EX-99 2 if50867exa.txt EXHIBIT-A LAWRENCE B. SEIDMAN 100 Misty Lane Parsippany, NJ 07054 (973) 560-1400, Ext. 108 lbseidman@msn.com August 22, 2005 Mr. Anthony Abbate President & Chief Executive Officer Park 80 West/Plaza II Saddle Brook, NJ 07663 Re: Interchange Financial Services Corporation. Dear Mr. Abbate: I must take issue with your characterization of Interchange Financial Services Corporation's (IFCJ) financial results in the July 27, 2005 earnings conference call as "gratifying." I believe a more apt term would be "unsatisfactory". Earnings per share in the second quarter of 2005 were 23 cents, the same level as the first quarter of 2005 and down four cents from the fourth quarter of 2004. Additionally, EPS was unchanged from the second quarter of 2003. Zero earnings growth for two years does not entitle you to boast. The lack of earnings growth eclipses all of the positive trends during the quarter, such as robust commercial loan growth and lower nonperforming assets. If IFCJ was trading in-line with or below industry multiples, then stagnant earnings would not be such a pressing issue. As of August 19, 2005, IFCJ was trading at 351% of tangible book value and 18.1x last twelve months earnings. These are premium multiples. Excluding companies that are in the process of being acquired, companies where second-quarter data is not yet available, and mutual holding companies, there are just an additional 54 banks and thrifts trading at more than both 325% of tangible book and 17.5x LTM EPS. Since IFCJ is being valued as an elite company, it ought to perform like one. Unfortunately, this is not the case. On an annualized, linked-quarter basis, only six of those 54 companies have lower earnings growth than IFCJ (See Exhibit A attached hereto). The median growth is 39.7%, light-years ahead of IFCJ's nonexistent growth. I would like to know your plans to bring IFCJ's growth rate anywhere close to that of its high performing peers. EXHIBIT A I am also troubled by the net interest margin compression experienced during the second quarter. The margin declined nine basis points from the first quarter and 15 basis points from the year-ago quarter. Using the same peer group as with earnings growth, there are only four companies that experienced a greater percentage of margin compression on a linked-quarter basis (See Exhibit B attached hereto). And although you have bragged about keeping IFCJ's margin above 4%, the fact is that more than two-thirds of those 54 companies have a higher margin (See Exhibit C attached hereto). How do you expect to grow EPS if the margin continues to compress? And how can you justify being liability sensitive when every interest rate increase for the last year has been telegraphed? You have built a valuable banking franchise in Bergen County. I commend you for being able to consistently earn around 20% on tangible capital. But because you have not been able to grow EPS, or even hold the line on the net interest margin, it is time for someone else to take over the reigns of the company. If you are serious about maximizing shareholder value, I strongly recommend that you hire an investment bank and solicit bids from potential acquirers. Very truly yours, LAWRENCE B. SEIDMAN cc: Anthony D. Andora Gerald A. Calabrese, Jr. Donald L. Correll Anthony R. Coscia John J. Eccleston David R. Ficca James E. Healey Nicolas R. Marcalus Eleanore S. Nissley Jeremiah F. O'Connor Robert P.Rittereiser John A. Schepisi William Schuber EXHIBIT A EXHIBIT A INTERCHANGE PEERS RANKED BY EPS GROWTH
PRICE/ PRICE/ ANNL LKND TANG LTM QTR BK EPS EPS GROWTH COMPANY NAME TICKER (%) (x) (%) --------------------------------------------- ---------- ---------- ---------- ---------- TD Banknorth Inc. BNK 433 21.3 822.2 Bridge Capital Holdings BBNK 335 30.0 200.0 First Northern Community Bancorp FNRN 339 24.5 152.4 First Regional Bancorp FRGB 402 20.2 132.1 Seacoast Banking Corporation of Florida SBCF 352 21.3 128.0 Temecula Valley Bancorp, Inc. TMCV 426 18.8 112.5 Plumas Bancorp PLBC 359 25.0 92.3 Capital City Bank Group, Inc. CCBG 360 19.0 88.9 Westamerica Bancorporation WABC 596 17.7 80.0 Placer Sierra Bancshares PLSB 479 21.0 70.6 UCBH Holdings, Inc. UCBH 376 19.0 69.6 Boston Private Financial Holdings, Inc. BPFH 474 20.6 62.5 Orrstown Financial Services, Inc. ORRF 418 25.5 61.5 Southeastern Bank Financial Corporation SBFC 352 24.1 61.5 Lakeland Bancorp, Incorporated LBAI 328 17.6 57.1 S&T Bancorp, Inc. STBA 340 17.7 54.9 First Community Bancorp FCBP 565 18.2 50.0 First Indiana Corporation FINB 337 30.7 50.0 Center Financial Corporation CLFCE 397 20.0 48.5 Greater Bay Bancorp GBBK 339 17.9 47.1 Hanmi Financial Corporation HAFC 433 17.6 44.4 Community Bancorp, Inc. CMBC 359 18.3 43.5 Glacier Bancorp, Inc. GBCI 425 19.3 43.2 Synovus Financial Corp. SNV 398 19.3 43.2 Pinnacle Financial Partners, Inc. PNFP 326 32.3 42.1 Santa Lucia Bank SLNB 371 25.4 41.4 Security Bank Corporation SBKC 341 19.3 41.4 Wilshire Bancorp Inc. WIBC 412 18.2 38.1 First National Community Bancorp, Inc. FNCB 356 29.5 34.8 Northern Trust Corporation NTRS 380 20.8 31.7 Cascade Bancorp CACB 413 20.5 30.8 Silver State Bancorp SSBX 482 19.5 28.6 Waccamaw Bankshares, Inc. WBNK 444 35.8 28.6 East West Bancorp, Inc. EWBC 350 19.7 27.3 Alliance Bancshares California ABNS 359 18.2 22.2 MidSouth Bancorp, Inc. MSL 353 19.3 21.1 Bank of the Ozarks, Inc. OZRK 412 19.2 18.2 First South Bancorp, Inc. FSBK 354 17.7 17.0 Summit Bancshares, Inc. SBIT 328 18.6 16.7 Cathay General Bancorp, Inc. CATY 370 17.7 16.3 Farmers & Merchants Bancorp FMCB 326 22.7 15.0 Virginia Commerce Bancorp, Inc. VCBI 352 22.8 13.8 United Community Banks, Inc. UCBI 356 20.5 11.8 Bridge Bancorp, Inc. BDGE 376 18.4 11.1
PrivateBancorp, Inc. PVTB 481 24.0 10.8 Prosperity Bancshares, Inc. PRSP 495 17.7 9.3 Central Jersey Bancorp CJBK 428 58.2 0.0 TowneBank TOWN 342 33.6 0.0 State Street Corporation STT 372 20.1 -6.0 Pulaski Financial Corp. PULB 330 21.3 -17.4 Mission Oaks National Bank MKNB 470 37.0 -20.0 CoBiz Inc. COBZ 452 21.4 -38.1 Frederick County Bancorp, Inc. FCBI 338 29.2 -94.1 Mellon Financial Corporation MEL 733 18.1 -200.0 Interchange Financial Services Corporation IFCJ 351 18.1 0.0