<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1995
----------------------
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 0-14129
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INDEPENDENCE BANCORP,INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2483513
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Lake Street Ramsey, NJ 07446
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(Address of principal executive offices)
(201) 825-1000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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
----- -----
Number of shares outstanding of each of the issuers classes of common stock on
October 31, 1995 1,311,492
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<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
-----------------------------------------
INDEX
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<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited)
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Income (unaudited)
Three Months Ended September 30, 1995 and 1994 and
Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements
(unaudited) 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10-16
PART II - OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
<PAGE>
INDEPENDENCE BANCORP, INC. and SUBSIDIARY
- ---------------------------------------
Consolidated Balance Sheets (unaudited)
<TABLE>
<CAPTION>
September 30 December 31
(In thousands, except share data) 1995 1994
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<S> <C> <C>
Assets
Cash and due from banks $19,210 $17,326
Interest bearing deposits in other banks 984 4,860
Federal funds sold 13,375 8,550
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Cash and cash equivalents 33,569 30,736
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Securities
Available for sale, at market 6,214 3,451
Held to maturity, at cost (market value $123,095 and $104,364) 124,489 112,418
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities 130,703 115,869
Loans
Commercial 26,352 27,109
Real estate-construction 4,338 2,750
Real estate-commercial 43,158 39,803
Real estate-residential 28,935 28,084
Installment 35,121 32,712
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Total loans 137,904 130,458
Less:
Allowance for possible loan losses 2,572 2,630
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Loans, net 135,332 127,828
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Premises and equipment, net 5,481 5,257
Accrued interest receivable 2,823 1,890
Other real estate, net 1,445 1,148
Other assets 387 479
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Total assets $309,740 $283,207
==================================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Demand (non-interest bearing) $73,139 $63,662
Money market, NOW, and super NOW 87,339 81,928
Savings 64,142 66,397
Time certificates of $100,000 or more 11,240 6,047
Other time certificates 53,995 47,398
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Total deposits 289,855 265,432
Other liabilities 1,509 1,098
Employee Stock Ownership Plan (ESOP) debt 1,223 1,307
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Total liabilities 292,587 267,837
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Commitments and Contingencies
Stockholders' equity
Preferred stock, no par value,1,000,000 shares authorized - -
Cumulative convertible preferred stock, 9% Series A, $1 par value, 776,875 777 777
issued and outstanding (liquidation value - $6,215)
Common stock, par value $1.667 per share, 5,000,000 authorized;
1,311,367 and 1,308,328, respectively, issued and outstanding 2,187 2,182
Capital in excess of par value 12,827 12,802
Retained earnings 2,633 1,042
Net unrealized holding loss on securities available for sale, net of income tax benefit (48) (126)
Preferred stock acquired by ESOP (1,223) (1,307)
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Total stockholders' equity 17,153 15,370
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Total liabilities and stockholders' equity $309,740 $283,207
==================================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
INDEPENDENCE BANCORP, INC. and SUBSIDIARY
- ---------------------------------------------
Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ---------------------
(In thousands, except per share data) 1995 1994 1995 1994
- ----------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $3,196 $2,672 $9,291 $7,699
Securities 1,814 1,632 5,283 4,404
Federal funds sold 170 48 555 217
Deposits with banks 52 27 192 153
- ----------------------------------------------------------------- ---------------------
Total interest income 5,232 4,379 15,321 12,473
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Interest expense:
Interest on deposits 1,527 1,142 4,411 3,243
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Total interest expense 1,527 1,142 4,411 3,243
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Net interest income 3,705 3,237 10,910 9,230
Provision for possible loan losses 140 250 480 750
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Net interest income after provision
for possible loan losses 3,565 2,987 10,430 8,480
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Non-interest income:
Service charges on deposit accounts 324 282 970 868
Other income 221 231 604 673
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545 513 1,574 1,541
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Non-interest expense:
Salaries and employee benefits 1,365 1,252 3,935 3,542
Occupancy and equipment 653 604 1,925 1,710
Insurance premiums on deposits (13) 156 311 488
Other expenses 869 808 2,732 2,362
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2,874 2,820 8,903 8,102
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Income before income taxes 1,236 680 3,101 1,919
Income tax provision 405 224 1,024 631
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Net income 831 456 2,077 1,288
Dividends on preferred stock 140 140 420 420
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Net income applicable to common stock $691 $316 $1,657 $868
================================================================== =====================
Net income per common share and common equivalent share:
Primary $.44 $.24 $1.13 $.66
Fully Diluted .35 .21 .89 .61
================================================================== =====================
Average common and common equivalent shares outstanding:
Primary 1,553,733 1,314,653 1,464,375 1,313,146
Fully Diluted 2,349,344 2,123,175 2,338,143 2,121,668
================================================================== =====================
Cash dividends declared, common stock $.025 $ --- $ .05 $ ---
================================================================== =====================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
INDEPENDENCE BANCORP, INC. and SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------
(In thousands) 1995 1994
Cash Flows From Operating Activities: -------------------------
<S> <C> <C>
Net Income $2,077 $1,288
- ---------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Provision for possible loan losses 480 750
Depreciation of bank premises and equipment 557 431
Net amortization and accretion on securities 49 295
Provision for possible losses on other real estate 230 202
Loss (gain) on sale of other real estate 3 (66)
Gain on sale of residential mortgage loans and related servicing rights (15) 3
Increase in accrued interest receivable (934) (918)
Decrease (increase) in other assets 93 (171)
Increase in other liabilities 411 701
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Total Adjustments 874 1,227
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Net cash provided by operating activities 2,951 2,515
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Cash Flows From Investing Activities:
Proceeds from maturities of securities:
Available for sale 2,299 2,145
Held for maturity 9,527 11,121
Purchase of securities:
Available for sale (4,839) -
Held for maturity (21,870) (41,138)
Net increase in loans (7,988) (4,914)
(Increase) decrease in other real estate (517) 1,210
Capital expenditures (781) (869)
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Net cash used in investing activities (24,169) (32,445)
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Cash Flows From Financing Activities:
Net increase in deposit accounts 24,423 11,248
Principal payments on ESOP debt 84 78
Proceeds from the exercise of common stock options 30 13
Dividends paid (486) (420)
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Net cash provided by financing activities 24,051 10,919
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Net (decrease) increase in cash and cash equivalents 2,833 (19,011)
Cash and cash equivalents, beginning of year 30,736 39,431
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Cash and cash equivalents, end of period $33,569 $20,420
- ---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $4,411 $3,243
Income taxes 600 220
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</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
INDEPENDENCE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Therefore, it is
suggested that the accompanying unaudited consolidated financial statements be
read in conjunction with the financial statements and notes thereto included in
Independence Bancorp, Inc.'s (the Company) December 31, 1994 Annual Report to
Shareholders. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments of a normal recurring
nature necessary to present fairly the Company's financial position as of
September 30, 1995, the results of its operations for the three and nine months
then ended, and cash flows for the nine months then ended. The results of
operations for such interim periods are not necessarily indicative of the
results to be expected for the full year.
Note 2. Summary of Significant Accounting Policies:
Principles of consolidation
The consolidated financial statements of Independence Bancorp, Inc. include the
accounts of the Company and its wholly-owned subsidiary, Independence Bank of
New Jersey (the Bank). All significant intercompany accounts and transactions
have been eliminated.
Securities
The Company adopted Statement of Financial Accounting Standards 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
effective January 1, 1994. SFAS 115 requires the Company to classify its
investment securities as: (1) held to maturity, (2) available for sale or (3)
trading.
Securities which the Company has the ability and intent to hold until
maturity are classified as held to maturity. These securities are carried at
cost, adjusted for amortization of premiums and accretion of discounts.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, increased
capital requirements or other similar factors, are classified as available for
sale and are carried at market value. Differences between the security's
amortized cost and
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
market value is charged/credited directly to stockholders' equity, net of income
taxes.
The Company has not classified any of its securities as trading.
Loans
Substantially all loans classified as commercial loans are at least
partially secured by real estate. Loans are stated at their principal amount
outstanding, net of any unearned income and net of loan origination fees and
costs. Nonrefundable loan origination fees and certain direct loan origination
costs are deferred and recognized over the life of the loan as an adjustment to
the loans' yield. The Bank does not accrue interest on any loan when factors
indicate collectability is doubtful. In general, the accrual of interest is
discontinued when a loan becomes 90 days past due as to principal or interest.
When interest accruals are discontinued, interest credited to income in the
current year is reversed, and interest accrued in the prior year is charged to
the allowance for possible loan losses. Management may elect to continue the
accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest. Nonaccrual
loans are returned to accrual status when interest is received on a current
basis and other factors indicating doubtful collection cease.
Allowance for possible loan losses
The allowance for possible loan losses is maintained at a level considered
adequate by management to absorb potential loan losses. It is the result of an
in-depth and on-going analysis which relates outstanding balances to expected
allowance levels required to absorb future credit losses. Current economic
problems are addressed through management's assessment of anticipated changes in
the regional economic climate, changes in composition and volume of the loan
portfolio and variances in levels of classified, non-performing and past due
loans. Allowance adequacy calculations are completed by applying risk
assessments to determine specific and general allowance requirements for problem
and non-problem loans.
The allowance is increased as deemed necessary through provisions charged
against current earnings and additionally by crediting amounts of recoveries
received, if any, on previously charged-off loans. The allowance is reduced by
charge-offs of loans which are determined to be uncollectible, in accordance
with established policies.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
Impaired Loans
The Bank adopted SFAS 114 "Accounting by Creditors for Impairment of a
Loan", and SFAS 118 "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" as of January 1, 1995. SFAS 114 requires that
certain impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's original effective interest rate. As a
practical expedient, impairment may be measured based on the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.
The Bank had previously measured the allowance for possible loan losses
using methods similar to those prescribed in SFAS 114. As a result of adopting
these statements, no additional allowance for loan losses was required as of
January 1, 1995.
As of September 30, 1995, the Bank's recorded investment in impaired loans
and the related valuation allowance calculated under SFAS 114 is as follows:
<TABLE>
<CAPTION>
(in thousands) Recorded Valuation
Investment Allowance
-----------------------
<S> <C> <C>
Impaired Loans-
Valuation allowance required $ 142 $ 22
No valuation allowance required 1,729 0
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Total Impaired Loans $ 1,871 $ 22
======== ======
</TABLE>
This valuation allowance is included in the allowance for possible loan losses
on the balance sheet.
The average recorded investment in impaired loans for the nine months ended
September 30, 1995 was $3.1 million.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining recorded investment is doubtful at
which time payments received are recorded as reductions of principal. The Bank
recognized no interest income on impaired loans for the nine months ended
September 30, 1995.
In accordance with SFAS 114, a loan is classified as foreclosed property
when the Bank has taken possession of the collateral,
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
regardless of whether the formal proceedings take place. This is a change from
previous accounting for in-substance foreclosed property under provisions of
SFAS 15. SFAS 114 requires classification as foreclosed property based on actual
possession, whereas previous practice classified certain loans as in-substance
foreclosures prior to possession based on characteristics of the borrower and
underlying collateral. As a result of adopting SFAS 114, loans of approximately
$501 thousand no longer qualify as in-substance foreclosures based on the
possession criterion, and therefore have been reclassified from other assets to
loans as of January 1, 1995. Prior periods have been reclassified to reflect the
pronouncement.
Other Real Estate
Other real estate is comprised of foreclosed properties where the Company has
actually received title. Other real estate is carried at the lower of fair
value, as determined by current appraisals, less estimated costs to sell, or the
recorded investment in the loan on the property. Write-downs on these properties
which occur after the initial transfer from the loan portfolio are recorded as
operating expenses. Costs of holding such property are charged to expense as
incurred. Gains, to the extent allowable, and losses on the disposition of these
properties are reflected in current operations.
Note 3. Commitments and Contingent Liabilities
In the normal course of business, there are outstanding various legal
proceedings, commitments and contingent liabilities, such as guarantees and
commitments to extend credit which are not reflected in the accompanying
financial statements. At September 30, 1995 standby letters of credit were
approximately $2,128,000. In addition, the Company has committed $26,736,000
for home equity loans; $16,188,000 for commercial and residential real estate
loans; $9,189,000 for commercial lines of credit and $6,195,000 for all other
commitments. In the judgement of management, the financial position or results
of operations of the Company will not be materially adversely affected by
the outcome of any present legal proceedings or other commitments and contingent
liabilities.
<PAGE>
Item 2- Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
Reference should be made to Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Independence Bancorp, Inc.
Annual Report and Form 10K for the year ended December 31, 1994.
Overview
- --------
The Company recorded net income applicable to common stock for the three
months ended September 30, 1995 of $691 thousand, or $.35 fully diluted per
common share. This compares to net income applicable to common stock for the
same period in 1994 of $316 thousand, or $.21 fully diluted per common share.
The Company's third quarter 1995 net income benefited from a 14.5% increase in
net interest income before the provision for possible loan losses as compared to
the same period in 1994. Net income after preferred dividends for the nine
months ended September 30, 1995 was $1.7 million, or $.89 per common share on a
fully diluted basis, as compared to $868 thousand or $.61 per common share on a
fully diluted basis for the comparable period in 1994.
As of September 30, 1995, the Company's Capital ratios were: 5.68% for
Tier I leverage capital; 10.64% for Tier I capital to risk-adjusted assets; and
11.94% for total Tier capital to risk-adjusted assets. The Bank's ratios as of
September 30, 1995 were 6.03% for Tier I leverage capital; 11.25% for Tier I
capital to risk-adjusted assets; and 12.50% for total Tier capital to risk-
adjusted assets. All ratios remain above regulatory mandated levels.
Non-accrual loans and total non-performing assets declined 59.9%, and
36.0%, respectively, from September 30, 1994 to September 30, 1995. As compared
to December 31, 1994, total non-performing assets at September 30, 1995 declined
26.0%.
Net Interest Income
- -------------------
Net interest income, stated on a fully tax equivalent (FTE) basis,
increased $483 thousand, or 14.9% for the third quarter of 1995 as compared to
the third quarter of 1994. Net interest income on a fully tax equivalent basis
increased $1.7 million to $11.0 million in the first nine months of 1995 when
compared to the same period of 1994. Net interest margins are as follows: 5.28%
and 5.12% for the three months ended September 30, 1995 and 1994, respectively,
and 5.35% and 5.11% for the nine months ended September 30, 1995 and 1994,
respectively.
Interest income (FTE) totalled $15.4 million for the first nine months of
1995, an increase of 22.9%, or $2.9 million, as compared to the same period in
1994, while interest expense increased 36.0%, or
<PAGE>
$1.2 million during this period. During the third quarter of 1995, interest
income increased by 19.7%, or $867 thousand, which was offset by the increase in
interest expense of 33.7%, or $385 thousand, as compared to the respective
period in 1994. Growth in average securities, real estate and installment loans
and federal funds substantially accounted for the increase in net interest
income for both periods presented. Similarly, the increase in average time
deposits primarily accounted for the increase in interest expense.
Average interest earning assets for the first nine months of 1995
increased $31.5 million, or 13.0%, over the comparable period in 1994 and the
overall rate on earning assets increased by 61 basis points. Securities and real
estate loans are primarily responsible for this growth with increases of $19.3
million and $11.1 million, respectively, as compared with the same period of
1994.
The Company's average rate paid on interest-bearing liabilities increased
54 basis points for the three month period ended September 30, 1995, and 53
basis points for the first nine months of 1995, as compared to the comparable
periods of 1994. The cost of these interest-bearing liabilities increased to
2.16% for the third quarter of 1995 compared to 1.80% for the third quarter of
1994. The cost of interest-bearing liabilities for the nine months ended
September 30, 1995 increased to 2.15% compared to 1.79% for the comparable
period in 1994. Average demand deposits for the third quarter of 1995 increased
$13.5 million, or 23.6% compared to the third quarter of 1994. Average time
deposits and other interest bearing liabilities increased $15.0 million, or
32.5%, for the third quarter of 1995 compared to the same period in 1994. The
Company continues to experience a favorable net interest margin for the period
ended September 30, 1995. This is attributable to the significant amount of
demand deposits that the Company continues to attract and retain.
Included in interest-earning assets are loans on which the accrual of
interest has been discontinued. Such non-accrual loans amounted to $1.7 million
at September 30, 1995. Had these loans been current in accordance with their
terms, interest income on loans for the nine months ended September 30, 1995
would have been $118 thousand higher.
Allowance and Provision for Possible Loan Losses
- ------------------------------------------------
The allowance for possible loan losses is maintained at a level considered
adequate by management to absorb potential loan losses. It is the result of an
in-depth and ongoing analysis which relates outstanding balances to expected
allowance levels required to absorb future credit losses. Current economic
problems are addressed through management's assessment of anticipated changes in
the regional economic climate, changes in composition and volume of the loan
portfolio and variances in levels of classified, non-performing and past due
loans. Allowance adequacy calculations are completed by
<PAGE>
applying risk assessments to determine specific and general allowance
requirements for problem and non-problem loans.
The Company prospectively adopted Statement of Financial Accounting
Standards 114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114),
effective January 1, 1995. This Statement requires that impaired loans, within
the scope of the statement, be measured on the present value of expected future
cash flows discounted at the loan's effective interest rate or market price or
the fair value of the collateral if the loan is collateral dependent.
Appropriate periodic provisions are charged to operations as determined by the
foregoing methodology.
The following table lists selected data relating to the loan portfolio and
certain other factors which were considered by management in determining the
amount of the allowance for possible loan losses for the period ended September
30, 1995. The table reflects the adoption of SFAS 114 and prior year information
has been reclassified to conform with the current year presentation.
As of, or For the Period Ended
------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
09/30/94 12/31/94 03/31/95 06/30/95 09/30/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans $ 2,903 $ 2,622 $ 2,491 $ 2,283 $ 1,722
Other Impaired Loans 1,767 792 628 501 149
Other Real Estate 693 1,222 915 789 1,561
------- ------- ------- ------- -------
Non-Performing Assets $ 5,363 $ 4,636 $ 4,034 $ 3,573 $ 3,432
======= ======= ======= ======= =======
Past Due Loans * $ 44 $ 189 $ 143 $ 19 $ 170
======= ======= ======= ======= =======
Net Charge-offs (recoveries) $ 734 $ 876 $ (12) $ 90 $ 538
======= ======= ======= ======== =======
Allowance for Possible
Loan Losses $ 2,508 $ 2,630 $ 2,822 $ 2,880 $ 2,572
======= ======= ======= ======== =======
Allowance as Percentage
of Loans Outstanding 1.99% 2.03% 2.09% 2.10% 1.87%
======= ======= ======= ======== =======
Allowance as Percentage
of Non-Performing
Loans 53.70% 77.04% 90.48% 103.45% 137.47%
======= ======= ======= ======== =======
Net Charge-offs (recoveries)
(annualized)to Average Loans
Outstanding 0.80% 0.70% (0.04%) 0.13% 0.53%
======= ======= ======= ======== =======
</TABLE>
* Loans over 90 days past due on which interest continues to be
accrued.
For the nine months ended September 30, 1995, net loan charge-offs were
$538 thousand as compared with net loan charge-offs
<PAGE>
of $734 thousand for the same period of 1994. There were $879 thousand in
charge-offs, of which $650 thousand or 73.9% were commercial loans, $152
thousand or 17.3% were installment loans, and the remaining 8.8% were real
estate loans. Recoveries during the first nine months of 1995 were for
commercial and installment loans previously charged off and totalled $275
thousand and $66 thousand, respectively.
At September 30, 1995, the Company's non-accrual loans, impaired loans, and
other real estate (in total, non-performing assets) totalled $3.4 million as
compared to $5.4 million at September 30, 1994. Delinquent loans (90 days or
more, and still accruing) increased $126 thousand due to one real estate
borrower.
At September 30, 1995, the Company's allowance for possible loan losses was
$2.6 million. This represented 1.9% of total loans and 137.5% of total non-
performing loans. This compares to the Company's allowance for possible loan
losses at September 30, 1994 of $2.5 million, or 2.0% of total loans and 53.7%
of total non-performing loans. The Company's allowance for possible loan losses
at December 31, 1994 was $2.6 million, or 2.0% of loans and 77.0% of total non-
performing loans.
Non-Interest Income
- -------------------
Non-interest income for the three and nine months ended September 30, 1995
increased $32 thousand and $33 thousand, respectively, over the comparable
period in 1994. Service charges on deposit accounts for the third quarter of
1995 increased $42 thousand, or 14.9% over the same period in 1994 as a result
of increased income from account related charges. Other non-interest income for
the third quarter of 1995 decreased from the comparable period in 1994 due to
reduced loan fee income. Service charges on deposit accounts for the nine months
ended September 30, 1995 increased $102 thousand, or 11.8% over the same period
in 1994, while all other non-interest income declined $69 thousand, or 10.3% as
compared to the first nine months of 1994.
Non-Interest Expense
- --------------------
Non-interest expense for the third quarter of 1995 totalled $2.9 million,
remaining even with the comparable period of last year. Third quarter 1995 and
1994 non-interest expense annualized as a percentage of total average assets was
3.77% and 4.14%, respectively. Salaries and employee benefits for the three
months ended September 30, 1995 reflected an increase of $113 thousand, or 9.0%
over the third quarter of 1994 as a result of additions to staff. Third quarter
1995 occupancy and equipment expenses increased $49 thousand or 8.1% over the
third quarter of 1994 due to higher data processing fees and equipment
depreciation, offset by a decrease in equipment maintenance costs. Insurance
premiums on deposit accounts for the third quarter of 1995 decreased $169
thousand or 108.3% compared to the same period of last year as a result of a
refund received from the Federal Deposit
<PAGE>
Insurance Corporation ("FDIC") for excessive premium payments made during 1995.
Other non-interest expenses for the third quarter of 1995 totalled $869
thousand, an increase of $61 thousand, or 7.5% over the same period in 1994 due
to higher costs for professional services, advertising and marketing costs, and
stationery expenses, partially offset by a decrease in costs associated with
other real estate owned.
Annualized, total non-interest expense as a percentage of total average
assets for the nine months ended September 30, 1995 and 1994 was 3.99% and
4.11%, respectively. Non-interest expense for the first nine months of 1995
totalled $8.9 million, an increase of $801 thousand, or 9.9% over the comparable
period in 1994. Salaries and employee benefits increased $393 thousand, or 11.1%
over the nine months ended September 30, 1994 primarily due to a 10.8% increase
made to staff. Other operating expenses for the first nine months of 1995,
excluding salaries and employee benefits, increased 8.9% as compared to the same
period in 1994. This increase is attributable to higher data processing and
equipment costs related to the July 1994 computer system conversion, advertising
and marketing expenses, stationery costs, and professional fees, partially
offset by the reduction in insurance premiums on deposits expense resulting from
the $169 thousand refund received from the FDIC.
Interest Rate Sensitivity and Liquidity
- ---------------------------------------
Management has identified numerous strategies, including a redeployment of
asset maturities and cash flows to insulate net interest income from the effects
of changes in interest rates. Sensitivity to interest rate fluctuations is
measured in a number of time frames. Gap positions are monitored as part of the
committee process. This activity includes periodic forecasts of future business
activity which are applied to various interest rate environments in a simulation
process. The use of these financial modeling techniques assists management in
its continuing efforts to achieve stable earnings growth in an everchanging
interest rate environment. While gap analysis is a general indicator of the
potential effect that changing interest rates may have on net interest income,
the gap itself does not present a complete picture of interest rate sensitivity.
For this reason, the Company primarily uses simulation techniques to project
future net interest income streams, incorporating the current "gap" position,
the forecasted balance sheet mix and the anticipated spread relationships
between market rates and bank products under a variety of interest rate
scenerios.
Liquidity measures the ability to satisfy current and future cash flow
needs as they become due. The Company's primary sources of liquidity are
deposits, loan repayments and investment securities. During the first nine
months of 1995 and 1994, average balances in marketable securities and other
short-term investments comprised 46.9% and 45.4% of average total assets,
respectively. During the first nine months of 1995, average deposit balances
(after interest credited) increased 11.0% to $278.6 million from December 31,
1994.
<PAGE>
Securities, which consist of obligations of the U.S. Treasury and U.S.
Government Agencies and issues of state and political subdivisions totalled
$130.7 million at September, 1995, an increase of 12.8% or $14.8 million over
December 31, 1994. At September 30, 1995, the Company's securities classified as
held to maturity reflected gross unrealized gains of $237 thousand and gross
unrealized losses of $1.6 million. Securities available for sale at September
30, 1995 totaled $6.2 million, an increase of $2.8 million or 80.1% as compared
to December 31, 1994.
In accordance with SFAS 115, at September 30, 1995, the Company had an
unrealized loss balance of $48 thousand (net of tax effects) against retained
earnings for net declines in the fair market values of its investment securities
classified as available for sale. The Company had no investment securities
classified as trading securities as of September 30, 1995.
The Company remains a deposit-driven financial institution with emphasis
on core deposit accumulation and retention as a basis for sound growth and
profitability. The Company believes that its record of sustaining core deposit
growth is reflective of the Company's retail approach to banking which
emphasizes a combination of free checking accounts, convenient branch locations,
extended hours of service, quality service and active marketing. Historically,
the overall liquidity of the Company has been enhanced by the significant amount
of core deposits.
Capital Resources
- -----------------
At September 30, 1995, stockholders' equity totaled $17.2 million or 5.5%
of total assets, as compared with $15.4 million, or 5.4%, at December 31, 1994.
The Federal Reserve Board standards applicable to bank holding companies
and similar standards of the Federal Deposit Insurance Corporation applicable to
banks classify capital into two tiers, referred to as Tier I and Tier II. Tier
I capital consists of common stockholders' equity and qualifying perpetual
preferred stock, less goodwill. Tier II capital consists of the allowance for
possible loan and lease losses up to 1.25% of risk-weighted assets.
The Federal Reserve Board requires each bank holding company to maintain a
minimum leverage ratio of 3.0% (Tier I capital to quarterly average total
assets). The minimum 3.0% leverage requirement applies only to top-rated banking
organizations without any operating, financial or supervisory deficiencies.
Other organizations are expected to hold an additional capital cushion of at
least 100 to 200 basis points of Tier I capital, and, in all cases, banking
organizations should hold capital commensurate with the level and nature of all
the risks to which they are exposed. The Company's
<PAGE>
leverage capital ratio at September 30, 1995 was 5.68%. On September 30, 1995,
the Bank's leverage capital ratio was 6.03%.
Based on the continuing improvement in the Bank's condition, with the FDIC
and Department's permission, the Board of Directors rescinded its December 23,
1993 resolution that required, among other things, the Bank to maintain its Tier
I leverage capital ratio at not less than 5.50%.
The following table reflects the Company's and Bank's capital ratios as of
September 30, 1995:
<TABLE>
<CAPTION>
Company Bank
- --------------------------------------------------------------
<S> <C> <C>
Tier I Capital:
Actual.............................. 10.64% 11.25%
Regulatory Minimum Requirement...... 4.00% 4.00%
Combined Tier I and Tier II Capital:
Actual.............................. 11.94% 12.50%
Regulatory Minimum Requirement...... 8.00% 8.00%
Leverage Ratio:
Actual.............................. 5.68% 6.03%
Regulatory Minimum Requirement...... 4.00% 4.00%
to to
5.00% 5.00%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
---------------------------
None
ITEM 2 - CHANGES IN SECURITIES
-------------------------------
None
ITEM 3 - DEFAULT UPON SENIOR SECURITIES
----------------------------------------
None
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------
None
ITEM 5 - OTHER INFORMATION
---------------------------
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(a) The following exhibits are being filed with this report:
27 Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENCE BANCORP, INC.
--------------------------
November 8, 1995 BY: /s/ Kevin J. Killian
------------------------ ------------------------------
DATE KEVIN J. KILLIAN
SENIOR VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
November 8, 1995 BY: /s/ Karen J. Hall
------------------------ ------------------------------
DATE KAREN J. HALL
CHIEF ACCOUNTING OFFICER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 19,210
<INT-BEARING-DEPOSITS> 984
<FED-FUNDS-SOLD> 13,375
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,214
<INVESTMENTS-CARRYING> 124,489
<INVESTMENTS-MARKET> 123,095
<LOANS> 137,904
<ALLOWANCE> 2,572
<TOTAL-ASSETS> 309,740
<DEPOSITS> 289,855
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,509
<LONG-TERM> 1,223
<COMMON> 2,187
777
0
<OTHER-SE> 14,189
<TOTAL-LIABILITIES-AND-EQUITY> 309,740
<INTEREST-LOAN> 9,291
<INTEREST-INVEST> 5,283
<INTEREST-OTHER> 747
<INTEREST-TOTAL> 15,321
<INTEREST-DEPOSIT> 4,411
<INTEREST-EXPENSE> 4,411
<INTEREST-INCOME-NET> 10,910
<LOAN-LOSSES> 480
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,903
<INCOME-PRETAX> 3,101
<INCOME-PRE-EXTRAORDINARY> 2,077
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,077
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 7.51
<LOANS-NON> 1,871
<LOANS-PAST> 170
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,630
<CHARGE-OFFS> 879
<RECOVERIES> 341
<ALLOWANCE-CLOSE> 2,572
<ALLOWANCE-DOMESTIC> 2,572
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
