<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 June 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 August 10, 1996 1,613,222
__________________________________________________
<PAGE>
INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
-----------------------------------------
INDEX
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<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited)
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income (unaudited)
Three Months Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements
(unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7-15
PART II - OTHER INFORMATION 16
SIGNATURES 17
</TABLE>
<PAGE>
INDEPENDENCE BANCORP,INC.and SUBSIDIARY
- ---------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
(in thousands, except share data) (unaudited)
- ----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $21,280 $20,280
Interest bearing deposits in other banks 8,955 5,811
Federal funds sold 9,700 12,820
- ---------------------------------------------------------------------------
Cash and cash equivalents 39,935 38,911
- ---------------------------------------------------------------------------
Securities
Available for sale, at market 28,194 46,366
Held to maturity, at cost (market value
$124,652 and $90,326) 126,595 90,297
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Total securities 154,789 136,663
- ---------------------------------------------------------------------------
Loans
Commercial 27,842 26,592
Real estate-construction 5,093 5,777
Real estate-commercial 50,716 44,360
Real estate-residential 32,411 29,378
Installment 39,233 36,387
- ---------------------------------------------------------------------------
Total loans 155,295 142,494
Less:
Allowance for possible loan losses 2,853 2,694
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Loans, net 152,442 139,800
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Premises and equipment, net 6,546 5,455
Accrued interest receivable 3,209 2,759
Other real estate, net 806 1,230
Other assets 482 369
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Total assets $358,209 $325,187
===========================================================================
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits
Demand (non-interest bearing) 86,496 80,877
Money-market, NOW and super NOW 109,353 91,293
Savings 65,958 64,928
Time certificates of $100,000 or more 21,747 13,078
Other time certificates 52,858 54,170
- ---------------------------------------------------------------------------
Total deposits 336,412 304,346
Other liabilities 948 1,020
Employee Stock Ownership Plan (ESOP) debt 1,140 1,194
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Total liabilities 338,500 306,560
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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) 777 777
Nonconvertible preferred stock, Series B,
$1 stated value, authorized 217,500 shares,
none issued - -
Common stock, par value $1.667 per share,
5,000,000 authorized; 1,321,356 and 1,312,748,
respectively, issued and outstanding 2,203 2,189
Additional paid-in capital 13,089 12,970
Retained earnings 4,905 3,594
Net unrealized holding (loss) gain on securities
available for sale, net of income taxes (132) 291
Unearned ESOP preferred stock (1,133) (1,194)
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Total stockholders' equity 19,709 18,627
- ---------------------------------------------------------------------------
Total liabilities and stockholders' equity $358,209 $325,187
===========================================================================
</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 Six Months Ended
(in thousands, except June 30 June 30
per share data) 1996 1995 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $3,304 $3,128 $6,552 $6,095
Securities
Taxable 2,029 1,779 3,859 3,460
Tax-exempt 65 5 120 9
Deposits with banks 73 61 191 140
Federal funds sold 238 225 433 385
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Total interest income 5,709 5,198 11,155 10,089
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Interest expense:
Interest on deposits 1,638 1,511 3,197 2,884
Interest on ESOP loan 27 0 54 0
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Total interest expense 1,665 1,511 3,251 2,884
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Net interest income 4,044 3,687 7,904 7,205
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Provision for possible loan losses 100 160 220 340
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Net interest income after provision
for possible loan losses 3,944 3,527 7,684 6,865
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Non-interest income:
Service charges on deposit accounts 328 341 651 646
Gain on sale of securities 48 0 302 0
Other income 399 190 612 383
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775 531 1,565 1,029
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Non-interest expense:
Salaries and employee benefits 1,645 1,300 3,237 2,640
Occupancy 381 379 772 757
Equipment 285 258 551 515
Other expenses 1,113 1,074 2,119 2,117
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3,424 3,011 6,679 6,029
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Income before income taxes 1,295 1,047 2,570 1,865
Income tax provision 437 347 869 619
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Net income 858 700 1,701 1,246
Dividends on preferred stock 113 140 226 280
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Net income applicable to common stock $745 $560 $1,475 $966
=============================================================================
Net income per common share:
Primary $.49 $.42 $.96 $.73
Fully diluted .40 .33 .79 .58
=============================================================================
Average common shares outstanding:
Primary 1,513,360 1,329,419 1,539,700 1,329,287
Fully diluted 2,137,195 2,133,423 2,163,647 2,133,291
=============================================================================
</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>
Six Months Ended
June 30
----------------
(in thousands) 1996 1995
Cash Flows from operating activities:
<S> <C> <C>
Net income $ 1,701 $ 1,246
- ------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for possible loan losses 220 340
Depreciation of bank premises and equipment 176 374
Net amortization and accretion on securities (104) 52
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 (9) (12)
Net loan (charge-offs) recoveries (61) (90)
Net gain on sale of securities available for sale (302) 0
Increase in accrued interest receivable (450) (378)
(Increase) decrease in other assets (113) 113
(Decrease) increase in other liabilities (72) 232
- -----------------------------------------------------------------------------
Total adjustments (795) 864
- -----------------------------------------------------------------------------
Net cash provided by operating activities 906 2,110
- -----------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities of securities:
Available for sale 7,588 193
Held for maturity 7,257 6,374
Purchase of securities:
Available for sale (12,523) (3,842)
Held for maturity (36,998) (12,007)
Sale of securities available for sale 16,531 0
Net increase in loans (13,163) (7,323)
Sale of other real estate 869 699
Capital expenditures (1,267) (568)
- -----------------------------------------------------------------------------
Net cash used in investing activities (31,706) (16,474)
- -----------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in deposit accounts 32,066 22,328
Principal payments on ESOP debt 54 56
Proceeds from the issuance of common stock 94 14
Dividends paid on common stock (164) (33)
Dividends paid on preferred stock (226) (280)
- -----------------------------------------------------------------------------
Net cash provided by financing activities 31,824 22,085
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,024 7,721
Cash and cash equivalents, beginning of year 38,911 30,736
- -----------------------------------------------------------------------------
Cash and cash equivalents, end of period $39,935 $38,457
- -----------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $3,251 $2,884
Income taxes 775 350
Non-cash investing activities:
Loans transferred to other real estate 300 614
(Increase) decrease in market valuation of
securities available for sale (423) 88
- -----------------------------------------------------------------------------
</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, 1995 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 June 30, 1996, the results of its operations
for the three and six months then ended, and cash flows for the first
six months of 1996. 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:
Net Income per common share
Primary net income per common and common equivalent shares, after
preferred dividends, is based on the weighted average common shares
and common share equivalents, including stock options and warrants
outstanding during the year, adjusted for the effect of subsequent
common stock dividends and after adjustment for the elimination of
dividends paid on unallocated shares of the ESOP Plan. Fully diluted
income per share is based on the weighted average number of common and
common equivalent shares outstanding adjusted for shares issuable upon
conversion of preferred stock and the elimination of dividends paid on
unallocated shares of the ESOP Plan.
<PAGE>
Item 2- Management's Discussion and Analysis of Financial Condition
- -------------------------------------------------------------------
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 six month
periods ended June 30, 1996 totaled $745 thousand and $1.5 million, or
$.40 and $.79 per fully diluted common share. This compares to net
income applicable to common stock for the three and six months ended
June 30, 1995 of $560 thousand and $966 thousand, or $.33 and $.58 per
fully diluted common share. Net income for the second quarter of 1996
benefited from a $357 thousand, or 9.7% increase in net interest income
and a $244 thousand, or 46.0% increase in non-interest income, offset
by a $413 thousand, or 13.7% increase in non-interest expense.
Contributing to the Company's earnings growth for the first six months
of 1996 was a $699 thousand, or 9.7% increase in net interest income,
and a $536 thousand, or 52.1% increase in non-interest income, offset
by a $650 thousand, or 10.8% increase in non-interest expense. Included
in earnings for 1996 were gains on the sale of available for sale
securities of $48 thousand for the second quarter of 1996, and $302
thousand for the six months ended June 30, 1996, while there were no
sales of securities during the respective periods of 1995.
As of June 30, 1996, the Company's Capital ratios were: 5.61% for
Tier I leverage capital; 10.12% for Tier I capital to risk-adjusted
assets; and 11.37% for total Tier capital to risk-adjusted assets. The
Bank's ratios as of June 30, 1996 were 5.90% for Tier I leverage
capital; 10.63% for Tier I capital to risk-adjusted assets; and 11.88%
for total Tier capital to risk-adjusted assets. All ratios remain above
regulatory mandated levels.
Non-accrual loans and total non-performing assets declined 13.4%,
and 7.7%, respectively, from June 30, 1995 to June 30, 1996. As compared
to December 31, 1995, total non-performing assets at June 30, 1996
increased 9.2% primarily due to one commercial real estate borrower.
Net Interest Income
- -------------------
Tax equivalent net interest income increased $755 thousand and
$394 thousand, or 10.4% and 10.7%, respectively, for the six months
and quarter ended June 30, 1996 as compared to the same periods in 1995.
Average interest earning assets increased $39.2 million, or 14.4% during
the six months ended June 30, 1996, over the same period in 1995, while
average interest bearing liabilities increased $27.2 million, or 12.8%
from June 30, 1995 to June 30, 1996. The increase in interest income for
the first half of 1996 is primarily due to the growth in average Agency
and Municipal securities, residential and commercial mortgages,
<PAGE>
installment loans, and federal funds. Growth in average time deposits
and NOW deposits accounted for substantially all of the increase in
interest expense.
The net interest margin was 5.12% for the three months ended June
30, 1996 and 5.33% for the three months ended June 30, 1995. For the
first six months of 1996, the net interest margin decreased 20 basis
points to 5.15% as compared to the same period in 1995. The decrease in
the net interest margin is a result of lower market rate conditions and
a greater decrease in the average rates earned on interest earning
assets for the current year versus the decrease in average interest
bearing liabilities rates, when compared to the same periods in 1995.
Average interest earning assets for the second quarter of 1996
increased $43.1 million, or 15.5%, over the comparable period in 1995,
however, the overall rate on earning assets decreased by 30 basis points
due to changes in the mix of the securities and loan portfolio and
decreases in the respective rates. Securities, primarily Agency and
Municipal, and commercial and residential real estate loans are primarily
responsible for the growth in average earning assets with increases of
$21.8 million and $13.5 million, respectively, as compared with the
same period of 1995.
Interest income (FTE) totalled $11.2 million and $5.8 million for
the six months and quarter ended June 30, 1996, an increase of 11.1% or
$1.1 million, and 10.5% or $548 thousand, respectively, as compared to
the same period in 1995. Interest expense increased 12.8%, or $368
thousand during the first six months of 1996 over the same period in 1995.
Second quarter 1996 interest expense increased 10.2%, or $154 thousand
as compared to the second quarter of 1995. Growth in average Agency and
Municipal securities, interest bearing deposits with banks, commercial
and residential real estate loans, installment loans and federal funds
substantially accounted for the increase in interest income. Similarly,
increases in average time deposits and N.O.W. accounts primarily
accounted for the increase in interest expense.
The Company's average rate paid on interest-bearing liabilities
decreased 10 basis points for the three month period ended June 30, 1996,
as compared to the same period of 1995. The cost of these interest-bearing
liabilities decreased to 2.70% for the second quarter of 1996 compared to
2.80% for the second quarter of 1995 primarily due to lower rates paid on
money market and time deposits. Average demand deposits for the second
quarter of 1996 increased $15.2 million, or 22.7% compared to the second
quarter of 1995. Average time deposits, and other interest-bearing
liabilities increased $16.9 million, or 28.8%, and $13.9 million, or
8.8%, respectively, for the second 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
$2.4 million at June 30, 1996. Had these loans been current in accordance
with their terms, interest income on loans for the first half of 1996
would have been $118 thousand higher.
<PAGE>
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.
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, 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 June 30, 1996 included in the Company's total loan portfolio
of $155.3 million, it had under SFAS 114 a total recorded investment in
impaired loans of $2.4 million. Of this amount, $714 thousand did not
require a valuation allowance. For the remaining $1.7 million of impaired
loans there was a $397 thousand valuation allowance established. This
valuation allowance was included in the $2.9 million allowance for
possible loan losses in the Bank's consolidated statement of condition.
The average recorded investment in impaired loans for the second quarter
of 1996 was $2.3 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 interest income on impaired loans for the
first half 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 period ended June 30, 1996, December 31, 1995, and June 30, 1995.
<PAGE>
As of, or For the Period Ended
------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
06/30/96 12/31/95 06/30/95
-------- -------- --------
<S> <C> <C> <C>
Non-Accrual Loans:
Commercial $ 230 $ 994 $ 1,580
Real estate-commercial 1,747 285 988
Real estate-residential 169 168 0
Installment 266 272 216
------- -------- --------
Total 2,412 1,719 2,784
Other Real Estate Owned 885 1,301 789
-------- -------- --------
Total Non-Performing Assets $ 3,297 $ 3,020 $ 3,573
======== ======== ========
Ratio of non-performing assets
to total assets .92% .93% 1.16%
Accruing loans past due 90 days or more:
Commercial $ 86 $ 21 $ 3
Real estate-commercial 389 0 0
Installment 21 12 16
-------- -------- --------
Total $496 $ 33 $ 19
======== ======== ========
For the six months ended June 30, 1996, net loan charge-offs were
$61 thousand as compared with net loan charge-offs of $90 thousand for
the same period of 1995. There were $191 thousand in charge-offs, of
which $113 thousand or 59.2% were commercial loans, and the remaining
40.8% were installment loans. Recoveries during the first six months of
1996 were for commercial and installment loans previously charged off
and totaled $47 thousand and $83 thousand, respectively.
At June 30, 1996, the Company's non-accrual loans, impaired loans,
and other real estate (in total, non-performing assets) totalled $3.3
million as compared to $3.6 million at June 30, 1995. Delinquent loans
(i.e. loans 90 days or more past due, and still accruing) increased
$477 thousand primarily due to one commercial real estate loan of $389
thousand and two commercial loans totaling $86 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.
At June 30, 1996, the Company's allowance for possible loan losses
was $2.9 million, the same level at June 30, 1995. For June 30, 1996,
this represented 1.8% of total loans and 118.3% of total non-performing
loans. This compares to 2.1% of total loans and 103.4% of total
<PAGE>
non-performing loans at June 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.
Non-Interest Income
- -------------------
Non-interest income, excluding gains resulting from sales of
available for sale securities and other real estate owned increased
$151 thousand or 14.6%, and $112 thousand or 21.1% for the six months
and quarter ended June 30, 1996, respectively, over the same periods
in 1995. During the first six months of 1996, the Company sold $16.0
million of its securities portfolio classified as available for sale
which resulted in a gain of $302 thousand. The second quarter of 1996
reflects a gain of $48 thousand from the sale of $8.0 million of
available for sale securities. No sales of available for sale securities
occurred during the first six months of 1995.
Service charges on deposit accounts for the second quarter of 1996
decreased $13 thousand or 3.8% when compared to the same period in 1995
as a result of the reduction in the minimum balance requirement for
business checking accounts which began in April 1996. Income from
service charges on deposit accounts for the six month periods ending
June 30, 1996 and 1995 remained at the same level.
Other non-interest income increased $229 thousand or 59.8%, and
$209 thousand or 110.0% for the six month and three month periods ending
June 30, 1996 as compared to the same periods in 1995. During the second
quarter of 1996, the Company sold two other real estate owned properties
which resulted in a gain of $84 thousand. In addition, increased fee
income from credit cards, safe deposits, ATM, loan originations, and
check printing substantially accounted for the remaining increase in
non-interest income for 1996.
Non-Interest Expense
- --------------------
Non-interest expense for the six months and quarter ended June 30,
1996 totaled $6.7 million and $3.4 million, an increase of $650 thousand
or 10.8% and $413 thousand or 13.7%, respectively, over the comparable
periods of 1995. Annualized, total non-interest expense as a percentage
of total average assets for the six months ended June 30, 1996 and
1995 was 3.93% and 4.08%, respectively. The largest component of
non-interest expense, salaries and employee benefits, totaled $1.6
million for the three month period ended June 30, 1996, and reflected
an increase of $345 thousand or 26.5% over the second quarter of 1995.
Salaries and employee benefits for the first half of 1996 increased $597
thousand or 22.6% over the comparable period in 1995. This increase was
a result of additions made to staff.
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",
<PAGE>
with retroactive application, as required, effective January 1, 1994.
The required adjustments and per share effect have been 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 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 $58 thousand and $34 thousand, for the second
quarter of 1996 and 1995, respectively. Interest expense relating to the
ESOP for the three and six months ended June 30, 1996 totaled $27
thousand and $54 thousand, respectively. Interest incurred on the ESOP
debt during the second 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 second quarter of 1996 remained at the
same level as the second quarter of 1995, but increased 2.0% for the
first six months of 1996 as compared with the same period of 1995 due
to increased building maintenance costs. Equipment expense for the six
and three months ended June 30, 1996 increased $36 thousand or 7.0% and
$27 thousand or 10.5%, respectively, over the comparable periods in 1995
primarily due to increased charges for servicing and maintaining the
Company's computer system, and higher equipment depreciation charges
resulting from fixed asset equipment additions.
Other non-interest expense for the first six months of 1996 remained
at the same level as the comparable period in 1995. Other non-interest
expense for the second quarter of 1996 increased $39 thousand or 3.6% as
compared to the same period in 1995. Insurance premiums on deposit
accounts for the three months ended June 30, 1996 decreased $161 thousand
or 99.7% as compared to the same period of 1995 as a result of the
Company receiving the most favorable risk classification during 1995.
Other non-interest expenses, excluding insurance premiums on deposit
accounts for the second quarter of 1996 increased $200 thousand or 21.9%
over the same period of 1995 due to advertising and marketing-related
costs, compliance expenses, credit reports and appraisal charges
resulting from recent loan promotions, and telephone expense,
partially offset by decreases in costs associated with the holding of
other real estate owned and legal fees.
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 interest rate fluctuations is measured in a number of time
<PAGE>
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 six months
of 1996 and 1995, average balances in marketable securities and other
short-term investments comprised 48.0% and 47.0% of average total assets,
respectively. During the first six months of 1996, average deposit
balances (after interest credited) increased 12.1% to $318.1 million from
December 31, 1995.
The Company maintains a securities portfolio to fund increases in
loans or decreases in deposits, and 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 $154.8
million at June 30, 1996, an increase of 13.3% or $18.1 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 June 30, 1996, the Company's securities classified as held to
maturity reflected gross unrealized gains of $119 thousand and gross
unrealized losses of $2.1 million. Securities available for sale at June
30, 1996 totaled $28.2 million, a decrease of $18.2 million or 39.2% as
compared to December 31, 1995 due to matured bonds and the sale of
primarily Treasury securities of $16.0 million which occurred during the
first six months of 1996.
In accordance with SFAS 115, at June 30, 1996, the Company had
unrealized losses of $132 thousand (net of tax effects) in total
stockholders' equity for net increases in the fair market values of its
securities classified as available for sale. The Company had no securities
classified as trading securities as of June 30, 1996.
The Company remains a deposit-driven financial institution with
emphasis on core deposit accumulation and retention as a basis for sound
growth and profit ability. 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
<PAGE>
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 June 30, 1996, stockholders' equity totaled $19.7 million or 5.5%
of total assets, as compared with $18.6 million, or 5.7%, at December 31,
1995.
In addition, the Company has exercised its right to redeem all of
the Company's Series A 9% Cumulative Convertible Preferred Stock on
September 6, 1996, the date fixed for redemption. As a result of the
call for redemption, the Common Stock Purchase Rights attached to the
shares of Series A Preferred Stock will expire on the earlier of the date
the Series A Preferred Stock is converted or September 6, 1996, the date
fixed for redemption, after which time such Common Stock Purchase Rights
will be null and void. Net proceeds from this redemption will be
approximately $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 June 30, 1996 was 5.61%.
On June 30, 1996, the Bank's leverage capital ratio was 5.90%.
The following table reflects the Company's and Bank's capital ratios
as of June 30, 1996:
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Company Bank
- ------------------------------------------------------------------------
<S> <C> <C>
Tier I Capital:
Actual................................ 10.12% 10.63%
Regulatory Minimum Requirement........ 4.00% 4.00%
Combined Tier I and Tier II Capital:
Actual................................ 11.37% 11.88%
Regulatory Minimum Requirement........ 8.00% 8.00%
Leverage Ratio:
Actual................................ 5.61% 5.90%
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
--------------------------------------------------------------
The annual meeting of shareholders was held on April 25,
1996. The following directors were elected to serve until
the next annual meeting. The number of votes cast for or
withheld from each director is indicated opposite each
director's name:
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director For Each Director
------------------------------------------------------------
<S> <C> <C>
A. Roger Bosma 932,716 1,998
Esko J. Koskinen 930,539 4,175
Robert O. Hagman 930,539 4,175
James R. Napolitano 932,416 2,298
William F. Dator 932,219 2,495
Joseph A. Haynes 932,716 1,998
Joseph M. LoScalzo 932,716 1,998
Julius J. Franchini 932,606 2,108
Robert F. Frasco 932,716 1,998
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.
--------------------------
August 14, 1996 BY: /s/ Kevin J. Killian
------------------------ -------------------------------
DATE KEVIN J. KILLIAN
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
August 14, 1996 BY: /s/ Karen J. Hall
------------------------ -------------------------------
DATE KAREN J. HALL
CHIEF ACCOUNTING OFFICER
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,280
<INT-BEARING-DEPOSITS> 8,955
<FED-FUNDS-SOLD> 9,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,194
<INVESTMENTS-CARRYING> 126,595
<INVESTMENTS-MARKET> 124,652
<LOANS> 155,295
<ALLOWANCE> 2,853
<TOTAL-ASSETS> 358,209
<DEPOSITS> 336,412
<SHORT-TERM> 0
<LIABILITIES-OTHER> 948
<LONG-TERM> 1,140
<COMMON> 2,203
777
0
<OTHER-SE> 16,729
<TOTAL-LIABILITIES-AND-EQUITY> 358,209
<INTEREST-LOAN> 6,552
<INTEREST-INVEST> 3,979
<INTEREST-OTHER> 624
<INTEREST-TOTAL> 11,155
<INTEREST-DEPOSIT> 3,197
<INTEREST-EXPENSE> 3,251
<INTEREST-INCOME-NET> 7,904
<LOAN-LOSSES> 220
<SECURITIES-GAINS> 302
<EXPENSE-OTHER> 6,679
<INCOME-PRETAX> 2,570
<INCOME-PRE-EXTRAORDINARY> 1,701
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,701
<EPS-PRIMARY> .96
<EPS-DILUTED> .79
<YIELD-ACTUAL> 5.15
<LOANS-NON> 2,412
<LOANS-PAST> 496
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,694
<CHARGE-OFFS> 191
<RECOVERIES> 130
<ALLOWANCE-CLOSE> 2,853
<ALLOWANCE-DOMESTIC> 2,853
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
