<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 1-9047
INDEPENDENT BANK CORP.
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2870273
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
288 Union Street
ROCKLAND, MASSACHUSETTS 02370
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (781) 878-6100
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
None None
</TABLE>
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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(Title of Class)
PREFERRED STOCK PURCHASE RIGHTS
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(Title of Class)
Indicate by check mark whether, the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
/X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of February 29, 2000, the aggregate market value of the 11,989,067 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
2,241,003 shares held by all directors and executive officers of the Registrant
as group, was $125,885,204. This figure is based on the closing sale price of
$10.50 per share on February 29, 2000, as reported in The Wall Street Journal on
March 1, 2000.
Number of shares of Common Stock outstanding as of February 29, 2000: 14,230,070
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of Form 10-K into which the document is incorporated:
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1999 are incorporated into Part II, Items 5-8 of
this Form 10-K.
(2) Portions of the Registrant's definitive proxy statement for its 1999 Annual
Meeting of Stockholders are incorporated into Part III, Items 10-13 of this
Form 10-K.
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PART 1.
ITEM 1. BUSINESS
GENERAL. Independent Bank Corp. (the "Company") is a state
chartered, federally registered bank holding company headquartered in
Rockland, Massachusetts. The Company is the sole stockholder of
Rockland Trust Company ("Rockland" or "the Bank"), a Massachusetts
trust company chartered in 1907. The Company is a community-oriented
commercial bank. The community banking business consists of commercial
banking, retail banking and trust services and is managed as a single
strategic unit. The community banking business 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. Rockland
offers a full range of community banking services through its network
of 34 banking offices, eight commercial lending centers, and two asset
management and trust services offices located in the Plymouth, Norfolk,
and Bristol Counties of Southeastern Massachusetts. At December 31,
1999, the Company had total assets of $1.6 billion, total deposits of
$1.1 billion, stockholders' equity of $98.1 million, and 531 full-time
equivalent employees.
Rockland has a deep-rooted history as a community oriented
commercial bank. As a result of its strong commitment to the local
business community, the Bank has become one of the prominent financial
institutions in Plymouth County, which represents the majority of its
market area. The Bank had approximately 17.37% of the total deposits
within Plymouth County as of June 30, 1999, the most recent date for
which such data is available, or approximately 180% of the market share
of its nearest competitor. Due to the continuing consolidation within
the financial services industry, Rockland is the only remaining locally
based commercial bank in Plymouth County.
In 1997, Independent Capital Trust I (the "Trust") was formed
for the purpose of issuing trust preferred securities (the "Trust
Preferred Securities"). A total of $28.75 million of 9.28% Trust
Preferred Securities were issued by the Trust and are scheduled to
mature in 2027, callable at the option of the company after May 19,
2002. For further information on the Trust Preferred Securities, see
footnote 14 of the Company's 1999 Annual Report to Stockholders.
On January 31, 2000, Independent Capital Trust II ("the Trust
II") was formed for the purpose of issuing trust preferred securities
and investing the proceeds of the sale of these securities in $25.8
million of 11% junior subordinated debentures issued by the Company. A
total of $25 million of 11% Trust Preferred Securities were issued by
the Trust and are scheduled to mature in 2030, callable at the option
of the Company after January 31, 2002. For further information on the
Trust Preferred Securities, see Footnote 14 of the Company's 1999
Annual Report to Stockholders.
The Company experienced significant growth and profitability
during the early and mid-1980's as the New England economy prospered.
Total assets surpassed the $1 billion level and earnings reached record
levels. However, with the onset of an economic recession in New England
in the late 1980's, and a resulting significant decline in local real
estate values, the Company experienced serious financial problems. The
quality of the loan portfolio declined sharply as nonperforming assets
rose to over 10% of total assets. This deterioration required
significant loan loss provisions that resulted in the Company reporting
substantial losses in 1990 and 1991.
<PAGE>
After implementing a number of managerial, operational, and
financial changes during 1991 and 1992, the Company returned to
profitability in 1992. In December of that year, the Company issued 9.2
million shares of common stock, strengthening its capital base.
For the year ended December 31, 1999, the Company recorded net
income of $17.0 million, an increase of 5.6% over 1998 earnings of
$16.1 million. The improved 1999 results reflect a 4.5% increase in net
interest income, a 12.7% increase in non-interest income and an
increase of 9.0% in non-interest expenses.
The Company is registered as a bank holding company under the
Bank Holding Company Act of 1956 ("BHCA"), as amended, and as such is
subject to regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve"). Rockland is subject to regulation and
examination by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner") and the Federal Deposit Insurance
Corporation ("FDIC"). The majority of Rockland's deposit accounts are
insured to the maximum extent permitted by law by the Bank Insurance
Fund ("BIF") which is administered by the FDIC. In 1994, the Bank
purchased the deposits of three branches of a failed savings and loan
association from the Resolution Trust Corporation. These deposits are
insured to the maximum extent permitted by law by the Savings
Association Insurance Fund ("SAIF").
In September 1999, we entered into an agreement with Fleet
Financial Group, Inc., Fleet National Bank and BankBoston, N.A. to
acquire 12 branches, two of which are located in Brockton,
Massachusetts, which is within our primary market area, and ten of
which are located on Cape Cod, Massachusetts in Barnstable County,
a market contiguous to where we presently operate. The 12
branches to be acquired presently have total deposits aggregating
approximately $269 million. In connection with the acquisition,
we expect to acquire approximately $137 million of commercial and
consumer loans. Following the acquisition, we will have approximately
$1.8 billion in assets, $1.3 billion in deposits and 46 retail
branches. We expect to pay a core deposit premium of approximately
$32 million in connection with the acquisition. We expect that the
transaction will close during the third quarter of 2000.
LENDING ACTIVITIES
GENERAL. The Bank's gross loan portfolio amounted to $1.0
billion on December 31, 1999, or 65.0% of total assets on that date.
The Bank classifies loans as commercial, real estate, or consumer.
Commercial loans consist primarily of loans to businesses for working
capital and other business related purposes and floor plan financing.
Real estate loans are comprised of commercial mortgages that are
secured by nonresidential properties, residential mortgages that are
secured primarily by owner-occupied residences, home equity loans, and
mortgages for the construction of commercial and residential
properties. Consumer loans consist of installment obligations, the
majority of which are automobile loans, and other consumer loans.
The Bank's borrowers consist of small-to-medium sized
businesses and retail customers. The Bank's market area is generally
comprised of Plymouth, Norfolk, and Bristol Counties located in
Southeastern Massachusetts. Substantially all of the Bank's commercial
and consumer loan portfolios consist of loans made to residents of and
businesses located in Southeastern Massachusetts. Virtually all
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of the real estate loans in the Bank's loan portfolio are secured by
properties located within this market area.
In accordance with governing banking statutes, Rockland is
permitted, with certain exceptions, to make loans and commitments to
any one borrower, including related entities, in the aggregate amount
of not more than 20% of the Bank's stockholders' equity, or $21.1
million at December 31, 1999. Notwithstanding the foregoing, the Bank
has established a more restrictive limit of not more than 15% of
stockholders' equity, or $15.8 million at December 31, 1999, which
limit may be exceeded with the approval of the Board of Directors.
There were no borrowers whose total indebtedness aggregated or exceeded
$15.8 million as of December 31, 1999.
The Bank's principal earning assets are its loans. Although
the Bank judges its borrowers to be creditworthy, the risk of
deterioration in borrowers' abilities to repay their loans in
accordance with their existing loan agreements is inherent in any
lending function. Participating as a lender in the credit markets
requires a strict monitoring process to minimize credit risk. This
process requires substantial analysis of the loan application, an
evaluation of the customer's capacity to repay according to the loan's
contractual terms, and an objective determination of the value of the
collateral. The Bank also utilizes the services of an independent
third-party consulting firm to provide loan review services, which
consist of a variety of monitoring techniques performed after a loan
becomes part of the Bank's portfolio.
The Bank's Controlled Asset Department is responsible for the
management and resolution of nonperforming assets. In the course of
resolving nonperforming loans, the Bank may choose to restructure
certain contractual provisions. In order to facilitate the disposition
of other real estate owned (OREO), the Bank may finance the purchase of
such properties at market rates, if the borrower qualifies under the
Bank's standard underwriting guidelines.
LOAN PORTFOLIO COMPOSITION AND MATURITY. The following table sets
forth information concerning the composition of the Bank's loan
portfolio by loan type at the dates indicated.
<TABLE>
<CAPTION>
December 31,
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1999 1998 1997 1996 1995
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(Dollars in
Thousands)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial ........ $ 137,108 13.3% $127,019 13.3% $138,541 16.2% $127,008 17.9% $121,679 19.1%
Real estate:
Commercial ..... 320,713 31.0 261,332 27.4 238,930 27.9 205,256 29.0 187,608 29.4
Residential .... 208,066 20.1 197,807 20.7 207,555 24.2 202,031 28.5 187,652 29.4
Construction ... 38,034 3.7 44,710 4.7 34,227 4.0 31,633 4.5 27,863 4.4
Consumer:
Installment .... 322,266 31.2 315,419 33.0 227,700 26.6 132,589 18.7 102,088 16.0
Other .......... 7,766 0.7 8,656 0.9 9,849 1.1 10,140 1.4 11,076 1.7
--------- ------- -------- ------ -------- ------- -------- ------- -------- ------
Gross Loans ....... 1,033,953 100.0% 954,943 100.0% 856,802 100.0% 708,657 100.0% 637,966 100.0%
--------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Unearned Discount .. 5,443 13,831 28,670 13,251 9,825
Reserve for Possible
Loan Losses ..... 14,958 13,695 12,674 12,221 12,088
------ -------- -------- -------- --------
Net Loans ......... $1,013,552 $927,417 $815,458 $683,185 $616,053
========== ======== ======== ======== ========
</TABLE>
3
<PAGE>
The Company's outstanding loans grew by 9.3% in 1999,
following a 13.7% increase in 1998. This loan growth, in 1999, was
primarily attributable to an increase in the commercial real estate
portfolio, with the remaining growth in the residential real estate and
commercial portfolios.
Commercial loans, increased $10.1 million, or 7.9%, in 1999,
following a decrease of $11.5 million, or 8.3%, in 1998.
Real estate loans comprised 54.8% of gross loans at December
31, 1999, as compared to 52.8% at December 31, 1998. Commercial real
estate loans have reflected increases over the last two years of $59.4
million, or 22.7%, in 1999, and $22.4 million, or 9.4%, in 1998. These
increases are indicative of the sound prospects for small and medium
sized businesses in the Bank's market area. Residential real estate
loans increased $10.3 million, or 5.2%, in 1999, and decreased $9.7
million, or 4.7% in 1998. The majority of residential mortgage loans
originated were sold in the secondary market. During 1999, the Bank
sold $51.2 million of the current production of residential mortgages
as part of its overall asset/liability management. Real estate
construction loans decreased $6.7 million, or 14.9%, in 1999, following
an increase of $10.5 million, or 30.6, in 1998.
Consumer installment loans, net of unearned discount,
increased $15.2 million, or 5.1%, and $102.6 million, or 51.5%, during
1999 and 1998, respectively. The increases over the past two years are
attributed to a focused effort directed at expanding banking
relationships with new and used automobile dealers within the market
area. As a result, strong growth was reported in 1999 and 1998. The
decline in the growth rate in 1999 is due to the decline in interest
rates on indirect automobile lending to the point that, in management's
opinion, the risk inherent was not adequately covered in the interest
yield. As of December 31, 1999 and 1998, automobile loans represented
89.4% and 89.2%, respectively, of the Bank's consumer loan portfolio.
Since the sale of the Bank's credit card portfolio during 1991 and
1992, other consumer loans have consisted primarily of cash reserve
loans. Introduced in 1992, cash reserve loans are designed to afford
the Bank's customers overdraft protection. The balances of these loans
decreased $0.89 million, or 10.3%, in 1999 and 1.2 million or 12.1% in
1998.
The following table sets forth the scheduled contractual
amortization of the Bank's loan portfolio at December 31, 1999. Loans
having no schedule of repayments or no stated maturity are reported as
due in one year or less. The following table also sets forth the rate
structure of loans scheduled to mature after one year.
<TABLE>
<CAPTION>
Real Estate - Real Real Consumer - Consumer -
Commercial Commercial Estate - Estate - Installment Other Total
Residential Construction
------------ -------------- ------------ ------------ ------------ ------------ -------------
(Dollars In
Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less .... $107,444 $65,075 $87,503 $30,499 $87,628 $7,766 $385,915
After one year
through five years .. 27,812 209,894 67,016 3,289 228,568 -- 536,579
Beyond five years ... 1,852 45,744 53,547 4,246 6,070 -- 111,459
----- ------ ------ ----- ----- ----- -------
Total ............... $137,108 $320,713 $208,066 $38,034 $322,266 $7,766 $1,033,953
======== ======== ======== ======= ======== ====== ==========
Interest rates on
amounts due after
one year:
Fixed Rate .......... $28,358 $225,097 $109,261 $7,535 $234,638 -- $604,889
Adjustable Rate ..... 1,306 30,541 11,302 -- -- -- 43,149
</TABLE>
4
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Generally, the actual maturity of loans is substantially less
than their contractual maturity due to prepayments and, in the case of
real estate loans, due-on-sale clauses, which generally gives the Bank
the right to declare a loan immediately due and payable in the event
that, among other things, the borrower sells the property subject to
the mortgage and the loan is not repaid. The average life of real
estate loans tends to increase when current real estate loan rates are
higher than rates on mortgages in the portfolio and, conversely, tends
to decrease when rates on mortgages in the portfolio are higher than
current real estate loan rates. Under the latter scenario, the weighted
average yield on the portfolio tends to decrease as higher yielding
loans are repaid or refinanced at lower rates. Due to the fact that the
Bank may, consistent with industry practice, "roll over" a significant
portion of commercial and commercial real estate loans at or
immediately prior to their maturity by renewing the loans on
substantially similar or revised terms, the principal repayments
actually received by the Bank are anticipated to be significantly less
than the amounts contractually due in any particular period. In
addition, a loan, or a portion of a loan, may not be repaid due to the
borrower's inability to satisfy the contractual obligations of the
loan. As of December 31, 1999, $.1 million of loans scheduled to mature
within one year were nonperforming. See "Lending Activities
Nonperforming Assets."
ORIGINATION OF LOANS. Commercial loan applications are
obtained through existing customers, solicitation by Bank loan
officers, referrals from current or past customers, or walk-in
customers. Commercial real estate loan applications are obtained
primarily from previous borrowers, direct contacts with the Bank, or
referrals. Applications for residential real estate loans and all types
of consumer loans are taken at all of the Bank's full-service branch
offices. Residential real estate loan applications primarily result
from referrals by real estate brokers, homebuilders, and existing or
walk-in customers. The Bank also maintains a staff of field originators
who solicit and refer residential real estate loan applications to the
Bank. These employees are compensated on a commission basis and provide
convenient origination services during banking and non-banking hours.
Consumer loan applications are directly obtained through existing or
walk-in customers who have been made aware of the Bank's consumer loan
services through advertising and other media, as well as indirectly
through a network of automobile dealers.
Commercial loans, commercial real estate loans, and
construction loans may be approved by commercial loan officers up to
their individually assigned lending limits, which are established and
modified periodically to reflect the officer's expertise and
experience. Commercial loans and commercial real estate loans in excess
of a loan officer's assigned lending limit are approved by various
levels of authority within the commercial lending division, depending
on the loan amount, up to and including the Senior Loan Committee and
ultimately the Executive Committee of the Board of Directors.
Residential real estate loans and home equity loans follow a
similar approval process within the retail lending division.
SALE OF LOANS. The Bank's residential real estate loans are
generally originated in compliance with terms, conditions and
documentation which permit the sale of such loans to the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("FNMA"), the Government National Mortgage Association
("GNMA"), and other investors in the secondary market.
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The majority of fixed rate, long term residential mortgages originated
by the Bank are sold without recourse in the secondary market. Loan
sales in the secondary market provide funds for additional lending and
other banking activities. The Bank generally retains the servicing on
the loans sold. As part of its asset/liability management strategy, the
Bank may retain a portion of adjustable rate residential real estate
loans or fixed-rate residential real estate loans. During 1999, the
Bank originated $109 million in residential real estate loans of which
$48 million was retained in its portfolio.
The principal balance of loans serviced by the Bank for
investors amounted to $256.8 million at December 31, 1999 and $256.3
million at December 31, 1998. Under its mortgage servicing
arrangements, the Bank generally continues to collect payments on
loans, to inspect the mortgaged property, to make insurance and tax
advances on behalf of borrowers and to otherwise service the loans and
receives a fee for performing these services. Net servicing fee income
amounted to $918,000 and $1,156,000 for the years ended December 31,
1999 and 1998, respectively. Loan origination fees that relate to loans
sold by the Bank are recognized as non-interest income at the time of
the loan sale. Under its sales agreements, the Bank pays the purchaser
of mortgage loans a specified yield on the loans sold. The difference,
after payment of any guarantee fee, is retained by the Bank and
recognized as fee income over the life of the loan. In addition, loans
may be sold at a premium or a discount with any resulting gain or loss
recognized at the time of sale. Effective January 1, 1997 the Bank
adopted SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
Financial Accounting Standards Board (FASB) Statement No. 125." This
statement, which supercedes SFAS No.122, "Accounting for Mortgage
Servicing Rights," provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. As of December 31, 1999, and 1998, the loan servicing
asset was $1.6 million and $1.4 million, respectively.
COMMERCIAL LOANS. The Bank offers secured and unsecured
commercial loans for business purposes, including issuing letters of
credit. At December 31, 1999, $137.1 million, or 13.3%, of the Bank's
gross loan portfolio consisted of commercial loans, compared to $127.0
million, or 13.3%, at December 31, 1998.
Commercial loans are generally provided to
small-to-medium-sized businesses located within the Company's market
area. Commercial loans may be structured as term loans or as revolving
lines of credit. Commercial term loans generally have a repayment
schedule of five years or less and, although the Bank occasionally
originates some commercial term loans with interest rates which float
in relation to the Rockland Base rate, the majority of commercial term
loans have fixed rates of interest. Generally, Rockland's Base rate is
determined by reference to the Prime rate published daily in the Wall
Street Journal. The Bank's Base rate is monitored by the Executive Vice
President - Commercial Lending Division, and revised when appropriate
in accordance with guidelines established by the Asset/Liability
Management Committee. The majority of commercial term loans are
collateralized by equipment, machinery or other corporate assets. In
addition, the Bank generally obtains personal guarantees from the
principals of the borrower for virtually all of its commercial loans.
The Bank's commercial revolving lines of credit generally are
for the purpose of providing working capital to borrowers and may be
secured or unsecured. Collateral for commercial revolving lines of
credit may consist of accounts receivable, inventory or both, as well
as other corporate assets. Generally, the Bank will lend up to 80% of
accounts receivable, provided that such receivables have not
6
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aged more than 60 days and/or up to 20% to 40% of the value of raw
materials and finished goods inventory securing the line. Commercial
revolving lines of credit generally are reviewed on an annual basis and
usually require substantial repayment of principal during the course of
a year. At December 31, 1999, the Bank had $50.3 million outstanding
under commercial revolving lines of credit and $60.1 million of unused
commitments under such lines on that date.
The Bank's standby letters of credit generally are secured,
have terms of not more than one year, and are reviewed for renewal. As
of December 31, 1999, the Bank had $1 million in outstanding
commitments pursuant to standby letters of credit. The Commercial
Lending Division manages these facilities.
The Bank also provides automobile and, to a lesser extent,
boat and other vehicle floor-plan financing. Floor-plan loans, which
are secured by the automobiles, boats, or other vehicles constituting
the dealer's inventory, amounted to $18.7 million as of December 31,
1999. Upon the sale of a floor-plan unit, the proceeds of the sale are
applied to reduce the loan balance. In the event a unit financed under
a floor-plan line of credit remains in the dealer's inventory for an
extended period, the amount of the outstanding balance is reduced with
respect to such unit. Bank personnel make unannounced periodic
inspections of each dealer to review the value and condition of the
underlying collateral.
REAL ESTATE LOANS. The Bank's real estate loans consist of
loans secured by commercial properties, loans secured by 1-4 unit
residential properties, home equity loans, and construction loans. As
of December 31, 1999, the Bank's loan portfolio included $320.7 million
in commercial real estate loans, $208.1 million in residential real
estate loans including $38.9 million in home equity loans, and $38.0
million in construction loans.
A significant portion of the Bank's commercial real estate
portfolio consists of loans to finance the development of residential
projects. These are categorized as commercial construction loans. As
such, a number of commercial real estate loans are primarily secured by
residential development tracts but, to a much greater extent, they are
secured by owner-occupied commercial and industrial buildings and
warehouses. Commercial real estate loans also include multi-family
residential loans that are primarily secured by apartment buildings
and, to a lesser extent, condominiums. The Bank has a very modest
portfolio of loans secured by special purpose properties, such as
hotels, motels, or restaurants.
Although terms vary, commercial real estate loans generally
have maturities of five years or less, amortization periods of 20
years, and interest rates that either float in accordance with a
designated index or have fixed rates of interest. The Bank's
adjustable-rate commercial real estate loans generally are indexed to
the Rockland Base rate. Loan-to-value ratios on commercial real estate
loans generally do not exceed 80% (70% for special purpose properties)
of the appraised value of the property. In addition, as part of the
criteria for underwriting permanent commercial real estate loans, the
Bank generally imposes a debt service coverage ratio of not less than
120%. It is also the Bank's policy to obtain personal guarantees from
the principals of the borrower on commercial real estate loans and to
obtain periodic financial statements from all commercial and
multi-family borrowers on an annual basis and, in some cases, more
frequently.
Commercial real estate lending entails additional risks as
compared to residential real estate lending. Commercial real estate
loans typically involve larger loan balances to single borrowers or
7
<PAGE>
groups of related borrowers. Development of commercial real estate
projects also may be subject to numerous land use and environmental
issues. The payment experience on such loans is typically dependent on
the successful operation of the real estate project, which can be
significantly impacted by supply and demand conditions in the market
for commercial and retail space.
Rockland originates both fixed-rate and adjustable-rate
residential real estate loans. The Bank will lend up to 97% of the
lesser of the appraised value of the property securing the loan or the
purchase price, and generally requires borrowers to obtain private
mortgage insurance when the amount of the loan exceeds 80% of the value
of the property. The rates of these loans are typically competitive
with market rates. As previously noted, the Bank's residential real
estate loans are generally originated only under terms, conditions and
documentation, which permit sale in the secondary market.
The Bank generally requires title insurance protecting the
priority of its mortgage lien, as well as fire and extended coverage
casualty insurance in order to protect the properties securing its
residential and other real estate loans. Independent appraisers
appraise properties securing all of the Bank's first mortgage real
estate loans.
Home equity loans may be made as a term loan or under a
revolving line of credit secured by a second mortgage on the borrower's
residence. The Bank will originate home equity loans in an amount up to
80% of the appraised value or, without appraisal, up to 80% of the tax
assessed value, whichever is lower, reduced for any loans outstanding
secured by such collateral. As of December 31, 1999, there was $6.5
million in unused commitments under revolving home equity lines of
credit.
Construction loans are intended to finance the construction of
residential and commercial properties, including loans for the
acquisition and development of land or rehabilitation of existing
homes. Construction loans generally have terms of six months, but not
more than two years. They usually do not provide for amortization of
the loan balance during the term. The majority of the Bank's commercial
construction loans have floating rates of interest based upon the
Rockland Base rate or, in some cases, the prime rate published daily in
the Wall Street Journal
A significant portion of the Bank's construction lending is
related to one-to-four family residential development within the Bank's
market area. The Bank typically has focused its construction lending on
relatively small projects and has developed and maintains a
relationship with a significant number of homebuilders in Plymouth,
Norfolk, and Bristol Counties. As of December 31, 1999, $12.3 million,
or 53.4%, of total construction loans at such date were for the
development of one-to-four family residential lots or the construction
of one-to-four family residences.
The Bank evaluates the feasibility of construction projects
based upon appraisals of the project performed by independent
appraisers. In addition, the Bank may obtain architects' or engineers'
estimations of the cost of construction. The Bank generally requires
the borrower to fund at least 20% of the project costs and generally
does not provide for an interest reserve in its non-residential
construction loans. The Bank's non-residential construction loans
generally do not exceed 80% of the lesser of the appraised value upon
completion or the sales price. Land acquisition and development loans
generally do not exceed the lesser of 70% of the appraised value
(without improvements) or the purchase price. The Bank's loan policy
requires that permanent mortgage financing be secured prior to
extending any non-residential construction loans. In addition, the Bank
generally requires that the units
8
<PAGE>
securing its residential construction loans be pre-sold. Loan proceeds
are disbursed in stages after on-site inspections of the project
indicate that the required work has been performed and that such
disbursements are warranted.
Construction loans are generally considered to present a
higher degree of risk than permanent real estate loans. A borrower's
ability to complete construction may be affected by a variety of
factors such as adverse changes in interest rates and the borrower's
ability to control costs and adhere to time schedules. The latter will
depend upon the borrower's management capabilities, and may also be
affected by strikes, adverse weather and other conditions beyond the
borrower's control.
CONSUMER LOANS. The Bank makes loans for a wide variety of
personal and consumer needs. Consumer loans primarily consist of
installment loans and cash reserve loans. As of December 31, 1999,
$328.7 million, or 31.9%, of the Bank's gross loan portfolio consisted
of consumer loans.
The Bank's installment loans consist primarily of automobile
loans, which amounted to $290.0 million at December 31, 1999. A
substantial portion of the Bank's automobile loans are originated
indirectly by a network of approximately 120 new and used automobile
dealers located within the Bank's market area. Indirect automobile
loans accounted for 88% and 92% of the Bank's total installment loan
originations during 1999 and 1998, respectively. Although applications
for such loans are taken by employees of the dealer, the loans are made
pursuant to Rockland's underwriting standards using Rockland's
documentation, and all indirect loans must be approved by a Rockland
loan officer. In addition to indirect automobile lending, the Bank also
originates automobile loans directly.
The maximum term for the Bank's automobile loans is 72 months
for a new car loan and 66 months with respect to a used car loan. The
Bank will lend up to 110% of the purchase price of a new automobile or,
with respect to used cars, up to 105% of the lesser of the purchase
price or the National Automobile Dealer's Association book value. Loans
on new automobiles are generally made without recourse to the dealer.
The Bank requires all borrowers to maintain automobile insurance,
including full collision, fire and theft, with a maximum allowable
deductible and with the Bank listed as loss payee. The majority of the
Bank's loans on used automobiles are made without recourse to the
dealer. Some purchases from used car dealers are under a repurchase
agreement. The dealer is required to pay off the loan (in return for
the vehicle) as long as the bank picks up the vehicle and returns it to
the dealer within 180 days of the most recent delinquency payment. In
addition, in order to ameliorate the adverse effect on interest income
caused by prepayments, all dealers are required to maintain a reserve,
ranging from 0% to 3% of the outstanding balance of the indirect loans
originated by them, which is rebated to the bank on a pro-rata basis in
the event of repayment prior to maturity.
The Bank's installment loans also include unsecured loans and
loans secured by deposit accounts, loans to purchase motorcycles,
recreational vehicles, motor homes, boats, or mobile homes. As of
December 31, 1999, installment loans other than automobile loans
amounted to $32.3 million. The Bank generally will lend up to 100% of
the purchase price of vehicles other than automobiles with terms of up
to three years for motorcycles and up to fifteen years for recreational
vehicles.
Cash reserve loans are made pursuant to previously approved
unsecured cash reserve lines of credit. The rate on these loans is
subject to change due to market conditions. As of December 31, 1999, an
additional $15.8 million had been committed to but was unused under
cash reserve lines of credit.
9
<PAGE>
NONPERFORMING ASSETS. The following table sets forth
information regarding nonperforming assets held by the Bank at the
dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
(Dollars in
Thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days
or more but still
accruing $316 $1,026 $737 $516 $553
Loans accounted for on
a nonaccrual basis (1) ...... 3,338 4,330 5,154 3,946 4,718
----- ----- ----- ----- -----
Total non performing
loans ....................... 3,654 5,356 5,891 4,462 5,271
----- ----- ----- ----- -----
Other real estate owned ..... -- 2 271 271 638
Total nonperforming
assets ...................... $3,654 $5,356 $5,893 $4,733 $5,909
====== ====== ====== ====== ======
Restructured loans .......... $694 $1,037 $1,400 $1,658 $2,629
------ ------ ------ ------ ------
Nonperforming loans as
a percent of gross loans .... 0.35% 0.56% 0.69% 0.63% 0.83%
------ ------ ------ ------ ------
Nonperforming assets as
a percent of total
assets ...................... 0.23% 0.34% 0.43% 0.43% 0.60%
------ ------ ------ ------ ------
</TABLE>
(1) Includes $.1 million, $.1 million, and $.6 million of
restructured loans at December 31, 1997, 1996 and 1995 respectively,
which were included in nonaccrual loans as of such dates. There were no
restructured, nonaccruing loans at December 31, 1998 and 1999.
Gross interest income that would have been recognized for the
years ended December 31, 1999 and 1998 if nonperforming loans at the
respective dates had been performing in accordance with their original
terms approximated $375,000 and $496,000 respectively. The actual
amount of interest that was collected on these loans during each of
those periods and included in interest income was approximately $50,000
and $66,000, respectively.
Through the Controlled Asset Department, the Bank strives to
ensure that loans do not become nonperforming. In the case that they
do, this department will restore nonperforming assets to performing
status or, alternatively, dispose of such assets. On occasion, this
effort may require the restructure of loan terms for certain
nonperforming loans. At this time, there are no commitments to lend
additional funds to debtors whose loans are non-performing.
RESERVE 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. For additional information, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7 hereof.
10
<PAGE>
The following table summarizes changes in the reserve for
possible loan losses and other selected statistics for the periods
presented.
<TABLE>
<CAPTION>
Year Ending December 31,
----------------------------------------------------------------
1999 1996 1995
1998 1997
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Average loans, net of unearned discount ..... $991,319 $884,205 $757,877 $657,749 $612,481
======== ======== ======== ======== ========
Reserve for Possible loan losses,
beginning of year $13,695 $12,674 $12,221 $12,088 $13,719
Charged-off loans
Commercial .............................. 415 1,206 1,140 1,252 2,097
Real estate - commercial ................ -- -- 95 228 690
Real estate - residential ............... 1 241 261 296 558
Real estate - construction .............. -- -- -- -- --
Consumer - installment .................. 3,060 2108 771 430 273
Consumer - other ........................ 494 542 639 619 464
--- --- --- --- ---
Total charged-off loans ............. 3,970 4,097 2,906 2,825 4,082
----- ----- ----- ----- -----
Recoveries on loans previously charged off
Commercial .............................. 522 630 546 573 436
Real estate - commercial ................ 67 258 265 241 665
Real estate - residential ............... 115 2 0 31 3
Real estate - construction .............. -- -- -- -- --
Consumer - installment .................. 603 266 137 171 169
Consumer - other ........................ (1) 2 151 192 178
--- - --- --- ---
Total recoveries .................... 1,306 1,158 1,099 1,208 1,451
----- ----- ----- ----- -----
Net loans charged-off ....................... 2,664 2,939 1,807 1,617 2,631
Provision for loan losses ................... 3,927 3,960 2,260 1,750 1,000
----- ----- ----- ----- -----
Reserve for possible loan losses,
end of period ............................ $14,958 $13,695 $12,674 $12,221 $12,088
======= ======= ======= ======= =======
Net loans charged-off as a percent of
average loans, net of unearned discount ..... 0.27% 0.33% 0.24% 0.25% 0.43%
Reserve for possible loan losses as a
percent of loans, net of unearned discount .. 1.45% 1.46% 1.67% 1.76% 1.92%
Reserve for possible loan losses as a
percent of nonperforming loans .............. 409.36% 255.69% 215.14% 273.89% 229.33%
Net loans charged-off as a percent of
reserve for possible loan losses ............ 17.81% 21.46% 14.26% 13.23% 21.77%
Recoveries as a percent of charge-offs ...... 32.90% 28.26% 37.82% 42.76% 35.55%
</TABLE>
The reserve for possible loan losses is allocated to various loan
categories as part of the Bank's process for evaluating the adequacy of
the reserve for possible loan losses. The following table sets forth
certain information concerning the allocation of the Bank's reserve for
possible loan losses by loan categories at December 31, 1999. For
information about the percent of loans in each category to total loans,
see "Lending Activities - Loan Portfolio Composition and Maturity."
<TABLE>
<CAPTION>
Percent of
Amount Total
Loans by
Category
------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Commercial Loans ......... $2,853 2.08%
Real Estate Loans ........ 8,167 1.44%
Consumer Loans ........... 3,938 1.21%
----- ----
Total Loans $14,958 1.45%
====== ====
</TABLE>
The Bank determines the level of the reserve for possible loan
losses based on a number of factors. A specific loan grade or rating is
assigned to any commercial, commercial real estate, or construction
loan relationship above $50,000. A portion of the reserve is allocated
as a general reserve for those classes of loans by the level of loan
rating. The better rated loans receive a lower allocation, but each
rated loan class will have an allocation placed against the amount
outstanding. As an
11
<PAGE>
alternative to a general allocation by loan rating, certain loans have
specific allocations assigned to them because of greater knowledge of
their underlying collateral's value. In conjunction with its review,
management considers both internal and external factors, which may
affect the adequacy of the reserve for possible loan losses. Such
factors may include, but are not limited to, industry trends, regional
and national economic conditions, past estimates of possible loan
losses as compared to actual losses, and historical loan losses.
Management assesses the adequacy of the reserve for possible loan
losses, and reviews that assessment quarterly, with the Board of
Directors. Management's assessment of the adequacy of the reserve for
possible loan losses is reviewed periodically by the Company's
independent public accountants.
As of December 31, 1999, the reserve for possible loan losses
totaled $14.96 million. Based on the processes described above,
management believes that the level of the reserve for possible loan
losses at December 31, 1999 is adequate. Various regulatory agencies,
as an integral part of their examination process, periodically review
the Company's reserve for possible loan losses. Federal Reserve
regulators most recently examined the Company based on financial data
as of September 30, 1999. The Bank was most recently examined by the
FDIC and by the Commonwealth of Massachusetts Division of Banks in the
third quarter of 1999. No additional provision for possible loan losses
was required as a result of these examinations.
INVESTMENT ACTIVITIES
The Bank's securities portfolio consists of U.S. Treasury and
U.S. Government Agency securities, mortgage-backed securities, and debt
securities issued by other institutions. Most of these securities are
investment grade debt obligations with average maturities of less than
five years. Government and government agency securities entail a lesser
degree of risk than loans made by the Bank by virtue of the guarantees
that back them, require less capital under risk-based capital rules
than non-insured or non-guaranteed mortgage loans, are more liquid than
individual mortgage loans, and may be used to collateralize borrowings
or other obligations of the Bank. However, these securities are subject
to prepayment risk, which could result in significantly less future
income than would have been the case based on the contractual coupon
rate and term. In addition the Bank had $47.6 million, in private issue
mortgage backed securities at December 31, 1999. The Bank had
investments in marketable equity securities at December 31, 1999 of
$465,000 and $350,000 in 1998. The Bank views its securities portfolio
as a source of income and, with regard to maturing securities,
liquidity. Interest payments generated from securities also provide a
source of liquidity to fund loans and meet short-term cash needs. The
Bank's securities portfolio is managed in accordance with the Rockland
Trust Company Investment Policy adopted by the Board of Directors. The
Chief Executive Officer or the Chief Financial Officer may make
investments with the approval of one additional member of the
Asset/Liability Management Committee, subject to limits on the type,
size and quality of all investments, which are specified in the
Investment Policy. The Bank's Asset/Liability Management Committee, or
its designee, is required to evaluate any proposed purchase from the
standpoint of overall diversification of the portfolio.
The investment portfolio includes securities which management
intends to hold until maturity, securities available for sale and
trading assets. This classification of the securities portfolio is
required by Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting For Certain Investments in Debt and Equity Securities,"
which the Bank adopted effective January 1, 1994.
12
<PAGE>
Securities held to maturity as of December 31, 1999 are
carried at their amortized cost of $229.0 million and exclude gross
unrealized gains of $.47 million and gross unrealized losses of $10.9
million. A year earlier, securities held to maturity totaled $284.9
million, excluding gross unrealized gains of $3.9 million and gross
unrealized losses of $1.3 million.
Securities available for sale are carried at fair market value
and unrealized gains and losses, net of the related tax effect, are
recognized as a separate component of stockholders' equity. The fair
market value of securities available for sale at December 31, 1999
totaled $201.6 million, and net unrealized losses totaled $5.8 million.
A year earlier, securities available for sale were $195.2 million, with
net unrealized gains of $1.2 million. The Bank realized a gain of
$34,000 and $27,000 on the sale of available-for-sale securities in
1999 and 1998, respectively.
The following table sets forth the amortized cost and
percentage distribution of securities held to maturity at the dates
indicated. For additional information, see Note 3 to the Consolidated
Financial Statements included in Item 8 hereof.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
1999 1998 1997
------------------- -------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. treasury and
Government agency
Securities ............. $ 25,996 11.4% $ 29,197 10.3% $ 51,567 16.7%
Mortgage-backed securities.. 101,081 44.1% 143,292 50.3% 199,245 64.7%
Collateralized mortgage
obligations ............ 5,666 2.5% 17,799 6.2% 34,515 11.2%
State. County, and
municipal securities ....... 41,984 18.3% 40,365 14.2% 21,385 6.9%
Other investment
securities .............. 54,316 23.7% 54,291 19.0% 1,400 0.5%
------ ----- ------ ----- ----- ----
$229,043 100.0% $284,944 100.0% $308,112 100.0%
======== ======== ======== ======== ======== ======
</TABLE>
The following table sets forth the fair market value and
percentage distribution of securities available for sale at the dates
indicated. For additional information, see Note 4 to the Consolidated
Financial Statements included in Item 8 hereof.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S Treasury and U.S
Government Agency ........... $8,467 4.2% $9,045 4.6%
Securities
Mortgage-Backed Securities .. 121,881 60.5% 137,410 70.4% $131,842 100.0%
Collateralized Mortgage ..... 71,266 35.3% 48,320 24.8%
Obligations
Other Securities ............ 424 .2%
-------- ------ -------- ------ -------- -----
$201,614 100.0% $195,199 100.0% $131,842 100.0%
======== ====== ======== ====== ======== =====
</TABLE>
At December 31, 1999 and 1998, the Bank had no investments in
obligations of individual states, counties or municipalities which
exceeded 10% of stockholders' equity. In addition, there were no sales
of these securities in 1999 or 1998.
13
<PAGE>
SOURCES OF FUNDS
DEPOSITS. Deposits obtained through Rockland's branch banking
network have traditionally been the principal source of the Bank's
funds for use in lending and for other general business purposes. The
Bank has built a stable base of in-market core deposits from the
residents of and businesses located in Southeastern Massachusetts. The
Bank has the ability to solicit brokered deposits. Rockland did not
have any brokered deposits at December 31, 1998. During the first
quarter of 1999, Rockland acquired $20 million of brokered deposits as
an alternative source of funds. Rockland offers a range of demand
deposits, interest checking, money market accounts, savings accounts
and time certificates of deposit. Interest rates on deposits are based
on factors that include loan demand, deposit maturities, and interest
rates offered by competing financial institutions in the Bank's market
area. The Bank believes it has been able to attract and maintain
satisfactory levels of deposits based on the level of service it
provides to its customers, the convenience of its banking locations,
and its interest rates that are generally competitive with those of
competing financial institutions.
Rockland's branch locations are supplemented by the Bank's
Trust/24 and debit cards which may be used to conduct various banking
transactions at automated teller machines ("ATMs") maintained at each
of the Bank's full-service offices and three additional locations. The
Trust/24 and debit cards also allow customers access to the "NYCE"
regional ATM network, as well as the "Cirrus" nationwide ATM network.
These networks provide the Bank's customers access to their accounts
through ATMs located throughout Massachusetts, the United States, and
the world.
The following table sets forth the average balances of the
Bank's deposits for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------
(DOLLARS IN
THOUSANDS)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits ......... $ 220,727 20.8% $195,583 19.9% $171,955 18.9%
Savings and Interest
Checking ................ 280,441 26.5% 266,093 27.1% 225,069 24.8%
Money Market and Super
Interest Checking
accounts ................ 108,415 10.2% 107,956 11.0% 109,156 12.0%
Time deposits ........... 450,425 42.5% 411,801 42.0% 402,346 44.3%
------- ---- ------- ---- ------- ----
Total ................... $1,060,008 100.0% $981,433 100.0% $908,526 100.0%
========== ====== ======== ====== ======= ======
</TABLE>
The Bank's interest-bearing time certificates of deposit of
$100,000 or more totaled $64.6 million at December 31, 1999. The
maturity of these certificates are as follows: $58.3 million within
three months; $3.5 million 3 to 6 months and 2.8 million 6 through 12
months.
BORROWINGS. Borrowings consist of short-term and
intermediate-term obligations. Short-term borrowings consist primarily
of federal funds purchased; assets sold under repurchase agreements,
and treasury tax and loan notes. The Bank has established two unsecured
federal funds lines totaling $20 million with Boston-based banks. The
Bank also obtains funds under repurchase agreements. In a repurchase
agreement transaction, the Bank will generally sell a security agreeing
to repurchase either the same or a substantially identical security on
a specified later date at a price slightly greater than the original
sales price. The difference in the sale price and purchase price is the
cost of the proceeds. The securities underlying the agreements are
delivered to the dealer who arranges the transactions as security
14
<PAGE>
for the repurchase obligation. Payments on such borrowings are interest
only until the scheduled repurchase date, which generally occurs within
a period of 30 days or less. Repurchase agreements represent a
non-deposit funding source for the Bank. However, the Bank is subject
to the risk that the lender may default at maturity and not return the
collateral. In order to minimize this potential risk, the Bank only
deals with established investment brokerage firms when entering into
these transactions. The Bank has repurchase agreements with five major
brokerage firms. At December 31, 1999, the Bank had $39.6 million
outstanding under repurchase agreements and $47.6 million outstanding
in Customer Repurchase Agreements.
In July 1994, Rockland became a member of the Federal Home
Loan Bank ("FHLB") of Boston. Among the many advantages of this
membership, this affiliation provides the Bank with access to
approximately $323 million of short-to-medium term borrowing capacity
as of December 31, 1999, based on the Bank's assets at that time. At
December 31, 1999, the Bank had $256.2 million outstanding in FHLB
borrowings with initial maturities ranging from 1 month to 10 years.
While the Bank has not traditionally placed significant
reliance on borrowings as a source of liquidity, it established the
borrowing arrangements described above in order to provide management
with greater flexibility in overall funds management.
Management believes that the Bank has adequate liquidity
available to respond to current and anticipated liquidity demands. See
Notes 4 and 7 of the Notes to Consolidated Financial Statements,
included in Item 8 hereof.
The following table sets forth the Bank's borrowings at the
dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999 1998 1997
-----------------------------------------------------------------------
(in Thousands)
<S> <C> <C> <C>
Federal funds purchased ...... $ 6,170 $ 5,025 $ 845
Assets sold under repurchase
agreements ................ 87,196 77,351 37,482
Treasury tax and loan notes .. 9,877 471 3,217
Federal Home Loan Bank
borrowings ................ 256,224 313,724 206,724
------- ------- -------
$359,467 $396,571 $248,268
======== ======== ========
</TABLE>
The following table presents certain information regarding the
Bank's short-term borrowings at the dates and for the periods
indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance outstanding at end of year .... $103,243 $82,847 $41,544
Average daily balance outstanding ..... 88,215 66,403 48,869
Maximum balance outstanding at any
month-end .......................... 103,248 89,741 84,945
Weighted average interest rate
for the year ....................... 4.83% 5.39% 5.74%
Weighted average interest rate
at end of year ..................... 4.86% 4.72% 5.99%
</TABLE>
15
<PAGE>
ASSET MANAGEMENT AND TRUST SERVICES
Rockland's Asset Management and Trust Services ("AM&TS") Division
offers a variety of services, including assistance with investments, estate
planning, custody services, employee benefit plans, and tax planning, which are
provided primarily to individuals and small businesses located in Southeastern
Massachusetts. In addition, the Bank acts as executor or administrator of
estates and as trustee for various types of trusts. As of December 31, 1999, the
AM&TS Division maintained approximately 1,697 trust/fiduciary accounts, with an
aggregate market value of over $461 million on that date. Income from the AM&TS
Division amounted to $4.1 million and $3.8 million, for 1999 and 1998,
respectively.
Accounts maintained by the AM&FS Division consist of "managed"
and "non-managed" accounts. "Managed accounts" are those accounts for
which Rockland has responsibility for administration and investment
management and/or investment advice. "Non-managed" accounts are those
accounts for which Rockland acts as a custodian. The Bank receives fees
dependent upon the level and type of service(s) provided.
The administration of trust and fiduciary accounts is
monitored by the Trust Committee of the Bank's Board of Directors. The
Trust Committee has delegated administrative responsibilities to two
committees - one for investments and one for administration - comprised
of Trust and Financial Services Division officers who meet not less
than monthly.
FORWARD-LOOKING INFORMATION
The preceding Management's Discussion and Analysis and Notes
to Consolidated Financial Statements of this Form 10-K 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 and (iii) the rates of
loan growth. 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.
16
<PAGE>
REGULATION
THE COMPANY - GENERAL. The Company, as a federally registered
bank holding company, is subject to regulation and supervision by the
Federal Reserve. The Company is required to file an annual report of
its operations with, and is subject to examination by, the Federal
Reserve.
FINANCIAL SERVICES MODERNIZATION-GRAMM-LEACH-BLILEY ACT OF
1999. On November 12, 1999, President Clinton signed the
Gramm-Leach-Bliley Act of 1999. The Act broadens the scope of the
financial services that banks (and their affiliates) may offer to their
customers. Among other things, the Act provides that a bank holding
company meeting certain specified requirements may qualify as a
financial holding company and provide a wider variety of services that
are financial in nature, including, among other things, securities
underwriting and dealing, merchant banking and insurance activities.
The Act also makes certain changes in the regulatory framework for bank
holding companies and their activities and provides consumers with new
privacy protections with respect to the use of their nonpublic personal
information by financial institutions.
BHCA (THE BANK HOLDING COMPANY ACT) - ACTIVITIES AND OTHER
LIMITATIONS. The BHCA prohibits a bank holding company from acquiring
direct or indirect ownership or control of more than 5% of the voting
shares of any bank, or increasing such ownership or control of any
bank, without prior approval of the Federal Reserve. No approval under
the BHCA is required, however, for a bank holding company already
owning or controlling 50% of the voting shares of a bank to acquire
additional shares of such bank.
The BHCA also prohibits a bank holding company from, with
certain exceptions, acquiring more than 5% of the voting shares of any
company that is not a bank and from engaging in any business other than
banking or managing or controlling banks. Under the BHCA, the Federal
Reserve is authorized to approve the ownership of shares by a bank
holding company in any company, the activities of which the Federal
Reserve has determined to be so closely related to banking or to
managing or controlling banks as to be a proper incident thereto. In
making such determination, the Federal Reserve is required to weigh the
expected benefit to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
The Federal Reserve has, by regulation, determined that
certain activities are closely related to banking within the meaning of
the BHCA. These activities include, but are not limited to, operating a
mortgage company, finance company, credit card company, factoring
company, trust company or savings association; performing certain data
processing operations; providing certain securities brokerage services;
acting as an investment or financial adviser; acting as an insurance
agent for certain types of credit-related insurance; engaging in
insurance underwriting under certain limited circumstances; leasing
personal property on a full-payout, nonoperating basis; providing tax
planning and preparation services; operating a collection agency and a
credit bureau; providing consumer financial counseling; and providing
certain courier services. The Federal Reserve also has determined that
certain other activities, including real estate brokerage and
syndication, land development, property management and, except under
limited circumstances, underwriting of life insurance not related to
credit transactions, are not closely related to banking and are not a
proper incident thereto.
17
<PAGE>
The Gramm-Leach-Bliley Act of 1999, discussed above, permits
financial holding companies(a new type of bank holding company) to
engage in a broader range of financial activities than traditional bank
holding companies, subject to the requirements of the Act.
INTERSTATE BANKING LEGISLATION. On September 24, 1994,
President Clinton signed, and as of September 29, 1995, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") became effective. The Interstate Act facilitates
interstate branching by permitting (i) bank holding companies that are
adequately capitalized and adequately managed to acquire banks outside
their home states regardless of whether such acquisitions are
permissible under the laws of the target bank's home state; (ii)
commencing June 1, 1997, interstate bank mergers regardless of state
law, unless a state specifically "opts out" or "opts in" after
September 29, 1994 and prior to June 1, 1997; (iii) banks to establish
new branches on an interstate basis provided the state of the new
branch specifically permits such activity; (iv) foreign banks to
establish, with regulatory approval, foreign branches outside their
home state to the same extent as if they were national or state banks;
and (v) affiliates of banks in different states to receive deposits,
renew time deposits, close loans, service loans, and receive loan
payments on loans and other obligations as agents for each other.
Massachusetts has "opted in" to the interstate branching provisions of
the Interstate Act. See discussion under "Massachusetts Law" elsewhere
in this section. In October, 1996, the banking regulators of the six
New England states signed a New England Cooperative Agreement
facilitating and addressing the regulation of state banks with
multistate operations in New England.
CAPITAL REQUIREMENTS. The Federal Reserve has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of
capital in examining and supervising a bank holding company and in
analyzing applications to it under the BHCA. The Federal Reserve's
capital adequacy guidelines which generally require bank holding
companies to maintain total capital equal to 8% of total risk-adjusted
assets, with at least one-half of that amount consisting of Tier 1, or
core, capital and up to one-half of that amount consisting of Tier 2,
or supplementary, capital. Tier 1 capital for bank holding companies
generally consists of the sum of common stockholders' equity and
perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stocks which may be included
as Tier 1 capital), less goodwill and other intangible assets required
to be deducted from capital. Tier 2 capital generally consists of
perpetual preferred stock which is not eligible to be included as Tier
1 capital; hybrid capital instruments such as perpetual debt and
mandatory convertible debt securities, and term subordinated debt and
intermediate-term preferred stock; and, subject to limitations, the
reserve for loan losses. Assets are adjusted under the risk-based
guidelines to take into account different risk characteristics, with
the categories ranging from 0% (requiring no additional capital) for
assets such as cash to 100% for the majority of assets which are
typically held by a bank holding company, including commercial real
estate loans, commercial loans and consumer loans. Single family
residential first mortgage loans which are not 90 days or more past due
or nonperforming and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighting
system, as are certain privately-issued mortgage-backed securities
representing indirect ownership of such loans and certain multi-family
housing loans. Off-balance sheet items also are adjusted to take into
account certain risk characteristics.
In addition to the risk-based capital requirements, the
Federal Reserve requires bank holding companies to maintain a minimum
leverage capital ratio of Tier 1 capital to total assets of 3.0%. Total
assets for this purpose does not include goodwill and any other
intangible assets or investments that the
18
<PAGE>
Federal Reserve determines should be deducted from Tier 1 capital. The
Federal Reserve has announced that the 3.0% Tier 1 leverage capital
ratio requirement is the minimum for the top-rated bank holding
companies without any supervisory, financial or operational weaknesses
or deficiencies or those which are not experiencing or anticipating
significant growth. Other bank holding companies (including the
Company) are expected to maintain Tier 1 leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition.
The Company currently is in compliance with the
above-described regulatory capital requirements. At December 31, 1999,
the Company had Tier 1 capital and total capital equal to 11.14% and
12.39% of total risk-adjusted assets, respectively, and Tier 1 leverage
capital equal to 8.15% of total assets. As of such date, Rockland
complied with the applicable federal regulatory capital requirements,
with Tier 1 capital and total capital equal to 9.35% and 10.60% of
total risk-adjusted assets, respectively, and Tier 1 leverage capital
equal to 6.86% of total assets.
COMMITMENTS TO AFFILIATED INSTITUTIONS. Under Federal Reserve
policy, the Company is expected to act as a source of financial
strength to Rockland and to commit resources to support Rockland in
circumstances when it might not do so absent such policy.
LIMITATIONS ON ACQUISITIONS OF COMMON STOCK. The federal
Change in Bank Control Act ("CBCA") prohibits a person or group of
persons from acquiring "control" of a bank holding company or bank
unless the appropriate federal bank regulator has been given 60 days
prior written notice of such proposed acquisition and within that time
period such regulator has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days the period during
which such a disapproval may be issued. An acquisition may be made
prior to expiration of the disapproval period if such regulator issues
written notice of its intent not to disapprove the action. The
acquisition of 25% or more of any class of voting securities
constitutes the acquisition of control under the CBCA. In addition,
under a rebuttable presumption established under the CBCA regulations,
the acquisition of 10% or more of a class of voting stock of a bank
holding company or a FDIC-insured bank, with a class of securities
registered under or subject to the requirements of Section 12 of the
Securities Exchange Act of 1934 would, under the circumstances set
forth in the presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the
approval of the Federal Reserve under the BHCA before acquiring 25% (5%
in the case of an acquirer that is a bank holding company) or more of
the outstanding common stock of, or such lesser number of shares as
constitute control over, the Company. Such approval would be contingent
upon, among other things, the acquirer registering as a bank holding
company, divesting all impermissible holdings and ceasing any
activities not permissible for a bank holding company.
MASSACHUSETTS LAW. Massachusetts law requires all
Massachusetts bank holding companies (those companies which control,
own, or have the power to vote 25% or more of the stock of each of two
or more Massachusetts based banks) to receive prior written approval of
the Massachusetts Board of Bank Incorporation to, among other things,
acquire all or substantially all of the assets of a banking institution
located within the Commonwealth of Massachusetts or to merge or
consolidate with a Massachusetts bank holding company. The Company owns
no voting stock in any banking institution other than Rockland. In
addition, prior approval of the Board of Bank Incorporation is required
before any Massachusetts bank holding company owning 25% or more of the
stock of two banking institutions
19
<PAGE>
may acquire additional voting stock in those banking institutions equal
to 5% or more. Generally, no approval to acquire a banking institution,
acquire additional shares in an institution, acquire substantially all
the assets of a banking institution or merge or consolidate with
another bank holding company may be given if the bank being acquired
has been in existence for a period less than 3 years or, as a result,
the bank holding company would control, in excess of 30%, of the total
deposits of all state and federally chartered banks in Massachusetts,
unless waived by the Commissioner. Similarly, no bank which is not a
member of the Federal Reserve can merge or consolidate with any other
insured depository institution or, either directly or indirectly,
acquire the assets of or assume the liability to pay any deposits made
in any other depository institution except with the prior written
approval of the FDIC.
As noted above, Massachusetts "opted in" to the Interstate Act
in 1996. As such, any out-of-state bank may engage, with the written
approval of the Commissioner, in a merger transaction with a
Massachusetts bank to the fullest extent permitted by the Interstate
Act, provided that the laws of the home state of such out-of-state bank
permit, under conditions no more restrictive than those imposed by
Massachusetts, interstate merger transactions with Massachusetts banks,
and provided further that the Massachusetts bank has been in existence
for at least three years and the resulting bank would not control in
excess of 30% of the total deposits of all state and federally
chartered depository institutions in Massachusetts. The Commissioner
may waive the latter two conditions, in his discretion. Such a merger
transaction may also involve the acquisition of one or more branches of
a Massachusetts bank and not the entire institution. With the prior
written approval of the Commissioner, Massachusetts also permits the
establishment of de novo branches in Massachusetts to the fullest
extent permitted by the Interstate Act, provided the laws of the home
state of such out-of-state bank expressly authorize, under conditions
no more restrictive than those of Massachusetts, Massachusetts banks to
establish and operate de novo branches in such state.
With the prior written approval of the Massachusetts Board of
Bank Incorporation, a bank holding company (as defined under the BHCA)
whose principal operations are located in a state other than
Massachusetts may acquire more than 5% of the voting stock of a
Massachusetts bank or may merge with a Massachusetts bank holding
company or a Massachusetts bank, provided that Massachusetts bank has
been in existence for at least three years and the Massachusetts Board
of Bank Incorporation is satisfied that the transaction will not result
in the out-of-state bank holding company holding or controlling, more
than 30% of the deposits of all state and federally chartered
depository institutions in Massachusetts or such condition is
affirmatively waived by the Board.
SUBSIDIARY BANK - GENERAL. Rockland is subject to extensive
regulation and examination by the Commissioner and by the FDIC, which
insures its deposits to the maximum extent permitted by law, and to
certain requirements established by the Federal Reserve. The federal
and state laws and regulations which are applicable to banks regulate,
among other things, the scope of their business, their investments,
their reserves against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for certain
loans. The laws and regulations governing Rockland generally have been
promulgated to protect depositors and not for the purpose of protecting
stockholders.
DEPOSIT INSURANCE PREMIUMS. Rockland currently pays deposit
insurance premiums to the FDIC based on a single, uniform assessment
rate established by the FDIC for all BIF-member institutions. The
assessment rates range from 0% to .27%. Under the FDIC's risk-based
assessment
20
<PAGE>
system, institutions are assigned to one of three capital groups which
assignment is based solely on the level of an institution's capital -
"well capitalized, " "adequately capitalized," and "undercapitalized"
which are defined in the same manner as the regulations establishing
the prompt corrective action system under Section 38 of the Federal
Deposit Insurance Act ("FDIA"), as discussed below. These three groups
are then divided into three subgroups which reflect varying levels of
supervisory concern, from those which are considered to be healthy to
those which are considered to be of substantial supervisory concern.
The matrix so created results in nine assessment risk classifications,
with rates ranging from 0% for well capitalized, healthy institutions
to .27% for undercapitalized institutions with substantial supervisory
concerns. Rockland is presently "well capitalized" and as a result,
Rockland was not subject to any FDIC premium obligation as of January
1, 2000.
The FDIC Board of Directors voted in 1996 to collect an
assessment against BIF assessable deposits to be paid to the Financing
Corporation (FICO). The Board stipulated that the FICO assessment rate
that is applied to BIF assessable deposits must equal one-fifth of the
rate that is applied to SAIF assessable deposits. The actual assessment
rates are approximately 8.48 basis points, on an annual basis, for BIF
assessable deposits and SAIF assessable deposits.
CAPITAL REQUIREMENTS. The FDIC has promulgated regulations and
adopted a statement of policy regarding the capital adequacy of
state-chartered banks, which, like Rockland, are not members of the
Federal Reserve System. These requirements are substantially similar to
those adopted by the Federal Reserve regarding bank holding companies,
as described above.
The FDIC's capital regulations establish a minimum 3.0% Tier 1
leverage capital to total assets requirement for the most highly-rated
state-chartered, nonmember banks, with an additional cushion of at
least 100 to 200 basis points for all other state-chartered, nonmember
banks, which effectively will increase the minimum Tier 1 leverage
capital ratio for such banks to 4.0% or 5.0% or more. Under the FDIC's
regulations, the highest-rated banks are those that the FDIC determines
are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity, good earnings and in general
which are considered strong banking organizations, rated composite 1
under the Uniform Financial Institutions Rating System. A bank having
less than the minimum leverage capital requirement shall, within 45
days of the date as of which it receives notice or is deemed to have
notice that it is undercapitalized, submit to its FDIC regional
director for review and approval a written capital restoration plan
describing the means and timing by which the bank shall achieve its
minimum leverage capital requirement. A bank which fails to file such
plan with the FDIC is deemed to be operating in an unsafe and unsound
manner, and could subject the bank to a cease and desist order from the
FDIC. The FDIC's regulations also provide that any insured depository
institution with a ratio of Tier 1 capital to total assets that is less
than 2.0% is deemed to be operating in an unsafe or unsound condition
pursuant to Section 8(a) of the FDIA and is subject to potential
termination of deposit insurance. However, such an institution will not
be subject to an enforcement proceeding thereunder solely on account of
its capital ratios if it has entered into and is in compliance with a
written agreement with the FDIC to increase its Tier 1 leverage capital
ratio to such level as the FDIC deems appropriate and to take such
other action as may be necessary for the institution to be operated in
a safe and sound manner. The FDIC capital regulation also provides for,
among other things, the issuance by the FDIC or its designee(s) of a
capital directive, which is a final order issued to a bank that fails
to maintain minimum capital to restore its capital to the minimum
leverage capital
21
<PAGE>
requirement within a specified time period. Such directive is
enforceable in the same manner as a final cease and desist order.
Pursuant to the requirements of the FDIA, each federal banking
agency has adopted or proposed regulations relating to its review of
and revisions to its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of
interest-rate risk, concentration of credit risk and the risks of
non-traditional activities, as well as to reflect the actual
performance and expected risk of loss on multi-family residential
loans.
PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA, as
amended by the Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), each federal banking agency has broad powers to implement a
system of prompt corrective action to resolve problems of institutions
which it regulates which are not adequately capitalized. Under FDICIA,
a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or
more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a total risk-based capital ratio of
8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more, a Tier
1 leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized";
(iii) "undercapitalized" if it has a total risk-based capital ratio
that is less than 8.0%, or a Tier 1 risk-based capital ratio that is
less than 4.0% or a Tier 1 leverage capital ratio of less than 4.0%
(3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is
less than 6.0%, or a Tier 1 risk-based capital ratio that is less than
3.0%, or a Tier 1 leverage capital ratio that is less than 3.0%; and
(v) "critically undercapitalized" if it has a ratio of tangible equity
to total assets that is equal to or less than 2.0%. FDICIA also
specifies circumstances under which a federal banking agency may
reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an
undercapitalized institution to comply with supervisory actions as if
it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized). As of December 31, 1999, Rockland was deemed a
"well-capitalized institution" for this purpose.
BROKERED DEPOSITS. FDICIA restricts the use of brokered
deposits by certain depository institutions. Well capitalized insured
depository institutions may solicit and accept, renew or roll over any
brokered deposit without restriction. Adequately capitalized insured
depository institutions may not accept, renew or roll over any brokered
deposit unless they have applied for and been granted a waiver of this
prohibition by the FDIC. Undercapitalized insured depository
institutions may not (i) accept, renew or roll over any brokered
deposit or (ii) solicit deposits by offering an effective yield that
exceeds by more than 75 basis points the prevailing effective yields on
insured deposits of comparable maturity in such institution's normal
market area or in the market area in which such deposits are being
solicited. At December 31, 1999, the Bank's funding sources included
brokered deposits of $20 million.
SAFETY AND SOUNDNESS. In August, 1995, the FDIC adopted
regulations pursuant to FDICIA relating to operational and managerial
safety and soundness standards for financial institutions relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset
growth and compensation, fees, and benefits. The standards are to serve
as guidelines for institutions to help identify potential safety and
soundness concerns. If an institution fails to meet any safety and
soundness standard, the FDIC may require it to submit a written
22
<PAGE>
safety and soundness compliance plan within thirty (30) days following
a request therefor, and if it fails to do so or fails to correct safety
and soundness deficiencies, the FDIC may take administrative
enforcement action against the institution, including assessing civil
money penalties, issuing supervisory orders and other available
remedies.
COMMUNITY REINVESTMENT ACT ("CRA")
Pursuant to the Community Reinvestment Act ("CRA") and similar
provisions of Massachusetts law, regulatory authorities review the
performance of the Company and Rockland in meeting the credit needs of
the communities served by Rockland. The applicable regulatory
authorities consider compliance with this law in connection with
applications for, among other things, approval of branches, branch
relocations, engaging in certain new financial activities under
Gramm-Leach-Bliley Act of 1999, and acquisitions of banks and bank
holding companies. Currently, the FDIC's CRA rating of Rockland is
outstanding. The Massachusetts Commissioner currently has given
Rockland a CRA rating of outstanding.
MISCELLANEOUS. Rockland is subject to certain restrictions on
loans to the Company, on investments in the stock or securities
thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of
credit on behalf of the Company. Rockland also is subject to certain
restrictions on most types of transactions with the Company, requiring
that the terms of such transactions be substantially equivalent to
terms of similar transactions with non-affiliated firms. In addition
under state law, there are certain conditions for and restrictions on
the distribution of dividends to the Company by Rockland.
In addition to the laws and regulations discussed above,
regulations have been promulgated under FDICIA which increase the
requirements for independent audits, set standards for real estate
lending and increase lending restrictions with respect to bank officers
and directors. FDICIA also contains provisions which amend various
consumer banking laws, limit the ability of "undercapitalized banks" to
borrow from the Federal Reserve Board's discount window, and require
regulators to perform annual on-site bank examinations.
REGULATORY ENFORCEMENT AUTHORITY. The Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") included
substantial enhancement to the enforcement powers available to federal
banking regulators, This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to initiate injunctive actions against
banking organizations and institution-affiliated parties, as defined.
In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. Other actions
or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities.
FIRREA significantly increased the amount of and grounds for civil
money penalties and requires, except under certain circumstances,
public disclosure of final enforcement actions by the federal banking
agencies.
The foregoing references to laws and regulations which are
applicable to the Company and Rockland are brief summaries thereof
which do not purport to be complete and which are qualified in their
entirety by reference to such laws and regulations.
23
<PAGE>
FEDERAL TAXATION. The Company and its subsidiaries are subject
to those rules of federal income taxation generally applicable to
corporations under the Internal Revenue Code (the "Code"). The Company
and its subsidiaries, as members of an affiliated group of corporations
within the meaning of Section 1504 of the Code, file a consolidated
federal income tax return, which has the effect of eliminating or
deferring the tax consequences of inter-company distributions,
including dividends, in the computation of consolidated taxable income.
STATE TAXATION. The Commonwealth of Massachusetts imposes a
tax on the Massachusetts net income of banks at a rate of 10.5% as of
December 31, 1999. In addition, the Company is subject to an excise tax
at the rate of .26% of its net worth. The Bank's security corporation
subsidiaries are, for state tax purposes, taxed at a rate of 1.32% of
its gross income. Massachusetts net income for banks is generally
similar to federal taxable income except deductions with respect to the
following items are generally not allowed: (i) dividends received, (ii)
losses sustained in other taxable years, and (iii) income or franchise
taxes imposed by other states. The Company is permitted to carry a
percentage of its losses forward for not more than five years, while
Rockland is not permitted to carry its losses forward or back for
Massachusetts tax purposes.
For additional information, see Note 9 of the Notes to
Consolidated Financial Statements included in Item 8 hereof.
ITEM 2. PROPERTIES
At February 29, 2000, the Bank conducted its business from its
headquarters and main office at 288 Union Street, Rockland,
Massachusetts, and 33 other branch offices located in Southeastern
Massachusetts in Plymouth County, Bristol County and Norfolk County. In
addition to its main office, the Bank owns five of its branch offices
and leases the remaining 28 offices. Of the branch offices which are
leased by the Bank, 2 have remaining lease terms, including options
renewable at the Bank's option, of five years or less, 12 have
remaining lease terms of greater than five years and less than 10
years, and 14 have a remaining lease term of 10 years or more. The
Bank's aggregate rental expense under such leases was $1.6 million in
1999. Certain of the Bank's branch offices are leased from companies
with whom directors of the Company are affiliated. The Bank leases
space for its AM&TS Division in a building in Hanover, Massachusetts
developed by a joint venture consisting of the Bank and A. W. Perry,
Inc., and in Attleboro. It also leases office space in two buildings in
Rockland, Massachusetts for administrative purposes as well as space in
four additional facilities used as lending centers. In the first
quarter of 2000 the Bank agreed to lease a property in Plymouth,
Massachusetts that will become the Bank's new Data Center. At December
31, 1999, the net book value of the property and leasehold improvements
of the offices of the Bank amounted to $8.5 million. The Bank's
properties that are not leased are owned free and clear of any
mortgages. The Bank believes that all of its properties are well
maintained and are suitable for their respective present needs and
operations. For additional information regarding the Bank's lease
obligations, see Note 13 to the Consolidated Financial Statements,
included in Item 8 hereof.
24
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings that
arise in the ordinary course of business. Management has reviewed these
actions with legal counsel and has taken into consideration the view of
counsel as to the outcome of the litigation. In the opinion of
management, final disposition of these lawsuits is not expected to have
a material adverse effect on the Company's financial position or
results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required herein is incorporated by reference
from page 33 of the Company's 1999 Annual Report to Stockholders
("Annual Report"), which is included herein as Exhibit 13. The
Registrant did not sell any unregistered equity securities during the
year-ended December 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference
from page 1 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required herein is incorporated by reference
from pages 2 through 11 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required
herein are incorporated by reference from pages 12 through 32 of the
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference
from the Company's definitive proxy statement (the "Proxy Statement")
relating to its 1999 Annual Meeting of Stockholders filed with the
Commission on March 20, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required herein is incorporated by reference
from the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference
from the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference
from the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) The following financial statements are incorporated
herein by reference from pages 12 through 32 of the Annual Report.
Report of Independent Public Accountants
Consolidated balance sheets as of December 31, 1999 and 1998.
Consolidated statements of income for each of the years in the
three year period ended December 31, 1999
Consolidated statements of stockholder's equity for each of
the years in the three year period ended 12/31/99
Consolidated statements of Comprehensive Income for each of
the years in the three year period ended December 31, 1999
Consolidated statements of cash flows for each of the years in
the three year period ended December 31, 1999
26
<PAGE>
Notes to Consolidated Financial Statements
(a)(2) There are no financial statement schedules filed
herewith. All information required by financial statement schedules is
disclosed in Notes to Consolidated Financial Statements or is not
applicable to the Company.
(a)(3) The following exhibits are filed as part of this
report.
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. EXHIBIT FOOTNOTE
---------- ----------------------------------- ---------
<S> <C> <C> <C>
3.(i) Restated Articles of Organization, as (6)
amended to date
3.(ii) Bylaws of the Company, as amended (1)
to date
4.1 Specimen Common Stock Certificate (5)
4.2 Specimen Preferred Stock Purchase (2)
Rights Certificate
4.3 Amended and Restated Independent (7)
Bank Corp. 1987 Incentive Stock
Option Plan ("Stock Option Plan").
(Management contract under Item
601(10)(iii)(A).
4.4 Independent Bank Corp. 1996 (9)
Non-Employee Directors' Stock
Option Plan (Management contract
under Item 901(10)(iii)(A)).
4.5 Independent Bank Corp. 1997 (10)
Employee Stock Option Plan
(Management contract under
Item 601 (10)(iii)(A)).
10.1 Amendment No. 1 to Third Amended and (8)
Restated Employment Agreement between the
Company, Rockland and Douglas H.
Philipsen, dated June 25, 1997
("Philipsen Employment Agreement").
(Management contract under Item
601(10)(iii)(A)).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NO. EXHIBIT FOOTNOTE
---------- ----------------------------------- ---------
<S> <C> <C>
10.2 Amendment No. 1 to Second Amended and (8)
Restated Employment Agreement between
Rockland Trust Company and Richard
F. Driscoll, dated January 19, 1996
(the "Driscoll Agreement").
Employment Agreements between
Rockland and Richard J. Seaman,
Ferdinand T. Kelley,
and Raymond G. Fuerschbach are
substantially similar to the Driscoll
agreement. (Management contract
under Item 601(10)(iii)(A)).
10.3 Rockland Trust Company Deferred (3)
Compensation Plan for Directors, as
Amended and Restated dated
September 1992. (Management
contract under Item 601(10)(iii)(A)).
10.4 Stockholders Rights Agreement, dated (2)
January 24, 1991, between the Company
and Rockland, as Rights Agent
10.5 Master Securities Repurchase (3)
Agreement
10.6 Purchase and Assumption Agreement dated as
of 9/27/99, between Rockland Trust
Company and Fleet Financial Group, Inc.
(Exhibit to Form 8-K filed on 10/1/99)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant (3)
23 Consent of Independent Public
Accountants
27 Financial Data Schedule
</TABLE>
(FOOTNOTES ON NEXT PAGE)
28
<PAGE>
Footnotes:
(1) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1990.
(2) Exhibit is incorporated by reference to the Form 8-A
Registration Statement (No. 0-19264) filed by the Company.
(3) Exhibit is incorporated by reference to the Form S-1 Registration
Statement (No. 33-52216) filed by the Company.
(4) Exhibit is incorporated by reference to the Form S-3
Registration Statement (No. 333-89835) filed by the Company.
(5) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1992.
(6) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1993.
(7) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1994.
(8) Incorporated by reference from the Company's report on Form
10-K for the year ended December 31, 1998.
(9) Incorporated by reference from the Company's definitive Proxy
Statement for the 1996 Annual Meeting of Stockholders filed
with the Commission on March 19, 1996.
(10) Incorporated by reference from the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders filed
with the Commission on March 20, 1997.
(b) One report on Form 8-K was filed by the Company on
10/1/99 related to the Purchase and Assumption Agreement, dated
as of 9/27/99 between Rockland Trust Company and Fleet Financial
Group, Inc.
(c) See (a)(3) above for all exhibits filed herewith and the
Exhibit Index.
(d) All schedules are omitted as the required information is
not applicable or the information is presented in the Consolidated
Financial Statements or related notes.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 9, 2000 /s/ Douglas H. Philipsen,
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the followings persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Each person whose signature appears below hereby makes, constitutes and
appoints Douglas H. Philipsen and Richard Seaman and each of them
acting individually, his true and lawful attorneys, with full power to
sign for such person and in such person's name and capacity indicated
below any and all amendments to this Form 10-K, hereby ratifying and
confirming such person's signature as it may be signed by said
attorneys to any and all amendments.
<TABLE>
<S> <C>
/s/ Richard S. Anderson Date: March 9, 2000
Richard S. Anderson
Director
/s/ W. Paul Clark Date: March 9, 2000
W. Paul Clark
Director
/s/ Robert L. Cushing Date: March 9, 2000
Robert L. Cushing
Director
/s/ Alfred L. Donovan Date: March 9, 2000
Alfred L. Donovan
Director
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
/s/ Benjamin A Gilmore, II Date: March 9, 2000
Benjamin A. Gilmore, II
Director
/s/ Lawrence M. Levinson Date: March 9, 2000
Lawrence M. Levinson
Director
/s/ Richard H. Sgarzi Date: March 9, 2000
Richard H. Sgarzi
Director
/s/ Robert J. Spence Date: March 9, 2000
Robert J. Spence
Director
/s/ William J. Spence Date: March 9, 2000
William J. Spence
Director
/s/ John H. Spurr, Jr. Date: March 9, 2000
John H. Spurr, Jr.
Director
/s/ Robert D. Sullivan Date: March 9, 2000
Robert D. Sullivan
Director
/s/ Brian S. Tedeschi Date: March 9, 2000
Brian S. Tedeschi
Director
/s/ Thomas J. Teuten Date: March 9, 2000
Thomas J. Teuten
Director
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
/s/ Richard J. Seaman Date: March 9, 2000
Richard J. Seaman
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
</TABLE>
32
<PAGE>
INDEPENDENT BANK CORP.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
& OTHER DATA
The selected consolidated financial and other data of the Company set forth
below does not purport to be complete and should be read in conjunction with,
and is qualified in its entirety by, the more detailed information, including
the Consolidated Financial Statements and related notes, appearing elsewhere
herein.
<TABLE>
<CAPTION>
As of or For the Year Ended December 31, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Securities held to maturity $ 229,043 $ 284,944 $ 308,112 $ 290,894 $ 226,896
Securities available for sale 201,614 195,199 131,842 26,449 32,628
Loans, net of unearned discount 1,028,510 941,112 828,132 695,406 628,141
Reserve for possible loan losses 14,958 13,695 12,674 12,221 12,088
Total assets 1,590,056 1,575,069 1,370,007 1,092,793 987,589
Total deposits 1,081,806 1,043,317 988,148 918,572 871,085
Stockholders' equity 98,129 95,848 92,493 81,110 72,572
Nonperforming loans 3,654 5,356 5,891 4,462 5,271
Nonperforming assets 3,654 5,356 5,893 4,733 5,909
OPERATING DATA:
Interest income $ 112,006 $ 108,712 $ 93,820 $ 77,424 $ 72,918
Interest expense 50,178 49,569 41,578 32,354 29,143
Net interest income 61,828 59,143 52,242 45,070 43,775
Provision for possible loan losses 3,927 3,960 2,260 1,750 1,000
Non-interest income 14,793 13,125 11,742 11,381 10,341
Non-interest expenses 45,450 41,697 38,595 36,951 38,000
Minority interest expense 2,668 2,668 1,645 - -
Net income 17,031 16,139 14,158 11,597 10,387
PER SHARE DATA:
Net income - Basic $ 1.20 $ 1.10 $ 0.97 $ 0.80 $ 0.72
Net income - Diluted 1.19 1.08 0.95 0.79 0.71
Cash dividends declared 0.40 0.40 0.34 0.25 0.18
Book value, end of period 6.92 6.63 6.25 5.55 5.00
OPERATING RATIOS:
Return on average assets 1.09% 1.12% 1.15% 1.13% 1.10%
Return on average equity 17.57% 16.71% 16.45% 15.20% 15.28%
Net interest margin 4.30% 4.36% 4.52% 4.72% 4.97%
ASSET QUALITY RATIOS:
Nonperforming loans as a percent of gross loans 0.35% 0.56% 0.69% 0.63% 0.83%
Nonperforming assets as a percent of total assets 0.23% 0.34% 0.43% 0.43% 0.60%
Reserve for possible loan losses as a percent of
loans, net of unearned discount 1.45% 1.46% 1.53% 1.76% 1.92%
Reserve for possible loan losses as a percent of
nonperforming loans 409.36% 255.69% 215.14% 273.89% 229.33%
CAPITAL RATIOS:
Tier 1 leverage capital ratio 8.15% 7.91% 8.64% 7.35% 7.24%
Tier 1 risk-based capital ratio 11.14% 11.38% 13.52% 10.89% 10.67%
Total risk-based capital ratio 12.39% 12.63% 14.78% 12.15% 11.92%
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed financial review which follows presents management's
discussion and analysis of the consolidated financial condition and operating
results of Independent Bank Corp. (the Company) and its subsidiaries, Rockland
Trust Company (Rockland or the Bank) and Independent Capital Trust I (the
Trust). It should be read in conjunction with the Consolidated Financial
Statements and related notes thereto.
FINANCIAL CONDITION
Summary of Financial Condition. The Company's assets increased to $1.59
billion in 1999, compared with $1.58 billion in 1998.
This increase amounted to $15.0 million or 1.0% over year-end 1998. The
growth was driven by an increase in loans of $87.4 million, centered in
commercial real estate loans and consumer loans. The securities portfolio
decreased to $447.7 million at December 31, 1999 compared with $496.2 million at
December 31, 1998. The change occurred in the securities held to maturity
portfolio, which decreased by $55.9 million.
The Company's total assets grew to $1.58 billion as of December 31, 1998,
an increase of $205.1 million, or 15%, over 1997 year-end assets. Loan growth of
$113 million was primarily in the consumer and commercial real estate and
construction loan categories. The securities portfolio increased to $496.2
million at December 31, 1998 compared with $456.0 million at December 31, 1997.
The growth occurred in the securities available for sale portfolio, which
increased by $63.4 million during 1998.
Loan Portfolio At December 31, 1999, the Bank's loan portfolio was $1.03
billion, an increase of $87.4 million, or 9.3%, from year-end 1998. This growth
was primarily in the commercial real estate portfolio, which increased by $59.4
million, or 22.7%. The remaining growth was in the consumer loan portfolio,
which also showed strong growth in 1999.
At December 31, 1998, the Bank's loan portfolio amounted to $941.1 million,
an increase of $113.0 million, or 13.6%, from year-end 1997. This increase was
primarily in the consumer loan portfolio, which increased by $101.4 million or
48.5%.
The reserve for possible loan losses is maintained at a level that
management of the Bank considers adequate based upon relevant circumstances. The
reserve for possible loan losses was $15.0 million at December 31, 1999. The
ratio of the reserve for possible loan losses to nonperforming loans was 409.4%
at December 31, 1999, an increase over the coverage of 255.7% recorded a year
earlier.
The Bank provides its customers with access to capital by providing a broad
range of credit services. The Bank's commercial customers consist of
small-to-medium-sized businesses, which utilize demand, time, and term loans, as
well as funding guaranteed by the Small Business Administration, to finance
their businesses. The Bank's retail customers can choose from a variety of
mortgage and consumer loan products. The Bank's principal lending market
provides attractive lending opportunities for commercial, real estate, and
consumer loans.
The Bank's loan committee consists of the Bank's President, the Executive
Vice President of the Commercial Lending Division, the Senior Credit Policy
Officer, and the Commercial Loan Regional Managers. The committee considers a
variety of policy issues, including underwriting and credit standards, and
reviews loan proposals that exceed the individual loan officer's lending
authority.
Asset Quality The Bank's principal earning assets are its loans. Although
the Bank judges its borrowers to be creditworthy, the risk of deterioration in
borrowers' ability to repay their loans in accordance with the terms of their
existing loan agreements is inherent in any lending function. Participating as a
lender in the credit markets requires a strict monitoring process to minimize
credit risk. This process requires substantial analysis of the loan application,
the customer's capacity to repay according to the loan's contractual terms, and
an objective determination of the value of the collateral.
Nonperforming assets are comprised of nonperforming loans and Other Real
Estate Owned (OREO). Nonperforming loans consist of loans that are more than 90
days past due but still accruing interest and nonaccrual loans. OREO includes
properties held by the Bank as a result of foreclosure or by acceptance of a
deed in lieu of foreclosure. As of December 31, 1999, nonperforming assets
totaled $3.7 million, a decrease of $1.7 million, or a reduction of 31.5%, from
the prior year-end. Nonperforming assets represented 0.23% and 0.34% of total
assets for the years ending December 31, 1999 and 1998 respectively.
The following table sets forth information regarding nonperforming loans
and nonperforming assets on the dates indicated.
5
<PAGE>
INDEPENDENT BANK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
December 31, September 30, June 30, March 31, December 31, December 31,
1999 1999 1999 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming Loans:
Loans past due 90 days or more
but still accruing $ 316 $ 423 $ 475 $ 680 $1,026 $ 737
Loans accounted for on a nonaccrual basis 3,338 3,506 3,620 4,514 4,330 5,154
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 3,654 3,929 4,095 5,194 5,356 5,891
- ---------------------------------------------------------------------------------------------------------------------------------
Other real estate owned -- 126 126 126 -- 2
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $3,654 $4,055 $4,221 $5,320 $5,356 $5,893
=================================================================================================================================
Nonperforming loans as a percent of
gross loans 0.35% 0.38% 0.41% 0.53% 0.56% 0.69%
=================================================================================================================================
Nonperforming assets as a percent of
total assets 0.23% 0.26% 0.27% 0.34% 0.34% 0.43%
=================================================================================================================================
</TABLE>
As permitted by banking regulations, consumer loans and home equity loans
past due 90 days or more continue to accrue interest. In addition, certain
commercial and real estate loans that are more than 90 days past due may be kept
on an accruing status if the loan is well secured and in the process of
collection. As a general rule, a commercial or real estate loan more than 90
days past due with respect to principal or interest is classified as a
nonaccrual loan. Income accruals are suspended on all nonaccrual loans and all
previously accrued and uncollected interest is reversed against current income.
A loan remains on nonaccrual status until it becomes current with respect to
principal and interest, when the loan is liquidated, or when the loan is
determined to be uncollectible and is charged-off against the reserve for
possible loan losses.
The following table sets forth the Bank's nonperforming loans by loan
category on the dates indicated.
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------------------------------------------------------
(In Thousands)
<S> <C> <C>
Loans past due 90 days or more
but still accruing
Real Estate-Residential Mortgage $ 31 $ 41
Consumer-Installment 229 819
Consumer-Other 56 166
- ------------------------------------------------------------
Total $ 316 $1,026
- ------------------------------------------------------------
Loans accounted for on a nonaccrual basis:
Commercial $ 141 $ 579
Real Estate-Commercial Mortgage 326 140
Real Estate-Residential Mortgage 2,186 2,455
Consumer-Installment 685 1,156
- ------------------------------------------------------------
Total $3,338 $4,330
- ------------------------------------------------------------
Total Nonperforming Loans $3,654 $5,356
============================================================
</TABLE>
In the course of resolving nonperforming loans, the Bank may choose to
restructure the contractual terms of certain commercial and real estate loans.
Terms may be modified to fit the ability of the borrower to repay in line with
its current financial status. It is the Bank's policy to maintain restructured
loans on nonaccrual status for approximately six months before management
considers its return to accrual status. At December 31, 1999, the Bank had $0.69
million of restructured loans.
Real estate acquired by the Bank through foreclosure proceedings or the
acceptance of a deed in lieu of foreclosure is classified as OREO. When property
is acquired, it is recorded at the lesser of the loan's remaining principal
balance or the estimated fair value of the property acquired, less estimated
costs to sell. Any loan balance in excess of the estimated fair value on the
date of transfer is charged to the reserve for possible loan losses on that
date. All costs incurred thereafter in maintaining the property, as well as
subsequent declines in fair value are charged to non-interest expense.
In order to facilitate the disposition of OREO, the Bank may finance the
purchase of such properties at market rates if the borrower qualifies under the
Bank's standard underwriting guidelines. The Bank had no OREO properties at
December 31, 1999.
Securities Portfolio The Company's securities portfolio consists of
securities which management intends to hold until maturity, securities available
for sale, trading assets, and Federal Home Loan Bank (FHLB) stock. Securities
which management intends to hold until maturity consist of U. S. Treasury and U.
S. Government Agency obligations, mortgage-backed securities, including
collateralized mortgage obligations, state, county, and municipal securities as
well as other securities. Securities held to maturity as of December 31, 1999
are carried at their amortized cost of $229.0 million and exclude gross
unrealized gains of $0.47 million and gross unrealized losses of $10.9 million.
A year earlier, securities held to maturity totaled $284.9 million excluding
gross unrealized gains of $3.9 million and gross unrealized losses of $1.3
million. There were no sales of securities held to maturity during 1999 or 1998.
Securities available for sale consist of certain mortgage-backed
securities, including collateralized mortgage obligations and U.S. Government
Agency obligations. These securities are carried at fair market value and
unrealized gains and losses, net of applicable income taxes, are recognized as a
separate component of stockholders' equity. The fair market value of securities
available for sale at December 31, 1999 totaled $201.6 million and net
unrealized losses totaled $3.8 million. A year earlier, securities available for
sale were $195.2 million
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
with net unrealized gains of $764,000. The Bank realized a gain of $34,000 and
$27,000 on the sale of available for sale securities in 1999 and 1998,
respectively.
Trading assets consist of equity securities carried at fair value. Changes
in fair value are recognized in non-interest income. The fair value of trading
assets at December 31, 1999 totaled $486,000.
The investment in the stock of the Federal Home Loan Bank is related to the
admission of Rockland as a member of the Federal Home Loan Bank of Boston in
July 1994. This investment was increased by $1.0 million during 1999 to maintain
investment levels required by FHLB guidelines.
Deposits The Bank's branch system consists of 34 locations. Each
full-service branch operates as a retail sales and services outlet offering a
complete line of deposit and loan products.
As of December 31, 1999, deposits of $1,081.8 million were $38.5 million,
or 3.7%, higher than the prior year-end. An expanding customer base, extensive
branch network, and competitive market rates were responsible for this increase.
Core deposits, consisting of demand, interest checking, savings, and money
market accounts, increased $5.0 million, or 0.81%. Time deposits increased $33.5
million, or 7.76%.
Total deposits increased $55.2 million, or 5.6%, during the year ended
December 31, 1998. Core deposits increased $44.3 million, or 7.8%, while time
deposits increased $10.8 million, or 2.6%.
Borrowings The Bank's borrowings amounted to $359.5 million at December 31,
1999, a decrease of $37.1 million from year-end 1998. At December 31, 1999, the
Bank's borrowings consisted primarily of FHLB advances totaling $256.2 million,
a decrease of $57.5 million from the prior year-end. The remaining borrowings
consisted of federal funds purchased, assets sold under repurchase agreements,
and treasury tax and loan notes. These borrowings totaled $103.2 million at
December 31, 1999, an increase of $20.4 million from the prior year-end.
RESULTS OF OPERATIONS
Summary of Results of Operations The Company's results of operations are
largely dependent on net interest income, which is the difference between the
interest earned on loans and investments and interest paid on deposits and
borrowings. Net interest income is affected by the interest rate spread, which
is the difference between the yields earned on loans and investments and the
rates of interest paid on deposits and borrowings. The results of operations are
also affected by the level of income from loan, deposit, and mortgage banking
fees, operating expenses, the provision for possible loan losses, the impact of
federal and state income taxes, and the relative levels of interest rates and
economic activity.
For the year ended December 31, 1999, the Company reported a 5.59% increase
in net income to $17.0 million, or $1.19 Diluted earnings per share. This
increase in net income was due to a $2.7 million, or 4.54% increase in net
interest income. The provision for loan losses decreased to $3.9 million
compared with $4.0 million for the same period last year. Non-interest income
increased $1.7 million, or 12.7%, and non-interest expenses increased $3.8
million, or 9.0%, from 1998 to 1999.
For the year ended December 31, 1998, the Company reported a 14.0% increase
in net income to $16.1 million, or $1.08 Diluted earnings per share. This
increase in net income was due to a $6.9 million, or 13.2%, increase in net
interest income. The provision for loan losses increased to $4.0 million,
compared with $2.3 million for the same period a year earlier. Non-interest
income increased $1.4 million, or 11.8%, and non-interest expenses increased
$3.1 million, or 8.0%, from 1997 to 1998. Each of these components is discussed
in detail below. Net Interest Income The amount of net interest income is
affected by changes in interest rates and by the volume, mix, and interest rate
sensitivity of interest-earning assets and interest-bearing liabilities.
On a fully tax-equivalent basis, net interest income was $62.9 million in
1999, a 4.8% increase over 1998 net interest income of $60.0 million. Growth in
net interest income in 1999, compared with that of 1998, was primarily the
result of a 6.25% increase in average earning assets. The yield on earning
assets was 7.73% in 1999, compared with 7.96% in 1998. While the average balance
of loans, net of unearned discount increased by $107.1 million, or 12.1%, the
yield on loans decreased by 45 basis points to 8.21% at December 31, 1999,
compared to 8.66% at December 31, 1998. This decrease in loan yield was due to a
flat yield curve and competitive downward rate pressure. The yield on taxable
securities remained strong at 6.70% in 1999 compared to 6.69% in 1998, while the
yield on non-taxable securities increased 4 basis points to 7.54% at December
31, 1999, compared to 7.50% a year earlier. During 1999, the average balance of
interest-bearing liabilities increased by $96.2 million, or 8.67%, over 1998
average balances. The average cost of these liabilities decreased 31 basis
points in 1999, amounting to 4.16%, compared to 4.47% in 1998. 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 8 basis points in 1999. This is due to the decreased
cost of interest-bearing liabilities as discussed above.
The following table presents the Company's average balances, net interest
income, interest rate spread, and net interest margin for 1999, 1998, and 1997.
Non-taxable income from loans and securities is presented on a fully
tax-equivalent basis whereby tax-exempt income is adjusted upward by an amount
equivalent to the prevailing federal income taxes that would have been paid if
the income had been fully taxable. The assumed tax rate was 35% in these years.
7
<PAGE>
INDEPENDENT BANK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
1999 1998 1997
INTEREST INTEREST INTEREST
AVERAGE EARNED/ AVERAGE AVERAGE EARNED/ AVERAGE AVERAGE EARNED/ AVERAGE
BALANCE PAID YIELD BALANCE PAID YIELD BALANCE PAID YIELD
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and assets
purchased under resale agreements $ 12,207 $579 4.74% $ 15,003 $ 800 5.33% $ 3,474 $ 182 5.24%
Trading Assets 439 5 1.14% - - - - - -
Taxable securities 418,010 28,002 6.70% 446,890 29,902 6.69% 390,769 26,207 6.71%
Non-taxable securities (1) 41,881 3,157 7.54% 31,586 2,370 7.50% 13,717 999 7.28%
Loans, net of unearned discount (1) 991,319 81,356 8.21% 884,205 76,539 8.66% 757,877 66,925 8.83%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $1,463,856 $113,099 7.73% $1,377,684 $109,611 7.96% $ 1,165,837 $94,313 8.09%
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 47,051 42,806 42,667
Other assets 54,424 23,137 18,862
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $1,565,331 $1,443,627 $1,227,366
====================================================================================================================================
Interest-bearing liabilities:
Savings and Interest Checking accounts $ 280,441 $ 4,837 1.72% $ 266,093 $ 5,306 1.99% $ 255,069 $ 5,457 2.14%
Money Market & Super Interest
Checking accounts 108,415 2,637 2.43% 107,956 2,833 2.62% 109,156 3,105 2.84%
Time deposits 450,425 23,194 5.15% 411,801 23,293 5.66% 402,346 23,136 5.75%
Federal funds purchased and assets sold
under repurchase agreements 84,809 4,077 4.81% 63,228 3,390 5.36% 45,586 2,628 5.76%
Treasury tax and loan notes 3,407 184 5.40% 3,175 192 6.05% 3,283 178 5.42%
Federal Home Loan Bank borrowings 278,613 15,249 5.47% 257,681 14,555 5.65% 120,976 7,074 5.85%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,206,110 $ 50,178 4.16% $1,109,934 $ 49,569 4.47% $ 936,416 $41,578 4.44%
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 220,727 195,583 171,955
Corporation-obligated mandatorily
redeemable trust preferred securities
of subsidiary trust holding solely
junior subordinated debentures of
the Corporation 28,750 28,750 17,801
Other liabilities 12,830 12,805 15,109
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,468,417 1,347,072 1,141,281
Stockholders' Equity 96,914 96,555 86,085
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity $1,565,331 $1,443,627 $1,227,366
====================================================================================================================================
Net Interest Income $ 62,921 $ 60,042 $52,735
======== ======== =======
Interest Rate Spread (2) 3.57% 3.49% 3.65%
===== ===== =====
Net Interest Margin (2) 4.30% 4.36% 4.52%
===== ===== =====
</TABLE>
(1) The total amount of adjustment to present interest income and yield on a
fully tax-equivalent basis is $1,093, $899, and $493 in 1999, 1998 and
1997, respectively.
(2) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average costs of
interest-bearing liabilities. Net interest margin represents net interest
income as a percent of average interest-earning assets.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The following table presents certain information regarding changes in
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided with respect to changes attributable to both volume and
rate, have been consistently allocated to change due to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
1999 Compared To 1998 1998 Compared To 1997
--------------------------------------------------------------------
Change Change Change Change
Due To Due To Total Due To Due To Total
Rate Volume Change Rate Volume Change
- ----------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Income on interest-earning assets:
Federal funds sold ($ 72) ($ 149) ($ 221) $ 14 $ 604 $ 618
Taxable securities 32 (1,932) (1,900) (71) 3,766 3,695
Non-taxable securities (1) 15 772 787 70 1,301 1,371
Trading assets -- 5 5 -- -- --
Loans, net of unearned discount(1) (4,459) 9,276 4,817 (1,541) 11,155 9,614
- ----------------------------------------------------------------------------------------------------------------
Total ($ 4,484) $ 7,972 $ 3,488 ($ 1,528) $ 16,826 $ 15,298
================================================================================================================
Expense of interest-bearing liabilities:
Savings and Interest Checking accounts ($ 755) $ 286 ($ 469) ($ 387) $ 236 ($ 151)
Money Market and Super Interest
Checking accounts (208) 12 (196) (238) (34) (272)
Time deposits (2,285) 2,186 (99) (387) 544 157
Federal funds purchased and assets sold
under repurchase agreements (470) 1,157 687 (254) 1,016 762
Treasury tax and loan notes (22) 14 (8) 20 (6) 14
Federal Home Loan Bank borrowings (489) 1,183 694 (516) 7,997 7,481
- ----------------------------------------------------------------------------------------------------------------
Total ($ 4,229) $ 4,838 $ 609 ($ 1,762) $ 9,753 $ 7,991
================================================================================================================
Change in net interest income ($ 255) $ 3,134 $ 2,879 $ 234 $ 7,073 $ 7,307
================================================================================================================
</TABLE>
(1) Interest earned on non-taxable investment securities and loans is shown on
a fully tax equivalent basis
Interest income increased by $3.5 million, or 3.2%, to $113.1 million in
1999 as compared to the prior year-end. Interest earned on loans increased by
$4.8 million, or 6.3%, reflecting an increase in average loans to $991.3 million
in 1999 from $884.2 in 1998. Interest income from taxable securities decreased
by $1.9 million, or 6.35%, to $28.0 million in 1999 as compared to the prior
year.
Interest expense for the year ended December 31, 1999 increased to $50.2
million from the $49.6 million recorded in 1998. Interest expense increased
by $4.8 million, or 9.8%, due to an increase in the average balance of
interest-bearing liabilities to $1,206.1 million. Borrowings increased $42.7
million, or 13.2%, from the 1998 balance, and interest-bearing deposits
increased $53.4 million or 6.8%. The cost of borrowings decreased to 5.32% in
1999, down 28 basis points from the 1998 cost of 5.60%. The average cost of
interest-bearing deposits decreased 35 basis points to 3.65% in 1999.
Total interest income amounted to $109.6 million in 1998, an increase of
$15.3 million, or 16.2%, over 1997. This improvement was due to increases in
loan and security income.
Interest income on loans increased $9.6 million, or 14.4%, to $76.5 million
in 1998 from $66.9 million a year prior. While the yield on loans decreased
slightly, the average balance increased $126.3 million, or 16.6%, to $884.2
million in 1998. Interest income on taxable investment securities amounted to
$29.9 million in 1998, compared to $26.2 million in 1997. This increase amounts
to $3.7 million, or 14.1%, comparing 1998 to 1997. The increase resulted from
average balances growing $56.1 million to $446.9 million in 1998 from $390.8
million in 1997.
Total interest expense for the year ended December 31, 1998 increased $8.0
million, or 19.2%, over 1997. While interest expense on time deposits increased
by $157,000, or 0.67%, the cost of this deposit category decreased to 5.66% in
1998 from 5.75% in 1997. The total cost of interest-bearing liabilities
increased to 4.47% in 1998 from 4.44% in 1997.
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. Adequacy of the allowance is determined using a consistent
systematic methodology which analyzes the size and risk of the loan portfolio at
each reporting date by allocating specific
9
<PAGE>
INDEPENDENT BANK CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
reserves for adversly classified loans and general loss allocations for segments
of the loan portfolio which have similar attributes. Management's periodic
evaluation of the adequacy of the reserve considers past loan loss experience,
known and inherent risks in the loan portfolio, adverse situations which may
affect the borrowers' ability to repay, the estimated value of the underlying
collateral, if any, and economic conditions. A substantial portion of the
Company's loans are secured by real estate in Massachusetts. Accordingly, the
ultimate collectibility of a substantial portion of the Company's loan portfolio
is susceptible to changes in property values.
The provision for loan losses remained consistent in 1999 at $3.93 million,
compared with $3.96 million in 1998. For the year ended December 31, 1999, net
loan charge-offs totaled $2.7 million, a decrease of $0.2 million from the prior
year. As of December 31, 1999, the reserve for possible loan losses represented
1.45% of loans, net of unearned discount, as compared to 1.46% at December 31,
1998. The reserve for possible loan losses at December 31, 1999 represented
409.4% of nonperforming loans on that date, as compared to coverage of 255.7% at
the prior year-end. This was a result of a decrease in nonperforming loans of
$1.7 million or 31.8% during 1999.
The provision for loan losses is based upon management's evaluation of the
level of the reserve for possible loan losses required in relation to the
estimate of loss exposure in the loan portfolio. An analysis of individual loans
and the overall risk characteristics and size of the different loan portfolios
is conducted on an ongoing basis. This managerial evaluation is reviewed
periodically by the Company's independent public accountants as well as by a
third-party loan review consultant. As adjustments are identified, they are
reported in the earnings of the period in which they become known.
Management believes that the reserve for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the reserve may be necessary based on increases in nonperforming
loans, changes in economic conditions, changes in the risk profile of the
portfolio, or for other reasons. Various regulatory agencies, as an integral
part of their examination process, periodically review the Company's reserve for
possible loan losses. Federal Reserve regulators most recently examined the
Company in the first quarter of 2000, and the Bank was most recently examined by
the Federal Deposit Insurance Corporation (FDIC) in the third quarter of 1999.
No additional provision for possible loan losses was required as a result of
these examinations.
Non-Interest Income The following table sets forth information regarding
non-interest income for the periods shown.
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $ 5,409 $ 5,356 $ 5,654
Asset Management & Trust Services
income 4,108 3,763 3,082
Mortgage banking income 1,779 2,354 1,713
Bank Owned Life Insurance 1,609 166 --
Other non-interest income 1,888 1,486 1,293
- -----------------------------------------------------------------
TOTAL $14,793 $13,125 $11,742
=================================================================
</TABLE>
Non-interest income, which is generated by deposit account service charges,
fiduciary services, mortgage banking activities, and miscellaneous other
sources, amounted to $14.8 million in 1999.
Service charges on deposit accounts, which represent 36.6% of total
non-interest income, increased from $5.36 million in 1998 to $5.41 million in
1999. Asset Management & Trust Services revenue increased by 9.2% to $4.1
million, compared to $3.8 million in 1998. This improvement is due to a strong
securities market as well as a change in the fee structure.
Mortgage banking income, $1.8 million in 1999, was a decrease of 24.4% over
1998 income of $2.4 million. The Company's mortgage banking revenue consists
primarily of application fees and origination fees on sold loans, servicing
income, and gains and losses on the sale of loans. Residential mortgage loans
are originated as necessary to meet consumer demand. Sales of such loans in the
secondary market occur to lend balance to the Company's interest rate
sensitivity. Such sales generate gain or loss at the time of sale, produce
future servicing income, and provide funds for additional lending and other
purposes. Typically, loans are sold with the Bank retaining responsibility for
collecting and remitting loan payments, inspecting properties, making certain
insurance and tax payments on behalf of the borrowers, and otherwise servicing
the loans and receiving a fee for performing these services.
In the fourth quarter of 1998 the Bank purchased Bank Owned Life Insurance
and this contributed $1.6 million to non-interest income in 1999.
For the year ended December 31, 1998, total non-interest income amounted to
$13.1 million, an increase of $1.4 million, or 11.8%, from 1997. Service charges
on deposit accounts decreased slightly from $5.7 million in 1997 to $5.4 million
in 1998. Asset Management and Trust Services revenue increased by 22.1% to $3.8
million compared to $3.1 million in 1997. This improvement was due to an
increase in funds under management and a strong securities market. Mortgage
banking income increased to $2.4 million in 1998, up from $1.7 million in 1997.
Non-Interest Expense The following table sets forth information regarding
non-interest expense for the periods shown.
<TABLE>
<CAPTION>
Years Ended December 31, 1999 1998 1997
- -------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Salaries and employee benefits $23,716 $21,071 $19,464
Occupancy expenses 3,613 3,681 3,525
Equipment expenses 3,203 2,970 2,619
Advertising 1,197 775 679
Consulting fees 732 629 925
Legal fees- loan collection 357 299 583
Legal fees- other 284 531 413
FDIC assessment 140 132 112
Office supplies and printing 457 582 460
Data processing facilities management 4,337 4,166 3,727
Postage expense 679 694 674
Telephone expense 785 728 776
Other non-interest expenses 5,950 5,439 4,638
- -------------------------------------------------------------------
TOTAL $45,450 $41,697 $38,595
===================================================================
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Non-interest expenses totaled $45.5 million for the year ended December 31,
1999, a $3.8 million increase from the comparable 1998 period.
Salaries and employee benefits increased $2.6 million, or 12.6%, due in
part to the transfer of the Personal Computing and Networking department
personnel from Alltel, our data processing partner, to the Bank. Wage inflation
resulting from a tight labor market was also a significant contributor to the
increase.
Occupancy and equipment expenses increased $0.17 million in 1999 to $6.8
million. In 1999, the Bank expanded into the town of Stoughton by opening a new
full-service branch. The data processing facilities management fee increased by
$0.2 million to $4.3 million in 1999. All other non-interest expenses increased
$0.77 million, or 7.9%, to $10.6 million in 1999, compared to $9.8 million in
1998.
Non-interest expenses increased by $3.1 million, or 8.0%, to $41.7 million
in 1998 compared with $38.6 million in 1997.
Salaries and employee benefits increased $1.6 million, or 8.3%, to $21.1
million in 1998, compared with $19.5 million in 1997. This increase was due to
merit increases, additional staffing, and a tight labor market.
Performance-based compensation awards also contributed to this increase.
Occupancy and equipment expense increased $0.5 million, or 8.3%, from 1997
to 1998, again demonstrating the Company's commitment to continually improve
facilities and technology for customers and employees.
The data processing facilities management fee, initiated in 1996, increased
by $0.4 million to $4.2 million in 1998, compared to $3.7 million in 1997.
Minority Interest In 1997, Independent Capital Trust I was formed for the
purpose of issuing Trust Preferred Securities. A total of $28.8 million of 9.28%
Trust Preferred Securities were issued by the Trust. The Company recorded
distributions payable on the Trust Preferred Securities as minority interest
expense totaling $2.7 million in 1999 and 1998.
Income Taxes For the years ended December 31, 1999, 1998 and 1997, the
Company recorded combined federal and state income tax provisions of $7.5
million, $7.8 million and $7.3 million, respectively. These provisions reflect
effective income tax rates of 30.7%, 32.6%, and 34.1%, in 1999, 1998, and 1997,
respectively, which are less than the Company's combined statutory tax rate of
42%. The lower effective income tax rates are attributable to certain
non-taxable investments and dividends and to benefits recorded in these years in
compliance with Statement of Financial Standards (SFAS) No. 109.
The tax effects of all income and expense transactions are recognized by
the Company in each year's consolidated statements of income regardless of the
year in which the transactions are reported for income tax purposes.
ASSET/LIABILITY MANAGEMENT
The Bank's asset/liability management process monitors and manages, among
other things, the interest rate sensitivity of the balance sheet, the
composition of the securities portfolio, funding needs and sources, and the
liquidity position. All of these factors, as well as projected asset growth,
current and potential pricing actions, competitive influences, national monetary
and fiscal policy, and the regional economic environment are considered in the
asset/liability management process.
The Asset/Liability Management Committee, whose members comprise the Bank's
senior management, develops procedures, consistent with policies established by
the Board of Directors, which monitor and coordinate the Company's interest rate
sensitivity and the sources, uses, and pricing of funds. Interest rate
sensitivity refers to the Company's exposure to fluctuations in interest rates
and its effect on earnings. If assets and liabilities do not reprice
simultaneously and in equal volume, the potential for interest rate exposure
exists. It is management's objective to maintain stability in the growth of net
interest income through the maintenance of an appropriate mix of
interest-earning assets and interest-bearing liabilities and, when necessary,
within prudent limits, through the use of off-balance sheet hedging instruments
such as interest rate swaps. The Committee employs simulation analyses in an
attempt to quantify, evaluate, and manage the impact of changes in interest
rates on the Bank's net interest income. In addition, the Company engages an
independent consultant to render advice with respect to asset and liability
management strategy.
The Bank is careful to increase deposits without adversely impacting the
weighted average cost of those monies. Accordingly, management has implemented
funding strategies that include FHLB advances and repurchase agreement lines.
These non-deposit funds are also viewed as a contingent source of liquidity and,
when profitable lending and investment opportunities exist, access to such funds
provides a means to leverage the balance sheet.
At December 31, 1999, approximately 29% of the Company's total assets
consisted of assets which will reprice or mature within one year. As of that
date, the amount of the Company's cumulative hedged gap on assets which will
reprice or mature within one year was a negative $422.4 million, or 26.6% of
total assets.
From time to time, the Company has utilized interest rate swap agreements
as hedging instruments against stable or declining interest rates. An interest
rate swap is an agreement whereby one party agrees to pay a floating rate of
interest on a notional principal amount in exchange for receiving a fixed rate
of interest on the same notional amount for a predetermined period of time from
a second party. The assets relating to the notional principal amount are not
actually exchanged.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Bank had entered into interest rate swap agreements with a total
notional value of $55 million at December 31, 1999 and $20 million at December
31, 1998. These swaps were arranged through a large international financial
institution and have initial maturities ranging from nine months to five years.
The Bank receives fixed rate payments and pays a variable rate of interest tied
to either 3-month LIBOR or Prime. At December 31, 1999, the weighted average
fixed payment rate was 7.65% and the weighted average rate of the variable
interest payments was 7.22%. As a result of these interest rate swaps, the Bank
realized net interest income of $0.1 million in 1999, 1998 and 1997.
The selected consolidated financial and other data of the Company set
forth below does not purport to be complete and should be read in conjunction
with, and is qualified in its entirety by, the more detailed information,
including the Consolidated Financial Statements and related notes, appearing
elsewhere herein.
<TABLE>
<CAPTION>
Amounts Maturing or Repricing
------------------------------------------------------
Within Over Three
Three To Twelve Over One
Months Months Year Total
----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Interest-earning assets (1):
Federal funds sold $ 8,719 -- -- $ 8,719
Securities 29,859 46,158 377,850 453,867
Loans - fixed rate (2) 52,260 111,370 604,890 768,520
Loans - floating rate (2) 172,861 37,082 43,151 253,094
----------- ------------- ---------- ----------
Total interest-earning assets 263,699 194,610 1,025,891 1,484,200
----------- ------------- ---------- ----------
Bank Owned Life Insurance -- -- 31,719 31,719
----------- ------------- ---------- ----------
Interest-bearing liabilities:
Savings and Interest Checking accounts (3) 65,807 -- 251,382 317,189
Money Market and Super Interest Checking
accounts (3) 88,213 1,336 11,694 101,243
Time certificates of deposit over $100,000 58,335 6,300 -- 64,635
Other time deposits 117,010 235,439 44,327 396,776
Borrowings 183,243 100,000 76,224 359,467
----------- ------------- ---------- ----------
Total interest-bearing liabilities 512,608 343,075 383,627 1,239,310
----------- ------------- ---------- ----------
Corporation-obligated mandatorily redeemable
trust preferred securities of subsidiary trust
holding solely junior subordinated debentures
of the Corporation -- -- 28,750 28,750
=========== ============= =========== ==========
Net interest sensitivity gap during the period (248,909) (148,465) 645,233 247,859
=========== ============= =========== ==========
Cumulative gap (248,909) (397,374) 247,859 247,859
=========== ============= =========== ==========
Effect of hedging activities (55,000) 30,000 25,000 --
=========== ============= =========== ==========
Cumulative hedged gap ($ 303,909) (422,374) 247,859 $ 247,859
=========== ============= =========== ==========
Interest-earning assets as a percent of
interest-bearing liabilities (cumulative) 51.44% 53.56% 119.76% 119.76%
Interest-earning assets as a percent of
total assets (cumulative) 16.58% 28.82% 93.34% 93.34%
Ratio of unhedged gap to total assets -15.65% -9.34% 40.58% 15.59%
Ratio of cumulative unhedged gap to total assets -15.65% -24.99% 15.59% 15.59%
Ratio of hedged gap to total assets -19.11% -7.45% 42.15% 15.59%
Ratio of cumulative hedged gap to total assets -19.11% -26.56% 15.59% 15.59%
</TABLE>
(1) Adjustable and floating-rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed-rate loans are included in the periods in
which they are scheduled to be repaid.
(2) Balances have been reduced for nonperforming loans which amounted to $3.6
million at the same date.
(3) Although the Bank's regular savings accounts generally are subject to
immediate withdrawal, management considers most of these accounts to be
core deposits having significantly longer effective maturities based on the
Bank's experience of retention of such deposits in changing interest rate
environments.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
INTEREST RATE RISK
Interest rate risk is the sensitivity of income to variations in interest
rates over both short-term and long-term horizons. The primary goal of interest
rate risk management is to control this risk within limits approved by the Board
and narrower guidelines approved by the Asset/Liability Management Committee.
These limits and guidelines reflect the Company's tolerance for interest rate
risk by identifying exposures, quantifying and hedging them. The Company
quantifies its interest rate exposures using simulation models, as well as
simpler gap analyses. The Company manages its interest rate exposure using a
combination of on and off balance sheet instruments, primarily fixed rate
portfolio securities, interest rate swaps, and options.
The Company uses simulation analysis to measure the exposure of net
interest income to changes in interest rates over a relatively short (i.e. less
than 2 years) time horizon. Simulation analysis involves projecting future
interest income and expense from the Company's assets, 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 interest income for the
next 12 months should decline by less than 6.0%. 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>
+200 (2.25%)
-200 2.79%
</TABLE>
See Managements' discussion on Asset/Liability Management for further
details on how the Company manages its market and interest rate risk.
LIQUIDITY
Liquidity, as it pertains to the Company, is the ability to generate cash
in the most economical way for the institution to meet its 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.
The Bank utilizes its extensive branch network to access retail customers
who provide a stable base of in-market core deposits. These funds are
principally comprised of demand deposits, interest checking accounts, savings
accounts, and money market accounts. Deposit levels are greatly influenced by
interest rates, economic conditions, and competitive factors. The Bank has also
established five repurchase agreement lines with major brokerage firms as
potential sources of liquidity. At December 31, 1999, the Company had $39.6
million outstanding under these lines. In addition to these lines, the Bank also
had customer repurchase agreements outstanding amounting to $47.6 million at
December 31, 1999. As a member of the Federal Home Loan Bank, Rockland has
access to approximately $323 million of borrowing capacity. On December 31,
1999, the Company had $256.2 million outstanding in FHLB borrowings.
The Parent Company, as a separately incorporated bank holding company, has
no significant operations other than serving as the sole stockholder of the
Bank. On an unconsolidated basis, the Parent Company's assets include its
investment in the Bank, $1.4 million of other investments, and $0.9 million of
goodwill. In addition, the Parent Company issued $29.64 million of Junior
Subordinated Debentures in conjunction with the issuance of Trust Preferred
Securities by a direct subsidiary, Independent Capital Trust I. The proceeds of
this offering, net of issuance costs, are maintained in an interest bearing
checking account at the Bank. The Parent Company has no employees and no
significant liabilities or sources of income. Expenses incurred by the Parent
Company relate to its reporting obligations under the Securities Exchange Act of
1934, as amended, and related expenses as a publicly traded company. The Parent
Company is directly reimbursed by the Bank for virtually all such expenses.
The Company actively manages its liquidity position under the direction of
the Asset/Liability Management Committee. Periodic review under prescribed
policies and procedures is intended to ensure that the Company will maintain
adequate levels of available funds. At December 31, 1999, the Company's
liquidity position was well above policy guidelines.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
CAPITAL RESOURCES
The Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation
(FDIC), and other regulatory agencies have established capital guidelines for
banks and bank holding companies. Risk-based capital guidelines issued by the
federal regulatory agencies require banks to meet a minimum Tier 1 risk-based
capital ratio of 4.0% and a total risk-based capital ratio of 8.0%. At December
31, 1999, the Company and the Bank substantially exceeded the minimum
requirements for Tier 1 risk-based and total risk-based capital.
A minimum requirement of 4.0% Tier 1 leverage capital is also mandated. On
December 31, 1999, the Tier 1 leverage capital ratio for the Company and the
Bank was 8.15% and 6.86%, respectively.
Capital ratios of the Company and the Bank are shown below for the last two
year-ends.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ------------ ------- ---------
<S> <C> <C>
THE COMPANY
Tier 1 leverage capital ratio 8.15% 7.91%
Tier 1 risk-based capital ratio 11.14% 11.38%
Total risk-based capital ratio 12.39% 12.63%
THE BANK
Tier 1 leverage capital ratio 6.86% 6.32%
Tier 1 risk-based capital ratio 9.35% 9.09%
Total risk-based capital ratio 10.60% 10.34%
</TABLE>
DIVIDENDS
The Company declared cash dividends of $.40 per share in 1999 and 1998. The
1999 ratio of dividends paid to earnings was 33.50%.
Payment of dividends by the Company on its common stock is subject to
various regulatory restrictions. The Company is regulated by the Federal
Reserve Bank and, as such, is subject to its regulations and guidelines with
respect to the payment of dividends. Since substantially all of the funds
available for the payment of dividends are derived from the Bank, future
dividends will depend on the earnings of the Bank, its financial condition,
its need for funds, applicable governmental policies and regulations, and
other such matters as the Board of Directors deems appropriate. Management
believes that the Bank will continue to generate adequate earnings to
continue to pay dividends.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related notes thereto presented
elsewhere herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation.
The financial nature of the Company's consolidated financial statements is
more clearly affected by changes in interest rates than by inflation. Interest
rates do not necessarily fluctuate in the same direction or in the same
magnitude as the prices of goods and services. However, inflation does affect
the Company because, as prices increase, the money supply grows and interest
rates are affected by inflationary expectations. The impact on the Company is a
noted increase in the size of loan requests with resulting growth in total
assets. In addition, operating expenses may increase without a corresponding
increase in productivity. There is no precise method, however, to measure the
effects of inflation on the Company's consolidated financial statements.
Accordingly, any examination or analysis of the financial statements should take
into consideration the possible effects of inflation.
YEAR 2000 READINESS DISCLOSURE
The Company developed plans to address the possible exposure related to the
impact of the Year 2000 problem ("Y2K") on its computer systems and key service
providers. Senior management and the Board of Directors approved these plans.
The Company aggressively monitored the transition of its computer systems
into 2000 and is pleased with the results. Minor exceptions were noted and
corrected quickly. Management will continue to monitor computer systems
throughout 2000 as a normal course of business, paying particular attention to
the remaining critical Y2K dates.
The Company estimated out of pocket costs in 1999 and 1998 to address the
Y2K problem at $500,000. These costs totaled $211,000 and $131,000 in 1999 and
1998, respectively.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of Independent Bank Corp.:
We have audited the consolidated balance sheets of Independent Bank Corp.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Independent
Bank Corp. and its subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
-------------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 26, 2000>
15
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
------------ -------------
(Dollars In Thousands)
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 48,949 $ 47,755
FEDERAL FUNDS SOLD 8,719 38,443
TRADING ASSETS (Note 3) 486 --
SECURITIES HELD TO MATURITY (Notes 1 and 4)
(market value $218,588 and $287,542) 229,043 284,944
SECURITIES AVAILABLE FOR SALE (Notes 1 and 4) 201,614 195,199
FEDERAL HOME LOAN BANK STOCK (Note 7) 17,036 16,035
LOANS, NET OF UNEARNED DISCOUNT (Notes 1 and 5) 1,028,510 941,112
LESS: RESERVE FOR POSSIBLE LOAN LOSSES (14,958) (13,695)
------------ -------------
Net Loans 1,013,552 927,417
------------ -------------
BANK PREMISES AND EQUIPMENT (Notes 1 and 6) 14,268 15,200
OTHER ASSETS (Notes 1 and 9) 56,389 50,076
------------ -------------
TOTAL ASSETS $ 1,590,056 $ 1,575,069
============ =============
LIABILITIES
DEPOSITS
Demand Deposits $ 226,044 $ 219,090
Savings and Interest Checking Accounts 282,516 278,306
Money Market and Super Interest Checking Accounts 107,624 113,811
Time Certificates of Deposit over $100,000 113,832 95,706
Other Time Deposits 351,790 336,404
------------ -------------
TOTAL DEPOSITS 1,081,806 1,043,317
------------ -------------
FEDERAL FUNDS PURCHASED AND ASSETS SOLD UNDER
REPURCHASE AGREEMENTS (Notes 4 and 7) 93,366 82,376
TREASURY TAX AND LOAN NOTES (Notes 4 and 7) 9,877 471
FEDERAL HOME LOAN BANK BORROWINGS (Note 7) 256,224 313,724
OTHER LIABILITIES 21,904 10,583
------------ -------------
TOTAL LIABILITIES $ 1,463,177 $ 1,450,471
------------ -------------
Corporation-obligated mandatorily redeemable trust preferred
securities of subsidiary trust holding solely junior subordinated
debentures of the Corporation
Outstanding: 1,150,000 shares (Note 14) $ 28,750 $ 28,750
------------ -------------
STOCKHOLDERS' EQUITY (Notes 1 and 12)
Preferred Stock, $.01 par value. Authorized: 1,000,000 Shares
Outstanding: None -- --
Common Stock, $.01 par value. Authorized: 30,000,000
Outstanding: 14,863,821 Shares in 1999 and 14,863,821 Shares in 1998 149 149
Treasury Stock: 684,463 Shares in 1999 and 406,638 Shares in 1998 (10,678) (6,431)
Surplus 44,950 45,303
Retained Earnings 67,547 56,063
Other Accumulated Comprehensive Income, Net of Tax (Note 4) (3,839) 764
TOTAL STOCKHOLDERS' EQUITY 98,129 95,848
------------ -------------
TOTAL LIABILITIES, MINORITY INTEREST IN
SUBSIDIARIES, AND STOCKHOLDERS' EQUITY $ 1,590,056 $ 1,575,069
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
------------------- ----------- ------------------
(Dollars In Thousands, Except Share and Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME
Interest on Loans (Notes 1 and 5) $ 81,296 $ 76,404 $ 66,739
Interest and Dividends on Securities (Note 4) 30,127 31,508 26,899
Interest on Federal Funds Sold and Repurchase Agreements 578 800 182
Interest on Interest Bearing Deposits 5 -- --
------------------- ----------- ------------------
Total Interest Income 112,006 108,712 93,820
------------------- ----------- ------------------
INTEREST EXPENSE
Interest on Deposits 30,668 31,432 31,697
Interest on Borrowings (Notes 1 and 7) 19,510 18,137 9,881
------------------- ----------- ------------------
Total Interest Expense 50,178 49,569 41,578
------------------- ----------- ------------------
Net Interest Income 61,828 59,143 52,242
------------------- ----------- ------------------
PROVISION FOR POSSIBLE LOAN LOSSES (Notes 1 and 5) 3,927 3,960 2,260
------------------- ----------- ------------------
Net Interest Income After Provision For Possible Loan Losses 57,901 55,183 49,982
------------------- ----------- ------------------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 5,409 5,356 5,654
Asset Management & Trust Services Income 4,108 3,763 3,082
Mortgage Banking Income 1,779 2,354 1,713
Other Non-Interest Income 3,497 1,652 1,293
------------------- ----------- ------------------
Total Non-Interest Income 14,793 13,125 11,742
------------------- ----------- ------------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits (Note 10) 23,716 21,071 19,464
Occupancy Expenses (Notes 6 and 13) 3,613 3,681 3,525
Equipment Expenses 3,203 2,970 2,619
Other Non-Interest Expenses (Note 11) 14,918 13,975 12,987
------------------- ----------- ------------------
Total Non-Interest Expenses 45,450 41,697 38,595
------------------- ----------- ------------------
Minority Interest 2,668 2,668 1,645
------------------- ----------- ------------------
INCOME BEFORE INCOME TAXES 24,576 23,943 21,484
PROVISION FOR INCOME TAXES (Notes 1 and 9) 7,545 7,804 7,326
------------------- ----------- ------------------
NET INCOME $ 17,031 $ 16,139 $ 14,158
=================== =========== ==================
BASIC EARNINGS PER SHARE $ 1.20 $ 1.10 $ 0.97
=================== =========== ==================
DILUTED EARNINGS PER SHARE $ 1.19 $ 1.08 $ 0.95
=================== =========== ==================
Weighted average common shares (Basic) (Notes 1 and 12) 14,213,390 14,730,193 14,666,420
Common stock equivalents 152,266 215,526 305,805
------------------- ----------- ------------------
Weighted average common shares (Diluted) (Notes 1 and 12) 14,365,656 14,945,719 14,972,225
=================== =========== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
OTHER
ACCUMULATED
COMMON TREASURY RETAINED COMPREHENSIVE
STOCK STOCK SURPLUS EARNINGS INCOME TOTAL
--------- -------- --------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 146 -- $ 44,433 $ 36,666 $ (135) $ 81,110
--------- -------- --------- ---------- ------------- -------
Net Income 14,158 14,158
Cash Dividends Declared ($.34 per share) (4,999) (4,999)
Proceeds From Exercise of Stock
Options (Note 12) 2 710 712
Tax Benefit on Stock Option Exercises 4 4
Change in Unrealized Gain (Loss) on Securities
Available For Sale, Net of Tax (Note 4) 1,508 1,508
--------- -------- --------- ---------- ------------- -------
BALANCE DECEMBER 31, 1997 148 -- 45,147 45,825 1,373 92,493
--------- -------- --------- ---------- ------------- -------
Net Income 16,139 16,139
Cash Dividends Declared ($.40 per share) (5,901) (5,901)
Proceeds From Exercise of Stock
Options (Note 12) 1 409 156 566
Treasury Stock Repurchase, 433,338 shares (6,840) (6,840)
Change in Unrealized Gain on Securities
Available For Sale, Net of Tax (Note 4) (609) (609)
--------- -------- --------- ---------- ------------- -------
BALANCE DECEMBER 31, 1998 149 (6,431) 45,303 56,063 764 95,848
--------- -------- --------- ---------- ------------- -------
Net Income 17,031 17,031
Cash Dividends Declared ($.40 per share) (5,547) (5,547)
Proceeds From Exercise of Stock
Options (Note 12) 589 (353) 236
Treasury Stock Repurchase, 315,355 shares (4,836) (4,836)
Change in Unrealized Gain on Securities
Available For Sale, Net of Tax (Note 4) (4,603) (4,603)
--------- -------- --------- ---------- ------------- -------
BALANCE DECEMBER 31, 1999 $ 149 ($10,678) $ 44,950 $ 67,547 ($ 3,839) $ 98,129
--------- -------- --------- ---------- ------------- -------
</TABLE>
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(In Thousands)
<S> <C> <C> <C>
Net Income $ 17,031 $ 16,139 $ 14,158
Other Comprehensive Income, Net of Tax
Unrealized holding gains (losses) arising during period (4,581) (591) 1,503
Reclassification adjustments for (gains) losses included in net earnings (22) (18) 5
-------- -------- ---------
Other Comprehensive Income (4,603) (609) 1,508
-------- -------- ---------
Comprehensive Income $ 12,428 $ 15,530 $ 15,666
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
--------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 17,031 $ 16,139 $ 14,158
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Depreciation and amortization 4,544 4,202 3,160
Provision for possible loan losses 3,927 3,960 2,260
Deferred income taxes 75 65 769
Loans originated for resale (51,208) (76,223) (42,850)
Proceeds from mortgage loan sales 51,005 76,028 42,793
Loss (gain) on sale of mortgages 203 195 57
Loss (gain) on sale of investments (34) (27) 8
Gain recorded from mortgage servicing rights (560) (748) (423)
Other Real Estate Owned recoveries (12) (188) (131)
Changes in assets and liabilities:
(Increase) Decrease in other assets (5,753) 1,318 (1,111)
(Decrease) Increase in other liabilities 13,928 (1,497) (403)
--------- ---------- ---------
TOTAL ADJUSTMENTS 16,115 7,085 4,129
--------- ---------- ---------
NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES 33,146 23,224 18,287
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of Securities Held to Maturity 77,286 106,545 88,070
Proceeds from maturities of Securities Available-For-Sale 43,855 68,702 20,641
Purchase of Securities Held to Maturity (22,045) (84,211) (106,195)
Purchase of Securities Available For Sale (58,555) (133,688) (123,937)
Purchase of Federal Home Loan Bank Stock (1,001) -- (8,477)
Net increase in Loans (90,188) (116,004) (134,533)
Purchase of Bank Owned Life Insurance -- (30,000) --
Proceeds from sale of Other Real Estate Owned 138 244 400
Investment in Bank Premises and Equipment (2,245) (5,041) (4,200)
--------- ---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (52,755) (193,453) (268,231)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Time Deposits 33,512 10,835 44,493
Net increase (decrease) in Other Deposits 4,977 44,334 25,083
Net increase (decrease) in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements 10,990 44,049 37,487
Net increase (decrease) in Federal Home Loan Bank Borrowings (57,500) 107,000 128,724
Net increase (decrease) in Treasury Tax & Loan Notes 9,406 (2,746) 921
Issuance of corporation-obligated mandatorily redeemable
trust preferred securities of subsidiary trust
holding solely junior subordinated debentures of the
Corporation -- -- 28,750
Proceeds from stock issuance 236 566 716
Payments for Treasury stock purchase (4,836) (6,840) --
Dividends Paid (5,706) (5,787) (4,700)
--------- ---------- ---------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (8,921) 191,411 261,474
--------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,530) 21,182 11,530
--------- ---------- ---------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 86,198 65,016 53,486
--------- ---------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 57,668 $ 86,198 $ 65,016
========= ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and borrowings $ 50,083 $ 51,212 $ 45,453
Minority Interest 2,668 2,668 1,638
Income taxes 8,094 7,303 6,110
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Loans transferred to OREO 126 85 503
Assets transferred to trading from Available-For-Sale 486 -- --
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold and assets purchased under
resale agreements. Generally, federal funds are sold for up to two-week periods.
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Independent Bank Corp. (the Company) and its subsidiaries, Rockland Trust
Company (Rockland or The Bank) and Independent Capital Trust I. All material
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in prior year financial statements have been reclassified to
conform to the current year's presentation.
USES OF ESTIMATES IN THE PREPARATION OF
FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could vary from these estimates. Material
estimates that are particularly susceptible to significant changes in the near
term relate to the determination of the allowance for loan losses, and the
valuation of foreclosed real estate, deferred tax assets and trading activities.
NATURE OF OPERATIONS
Independent Bank Corp. is a one-bank holding company whose primary asset is
its investment in Rockland Trust Company. Rockland is a state-chartered
commercial bank which operates 34 banking offices in southeastern Massachusetts.
The Bank's primary source of income is from providing loans to individuals and
small-to-medium-sized businesses in its market area.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank's activities are with customers located within
Massachusetts. Notes 3 and 4 discuss the types of securities that the Bank
invests in. Note 5 discusses the types of lending that the Bank engages in. The
Bank does not have any significant concentrations in any one industry or
customer.
CASH AND CASH
EQUIVALENTS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and balances due from banks, federal funds sold and
securities purchased under repurchase agreements, all of which mature within 90
days.
TRADING ACTIVITIES
Securities that are held principally for resale in the near term are
recorded in the trading assets account at fair value with changes in fair value
recorded in earnings. Interest and dividends are included in net interest
income. Derivatives are carried at fair value with changes in fair value
recorded in earnings, and are classified as trading assets when there is a
positive fair value and trading liabilities when there is a negative fair value.
Quoted market prices, when available, are used to determine the fair value of
trading instruments. If quoted market prices are not available, then fair values
are estimated using pricing models, quoted prices of instruments with similar
characteristics, or discounted cash flows.
SECURITIES
Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held-to-maturity" and recorded at amortized cost.
Securities not classified as held-to-maturity or trading, including equity
securities with readily determinable fair values, are classified as
"available-for-sale" and recorded at fair value, net of the related tax effect,
with unrealized gains and losses excluded from earnings and reported in other
comprehensive income.
Purchase premiums and discounts are recognized in interest income using the
effective yield method over the terms of the securities. Declines in the fair
value of held-to-maturity and available-for-sale securities below their cost
that are deemed to be other than temporary are reflected in earnings as realized
losses.
When securities are sold, the adjusted cost of the specific security sold
is used to compute gain or loss on the sale. Neither the Company nor the Bank
engages in the trading of investment securities.
LOANS HELD FOR SALE
Loans originated and intended for sale in the secondary market are carried
at the lower of cost or estimated fair value in the aggregate. Net unrealized
losses, if any, are recognized through a valuation allowance by charges to
income.
LOANS
Loans are stated at their principal balance outstanding. Interest income
for commercial, real estate, and consumer loans is accrued based upon the daily
principal amount outstanding except for loans on nonaccrual status. Interest
income on instalment loans is generally recorded based upon the level-yield
method.
Interest accruals are generally suspended on commercial or real estate
loans more than 90 days past due with respect to principal or interest. When a
loan is placed on nonaccrual status, all previously accrued and uncollected
interest is reversed against current income. Interest income on nonaccrual loans
is recognized on a cash basis when the ultimate collectibility of principal is
no longer considered doubtful.
Loan fees in excess of certain direct origination costs are deferred and
amortized into interest income over the expected term of the loan using the
level-yield method.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to
have occurred. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's systematic periodic review of the collectibility
of the loans in light of historical experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of
the loan agreement. Factors considered by manage-
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ment in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan basis for
commercial and construction loans by either the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately identify
individual consumer and residential loans for impairment disclosures.
LOAN SERVICING
Servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Capitalized servicing
rights are reported in other assets and are amortized into non-interest income
in proportion to, and over the period of, the estimated future net servicing
income of the underlying financial assets. Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized
cost. Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Fair value is determined
using prices for similar assets with similar characteristics, when available, or
based upon discounted cash flows using market-based assumptions. Impairment is
recognized through a valuation allowance for an individual stratum, to the
extent that fair value is less than the capitalized amount for the stratum.
LOAN ORIGINATION FEES
Loan origination and commitment fees and certain related costs are deferred
and amortized over the lives of the underlying loans. Net deferred fees included
in loans at December 31, 1999 and 1998 were $830,000 and $267,000, respectively.
BANK PREMISES AND EQUIPMENT
Land is carried at cost. Bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized over the shorter of the lease terms or the estimated useful lives of
the improvements.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) is comprised of real estate acquired through
loan foreclosure or acceptance of a deed in lieu of foreclosure. OREO is
initially recorded at fair value at the date of foreclosure, establishing a new
cost basis. Subsequent to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of carrying amount or fair
value less cost to sell. Any loan balance in excess of the estimated fair value
on the date of transfer is charged to the reserve for possible loan losses on
that date. Revenue and expenses from operations and changes in the valuation
allowance are included in net expenses from foreclosed assets. Subsequent
declines in value are charged to other non-interest expense.
INTANGIBLE ASSETS
In connection with the acquisition of Middleborough Trust Company in
January 1986, the Company allocated $2,951,000 of the purchase price to
goodwill. This amount is being amortized over a 20-year period using the
straight-line method. The balance at December 31, 1999 is $885,000.
In March 1994, Rockland purchased $21.6 million of deposits from the
Resolution Trust Corporation. In May 1994, Rockland purchased approximately $50
million of trust assets from Pawtucket Trust Company. The Bank allocated
$1,923,000 of the purchase price of these transactions to intangible assets,
which is being amortized over a 15-year period using the straight-line method.
The balance at December 31, 1999 is $1,179,000. The Company periodically
evaluates intangible assets for impairment on the basis of whether these assets
are recoverable from projected undiscounted net cash flows of the related
acquired entity.
INCOME TAXES
Deferred income tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects of the temporary
differences between the book and tax bases of the various balance sheet assets
and liabilities and gives current recognition to changes in tax rates and laws.
ASSET MANAGEMENT & TRUST SERVICES
Assets held in a fiduciary or agency capacity for customers are not
included in the accompanying consolidated balance sheets, as such assets are not
assets of the Company. Trust and Financial Services income is recorded on an
accrual basis.
FINANCIAL INSTRUMENTS
CREDIT RELATED FINANCIAL INSTRUMENTS - In the ordinary course of business,
the Bank enters into commitments to extend credit. These financial instruments
are recorded when they are funded.
DERIVATIVE FINANCIAL INSTRUMENTS - As part of asset/liability management,
the Bank utilizes interest rate swap agreements, caps, or floors to hedge
various exposures or to modify interest rate characteristics of various balance
sheet accounts.
Swaps are accounted for on the "accrual" method. The interest component
associated with the contract is recognized over the life of the contract in net
interest income.
When a contract is terminated, the resulting gain or loss is deferred and
amortized into net interest income based upon the life of the contract.
The Bank uses written put and call option strategies in which it receives a
cash premium for entering into options on investment securities. These options
are derivative financial instruments and are marked to fair value through
non-interest income and included in Other Liabilities in the accompanying
consolidated statement of financial condition. In 1999 and 1998, the Bank
recognized option income of $30,000 and $81,000 respectively.
21
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TRANSFERS OF FINANCIAL ASSETS
Transfers of financial assets are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, encourages all entities to adopt a fair value-based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees , whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under the
Company's stock option plan have no intrinsic value at the grant date, and under
Opinion No. 25 no compensation cost is recognized for them. The Company has
elected to continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided pro forma disclosures of net income and earnings per share
and other disclosures, as if the fair value-based method of accounting had been
applied. The pro forma disclosures include the effects of all awards granted on
or after January 1, 1995. (See Note 12.)
COMPREHENSIVE INCOME
The Company adopted SFAS 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on
available-for-sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of comprehensive income. The adoption of SFAS 130 had no effect on
the Company's net income or shareholders' equity. Comprehensive income is
reported in this financial statement.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
computer software costs associated with internal-use software to be expensed as
incurred until certain capitalization criteria are met. The Company adopted SOP
98-1 on January 1, 1999 and the adoption did not have a material impact on its
financial statements.
In April 1998, AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires all costs associated with pre-opening and
organization activities to be expensed as incurred. The Company adopted SOP 98-5
beginning January 1, 1999. The adoption of SOP 98-5 did not have a material
impact on its financial statements.
In February 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 132, "Employer's Disclosure about Pensions and Other Post-retirement
Benefits" - an amendment to FASB Statements Nos. 87, 88 and 106. This statement
revises employer's disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans but
standardizes the disclosure requirement. This statement suggests combined
formats for presentation of pension and other postretirement benefit disclosure.
Restatement of disclosures for earlier periods is required. This statement is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 did not have a material effect on the Company's primary financial
statement, but did affect the disclosure of employee benefits contained
elsewhere herein (Note 10).
In June 1998, the 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.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value Of Financial Instruments,"
requires disclosure of fair value information about financial instruments for
which it is practicable to estimate that value, whether or not recognized on the
balance sheet. In cases where quoted market values are not available, fair
values are based upon estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. The carrying amount reported on the balance sheet
for cash, federal funds sold and assets purchased under resale agreements, and
interest bearing deposits approximates those assets' fair values. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company. The following table
reflects the book and fair values of financial instruments, including on-balance
sheet and off-balance sheet instruments as of December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
----------------------- -------------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------- ------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
- ----------------
Cash and Due From Banks $ 48,949 $ 48,949 $ 47,755 $ 47,755 (a)
Federal Funds Sold 9,205 9,205 38,443 38,443 (a)
Securities Held To Maturity 229,043 218,588 284,944 287,542 (b)
Securities Available For Sale 201,614 201,614 195,199 195,199 (b)
Trading assets 486 486 -- -- (b)
Federal Home Loan Bank Stock 17,036 17,036 16,035 16,035 (c)
Net Loans 1,012,052 1,010,337 927,417 931,059 (d)
Loans held for sale 1,500 1,500 5,600 5,600 (b)
Mortgage Servicing Rights 1,417 1,417 1,145 1,145 (f)
Bank-owned Life Insurance 31,720 31,720 30,111 30,111 (b)
FINANCIAL LIABILITIES
- ---------------------
Demand Deposits 226,044 226,044 219,090 219,090 (e)
Savings and Interest Checking Accounts 282,515 282,515 278,306 278,306 (e)
Money Market and Super Interest Checking Accounts 107,624 107,624 113,811 113,811 (e)
Time Deposits 465,622 466,553 432,110 433,623 (f)
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 93,366 92,832 82,376 83,125 (f)
Treasury Tax and Loan Notes 9,877 9,877 471 471 (a)
Federal Home Loan Bank Borrowings 256,224 250,175 313,724 308,239 (f)
Corporation-obligated mandatorily redeemable trust
preferred securities of subsidiary trust holding solely
junior subordinated debentures of the Corporation 28,750 24,869 28,750 29,756 (f)
UNRECOGNIZED FINANCIAL INSTRUMENTS
- ----------------------------------
Standby Letters of Credit -- 9 -- 13 (g)
Interest Rate Swap Agreements -- 291 -- 131 (b)
</TABLE>
(a) Book value approximates fair value due to short term nature of these
instruments.
(b) Fair value was determined based on market prices or dealer quotes.
(c) Federal Home Loan Bank stock is redeemable at cost
(d) The fair value of loans was estimated by discounting anticipated future
cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
(e) Fair value is presented as equaling book value. SFAS No. 107 requires that
deposits which can be withdrawn without penalty at any time be presented at
such amount without regard to the inherent value of such deposits and the
Bank's relationship with such depositors.
(f) The fair value of these instruments is estimated by discounting anticipated
future cash payments using rates currently available for instruments with
similar remaining maturities.
(g) The fair value of these instruments was estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of customers.
23
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) TRADING ASSETS Trading assets, at fair value, consist of the following:
<TABLE>
<CAPTION>
1999
--------------
Fair Value
--------------
(In Thousands)
<S> <C>
Cash equivalents $ 21
Marketable equity securities 465
--------------
Total $486
==============
</TABLE>
The Company realized a loss on trading activities of $15,000 in 1999.
(4) SECURITIES
The amortized cost, gross unrealized gains and losses, and fair market
value of securities held to maturity at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ------------------------------------------
Gross Gross Fair Gross Gross Fair
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- ------- --------- ---------- ---------- --------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agency Securities $ 25,996 -- ($ 1,386) $ 24,610 $ 29,197 $ 191 ($ 419) $ 28,969
Mortgage-Backed Securities 101,081 84 (2,229) 98,936 143,292 1,916 (293) 144,915
Collateralized Mortgage Obligations 5,666 -- (61) 5,605 17,799 89 (71) 17,817
State, County, and Municipal Securities 41,984 25 (2,841) 39,168 40,365 820 (52) 41,133
Other Securities 54,316 361 (4,408) 50,269 54,291 835 (418) 54,708
--------- ---------- ---------- ------- --------- ---------- ---------- --------
Total $229,043 $ 470 ($10,925) $218,588 $284,944 $ 3,851 ($ 1,253) $287,542
========= ========== ========== ======= ========= ========== ========== ========
</TABLE>
The amortized cost, gross unrealized gains and losses, and fair market
value of securities available for sale at December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ------------------------------------------
Gross Gross Fair Gross Gross Fair
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- --------- --------- ----------- ---------- -------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agency Securities $ 8,999 -- ($ 532) $ 8,467 $ 8,999 $ 46 -- $ 9,045
Mortgage-Backed Securities 125,115 -- (3,234) 121,881 136,014 1,527 (131) 137,410
Collateralized Mortgage Obligations 73,316 250 (2,300) 71,266 48,677 19 (376) 48,320
Other Securities -- -- -- 350 74 424
--------- ---------- ---------- --------- --------- ----------- ---------- -------
Total $207,430 $ 250 ($ 6,066) $201,614 $194,040 $ 1,666 ($507) $195,199
========= ========== ========== ========= ========= =========== ========== =======
</TABLE>
The Bank realized a gain of $34,000 and $27,000 on the sale of
available-for-sale securities in 1999 and 1998, respectively.
A schedule of the contractual maturities of securities held-to-maturity and
securities available-for-sale at December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Held to maturity Available for sale
---------------------- ----------------------
Amortized Fair Amortized Fair
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 14,288 $ 14,123 $ 1,099 $ 1,055
Due from one year to five years 17,340 16,929 -- --
Due from five to ten years 50,197 49,263 17,387 16,562
Due after ten years 147,218 138,273 188,945 183,997
--------- ------------ --------- ------------
Total $229,043 $218,588 $207,431 $201,614
========= ============ ========= ============
</TABLE>
The actual maturities of mortgage-backed securities and collateralized
mortgage obligations will differ from the contractual maturities due to the
ability of the borrowers to prepay underlying mortgage obligations.
On December 31, 1999 and 1998, investment securities carried at
$136,236,000 and $110,579,000, respectively, were pledged to secure public
deposits, assets sold under repurchase agreements, treasury tax and loan notes,
and for other purposes as required by law. At year end 1999 and 1998, the
Company had no investments in obligations of individual states, counties, or
municipalities which exceeded 10% of stockholders' equity.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LOANS AND RESERVE FOR POSSIBLE LOAN LOSSES
The composition of loans, net of unearned discount, at December 31, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Commercial $ 137,108 $ 127,019
Real Estate - Commercial Mortgage 320,713 261,332
Real Estate - Residential Mortgage 208,066 197,807
Real Estate - Construction 38,034 44,710
Consumer - Instalment 322,266 315,419
Consumer - Other 7,766 8,656
---------- ----------
Gross Loans 1,033,953 954,943
---------- ----------
Unearned Discount 5,443 13,831
---------- ----------
Loans, Net of Unearned Discount $1,028,510 $ 941,112
========== ==========
</TABLE>
In addition to the loans noted above, at December 31, 1999 and December 31,
1998, the Company serviced approximately $256,833,000 and $256,289,000,
respectively, of loans sold to investors in the secondary mortgage market and
other financial institutions. All of the loans sold at December 31, 1999 and
1998, were sold without recourse.
Loans held for sale are valued at lower of the recorded balance or market
value. At December 31, 1999, and 1998, loans held for sale amounted to
approximately $1,500,000 and $5,600,000, respectively. No adjustments for
unrealized losses were required at December 31, 1999 and 1998.
As of December 31, 1999 and 1998 the Bank's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 was as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------------- ------------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Impaired loans: (In Thousands)
Valuation allowance
required $ 790 $ 353 $1,479 $ 422
No valuation
allowance required 434 -- 476 --
---------- ---------- ---------- ----------
Total $1,224 $ 353 $1,955 $ 422
========== ========== ========== ==========
</TABLE>
The valuation allowance is included in the reserve for possible loans
losses on the balance sheet. The average recorded investment in impaired loans
for the years ended December 31, 1999 and 1998 was $1,900,000 and $3,500,000,
respectively. Interest payments received on impaired loans are recorded as
interest income unless collection of the remaining recorded investment is
doubtful at which time payments received are recorded as reductions of
principal. The Bank recognized interest income on impaired loans of
approximately $56,000 and $159,000 for the years ended December 31, 1999 and
1998.
The aggregate amount of loans in excess of $60,000 outstanding to
directors, principal officers, and principal security holders at December 31,
1999 and 1998 and for the years then ended is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance, January 1, 1998 $ 15,125
---------
New loans 1,694
Loan repayments (5,250)
---------
Balance, December 31, 1998 $ 11,569
---------
New loans 7,060
Loan repayments (5,907)
---------
Balance, December 31, 1999 $ 12,722
=========
</TABLE>
All such loans were made in the ordinary course of business on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with other persons, and do
not involve more than the normal risk of collectibility or present other
unfavorable features.
An analysis of the reserve for possible loan losses for each of the three
years in the period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
Reserve, beginning of year $ 13,695 $ 12,674 $ 12,221
Loans charged off (3,970) (4,097) (2,906)
Recoveries on loans previously
charged off 1,306 1,158 1,099
--------- ---------- ---------
Net charge-offs (2,664) (2,939) (1,807)
Provision charged to expense 3,927 3,960 2,260
--------- ---------- ---------
Reserve, end of year $ 14,958 $ 13,695 $ 12,674
========= ========== =========
</TABLE>
(6) BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cost: (In Thousands)
Land $ 335 $ 335
Bank Premises 10,420 10,342
Leasehold Improvements 7,308 7,029
Furniture and Equipment 22,202 20,436
--------- ---------
Total Cost 40,265 38,142
--------- ---------
Accumulated Depreciation (25,997) (22,942)
--------- ---------
Net Bank Premises and Equipment $ 14,268 $ 15,200
========= =========
</TABLE>
Depreciation and amortization expense related to bank premises and
equipment was $3,177,000 in 1999, $2,617,000 in 1998 and $2,066,000 in 1997.
25
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) BORROWINGS
Short-term borrowings consist of federal funds purchased, assets sold under
repurchase agreements, and treasury tax and loan notes. Information on the
amounts outstanding and interest rates of short term borrowings for each of the
three years in the period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C>
Balance outstanding at
end of year $103,243 $ 82,847 $ 41,544
Average daily balance
outstanding 88,215 66,403 48,869
Maximum balance outstanding
at any month end 103,248 89,741 84,945
Weighted average interest rate
for the year 4.83% 5.39% 5.74%
Weighted average interest rate
at end of year 4.86% 4.72% 5.99%
</TABLE>
The Bank has established two federal funds lines of $20 million.
Borrowings under these lines are classified as federal funds purchased. The
Company has established five repurchase agreements with major brokerage
firms. Borrowings under these agreements are classified as assets sold under
repurchase agreements. At December 31, 1999, the Bank had $40.0 million
outstanding under these lines, while at December 31, 1998, there was $30.0
million outstanding. The Bank also utilizes customer repurchase agreements as
an additional source of funds. The balance outstanding was $47.6 million and
$47.4 million at December 31, 1999 and 1998 respectively.
Federal Home Loan Bank (FHLB) borrowings are collateralized by a blanket
pledge agreement on the Bank's FHLB stock, certain qualified investment
securities, deposits at the Federal Home Loan Bank, and residential mortgages
held in the Bank's portfolio. The borrowing capacity at the Federal Home Loan
Bank is approximately $323 million. A schedule of the maturity distribution of
FHLB advances with the weighted average interest rates at December 31, 1999 and
1998 follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
---------- ---------- ---------- -----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Due in
one year or less $185,000 5.69% $107,500 5.22%
Due from one year
to five years 71,224 5.60% 206,224 5.44%
---------- ---------- ---------- -----------
$256,224 5.66% $313,724 5.36%
========== ========== ========== ===========
</TABLE>
(8) EARNINGS PER SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per
Share. This statement was issued by the FASB in March 1997 and establishes
standards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerators and denominators of the basic and
diluted EPS computations. This statement also requires a restatement of all
prior period EPS data presented.
<TABLE>
<CAPTION>
Net Income Weighted Average Shares Net Income Per Share
--------------------------- -------------------------- ------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- ------- -------- -------- ------ -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $17,031 $16,139 $14,158 14,214 14,730 14,666 $ 1.2 $ 1.10 $ 0.97
Effect of dilutive securities -- -- -- 152 216 306 0.01 0.02 0.02
-------- -------- ------- -------- -------- ------ -------- ------ ------
Diluted EPS $17,031 $16,139 $14,158 14,366 14,946 14,972 $ 1.19 $ 1.08 $ 0.95
-------- -------- ------- -------- -------- ------ -------- ------ ------
</TABLE>
Options to purchase 248,395 shares of common stock were outstanding during
the year but were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of the common
shares.
Basic EPS was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) INCOME TAXES
The provision for income taxes is comprised of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
-------- -------- --------
Current Provision (In Thousands)
<S> <C> <C> <C>
Federal $ 6,419 $ 7,509 $ 6,129
State 1,051 230 428
-------- -------- --------
TOTAL CURRENT
PROVISION 7,470 7,739 6,557
-------- -------- --------
Deferred Provision (Benefit)
Federal 391 49 508
State (285) 14 387
Change in Valuation Allowance (31) 2 (126)
-------- -------- --------
TOTAL DEFERRED
PROVISION 75 65 769
-------- -------- --------
TOTAL PROVISION $ 7,545 $ 7,804 $ 7,326
======== ======== ========
</TABLE>
The income tax provision shown in the consolidated statements of income differs
from the expected amount, determined by applying the statutory federal tax rate
of 35% to income before income taxes. The following summary reconciles the
differences between these amounts.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
-------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Computed statutory federal
income tax provision $ 8,602 $ 8,380 $ 7,519
Nontaxable interest, net (662) (541) (302)
State taxes, net of federal tax benefit 498 160 404
Low-income housing credits (161) (215) (215)
Bank-owned life insurance (563) (39) --
Change in valuation allowance (31) 2 (126)
Other, net (138) 57 46
-------- --------- ---------
TOTAL PROVISION $ 7,545 $ 7,804 $ 7,326
======== ========= =========
</TABLE>
The net deferred tax asset which is included in other assets amounted to
approximately $4,057,000 and $1,718,000, at December 31, 1999 and 1998
respectively. The tax-effected components of the net deferred tax asset at
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Reserve for possible loan losses $ 5,106 $ 4,664
Tax depreciation 895 539
Write-down of OREO -- 66
Mark to market adjustment (4,613) (4,009)
Accrued expenses not deducted
for tax purposes 405 498
Deferred income 36 91
State taxes 597 312
SFAS 115 adjustment 2,036 (379)
Other, net (405) (33)
-------- --------
TOTAL DEFERRED TAX ASSET 4,057 1,749
Valuation allowance -- (31)
-------- --------
NET DEFERRED TAX ASSET $ 4,057 $ 1,718
======== ========
</TABLE>
The valuation allowance is provided when it is more likely than not that some
portion of the net deferred tax asset will not be realized.
(10) EMPLOYEE BENEFITS
PENSION AND POSTRETIREMENT BENEFITS
PENSION
Effective January 1997, the Bank's pension plan joined a multiple employer
structure under the Financial Institutions Retirement Fund. All plan assets were
contributed to the Fund. This transaction qualified for accounting purposes as a
plan termination. The accrued pension liability at December 31, 1996 was
recognized as income in 1997.
There was no contribution requirement for 1999, 1998 or 1997 and
consequently no pension expense was recognized.
The Bank's noncontributory pension plan covers substantially all employees
of the Bank. The plan provides pension benefits that are based upon the
employee's highest base annual salary during five consecutive years of
employment. The Company's funding policy, prior to January 1, 1997, was to
contribute an amount within the range permitted by applicable regulations on an
annual basis.
POSTRETIREMENT BENEFITS
Employees retiring from the Bank on or after attaining age 65 and who have
rendered at least 10 years of continuous service to the Company are entitled to
postretirement health care benefits. These benefits are subject to deductibles,
copayment provisions and other limitations. The Company may amend or change
these benefits periodically.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting For Postretirement Benefits Other Than Pensions," which requires the
recognition of postretirement benefits over the service lives of the employees
rather than on a cash basis. The Company elected to recognize its accumulated
benefit obligation of approximately $678,000 at January 1, 1993 prospectively on
a straight-line basis over the average life expectancy of current retirees,
which is anticipated to be less than 20 years.
Postretirement benefit expense was $107,000, $106,000 and $87,000 in 1999,
1998 and 1997 respectively. The total cost of all postretirement benefits
charged to income was $73,000, $126,000, and $103,000 in 1999, 1998, and 1997,
respectively.
The Bank continues to evaluate ways in which it can better manage these
benefits and control the costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected future benefits may have a
significant effect on the amount of the reported obligation and annual expense.
The following table illustrates the status of the postretirement benefit
plan at December 31 for the years presented:
<TABLE>
<CAPTION>
Postretirement Benefits
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation at
beginning of year $ 774 $ 824 $ 840
Service cost 14 14 13
Interest cost 53 56 52
Other -- (10) --
Benefits paid (71) (110) (81)
------ ------- -------
Benefit obligation at end of year 770 774 824
------ ------- -------
</TABLE>
27
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
POSTRETIREMENT BENEFITS (continued)
<TABLE>
<CAPTION>
Postretirement Benefits
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Funded status (770) (774) (824)
Unrecognized net actuarial loss -- -- --
Unrecognized net transition
liability (asset) 390 451 491
Unrecognized prior service cost -- -- --
-------- --------- --------
Accrued benefit cost $(380) $(323) $(333)
======== ========= ========
Weighted-average assumptions
as of December 31
Discount rate 7.00% 7.00% 7.00%
Components of net periodic benefit cost
Service cost $ 14 $ 14 $ 13
Interest cost 53 56 57
Amortization of transition obligation 40 36 17
-------- --------- --------
Net periodic benefit cost $ 107 $ 106 $ 87
======== ========= ========
</TABLE>
OTHER EMPLOYEE BENEFITS
In 1994, the Bank implemented an incentive compensation plan in which
senior management, officers, and non-officer employees are eligible to
participate at varying levels. The plan provides for awards based upon the
attainment of a combination of Bank, divisional, and individual performance
objectives. The expense for this plan amounted to $1,420,000, $1,366,000 and
$1,191,000 in 1999, 1998 and 1997, respectively.
Also, in 1994, the Bank amended its Profit Sharing Plan by converting it to
an Employee Savings Plan that qualifies as a deferred salary arrangement under
Section 401(k) of the Internal Revenue Code. Under the Employee Savings Plan,
participating employees may defer a portion of their pre-tax earnings, not to
exceed the Internal Revenue Service annual contribution limits. The Bank matches
50% of each employee's contributions up to 6% of the employee's earnings. In
1999, 1998 and 1997, the expense for this plan amounted to $393,000, $346,000
and $302,000, respectively.
In 1998 and 1999 the Bank entered into agreements to provide postretirement
benefits to two executive officers. The Bank has established rabbi trust funds
to aid in its accumulation of amounts necessary to satisfy the contractual
liability to pay such benefits. These agreements provide for the Bank to pay all
benefits thereunder from its general assets, and the establishment of these
trust funds does not reduce or otherwise affect the Bank's continuing liability
to pay benefits from such assets except that the Bank's liability shall be
offset by actual benefit payments made from the Trust. The related trust assets
totaled $486,000 and $424,000 at December 31, 1999 and 1998, respectively. The
liability is being recorded over the remaining service period of the executive
officers. The amount of expense recognized related to this plan amounted to
$92,000 and $25,000 in 1999 and 1998, respectively.
The Bank maintains a supplemental retirement plan for five executive
officers. In connection with funding this plan, the Bank has purchased life
insurance policies for each of the individuals. The cash surrender value of the
insurance policies as of December 31, 1999 and 1998 was $1.6 million and $1.1
million respectively. The impact of this plan on the income statement was a
benefit of $57,000 and $5,000 for 1999 and 1998, respectively, and an expense of
$18,000 in 1997.
In 1998, the Bank purchased $30.0 million of bank owned life insurance. The
value of this life insurance was $31.7 million and $30.1 million at December 31,
1999 and 1998, respectively.
(11) OTHER NON-INTEREST EXPENSES
Included in other non-interest expenses for each of the three years in the
period ended December 31, 1999 were the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Advertising $ 1,197 $ 775 $ 679
Consulting fees 732 629 925
Legal fees - loan collection 357 299 583
Legal fees - other 284 531 413
FDIC assessment 140 132 112
Office supplies and printing 457 582 460
Data processing facilities management 4,337 4,166 3,727
Postage expense 679 694 674
Telephone expense 785 728 776
Other non-interest expenses 5,950 5,439 4,638
------- ------- --------
TOTAL $14,918 $13,975 $12,987
======= ======= ========
</TABLE>
(12) Common Stock Purchase and Option Plans
The Company maintains a Dividend Reinvestment and Stock Purchase Plan.
Under the terms of the plan, stockholders may elect to have cash dividends
reinvested in newly issued shares of common stock at a 5% discount from the
market price on the date of the dividend payment. Stockholders also have the
option of purchasing additional new shares, at the full market price, up to the
aggregate amount of dividends payable to the stockholder during the calendar
year.
The Company has three stock option plans, the Amended and Restated 1987
Incentive Stock Option Plan ("The 1987 Plan"), the 1996 Non-Employee Directors
Stock Option Plan ("The 1996 Plan") and the 1997 Employee Stock Option Plan
("The 1997 Plan") The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
these plans been determined consistent with FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C> <C>
Net Income: As Reported (000's) $17,031 $16,139 $14,158
Pro Forma $16,809 $15,925 $14,068
Basic EPS: As Reported $1.20 $1.10 $.97
Pro Forma $1.18 $1.08 $.96
Diluted EPS: As Reported $1.19 $1.08 $.95
Pro Forma $1.17 $1.07 $.94
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The Company may grant options for up to 500,000, 300,000 and 800,000 shares
under the 1997, 1996 and 1987 Plans respectively. The Company has granted
options on 376,600, 140,000 and 638,075 shares, respectively, through December
31, 1999. At December 31, 1999 no shares were available for grant under the 1987
Plan due to the Plan's expiration in 1997. Under each Plan the option exercise
price equals the market price on date of grant. All options vest between six
months and two years and all expire between 2000 and 2009.
A summary of the status of the Company's three stock option plans at
December 31,1999 and December 31, 1998 and changes during the years then ended
is presented in the table and narrative below:
<TABLE>
<CAPTION>
1999 1998
Wtd Avg Wtd Avg
Shares Ex. Price Shares Ex. Price
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance, January 1 610,457 $11.40 570,674 $9.22
Granted 152,000 $12.55 137,650 $17.52
Exercised (37,530) $6.27 (88,617) $6.39
Canceled (41,366) $14.76 (9,250) $15.73
------- -------
Balance, December 31 683,561 $11.73 610,457 $11.40
======= =======
Exercisable at
December 31 466,192 405,965
======= =======
Weighted average fair value
of options granted $2.70 $2.68
</TABLE>
442,586 of the 683,561 options outstanding at December 31,1999 have
exercise prices between $4.44 and $12.41, with a weighted average exercise price
of $8.71 and a weighted average remaining contractual life of 6.3 years. 310,586
of these options are exercisable; their weighted average exercise price is
$7.14. The remaining 240,975 options have exercise prices between $13.38 and
$19.25, with a weighted average exercise price of $17.30 and a weighted average
remaining contractual life of 8.5 years. 155,606 of these options are
exercisable; their weighted average exercise price is $17.28.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants under the 1997 and 1996 plans:
<TABLE>
<CAPTION>
1997 Plan 1996 Plan
<S> <C> <C>
Risk Free Interest Rate
1999 6.33% 5.02%
1998 4.67% 5.56%
Expected Dividend Yields
1999 3.22% 2.99%
1998 2.31% 1.87%
Expected Lives
1999 4 years 4 years
1998 4 years 4 years
Expected Volatility
1999 25% 25%
1998 15% 15%
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE
SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of amounts recognized in the consolidated balance
sheets. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. Off-balance
sheet financial instruments whose contractual amounts present credit risk
include the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In Thousands)
<S> <C> <C>
Commitments to extend credit:
Fixed Rate $ 20,249 $ 33,077
Adjustable Rate 7,163 7,034
Unused portion of existing credit lines 123,625 133,038
Unadvanced construction loans 31,169 20,958
Standby letters of credit 694 1,463
Interest rate swaps - notional value 55,000 20,000
</TABLE>
The Company's exposure to credit loss in the event of non-performance by
the other party for commitments to extend credit and standby letters of credit
is represented by the contractual amounts of those instruments. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. The Bank evaluates each
customer's creditworthiness on an individual basis. The amount of collateral
obtained upon extension of the credit is based upon management's credit
evaluation of the customer. Collateral varies but may include accounts
receivable, inventory, property, plant and equipment, and income-producing
commercial real estate. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since some of the
commitments may expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee performance of a customer to a third party. These guarantees are
primarily issued to support public and private borrowing
29
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers. The
collateral supporting those commitments is essentially the same as for other
commitments. Most guarantees extend for one year. As a component of its
asset/liability management activities intended to control interest rate
exposure, the Bank has entered into certain off-balance sheet hedging
transactions. Interest rate swap agreements represent transactions which involve
the exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. The weighted average fixed payment
rates were 7.65% and 6.52% at December 31, 1999 and 1998, respectively, while
the weighted average rates of variable interest payments were 7.22% and 5.25% at
December 31, 1999 and 1998, respectively. As a result of these interest rate
swaps, the Bank realized net income of $.1 million for the years ended December
31, 1999 and 1998 respectively.
Entering into interest rate swap agreements involves both the credit risk
of dealing with counterparties and their ability to meet the terms of the
contracts and an interest rate risk. While notional principal amounts are
generally used to express the volume of these transactions, the amounts
potentially subject to credit risk are small due to the structure of the
agreements. The Bank is a direct party to these agreements which provide for net
settlement between the Bank and the counterparty on a semiannual basis. Should
the counterparty fail to honor the agreement, the Bank's credit exposure is
limited to the net settlement amount. The Bank had net receivables on the
interest rate swaps of $450,000 and $19,000 at December 31, 1999 and 1998,
respectively.
LEASES
The Company leases equipment, office space and certain branch locations
under noncancellable operating leases. The following is a schedule of minimum
future lease commitments under such leases as of December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 1,618
2001 1,440
2002 1,271
2003 1,205
2004 1,042
Thereafter 2,363
------
Total future minimum rentals $8,939
======
</TABLE>
Rent expense incurred under operating leases was approximately $1.7 million
in 1999, $2.0 million in 1998, and $2.3 million in 1997. Renewal options ranging
from 3 to 10 years exist for several of these leases.
OTHER CONTINGENCIES
At December 31, 1999 there were lawsuits pending which arose in the
ordinary course of business. Management has reviewed these actions with legal
counsel and has taken into consideration the view of counsel as to the outcome
of the litigation. In the opinion of management, final disposition of these
lawsuits is not expected to have a material adverse effect on the Company's
financial position or results of operations.
The Bank is required to maintain certain reserve requirements of vault cash
and/or deposits with the Federal Reserve Bank of Boston. The amount of this
reserve requirement, included in cash and due from banks was $18.7 million and
$16.7 million at December 31, 1999 and 1998, respectively.
In 1999 and 1998, the Company invested a total of $.8 million in Zero Stage
Capital Associates VI, LLC, a Massachusetts limited liability company. The
Company's remaining commitment is $.7 million over the next three years. On
October 22, 1999 and June 1, 1999, the Company entered into master commitments
to deliver or sell $30.0 million (all of which is optional) and $40.0 million
(of which $20.0 million is mandatory) of residential mortgage loans to federal
agencies on or before April 30, 2000 and May 31, 2000 respectively. As of
December 31, 1999, the unfulfilled portion that remained to be delivered under
the $30.0 million commitment was approximately $28.1 million, the unfulfilled
portion under the $40.0 million was approximately $23.1 million.
(14) CORPORATION-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES
In 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 $29.64 million of
9.28% junior subordinated debentures issued by the Company. A total of $28.75
million of 9.28% Trust Preferred Securities were issued by the Trust 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. In 1997, the Trust also issued $.89 million in common stock to the
Company. The Trust Preferred Securities are presented in the consolidated
balance sheets of the Company entitled "Corporation-Obligated Mandatorily
Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Corporation." The Company records distributions
payable on the Trust Preferred Securities as a Minority Interest Expense in its
consolidated statements of income. In 1999 and 1998 the Company paid $2.7
million, respectively, of trust preferred security distributions. The cost of
issuance of the Trust Preferred Securities totaled $1.4 million and is being
amortized over the life of the Securities on a straight-line basis. The balance
at December 31, 1999 and 1998 was $1.3 million respectively. Amortization of
these issuance costs was $72,000 in 1999 and $74,000 in 1998.
The Company unconditionally guarantees all of the Trust's obligations under
the Trust Preferred Securities.
On January 31, 2000, Independent Capital Trust II (the "Trust II") was
formed for the purpose of issuing trust preferred securities (the "Trust
Preferred Securities") and investing the proceeds of the sale of these
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
securities in $25.8 million of 11% junior subordinated debentures issued by the
Company. A total of $25 million of 11% Trust Preferred Securities were issued by
the Trust and are scheduled to mature in 2030, callable at the option of the
Company after January 31, 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 January 31, 2002 at a redemption price equal to $25 per Trust Preferred
Security plus accumulated but unpaid distributions thereon to the date of the
redemption. On January 31, 2000, the Trust II also issued $0.8 million in common
stock to the Company.
The cost of issuance of the Trust Preferred Securities is estimated at $1
million and will be amortized over the life of the Securities on a straight-line
basis.
The Company unconditionally guarantees all of the Trust II's obligations
under the Trust Preferred Securities.
(15) REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier 1 capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1999 that the Company and the Bank met
all capital adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Federal
Reserve Bank of Boston relating to the Company and from the Federal Deposit
Insurance Corporation and the Commonwealth of Massachusetts relating to the
Bank, categorized both the Company and the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized an insured depository institution must maintain minimum Total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the Company's and the Bank's category.
The Company and the Bank's actual capital amounts and ratios are also
presented in the following table.
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
------------------- ----------------------------------
Amount Ratio Amount Ratio
-------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999: (Dollars In Thousands)
Company: (consolidated)
greater than greater than
Total capital (to risk weighted assets) $143,058 12.39% and equal to $ 92,370 and equal to 8.0%
greater than greater than
Tier 1 capital (to risk weighted assets) 128,616 11.14 and equal to 46,223 and equal to 4.0
greater than greater than
Tier 1 capital (to average assets) 128,616 8.15 and equal to 63,124 and equal to 4.0
Bank
greater than greater than
Total capital (to risk weighted assets) $122,590 10.60% and equal to $ 95,521 and equal to 8.0%
greater than greater than
Tier 1 capital (to risk weighted assets) 108,133 9.35 and equal to 46,260 and equal to 4.0
greater than greater than
Tier 1 capital (to average assets) 108,133 6.86 and equal to 63,051 and equal to 4.0
As of December 31, 1998:
Company: (consolidated)
greater than greater than
Total capital (to risk weighted assets) $134,865 12.63% and equal to $ 85,406 and equal to 8.0%
greater than greater than
Tier 1 capital (to risk weighted assets) 121,484 11.38 and equal to 42,703 and equal to 4.0
greater than greater than
Tier 1 capital (to average assets) 121,484 7.91 and equal to 61,433 and equal to 4.0
Bank:
greater than greater than
Total capital (to risk weighted assets) $110,219 10.34% and equal to $ 85,286 and equal to 8.0%
greater than greater than
Tier 1 capital (to risk weighted assets) 96,857 9.09 and equal to 42,643 and equal to 4.0
greater than greater than
Tier 1 capital (to average assets) 96,857 6.32 and equal to 61,326 and equal to 4.0
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
---------------------------------------
Amount Ratio
----------- ------------
<S> <C> <C>
As of December 31, 1999: (Dollars In Thousands)
Company: (consolidated)
Total capital (to risk weighted assets) N/A N/A
Tier 1 capital (to risk weighted assets) N/A N/A
Tier 1 capital (to average assets) N/A N/A
Bank
greater than greater than
Total capital (to risk weighted assets) and equal to $115,651 and equal to 10.0%
greater than greater than
Tier 1 capital (to risk weighted assets) and equal to 69,390 and equal to 6.0
greater than greater than
Tier 1 capital (to average assets) and equal to 78,814 and equal to 5.0
As of December 31, 1998:
Company: (consolidated)
Total capital (to risk weighted assets) N/A N/A
Tier 1 capital (to risk weighted assets) N/A N/A
Tier 1 capital (to average assets) N/A N/A
Bank:
greater than greater than
Total capital (to risk weighted assets) and equal to $106,607 and equal to 10.0%
greater than greater than
Tier 1 capital (to risk weighted assets) and equal to 63,964 and equal to 6.0
greater than greater than
Tier 1 capital (to average assets) and equal to 76,657 and equal to 5.0
</TABLE>
31
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) SEGMENT REPORTING
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. The Company does not have a single external customer from
which it derives ten percent or more of its revenues and operates in the New
England area of the United States.
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 and Independent Capital Trust I financial
information (Note 18).
Information about reportable segments and reconciliation of such
information to the consolidated financial statements as of and for the years
ended December 31, follows (in thousands):
RECONCILIATION TO CONSOLIDATED FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
Community
Banking Other Eliminations Consolidated
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Net Interest Income $ 61,086 $ 742 -- $ 61,828
Non-Interest Income 14,792 18,890 (18,889) 14,793
Depreciation and
Amortization 4,324 220 -- 4,544
Provisions for Possible
Loan Losses 3,927 -- -- 3,927
Net Income 18,806 17,114 (18,889) 17,031
Total Assets 1,586,797 158,841 (155,582) 1,590,056
Investment in Bank
Premises & Equipment 2,245 -- -- 2,245
</TABLE>
<TABLE>
<CAPTION>
Community
Banking Other Eliminations Consolidated
------------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Net Interest Income $ 58,060 $ 1,083 -- $ 59,143
Non-Interest Income 13,125 18,042 (18,042) 13,125
Depreciation and
Amortization 3,981 221 -- 4,202
Provisions for Possible
Loan Losses 3,960 -- -- 3,960
Net Income 17,959 16,222 (18,042) 16,139
Total Assets 1,571,270 156,588 (152,789) 1,575,069
Investment in Bank
Premises & Equipment 5,041 -- -- 5,041
</TABLE>
<TABLE>
<CAPTION>
Community
Banking Other Eliminations Consolidated
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Net Interest Income $ 51,468 $ 774 -- $ 52,242
Non-Interest Income 11,742 15,279 (15,279) 11,742
Depreciation and
Amortization 2,966 194 -- 3,160
Provisions for Possible
Loan Losses 2,260 -- -- 2,260
Net Income 15,228 14,209 (15,279) 14,158
Total Assets 1,365,953 153,118 (149,064) 1,370,007
Investment in Bank
Premises & Equipment 4,200 -- -- 4,200
</TABLE>
Non-eliminating amounts included in the "Other" column are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Parent Company $ (2,009) $ (1,668) $ (922)
Independent Capital Trust I 2,751 2,751 1,696
-------- -------- --------
Net Interest Income $ 742 $ 1,083 $ 774
Parent Company operating expenses, 18,634 17,807 15,080
net of miscellaneous income
Income Taxes not allocated
to segments
Parent Company (406) -- --
</TABLE>
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before income taxes, not
including nonrecurring gains or losses.
The Company derives a majority of its revenues from interest income and the
chief operating decision maker relies primarily on net interest revenue to
assess the performance of the segments and make decisions about resources to be
allocated to the segment. Therefore, the segments are reported above using net
interest income.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME $ 27,607 $ 26,085 $ 27,694 $ 26,547 $ 28,085 $ 28,186
INTEREST EXPENSE 12,745 11,659 12,583 11,757 12,292 13,064
---------------------------------------------------------------------------------
NET INTEREST INCOME $ 14,862 $ 14,426 $ 15,111 $ 14,790 $ 15,793 $ 15,122
---------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 981 907 982 907 982 907
NON-INTEREST INCOME 3,425 3,087 3,881 3,398 3,601 3,260
NON-INTEREST EXPENSES 11,109 10,368 11,437 10,675 11,372 10,785
MINORITY INTEREST 667 667 667 667 667 667
PROVISION FOR INCOME TAXES 1,684 1,866 1,798 1,991 1,941 1,928
---------------------------------------------------------------------------------
NET INCOME $ 3,846 $ 3,705 $ 4,108 $ 3,948 $ 4,432 $ 4,095
=================================================================================
BASIC EARNINGS PER SHARE $ 0.27 $ 0.25 $ 0.29 $ 0.27 $ 0.31 $ 0.28
=================================================================================
DILUTED EARNINGS PER SHARE $ 0.27 $ 0.25 $ 0.29 $ 0.26 $ 0.31 $ 0.27
=================================================================================
WEIGHTED AVERAGE
COMMON SHARES (BASIC) 14,312,093 14,828,992 14,164,975 14,854,477 14,167,691 14,774,324
COMMON STOCK EQUIVALENTS 169,506 253,334 155,506 257,400 149,887 209,022
WEIGHTED AVERAGE
COMMON SHARES (DILUTED) 14,481,599 15,082,236 14,320,481 15,111,877 14,317,578 14,983,346
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
FOURTH
QUARTER
1999 1998
----------- -----------
<S> <C> <C>
INTEREST INCOME $ 28,620 $ 27,894
INTEREST EXPENSE 12,558 13,089
-------------------------
NET INTEREST INCOME $ 16,062 $ 14,805
-------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 982 1,239
NON-INTEREST INCOME 3,886 3,380
NON-INTEREST EXPENSES 11,532 9,869
MINORITY INTEREST 667 667
PROVISION FOR INCOME TAXES 2,122 2,019
-------------------------
NET INCOME $ 4,645 $ 4,391
=========================
BASIC EARNINGS PER SHARE $ 0.33 $ 0.30
=========================
DILUTED EARNINGS PER SHARE $ 0.32 $ 0.30
=========================
WEIGHTED AVERAGE
COMMON SHARES (BASIC) 14,173,925 14,494,995
COMMON STOCK EQUIVALENTS 136,090 187,782
WEIGHTED AVERAGE
COMMON SHARES (DILUTED) 14,310,015 14,682,777
=========================
</TABLE>
(18) PARENT COMPANY FINANCIAL STATEMENTS
Condensed financial information relative to the Company's balance sheets at
December 31, 1999 and 1998, and the related statements of income and cash flows
for the years ended December 31, 1999, 1998, and 1997 are presented below.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ----------------------------------- -------- --------
<S> <C> <C>
Assets: (In Thousands)
Cash* $ 19,528 $ 21,861
Investments in subsidiaries* 106,400 101,273
Other investments 1,400 1,400
Other assets 1,865 2,406
-------- --------
Total assets $129,193 $126,940
======== ========
Liabilities and Stockholders' Equity:
Dividends Payable $ 1,417 $ 1,446
Junior Subordinated Debt 29,647 29,646
-------- --------
Total liabilities 31,064 31,092
Stockholders' equity 98,129 95,848
-------- --------
Total liabilities and stockholders' equity $129,193 $126,940
======== ========
</TABLE>
*eliminated in consolidation
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Income: (In Thousands)
Dividend received from subsidiaries $ 9,279 $ 7,593 $ 5,707
Interest income 743 1,083 774
------- ------- -------
Total income 10,022 8,676 6,481
------- ------- -------
Expenses:
Interest expense 2,751 2,751 1,696
Other expenses 255 235 199
------- ------- -------
Total expenses 3,006 2,986 1,895
------- ------- -------
Income before income taxes and
equity in undistributed income
of subsidiary 7,016 5,690 4,586
Equity in undistributed income
of subsidiaries 9,609 10,449 9,572
Income Tax Benefit 406 -- --
------- ------- -------
Net income $17,031 $16,139 $14,158
======= ======= =======
</TABLE>
33
<PAGE>
INDEPENDENT BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------- -------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: (In Thousands)
<S> <C> <C> <C>
Net income $ 17,031 $ 16,139 $ 14,158
ADJUSTMENTS TO RECONCILE NET INCOME
TO CASH PROVIDED FROM OPERATING ACTIVITIES:
Amortization 220 221 194
(Increase) Decrease in other assets (22) (42) (1,478)
(Increase) Decrease in other liabilities 353 1 8
Equity in income of subsidiaries (9,609) (10,449) (9,572)
-------- --------- --------
TOTAL ADJUSTMENTS (9,058) (10,269) (10,848)
-------- --------- --------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 7,973 5,870 3,310
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities -- -- (400)
Capital Investment in subsidiary - Independent Capital Trust I -- -- (889)
-------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES -- -- (1,289)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock issue and stock options exercised 236 566 716
Issuance of junior subordinated debentures -- -- 29,639
Treasury Stock Repurchase (4,836) (6,840) --
Dividends paid (5,706) (5,787) (4,700)
-------- --------- --------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES (10,306) (12,061) 25,655
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,333) (6,191) 27,676
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 21,861 28,052 376
-------- --------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 19,528 $ 21,861 $ 28,052
======== ========= ========
</TABLE>
19) RECENT EVENTS
In the third quarter of 1999, the Company and the Bank entered into a
Purchase and Assumption Agreement with Fleet Financial Group to acquire 12
Massachusetts branches, including ten throughout Cape Cod and two additional
branches in Brockton, totaling $269 million in deposits and $37 million in
consumer and SBA loans. In addition, the Company will purchase approximately
$100 million of loans at par from BankBoston's small business commercial real
estate portfolio. The acquisitions result from the divestiture of Fleet branches
after its merger with BankBoston. This transaction has received regulatory
approval and is contingent upon raising total risk-based (Tier 2) capital.
These branches will continue to operate as Fleet offices until they are
converted to Rockland Trust in late summer 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.
On January 31, 2000, Independent Capital Trust II (the "Trust II") was
formed for the purpose of issuing trust preferred securities. A total of $25
million of 11% Trust Preferred Securities were issued by Trust II and are
scheduled to mature in 2030, callable at the option of the Company after January
31, 2002. The proceeds of this offering will satisfy the capital requirement
resulting from the acquisition as well as provide capital support for other
corporate initiatives. For further information see Note 14.
34
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS OF INDEPENDENT BANK CORP.
<S> <C> <C> <C>
Richard S. Anderson Robert L. Cushing ***Kevin J. Jones **Robert J. Spence
PRESIDENT AND TREASURER PRESIDENT TREASURER PRESIDENT
ANDERSON-CUSHING HANNAH B.G. SHAW HOME PLUMBERS' SUPPLY COMPANY ALBERT CULVER COMPANY
INSURANCE AGENCY, INC. FOR THE AGED, INC.
*Donald K. Atkins ***Alfred L. Donovan Lawrence M. Levinson William J. Spence
RETIRED, FORMER PRESIDENT INDEPENDENT CONSULTANT PARTNER PRESIDENT
AND CHIEF EXECUTIVE OFFICER BURNS & LEVINSON LLP MASSACHUSETTS BAY LINES,
WINTHROP - ATKINS CO., INC. Benjamin A. Gilmore, II INC.
TREASURER - HANNAH B.G. OWNER AND PRESIDENT Douglas H. Philipsen
SHAW HOME FOR THE AGED, INC. GILMORE CRANBERRY CO., INC. CHAIRMAN, PRESIDENT AND *** John H. Spurr, Jr.
CHIEF EXECUTIVE OFFICER EXECUTIVE VICE PRESIDENT
W. Paul Clark ***E. Winthrop Hall AND TREASURER
PRESIDENT AND GENERAL CHAIRMAN AND PRESIDENT Richard H. Sgarzi A.W. PERRY, INC.
MANAGER F.L. & J.C. CODMAN PRESIDENT AND TREASURER
PAUL CLARK, INC. COMPANY BLACK CAT CRANBERRY CORP. ***Robert D. Sullivan
PRESIDENT
SULLIVAN TIRE COMPANY, INC.
Brian S. Tedeschi
CHAIRMAN
TEDESCHI REALTY CORP.
Thomas J. Teuten
PRESIDENT
A. W. PERRY, INC.
* Retired from Board
EFFECTIVE JANUARY 12, 2000
** Retires from Board
EFFECTIVE APRIL 1, 2000
*** Elected to Board
JANUARY 13, 2000
</TABLE>
<TABLE>
<CAPTION>
OFFICERS OF INDEPENDENT BANK CORP.
<S> <C> <C> <C>
Douglas H. Philipsen Richard J. Seaman Linda M. Campion Tara M. Villanova
CHAIRMAN, PRESIDENT AND CHIEF FINANCIAL OFFICER AND CLERK ASSISTANT CLERK
CHIEF EXECUTIVE OFFICER TREASURER
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS OF ROCKLAND TRUST COMPANY
<S> <C> <C> <C>
Richard S. Anderson W. Paul Clark *Donald A. Greenlaw *Nathan Shulman
PRESIDENT AND TREASURER PRESIDENT AND GENERAL MANAGER RETIRED, FORMER PRESIDENT RETIRED, FORMER PRESIDENT
ANDERSON-CUSHING PAUL CLARK, INC. ROCKLAND TRUST COMPANY BEST CHEVROLET, INC.
INSURANCE AGENCY, INC.
E. Winthrop Hall *John F. Spence, Jr.
*John B. Arnold *Robert L. Cushing CHAIRMAN AND PRESIDENT RETIRED, FORMER CHAIRMAN
RETIRED, FORMER PRESIDENT PRESIDENT F.L. & J.C. CODMAN COMPANY OF THE BOARD
AND TREASURER HANNAH B.G. SHAW HOME ROCKLAND TRUST COMPANY
H.H. ARNOLD CO., INC. FOR THE AGED, INC. Kevin J. Jones
TREASURER ***Robert J. Spence
**Donald K. Atkins *H. Thomas Davis PLUMBERS' SUPPLY COMPANY PRESIDENT
RETIRED, FORMER PRESIDENT RETIRED, FORMER CHAIRMAN ALBERT CULVER COMPANY
AND CHIEF EXECUTIVE OFFICER CLIPPER ABRASIVES, INC. *Lawrence M. Levinson
WINTHROP-ATKINS CO., INC. PARTNER William J. Spence
TREASURER - HANNAH B.G. Alfred L. Donovan BURNS & LEVINSON LLP PRESIDENT
SHAW HOME FOR THE AGED, INC. INDEPENDENT CONSULTANT MASSACHUSETTS BAY LINES,
Douglas H. Philipsen INC.
*Theresa J. Bailey *Ann M. Fitzgibbons CHAIRMAN, PRESIDENT AND
RETIRED, FORMER SENIOR VOLUNTEER CHIEF EXECUTIVE OFFICER John H. Spurr, Jr.
VICE PRESIDENT AND CLERK EXECUTIVE VICE PRESIDENT
ROCKLAND TRUST COMPANY Benjamin A. Gilmore, II Richard H. Sgarzi AND TREASURER
OWNER AND PRESIDENT PRESIDENT AND TREASURER A.W. PERRY, INC.
GILMORE CRANBERRY CO., INC. BLACK CAT CRANBERRY CORP.
Robert D. Sullivan
PRESIDENT
SULLIVAN TIRE COMPANY, INC.
Brian S. Tedeschi
CHAIRMAN
TEDESCHI REALTY CORP.
Thomas J. Teuten
PRESIDENT
A.W. PERRY, INC.
* Honorary Director
** Honorary Director
EFFECTIVE JANUARY 12, 2000
*** Honorary Director
EFFECTIVE APRIL 1, 2000
</TABLE>
<TABLE>
<CAPTION>
OFFICERS OF ROCKLAND TRUST COMPANY
<S> <C> <C> <C>
Douglas H. Philipsen Richard F. Driscoll Raymond G. Fuerschbach Linda M. Campion
CHAIRMAN, PRESIDENT AND EXECUTIVE VICE PRESIDENT SENIOR VICE PRESIDENT CLERK
CHIEF EXECUTIVE OFFICER RETAIL AND OPERATIONS HUMAN RESOURCES
Richard J. Seaman Ferdinand T. Kelley Russell N. Viau Tara M. Villanova
CHIEF FINANCIAL OFFICER EXECUTIVE VICE PRESIDENT VICE PRESIDENT AND ASSISTANT CLERK
AND TREASURER COMMERCIAL LENDING CHIEF INTERNAL AUDITOR
AND ASSET MANAGEMENT
& TRUST SERVICES
</TABLE>
35
<PAGE>
INDEPENDENT BANK CORP.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 3:30 p.m. on Thursday,
April 13, 2000 at the Plimoth Plantation, Plymouth, Massachusetts.
COMMON STOCK
The Common Stock of the Company is traded over the counter through the
NASDAQ National Market System under the symbol of INDB.
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
------ ------ --------
<S> <C> <C> <C>
1999
4th Quarter $14.25 $11.88 $0.10
3rd Quarter 15.88 12.19 0.10
2nd Quarter 16.00 12.75 0.10
1st Quarter 17.31 13.69 0.10
1998
4th Quarter $17.50 $14.00 $0.10
3rd Quarter 19.63 13.13 0.10
2nd Quarter 24.25 17.75 0.10
1st Quarter 20.00 14.75 0.10
</TABLE>
STOCKHOLDER RELATIONS
Inquiries should be directed to:
Richard J. Seaman, Chief Financial Officer and Treasurer, or
Tina M. Hart, Shareholder Relations
Independent Bank Corp.
288 Union Street
Rockland, MA 02370
(781) 878-6100
FORM 10-K
A copy of the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for fiscal 1999 is available without charge by writing
to:
Tina M. Hart, Shareholder Relations
Independent Bank Corp.
288 Union Street
Rockland, MA 02370
TRANSFER AGENT AND REGISTRAR
Transfer Agent and Registrar for the Company is:
State Street Bank and Trust Co.
c/o EquiServe Limited Partnership
P. O. Box 8200
Boston, MA. 02266-8200
1-800-426-5523
36
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report, dated January 26, 2000, with respect to the consolidated financial
statements of Independent Bank Corp. incorporated by reference in this Form
10-K for the year ended December 31, 1999, into Independent Bank Corp.'s
previously filed Registration Statements File Numbers. S-3 Registration
Statements File Numbers 33-27999, 333-25999, and 333-89835 and S-8
Registration Statements File Numbers 33-13158, 33-50770, 33-65114, 33-75530,
33-60293, 33-04259, 333-27169 and 333-31107.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 48,949
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,719
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 201,614
<INVESTMENTS-CARRYING> 229,043
<INVESTMENTS-MARKET> 218,586
<LOANS> 1,028,510
<ALLOWANCE> (14,958)
<TOTAL-ASSETS> 1,590,056
<DEPOSITS> 1,081,806
<SHORT-TERM> 103,243
<LIABILITIES-OTHER> 21,904
<LONG-TERM> 0
28,750
0
<COMMON> 149
<OTHER-SE> 97,980
<TOTAL-LIABILITIES-AND-EQUITY> 1,590,056
<INTEREST-LOAN> 81,296
<INTEREST-INVEST> 30,127
<INTEREST-OTHER> 578
<INTEREST-TOTAL> 112,006
<INTEREST-DEPOSIT> 30,668
<INTEREST-EXPENSE> 50,178
<INTEREST-INCOME-NET> 61,828
<LOAN-LOSSES> 3,927
<SECURITIES-GAINS> 34
<EXPENSE-OTHER> 45,450
<INCOME-PRETAX> 24,576
<INCOME-PRE-EXTRAORDINARY> 24,576
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,031
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.19
<YIELD-ACTUAL> 7.73
<LOANS-NON> 3,338
<LOANS-PAST> 316
<LOANS-TROUBLED> 1,224
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,695
<CHARGE-OFFS> (3,970)
<RECOVERIES> 1,306
<ALLOWANCE-CLOSE> 14,958
<ALLOWANCE-DOMESTIC> 14,958
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
