SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number: 1-9047
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2870273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
288 Union Street, Rockland, Massachusetts 02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(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
As of November 1,1997 there were 14,780,054 shares of the issuer's
common stock outstanding.
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INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996
Consolidated Statements of Income - Nine months and
quarters ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1997 and 1996
Notes to Consolidated Financial Statements - September 30,
1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31,
(Unaudited - in thousands) 1997 1996
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ASSETS
Cash and Due From Banks $48,089 $52,836
Federal Funds Sold and Assets Purchased
Under Resale Agreements 3,005 650
Securities Held To Maturity 329,846 290,894
Securities Available For Sale 140,693 26,449
Federal Home Loan Bank Stock 14,887 7,558
Loans, Net of Unearned Discount 790,782 695,406
Less: Reserve for Possible Loan Losses (12,624) (12,221)
- ------------------------------------------------------------------------------------------------------------
Net Loans 778,158 683,185
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Bank Premises and Equipment 11,802 10,642
Other Real Estate Owned 6 271
Other Assets 20,937 20,308
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TOTAL ASSETS $1,347,423 $1,092,793
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LIABILITIES
Deposits
Demand Deposits $190,131 $176,887
Savings and NOW Accounts 251,950 257,819
Money Market and Super NOW Accounts 108,066 107,084
Time Certificates of Deposit over $100,000 55,446 45,866
Other Time Deposits 349,516 330,916
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Total Deposits 955,109 918,572
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Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 79,986 840
Federal Home Loan Bank Borrowings 171,500 78,000
Treasury Tax and Loan Notes 4,959 2,296
Other Liabilities 17,875 11,975
Subordinated Capital Notes - -
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Total Liabilities 1,229,429 1,011,683
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Corporation-Obligated Mandatorily Redeemable Trust Preferred
Securities of Subsidiary Trust Holding Solely Junior Subordinated
Debentures of the Corporation 28,750 -
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STOCKHOLDERS' EQUITY
Common Stock, $.01 par value
Authorized: 30,000,000 Shares
Outstanding: 14,653,087 Shares at September 30, 1997
and 14,604,501 at December 31, 1996 147 146
Surplus 44,637 44,433
Retained Earnings 43,272 36,666
Unrealized Gain (Loss) on Securities Available For
Sale, Net of Tax 1,188 (135)
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Total Stockholders' Equity 89,244 81,110
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TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES
AND STOCKHOLDERS' EQUITY $1,347,423 $1,092,793
============================================================================================================
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands) NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
1997 1996 1997 1996
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INTEREST INCOME
Interest on Loans $48,753 $43,084 $17,177 $14,649
Interest and Dividends on Securities 18,816 14,001 7,698 4,996
Interest on Federal Funds Sold
and Repurchase Agreements 132 168 49 52
Interest on Interest Bearing Deposits - 7 - -
---------------------------------- ----------------------------------
Total Interest Income 67,701 57,260 24,924 19,697
---------------------------------- ----------------------------------
INTEREST EXPENSE
Interest on Deposits 23,471 20,425 8,160 6,686
Interest on Borrowed Funds 6,057 3,445 3,144 1,524
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Total Interest Expense 29,528 23,870 11,304 8,210
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Net Interest Income 38,173 33,390 13,620 11,487
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PROVISION FOR POSSIBLE LOAN LOSSES 1,560 1,250 530 500
---------------------------------- ----------------------------------
Net Interest Income After Provision
---------------------------------- ----------------------------------
Possible For Loan Losses 36,613 32,140 13,090 10,987
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NON-INTEREST INCOME
Service Charges on Deposit Accounts 4,255 4,365 1,401 1,461
Trust and Investment Services Income 2,284 2,114 726 700
Mortgage Banking Income 2,083 2,247 667 659
Other Non-Interest Income 952 1,018 309 291
---------------------------------- ----------------------------------
Total Non-Interest Income 9,574 9,744 3,103 3,111
---------------------------------- ----------------------------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits 15,129 15,908 5,218 5,088
Occupancy Expenses 2,692 2,479 850 805
Equipment Expenses 2,080 1,847 646 596
Other Non-Interest Expenses 9,718 8,695 3,210 2,985
---------------------------------- ----------------------------------
Total Non-Interest Expenses 29,619 28,929 9,924 9,474
---------------------------------- ----------------------------------
MINORITY INTEREST EXPENSE 978 - 667 -
INCOME BEFORE INCOME TAXES 15,590 12,955 5,602 4,624
PROVISION FOR INCOME TAXES 5,316 4,599 1,910 1,600
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NET INCOME $10,274 $8,356 $3,692 $3,024
================================== ==================================
NET INCOME PER SHARE $0.69 $0.57 $0.25 $0.20
================================== ==================================
Weighted average common and common
equivalent shares outstanding 14,921,678 14,724,745 14,969,902 14,758,987
================================== ==================================
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INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
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NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $10,274 $8,356
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Depreciation and amortization 2,860 2,441
Provision for possible loan losses 1,560 1,250
Loans originated for resale (33,539) (33,181)
Proceeds from mortgage loan sales 33,497 33,192
Loss (gain) on sale of mortgages 42 (11)
Other Real Estate Owned write-downs (recoveries) (110) -
Changes in assets and liabilities:
Increase in other assets (1,459) (713)
Increase in other liabilities 6,656 2,516
- ----------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 9,507 5,494
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NET CASH PROVIDED FROM OPERATING ACTIVITIES 19,781 13,850
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in Interest Bearing Deposits - 296
Proceeds from maturities of Securities Held to Maturity 59,318 117,599
Proceeds from maturities of Securities Available for Sale 11,577 4,565
Purchase of Held to Maturity Securities (99,009) (166,120)
Purchase of Available for Sale Securities (123,937) -
Purchase of FHLB Stock (7,329) (3,369)
Net increase in Loans (97,724) (41,440)
Proceeds from sale of Other Real Estate Owned 404 601
Investment in Bank Premises and Equipment (2,903) (2,777)
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NET CASH USED IN INVESTING ACTIVITIES (259,603) (90,645)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Deposits 36,537 (15,762)
Net increase in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements 79,146 34,782
Net increase in Federal Home Loan Bank Borrowings 93,500 40,000
Net increase in Treasury Tax & Loan Notes 2,663 1,673
Net decrease in Capital Notes - (9)
Issuance of corporation-obligated mandatorily redeemable
trust preferred securities of subsidiary trust holding solely
junior subordinated debentures of the Corporation 28,750 -
Dividends Paid (3,371) (2,470)
Proceeds from stock issuance 205 397
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NET CASH PROVIDED FROM FINANCING ACTIVITIES 237,430 58,611
- ----------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,392) (18,184)
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CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 53,486 80,354
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CASH AND CASH EQUIVALENTS AS OF SEPTEMBER 30, $51,094 $62,170
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</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial statements, primarily
consisting of normal recurring adjustments, have been included. Operating
results for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997 or any other interim period. For further information, refer to
the consolidated financial statements and footnotes thereto included in
Independent Bank Corp.'s (the "Company") annual report on Form 10-K for the year
ended December 31, 1996.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) issued Statement 128,
Earnings per Share (EPS) in the first quarter of 1997. Statement 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Statement 128 simplifies the calculation of EPS and
replaces primary EPS with basic EPS. Basic EPS is computed by dividing reported
earnings available to common stockholders by the weighted average shares
outstanding. Fully diluted EPS has been modified and replaced with diluted EPS.
Early application is prohibited, although the footnote disclosure of pro forma
EPS amounts computed under the new Statement is permitted.
The pro forma impact of Statement 128 is shown below:
Quarter Ended September 30
1997 1996
-------------- --------------
Net Income $3,692 $3,024
Primary:
Weighted average shares (Basic) 14,646,537 14,562,767
Common stock equivalents 323,365 196,220
-------------- --------------
Primary weighted average shares 14,969,902 14,758,987
============== ==============
Primary earnings per share reported $0.25 $0.20
Proforma basic earnings per share $0.25 $0.21
Proforma diluted earnings per share $0.25 $0.20
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CORPORATION-OBLIGATED MANDATORILY REDEEMABLE TRUST
- --------------------------------------------------
PREFERRED SECURITIES
- --------------------
In the second quarter of 1997, Independent Capital Trust I (the "Trust)
was formed for the exclusive purpose of issuing cumulative trust preferred
securities (the "Trust Preferred Securities") and investing the proceeds of the
sale of these securities in junior subordinated debentures issued by the
Company. The Company is the owner of all of the beneficial interest of the
Trust, represented by common stock. A total of $28.75 million of 9.28% Trust
Preferred Securities were issued and are scheduled to mature in 2027, callable
at the option of the Company after May 19, 2002. Distributions on these
securities are payable quarterly in arrears on the last day of March, June,
September and December. Such distributions can be deferred at the option of the
Company for up to five years. The Trust Preferred Securities will be subject to
mandatory redemption, in whole or in part, on or after May 19, 2002,
contemporaneously with the optional prepayment by the Corporation of all or part
of the Junior Subordinated Debentures, in each case, at a redemption price equal
to $25 per Trust Preferred Security plus the accrued and unpaid Distributions on
the Trust preferred Securities so redeemed to the Redemption Date.
The Trust Preferred Securities are presented in the consolidated
balance sheets of the Company entitled " Corporation-Obligated Mandatorily
Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Corporation". The Company records distributions
payable on the Trust Preferred Securities as a minority interest expense in its
consolidated statements of income.
The Company has unconditionally guaranteed all of the Trust's
obligations under the Trust Preferred Securities.
DERIVATIVE ACCOUNTING POLICY
- ----------------------------
The Bank has utilized interest rate swap agreements, caps, and floors
as hedging instruments for asset and liability management purposes. As such,
these instruments are accounted for under the accrual method. Income received
from the fixed rate payments and interest paid under variable rate obligations
is recorded on a net basis as interest income on loans. Gains or losses on the
sale of derivatives are deferred and amortized into interest income over the
remainder of the original term of the swap.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
SUMMARY
For the nine months ended September 30, 1997, Independent Bank Corp.
(the Company) recorded net income of $10.3 million, or $0.69 per share, compared
with net income of $8.4 million, or $0.57 per share, for the same period last
year. This improvement in net income was due to a $4.8 million, or 14.3%
increase in net interest income. The provision for loan losses increased to $1.6
million for the first nine months of 1997 compared with $1.3 million for the
same period last year. Non-interest income was relatively unchanged while non
interest expense increased by $690,000, or 2.4 % over the same period last year.
The annualized consolidated returns on average equity and average
assets for the first nine months of 1997 were 16.21% and 1.16%, respectively.
This compares to annualized consolidated returns on average equity and average
assets for the first nine months of 1996 of 14.83% and 1.10%, respectively.
As of September 30, 1997, total assets amounted to $1.3 billion, an
increase of $254.6 million over the 1996 year end balance. Investments increased
$162.9 million, or 50.0% from $325.6 million at year end 1996, primarily due to
an investment leverage strategy that the Company has implemented during the
second and third quarter of 1997. Loans, net of unearned discount, increased
$95.4 million, or 13.7%, since year end 1996 with strong growth in the
commercial real estate and the installment loan portfolios. Deposit balances
have increased by $36.5 million, or 4.0%, and borrowings have increased by
$175.3 million, or 216.1%, since year end 1996.
In the second quarter of 1997, Independent Capital Trust I was formed
for the purpose of issuing Trust Preferred Securities. A total of $28.8 million
of 9.28% Trust Preferred Securities were issued on May 19, 1997. Net income for
the first nine months of 1997 reflects minority interest expense of $978,000.
Nonperforming assets totaled $5.8 million as of September 30, 1997
compared to $4.7 million at December 31, 1996. Nonperforming assets represented
43 basis points of total assets as of September 30, 1997 and December 31,1996.
<PAGE>
NET INTEREST INCOME
The discussion of net interest income which follows is presented on a
fully tax-equivalent basis. Net interest income for the nine months ended
September 30, 1997, amounted to $38.5 million, an increase of $4.8 million, or
14.3%, from the comparable 1996 time frame. The Company's interest rate spread
(the difference between the weighted average yield on interest-earning assets
and the weighted average cost of interest-bearing liabilities) decreased by 17
basis points to 3.74%. This is due to the Company's decision to expand the
securities portfolio, financed by borrowings, to take advantage of a strong
capital position. While these funding and investment actions increased net
interest income, the net interest margin (net interest income as a percent of
average interest earning assets) reflects the lower net interest spread on such
transactions. The Company's net interest margin for the first nine months of
1997 was 4.58%, compared to 4.74% for the comparable 1996 time frame.
The average balance of interest-earning assets for the first nine
months of 1997 amounted to $1.1 billion, an increase of $172.1 million, or
18.1%, from the comparable 1996 time frame. Income from interest-earning assets
amounted to $68.0 million for the nine months ended September 30, 1997, an
increase of $10.5 million, or 18.2%, from the first nine months of 1996. The
increase in interest income was due to a $89.0 million, or 13.7% increase in the
average balance of loan portfolio, net of unearned discount, resulting from
increases in the commercial real estate portfolio and indirect automobile
lending, as well as a $83.1 million, or 27.8%, increase in the securities
portfolio.
Interest income is impacted by changes in market rates of interest due
to variable and floating rate loans in the Company's portfolio. At September 30,
1997, loans having interest rates which adjust in accordance with changes in the
Company's base lending rate or other market indices amounted to approximately
$269.7 million, or 34.1% of loans, net of unearned discount.
Interest income is also impacted by the amount of non-performing loans.
The amount of interest due, but not recognized, on non-performing loans amounted
to approximately $263,000 for the nine months ended September 30, 1997, compared
to $370,000 for the nine months ended September 30, 1996.
The average balance of interest-bearing liabilities for the first nine
months of 1997 was $142.0 million, or 18.7%, higher than the comparable 1996
time frame. This increase in interest-bearing liabilities funded the loan and
investment growth mentioned above. Average interest bearing deposits increased
by $80.4 million, or 11.8%, for the first nine months of 1997 over the same
period last year, primarily in the consumer certificate of deposit category. For
the nine months ended September 30, 1997, average borrowings were $61.7 million,
or 77.7%, higher than the first nine months of 1996, primarily in FHLB
borrowings which increased by $52.1 million. Interest expense on deposits
increased by $3.0 million, or 14.9%, to $23.5 million in the first nine months
of 1997 and interest expense on borrowings increased by $2.6 million, or 75.8%,
to $6.1 million as compared to the same period last year.
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents the charge to expense
that is required to fund the reserve for possible loan losses. The level of the
reserve for possible loan losses is determined by management of the Company
based upon known and anticipated circumstances and conditions. An analysis of
individual loans and the overall risk characteristics and size of the different
loan portfolios is conducted on an ongoing basis. In addition, the Company
considers industry trends, regional and national economic conditions, past
estimates of possible losses as compared to actual losses, and historical loss
patterns. Management assesses the adequacy of the reserve for possible loan
losses and reviews that assessment quarterly with the Board of Directors.
For the nine months ended September 30, 1997, management increased the
provision for possible loan losses, consistent with the level of loan growth
experienced, to $1.6 million as compared to $1.3 million for the same period
last year. For the first nine months of 1997, loans charged-off, net of
recoveries of loans previously charged-off, amounted to $1.2 million as compared
to $1.3 million for the comparable 1996 time frame.
As of September 30, 1997, the ratio of the reserve for possible loan
losses to loans, net of unearned discount, was 1.60%, as compared to the 1996
year-end level of 1.76%. The ratio of the reserve for possible loan losses to
non-performing loans was 219.17% at September 30, 1997, lower than the 273.89%
coverage recorded at year end 1996.
NON-INTEREST INCOME
Non-interest income for the nine months ended September 30, 1997 was
$9.6 million, compared to $9.7 million for the same period in 1996. Income from
Trust and Financial Services increased by $170,000, or 8.0%, due to an increase
in funds under management and a strong securities market. This increase was
offset by a decrease in mortgage banking income of $164,000, or 7.3%, resulting
from lower loan origination.
NON-INTEREST EXPENSES
Non-interest expenses totaled $29.6 million for the nine months ended
September 30, 1997, a $690,000 increase from the comparable 1996 period.
Salaries and employee benefits decreased by $779,000, or 4.9%. As
previously reported, in connection with a change in the Bank's pension plan
which was effective January 1, 1997, the Company recognized $394,000 of
previously accrued pension liability as a credit to salaries and benefits during
the first quarter. As a result of the change from a pension plan to a defined
contribution plan, no pension expense was recognized in the first nine months of
1997. The remainder of the decrease in salaries and employee benefits is due to
the transfer of sixty-nine employees to the Company's third party data
processing provider, as a result of a facilities management agreement enacted in
the first quarter last year.
<PAGE>
Occupancy and equipment expenses for the first nine months of 1997
increased $446,000, or 10.3%, from the comparable 1996 period as a result of the
Company's commitment to improve facilities and take advantage of current
technology.
Other non-interest expenses for the first nine months of 1997 increased
$1.0 million to $9.7 million from $8.7 million in the first nine months of 1996.
This increase is associated with the data processing conversion, completed in
the first quarter of 1997 and to a combination of conversion costs and the data
processing facilities management fee in 1997. In addition, consulting fees have
increased by $374,000 due to the cost of implementing tax planning strategies
and other business initiatives.
INCOME TAXES
The Company records income tax expense pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes". The
Company evaluates the deferred tax asset and the valuation reserve on a
quarterly basis. The Company's effective tax rates for the nine months ended
September 30, 1997 and 1996 were 34.1% and 35.5% respectively. The lower rate in
1997 reflects certain tax planning strategies enacted by the Company in 1997.
ASSET/LIABILITY MANAGEMENT
The principal objective of the Company's asset/liability management
strategy is to reduce the vulnerability of the Company to changes in interest
rates. This is accomplished by managing the volume of assets and liabilities
maturing, or subject to repricing, and by adjusting rates in relation to market
conditions to influence volumes and spreads.
The effect of interest rate volatility on net interest income is
minimized when the interest sensitivity gap (the difference between assets and
liabilities that reprice within a given time period) is the smallest. Given the
inherent uncertainty of future interest rates, Rockland Trust Company's (the
Bank or Rockland) Asset/Liability Management Committee evaluates the interest
sensitivity gap and executes strategies, which may include off-balance sheet
activities, in an effort to minimize the Company's exposure to interest rate
movements while providing adequate earnings in the most plausible future
interest rate environments.
Beginning in 1992, Rockland entered into interest rate swap agreements
as a hedge against stable or declining interest rates. As of September 30, 1997,
the Bank had interest rate swap agreements with a total notional value of $70
million. These swaps were arranged through two international banking
institutions and have initial maturities ranging from three to five years. The
Bank receives fixed rate payments and pays a variable rate of interest tied to
3-month LIBOR.
<PAGE>
LIQUIDITY AND CAPITAL
Liquidity, as it pertains to the Company, is the ability to generate
cash in order to meet ongoing obligations to pay deposit withdrawals and to fund
loan commitments. The Company's primary sources of liquidity are deposits,
borrowings, and the amortization, prepayment, and maturities of loans and
investments.
A strong source of liquidity is the Company's core deposits, those
deposits which management considers, based on experience, are not likely to be
withdrawn in the near term. The Company utilizes its extensive branch banking
network to attract retail customers who provide a stable source of core
deposits. The Company has established five repurchase agreements with major
brokerage firms as potential sources of liquidity. On September 30, 1997 the
Company had $80.0 million outstanding under such lines classified on the Balance
Sheet as "Federal Funds Purchased and Assets Sold Under Repurchase Agreements".
In addition, as a member of the Federal Home Loan Bank, Rockland has access to
approximately $400 million of borrowing capacity. At September 30, 1997, the
Company had $171.5 million outstanding under such lines. The Company actively
manages its liquidity position under the direction of the Bank's Asset/Liability
Management Committee. Periodic review under formal policies and procedures is
intended to ensure that the Company will maintain access to adequate levels of
available funds. At September 30, 1997, the Company's liquidity position was
well above its internal policy guidelines.
CAPITAL RESOURCES AND DIVIDENDS
The Company and Rockland are subject to capital requirements
established by the Federal Reserve Board and the FDIC. One key measure of
capital adequacy is the risk-based ratio for which the regulatory agencies have
established minimum requirements of 4.00% and 8.00% for Tier 1 risk-based
capital and total risk-based capital, respectively. As of September 30, 1997,
the Company had a Tier 1 risked-based capital ratio of 13.91% and a total
risked-based capital ratio of 15.16%. As of the same date, Rockland had a Tier 1
risked-based capital ratio of 10.16% and a total risked-based capital ratio of
11.41% as of the same date.
An additional capital requirement of a minimum 4.00% Tier 1 leverage
capital is mandated by the regulatory agencies. As of September 30, 1997, the
Company and the Bank had Tier 1 leverage capital ratios of 8.82% and 6.48%,
respectively.
The Company's capital ratios increased significantly due to the
issuance of $28.8 million of Trust Preferred Securities in the second quarter of
1997.
In September, the Company's Board of Directors declared a cash dividend
of $.09 per share to shareholders of record as of September 26, 1997. This
dividend was paid on October 10, 1997. On an annualized basis, the dividend
payout ratio amounted to 41.9% of the trailing four quarters earnings.
<PAGE>
YEAR 2000
The Company has developed preliminary plans to address the possible
exposures related to impact on its computer systems of the Year 2000. Key
financial, information and operational systems have been assessed and detailed
plans have been developed to address systems modifications required by December
31, 1999. The financial impact of making the required systems changes is not
expected to be material to the Company's consolidated financial position,
results of operations or cash flows.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
SUMMARY
For the three months ended September 30, 1997, the Company recorded net
income of $3.7 million, or $0.25 per share, compared with net income of $3.0
million, or $0.20 per share, for the same period last year. This increase was
due to increased net interest income of $2.1 million, or 18.6% . The provision
for loan losses increased to $530,000 for the third quarter of 1997 compared
with $500,000 for the same period last year. Non-interest income was relatively
unchanged while non-interest expense increased by $450,000 or 4.7 % when
compared to third quarter 1996. Net income for the third quarter of 1997 also
reflects minority interest expense of $667,000.
The annualized consolidated returns on average equity and average
assets for the third quarter of 1997 were 16.91% and 1.14%, respectively. This
compares to annualized consolidated returns on average equity and average assets
for the third quarter of 1996 of 15.69% and 1.16%, respectively.
NET INTEREST INCOME
The discussion of net interest income which follows is presented on a
fully tax-equivalent basis. Net interest income for the three months ended
September 30, 1997, amounted to $13.8 million, an increase of $2.2 million, or
19.0%, from the comparable 1996 time frame. The Company's interest rate spread
(the difference between the weighted average yield on interest-earning assets
and the weighted average cost of interest-bearing liabilities) decreased by 43
basis points to 3.55%. The Company's net interest margin for the third quarter
of 1997 was 4.47%, compared to 4.77% for the comparable 1996 time frame. This
decrease in the net interest margin is due to a planned increase in the
Company's investment portfolio financed primarily with borrowed funds.
The average balance of interest-earning assets for the third quarter of
1997 amounted to $1.2 billion, an increase of $263.3 million, or 27.1%, over the
comparable 1996 time frame. Income from interest-earning assets amounted to
$25.1 million for the third quarter of 1997, an increase of $5.3 million, or
26.8%, from the third quarter of 1996. The increase in interest income was
attributable to a $114.3 million, or 17.3% increase in the average balance of
the loan portfolio, net of unearned discount, resulting from increases in the
commercial real estate portfolio and indirect automobile lending. In addition,
the securities portfolio increased by $149.0 million, or 47.8% which reflects
the Company's strategy of leveraging its capital.
<PAGE>
The average balance of interest-bearing liabilities for the third
quarter of 1997 was $200.4 million, or 25.4%, higher than the comparable 1996
time frame. Average interest bearing deposits increased by $95.3 million, or
14.0%, for the third quarter of 1997 over the same period last year, primarily
in the consumer certificate of deposit category. For the three months ended
September 30, 1997, average borrowings were $105.1 million, or 99.2%, higher
than the third quarter of 1996. Interest expense on deposits increased by $1.5
million, or 22.0%, while interest expense on borrowings increased by $1.6
million or 106.3%.
NON-INTEREST INCOME
Non-interest income for the three months ended September 30, 1997 and
September 30, 1996 was $3.1 million.
NON-INTEREST EXPENSES
Non-interest expenses totaled $9.9 million for the three months ended
September 30, 1997, a $450,000 increase from the comparable 1996 period. The
increase in non-interest expense was mostly due to a $225,000 increase in other
non-interest expenses, attributable to consulting fees, due to the cost of
implementing tax planning strategies and other business initiatives. Also
impacting this increase was a $130,000, or a 2.6% increase in salary and
employee benefit expenses, primarily representing the normal annual salary
increases.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
The financial information detailed below is included
hereafter in this report:
Consolidated Statements of Changes in Stockholders' Equity
Three months ended September 30, 1997 and the year
ended December 31, 1996
Consolidated Average Balance Sheet and Average Rate Data -
Nine months and three months ended September 30, 1997
and 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Page
--- ----
27 Financial Data Schedule E-1
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended September 30, 1997.
<PAGE>
<TABLE>
<CAPTION>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY UNREALIZED
(Unaudited - in thousands) GAIN (LOSS)
COMMON RETAINED INVESTMENTS
STOCK SURPLUS EARNINGS AVAILABLE TOTAL
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1996 $145 $43,777 $28,710 ($60) $72,572
- --------------------------------------------------------------------------------------------------------------------------------
Net Income 11,597 11,597
Dividends Declared (3,641) (3,641)
Common Stock Sold Under Dividend
Reinvestment & Stock Purchase Plan 1 497 498
Proceeds From Exercise of Stock Options 105 105
Tax Benefit of Stock Option Exercises 54 54
Change in Unrealized Loss on Securities
Available for Sale, Net of Tax (75) (75)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 146 44,433 36,666 (135) 81,110
- --------------------------------------------------------------------------------------------------------------------------------
Net Income 10,274 10,274
Dividends Declared (3,668) (3,668)
Proceeds From Exercise of Stock Options 1 204 205
Change in Unrealized Loss on Securities
Available for Sale, Net of Tax 1,323 1,323
- --------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997 $147 $44,637 $43,272 $1,188 $89,244
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE OUTSTANDING INTEREST EARNED/
BALANCE PAID
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $367,768 $287,349 $18,400 $13,775
Non-taxable Investment Securities 11,110 7,429 600 325
Loans, net of Unearned Discount 738,293 649,314 48,895 43,287
Federal Funds Sold and Assets
Purchased Under Resale Agreements 3,267 4,091 132 168
Interest Bearing Deposits - 171 - 7
---------------- --------------- ------------ ------------
Total Interest-Earning Assets $1,120,438 $948,354 $68,027 $57,562
---------------- --------------- ------------ ------------
Cash and Due From Banks 43,724 46,633
Other Assets 18,908 15,533
---------------- ---------------
Total Assets $1,183,070 $1,010,520
================ ===============
Interest-Bearing Liabilities
Savings and NOW Accounts $254,419 $257,527 $4,079 $4,175
Money Market & Super NOW Accounts 108,450 105,688 2,279 2,206
Other Time Deposits 399,158 318,450 17,113 14,044
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 39,890 25,991 1,695 1,071
Federal Home Loan Bank Borrowings 97,473 45,380 4,221 1,916
Treasury Tax and Loan Notes 3,704 3,185 141 102
Subordinated Capital Notes - 4,836 - 356
---------------- --------------- ------------ ------------
Total Interest-Bearing Liabilities $903,094 $761,057 $29,528 $23,870
---------------- --------------- ------------ ------------
Demand Deposits 167,062 160,157
Other Liabilities 28,417 14,168
---------------- ---------------
Total Liabilities 1,098,573 935,382
---------------- ---------------
Stockholders' Equity 84,497 75,138
---------------- ---------------
Total Liabilities and Stockholders' Equity 1,183,070 1,010,520
================ ===============
------------ ------------
Net Interest Income $38,499 $33,692
============ ============
Interest Rate Spread
Net Interest Margin
</TABLE>
<TABLE>
<CAPTION>
AVERAGE YIELD
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 1996
<S> <C> <C>
Interest-Earning Assets
Taxable Investment Securities 6.67% 6.39%
Non-taxable Investment Securities 7.20% 5.83%
Loans, net of Unearned Discount 8.83% 8.89%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 5.39% 5.48%
Interest Bearing Deposits 0.00% 5.46%
----------- -------------
Total Interest-Earning Assets 8.10% 8.09%
----------- -------------
Cash and Due From Banks
Other Assets
Total Assets
Interest-Bearing Liabilities
Savings and NOW Accounts 2.14% 2.16%
Money Market & Super NOW Accounts 2.80% 2.78%
Other Time Deposits 5.72% 5.88%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 5.67% 5.49%
Federal Home Loan Bank Borrowings 5.77% 5.63%
Treasury Tax and Loan Notes 5.08% 4.27%
Subordinated Capital Notes 0.00% 9.82%
----------- -------------
Total Interest-Bearing Liabilities 4.36% 4.18%
----------- -------------
Demand Deposits
Other Liabilities
Total Liabilities
Stockholders' Equity
Total Liabilities and Stockholders' Equity
Net Interest Income
----------- -------------
Interest Rate Spread 3.74% 3.91%
----------- -------------
Net Interest Margin 4.58% 4.74%
=========== =============
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $326 and $302 in 1997 and 1996, respectively.
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE OUTSTANDING INTEREST EARNED/
BALANCE PAID
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $436,976 $300,123 $7,439 $4,914
Non-taxable Investment Securities 20,282 7,849 376 115
Loans, net of Unearned Discount 775,549 661,296 17,224 14,712
Federal Funds Sold and Assets
Purchased Under Resale Agreements 3,575 3,855 49 52
Interest Bearing Deposits - - - -
--------------- --------------- ------------- ------------
Total Interest-Earning Assets $1,236,382 $973,123 $25,088 $19,793
--------------- --------------- ------------- ------------
Cash and Due From Banks 39,782 47,503
Other Assets 20,354 21,991
--------------- ---------------
Total Assets $1,296,518 $1,042,617
=============== ===============
Interest-Bearing Liabilities
Savings and NOW Accounts 256,767 259,473 1,381 1,410
Money Market & Super NOW Accounts 108,334 104,030 760 728
Other Time Deposits 412,868 319,186 6,019 4,548
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 64,688 33,129 945 461
Federal Home Loan Bank Borrowings 143,491 64,162 2,147 901
Treasury Tax and Loan Notes 2,884 3,823 52 43
Subordinated Capital Notes - 4,836 - 119
--------------- --------------- ------------- ------------
Total Interest-Bearing Liabilities $989,032 $788,639 $11,304 $8,210
--------------- --------------- ------------- ------------
Demand Deposits 175,960 163,318
Other Liabilities 44,207 13,590
--------------- ---------------
Total Liabilities 1,209,199 965,547
--------------- ---------------
Stockholders' Equity 87,319 77,070
--------------- ---------------
Total Liabilities and Stockholders' Equity 1,296,518 1,042,617
=============== ===============
------------- ------------
Net Interest Income $13,784 $11,583
============= ============
-
Interest Rate Spread
Net Interest Margin
</TABLE>
<TABLE>
<CAPTION>
AVERAGE YIELD
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 1996
<S> <C> <C>
Interest-Earning Assets
Taxable Investment Securities 6.81% 6.55%
Non-taxable Investment Securities 7.42% 5.86%
Loans, net of Unearned Discount 8.88% 8.90%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 5.48% 5.40%
Interest Bearing Deposits - -
------------ -------------
Total Interest-Earning Assets 8.12% 8.14%
------------ -------------
Cash and Due From Banks
Other Assets
Total Assets
Interest-Bearing Liabilities
Savings and NOW Accounts 2.15% 2.17%
Money Market & Super NOW Accounts 2.81% 2.80%
Other Time Deposits 5.83% 5.70%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 5.84% 5.57%
Federal Home Loan Bank Borrowings 5.99% 5.62%
Treasury Tax and Loan Notes 7.21% 4.50%
Subordinated Capital Notes - 9.84%
------------ -------------
Total Interest-Bearing Liabilities 4.57% 4.16%
------------ -------------
Demand Deposits
Other Liabilities
Total Liabilities
Stockholders' Equity
Total Liabilities and Stockholders' Equity
Net Interest Income
------------ -------------
Interest Rate Spread 3.55% 3.98%
------------ -------------
Net Interest Margin 4.47% 4.77%
============ =============
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $164 and $96 in 1997 and 1996, respectively.
</TABLE>
<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.
INDEPENDENT BANK CORP.
(registrant)
Date: November 14, 1997 /s/ John F. Spence, Jr.
John F. Spence, Jr.
Chairman of the Board and
Chief Executive Officer
Date: November 14, 1997 /s/ Richard J. Seaman
Richard J. Seaman
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY AS REFEENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 48,089
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,005
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 140,093
<INVESTMENTS-CARRYING> 329,846
<INVESTMENTS-MARKET> 330,400
<LOANS> 790,782
<ALLOWANCE> 12,624
<TOTAL-ASSETS> 1,347,423
<DEPOSITS> 955,109
<SHORT-TERM> 256,445
<LIABILITIES-OTHER> 17,875
<LONG-TERM> 0
28,750
0
<COMMON> 147
<OTHER-SE> 89,097
<TOTAL-LIABILITIES-AND-EQUITY> 1,347,423
<INTEREST-LOAN> 48,753
<INTEREST-INVEST> 18,948
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 67,701
<INTEREST-DEPOSIT> 23,471
<INTEREST-EXPENSE> 29,528
<INTEREST-INCOME-NET> 38,173
<LOAN-LOSSES> 1,560
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 29,627
<INCOME-PRETAX> 15,590
<INCOME-PRE-EXTRAORDINARY> 15,590
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,274
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
<YIELD-ACTUAL> 8.10
<LOANS-NON> 5,002
<LOANS-PAST> 758
<LOANS-TROUBLED> 1,362
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,221
<CHARGE-OFFS> 1,916
<RECOVERIES> 759
<ALLOWANCE-CLOSE> 12,624
<ALLOWANCE-DOMESTIC> 12,624
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
