<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
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Amendment No. 1 to 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, 1996
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
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 November 8, 1996 2,839,409
<PAGE>
INDEPENDENCE BANCORP,INC.and SUBSIDIARY
- ---------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
(in thousands, except share data) (unaudited)
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<S> <C> <C>
Assets
Cash and due from banks $26,656 $20,280
Interest bearing deposits in other banks 920 5,811
Federal funds sold 2,530 12,820
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Cash and cash equivalents 30,106 38,911
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Securities
Available for sale, at market 28,137 46,366
Held to maturity, at cost (market value
$135,563 and $90,326) 137,193 90,297
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Total securities 165,330 136,663
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Loans
Commercial 26,809 26,592
Real estate-construction 4,740 5,777
Real estate-commercial 57,299 44,360
Real estate-residential 33,985 29,378
Installment 42,847 36,387
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Total loans 165,680 142,494
Less:
Allowance for possible loan losses 2,673 2,694
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Loans, net 163,007 139,800
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Premises and equipment, net 6,572 5,455
Accrued interest receivable 3,384 2,759
Other real estate, net 822 1,230
Other assets 340 369
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Total assets $369,561 $325,187
===========================================================================
Liabilities and Stockholders' Equity
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Deposits
Demand (non-interest bearing) 85,337 80,877
Money-market, NOW and super NOW 114,797 91,293
Savings 65,955 64,928
Time certificates of $100,000 or more 24,004 13,078
Other time certificates 49,442 54,170
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Total deposits 339,535 304,346
Other liabilities 1,361 1,020
Employee Stock Ownership Plan (ESOP) debt 1,099 1,194
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Total liabilities 341,995 306,560
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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 issued
and outstanding (liquidation value - $6,215) - 777
Nonconvertible preferred stock, Series B,
$1 stated value, authorized 217,500 shares,
30,000 issued and outstanding 30 -
Common stock, par value $1.667 per share,
5,000,000 authorized; 2,837,789 and 1,312,748,
respectively, issued and outstanding 4,731 2,189
Additional paid-in capital 18,204 12,970
Retained earnings 5,792 3,594
Net unrealized holding (loss) gain on securities
available for sale, net of income taxes (90) 291
Unearned ESOP preferred stock (1,101) (1,194)
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Total stockholders' equity 27,566 18,627
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Total liabilities and stockholders' equity $369,561 $325,187
===========================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
INDEPENDENCE BANCORP, INC. and SUBSIDIARY
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Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(in thousands, except September 30 September 30
per share data) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Interest income:
Loans $3,575 $3,196 $10,127 $9,291
Securities
Taxable 2,281 1,783 6,140 5,243
Tax-exempt 86 31 206 40
Deposits with banks 41 52 232 192
Federal funds sold 134 170 567 555
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Total interest income 6,117 5,232 17,272 15,321
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Interest expense:
Interest on deposits 1,636 1,527 4,833 4,411
Interest on ESOP loan 26 0 80 0
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Total interest expense 1,662 1,527 4,913 4,411
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Net interest income 4,455 3,705 12,359 10,910
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Provision for possible loan losses 155 140 375 480
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Net interest income after provision
for possible loan losses 4,300 3,565 11,984 10,430
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Non-interest income:
Service charges on deposit accounts 342 324 993 970
Gain on sale of securities 36 0 338 0
Other income 269 221 881 604
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647 545 2,212 1,574
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Non-interest expense:
Salaries and employee benefits 1,638 1,397 4,875 4,037
Occupancy 395 390 1,167 1,147
Equipment 316 263 867 778
Other expenses 980 824 3,099 2,941
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3,329 2,874 10,008 8,903
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Income before income taxes 1,618 1,236 4,188 3,101
Income tax provision 548 405 1,417 1,024
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Net income 1,070 831 2,771 2,077
Dividends on preferred stock 0 140 226 420
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Net income applicable to common stock $1,070 $691 $2,545 $1,657
=============================================================================
Net income per common share:
Primary $.50 $.44 $1.48 $1.13
Fully diluted .43 .35 1.20 .89
=============================================================================
Average common shares outstanding:
Primary 2,108,453 1,553,733 1,717,920 1,464,375
Fully diluted 2,474,322 2,349,344 2,294,677 2,338,143
=============================================================================
</TABLE>
The accompanying notes to consolidated financial statement 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) 1996 1995
Cash Flows from operating activities:
<S> <C> <C>
Net income $ 2,771 $ 2,077
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Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for possible loan losses 375 480
Depreciation of bank premises and equipment 551 557
Net amortization and accretion on securities (174) 49
Provision for possible loan losses on other real estate 0 230
Loss (gain) on sale of other real estate (80) 3
Gain on sale of residential mortgage loans and
related servicing rights (13) (15)
Net loan (charge-offs) recoveries (396) (538)
Net gain on sale of securities available for sale (338) 0
Increase in accrued interest receivable (625) (934)
(Increase) decrease in other assets 29 93
(Decrease) increase in other liabilities 341 411
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Total adjustments (330) 336
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Net cash provided by operating activities 2,441 2,413
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Cash Flows From Investing Activities:
Proceeds from maturities of securities:
Available for sale 7,707 2,299
Held for maturity 17,791 9,527
Purchase of securities:
Available for sale (21,465) (4,839)
Held for maturity (56,554) (21,870)
Sale of securities available for sale 23,965 0
Net increase in loans (23,528) (7,988)
Sale of other real estate 869 699
Capital expenditures (1,668) (781)
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Net cash used in investing activities (52,883) (22,953)
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Cash Flows From Financing Activities:
Net increase in deposit accounts 35,189 24,423
Principal payments on ESOP debt 95 84
Proceeds from the issuance of common stock 6,774 30
Proceeds from the issuance of preferred stock 288 0
Redemption of preferred stock (33) 0
Dividends paid on common stock (337) (66)
Dividends paid on preferred stock (339) (420)
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Net cash provided by financing activities 41,637 24,051
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Net increase (decrease) in cash and cash equivalents (8,805) 3,511
Cash and cash equivalents, beginning of year 38,911 30,736
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Cash and cash equivalents, end of period $30,106 $34,247
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $4,913 $4,411
Income taxes 1,150 600
Non-cash investing activities:
Loans transferred to other real estate 300 614
(Increase) decrease in market valuation of
securities available for sale (381) 88
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<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, 1995.
Overview
Net income applicable to common stock for the three and nine month
periods ended September 30, 1996 totaled $1.1 million and $2.5 million,
or $.43 and $1.20 per fully diluted common share. This compares to net
income applicable to common stock for the three and nine months ended
September 30, 1995 of $691 thousand and $1.7 million, or $.35 and $.89
per fully diluted common share. Net income for the third quarter of 1996
benefited from a $750 thousand, or 20.2% increase in net interest income
and a $102 thousand, or 18.7% increase in non-interest income, offset by
a $455 thousand, or 15.8% increase in non-interest expense. Contributing
to the Company's earnings growth for the first nine months of 1996 was a
$1.4 million, or 13.3% increase in net interest income, and a $638
thousand, or 40.5% increase in non-interest income, offset by a $1.1
million, or 12.4% increase in non-interest expense. Included in earnings
for 1996 were gains on the sale of available for sale securities of $36
thousand for the third quarter of 1996, and $338 thousand for the nine
months ended September 30, 1996, while there were no sales of securities
during the respective periods of 1995.
On October 15, 1996 Independence Bancorp, Inc. entered into a definitive
agreement to be acquired by Commerce Bancorp, Inc. in an exchange of stock.
The transaction is expected to be completed during the first quarter of
1997 and is subject to certain shareholder and regulatory approvals.
(see Subsequent Events)
As of September 30, 1996, the Company's Capital ratios were: 7.47% for
Tier I leverage capital; 13.61% for Tier I capital to risk-adjusted assets;
and 14.86% for Total capital to risk-adjusted assets. The Bank's ratios as
of September 30, 1996 were 7.23% for Tier I leverage capital; 13.10% for
Tier I capital to risk-adjusted assets; and 14.35% for Total capital to
risk-adjusted assets. All ratios remain above regulatory mandated levels.
Non-accrual loans and total non-performing assets declined 4.7%, and
21.8%, respectively, from September 30, 1995 to September 30, 1996. As
compared to December 31, 1995, total non-performing assets at September 30,
1996 decreased 11.1%.
Net Interest Income
Tax equivalent net interest income increased $1.5 million and $774
thousand, or 13.9% and 20.8%, respectively, for the nine months and quarter
ended September 30, 1996 as compared to the same periods in 1995. Average
interest earning assets increased $45.6 million, or 16.7% during the nine
months ended September 30, 1996, over the same period in 1995, while
average interest bearing liabilities increased $29.7 million, or 13.8%
from September 30, 1995 to September 30, 1996. The increase in interest
income for the first nine months of 1996 over the comparable period in
<PAGE>
1995 is primarily due to the growth in average securities, residential
and commercial mortgages, installment loans, federal funds, and interest
bearing deposits with banks. Growth in average time deposits and NOW
deposits accounted for substantially all of the increase in interest
expense.
The net interest margin was 5.35% for the three months ended September
30, 1996 and 5.28% for the three months ended September 30, 1995. For the
first nine months of 1996, the net interest margin decreased 13 basis
points to 5.22% over the nine month period in 1995. The decrease in the
net interest margin is primarily the result of the $13.4 million or 21.8%
increase in higher interest bearing time deposits for the third quarter of
1996 over the third quarter 1995 level. These time deposits bear higher
rates than the Company's other deposit products. For the first nine months
of 1996, average time deposits increased $14.5 million or 24.8% as compared
to the same period in 1995. Average time deposits as a percentage of
average interest bearing liabilities for the third quarter of 1996
increased to 29.1% from 28.5% for the comparable period in 1995. For the
nine month periods ended September 30, 1996 and 1995, average time
deposits as a percentage of average interest bearing liabilities was 29.8%
and 27.2%, respectively.
Average interest earning assets for the third quarter of 1996 increased
$54.2 million, or 19.3%, over the comparable period in 1995, however, the
overall rate on earning assets decreased by 11 basis points due to changes
in the mix and rates of the securities and loan portfolios. Total securities,
primarily Agency, Municipal, and Treasury, as well as commercial and
residential real estate loans are primarily responsible for the growth in
average earning assets with increases of $34.6 million and $16.0 million,
respectively, as compared with the same period of 1995.
Interest income (FTE) totaled $17.4 million and $6.2 million for the
nine months and quarter ended September 30, 1996, an increase of 13.2% or
$2.0 million, and 17.3% or $908 thousand, respectively, as compared to the
same period in 1995. Interest expense increased 11.4%, or $503 thousand
during the first nine months of 1996 over the same period in 1995. Third
quarter 1996 interest expense increased 8.8%, or $134 thousand as compared
to the third quarter of 1995. Growth in average securities, commercial and
residential real estate loans, and installment loans substantially
accounted for the increase in interest income. Similarly, increases in
average time deposits, N.O.W. accounts, and money market accounts primarily
accounted for the increase in interest expense.
The Company's average rate paid on interest-bearing liabilities decreased
25 basis points for the three month period ended September 30, 1996, as
compared to the same period of 1995. The cost of these interest-bearing
liabilities decreased to 2.58% for the third quarter of 1996 compared to
2.83% for the third quarter of 1995 primarily due to lower rates paid on
savings, money market and time deposits. Average demand deposits for the
third quarter of 1996 increased $18.4 million, or 26.0%, compared to the
third quarter of 1995. Average time deposits, and other interest bearing
liabilities increased $13.4 million, or 21.8%, and $27.7 million, or 18.0%,
respectively, for the third quarter of 1996 as compared to the same period
in 1995.
Included in interest-earning assets are loans on which the accrual of
interest has been discontinued. Such non-accrual loans amounted to $1.8
<PAGE>
million at September 30, 1996. Had these loans been current in accordance
with their terms, interest income on loans for the first nine months of
1996 would have been $152 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 ongoing analysis which relates outstanding balances to
expected allowance levels required to absorb future credit losses that
are currently inherent in the loan portfolio. 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.
As required by Statement of Financial Accounting Standards (SFAS) No.
114 and No. 118, "Accounting by Creditors for Impairment of a Loan",
impairment may be measured based on the loan's observable market price of
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.
Management has determined that its nonaccrual loans and those loans
previously classified as insubstance foreclosures are impaired loans. As
of September 30, 1996 included in the Company's total loan portfolio of
$165.7 million, it had under SFAS 114 a total recorded investment in
impaired loans of $1.8 million. Of this amount, $714 thousand did not
require a valuation allowance. For the remaining $1.1 million of impaired
loans there was a $201 thousand valuation allowance established. This
valuation allowance was included in the $2.7 million allowance for possible
loan losses in the Bank's consolidated statement of condition. The average
recorded investment in impaired loans for the third quarter of 1996 was
$2.4 million.
Interest payments received on impaired loans are recorded as interest
income unless collection of the remaining investment is doubtful in which
case payments received are recorded as reductions of principal. The Bank
did not recognize any interest income on impaired loans for the first nine
months of 1996.
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 periods ended
September 30, 1996, December 31, 1995, and September 30, 1995.
<PAGE>
As of, or For the Period Ended
(amounts in thousands)
<TABLE>
<CAPTION>
09/30/96 12/31/95 09/30/95
<S> <C> <C> <C>
Non-Accrual Loans:
Commercial $ 227 $ 994 $ 1,138
Real estate-commercial 1,119 285 290
Real estate-residential 169 168 169
Installment 268 272 274
Total 1,783 1,719 1,871
Other Real Estate 901 1,301 1,561
Total Non-Performing Assets $ 2,684 $ 3,020 $ 3,432
Ratio of non-performing assets
to total assets .73% .93% 1.11%
Accruing loans past due 90 days or more:
Commercial $ 75 $ 21 $ 8
Real estate-residential 69 - -
Installment 346 12 162
Total $490 $ 33 $170
</TABLE>
For the nine months ended September 30, 1996, net loan charge-offs
were $396 thousand as compared with net loan charge-offs of $538 thousand
for the same period of 1995. There were $591 thousand in charge-offs, of
which $374 thousand or 63.3% were real estate loans, $113 thousand or 19.1%
were commercial loans, and the remaining 17.6% were installment loans.
Recoveries during the first nine months of 1996 were for commercial and
installment loans previously charged off and totaled $92 thousand and $103
thousand, respectively.
At September 30, 1996, the Company's non-accrual loans, impaired loans,
and other real estate (in total, non-performing assets) totaled $2.7
million as compared to $3.4 million at September 30, 1995. Delinquent loans
(i.e. loans 90 days or more past due, and still accruing) increased $320
thousand primarily due to two home equity loans of $236 thousand and three
installment loans totaling $84 thousand.
In March 1996, a commercial mortgage in the amount of $1.6 million was
classified as a potential problem loan. In May 1996, this commercial
mortgage went into non-accrual status. In September 1996, $346 thousand of
this loan was charged off leaving a remainder of $801 thousand, which is
secured by commercial real estate.
At September 30, 1996, the Company's allowance for possible loan losses
was $2.7 million, the same level at September 30, 1995. For September 30,
1996, this represented 1.6% of total loans and 149.9% of total non-performing
loans. This compares to 1.9% of total loans and 137.5% of total non-
performing loans at September 30, 1995. The Company's allowance for possible
loan losses at December 31, 1995 was $2.7 million, or 1.9% of loans and
156.7% of total non-performing loans.
<PAGE>
Non-Interest Income
Non-interest income, excluding gains resulting from sales of available
for sale securities and other real estate increased $220 thousand or 14.0%,
and $65 thousand or 11.9% for the nine months and quarter ended September
30, 1996, respectively, over the same periods in 1995. During the first
nine months of 1996, the Company sold $24 million of its securities
portfolio classified as available for sale which resulted in a gain of
$338 thousand. The third quarter of 1996 reflects a gain of $36 thousand
from the sale of $8 million of available for sale securities. No sales of
available for sale securities occurred during the first nine months of 1995.
Service charges on deposit accounts for the third quarter and nine
months ended September 30, 1996 increased $18 thousand or 5.6%, and $23
thousand or 2.4% when compared to the same periods in 1995 due to the
increase in average deposits, and increased fee income from deposit
accounts.
Other non-interest income increased $48 thousand or 21.7%, and $277
thousand or 45.9% for the three month and nine month periods ended
September 30, 1996 as compared to the same periods in 1995. The increase
for the third quarter of 1996 over the comparable period in 1995 was due
to higher fee income from safe deposits, ATM and wire transfers, partially
offset by a reduction in check printing income. For the first nine months
of 1996, other non-interest income benefited from the sales of two
foreclosed real estate properties, increased fee income from safe deposits,
loan originations, and wire transfers, over the respective period in 1995.
Non-Interest Expense
Non-interest expense for the nine months and quarter ended September
30, 1996 totaled $10.0 million and $3.3 million, reflecting increases of
$1.1 million or 12.4% and $455 thousand or 15.8%, respectively, over the
comparable periods of 1995. Annualized, total non-interest expense as a
percentage of total average assets for the nine months ended September 30,
1996 and 1995 was 3.82% and 3.99%, respectively. The largest component of
non-interest expense, salaries and employee benefits, totaled $1.6 million
for the three months ended September 30, 1996, and reflected an increase of
$241 thousand or 17.3% over the third quarter of 1995. Salaries and employee
benefits for the first nine months of 1996 increased $838 thousand or 20.8%
over the comparable period in 1995. This increase was primarily a result of
additions made to staff. Full time equivalent employees for September 30,
1996 and September 30, 1995 totaled 174 and 164, respectively.
In December 1995, the Company elected to adopt the American Institute
of Certified Public Accountants Statement of Position 93-6 (SOP 93-6),
"Employers' Accounting for Employee Stock Ownership Plans", with
retroactive application, as required, effective January 1, 1994. The
required adjustments and per share effect were reflected in the fourth
quarter 1995 and 1994 since the effect on interim quarters would not be
significantly different from amounts previously reported. Debt of the ESOP
is recorded as debt of the Company, and shares pledged as collateral for
the debt are reported as unearned ESOP preferred stock in the balance
sheet. As the debt is repaid, shares are released from collateral, and
compensation expense is reported for an amount equal to the current market
price of the shares, and the shares become outstanding for earnings per
<PAGE>
share computations. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings, and dividends on unallocated ESOP shares
are recorded as a reduction of the ESOP debt and related accrued interest.
As a result of the adoption of SOP 93-6, the Company reported
compensation expense of $32 thousand for the third quarter of 1996,
remaining at the same level as the third quarter of 1995. Compensation
expense for the nine months ended September 30, 1996 and September 30,
1995 totaled $153 thousand and $102 thousand, respectively. Interest
expense relating to the ESOP for the three and nine months ended September
30, 1996 totaled $26 thousand and $80 thousand, respectively. Interest
incurred on the ESOP debt during the third quarter of 1995 was not
recorded by the Company, as the Company reflected the effects of SOP 93-6
in the fourth quarter of 1995 only.
Occupancy expense for the third quarter of 1996 remained at the same
level as the third quarter of 1995, but increased 1.7% for the first nine
months of 1996 as compared with the same period of 1995 due to increased
building maintenance costs. Equipment expense for the nine and three months
ended September 30, 1996 increased $89 thousand or 11.4% and $53 thousand
or 20.2%, respectively, over the comparable periods in 1995 primarily due
to increased charges for servicing and maintaining the Company's computer
system, and higher equipment charges relating to branch renovations and
fixed asset equipment additions.
Other non-interest expense for the first nine months of 1996 increased
$158 thousand or 5.4% when compared to the same period in 1995. Other
non-interest expense for the third quarter of 1996 increased $156 thousand
or 18.9% as compared to the same period in 1995. Insurance premiums on
deposit accounts for the first nine months of 1996 decreased $309 thousand
or 99.4% as compared to the same period of 1995 as a result of the Company
receiving the most favorable risk classification during 1995. As an
institution insured by the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation ("FDIC"), the Company was not impacted by any
assessment in connection with the recent legislation re-capitalizing the
Savings Association Insurance Fund ("SAIF") during the third quarter of 1996.
Other non-interest expenses for the third quarter of 1996, excluding
insurance premiums on deposit accounts, increased $143 thousand or 17.1%
over the same period of 1995 due to advertising and marketing-related costs,
legal fees, audit expense, credit reports and appraisal charges resulting
from on-going loan promotions, and insurance expense, partially offset by
decreases in costs associated with the holding of other real estate and
professional fees. For the nine month period ended September 30, 1996,
other non-interest expenses, excluding insurance premiums on deposit
accounts, increased $467 thousand or 17.8%. This increase was primarily due
to higher advertising and marketing-related costs, credit reports and
appraisals, audit fees and professional fees, partially offset by a
reduction in costs associated with the holding of other real estate.
Interest Rate Sensitivity and Liquidity
Management has identified numerous strategies, including a redeployment
of asset maturities and cash flows in an attempt to insulate net interest
income from the effects of changes in interest rates. Sensitivity to
<PAGE>
interest rate fluctuations is measured in a number of time frames. Gap
positions are monitored as part of the Asset/Liability Committee ("ALCO")
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 securities. During the first nine months of
1996 and 1995, average balances in marketable securities and other short-term
investments comprised 47.8% and 46.9% of average total assets, respectively.
During the first nine months of 1996, average deposit balances (after
interest credited) increased 15.3% to $327.1 million from December 31, 1995.
The Company maintains a securities portfolio to fund increases in loans
or decreases in deposits, which is comprised of securities that the Company
believes will suit its needs and perform reasonably well under various
interest rate scenerios. These securities, which consist primarily of
obligations of the U.S. Treasury and U.S. Government Agencies and issues of
state and political subdivisions totalled $165.3 million at September 30,
1996, an increase of 21.0% or $28.7 million over December 31, 1995. In
December 1995, the Company took advantage of the one-time opportunity to
transfer securities out of the held to maturity category without penalty,
and transferred $40.7 million of securities that had been previously
classified as held to maturity to available for sale. At September 30,
1996, the Company's securities classified as held to maturity reflected
gross unrealized gains of $148 thousand and gross unrealized losses of
$1.8 million. Securities available for sale at September 30, 1996 totaled
$28.1 million, a decrease of $18.2 million or 39.3% as compared to
December 31, 1995 due to matured bonds and the sale of primarily Treasury
securities of $24.0 million which occurred during the first nine months of
1996.
In accordance with SFAS 115, at September 30, 1996, the Company had
unrealized losses of $90 thousand (net of tax effects) in total
stockholders' equity for net decreases in the fair market values of its
securities classified as available for sale. The Company had no securities
classified as trading securities as of September 30, 1996.
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.
<PAGE>
Capital Resources
At September 30, 1996, stockholders' equity totaled $27.6 million or
7.5% of total assets, as compared with $18.6 million, or 5.7%, at December
31, 1995.
The Company completed its redemption of its Series A 9% Cumulative
Convertible Preferred Stock on September 6, 1996, and associated common
stock purchase rights offering. Net proceeds from this redemption and
related rights offering totaled $6.9 million.
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 primarily 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
leverage capital ratio at September 30, 1996 was 7.47%. On September 30,
1996, the Bank's leverage capital ratio was 7.23%.
The following table reflects the Company's and Bank's capital ratios
as of September 30, 1996:
<TABLE>
<CAPTION>
Company Bank
- ---------------------------------------------------------------
<S> <C> <C>
Tier I Capital:
Actual.............................. 13.61% 13.10%
Regulatory Minimum Requirement...... 4.00% 4.00%
Combined Tier I and Tier II Capital:
Actual.............................. 14.86% 14.35%
Regulatory Minimum Requirement...... 8.00% 8.00%
Leverage Ratio:
Actual.............................. 7.47% 7.23%
Regulatory Minimum Requirement...... 4.00% 4.00%
to to
5.00% 5.00%
- ---------------------------------------------------------------
</TABLE>
Subsequent Events
On October 15, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Commerce Bancorp ("Commerce")
pursuant to which the Company will be merged with and into Commerce.
<PAGE>
Pursuant to the merger, each share of the Company's common stock will be
exchanged for .935 shares of Commerce common stock, subject to certain
adjustments provided for in the Merger Agreement. The transaction will be
structured as a tax free merger to be accounted for as a pooling of
interests. In connection with the Agreement, the Company granted Commerce
an option to acquire up to 564,910 shares of the Company's authorized but
unissued common stock at a price of $21.00 per share, subject to certain
adjustments and exercisable under certain circumstances. Consummation of
the transaction is subject to certain customary conditions provided for
in the Merger Agreement, including the approval of the Company's
shareholders and all necessary bank regulatory agencies.
<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.
A form 8-K was filed on October 15, 1996 relative
to the contemplated acquisition of the Company by
Commerce Bancorp, Inc. (see Subsequent Events).
<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 18, 1996 BY: /s/ Kevin J. Killian
----------------------- -------------------------
DATE KEVIN J. KILLIAN
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
November 18, 1996 BY: /s/ Karen J. Hall
----------------------- -------------------------
DATE KAREN J. HALL
CHIEF ACCOUNTING OFFICER
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,656
<INT-BEARING-DEPOSITS> 920
<FED-FUNDS-SOLD> 2,530
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,137
<INVESTMENTS-CARRYING> 137,193
<INVESTMENTS-MARKET> 135,563
<LOANS> 165,680
<ALLOWANCE> 2,673
<TOTAL-ASSETS> 369,561
<DEPOSITS> 339,535
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,361
<LONG-TERM> 1,099
<COMMON> 4,731
0
30
<OTHER-SE> 22,805
<TOTAL-LIABILITIES-AND-EQUITY> 369,561
<INTEREST-LOAN> 10,127
<INTEREST-INVEST> 6,346
<INTEREST-OTHER> 799
<INTEREST-TOTAL> 17,272
<INTEREST-DEPOSIT> 4,833
<INTEREST-EXPENSE> 4,913
<INTEREST-INCOME-NET> 12,359
<LOAN-LOSSES> 375
<SECURITIES-GAINS> 338
<EXPENSE-OTHER> 10,008
<INCOME-PRETAX> 4,188
<INCOME-PRE-EXTRAORDINARY> 2,771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,771
<EPS-PRIMARY> 1.48
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 5.22
<LOANS-NON> 1,783
<LOANS-PAST> 490
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,694
<CHARGE-OFFS> 591
<RECOVERIES> 195
<ALLOWANCE-CLOSE> 2,673
<ALLOWANCE-DOMESTIC> 2,673
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
