weighted Per Weighted Per Average Share Average Share Income Shares Amount Income Shares Amount ------------ ------------- ------------ ----------- -------------------------- Basic Earnings per Common Share Income available to common shareholders $1,890 6,583 $0.29 $2,286 7,206 $0.32 ============ ============ Effect of Dilutive Shares Options issued to management - 27 - 43 ------------ -------------- ----------- -------------- Diluted Earnings per Common Share $1,890 6,610 $0.29 $2,286 7,249 $0.32 ============ ============= ============ =========== ============== ===========
EX-27 3
9 1,000 3-Mos Dec-31-2000 Mar-31-2000 19,184 0 11,400 0 108,503 51,318 50,526 516,876 5,766 722,096 631,090 16,481 6,069 13,000 5,397 0 0 50,059 722,096 10,384 2,442 100 12,926 4,822 5,326 7,600 300 97 5,414 2,833 2,833 0 0 1,890 0.29 0.29 4.42 1,072 0 109 0 5,476 49 40 5,766 5,766 0 2,750
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