<TABLE>
Interchange Financial Services Corporation
- -----------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------
(dollars in thousands)
<CAPTION>
March 31, December 31,
2000 1999
------------ --------------
(unaudited)
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
Interchange Financial Services Corporation
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31,
- ----------------------------------------------------------------------------------------------------------------------
(dollars in thousands except per share data)
(unaudited)
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
Interchange Financial Services Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except share data)
<CAPTION>
Accumulated
Other
Comprehensive Retained Comprehensive Common Capital Treasury
Income Earnings Income Stock Surplus Stock Total
------------- --------- ------------ --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
Interchange Financial Services Corporation
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
- -----------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
(unaudited)
<CAPTION>
2000 1999
------------- ------------
<S> <C> <C>
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
</TABLE>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
At March 31, 2000, the contractual maturities of securities held to maturity and securities available for sale
are as follows: (dollars in thousands)
<CAPTION>
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
-------------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
At March 31, 2000, the contractual maturities of securities held to
maturity and securities available for sale are as follows: (dollars in
thousands)
<CAPTION>
Securities Securities
Held to Maturity Available for Sale
-------------------- -------------------------
Amortized Market Amortized Market
Cost Value Cost Value
-------------------- -------------------------
<S> <C> <C> <C> <C>
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
==================== =========================
</TABLE>
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
<PAGE>
<TABLE>
The following table reflects the composition of the loan portfolio:
<CAPTION>
-------------------- ------------------
March 31, December 31,
2000 1999
-------------------- ------------------
<S> <C> <C>
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
==================== ==================
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
Capital Adequacy
<CAPTION>
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
------------- ------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
15
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
Exhibit 11. Statement re computation of per share earnings
(dollars in thousands, except per share amounts)
(unaudited)
<CAPTION>
--------------------------------------------------------------------------------
Three Months Ended,
--------------------------------------------------------------------------------
March 31, 2000 March 31, 1999
--------------------------------------- --------------------------------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------------ ------------- ------------ ----------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
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
============ ============= ============ =========== ============== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 19,184
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,503
<INVESTMENTS-CARRYING> 51,318
<INVESTMENTS-MARKET> 50,526
<LOANS> 516,876
<ALLOWANCE> 5,766
<TOTAL-ASSETS> 722,096
<DEPOSITS> 631,090
<SHORT-TERM> 16,481
<LIABILITIES-OTHER> 6,069
<LONG-TERM> 13,000
<COMMON> 5,397
0
0
<OTHER-SE> 50,059
<TOTAL-LIABILITIES-AND-EQUITY> 722,096
<INTEREST-LOAN> 10,384
<INTEREST-INVEST> 2,442
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 12,926
<INTEREST-DEPOSIT> 4,822
<INTEREST-EXPENSE> 5,326
<INTEREST-INCOME-NET> 7,600
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 97
<EXPENSE-OTHER> 5,414
<INCOME-PRETAX> 2,833
<INCOME-PRE-EXTRAORDINARY> 2,833
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,890
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 4.42
<LOANS-NON> 1,072
<LOANS-PAST> 0
<LOANS-TROUBLED> 109
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,476
<CHARGE-OFFS> 49
<RECOVERIES> 40
<ALLOWANCE-CLOSE> 5,766
<ALLOWANCE-DOMESTIC> 5,766
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,750
</TABLE>
