<PAGE>
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 June 30, 1999
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 August 1,1999 there were 14,166,441 shares of the issuer's common
stock outstanding.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998
Consolidated Statements of Income - Six months and quarters ended
June 30, 1999 and 1998
Consolidated Statements of Cash Flows - Six months ended June 30,
1999 and 1998
Notes to Consolidated Financial Statements - June 30, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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>
JUNE 30, DECEMBER 31,
1999 1998
--------------------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $46,638 $47,755
Federal Funds Sold 14,881 38,443
Securities Held To Maturity 244,260 284,944
Securities Available For Sale 172,961 195,199
Federal Home Loan Bank Stock 17,036 16,035
Loans, Net of Unearned Discount 995,439 941,112
Less: Reserve for Possible Loan Losses (14,360) (13,695)
- --------------------------------------------------------------------------------------------------
Net Loans 981,079 927,417
- --------------------------------------------------------------------------------------------------
Bank Premises and Equipment 15,298 15,200
Other Real Estate Owned 126 --
Other Assets 54,078 50,076
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,546,357 $1,575,069
==================================================================================================
LIABILITIES
Deposits
Demand Deposits $225,313 $219,090
Savings and Interest Checking Accounts 281,070 278,306
Money Market and Super Interest Checking Accounts 109,935 113,811
Time Certificates of Deposit over $100,000 104,998 95,706
Other Time Deposits 357,214 336,404
- --------------------------------------------------------------------------------------------------
Total Deposits 1,078,530 1,043,317
- --------------------------------------------------------------------------------------------------
Federal Funds Purchased and Assets Sold Under Repurchase Agreements 78,327 82,376
Federal Home Loan Bank Borrowings 246,224 313,724
Treasury Tax and Loan Notes 8,231 471
Other Liabilities 12,550 10,583
- --------------------------------------------------------------------------------------------------
Total Liabilities 1,423,862 1,450,471
- --------------------------------------------------------------------------------------------------
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: 14,863,821 Shares at June 30, 1999 and at
December 31, 1998 149 149
Treasury Stock: 697,380 Shares at June 30, 1999 and 406,638
Shares at December 31, 1998 (10,879) (6,431)
Surplus 45,086 45,303
Retained Earnings 61,313 56,063
Other Accumulated Comprehensive Income, Net of Tax (1,924) 764
- --------------------------------------------------------------------------------------------------
Total Stockholders' Equity 93,745 95,848
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST & STOCKHOLDERS' EQUITY $1,546,357 $1,575,069
==================================================================================================
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on Loans $39,684 $37,535 $20,128 $19,095
Interest and Dividends on Securities 15,173 14,766 7,287 7,244
Interest on Federal Funds Sold 444 331 279 208
- ------------------------------------------------------------------------------------------------
Total Interest Income 55,301 52,632 27,694 26,547
- ------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits 15,327 15,570 7,855 7,751
Interest on Borrowed Funds 10,001 7,846 4,728 4,006
- ------------------------------------------------------------------------------------------------
Total Interest Expense 25,328 23,416 12,583 11,757
- ------------------------------------------------------------------------------------------------
Net Interest Income 29,973 29,216 15,111 14,790
- ------------------------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 1,963 1,814 982 907
- ------------------------------------------------------------------------------------------------
Net Interest Income After Provision
For Possible Loan Losses 28,010 27,402 14,129 13,883
- ------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 2,584 2,664 1,313 1,335
Trust and Investment Services Income 2,141 1,975 1,224 1,082
Mortgage Banking Income 987 1,120 486 652
Other Non-Interest Income 1,594 726 858 329
- ------------------------------------------------------------------------------------------------
Total Non-Interest Income 7,306 6,485 3,881 3,398
- ------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits 11,722 10,545 6,060 5,543
Occupancy Expenses 1,895 1,872 934 873
Equipment Expenses 1,630 1,443 863 713
Other Non-Interest Expenses 7,299 7,183 3,580 3,546
- ------------------------------------------------------------------------------------------------
Total Non-Interest Expenses 22,546 21,043 11,437 10,675
- ------------------------------------------------------------------------------------------------
Minority Interest Expense 1,334 1,334 667 667
INCOME BEFORE INCOME TAXES 11,436 11,510 5,906 5,939
PROVISION FOR INCOME TAXES 3,482 3,857 1,798 1,991
- ------------------------------------------------------------------------------------------------
NET INCOME $7,954 $7,653 $4,108 $3,948
================================================================================================
BASIC EARNINGS PER SHARE $0.56 $0.52 $0.29 $0.27
================================================================================================
DILUTED EARNINGS PER SHARE $0.55 $0.51 $0.29 $0.26
================================================================================================
Weighted average common shares (Basic) 14,249,356 14,841,026 14,164,975 14,854,477
Common stock equivalents 162,838 255,484 155,506 257,400
- ------------------------------------------------------------------------------------------------
Weighted average common shares (Diluted) 14,412,194 15,096,510 14,320,481 15,111,877
================================================================================================
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30,
(Unaudited - in thousands) 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $7,954 $7,653
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES
Depreciation and amortization 2,603 1,999
Provision for loan losses 1,963 1,814
Loans originated for resale (31,895) (40,036)
Proceeds from mortgage loan sales 31,786 39,943
Loss on sale of mortgages 109 93
Gain recorded from mortgage servicing rights (195) (365)
Other Real Estate Owned recoveries -- (76)
Changes in assets and liabilities::
(Increase)/decrease in other assets (3,807) 1,483
Increase in other liabilities 3,511 933
- -----------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 4,075 5,788
- -----------------------------------------------------------------------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 12,029 13,441
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of Securities Held to Maturity 46,924 60,679
Proceeds from maturities of Securities Available for Sale 38,082 30,575
Purchase of Held to Maturity Securities (7,682) (60,125)
Purchase of Available for Sale Securities (20,416) (64,358)
Net increase in Loans (55,751) (69,892)
Proceeds from sale of OREO -- 159
Investment in Bank Premises and Equipment (1,761) (1,793)
- -----------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (604) (104,755)
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in Deposits 35,213 (3,386)
Net (decrease) increase in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements (4,049) 22,849
Net (decrease)/ increase in FHLB Borrowings (67,500) 69,500
Net increase in TT&L Notes 7,760 4,972
Dividends Paid (2,863) (2,983)
Payments for Treasury Stock Purchase (4,836) --
Proceeds from stock issuance 171 361
- -----------------------------------------------------------------------------------------
NET CASH (USED IN)/PROVIDED FROM FINANCING ACTIVITIES (36,104) 91,313
- -----------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (24,679) (1)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 86,198 65,016
- -----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AS OF JUNE 30, $61,519 $65,015
- -----------------------------------------------------------------------------------------
</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 and six month periods ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999 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, 1998.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair
value be recognized currently in income unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the statement of income and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133, as amended by SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities Deferral of the Effective Date
of FASB Statement No. 133" shall be effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. A company may also implement the
statement as of the beginning of any fiscal quarter after issuance (that is,
financial quarters beginning June 16, 1999 and thereafter). SFAS No. 133
cannot be applied retroactively. SFAS No. 133, as amended must be applied to
(a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1997 or December 31, 1998 (and, at the Company's election,
before January 1, 1998). The Company has not yet quantified the impact of
adopting SFAS No. 133 on its consolidated financial statements and has not
determined the timing nor method of its adoption of the statement. However,
the Company does not expect that the adoption of this statement will have a
material impact on its financial position or results of operations.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise." This statement requires that
after the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. This statement was adopted January 1, 1999 and did not have a
material impact on the Company's financial position.
<PAGE>
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>
(In Thousands, except per share data)
NET INCOME WEIGHTED AVERAGE NET INCOME
SHARES PER SHARE
=============================================================================================
For the six months ended June 30, 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $7,954 $7,653 14,249 14,841 $0.56 $0.52
Effect of dilutive securities 163 256 0.01 0.01
Diluted EPS $7,954 $7,653 14,412 15,097 $0.55 $0.51
=============================================================================================
<CAPTION>
(In Thousands, except per share data)
NET INCOME WEIGHTED AVERAGE NET INCOME
SHARES PER SHARE
=============================================================================================
For the three months ended June 30, 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $4,108 $3,948 14,165 14,854 $0.29 $0.27
Effect of dilutive securities 155 257 0.00 0.01
Diluted EPS $4,108 $3,948 14,320 15,111 $0.29 $0.26
=============================================================================================
</TABLE>
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>
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $7,954 $7,653 $4,108 $3,948
Other Comprehensive Income, Net of Tax
Unrealized gains/(losses) on securities available for sale
Unrealized holding gains/(losses) arising during the period (2,688) (328) (2,520) (192)
Less: reclassification adjustment for gains/(losses) included in net earnings -- (2) -- (2)
---------------------------------------
Other Comprehensive Income (2,688) (330) (2,520) (194)
---------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------
Comprehensive Income $5,266 $7,323 $1,588 $3,754
---------------------------------------
</TABLE>
SEGMENT INFORMATION
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting operating segments of a
business enterprise. The new rules establish revised standards for public
companies relating to the reporting of financial and descriptive information
about their operating segments in financial statements. Operating segments are
components of an enterprise, which are evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision-maker is the President,
Chief Executive Officer and Chairman of the Board of the Company. The adoption
of SFAS No. 131 did not have a material effect on the Company's primary
financial statements, but did result in the disclosure of segment information
contained herein. The Company has identified its reportable operating business
segment as Community Banking, based on how the business is strategically
managed.
The Company's community banking business segment consisting of commercial
banking, retail banking and trust services. The community banking business
segment is managed as a single strategic unit which derives its revenues from a
wide range of banking services, including lending activities, acceptance of
demand, savings and time deposits, trust and investment management, and mortgage
servicing income from investors.
Non reportable operating segments of the Company's operations which do
not have similar characteristics to the community banking operations and do not
meet the quantitative thresholds requiring disclosure, are included in the Other
category in the disclosure of business segments below. These non-reportable
segments include parent company financial information. Consolidation adjustments
are also included in the Other category.
The accounting policies used in the disclosure of business segments are
the same as those described in the summary of significant accounting policies.
The consolidation adjustments reflect certain eliminations of inter-segment
revenue, cash and parent company investments in subsidiaries.
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Community Other Adjustments
Banking Other and Eliminations Consolidated
<S> <C> <C> <C> <C>
June 30, 1999
Securities, Available for Sale $432,857 $1,400 $-- $434,257
And Held to Maturity
Total Assets 1,542,643 154,501 (150,787) 1,546,357
Total Deposits 1,097,580 -- (19,050) 1,078,530
Total Liabilities $1,441,448 $31,116 ($48,702) $1,423,862
For Six Months Ended June 30, 1999
Total Interest Income 55,242 1,722 (1,663) 55,301
Total Interest Expense 25,616 1,375 (1,663) 25,328
Net Interest Income 29,626 347 -- 29,973
Provisions for Possible Loan Losses 1,963 -- -- 1,963
Total Non-Interest Income 7,306 8,742 (8,742) 7,306
Total Non-Interest Expense 22,423 123 -- 22,546
Net Income $8,701 $7,995 ($8,742) $7,954
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Community Other Adjustments
Banking Other and Eliminations Consolidated
<S> <C> <C> <C> <C>
For Three Months Ended June 30, 1999
Total Interest Income 27,664 856 (826) 27,694
Total Interest Expense 12,722 687 (826) 12,583
Net Interest Income 14,942 169 -- 15,111
Provisions for Possible Loan Losses 982 -- -- 982
Total Non-Interest Income 3,882 4,331 (4,332) 3,881
Total Non-Interest Expense 11,369 68 -- 11,437
Net Income $4,312 $4,128 ($4,332) $4,108
June 30, 1998
Securities, Available for Sale $486,598 $1,400 $0 $487,998
and Held to Maturity
Total Assets 1,465,430 157,974 (153,998) 1,469,406
Total Deposits 1,013,203 -- (28,441) 984,762
Total Liabilities 1,371,896 31,140 (59,574) 1,343,462
For Six Months Ended June 30, 1998
Total Interest Income 52,573 1,972 (1,913) 52,632
Total Interest Expense 23,954 1,375 (1,913) 23,416
Net Interest Income 28,619 597 -- 29,216
Provisions for Possible Loan Losses 1,814 -- -- 1,814
Total Non-Interest Income 6,485 8,545 (8,545) 6,485
Total Non-Interest Expense 20,929 114 -- 21,043
Net Income $8,504 $7,694 ($8,545) $7,653
For Three Months Ended June 30, 1998
Total Interest Income 26,517 985 (955) 26,547
Total Interest Expense 12,025 687 (955) 11,757
Net Interest Income 14,492 298 -- 14,790
Provisions for Possible Loan Losses 907 -- -- 907
Total Non-Interest Income 3,398 4,394 (4,394) 3,398
Total Non-Interest Expense 10,618 57 -- 10,675
Net Income $4,374 $3,968 ($4,394) $3,948
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Community Banking
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
June 30, June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest Income
Interest on Loans $39,684 $37,535 $20,128 $19,095
Interest and Dividends on Securities 15,114 14,707 7,257 7,214
Interest on Federal Funds Sold 444 331 279 208
Total Interest Income 55,242 52,573 27,664 26,517
Interest Expense
Interest on Deposits 15,615 16,108 7,994 8,019
Interest on Borrowings 10,001 7,846 4,728 4,006
Total Interest Expense 25,616 23,954 12,722 12,025
Non-Interest Income
Service Charges on Deposit Accounts 2,584 2,664 1,313 1,335
Trust and Financial Services Income 2,141 1,975 1,224 1,082
Mortgage Banking Income 987 1,120 486 652
Other Non-Interest Income 1,594 726 859 329
Total Non-Interest Income 7,306 6,485 3,882 3,398
Non-Interest Expenses
Salaries and Employee Benefits 11,722 10,545 6,060 5,543
Occupancy Expenses 1,895 1,872 934 873
Equipment Expenses 1,630 1,443 863 713
Other Non-Interest Expenses 7,176 7,069 3,512 3,489
Total Non-Interest Expense 22,423 20,929 11,369 10,618
Net Income $8,701 $8,504 $4,312 $4,374
</TABLE>
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 adoption
of SOP 98-1 on January 1, 1999, did not 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 adopted SOP 98-5 beginning January 1, 1999,
and the adoption did not have any material impact on the Company's financial
statements.
<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 SIX MONTHS ENDED JUNE 30, 1999
SUMMARY
For the six months ended June 30, 1999, Independent Bank Corp. (the
Company) recorded net income of $8.0 million compared with net income of $7.7
million for the same period last year. Diluted earnings per share were $.55 for
the six months ended June 30, 1999 compared to $.51 per share for the prior
year. Basic earnings per share, before the dilutive effect of stock options,
were $.56 in 1999 compared to $.52 for the same period in 1998. Per share
earnings have been calculated in accordance with SFAS No. 128, "Earnings per
Share." This improvement in net income was due to a $.8 million, or 2.6%
increase in net interest income. The provision for loan losses increased to $2.0
million for the first six months of 1999 compared with $1.8 million for the same
period last year. Non-interest income increased $821,000, or 12.7%, while
non-interest expenses increased $1.5 million, or 7.1%, over the first six months
of 1998.
The annualized consolidated returns on average equity and average assets
for the first six months of 1999 were 16.66% and 1.02%, respectively. This
compares to annualized consolidated returns on average equity and average assets
for the first six months of 1998 of 15.96% and 1.11%, respectively.
As of June 30, 1999, total assets amounted to $1.5 billion, a decrease of
$28.7 million over the 1998 year end balance. Investments decreased $61.9
million, or 12.5% from $496.2 million at year-end 1998. The Company has not
reinvested these cash flows from the portfolio due to the flat yield curve and
resultant excessive interest rate risk. Loans, net of unearned discount,
increased $54.3 million, or 5.8%, since year-end 1998 with strong growth in the
commercial real estate portfolio and the installment loan portfolio. Deposit
balances have increased by $35.2 million, or 3.4%. Borrowings decreased by $63.8
million, or 16.1%, since year-end 1998.
Nonperforming assets totaled $4.2 million as of June 30, 1999
compared to $5.4 million at December 31, 1998. Nonperforming assets represented
27 and 34 basis points of total assets as of June 30, 1999 and December 31,1998,
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 six months ended June
30, 1999, amounted to $30.5 million, an increase of $948,000, or 3.2%, from the
comparable 1998 time frame. This is primarily due to strong loan growth,
financed by deposits and borrowings. The Company's net interest margin for
the first six months of 1999 was 4.17%, compared to 4.50% for the comparable
1998 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 15 basis points to
3.46%.
The average balance of interest-earning assets for the first six months of
1999 amounted to $1.5 billion, an increase of $150.2 million, or 11.4%, from the
comparable 1998 time frame. Income from interest-earning assets amounted to
$55.8 million for the six months ended June 30, 1999, an increase of $2.9
million, or 5.4%, from the first six months of 1998. The increase in interest
income was the result of a $113.8 million, or 13.3% increase in the average
balance of the loan portfolio, net of unearned discount, resulting from
increases in the commercial real estate portfolio and indirect
<PAGE>
automobile lending, as well as a $29.5 million, or 6.6%, 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 June 30, 1999,
loans having interest rates which adjust in accordance with changes in the
Company's base lending rate or other market indices amounted to approximately
$240.0 million, or 24.1% 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 $94,000 for the six months ended June 30, 1999 compared to
$231,000 for the six months ended June 30, 1998.
The average balance of interest-bearing liabilities for the first six
months of 1999 was $163.9 million, or 15.6%, higher than the comparable 1998
time frame. Average interest bearing deposits increased by $56.8 million, or
7.3%, for the first six months of 1999 over the same period last year, primarily
in the consumer certificate of deposit category. For the six months ended June
30, 1999, average borrowings were $107.1 million, or 39.0%, higher than the
first six months of 1998, primarily in FHLB borrowings which increased by $75.0
million. Interest expense on deposits decreased by $243,000, or 1.6%, to $15.3
million in the first six months of 1999 and interest expense on borrowings
increased by $2.2 million, or 27.5%, to $10.0 million as compared to the same
period last year.
PROVISION FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses is maintained at a level that
management considers adequate to provide for potential loan losses based upon an
evaluation of known and inherent risks in the loan portfolio. The reserve is
increased by provisions for possible loan losses and by recoveries of loans
previously charged-off and reduced by loan charge-offs. Determining an
appropriate level of reserve for possible loan losses necessarily involves a
high degree of judgment.
The provision for possible loan losses represents the charge to expense
that is required to fund the reserve for possible loan losses. The reserve is
maintained at a level that management considers adequate to provide for
potential losses based upon an evaluation of known and inherent risks in the
loan portfolio. The reserve is increased provisions for possible loan losses and
by recoveries of loans previously charged off 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 six months ended June 30, 1999, management increased the provision
for possible loan losses, consistent with the level of loan growth experienced,
to $2.0 million as compared to $1.8 million for the same period last year. For
the first six months of 1999, loans charged-off, net of recoveries of loans
previously charged-off, amounted to $1.3 million as compared to $957,000 for the
comparable 1998 time frame.
As of June 30, 1999, the ratio of the reserve for possible loan losses to
loans, net of unearned discount, was 1.44%, as compared to the 1998 year-end
level of 1.46%. The ratio of the reserve for possible loan losses to
non-performing loans was 350.59% at June 30, 1999, an increase over the 255.69%
coverage recorded at year-end 1998.
NON-INTEREST INCOME
<PAGE>
Non-interest income for the six months ended June 30, 1999 was $7.3
million, compared to $6.5 million for the same period in 1998. Income from
Trust and Investment Services increased by $166,000, or 8.4%, due to an
increase in funds under management and a strong securities market. Mortgage
banking income decreased by $133,000, or 11.9%, over the 1998 time frame due
to a decision to keep a greater amount of loans originated in the Bank's
portfolio rather selling these loans, and therefore more mortgage banking
income had to be deferred. Also, there was a larger demand for refinancing in
the first six months of 1998. Service charges on deposit accounts decreased
slightly to $2.6 million for the first six months of 1999, down $80,000 or
3.0%. Other non-interest income increased $868,000 or 119.6%, to $1.6 million
compared to $726,000 for the first six months of 1998. This increase was
primarily due to the purchase of $30 million of bank-owned life insurance
("BOLI") in the fourth quarter of 1998. The funding expense for the BOLI is
reflected in net interest income and is a component of the decrease in the
net interest margin.
NON-INTEREST EXPENSES
Non-interest expenses totaled $22.5 million for the six months ended June
30, 1999, a $1.5 million increase from the comparable 1998 period. Salaries and
employee benefits increased $1.2 million, or 11.2%. As previously reported, the
personal computer and networking department was transferred, in November of
1998, to the Bank from Alltel, our data processing partner. Wage inflation,
resulting from the tight labor market, was also a significant contributor to
that increase.
Occupancy and equipment expenses for the first six months of 1999
increased $210,000, or 6.3%, from the comparable 1998 period. Other non-interest
expenses for the first six months of 1999 increased $116,000 to $7.3 million
from $7.2 million in the first six months of 1998. This increase was primarily
due to a combination of increased contract labor costs, increased debit card
and collection expenses associated with the Bank's indirect automobile
lending portfolio.
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 six
months ended June 30, 1999 and June 30, 1998 was $1.3 million.
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 six
<PAGE>
months ended June 30, 1999 and 1998 were 30.4% and 33.5% respectively. The lower
rate in 1999 reflects tax-planning strategies enacted by the Company in 1997 and
continued throughout 1998 and 1999.
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.
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. These limits reflect the Company's tolerance for interest-rate risk
by identifying exposures, quantifying and hedging them as needed. The Company
quantifies its interest-rate exposures using net interest income 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.
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.
Rate Change Estimated Exposure as %
(Basis Points) of Net Interest Income
- --------------------------------------------------------------------------------
+200 (1.46%)
-200 0.75%
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
<PAGE>
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 June 30, 1999 the Company had $33.8 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 $44.5
million at June 30, 1999. As a member of the Federal Home Loan Bank, Rockland
has access to approximately $325.0 million of borrowing capacity. At June 30,
1999, the Company had $246.2 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 June 30, 1999, 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 June 30, 1999, the
Company had a Tier 1 risked-based capital ratio of 11.02% and a total
risked-based capital ratio of 12.27%. Rockland had a Tier 1 risked-based capital
ratio of 9.18% and a total risked-based capital ratio of 10.43% as of the same
date.
An additional capital requirement of a minimum 4.00% Tier 1 leverage
capital is mandated by the regulatory agencies for most banking organizations
and a 5.00% Tier 1 leverage capital ratio is required for a "well capitalized"
institution. As of June 30, 1999, the Company and the Bank had Tier 1 leverage
capital ratios of 7.80% and 6.51%, respectively.
The Company's capital ratios increased significantly in the second quarter
of 1997 due to the issuance of $28.8 million of Trust Preferred Securities.
In June, the Company's Board of Directors declared a cash dividend of $.10
per share to shareholders of record as of June 25, 1999. This dividend was paid
on July 19, 1999. On an annualized basis, the dividend payout ratio amounted to
34.81% of the trailing four quarters earnings.
On June 9, 1998, the Company announced that its Board of Directors
approved a plan to buy back up to five percent, or approximately 742,000 shares
of its outstanding common stock. The Company concluded this repurchase program
in March 1999. At June 30, 1999 Company has 14,863,821 common shares outstanding
and has 697,380 shares of Treasury stock.
<PAGE>
YEAR 2000 READINESS DISCLOSURE
THE COMPANY'S STATE OF READINESS The Company has developed plans to address
the possible exposure related to the impact of the Year 2000 on its computer
systems and key service providers. Senior Management and the Board of
Directors approved these plans. The following five phases were identified as
critical to the success of the Company's Year 2000 plan:
<TABLE>
<CAPTION>
Phase Description Progress/Anticipated Completion
- ----- ----------- -------------------------------
<S> <C> <C>
Awareness Process that identifies the Year 2000 Complete.
(Y2K) problem, establishes a project
team and develops a plan to rectify.
Assessment Inventory of Information Technology Complete. Assessments need continual
(IT) and Non-IT systems, vendors. update based on changes to inventory
Assign priorities based upon level of i.e., new vendor relationship,
risk. Establish continual monitoring additional equipment purchases.
process.
Renovation Code enhancements, hardware, See Note (1). The Company has been
software upgrades advised by its key third party software
vendors that software renovation is
complete. Management performed
comprehensive tests to ensure
compliance.
Validation Process where upgraded hardware, The Company's testing program for
software etc. is tested. mission critical systems began in
September 1998 and concluded
successfully in March 1999. This allows
the rest of 1999 for additional system
renovation and testing, if the need
should arise.
Implementation Systems should be certified as Year The Y2K ready versions of critical
2000 (Y2K) compliant and put into mainframe software applications were put
production. into production in February 1999. Many
of the Company's P.C. applications are
already Y2K compliant. The remaining
P.C. applications will be converted to a
Y2K compliant version throughout 1999.
</TABLE>
Notes:
(1) The Company relies upon third party vendors to provide the Bank with
various products and services that are fundamental to the delivery of products
and services to customers. These third party vendors are responsible for the
renovations and replacements necessary to achieve Year 2000 compliance for their
products and services. We have established a process that will continually
monitor and test these vendors' abilities to achieve Year 2000 compliance.
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 Costs To Address The Company's Year 2000 Issues The Company expects to incur
costs to replace existing personal computer hardware and software, which will be
capitalized and amortized in accordance with the Company's existing accounting
policy. The replacement of this hardware and software is, with few exceptions, a
component of the Company's existing technology plan and not as a result of Year
2000 deficiencies. In addition to capitalizing
<PAGE>
hardware and software, the Company is expected to incur Year 2000 expenses,
estimated to be $500,000, which represents the out of pocket costs to address
the Year 2000 problem. These costs totaled $131,000 for the year ended 1998
and $77,000 for the six months ended June 30, 1999.
This cost estimate does not include the existing cost of the Data Processing
Facilities Management Agreement with Alltel. A large part of the resources
associated with this agreement are dedicated to the Year 2000 Project. Under
other circumstances, these resources could be employed in improving customer
services and the introduction of new products. It is difficult to estimate this
lost opportunity cost.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES All financial institutions are
heavily dependent on technology and the services of third party vendors in the
delivery of products and services. An interruption in these services would
severely hamper the Company's ability to provide products and services to its
customers. For example, without telephone, power, or mainframe computer access
in 2000 the Company would have to resort to manual processing in order to serve
customers. This type of scenario could not continue indefinitely without severe
erosion in service levels and consequently earnings.
An additional type of risk that banks face is customer risk. Specifically,
large corporate borrowers face many of the Year 2000 issues that the Bank faces.
To the extent that many of these issues are not resolved and the viability of
the borrower organization is compromised, a credit risk issue could be created
for the Bank. Management has initiated a process to monitor and manage the
customer risk posed in this type of scenario.
Bank regulatory agencies have issued guidance as to the standards they will use
when assessing Year 2000 readiness. The failure of a financial institution, such
as the Company, to take appropriate steps to address deficiencies in its Year
2000 project management process may result in regulatory enforcement actions
which could have material adverse effect on the institution, result in the
imposition of civil money penalties, or result in the delay (or receipt of an
unfavorable or critical evaluation of the management of a financial institution
in connection with regulatory review) of applications seeking to acquire other
entities or otherwise expand the institution's activities.
THE COMPANY'S CONTINGENCY PLANS The Company has developed contingency plans in
response to the Year 2000 challenge:
REMEDIATION PLAN. This plan is designed to mitigate the risks associated with
the failure to successfully complete renovation, validation, and implementation
of mission-critical systems. The plan would be invoked in the event of
unsuccessful testing of a mission critical system and includes the designation
of alternate vendors that would essentially constitute replacement of the
existing vendor with a new one.
BUSINESS INTERRUPTION PLAN This plan of action ensures the ability of the Bank
to continue functioning as a business entity in the event of unanticipated
systems failures at critical dates prior to, on and after the Year 2000. The
base assumptions of this plan are:
- Regional utility and telecommunication outages
- Spotty utility and telecommunication outages
- Failure of the Company's software applications to function in the Year
2000.
The Company has developed a strategy to deal with each of the assumptions,
including but not limited to; manual workarounds, limited hours of operation and
the possibility of backup item processing support.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 1999
SUMMARY
For the three months ended June 30, 1999, the Company recorded net income
of $4.1 million compared with net income of $3.9 million for the same period
last year. Diluted earnings per share were $.29 for the three months ended June
30, 1999 versus $.26 per share for the same period in the prior year. Basic
earnings per share, before the dilutive effect of stock options, were $.29 in
1999 compared with $.27 for the same period in 1998. Per share earnings have
been calculated in accordance with SFAS No. 128, "Earnings per Share." This
improvement in net income was due to a $321,000, or 2.2% increase in net
interest income. The provision for loan losses increased to $982,000 for the
second quarter of 1999 compared with $907,000 for the same period last year.
Non-interest income increased $483,000, or 14.2%, while non-interest expenses
increased $762,000, or 7.1% over the second quarter of 1998.
The annualized consolidated returns on average equity and average assets
for the second quarter of 1999 were 17.19% and 1.05%, respectively. This
compares to annualized consolidated returns on average equity and average assets
for the second quarter of 1998 of 16.25% and 1.14%, 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 June
30, 1999, amounted to $15.4 million, an increase of $416,000, or 2.8%, from the
comparable 1998 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 13 basis points, to
3.47%. The Company's net interest margin for the second quarter of 1999 was
4.19%, compared to 4.51% for the comparable 1998 time frame due to continuing
interest rate pressure on loans (including a 75 basis point decrease in the
prime lending rate) and investments.
The average balance of interest-earning assets for the second quarter of
1999 amounted to $1.5 billion an increase of $140.6 million, or 10.6%, over the
comparable 1998 time frame. Income from interest-earning assets amounted to
$28.0 million for the second quarter of 1999, an increase of $1.2 million, or
4.6%, from the second quarter of 1998. The increase in interest income was
attributable to a $113.2 million, or 13.0% 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 $18.4 million, or 4.2%, which reflects the
Company's strategy of leveraging its capital.
The average balance of interest-bearing liabilities for the second quarter
of 1999 was $156.5 million, or 14.8%, higher than the comparable 1998 time
frame. Average interest bearing deposits increased by $79.6 million, or 10.3%,
for the second quarter of 1999 over the same period last year, primarily in the
savings and interest checking account category. For the three months ended June
30, 1999, average borrowings were $76.9 million, or 27.2%, higher than the
second quarter of 1998. Interest expense on deposits increased by $105,000 or
1.4%, and interest expense on borrowings increased by $721,000, or 18.0%.
NON-INTEREST INCOME
Non-interest income for the three months ended June 30, 1999 was $3.9
million, compared to $3.4 million for the same period in 1998. Income from Trust
and Financial Services increased by
<PAGE>
$142,000, or 13.1%, due to an increase in funds under management and a strong
securities market. Mortgage banking income decreased by $166,000, or 25.5%, over
the 1998 time frame due to a decision to keep a greater amount of loans
originated in the Bank's portfolio rather selling these loans, and therefore
more mortgage banking income had to be deferred. Also, there was a larger demand
for refinancing in the second quarter of 1998 than in 1999. Service charges on
deposit accounts was relatively flat for the second quarter of 1998 compared to
the second quarter of 1999 with a decrease of $22,000 or 1.7%. Other
non-interest income increased $529,000 or 160.8%, to $858,000 million compared
to $329,000 for the three months of 1998. This increase was primarily due to the
purchase of $30 million of bank-owned life insurance ("BOLI") in the fourth
quarter of 1998. The funding expense for the BOLI is reflected in net
interest income and is a component of the decrease in the net interest margin.
NON-INTEREST EXPENSES
Non-interest expenses totaled $11.4 million for the three months ended
June 30, 1999, a $762,000 increase from the comparable 1998 period. Salaries
and employee benefits increased $517,000, or 9.3%. As previously reported,
the personal computer and networking department was transferred, in November
1998, to the Bank from Alltel, our data processing partner. Wage inflation,
resulting from the tight labor market, was also a significant contributor to
that increase.
Occupancy and equipment expenses for the first six months of 1999
increased $211,000, or 13.3%, from the comparable 1998 period. Other
non-interest expenses for the three months ended June 30, 1999 increased
marginally by $34,000, or less than 1%.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The preceding Management's Discussion and Analysis and Notes to
Consolidated Financial Statements of this Form 10Q contain certain
forward-looking statements, including without limitation, statements regarding
(i) the level of reserve for possible loan losses, (ii) the rate of
delinquencies and amounts of charge-offs, (iii) the rates of loan growth, and
(iv) the Company's ability to minimize any detrimental effects of the Year 2000
problem and associated expenses. Moreover, the Company may from time to time, in
both written reports and oral statements by Company management, express its
expectations regarding futures performance of the Company. These forward-looking
statements are inherently uncertain and actual results may differ from Company
expectations. The following factors, which, among others, could impact current
and future performance include but are not limited to: (i) adverse changes in
asset quality and resulting credit risk-related losses and expenses; (ii)
adverse changes in the economy of the New England region, the Company's primary
market, (iii) adverse changes in the local real estate market, as most of the
Company's loans are concentrated in Southeastern Massachusetts and a substantial
portion of these loans have real estate as collateral; (iv) fluctuations in
market rates and prices which can negatively affect net interest margin asset
valuations and expense expectations; and (v) changes in regulatory requirements
of federal and state agencies applicable to banks and bank holding companies,
such as the Company and Rockland, which could have materially adverse effect on
the Company's future operating results. When relying on forward-looking
statements to make decisions with respect to the Company, investors and others
are cautioned to consider these and other risks and uncertainties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is included in Item 2 of Part I of
this Form 10-Q, entitled "Management's Discussion and Analysis."
<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 June 30, 1999 and the year ended
December 31, 1998
Consolidated Average Balance Sheet and Average Rate Data - Six
months and three months ended June 30, 1999 and 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Page
--- ----
27 Financial Data ScheduleE-1
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended June 30, 1999.
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited - in thousands)
<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE
COMMON TREASURY RETAINED INCOME
STOCK STOCK SURPLUS EARNINGS AVAILABLE TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $148 $- $45,147 $45,825 $1,373 $92,493
Net Income 16,139 16,139
Cash Dividends Declared ($.34
per share) (5,901) (5,901)
Proceeds from Exercise of Stock
Options 1 409 156 566
Repurchase Common Stock (6,840) (6,840)
Change in Unrealized Gain (Loss)
on Investments Available for
Sale, Net of Tax (609) (609)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $149 ($6,431) $45,303 $56,063 $764 $95,848
=======================================================================================================================
Balance, January 1, 1999 149 45,303 56,063 764 95,848
Net Income 7,954 7,954
Dividends Declared ($.10 per
share) (2,704) (2,704)
Proceeds from Exercise of Stock
Options 388 (217) 171
Repurchase Common Stock (4,836) (4,836)
Change in Unrealized Gain on
Investments Available for Sale,
Net of Tax (2,688) (2,688)
- -----------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 $149 ($10,879) $45,086 $61,313 ($1,924) $93,745
=======================================================================================================================
</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 SIX MONTHS ENDED JUNE 30, 1999 1999 1999
------------------- ------------------- -----------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $433,178 $14,107 6.51%
Non-taxable Investment Securities 41.975 1,583 7.54%
Loans, net of Unearned Discount 969,528 39,715 8.19%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 19,290 444 4.60%
------------------- ------------------- -----------------
Total Interest-Earning Assets $1,463,971 $55,849 7.63%
------------------- =================== =================
Cash and Due From Banks 45,706
Other Assets 52,052
-------------------
Total Assets $1,561,729
===================
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $275,415 $2,416 1.75%
Money Market & Super Interest Checking Accounts 109,269 1,341 2.45%
Other Time Deposits 447,512 11,570 5.17%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 81,087 1,925 4.75%
Federal Home Loan Bank Borrowings 298,464 7,994 5.36%
Treasury Tax and Loan Notes 2,392 82 6.86%
------------------- ------------------- -----------------
Total Interest-Bearing Liabilities $1,214,139 $25,328 4.17%
=================== =================== =================
Demand Deposits 212,026
Corporation-Obligated Mandatorily Redeemable
Trust Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated debentures
of the Corporation 28,750
Other Liabilities 11,322
-------------------
Total Liabilities 1,466,237
-------------------
Stockholders' Equity 95,492
-------------------
Total Liabilities and Stockholders' Equity $1,561,729
===================
Net Interest Income $30,521
===================
Interest Rate Spread 3.46%
=================
Net Interest Margin 4.17%
=================
Interest income and yield are stated on a fully
tax-equivalent basis.
The total amount of adjustment is $549 in 1999.
</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 SIX MONTHS ENDED JUNE 30, 1998 1998 1998
------------------ -------------- -------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $422,041 $14,170 6.71%
Non-taxable Investment Securities 23,650 872 7.37%
Loans, net of Unearned Discount 855,725 37,616 8.79%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 12,307 331 5.38%
------------------ -------------- -------------
Total Interest-Earning Assets $1,313,723 $52,989 8.07%
------------------ -------------- -------------
Cash and Due From Banks 40,548
Other Assets 18,682
------------------
Total Assets $1,372,953
------------------
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $260,637 $2,643 2.03%
Money Market & Super Interest Checking Accounts 110,568 1,474 2.67%
Other Time Deposits 404,225 11,453 5.67%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 48,558 1,375 5.66%
Federal Home Loan Bank Borrowings 223,513 6,392 5.72%
Treasury Tax and Loan Notes 2,735 79 5.78%
------------------ -------------- -------------
Total Interest-Bearing Liabilities $1,050,236 $23,416 4.46%
------------------ -------------- -------------
Demand Deposits 185,453
Corporation-Obligated Mandatorily Redeemable Trust
Preferred Securities of Subsidiary Trust Holding
Solely Junior Subordinated debentures of the Corporation 28,750
Other Liabilities 13,522
------------------
Total Liabilities 1,277,961
------------------
Stockholders' Equity 94,992
Total Liabilities and Stockholders' Equity $1,372,953
==================
Net Interest Income $29,573
==============
Interest Rate Spread 3.61%
=============
Net Interest Margin 4.50%
=============
Interest income and yield are stated on a fully
tax-equivalent basis.
The total amount of adjustment is $357 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 JUNE 30, 1999 1999 1999
------------------ -------------- -------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $417,276 $6,752 6.47%
Non-taxable Investment Securities 42,182 794 7.53%
Loans, net of Unearned Discount 984,292 20,143 8.19%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 24,094 279 4.63%
------------------ -------------- -------------
Total Interest-Earning Assets $1,467,844 $27,968 7.62%
------------------ ============== =============
Cash and Due From Banks 46,948
Other Assets 54,159
------------------
Total Assets $1,568,951
==================
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $277,436 $1,206 1.74%
Money Market & Super Interest Checking Accounts 111,843 697 2.49%
Other Time Deposits 463,932 5,952 5.13%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 81,290 968 4.76%
Federal Home Loan Bank Borrowings 275,602 3,717 5.39%
Treasury Tax and Loan Notes 2,745 43 6.27%
------------------ -------------- -------------
Total Interest-Bearing Liabilities $1,212,848 $12,583 4.15%
================== ============== =============
Demand Deposits 219,119
Corporation-Obligated Mandatorily Redeemable
Trust Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated debentures of
the Corporation 28,750
Other Liabilities 12,629
------------------
Total Liabilities $1,473,346
------------------
Stockholders' Equity 95,605
------------------
Total Liabilities and Stockholders' Equity $1,568,951
==================
Net Interest Income $15,385
==============
Interest Rate Spread 3.47%
=============
Net Interest Margin 4.19%
=============
Interest income and yield are stated on a fully
tax-equivalent basis.
The total amount of adjustment is $275 in 1999.
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
INTEREST
AVERAGE OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE THREE MONTHS ENDED JUNE 30, 1998 1998 1998
--------------------- --------------- -------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $417,165 $6,941 6.66%
Non-taxable Investment Securities 23,868 441 7.39%
Loans, net of Unearned Discount 871,066 19,136 8.79%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 15,191 208 5.48%
--------------------- --------------- -------------
Total Interest-Earning Assets $1,327,290 $26,726 8.05%
--------------------- =============== =============
Cash and Due From Banks 42,246
Other Assets 18,059
---------------------
Total Assets $1,387,595
=====================
Interest-Bearing Liabilities
Savings and NOW Accounts $264,348 $1,308 1.98%
Money Market & Super NOW Accounts 109,721 746 2.72%
Other Time Deposits 399,553 5,696 5.70%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 58,485 811 5.55%
Federal Home Loan Bank Borrowings 220,787 3,153 5.71%
Treasury Tax and Loan Notes 3,432 43 5.01%
--------------------- --------------- -------------
Total Interest-Bearing Liabilities $1,056,326 $11,757 4.45%
===================== =============== =============
Demand Deposits 192,986
Corporation-Obligated Mandatorily Redeemable
Trust Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated debentures
of the Corporation 28,750
Other Liabilities 12,363
---------------------
Total Liabilities $1,290,425
---------------------
Stockholders' Equity 97,170
---------------------
Total Liabilities and Stockholders' Equity $1,387,595
---------------------
---------------------
Net Interest Income $14,969
===============
Interest Rate Spread 3.60%
=============
Net Interest Margin 4.51%
=============
Interest income and yield are stated on a fully
tax-equivalent basis.
The total amount of adjustment is $180 in 1998.
</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: August 13, 1999 /s/ Douglas H. Philipsen
Douglas H. Philipsen
President, Chairman of the Board and
Chief Executive Officer
Date: August 13, 1999 /s/ Richard J. Seaman
Richard J. Seaman
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 46,638
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,881
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 189,727
<INVESTMENTS-CARRYING> 244,260
<INVESTMENTS-MARKET> 238,033
<LOANS> 995,439
<ALLOWANCE> (14,360)
<TOTAL-ASSETS> 1,546,357
<DEPOSITS> 1,078,530
<SHORT-TERM> 86,558
<LIABILITIES-OTHER> 12,550
<LONG-TERM> 0
28,750
0
<COMMON> 149
<OTHER-SE> 93,596
<TOTAL-LIABILITIES-AND-EQUITY> 1,546,357
<INTEREST-LOAN> 39,684
<INTEREST-INVEST> 15,173
<INTEREST-OTHER> 444
<INTEREST-TOTAL> 55,301
<INTEREST-DEPOSIT> 15,327
<INTEREST-EXPENSE> 10,001
<INTEREST-INCOME-NET> 45,300
<LOAN-LOSSES> 1,963
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 22,546
<INCOME-PRETAX> 11,436
<INCOME-PRE-EXTRAORDINARY> 11,436
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,954
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 7.63
<LOANS-NON> 3,620
<LOANS-PAST> 475
<LOANS-TROUBLED> 963
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,695
<CHARGE-OFFS> (2,187)
<RECOVERIES> 889
<ALLOWANCE-CLOSE> 14,360
<ALLOWANCE-DOMESTIC> 14,360
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
