<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 September 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 October 1,1999 there were 14,008,928 shares of the
registrant's common stock outstanding, par value $.01 per share.
<PAGE>
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 1999 and
December 31, 1998
Consolidated Statements of Income - Nine months and
quarters ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements -
September 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
Signatures
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT BANK CORP.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31,
(Unaudited - in thousands) 1999 1998
- --------------------------- ------------- ------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 36,972 $ 47,755
Federal Funds Sold -- 38,443
Securities Held To Maturity 233,565 284,944
Securities Available For Sale 201,640 195,199
Federal Home Loan Bank Stock 17,036 16,035
Loans, Net of Unearned Discount 1,019,295 941,112
Less: Reserve for Possible Loan Losses (14,651) (13,695)
----------- -----------
Net Loans 1,004,644 927,417
----------- -----------
Bank Premises and Equipment 14,731 15,200
Other Real Estate Owned 126 --
Other Assets 56,686 50,076
----------- -----------
----------- -----------
TOTAL ASSETS $ 1,565,400 $ 1,575,069
----------- -----------
----------- -----------
LIABILITIES
Deposits
Demand Deposits $ 228,252 $ 219,090
Savings and Interest Checking Accounts 287,455 278,306
Money Market and Super Interest Checking Accounts 101,235 113,811
Time Certificates of Deposit over $100,000 92,451 95,706
Other Time Deposits 357,263 336,404
----------- -----------
Total Deposits 1,066,656 1,043,317
----------- -----------
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 87,488 82,376
Federal Home Loan Bank Borrowings 265,224 313,724
Treasury Tax and Loan Notes 6,037 471
Other Liabilities 17,159 10,583
----------- -----------
Total Liabilities 1,442,564 1,450,471
----------- -----------
Company-Obligated Mandatorily Redeemable Securities
of Subsidiary Holding Solely Parent Company Debentures 28,750 28,750
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, Authorized: 30,000,000 Shares
Outstanding: 14,863,821 Shares at September 30, 1999
and 14,863,821 at December 31, 1998 149 149
Surplus 45,024 45,303
Retained Earnings 64,329 56,063
Treasury Stock at cost-692,380 shares (10,801) (6,431)
Treasury Stock-Rabbi Trust-162,513 shares (827) --
Transitional appreciation of shares held by Rabbi Trust (1,312) --
Accumulated Other Comprehensive Income (2,476) 764
----------- -----------
Total Stockholders' Equity 94,086 95,848
----------- -----------
TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES
AND STOCKHOLDERS' EQUITY $1,565,400 $ 1,575,069
----------- -----------
----------- -----------
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
------------------------------ ----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on Loans $60,280 $57,084 $20,596 $19,549
Interest and Dividends on Securities 22,577 23,113 7,404 8,347
Interest on Federal Funds Sold 529 621 85 290
----------- ----------- ----------- ------------
Total Interest Income 83,386 80,818 28,085 28,186
----------- ----------- ----------- ------------
INTEREST EXPENSE
Interest on Deposits 23,011 23,617 7,684 8,047
Interest on Borrowed Funds 14,609 12,863 4,608 5,017
----------- ----------- ----------- ------------
Total Interest Expense 37,620 36,480 12,292 13,064
----------- ----------- ----------- ------------
Net Interest Income 45,766 44,338 15,793 15,122
----------- ----------- ----------- ------------
PROVISION FOR POSSIBLE LOAN LOSSES 2,945 2,721 982 907
----------- ----------- ----------- ------------
Net Interest Income After Provision
For Possible Loan Losses 42,821 41,617 14,811 14,215
----------- ----------- ----------- ------------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 3,931 3,999 1,347 1,335
Trust and Investment Services Income 3,120 2,824 979 849
Mortgage Banking Income 1,389 1,689 402 569
Other Non-Interest Income 2,467 1,233 873 507
----------- ----------- ----------- ------------
Total Non-Interest Income 10,907 9,745 3,601 3,260
----------- ----------- ----------- ------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits 17,701 16,048 5,979 5,503
Occupancy Expenses 2,770 2,802 875 930
Equipment Expenses 2,507 2,180 877 737
Other Non-Interest Expenses 10,940 10,798 3,641 3,615
----------- ----------- ----------- ------------
Total Non-Interest Expenses 33,918 31,828 11,372 10,785
----------- ----------- ----------- ------------
Minority Interest in Income of Subsidiaries 2,001 2,001 667 667
INCOME BEFORE INCOME TAXES 17,809 17,533 6,373 6,023
PROVISION FOR INCOME TAXES 5,423 5,785 1,941 1,928
----------- ----------- ----------- ------------
NET INCOME $12,386 $11,748 $4,432 $4,095
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
BASIC EARNINGS PER SHARE $0.87 $0.79 $0.31 $0.28
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
DILUTED EARNINGS PER SHARE $0.86 $0.78 $0.31 $0.27
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Weighted average common shares (Basic) 14,224,982 14,812,566 14,167,691 14,774,324
Common stock equivalents 158,545 225,785 149,887 209,022
----------- ----------- ----------- ------------
Weighted average common shares (Diluted) 14,383,527 15,038,351 14,317,578 14,983,346
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEPENDENT BANK CORP. NINE MONTHS ENDED
CONSOLIDATED STATEMENTS OF CASH FLOWS SEPTEMBER 30,
-----------------------
(Unaudited - in thousands) 1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,386 $ 11,748
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES
Depreciation and amortization 3,667 3,090
Provision for loan losses 2,945 2,721
Loans originated for resale (42,369) (57,522)
Proceeds from mortgage loan sales 42,196 57,388
Loss on sale of mortgages 173 134
Gain recorded from mortgage servicing rights (195) (546)
Other Real Estate Owned recoveries -- (157)
Changes in assets and liabilities::
Decrease (increase) in other assets (6,415) 103
Increase in other liabilities 6,492 3,728
--------- ---------
TOTAL ADJUSTMENTS 6,494 8,939
--------- ---------
--------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 18,880 20,687
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of Securities Held to Maturity 68,846 85,098
Proceeds from maturities of Securities Available for Sale 36,452 54,158
Purchase of Held to Maturity Securities (18,024) (86,339)
Purchase of Available for Sale Securities (48,639) (123,387)
Purchase of FHLB Stock (1,001) --
Net increase in Loans (80,298) (82,947)
Proceeds from sale of OREO -- 159
Investment in Bank Premises and Equipment (2,031) (4,326)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (44,695) (157,584)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Deposits 23,339 (1,816)
Net increase in Federal Funds Purchased
And Assets Sold Under Repurchase Agreements 5,112 42,484
Net increase(decrease) in FHLB Borrowings (48,500) 94,500
Net increase in TT&L Notes 5,566 1,906
Dividends Paid (4,279) (4,469)
Proceeds from stock issuance 109 511
Payments for treasury stock purchase (4,758) (4,235)
--------- ---------
NET CASH (USED)/PROVIDED FROM FINANCING ACTIVITIES (23,411) 128,881
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (49,226) (8,016)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE YEAR 86,198 65,016
--------- ---------
CASH AND CASH EQUIVALENTS AS OF SEPTEMBER 30, $ 36,972 $ 57,000
--------- ---------
</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 nine month periods ended
September 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.
ACQUISITION
On September 27, 1999, the Company and the Bank, entered into a purchase and
assumption agreement with Fleet Financial Group to acquire 12 Massachusetts
branches totaling $269 million in deposits and $37 million in consumer and
SBA loans. In addition, the Company will purchase approximately $113 million
of commercial real estate loans at par from BankBoston's Small Business
Banking Developmental Real Estate portfolio. The acquisitions result from the
divestiture of Fleet branches after its merger with BankBoston. This
transaction is contingent on regulatory approvals and raising total
risk-based (Tier 2) capital. It will not be necessary to raise common equity.
These branches will continue to operate as Fleet offices until they are
converted to Rockland Trust in late Spring of 2000. All current Fleet
employees will be retained by Rockland Trust, and a special notification will
be sent to customers prior to the conversion.
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
<PAGE>
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.
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)
WEIGHTED AVERAGE NET INCOME
NET INCOME SHARES PER SHARE
------------------- --------------------- ------------------
For the nine months ended
September 30, 1999 1998 1999 1998 1999 1998
- ------------------------- ------- ------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $12,386 $11,748 14,225 14,812 $0.87 $0.79
Effect of dilutive securities 159 226 0.01 0.01
Diluted EPS $12,386 $11,748 14,384 15,038 $0.86 $0.78
------- ------- ------ ------ -------- --------
</TABLE>
<TABLE>
<CAPTION>
(In Thousands, except per share data)
WEIGHTED AVERAGE NET INCOME
NET INCOME SHARES PER SHARE
------------------- --------------------- ------------------
For the nine months ended
September 30, 1999 1998 1999 1998 1999 1998
- ------------------------- ------- ------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $4,432 $4,095 14,168 14,774 $0.31 $0.28
Effect of dilutive securities 150 209 0.00 0.01
Diluted EPS $4,432 $4,095 14,318 14,983 $0.31 $0.27
------- ------ ------ ------ -------- --------
</TABLE>
<PAGE>
COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for the 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 Nine For the Three
Months Ended Months Ended
September 30, September 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net Income $12,386 $11,748 $4,432 $4,095
Other Comprehensive Income, Net of Tax
Unrealized gains/(losses) on securities available for sale
Unrealized holding gains/(losses) arising during the period (3,240) 245 (552) 587
Less: reclassification adjustment for gains included in net income - (2) - (14)
Other Comprehensive Income (3,240) 243 (552) 573
------- ------- ------ ------
Comprehensive Income $9,146 $11,991 $3,880 $4,668
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
SEGMENT INFORMATION
In January, 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 consists 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.
<PAGE>
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Community Other Adjustments
Banking Other and Eliminations Consolidated
---------- ---------- ------------------ ------------
<S> <C> <C> <C> <C>
At September 30, 1999
Securities, Available for Sale $ 433,805 $ 1,400 $ - $ 435,205
And Held to Maturity
Total Assets 1,562,145 156,919 (153,664) 1,565,400
Total Deposits 1,086,160 -- (19,504) 1,066,656
Total Liabilities $1,458,527 $ 33,193 $( 49,156) $1,442,564
For Nine Months Ended September 30, 1999
Total Interest Income $ 83,297 $ 2,599 $( 2,510) $ 83,386
Total Interest Expense 38,067 2,063 (2,510) 37,620
Net Interest Income 45,230 536 -- 45,766
Provisions for Possible Loan Losses 2,945 -- -- 2,945
Total Non-Interest Income 10,907 13,678 (13,678) 10,907
Total Non-Interest Expense 33,747 171 -- 33,918
Net Income $ 13,616 $ 12,448 ($ 13,678) $ 12,386
</TABLE>
<TABLE>
<CAPTION>
Community Other Adjustments
Banking Other and Eliminations Consolidated
---------- ---------- ------------------ ------------
<S> <C> <C> <C> <C>
For Three Months Ended September 30,1999
Total Interest Income $ 28,055 $ 877 $( 847) $ 28,085
Total Interest Expense 12,451 688 (847) 12,292
Net Interest Income 15,604 189 -- 15,793
Provisions for Possible Loan Losses 982 -- -- 982
Total Non-Interest Income 3,601 4,936 (4,936) 3,601
Total Non-Interest Expense 11,324 48 -- 11,372
Net Income $ 4,915 $ 4,453 $( 4,936) $ 4,432
At September 30, 1998
Securities, Available for Sale $ 508,259 $ 1,400 $ 0 $ 509,659
and Held to Maturity
Total Assets 1,510,784 157,071 (153,125) 1,514,730
Total Deposits 1,010,695 -- (24,363) 986,332
Total Liabilities $1,414,045 $ 31,140 $( 55,496) $1,389,689
For Nine Months Ended September 30, 1998
Total Interest Income $ 80,728 $ 2,945 $( 2,855) $ 80,818
Total Interest Expense 37,272 2,063 (2,855) 36,480
Net Interest Income 43,456 882 -- 44,338
Provisions for Possible Loan Losses 2,721 -- -- 2,721
Total Non-Interest Income 9,745 13,099 (13,099) 9,745
Total Non-Interest Expense 31,658 170 -- 31,828
Net Income $ 13,037 $ 11,810 $( 13,099) $ 11,748
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
For Three Months Ended September 30, 1998
Total Interest Income $ 28,155 $ 973 $( 942) $ 28,186
Total Interest Expense 13,318 688 (942) 13,064
Net Interest Income 14,837 285 -- 15,122
Provisions for Possible Loan Losses 907 -- -- 907
Total Non-Interest Income 3,260 4,554 (4,554) 3,260
Total Non-Interest Expense 10,729 56 -- 10,785
Net Income $ 4,533 $ 4,116 $( 4,554) $ 4,095
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Community Banking
- --------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended For the Three Months Ended
September 30, September 30
------------------------- --------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income
Interest on Loans $60,280 $57,084 $20,596 $19,549
Interest and Dividends on Securities 22,488 23,023 7,374 8,316
Interest on Federal Funds Sold 529 621 85 290
Total Interest Income 83,297 80,728 28,055 28,155
Interest Expense
Interest on Deposits 23,458 24,409 7,843 8,301
Interest on Borrowings 14,609 12,863 4,608 5,017
Total Interest Expense 38,067 37,272 12,451 13,318
Non-Interest Income
Service Charges on Deposit Accounts 3,931 3,999 1,347 1,335
Trust and Financial Services Income 3,120 2,824 979 849
Mortgage Banking Income 1,389 1,689 402 569
Other Non-Interest Income 2,467 1,233 873 507
Total Non-Interest Income 10,907 9,745 3,601 3,260
Non-Interest Expenses
Salaries and Employee Benefits 17,701 16,048 5,979 5,503
Occupancy Expenses 2,770 2,802 875 930
Equipment Expenses 2,507 2,180 877 737
Other Non-Interest Expenses 10,769 10,628 3,593 3,559
Total Non-Interest Expense 33,747 31,658 11,324 10,729
Net Income $13,616 $13,037 $ 4,915 $ 4,533
</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 a 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 NINE MONTHS ENDED SEPTEMBER 30,1999
The following discussion should be read in conjunction with the financial
statements, notes and tables included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998. The discussion contains
certain forward-looking statements regarding the future performance of the
Company. All forward-looking information is inherently uncertain and actual
results may differ materially from the assumptions, estimates or expectations
reflected or contained in the forward-looking information. Please refer to
`Cautionary Statement Regarding Forward-looking Information" of this Form 10-Q
for a further discussion.
SUMMARY
For the nine months ended September 30, 1999, Independent Bank Corp.
(the Company) recorded net income of $12.4 million compared with net income of
$11.7 million for the same period last year. Diluted earnings per share were
$.86 for the nine months ended September 30, 1999 compared to $.78 per share for
the prior year. Basic earnings per share, before the dilutive effect of stock
options, were $.87 in 1999 compared to $.79 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 primarily due to a $1.4 million,
or 3.2% increase in net interest income. Non-interest income increased $1.2
million or 11.9%, while non-interest expenses increased $2.1 million, or 6.6%
over the first nine months of 1998.
The annualized consolidated returns on average equity and average
assets for the first nine months of 1999 were 17.28% and 1.06%, respectively.
This compares to annualized consolidated returns on average equity and average
assets for the first nine months of 1998 of 16.20% and 1.11%, respectively.
Total assets decreased by $9.7 million, or 0.6%, from year-end 1998.
The balance sheet mix improved as loans grew at an annualized rate of 11.1%
driven by commercial real estate lending. The investment portfolio was managed
down by $43.9 million, or 8.9%. Deposits increased by $23.3 million, or 2.2%
from year-end 1998 presenting an attractive alternative to short term borrowings
as a source of funding balance sheet growth.
In the second quarter of 1997, Independent Capital Trust I (a
subsidiary of the Company) was formed for the purpose of issuing Trust Preferred
Securities. A total of $28.8 million of 9.28% Trust Preferred Securities were
issued on May 19, 1997. Net income for the nine months ended September 30, 1999
and 1998, reflects pre-tax minority interest in income of subsidiaries of $2.0
million.
Nonperforming assets totaled $4.0 million as of September 30, 1999
compared to $5.4 million at December 31, 1998. Nonperforming assets represented
26 and 34 basis points of total assets as of September 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 nine months ended
September 30, 1999, amounted to $46.6 million, an increase of $1.6 million, or
3.6%, from the comparable 1998 time frame. This is due to strong loan growth,
financed by deposits and borrowings, to take advantage of a strong capital
position. While these funding and investment actions increased net interest
income, the net interest margin ( net interest income as a percent of average
interest earning assets) reflects the lower net interest spread on such
transactions. The
<PAGE>
Company's net interest margin for the first nine months of 1999 was 4.25%,
compared to 4.44% 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 2 basis points to 3.53%.
The average balance of interest-earning assets for the first nine
months of 1999 amounted to $1.46 billion, an increase of $110 million, or 8.2%,
from the comparable 1998 time frame. Income from interest-earning assets
amounted to $84.2 million for the nine months ended September 30, 1999, an
increase of $2.8 million, or 3.4%, from the first nine months of 1998. The
increase in interest income was the result of a $111.6 million, or 12.8%
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.
Interest income is impacted by changes in market rates of interest due
to variable and floating rate loans in the Company's portfolio. At September 30,
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
$239.5 million, or 23.5% 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 $89,000 for the nine months ended September 30, 1999 compared
to $354,000 for the nine months ended September 30, 1998.
The average balance of interest-bearing liabilities for the first nine
months of 1999 was $123.2 million, or 11.4%, higher than the comparable 1998
time frame. Average interest bearing deposits increased by $54.8 million, or 7%,
for the first nine months of 1999 over the same period last year. For the nine
months ended September 30, 1999, average borrowings were $68.5 million, or
22.7%, higher than the first nine months of 1998, primarily in FHLB borrowings
which increased by $42.0 million. Interest expense on deposits decreased by
$601,000 to $23.0 million in the first nine months of 1999 and interest expense
on borrowings increased by $1.7 million, or 13.6%, to $14.6 million as compared
to the same period last year. The cost of these interest bearing liabilities
decreased from 4.49% in 1998 to 4.16% in 1999.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents the charge to expense
that is required to fund the reserve for possible loan losses. The level of the
reserve for possible loan losses is determined by management of the Company
based upon known and anticipated circumstances and conditions. An analysis of
individual loans and the overall risk characteristics and size of the different
loan portfolios is conducted on an ongoing basis. In addition, the Company
considers industry trends, regional and national economic conditions, past
estimates of possible losses as compared to actual losses, and historical loss
patterns. Management assesses the adequacy of the reserve for possible loan
losses and reviews that assessment quarterly with the Board of Directors.
For the nine months ended September 30, 1999, management increased the
provision for possible loan losses, consistent with the level of loan growth
experienced, to $2.9 million as compared to $2.7 million for the same period
last year. For the first nine months of 1999, loans charged-off, net of
recoveries of loans previously charged-off, amounted to $2.0 million as compared
to $1.8 million for the comparable 1998 time frame.
As of September 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 372.89% at September 30, 1999, an increase over the
255.69% coverage recorded at year-end 1998.
<PAGE>
NON-INTEREST INCOME
Non-interest income for the nine months ended September 30, 1999 was
$10.9 million, compared to $9.7 million for the same period in 1998. Income from
Trust and Financial Services increased by $296,000, or 10.5%, due to pricing
enhancements and a strong securities market. Mortgage banking income decreased
by $300,000, or 17.8%, from the 1998 time frame due to a slowdown in refinancing
activity and the decision to hold a greater portion of product in the Bank's
portfolio. Other non-interest income improved by $1.2 million, or 100%, due to
the purchase of bank-owned life insurance in the fourth quarter of 1998.
NON-INTEREST EXPENSES
Non-interest expenses totaled $33.9 million for the nine months ended
September 30, 1999, a $2.1 million, or 6.6% increase from the comparable 1998
period. Salaries and employee benefits increased $1.7 million, or 10.3% from the
comparable 1998 period due to the transfer of the Personal Computer and
Networking Department personnel from Alltel, our data processing partner, to the
Bank, in November of 1998. Wage inflation, resulting from the tight labor
market, was also a significant contributor to the increase.
Occupancy and equipment expenses for the first nine months of 1999
increased $295,000, or 5.9%, from the comparable 1998 period. This increase is
primarily due to bankwide technology improvements. Other non-interest expenses
for the first nine months of 1999 increased by $142,000 to $10.9 million from
$10.8 million in the first nine months of 1998.
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 Securities of Subsidiary Solely Parent Company Debentures". The
Company records distributions payable on the Trust Preferred Securities as
minority interest in Income of Subsidiaries in its consolidated statements of
income. The minority interest in income of subsidiaries for the nine months
ended September 30, 1999 and September 30, 1998 was $2.0 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 nine months ended
September 30, 1999 and 1998 were 30.45% and 33.0% respectively. The lower rate
in 1999 reflects tax planning strategies enacted by the Company.
<PAGE>
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, the Bank's Asset/Liability
Management Committee evaluates the interest sensitivity gap and executes
strategies, which may include off-balance sheet activities, in an effort to
minimize the Company's exposure to interest rate movements while providing
adequate earnings in the most plausible future interest rate environments.
Beginning in 1992, Rockland entered into interest rate swap agreements
as a hedge against stable or declining interest rates. As of September 30, 1999,
the Bank had three interest rate swap agreements with a notional value of $30
million. These swaps as arranged through an international banking institution
and have and will mature in the second quarter of 2000. 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. 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 and interest rate swaps.
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.
<TABLE>
<CAPTION>
Rate Change Estimated Exposure as %
(Basis Points) of Net Interest Income
-----------------------------------------------------------
<S> <C> <C>
+200 (2.17%)
-200 1.95%
</TABLE>
<PAGE>
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, are not likely to be
withdrawn in the near term. The Company utilizes its extensive branch banking
network to attract retail customers who provide a stable source of core
deposits. The Company has established five repurchase agreements with major
brokerage firms as potential sources of liquidity. On September 30, 1999, the
Company had $40.3 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 $47.2 million at September 30, 1999. In
addition, as a member of the Federal Home Loan Bank, Rockland has access to
approximately $325 million of borrowing capacity. At September 30, 1999, the
Company had $265.2 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 September 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 September
30, 1999, the Company had a Tier 1 risked-based capital ratio of 10.79% and a
total risked-based capital ratio of 12.04%. 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 September 30, 1999, the Company and the Bank had Tier 1
leverage capital ratios of 7.93% and 6.77%, respectively.
In September, the Company's Board of Directors declared a cash dividend
of $.10 per share to shareholders of record as of September 24, 1999. This
dividend was paid on October 8, 1999. On an annualized basis, the dividend
payout ratio amounted to 34.0% of the trailing four quarters earnings.
On July 9, 1998, the Company announced that its Board of Directors
approved a plan to buy back up to five percent, of its outstanding common stock.
The Company concluded this repurchase program in March 1999. At September 30,
1999 the Company had 14,863,821 common shares outstanding and 854,893 shares of
Treasury Stock.
In the third quarter of 1999, the Company adopted Emerging Issues Task
Force ("EITF") 97-14 "Accounting for Deferred Compensation Arrangements Where
Amounts Are Held in Rabbi Trust and Invested". The Company maintains a deferred
compensation plan where amounts are held in a rabbi trust and invested in common
stock of the Company. As of September 30, 1999, 162,513 shares were held in the
rabbi trust and the adoption of this EITF resulted in charges to stockholders
equity of $2.1 million.
<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. These
plans were approved by Senior Management and the Board of Directors. 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 Complete.
2000 problem, establishes a
project team and develops a
plan to rectify.
ASSESSMENT Inventory of Information Complete. Assessments need continual
Technology (IT) and Non-IT update based on changes to inventory i.e.
Systems and vendors. Assign new vendor relationships, additional
priorities based upon level of equipment purchases.
risk. Establish continual
monitoring process.
RENOVATION Code enhancements, See Note (1). The Company has been
hardware, 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 The Company's testing program for
hardware, software etc. is mission critical systems began in
tested. 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 The Y2K ready version of critical
Year 2000 complaint and put mainframe software applications were put into.
into production. 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. The Company has
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]
<PAGE>
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 hardware and software, the Company is expected to incur Year 2000
expenses, estimated to be about $500,000, which represents the out of pocket
costs to address the Year 2000 problem. The costs totaled $131,000 for the year
ended 1998 and $118,000 for the nine months ended September 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 continually monitors and manages 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.
<PAGE>
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. The Company has successfully completed testing
of all mission critical applications and consequently does not require a
remediation plan.
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 telecommunications 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 ENDING SEPTEMBER 30, 1999
SUMMARY
For the three months ended September 30, 1999, Independent Bank
Corp. (the Company) recorded net income of $4.4 million compared with net
income of $4.1 million for the same period last year. Diluted earnings per
share were $.31 for the three months ended September 30, 1999 versus $.27 per
share for the same period in the prior year. Basic earnings per share, before
the dilutive effect of stock options, were $.31 in 1999 compared with $.28
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 $671,000, or 4.4% increase in net interest income. The
provision for loan losses increased to $982,000 for the third quarter of 1999
compared with $907,000 for the same period last year. Non-interest income
increased $341,000, or 10.5%, while non-interest expenses increased $587,000
or 5.4% over the third quarter of 1998.
The annualized consolidated returns on average equity and average
assets for the third quarter of 1999 were 18.51% and 1.14%, respectively.
This compares to annualized consolidated returns on average equity and
average assets for the third quarter of 1998 of 16.67% and 1.10%,
respectively.
NET INTEREST INCOME
The discussion of net interest income, which follows, is presented
on a fully tax-equivalent basis. Net interest income for the three months
ended September 30, 1999, amounted to $16.1 million, an increase of $672,000,
or 4.4%, 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
increased by 23 basis points, to 3.68%. The Company's net interest margin for
the third quarter of 1999 was 4.42%, compared to 4.32% for the comparable
1998 time frame.
The average balance of interest-earning assets for the third quarter
of 1999 amounted to $1.45 billion an increase of $30.1 million, or 2.1%, over
the comparable 1998 time frame. Income from interest-earning assets amounted
to $28.4 million for the third quarter of 1999, a decrease of $95,000, or 33
basis points, from the third quarter of 1998. The balance sheet mix improved
through strong loan growth, primarily commercial lending, and a decrease in
the investment portfolio. While volume increased the yield on interest
earning assets decreased from 7.99% to 7.80% for the three months ended
September 30, 1998 and 1999, respectively.
The average balance of interest-bearing liabilities for the third
quarter of 1999 was $42.2 million, or 3.7%, higher than the comparable 1998
time frame. Average interest bearing deposits increased by $50.8 million, or
6.4%, for the third quarter of 1999 over the same period last year, with the
increases divided between savings and consumer time deposits. For the three
months ended September 30, 1999, average borrowings were $8.6 million, or
2.4%, lower than the third quarter of 1998. The cost of funds decreased from
4.54% to 4.13% for the three months ended September 30, 1998 and 1999,
respectively.
NON-INTEREST INCOME
Non-interest income for the three months ended September 30, 1999
was $3.6 million, compared to $3.3 million for the same period in 1998.
Income from Trust and Investment Services increased by $130,000, or 15.3%,
due to pricing enhancements and a strong securities market. Other
non-interest income also increased by $366,000 or 72% due to the purchase of
bank-owned life insurance in November of 1998. Mortgage Banking income
decreased by $167,000 to $402,000 due to a decrease in refinancing activity.
<PAGE>
NON-INTEREST EXPENSES
Non-interest expenses totaled $11.4 million for the three months
ended September 30, 1999, a $587,000 increase from the comparable 1998
period. The increase in non-interest expense was primarily due to a $476,000
or 8.65% increase in salaries and employee benefits, due to anticipated merit
increases and additions to staff associated with business expansion and the
transfer of the Personal Computer and Networking Department personnel from
Alltel, our data processing partner, to the Bank, in November of 1998.
Occupancy and equipment expenses increased $85,000 or 5%, reflecting
continued investment in technology. Other non-interest expense increased by
$26,000, 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 10-Q 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 future 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 September 30, 1999 and the year
ended December 31, 1998
Consolidated Average Balance Sheet and Average Rate Data -
Nine months and three months ended September 30, 1999 and
1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
No. Page
--- ----
<S> <C>
27 Financial Data Schedule E-1
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended September 30, 1999.
<PAGE>
- -------------------------------------------------------------------------------
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
Rabbi Other
Common Surplus Retained Treasury Trust Transitional Comprehensive Total
Stock Earnings Stock Treasury appreciation Income
Stock Available
------ ------- -------- -------- -------- ------------ -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $148 $45,147 $45,825 $0 $0 $0 $1,373 $92,493
---- ------- ------- -------- ----- ------- ------- -------
Net Income 16,139 16,139
Dividends Declared ($.40 per share (5,901) (5,901)
Proceeds From Exercise of Stock Options 1 156 409 566
Repurchase Common Stock (6,840) (6,840)
Change in Unrealized Gain
(Loss) on Securities (609) (609)
Available for Sale, Net of Tax
---- ------- ------- -------- ----- ------- ------- -------
Balance, December 31, 1998 $149 $45,303 $56,063 $(6,431) $0 $0 $764 $95,848
---- ------- ------- -------- ----- ------- ------- -------
Balance, January 1, 1999 149 45,303 56,063 (6,431) $0 $0 764 95,848
---- ------- ------- -------- ----- ------- ------- -------
Net Income 12,386 12,386
Dividends Declared ($.30 per share) (4,120) (4,120)
Proceeds From Exercise of Stock Options (279) 466 187
Re-purchase Common Stock (4,836) (827) (5,663)
Transitional appreciation of shares held
by Rabbi Trust (1,312) (1,312)
Change in Unrealized Gain on Securities (3,240) (3,240)
Available for Sale, Net of Tax
---- ------- ------- -------- ----- ------- ------- -------
---- ------- ------- -------- ----- ------- ------- -------
Balance, September 30, 1999 $149 $45,024 $64,329 $(10,801) $(827) $(1,312) $(2,476) $94,086
---- ------- ------- -------- ----- ------- ------- -------
---- ------- ------- -------- ----- ------- ------- -------
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999 1999 1999
------------------- --------------------- ---------------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $422,795 $20,984 6.62%
Non-taxable Investment Securities 41,851 2,368 7.54%
Loans, net of Unearned Discount 981,076 60,331 8.20%
Federal Funds Sold 15,124 529 4.66%
------------------- -------------------- --------------------
Total Interest-Earning Assets $1,460,846 $84,212 7.69%
------------------- -------------------- --------------------
------------------- -------------------- --------------------
Cash and Due From Banks 45,618
Other Assets 52,763
-------------------
Total Assets $1,559,227
-------------------
-------------------
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $276,533 $3,635 1.75%
Money Market & Super Interest Checking Accounts 109,923 1,988 2.41%
Other Time Deposits 450,241 17,393 5.15%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 83,191 2,977 4.77%
Federal Home Loan Bank Borrowings 11,503 5.40%
283,823
Treasury Tax and Loan Notes 3,094 129 5.56%
------------------- -------------------- --------------------
Total Interest-Bearing Liabilities $1,206,805 $37,625 4.16%
------------------- -------------------- --------------------
------------------- -------------------- --------------------
Demand Deposits 216,478
Company-Obligated Mandatorily Redeemable
Securities of Subsidiary Holding 28,750
Solely Parent Company Debentures
Other Liabilities 11,611
-------------------
Total Liabilities 1,463,644
-------------------
Stockholders' Equity 95,583
-------------------
Total Liabilities and Stockholders' Equity $1,559,227
-------------------
-------------------
Net Interest Income $46,587
--------------------
--------------------
Interest Rate Spread 3.53%
--------------------
--------------------
Net Interest Margin 4.25%
--------------------
--------------------
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $821 in 1999.
<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 NINE MONTHS ENDED SEPTEMBER 30, 1998 1998 1998
-------------------- -------------- -----------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $437,418 $22,028 6.71%
Non-taxable Investment Securities 28,627 1,599 7.45%
Loans, net of Unearned Discount 869,512 57,198 8.77%
Federal Funds Sold 15,128 621 5.47%
-------------------- -------------- -----------
Total Interest-Earning Assets 1,350,685 $81,446 8.04%
-------------------- -------------- -----------
Cash and Due From Banks 41,686
Other Assets 19,741
Total Assets $1,412,112
--------------------
--------------------
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $263,620 $3,975 2.01%
Money Market & Super Interest Checking Accounts 108,884 2,175 2.66%
Other Time Deposits 409,443 17,467 5.69%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 56,789 2,375 5.58%
Federal Home Loan Bank Borrowings 241,844 10,343 5.70%
Treasury Tax and Loan Notes 2,984 145 6.48%
-------------------- -------------- -----------
Total Interest-Bearing Liabilities $1,083,564 $36,480 4.49%
-------------------- -------------- -----------
-------------------- -------------- -----------
Demand Deposits 190,665
Company-Obligated Mandatorily Redeemable
Securities of Subsidiary Holding
Solely Parent Company Debentures 28,750
Other Liabilities 12,431
--------------------
Total Liabilities 1,315,410
--------------------
Stockholders' Equity 96,702
--------------------
Total Liabilities and Stockholders' Equity $1,412,112
--------------------
--------------------
Net Interest Income $44,966
--------------
--------------
Interest Rate Spread 3.55%
-----------
-----------
Net Interest Margin 4.44%
-----------
-----------
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $628 in 1998.
<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 SEPTEMBER 30, 1999 1999 1999
----------------- --------------- -------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $403,768 $6,877 6.81%
Non-taxable Investment Securities 40,207 785 7.81%
Loans, net of Unearned Discount 1,003,800 20,616 8.22%
Federal Funds Sold 6,928 85 4.91%
----------------- --------------- -------------
Total Interest-Earning Assets 1,454,703 $28,363 7.80%
----------------- --------------- -------------
Cash and Due From Banks 45,448
Other Assets 54,108
-----------------
Total Assets $1,554,259
-----------------
-----------------
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $284,404 $1,219 1.71%
Money Market & Super Interest Checking Accounts 105,537 647 2.45%
Other Time Deposits 455,651 5,823 5.11%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 87,329 1,052 4.82%
Federal Home Loan Bank Borrowings 255,019 3,509 5.50%
Treasury Tax and Loan Notes 4,469 47 4.21%
----------------- --------------- -------------
Total Interest-Bearing Liabilities $1,192,409 $12,297 4.13%
----------------- --------------- -------------
----------------- --------------- -------------
Demand Deposits 225,198
Company-Obligated Mandatorily Redeemable Securities of
Subsidiary Holding Solely Parent Company Debentures 28,750
Other Liabilities 12,145
-----------------
Total Liabilities 1,458,502
-----------------
Stockholders' Equity 95,757
-----------------
Total Liabilities and Stockholders' Equity $1,554,259
-----------------
-----------------
Net Interest Income $16,066
---------------
---------------
Interest Rate Spread 3.68%
-------------
-------------
Net Interest Margin 4.42%
-------------
-------------
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $272 in 1999.
<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 SEPTEMBER 30, 1998 1998 1998
---------------------- --------------- -------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $468,172 $7,858 6.71%
Non-taxable Investment Securities 38,581 727 7.54%
Loans, net of Unearned Discount 897,086 19,582 8.73%
Federal Funds Sold 20,770 290 5.58%
---------------------- -------------- ------------
Total Interest-Earning Assets 1,424,609 $28,457 7.99%
---------------------- -------------- ------------
-------------- ------------
Cash and Due From Banks 43,962
Other Assets 21,859
----------------------
Total Assets $1,490,430
----------------------
----------------------
Interest-Bearing Liabilities
Savings and NOW Accounts $269,489 $1,332 1.98%
Money Market & Super NOW Accounts 105,571 701 2.66%
Other Time Deposits 419,709 6,014 5.73%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 72,983 1,000 5.48%
Treasury Tax and Loan Notes 278,995 3,951 5.66%
3,473 66 7.60%
---------------------- -------------- ------------
Total Interest-Bearing Liabilities $1,150,220 $13,064 4.54%
---------------------- -------------- ------------
---------------------- -------------- ------------
Demand Deposits 201,089
Company-Obligated Mandatorily Redeemable Securities of
Subsidiary Holding Solely Parent Company Debentures 28,750
Other Liabilities 12,093
----------------------
Total Liabilities 1,392,152
----------------------
Stockholders' Equity 98,278
----------------------
Total Liabilities and Stockholders'
----------------------
Equity $1,490,430
----------------------
----------------------
Net Interest Income $15,393
--------------
--------------
Interest Rate Spread 3.45%
------------
------------
Net Interest Margin 4.32%
------------
------------
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $271 in 1998.
<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: October 27, 1999 /s/ Douglas H. Philipsen
Douglas H. Philipsen
President, Chairman of the Board and
Chief Executive Officer
Date: October 27, 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 36,972
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 201,640
<INVESTMENTS-CARRYING> 233,565
<INVESTMENTS-MARKET> 222,290
<LOANS> 1,019,295
<ALLOWANCE> (14,651)
<TOTAL-ASSETS> 1,565,400
<DEPOSITS> 1,066,656
<SHORT-TERM> 87,488
<LIABILITIES-OTHER> 17,159
<LONG-TERM> 0
28,750
0
<COMMON> 149
<OTHER-SE> 93,937
<TOTAL-LIABILITIES-AND-EQUITY> 1,566,400
<INTEREST-LOAN> 60,280
<INTEREST-INVEST> 22,577
<INTEREST-OTHER> 529
<INTEREST-TOTAL> 83,386
<INTEREST-DEPOSIT> 23,011
<INTEREST-EXPENSE> 37,620
<INTEREST-INCOME-NET> 45,766
<LOAN-LOSSES> 2,945
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 33,918
<INCOME-PRETAX> 17,809
<INCOME-PRE-EXTRAORDINARY> 17,809
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,386
<EPS-BASIC> 0.87
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 7.69
<LOANS-NON> 3,506
<LOANS-PAST> 423
<LOANS-TROUBLED> 955
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,695
<CHARGE-OFFS> (3,108)
<RECOVERIES> 1,119
<ALLOWANCE-CLOSE> 14,651
<ALLOWANCE-DOMESTIC> 14,651
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
