<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 March 31, 1996
-----------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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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
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Number of shares outstanding of each of the issuers classes of
common stock on May 8, 1996 1,318,448
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INDEPENDENCE BANCORP, INC. AND SUBSIDIARY
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INDEX
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PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets (unaudited)
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income (unaudited)
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements
(unaudited) 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10-18
PART II - OTHER INFORMATION 19
SIGNATURES 20
</TABLE>
<PAGE>
INDEPENDENCE BANCORP, INC. and SUBSIDIARY
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Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
(in thousands, except share data) (unaudited)
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<S> <C> <C>
Assets
Cash and due from banks $18,281 $20,280
Interest bearing deposits in other banks 4,073 5,811
Federal funds sold 21,365 12,820
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Cash and cash equivalents 43,719 38,911
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Securities
Available for sale, at market 36,744 46,366
Held to maturity, at cost (market value
$100,112 and $90,326) 101,557 90,297
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Total securities 138,301 136,663
Loans
Commercial 27,321 26,592
Real estate-construction 4,811 5,777
Real estate-commercial 49,122 44,360
Real estate-residential 31,233 29,378
Installment 36,305 36,387
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Total loans 148,792 142,494
Less:
Allowance for possible loan losses 2,805 2,694
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Loans, net 145,987 139,800
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Premises and equipment, net 5,593 5,455
Accrued interest receivable 3,023 2,759
Other real estate, net 1,381 1,230
Other assets 385 369
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Total assets $338,389 $325,187
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Liabilities and Stockholders' Equity
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Deposits
Demand (non-interest bearing) 76,955 80,877
Money market, NOW, and super NOW 101,267 91,293
Savings 65,619 64,928
Time certificates of $100,000 or more 19,532 13,078
Other time certificates 53,504 54,170
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Total deposits 316,877 304,346
Other liabilities 1,370 1,020
Employee Stock Ownership Plan (ESOP) debt 1,137 1,194
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Total liabilities 319,384 306,560
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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; 1,315,329 and
1,312,748, respectively, issued and
outstanding 2,193 2,189
Additional paid-in capital 12,946 12,970
Retained earnings 4,206 3,594
Net unrealized holding gain on securities
available for sale, net of income taxes 17 291
Unearned ESOP preferred stock (1,134) (1,194)
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Total stockholders' equity 19,005 18,627
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Total liabilities and stockholders' equity $338,389 $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
March 31
(in thousands, except per share data) 1996 1995
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<S> <C> <C>
Interest income:
Loans $3,248 $2,968
Securities
Taxable 1,830 1,682
Tax-exempt 55 4
Deposits with banks 118 80
Federal funds sold 195 160
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Total interest income 5,446 4,894
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Interest expense:
Interest on deposits 1,559 1,372
Interest on ESOP loan 27 0
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Total interest expense 1,586 1,372
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Provision for possible loan losses 120 180
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Net interest income after provision
for possible loan losses 3,860 3,522
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Non-interest income:
Service charges on deposit accounts 323 305
Gain on sale of securities 254 0
Other income 213 193
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790 498
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Non-interest expense:
Salaries and employee benefits 1,592 1,340
Occupancy 391 378
Equipment 266 257
Other expenses 1,006 1,044
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3,255 3,019
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Income before income taxes 1,275 821
Income tax provision 432 272
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Net income 843 549
Dividends on preferred stock 113 140
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Net income applicable to common stock $730 $409
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Net income per common share:
Primary $.47 $.31
Fully diluted .39 .26
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Average common shares outstanding:
Primary 1,560,722 1,321,282
Fully diluted 2,187,796 2,112,224
===================================================================
</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>
Three Months Ended
March 31
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(in thousands) 1996 1995
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Cash Flows From Operating Activities:
<S> <C> <C>
Net Income $843 $549
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Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Provision for possible loan losses 120 180
Depreciation of bank premises and equipment 176 187
Net amortization and accretion on securities (36) 70
Provision for possible loan losses on other real estate 0 140
Loss on sale of other real estate 4 3
Gain on sale of residential mortgage loans and
related servicing rights (2) (4)
Net loan (charge-offs) recoveries (9) 12
Net gain on sale of securities available for sale (254) 0
Increase in accrued interest receivable (263) (525)
(Increase) decrease in other assets (16) 27
Increase in other liabilities 350 356
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Total adjustments 70 446
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Net cash provided by operating activities 913 995
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Cash Flows From Investing Activities:
Proceeds from maturities of securities:
Available for sale 2,226 54
Held for maturity 5,454 3,119
Purchase of securities:
Available for sale (4,551) (2,872)
Held for maturity (13,367) (3,896)
Sale of securities available for sale 8,547 0
Net increase in loans (6,600) (4,434)
Sale of other real estate 159 438
Net decrease in other real estate (57) (13)
Capital expenditures (314) (406)
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Net cash used in investing activities (8,503) (8,010)
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Cash Flows From Financing Activities:
Net increase in deposit accounts 12,531 17,714
Principal payments on ESOP debt 30 27
Proceeds from the issuance of common stock 32 0
Dividends paid on common stock (82) 0
Dividends paid on preferred stock (113) (140)
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Net cash provided by financing activities 12,398 17,601
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Net increase (decrease) in cash and cash equivalents 4,808 10,586
Cash and cash equivalents, beginning of year 38,911 30,736
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Cash and cash equivalents, end of period $43,719 $41,322
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $1,587 $1,372
Income taxes 0 175
Non-cash investing activities:
Loans transferred to other real estate 300 165
(Increase) decrease in market valuation of
securities available for sale 415 71
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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, 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 March 31, 1996, the results of its operations
for the three months then ended, and cash flows for the first three
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:
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 Standard
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), effective January 1, 1994. SFAS 115 requires
the Company to classify its securities as: (1) held to maturity,
(2) available for sale, and (3) trading.
Securities held to maturity consist of debt securities that
management intends to, and the Company has the ability to, hold until
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
maturity. Such securities are stated at cost, adjusted for amortization
of premium and accretion of discount.
Securities available for sale consist of debt and equity
securities that are not intended to be held to maturity and are not
held for trading. Securities available for sale are reported at fair
value, with unrealized gains and losses credited or charged, net of
tax effect, directly to stockholders' equity. Realized gains and
losses on securities available for sale are determined on a specific
identification basis.
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
believed by management to be adequate to meet reasonably foreseeable
loan losses on the basis of many factors including the risk
characteristics of the portfolio, underlying collateral, current and
anticipated economic conditions that may affect the borrower's ability
to pay, specific problem loans, and trends in loan delinquencies and
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
charge-offs. Possible losses on loans are provided for under the
allowance method of accounting. The allowance is increased by
provisions charged to earnings and reduced by loan charge-offs, net of
recoveries. Loans are charged-off in whole or in part when, in
management's opinion, collectibility is not probable.
While management uses available information to establish the
allowance for possible loan losses, future additions to the allowance
may be necessary if economic developments differ substantially from
the assumptions used in making the evaluation. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for possible loan losses.
Such agencies may require the Bank to recognize additions to the
allowance based on judgments different from those of management.
Other Real Estate
Other real estate is comprised of commercial and residential real
estate properties acquired in partial or total satisfaction of problem
loans. 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. Losses identified at
the time of acquisition of such properties are charged against the
allowance for possible loan losses. Subsequent write-downs that may be
required to the carrying value of these assets and losses realized from
asset sales are charged to other operating expenses. Costs of holding
such property are charged to expense as incurred. Gains, to the extent
allowable, realized on the disposition of these properties are included
in other operating income.
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
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 March 31, 1996 standby
letters of credit were approximately $3,568,000. In addition, the
Company has committed $27,633,000 for home equity loans; $24,764,000
for commercial and residential real estate loans; $10,632,000 for
commercial lines of credit and $6,132,000 for all other commitments.
In the judgment 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, 1995.
Overview
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The Company recorded net income applicable to common stock for
the three months ended March 31, 1996 of $730 thousand, or $.39 per
fully diluted common share. This compares to net income applicable to
common stock for the three months ended March 31, 1995 of $409
thousand, or $.26 per fully diluted common share. Net income per fully
diluted common share for the first quarter of 1996 relects an increase
of 50% over the comparable period in 1995. The Company's first quarter
1996 net income benefited from a $338 thousand, or 9.6% increase in net
interest income before the provision for possible loan losses as
compared to the same period in 1995. Also contributing to the earnings
growth for the first quarter of 1996 was a $60 thousand, or 33.3%
reduction in the allowance for possible loan losses and a $292
thousand, or 58.6% increase in non-interest income. Included in the
increase in non-interest income is a gain on sale of available for
sale securities of $254 thousand, partially offset by a 7.8% or $236
thousand increase in non-interest expense.
As of March 31, 1996, the Company's Capital ratios were: 5.77%
for Tier I leverage capital; 10.49% for Tier I capital to risk-adjusted
assets; and 11.62% for total Tier capital to risk-adjusted assets. The
Bank's ratios as of March 31, 1996 were 6.08% for Tier I leverage
capital; 11.01% for Tier I capital to risk-adjusted assets; and 12.27%
for total Tier capital to risk-adjusted assets. All ratios remain
above regulatory mandated levels.
Non-accrual loans and total non-performing assets declined 50.0%,
and 25.3%, respectively, from March 31, 1995 to March 31, 1996. Total
non-performing assets at March 31, 1996 remained at the same level as
that of December 31, 1995.
Net Interest Income
- -------------------
Net interest income, stated on a fully tax equivalent (FTE)
basis, increased $366 thousand, or 10.4% for the first quarter of 1996
as compared to the first quarter of 1995. Net interest margins were
5.20% for the three months ended March 31, 1996 and 5.38% for the
three months ended March 31, 1995.
<PAGE>
Interest income (FTE) totalled $5.5 million for the first three
months of 1996, an increase of 11.8%, or $581 thousand, as compared to
the same period in 1995, while interest expense increased 15.7%, or
$215 thousand during this period. Growth in average securities,
interest bearing deposits with banks, commercial and residential real
estate and installment loans and federal funds substantially accounted
for the increase in net interest income. Similarly, increases in
average time deposits and N.O.W. accounts primarily accounted for the
increase in interest expense.
Average interest earning assets for the first three months of
1996 increased $35.3 million, or 13.2%, over the comparable period in
1995, however, the overall rate on earning assets decreased by 15 basis
points due to the decrease in rates paid on federal funds and
interest-bearing deposits with banks. Securities, and commercial and
residential real estate loans are primarily responsible for the growth
in average earning assets with increases of $14.8 million and $12.0
million, respectively, as compared with the same period of 1995.
The Company's average rate paid on interest-bearing liabilities
increased 8 basis points for the three month period ended March 31,
1996, as compared to the same period of 1995. The cost of these
interest-bearing liabilities increased to 2.76% for the first quarter
of 1996 compared to 2.68% for the first quarter of 1995 primarily due
to higher rates paid on time deposits. Average demand deposits for the
first quarter of 1996 increased $12.7 million, or 19.7% compared to the
first quarter of 1995. Average time deposits, and other interest
bearing liabilities increased $12.7 million, or 22.5%, and $11.0
million, or 7.3%, respectively, for the first 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
$1.6 million at March 31, 1996. Had these loans been current in
accordance with their terms, interest income on loans for the first
quarter of 1996 would have been $38 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.
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
<PAGE>
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 Company adopted Statement of Financial Accounting Standards
(SFAS) No. 114 and No. 118, "Accounting by Creditors for Impairment
of a Loan", as of January 1, 1995. SFAS 114 requires that an impaired
loan, as defined, be measured based on the present value of expected
future cash flows discounted at the loan's original effective interest
rate. A loan is considered impaired when, in the Bank's opinion, the
Bank will be unable to collect all amounts due according to the
original contractual term of the loan agreement. Groups of smaller
homogeneous loans, such as consumer loans and residential real estate
loans, are specifically excluded from this definition. 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.
The Bank had previously estimated its allowance for possible
loan losses using methods similar to those prescribed in SFAS 114.
Adoption of these statements did not require any additional provisions
for possible loan losses as of January 1, 1995.
As of March 31, 1996 included in the Company's total loan
portfolio of $148.8 million, it had under SFAS 114 a total recorded
investment in impaired loans of $1.6 million. Of this amount, $1.5
million did not require a valuation allowance. For the remaining $97
thousand of impaired loans there was a $76 thousand valuation allowance
established. This valuation allowance was included in the $2.8 million
allowance for possible loan losses in the Bank's consolidated statement
of condition. The average recorded investment in impaired loans for the
first quarter of 1996 was $1.7 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 quarter of 1996.
<PAGE>
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 March 31, 1996.
As of, or For the Period Ended
------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
03/31/96 03/31/95
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<S> <C> <C>
Non-Accrual Loans:
Commercial $ 735 $ 2,233
Real estate-commercial 239 526
Real estate-residential 318 121
Installment 269 239
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Total 1,561 3,119
Other Real Estate Owned 1,453 915
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Total Non-Performing Assets $ 3,014 $ 4,034
======== ========
Ratio of non-performing assets to total assets .89% 1.34%
Accruing loans past due 90 days or more:
Commercial $193 $ 95
Real estate-commercial 329 0
Installment 8 48
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Total $530 $143
======== ========
</TABLE>
For the three months ended March 31, 1996, net loan charge-offs
were $9 thousand as compared with net loan recoveries of $12 thousand
for the same period of 1995. There were $91 thousand in charge-offs,
of which $76 thousand or 83.5% were commercial loans, and the remaining
16.5% were installment loans. Recoveries during the first three months
of 1996 were for commercial and installment loans previously charged
off and totalled $24 thousand and $58 thousand, respectively.
<PAGE>
At March 31, 1996, the Company's non-accrual loans, impaired
loans, and other real estate (in total, non-performing assets) totalled
$3.0 million as compared to $4.0 million at March 31, 1995. Delinquent
loans (i.e. loans 90 days or more past due, and still accruing)
increased $387 thousand due to one commercial loan of $193 thousand and
two commercial real estate loans totalling $329 thousand.
As of March 31, 1996, a commercial mortgage in the amount of $1.6
million was classified as a potential problem loan. This is a loan
which management has information which indicates that the borrower may
not be able to comply with current payment terms. Although there is
some question about the borrowers ability to comply with current loan
terms, minimal loss, if any, are anticipated.
At March 31, 1996, the Company's allowance for possible loan
losses was $2.8 million, even with the level of the allowance for
possible loan losses at March 31, 1995. For March 31, 1996, this
represented 1.9% of total loans and 179.7% of total non-performing
loans. This compares to 2.1% of total loans and 90.5% of total
non-performing loans at March 31, 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 for the three months ended March 31, 1996
increased $292 thousand or 58.6% over the comparable period in 1995.
During the first quarter of 1996, the Company sold $8.0 million of
its securities classified as available for sale which resulted in a
gain of $254 thousand, while no sales of available for sale securities
occurred during the first quarter of 1995. Non-interest income,
excluding gains from sales of securities, increased $38 thousand, or
7.6% for the first quarter of 1996 as compared to the same period of
1995. Service charges on deposit accounts for the three months ended
March 31, 1996 increased $18 thousand or 5.9% over the first three
months of 1995 as a result of increased income from account related
charges. Other non-interest income for the first quarter of 1996
increased $20 thousand or 10.4% over the same period of 1995
primarily due to increased income from ATM fees, safe deposit fees,
check printing income, and other loan fees, partially offset by a
decrease in credit card fee income.
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expense for the first quarter of 1996 totalled $3.3
million, an increase of $236 thousand, or 7.8% over the comparable
period of 1995. First quarter 1996 and 1995 non-interest expense
annualized as a percentage of total average assets was 3.96% and 4.18%,
respectively. Salaries and employee benefits for the three months ended
March 31, 1996 increased $252 thousand, or 18.8% over the first quarter
of 1995 as a result of additions to staff and increased expense
relating to maintaining the Company's employee stock option plan
("ESOP"). 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 have been reflected in
the fourth quarter of 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 $64 thousand and $36 thousand for the first
quarter of 1996 and 1995, respectively. Interest expense relating to
the ESOP for the three months ended March 31, 1996 totaled $27
thousand. Interest incurred on the ESOP debt during the first 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. First quarter
1996 occupancy and equipment expenses increased $22 thousand or 3.5%
over the first quarter of 1995 primarily due to building maintenance
costs and equipment depreciation expense. These costs were partially
offset by a reduction in equipment maintenance costs, and building and
leasehold depreciation. Other non-interest expenses for the first
quarter of 1996 decreased $38 thousand or 3.6% as compared to the same
period of 1995. Insurance premiums on deposit accounts for the first
quarter of 1996 decreased $161 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. Other non-interest expenses,
excluding insurance premiums on deposit accounts for the first quarter
of 1996 increased $123 thousand or 13.9% over the same period of 1995
due to compliance expenses, higher advertising and marketing-related
costs, professional fees, and stationery and postage expenses,
partially offset by decreases in legal expense and costs associated
<PAGE>
with the holding of other real estate owned.
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 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 three months of 1996 and 1995, average balances in marketable
securities and other short-term investments comprised 47.6% and 46.5%
of average total assets, respectively. During the first three months
of 1996, average deposit balances (after interest credited) increased
8.3% to $307.2 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
consists primarily of obligations of the U.S. Treasury and U.S.
Government Agencies and issues of state and political subdivisions
totalled $138.3 million at March 31, 1996, an increase of 1.2% or $1.6
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
<PAGE>
maturity to available for sale. At March 31, 1996, the Company's
securities classified as held to maturity reflected gross unrealized
gains of $57 thousand and gross unrealized losses of $1.5 million.
Securities available for sale at March 31, 1996 totaled $36.7 million,
a decrease of $9.6 million or 20.8% as compared to December 31, 1995
due to matured and called bonds, and sales of securities which occurred
during the first quarter of 1996.
In accordance with SFAS 115, at March 31, 1996, the Company had
unrealized gains of $17 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 March 31, 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
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 March 31, 1996, stockholders' equity totaled $19.0 million
or 5.6% of total assets, as compared with $18.6 million, or 5.7%, at
December 31, 1995.
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
<PAGE>
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 March 31, 1996 was 5.77%. On March 31,
1996, the Bank's leverage capital ratio was 6.08%.
The following table reflects the Company's and Bank's capital
ratios as of March 31, 1996:
<TABLE>
<CAPTION>
Company Bank
- ----------------------------------------------------------------
<S> <C> <C>
Tier I Capital:
Actual.............................. 10.49% 11.01%
Regulatory Minimum Requirement...... 4.00% 4.00%
Combined Tier I and Tier II Capital:
Actual.............................. 11.62% 12.27%
Regulatory Minimum Requirement...... 8.00% 8.00%
Leverage Ratio:
Actual.............................. 5.77% 6.08%
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.
--------------------------
May 13, 1996 BY: /s/ Kevin J. Killian
-------------------- ----------------------------
DATE KEVIN J. KILLIAN
EXECUTIVE VICE PRESIDENT &
CHIEF FINANCIAL OFFICER
May 13, 1996 BY: /s/ Karen J. Hall
-------------------- ----------------------------
DATE KAREN J. HALL
CHIEF ACCOUNTING OFFICER
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 18,281
<INT-BEARING-DEPOSITS> 4,073
<FED-FUNDS-SOLD> 21,365
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,744
<INVESTMENTS-CARRYING> 101,557
<INVESTMENTS-MARKET> 100,112
<LOANS> 148,792
<ALLOWANCE> 2,805
<TOTAL-ASSETS> 338,389
<DEPOSITS> 316,877
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,370
<LONG-TERM> 1,137
<COMMON> 2,193
777
0
<OTHER-SE> 16,035
<TOTAL-LIABILITIES-AND-EQUITY> 338,389
<INTEREST-LOAN> 3,248
<INTEREST-INVEST> 1,885
<INTEREST-OTHER> 313
<INTEREST-TOTAL> 5,446
<INTEREST-DEPOSIT> 1,559
<INTEREST-EXPENSE> 1,586
<INTEREST-INCOME-NET> 3,860
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 254
<EXPENSE-OTHER> 3,255
<INCOME-PRETAX> 1,275
<INCOME-PRE-EXTRAORDINARY> 843
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 843
<EPS-PRIMARY> .47
<EPS-DILUTED> .39
<YIELD-ACTUAL> 5.20
<LOANS-NON> 1,561
<LOANS-PAST> 530
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,642
<ALLOWANCE-OPEN> 2,694
<CHARGE-OFFS> 91
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 2,805
<ALLOWANCE-DOMESTIC> 2,805
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
