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 March 31, 1998
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 May 1,1998 there were 14,855,774 shares of the issuer's common stock
outstanding.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997
Consolidated Statements of Income - Three months ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows - Three months ended
March 31, 1998 and 1997 Notes to Consolidated Financial
Statements - March 31, 1998
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
<PAGE>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------------------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $42,639 $42,544
Federal Funds Sold 7,434 22,472
Securities Held To Maturity 288,178 308,112
Securities Available For Sale 133,633 131,842
Federal Home Loan Bank Stock 16,035 16,035
Loans, Net of Unearned Discount 851,905 828,132
Less: Reserve for Possible Loan Losses (13,335) (12,674)
- -------------------------------------------------------------------------------------------------------------
Net Loans 838,570 815,458
- -------------------------------------------------------------------------------------------------------------
Bank Premises and Equipment 12,450 12,776
Other Real Estate Owned 4 2
Other Assets 19,632 20,766
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,358,575 $1,370,007
=============================================================================================================
LIABILITIES
Deposits
Demand Deposits $185,175 $189,577
Savings and Interest Checking Accounts 260,821 257,980
Money Market and Super Interest Checking Accounts 103,678 119,316
Time Certificates of Deposit over $100,000 66,947 69,424
Other Time Deposits 332,582 351,851
- -------------------------------------------------------------------------------------------------------------
Total Deposits 949,203 988,148
- -------------------------------------------------------------------------------------------------------------
Federal Funds Purchased and Assets Sold Under Repurchase Agreements 48,640 38,327
Federal Home Loan Bank Borrowings 218,724 206,724
Treasury Tax and Loan Notes 3,005 3,217
Other Liabilities 15,373 12,348
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 1,234,945 1,248,764
- -------------------------------------------------------------------------------------------------------------
Corporation-obligated mandatorily redeemable trust preferred securities of
subsidiary trust holding solely junior subordinated debentures of the
Corporation 28,750 28,750
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value Authorized: 30,000,000 Shares
Outstanding: 14,846,696 Shares at March 31, 1998
and 14,801,904 at December 31, 1997 148 148
Surplus 45,451 45,147
Retained Earnings 48,046 45,825
Unrealized Gain on Securities Available For Sale, Net of Tax 1,235 1,373
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 94,880 92,493
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST & STOCKHOLDERS' EQUITY $1,358,575 $1,370,007
=============================================================================================================
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited - in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest on Loans $18,333 $15,230
Interest and Dividends on Securities 7,522 5,369
Interest on Federal Funds Sold 123 27
- --------------------------------------------------------------------------------------------------
Total Interest Income 25,978 20,626
- --------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits 7,819 7,383
Interest on Borrowed Funds 3,840 1,416
- --------------------------------------------------------------------------------------------------
Total Interest Expense 11,659 8,799
- --------------------------------------------------------------------------------------------------
Net Interest Income 14,319 11,827
- --------------------------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 907 500
- --------------------------------------------------------------------------------------------------
Net Interest Income After Provision
For Possible Loan Losses 13,412 11,327
- --------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 1,329 1,426
Trust and Investment Services Income 893 731
Mortgage Banking Income 746 667
Other Non-Interest Income 424 333
- --------------------------------------------------------------------------------------------------
Total Non-Interest Income 3,392 3,157
- --------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits 5,200 4,671
Occupancy Expenses 999 953
Equipment Expenses 730 684
Other Non-Interest Expenses 3,637 3,480
- --------------------------------------------------------------------------------------------------
Total Non-Interest Expenses 10,566 9,788
- --------------------------------------------------------------------------------------------------
Minority Interest 667 -
INCOME BEFORE INCOME TAXES 5,571 4,696
PROVISION FOR INCOME TAXES 1,866 1,699
- --------------------------------------------------------------------------------------------------
NET INCOME $3,705 $2,997
==================================================================================================
BASIC EARNINGS PER SHARE $0.25 $0.21
==================================================================================================
DILUTED EARNINGS PER SHARE $0.25 $0.20
==================================================================================================
Weighted average common shares (Basic) 14,828,992 14,614,757
Common stock equivalents 253,334 272,384
- --------------------------------------------------------------------------------------------------
Weighted average commons shares (Diluted) 15,082,326 14,887,141
==================================================================================================
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $3,705 $2,997
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Depreciation and amortization 953 939
Provision for loan losses 907 500
Loans originated for resale (17,461) (10,208)
Proceeds from mortgage loan sales 17,429 10,213
Loss on sale of mortgages 32 5
Gain on origination of mortgage servicing rights FAS 122 (155) (88)
Other Real Estate Owned recoveries (77) -
Changes in assets and liabilities:
Decrease in other assets 1,290 72
Increase in other liabilities 3,096 3,722
- -------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 6,014 5,155
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 9,719 8,152
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of Investment Securities 33,538 13,631
Purchase of Investment Securities (15,917) (21,788)
Net increase in Loans (24,104) (21,015)
Proceeds from sale of Other Real Estate Owned 159 -
Investment in Bank Premises and Equipment (314) (1,126)
- -------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (6,638) (30,298)
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Deposits (38,945) (9,202)
Net increase in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements 10,313 22,672
Net increase in FHLB Borrowings 12,000 5,000
Net increase (decrease) in TT&L Notes (212) 1,929
Dividends Paid (1,484) (1,022)
Proceeds from stock issuance 304 61
- -------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (18,024) 19,438
NET DECREASE IN CASH AND CASH EQUIVALENTS (14,943) (2,708)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 65,016 53,486
- -------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AS OF MARCH 31, $50,073 $50,778
===========================================================================================
</TABLE>
<PAGE>
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 month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998 or any other interim period. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1997.
RECENT ACCOUNTING DEVELOPMENTS
In March, 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
will adopt SOP 98-1 prospectively beginning January 1, 1999. The Company does
not believe that adoption of SOP 98-1 will have a material impact on the
Company's financial statements.
In April, 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
The Company believes that adoption of SOP 98-5 will have no material impact on
the Company's financial statements.
EARNINGS PER SHARE
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards Board (SFAS) No. 128, "Earnings per share." This statement
was issued by the Financial Accounting Standards Board (FASB) in March 1997 and
establishes standards for computing and presenting earnings per share (EPS) and
applies to entities with publicly held common stock or potential common stock.
This statement replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerators and denominators of the basic
and diluted EPS computations. This statement also requires a restatement of all
prior period EPS data presented.
<TABLE>
<CAPTION>
NET INCOME WEIGHTED AVERAGE SHARES NET INCOME PER SHARE
March 31, March 31, March 31, March 31, March 31, March 31,
1998 1997 1998 1997 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $3,705 $2,997 14,829 14,615 $0.25 $0.21
Effect of dilutive securities - - 253 272 - 0.01
---------------------------------------------------------------------------------------------
Diluted EPS $3,705 $2,997 15,082 14,887 $0.25 $0.20
---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
COMPREHENSIVE INCOME
In 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses and all other
nonowner changes in equity). This statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the equity
section of a statement of financial position. Comprehensive income is reported
net of taxes, as follows:
<TABLE>
<CAPTION>
March 31,
1998 1997
<S> <C> <C>
Net Income $3,705 $2,997
Change in unrealized gain/(loss) on securities available for sale (138) (90)
Less: reclassification adjustment for losses included in net income - (5)
------------------
Comprehensive Income $3,567 $2,902
------------------
</TABLE>
SEGMENT INFORMATION
In June, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS 131 introduces a new model for segment reporting, called the "management
approach." The management approach is based on the way the chief operating
decision-maker organizes segments within a company for making operating
decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure-any manner in
which management disaggregates a company. This statement is effective and will
be adopted for the Company's financial statements for the fiscal year ending
December 31, 1998 and requires the restatement of previously reported segment
information for all periods presented.
<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 QUARTER ENDED MARCH 31, 1998
SUMMARY
For the three months ended March 31, 1998, Independent Bank Corp. (the
Company) recorded net income of $3.71 million, compared with net income of $2.99
million for the same period last year. Diluted earnings per share were $.25 for
the quarter ended March 31, 1998 versus $.20 per share for the prior year. Basic
earnings per share, before the dilutive effect of stock options, were $.25 in
1998 compared with $.21 for the same period in 1997. Per share earnings have
been calculated in accordance with SFAS No. 128, "Earnings per Share." This
improvement in 1998 is primarily due to increased net interest income.
Interest income associated with loan growth and increased purchases of
investment securities, primarily offset by interest expense on increased
borrowings , contributed to an increase in net interest income of $2.5 million
to $14.3 million in 1998 from $11.8 million in 1997. The provision for loan
losses increased to $907,000 for the first three months of 1998 compared with
$500,000 for the same period last year consistent with loan growth. Non-interest
income and non-interest expenses increased 7.4% and 8.0% respectively from the
same period last year. Also recorded in the first quarter of 1998 was minority
interest expense of $667,000 associated with the Trust Preferred Securities
offered in the second quarter of 1997.
The annualized consolidated returns on average equity and average assets
for the first three months of 1998 were 15.66% and 1.09%, respectively. This
compares to annualized consolidated returns on average equity and average assets
for the first three months of 1997 of 14.55% and 1.09%, respectively.
As of March 31, 1998, total assets amounted to $1.4 billion, a decrease of
$11.4 million, or less than 1.00% over the 1997 year end balance. Loans, net of
unearned discount, increased $23.8 million, or 2.9%, since year end 1997 with
growth in the installment loan category. Investments decreased by $33.2 million,
or 6.9% from year end 1997, primarily due to prepayments and calls associated
with the current interest rate environment. Deposit balances have decreased by
$38.9 million since year end 1997, reflecting normal seasonal fluctuations,
while borrowings have decreased by $22.1 million, or 8.9%.
Nonperforming assets totaled $5.9 million as of March 31, 1998 unchanged
from December 31, 1997. Nonperforming assets for both periods represented 43
basis points of total assets.
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 March 31,
1998, amounted to $14.5 million, an increase of $2.6 million , or 21.7%, from
the comparable 1997 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 26 basis
points. This is due to the Company's decision to expand the securities portfolio
in addition to recording strong loan growth, financed primarily by FHLB
borrowings and consumer certificates of deposit, 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
<PAGE>
of average interest earning assets) reflects the lower net interest spread on
such transactions.
The average balance of interest-earning assets for the first three months
of 1998 was $264.7 million, or 25.6%, higher than the comparable 1997 time
frame, while the average balance of interest-bearing liabilities was $199.1
million, or 23.6% higher. The Company's net interest margin for the first three
months of 1998 was 4.46% as compared to 4.60% for the comparable 1997 time
frame.
Income from interest-earning assets amounted to $26.2 million for the three
months ended March 31, 1998, an increase of $5.5 million, or 26.3%, from the
first three months of 1997. The average balance of taxable investment securities
increased by $103.0 million, or 31.8% and the average balance of loans, net of
unearned discount, increased $137.1 million, or 19.5% resulting from increases
in both the commercial real estate portfolio and indirect automobile lending.
Interest income is impacted by changes in market rates of interest due to
variable and floating rate loans in the Company's portfolio. At March 31, 1998,
loans having interest rates which adjust in accordance with changes in the
Company's base lending rate or other market indices amounted to approximately
$263.5 million, or 30.9% 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 $115,000 for the three months ended March 31, 1998, compared to
$81,000 for the three months ended March 31, 1997.
Average interest bearing deposits increased by $37.4 million, or 5.1%, for
the first three months of 1998 over the same period last year, primarily in the
consumer certificate of deposit category. For the three months ended March 31,
1998, average borrowings were $161.7 million, or 153.6%, higher than the first
three months of 1997. Interest expense on deposits and borrowings increased by
$2.86 million, or 32.5%, to $11.7 million in the first quarter of 1998 as
compared to the same period last year.
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 three months ended March 31, 1998, Management increased the
provision for possible loan losses, consistent with the level of loan growth
experienced, to $907,000 as compared to $500,000 for the same period last year.
For the first three months of 1998, loans charged-off, net of recoveries of
loans previously charged-off, amounted to $246,000 as compared to $574,000 for
the comparable 1997 time frame.
<PAGE>
As of March 31, 1998, the ratio of the reserve for possible loan losses to
loans, net of unearned discount, was 1.57%, as compared to the 1997 year-end
level of 1.53%. The ratio of the reserve for possible loan losses to
non-performing loans was 226.4% at March 31, 1998, higher than the 215.14%
coverage recorded at year end.
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 1998 was $3.4
million, compared to $3.2 million for the same period in 1997. Income from Trust
and Financial Services increased by $162,000, or 22.2%, due to an increase in
funds under management and a strong securities market. The March 1998 quarter
included a non-recurring recovery of $77,000 associated with a former real
estate owned property.
NON-INTEREST EXPENSES
Non-interest expenses totaled $10.6 million for the three months ended
March 31, 1998, a $778,000 increase from the comparable 1997 period. Salaries
and employee benefits increased by $529,000, or 11.3%. As previously reported,
in connection with a change in the Bank's pension plan which was effective
January 1, 1997, the Corporation recognized $394,000 of previously accrued
pension liability as a credit to salaries and benefits during the first quarter
of 1997. Excluding this item, non-interest expenses increased by $135,000 or
2.6% from the first quarter of 1997. Other non-interest expenses for the first
three months of 1998 increased by $157,000 to $3.6 million from $3.5 million in
the first quarter of 1997.
MINORITY INTEREST
In the second quarter of 1997, Independent Capital Trust I (the "Trust")
was formed for the purpose of issuing 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. 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 can be prepaid in whole or in part on or after May 19, 2002 at a
redemption price equal to $25 per Trust Preferred Security plus accumulated but
unpaid distributions thereon to the date of the redemption.
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 minority interest expense in its
consolidated statements of income. The minority interest expense for the three
months ended March 31, 1998 was $667,000 and there was no minority interest
expense for the first quarter of 1997.
<PAGE>
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 three months ended March 31, 1998 and
1997 were 33.5% and 36.2% respectively.
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 March 31, 1998, the Bank
had one interest rate swap agreement with a total notional value of $20 million.
This swap was arranged through an international banking institution and has an
initial maturity of three years. The Bank receives fixed rate payments and pays
a variable rate of interest tied to 3-month LIBOR.
INTEREST RATE RISK
Interest rate risk is the sensitivity of income to variations in interest
rates over both short-term and long-term horizons. The primary goal of
interest-rate risk management is to control this risk within limits approved by
the Board and narrower guidelines approved by the Asset/Liability Management
Committee. These limits and guidelines reflect the Company's tolerance for
interest-rate risk by identifying exposures, quantifying and hedging them. The
Company quantifies its interest-rate exposures using simulation models, as well
as simpler gap analyses. The Company manages its interest-rate exposure using a
combination of on and off balance sheet instruments, primarily fixed-rate
portfolio securities, interest rate swaps and options.
The Company uses simulation analysis to measure the exposure of net
interest income to changes in interest rates over a relatively short (i.e., less
than 2 years) time horizon. Simulation analysis involves projecting future
interest income and expense from the Company's asset, liabilities and off
balance sheet positions under various scenarios.
<PAGE>
The Company's limits on interest rate risk specify that if interest rates
were to shift up or down 200 basis points, estimated net income for the next 12
months should decline by less than 6%. The following table reflects the
Company's estimated exposure, as a percentage of estimated net interest income
for the next 12 months.
<TABLE>
<CAPTION>
Rate Change Estimated Exposure as %
(Basis Points) of Net Interest Income
- --------------------------------------------------------------------------------
<S> <C> <C>
+200 (2.05%)
-200 0.62%
</TABLE>
LIQUIDITY AND CAPITAL
Liquidity, as it pertains to the Company, is the ability to generate cash
in the most economical way, in order to meet ongoing obligations to pay deposit
withdrawals and to fund loan commitments. The Company's primary sources of funds
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, 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 March 31, 1998 the Company had $30.0 million
outstanding under such lines classified on the Balance Sheet as "Federal Funds
Purchased and Assets Sold Under Repurchase Agreements". As an additional source
of funds, the Bank has entered into repurchase agreements with customers
totaling $15.5 million at March 31, 1998. In addition, as a member of the
Federal Home Loan Bank, Rockland has access to approximately $426 million of
borrowing capacity. At March 31, 1998, the Company had $219 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 March 31, 1998, the
Company's liquidity position was well above policy guidelines.
CAPITAL RESOURCES AND DIVIDENDS
The Company and Rockland are subject to capital requirements established by
the Federal Reserve Board and the FDIC, respectively. 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 March 31, 1998, the
Company had a Tier 1 risked-based capital ratio of 13.53% and a total
risked-based capital ratio of 14.78%. Rockland had a Tier 1 risked-based capital
ratio of 10.06% and a total risked-based capital ratio of 11.32% 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 March 31, 1998, the
Company and the Bank had Tier 1 leverage capital ratios of 8.84% and 6.54%,
respectively.
In March, the Company's Board of Directors declared a cash dividend of $.10
per share to shareholders of record as of March 27, 1998. This dividend was paid
on April 10, 1998. 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 plans to address the possible exposure related to
the impact on its computer systems and key service providers of the Year 2000.
Key financial and operational systems have been assessed and detailed plans have
been developed to address systems modifications required by December 31, 1999.
Anticipated spending for these modifications will be expensed as incurred.
In 1997, the Company converted its core operating system software to a
leading provider of data processing services, Alltel. As a consequence, Alltel
is leading the effort for ensuring Year 2000 compliance for all mainframe
application software. Management has overall responsibility for ensuring
compliant systems and is working closely with Alltel to ensure this compliance
by December 31, 1999. Costs related to this aspect of the Year 2000 effort are
the responsibility of Alltel. Management believes Alltel has the financial
resources to complete this effort.
The Company expects to incur Year 2000 costs in project management,
upgrading personal computers and non mainframe software in 1998 and 1999.
Management estimates this cost to be $500,000 over the next two years.
<PAGE>
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
<S> <C>
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 March 31, 1998 and the year ended
December 31, 1997
Consolidated Average Balance Sheet and Average Rate Data -
Three months ended March 31, 1998 and 1997.
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C> <C>
No Page
-- ----
27 Financial Data Schedule E-1
(b) Reports on Form 8-K
</TABLE>
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1998.
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited - in thousands)
<TABLE>
<CAPTION>
UNREALIZZED
GAIN (LOSS)
COMMON RETAINED INVESTMENTS
STOCK SURPLUS EARNINGS AVAILABLE TOTAL
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $146 $44,433 $36,666 ($135) $81,110
Net Income 14,158 14,158
Dividends Declared (4,999) (4,999)
Proceeds from Exercise of Stock Options 2 710 712
Tax Benefit on Stock Option Exercises 4 4
Change in Unrealized Gain (Loss) on
Investments Available for Sale, Net of Tax 1,508 1,508
- -------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 148 45,147 45,825 1,373 92,493
=============================================================================================================
Balance, January 1, 1998 148 45,147 45,825 1,373 92,493
Net Income 3,705 3,705
Dividends Declared (1,484) (1,484)
Proceeds from Exercise of Stock Options 304 304
Change in Unrealized Gain on Investments
Available for Sale, Net of Tax (138) (138)
- -------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 $148 $45,451 $48,046 $1,235 $94,880
=============================================================================================================
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1998 1998
-------------- ------------- ------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $426,917 $7,229 6.77%
Non-taxable Investment Securities 23,432 431 7.36%
Loans, net of Unearned Discount 840,384 18,372 8.74%
Federal Funds Sold 9,423 123 5.22%
------------- ------------- ----------
Total Interest-Earning Assets $1,300,156 $26,155 8.05%
-------------- ============= ==========
Cash and Due From Banks 38,850
Other Assets 19,305
-------------
Total Assets $1,358,311
=============
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $256,926 $1,335 2.08%
Money Market & Super Interest Checking Accounts 111,415 728 2.61%
Time Deposits 408,897 5,757 5.63%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 38,631 564 5.84%
Federal Home Loan Bank Borrowings 226,239 3,239 5.73%
Treasury Tax and Loan Notes 2,038 36 7.07%
------------- ------------- ----------
Total Interest-Bearing Liabilities $1,044,146 $11,659 4.47%
------------- ============= ==========
Demand Deposits 177,920
Other Liabilities 41,587
Total Liabilities 1,263,653
-------------
Stockholders' Equity 94,658
============
Total Liabilities and Stockholders' Equity $1,358,311
=============
Net Interest Income $14,496
============
Interest Rate Spread 3.58%
=======
Net Interest Margin 4.46%
=======
Interest income and yield are stated on a fully
tax-equivalent basis
The total amount of adjustment is $177 in 1998.
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE THREE MONTHS ENDED MARCH 31, 1997 1997 1997
--------------- ----------- ------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $323,950 $5,311 6.56%
Non-taxable Investment Securities 6,029 86 5.71%
Loans, net of Unearned Discount 703,318 15,282 8.69%
Federal Funds Sold 2,114 27 5.11%
--------------- ----------- ------------
Total Interest-Earning Assets 1,035,411 $20,706 8.00%
=============== =========== ============
Cash and Due From Banks
44,451
Other Assets
18,284
===============
Total Assets
1,098,146
===============
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $252,474 $1,343 2.13%
Money Market & Super Interest Checking Accounts 104,716 710 2.71%
Time Deposits 382,626 5,330 5.57%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 31,751 424 5.34%
Federal Home Loan Bank Borrowings 69,944 957 5.47%
Treasury Tax and Loan Notes 3,544 35 3.95%
--------------- ----------- ------------
Total Interest-Bearing Liabilities 845,055 $8,799 4.16%
=============== =========== ============
Demand Deposits
157,649
Other Liabilities
13,028
Total Liabilities
1,015,732
---------------
Stockholders' Equity $82,414
---------------
Total Liabilities and Stockholders' Equity $1,098,146
===============
Net Interest Income $11,907
===========
Interest Rate Spread 3.84%
==========
Net Interest Margin 4.60%
==========
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $80 in 1997.
</TABLE>
2
<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: May 14, 1998 /s/ John F. Spence, Jr.
John F. Spence, Jr.
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1998 /s/ Richard J. Seaman
Richard J. Seaman
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 42,639
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,434
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,668
<INVESTMENTS-CARRYING> 288,178
<INVESTMENTS-MARKET> 289,174
<LOANS> 851,905
<ALLOWANCE> (13,335)
<TOTAL-ASSETS> 1,358,575
<DEPOSITS> 949,203
<SHORT-TERM> 270,369
<LIABILITIES-OTHER> 15,373
<LONG-TERM> 0
0
0
<COMMON> 148
<OTHER-SE> 94,732
<TOTAL-LIABILITIES-AND-EQUITY> 1,358,575
<INTEREST-LOAN> 18,333
<INTEREST-INVEST> 7,522
<INTEREST-OTHER> 123
<INTEREST-TOTAL> 25,978
<INTEREST-DEPOSIT> 7,819
<INTEREST-EXPENSE> 3,840
<INTEREST-INCOME-NET> 14,319
<LOAN-LOSSES> 907
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,566
<INCOME-PRETAX> 5,571
<INCOME-PRE-EXTRAORDINARY> 5,571
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,705
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.05
<LOANS-NON> 5,198
<LOANS-PAST> 693
<LOANS-TROUBLED> 1,589
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,674
<CHARGE-OFFS> (797)
<RECOVERIES> 550
<ALLOWANCE-CLOSE> 13,335
<ALLOWANCE-DOMESTIC> 13,335
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<EXCHANGE-RATE> 1 1 1 1
<CASH> 47,867 49,661 48,089 42,544
<INT-BEARING-DEPOSITS> 0 0 0 0
<FED-FUNDS-SOLD> 2,911 11,857 3,005 22,472
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 23,420 116,402 140,093 131,842
<INVESTMENTS-CARRYING> 301,182 288,738 329,846 324,147
<INVESTMENTS-MARKET> 296,118 286,762 330,400 325,670
<LOANS> 715,714 760,230 790,782 828,132
<ALLOWANCE> (12,146) (12,506) (12,624) (12,674)
<TOTAL-ASSETS> 1,118,767 1,260,751 1,347,423 1,370,007
<DEPOSITS> 909,370 958,011 955,109 988,148
<SHORT-TERM> 110,737 174,218 256,445 248,268
<LIABILITIES-OTHER> 15,752 13,729 17,875 12,348
<LONG-TERM> 0 0 0 0
0 28,750 28,750 28,750
0 0 0 0
<COMMON> 146 146 147 148
<OTHER-SE> 82,762 85,559 89,097 92,345
<TOTAL-LIABILITIES-AND-EQUITY> 1,118,767 1,260,751 1,347,423 1,370,007
<INTEREST-LOAN> 15,230 31,576 48,753 66,682
<INTEREST-INVEST> 5,369 11,201 18,948 26,899
<INTEREST-OTHER> 27 0 0 182
<INTEREST-TOTAL> 20,626 42,777 67,701 93,763
<INTEREST-DEPOSIT> 7,383 15,311 23,471 31,697
<INTEREST-EXPENSE> 8,799 18,224 29,528 41,578
<INTEREST-INCOME-NET> 11,827 24,553 38,173 52,185
<LOAN-LOSSES> 500 1,030 1,560 2,260
<SECURITIES-GAINS> (8) (8) (8) (8)
<EXPENSE-OTHER> 9,780 19,687 29,627 39,566
<INCOME-PRETAX> 4,696 9,988 15,590 21,484
<INCOME-PRE-EXTRAORDINARY> 4,696 9,988 15,590 21,484
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,997 6,582 10,274 14,158
<EPS-PRIMARY> 0.20 0.44 0.69 0.95
<EPS-DILUTED> 0 0 0 0
<YIELD-ACTUAL> 8.00 8.08 8.10 8.08
<LOANS-NON> 3,730 4,240 5,002 5,154
<LOANS-PAST> 557 626 758 737
<LOANS-TROUBLED> 1,401 1,379 1,362 1,422
<LOANS-PROBLEM> 0 0 0 0
<ALLOWANCE-OPEN> 12,221 12,221 12,221 12,221
<CHARGE-OFFS> (749) (1,257) (1,916) (2,906)
<RECOVERIES> 175 512 759 1,099
<ALLOWANCE-CLOSE> 12,146 12,506 12,624 12,674
<ALLOWANCE-DOMESTIC> 12,146 12,506 12,624 12,674
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANACIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<EXCHANGE-RATE> 1 1 1
<CASH> 40,968 56,170 55,430
<INT-BEARING-DEPOSITS> 296 0 0
<FED-FUNDS-SOLD> 0 0 5,740
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 34,624 35,721 34,549
<INVESTMENTS-CARRYING> 258,880 277,949 274,618
<INVESTMENTS-MARKET> 256,700 273,596 270,697
<LOANS> 646,758 658,301 668,242
<ALLOWANCE> (11,978) (11,961) (12,020)
<TOTAL-ASSETS> 998,851 1,046,836 1,058,160
<DEPOSITS> 830,976 849,671 855,324
<SHORT-TERM> 72,673 101,606 104,545
<LIABILITIES-OTHER> 16,276 14,779 14,927
<LONG-TERM> 4,834 4,834 4,834
0 0 0
0 0 0
<COMMON> 145 145 146
<OTHER-SE> 73,947 75,801 78,384
<TOTAL-LIABILITIES-AND-EQUITY> 998,851 1,046,936 1,058,160
<INTEREST-LOAN> 14,157 28,435 43,084
<INTEREST-INVEST> 4,324 9,005 14,001
<INTEREST-OTHER> 83 123 175
<INTEREST-TOTAL> 18,564 37,563 57,260
<INTEREST-DEPOSIT> 6,879 13,739 20,425
<INTEREST-EXPENSE> 7,699 15,660 23,870
<INTEREST-INCOME-NET> 10,865 21,903 33,390
<LOAN-LOSSES> 250 750 1,250
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 9,687 19,455 28,929
<INCOME-PRETAX> 4,071 8,331 12,955
<INCOME-PRE-EXTRAORDINARY> 4,071 8,331 12,955
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,577 5,332 8,356
<EPS-PRIMARY> 0.18 0.37 0.57
<EPS-DILUTED> 0 0 0
<YIELD-ACTUAL> 8.15 8.07 8.09
<LOANS-NON> 5,641 5,979 5,491
<LOANS-PAST> 556 382 559
<LOANS-TROUBLED> 1,429 1,376 1,362
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 12,088 12,088 12,088
<CHARGE-OFFS> (489) (1,184) (2,041)
<RECOVERIES> 129 309 723
<ALLOWANCE-CLOSE> 11,978 11,961 12,020
<ALLOWANCE-DOMESTIC> 11,978 11,961 12,020
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
