<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number: 1-9047
Independent Bank Corp.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2870273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
288 Union Street, Rockland, Massachusetts 02370
(Address of principal executive offices, including zip code)
(781) 878-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of October 1, 2000 there were 14,251,519 shares of the registrant's
common stock outstanding, par value $.01 per share.
<PAGE>
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999
Consolidated Statements of Income - Nine months and quarters ended
September 30, 2000 and 1999
Consolidated Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999
Notes to Consolidated Financial Statements - September 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------
SEPTEMBER 30, DECEMBER 31,
--------------------- -------------
2000 1999
--------------- --------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 83,235 $ 48,949
Federal Funds Sold 13 8,719
Trading Assets 474 486
Investments Available For Sale 304,713 218,650
Investments Held to Maturity 203,286 229,043
Loans, Net of Unearned Discount 1,170,873 1,028,510
Less: Reserve for Possible Loan Losses (15,436) (14,958)
----------- -----------
Net Loans 1 ,155,437 1,013,552
----------- -----------
Bank Premises and Equipment 28,171 14,268
Intangible Assets 38,388 2,064
Other Assets 56,996 54,325
----------- -----------
TOTAL ASSETS $ 1,870,713 $ 1,590,056
----------- -----------
----------- -----------
LIABILITIES
Deposits
Demand Deposits $ 330,622 $ 226,044
Savings and Interest Checking Accounts 357,014 282,516
Money Market and Super Interest Checking Accounts 201,371 107,624
Time Certificates of Deposit 596,345 465,622
----------- -----------
Total Deposits 1,485,352 1,081,806
----------- -----------
Federal Funds Purchased and Assets Sold Under Repurchase Agreements 86,286 93,366
Federal Home Loan Bank Borrowings 116,224 256,224
Treasury Tax and Loan Notes 6,736 9,877
----------- -----------
Total Borrowings 209,246 359,467
----------- -----------
Total Deposits and Borrowings 1,694,598 1,441,273
Other Liabilities 17,605 21,904
----------- -----------
Total Liabilities 1,712,203 1,463,177
----------- -----------
Commitments and Contingencies
Corporation-obligated mandatorily redeemable trust preferred securities of
subsidiary trust holding solely junior subordinated debentures of the 51,283 28,750
Corporation
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, Authorized: 30,000,000 Shares
Outstanding: 14,863,821 Shares at September 30, 2000 and at December 31, 1999 149 149
Treasury Stock 612,302 Shares at September 30, 2000 and 684,463 Shares
at December 31, 1999 (9,547) (10,678)
Surplus 44,115 44,950
Retained Earnings 73,632 67,547
Other Accumulated Comprehensive Income, Net of Tax (1,122) (3,839)
----------- -----------
Total Stockholders' Equity 107,227 98,129
----------- -----------
TOTAL LIABILITIES, MINORITY INTEREST AND STOCKHOLDER"S EQUITY $ 1,870,713 $ 1,590,056
----------- -----------
----------- -----------
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED - IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on Federal Funds Sold
& Short Term Investments $457 $529 $138 $85
Interest and Dividends on Securities 24,966 22,577 8,841 7,404
Interest on Loans 66,820 60,280 23,964 20,596
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 92,243 83,386 32,943 28,085
-----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits 26,128 23,011 10,448 7,684
Interest on Borrowed Funds 14,077 14,609 3,835 4,608
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 40,205 37,620 14,283 12,292
-----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 52,038 45,766 18,660 15,793
-----------------------------------------------------------------------------------------------------------------------------------
PROVISION FOR POSSIBLE LOAN LOSSES 1,618 2,945 450 982
-----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision
For Possible Loan Losses 50,420 42,821 18,210 14,811
-----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 4,716 3,931 1,840 1,347
Asset Management and Trust Services Income 3,443 3,120 1,073 979
Mortgage Banking Income 1,064 1,389 404 402
BOLI Income 1,272 1,199 435 408
Other Non-Interest Income 1,569 1,268 669 465
-----------------------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 12,064 10,907 4,421 3,601
-----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits 20,312 17,701 7,342 5,979
Occupancy and Equipment Expenses 5,970 5,277 2,173 1,752
Data Processing 3,748 3,216 1,058 1,068
Special Charges 3,543 545
Other Non-Interest Expenses 10,213 7,724 4,650 2,573
-----------------------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expenses 43,786 33,918 15,768 11,372
-----------------------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST EXPENSE 3,929 2,001 1,390 667
-----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,769 17,809 5,473 6,373
PROVISION FOR INCOME TAXES 4,412 5,423 1,587 1,941
-----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $10,357 $12,386 $3,886 $4,432
===================================================================================================================================
BASIC EARNINGS PER SHARE $0.73 $0.87 $0.27 $0.31
===================================================================================================================================
DILUTED EARNINGS PER SHARE $0.72 $0.86 $0.27 $0.31
===================================================================================================================================
Weighted average common shares (Basic) 14,233,467 14,224,982 14,248,881 14,167,691
Common stock equivalents 71,533 158,545 77,123 149,887
-----------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares (Diluted) 14,305,000 14,383,527 14,326,004 14,317,578
===================================================================================================================================
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $10,357 $12,386
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES
Depreciation and amortization 4,168 3,667
Provision for possible loan losses 1,618 2,945
Loans originated for resale (21,896) (42,369)
Proceeds from mortgage loan sales 21,766 42,196
Loss on sale of mortgages 130 173
Gain recorded from mortgage servicing rights (231) (195)
Changes in assets and liabilities net of effects from branch acquisition
Increase in other assets (1,285) (6,415)
(Decrease)/increase in other liabilities (7,041) 6,492
------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (2,771) 6,494
------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES 7,586 18,880
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of Securities Held to Maturity 27,944 68,846
Proceeds from maturities of Securities Available for Sale 32,056 36,452
Purchase of Held to Maturity Securities (2,498) (18,024)
Purchase of Available for Sale Securities (114,183) (48,639)
Purchase of FHLB Stock - (1,001)
Net Cash proceeds from branch acquisition 153,155 -
Net increase in Loans (9,172) (80,298)
Investment in Bank Premises and Equipment (5,167) (2,031)
------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 82,135 (44,695)
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Deposits 67,513 23,339
Net (decrease)/increase in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements (7,080) 5,112
Net decrease in FHLB Borrowings (140,000) (48,500)
Net (decrease)/increase in TT&L Notes (3,141) 5,566
Net proceeds from issuance of corporation-obligated 22,533 -
mandatorily redeemable trust preferred securities of
subsidiary trusts holding solely junior subordinated debentures
of the Corporation
Dividends Paid (4,272) (4,279)
Proceeds from stock issuance 306 109
Payments for treasury stock purchase - (4,758)
------------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (64,141) (23,411)
------------------------------------------------------------------------------------------------------------
NET INCREASE /( DECREASE) IN CASH AND CASH EQUIVALENTS 25,580 (49,226)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 57,668 86,198
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AS OF SEPTEMBER 30, $83,248 $36,972
------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Supplemental Cash Flow Information
CASH PAID DURING THE YEAR FOR:
Interest on deposits and borrowings $43,341
Minority Interest 3,929
Income Taxes 3,698
SUMMARY OF BRANCH ACQUISITION:
Fair Value of net liabilities assumed (190)
Net cash received 153
-----
Excess of assumed liabilities over net cash received 37
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
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's other
subsidiaries are Independent Capital Trust I and Independent Capital Trust II.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial statements, primarily
consisting of normal recurring adjustments, have been included. Operating
results for the three and nine month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000 or any other interim period. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
ACQUISITION
On August 4, 2000, the Company and the Bank, acquired 16
Massachusetts branches from Fleet Financial Group (including 4 branches and
associated loans and deposits from Sovereign Bank), which added $336 million
in deposits, and $134.3 million of commercial, commercial real estate and
consumer loans. The total purchase price of the acquisition was approximately
$40 million and was paid in cash. The acquisition resulted from the
divestiture of Fleet branches after its merger with BankBoston. This
acquisition is being accounted for on the financial statements using the
purchase method of accounting. Under purchase accounting, the acquired assets
and liabilities of Fleet Financial Group are recognized at their fair value
as of the date of the acquisition. Goodwill of $37.1 million generated by
this transaction is being amortized on a straight-line basis over 15 years.
Financial results of the acquired branches have been included in the
Company's operations beginning on August 4, 2000. The Company expects to
finalize the allocation of the purchase price in the fourth quarter.
These branches opened as Rockland Trust offices on August 7, 2000 and
provide an expanded presence in Brockton and a powerful entrance into the Cape
Cod market.
<PAGE>
CORPORATION-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES
In the second quarter of 1997, Independent Capital Trust I (the "Trust
I") was formed for the purpose of issuing trust preferred securities (the "Trust
Preferred Securities") and investing the proceeds of the sale of these
securities in junior subordinated debentures issued by the Company. A total of
$28.75 million of 9.28% Trust Preferred Securities were issued and are scheduled
to mature in 2027, callable at the option of the Company after May 19, 2002.
Distributions on these securities are payable quarterly in arrears on the last
day of March, June, September and December, such distributions can be deferred
at the option of the Company for up to five years. The Trust Preferred
Securities can be prepaid in whole or in part on or after May 19, 2002 at a
redemption price equal to $25 per Trust Preferred Security plus accumulated but
unpaid distributions thereon to the date of the redemption.
In the first quarter of 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
securities in junior subordinated debentures issued by the Company. A total of
$25.0 million of 11.00% Trust Preferred Securities were issued 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.
The Trust Preferred Securities are presented in the consolidated
balance sheets of the Company entitled "Corporation-Obligated Mandatorily
Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Corporation". The Company records distributions
payable on the Trust Preferred Securities as minority interest expense in its
consolidated statements of income.
The Company has unconditionally guaranteed all of the Trusts'
obligations under the Trust Preferred Securities.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by SFAS No. 137 and SFAS No. 138.
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. This statement is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. 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
<PAGE>
that the adoption of this statement will have a material impact on its financial
position or results of operations.
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities". This
Statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", and rescinds FASB
Statement No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 140 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. This
Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and is effective
for recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. The Company has not yet quantified the impact of adopting
SFAS No. 140 on its consolidated financial statements, however, the Company does
not expect that the adoption of this statement will have a material impact on
its financial position or results or operations.
SPECIAL CHARGES
The Company recorded special charges of $3.5 million during the nine
months ended September 30, 2000. This amount represents systems conversion
charges of $1.3 million and expense of $1.2 million associated with the purchase
of branches from FleetBoston Financial. Also, as previously announced, an
unfavorable judgement was entered against the Bank in Plymouth Superior Court
concerning a proposed commercial loan transaction that was never consummated.
The Company will vigorously appeal this judgement, however, accounting
convention required that the Company provide an accrual of $1.0 million in the
second quarter of 2000 specifically for that decision.
EARNINGS PER SHARE
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET INCOME WEIGHTED AVERAGE NET INCOME
SHARES PER SHARE
--------------------------------------------------------------------------------------------------------------------
For the nine months ended September 30, 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $10,357 $12,386 14,233 14,225 $ 0.73 $ 0.87
Effect of dilutive securities 72 159 0.01 0.01
Diluted EPS $10,357 $12,386 14,305 14,384 $ 0.72 $ 0.86
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NET INCOME WEIGHTED AVERAGE NET INCOME
SHARES PER SHARE
--------------------------------------------------------------------------------------------------------------------
For the three months ended September 30, 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $3,886 $4,432 14,249 14,168 $ 0.27 $ 0.31
Effect of dilutive securities 77 150 0.00 0.00
Diluted EPS $3,886 $4,432 14,326 14,318 $ 0.27 $ 0.31
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
COMPREHENSIVE INCOME
Comprehensive income is reported net of taxes, as follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------------------------------------
<S> <C> <C> <C> <C>
Net Income $10,357 $12,386 $3,886 $4,432
Other Comprehensive Income, Net of Tax
Unrealized gains/(losses) on securities available for sale
Unrealized holding gains/(losses) arising during the period 2,717 (3,240) 2,020 (552)
Less: reclassification adjustment for gains included in net income - -
------- ------ ----- -----
Other Comprehensive Income 2,717 (3,240) 2,020 (552)
------- ------ ----- -----
Comprehensive Income $13,074 $9,146 $5,906 $3,880
------- ------ ----- -----
------- ------ ----- -----
</TABLE>
SEGMENT INFORMATION
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 it 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, Independent Capital Trust I and Independent
Capital Trust II financial information. Information about reportable segments
and reconciliation of such information to the consolidated financial statements
as of and for the quarters ended September 30, follows (in thousands):
<PAGE>
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
COMMUNITY OTHER ADJUSTMENTS
BANKING OTHER AND ELIMINATIONS CONSOLIDATED
------- ------ ---------------- ------------
<S> <C> <C> <C> <C>
For Nine Months Ended September 30, 2000
Total Assets 1,869,938 217,025 (216,250) 1,870,713
Net Interest Income 50,597 1,441 - 52,038
Total Non-Interest Income 12,064 12,511 (12,511) 12,064
Net Income $12,040 $10,828 ($12,511) $10,357
For Nine Months Ended September 30, 1999
Total Assets 1,562,145 156,919 (153,664) 1,565,400
Net Interest Income 45,230 536 - 45,766
Total Non-Interest Income 10,907 13,678 (13,678) 10,907
Net Income $13,616 $12,448 $(13,678) $12,386
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY OTHER ADJUSTMENTS
BANKING OTHER AND ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
For Three Months Ended September 30, 2000
Net Interest Income 18,133 528 (1) 18,660
Total Non-Interest Income 4,421 4,243 (4,243) 4,421
Net Income $3,849 $4,281 ($4,244) $3,886
For Three Months Ended September 30, 1999
Net Interest Income 15,604 189 - 15,793
Total Non-Interest Income 3,601 4,936 (4,936) 3,601
Net Income $4,915 $4,453 ($4,936) $4,432
</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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
The following discussion should be read in conjunction with the financial
statements, notes and tables included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999. The discussion contains
certain forward-looking statements regarding the future performance of the
Company. All forward-looking information is inherently uncertain and actual
results may differ materially from the assumptions, estimates or expectations
reflected or contained in the forward-looking information. Please refer to
`Cautionary Statement Regarding Forward-looking Information" of this Form 10-Q
for a further discussion.
ACQUISITION
On August 4, 2000, the Company and the Bank, acquired 16
Massachusetts branches from Fleet Financial Group (including 4 branches and
associated loans and deposits from Sovereign Bank), which added $336 million
in deposits, and $134.3 million of commercial, commercial real estate and
consumer loans. The total purchase price of the acquisition was approximately
$40 million and was paid in cash. The acquisition resulted from the
divestiture of Fleet branches after its merger with BankBoston. This
acquisition is being accounted for on the financial statements using the
purchase method of accounting. Under purchase accounting, the acquired assets
and liabilities of Fleet Financial Group are recognized at their fair value
as of the date of the acquisition. Goodwill of $37.1 million generated by
this transaction is being amortized on a straight-line basis over 15 years.
Financial results of the acquired branches have been included in the
Company's operations beginning on August 4, 2000. The Company expects to
finalize the allocation of the purchase price in the fourth quarter.
SUMMARY
For the nine months ended September 30, 2000, Independent Bank Corp.
(the Company) recorded net income of $10.4 million compared with net income of
$12.4 million for the same period last year. Diluted earnings per share were
$0.72 for the nine months ended September 30, 2000 compared to $0.86 per share
for the prior year. Basic earnings per share, before the dilutive effect of
stock options, were $0.73 in 2000 compared to $0.87 for the same period in 1999.
On an operating basis net income improved $0.3 million, or 2.2%, to $12.7
million as compared to the same period last year. Net interest income increased
$6.3 million, or 13.7%. The provision for loan losses decreased to $1.6 million
for the first nine months of 2000 compared with $2.9 million for the same period
last year. Non-interest income increased $1.2 million, or 10.6%, while
non-interest expense increased $6.3 million, or 18.7%, over the first nine
months of 1999.
<PAGE>
On an operating basis, excluding special charges (detailed below), net
income for the nine month period ended September 30, 2000 was $12.7 million,
compared with net income of $12.4 million for the same period last year. Diluted
earnings per share on an operating basis for the nine months ended September 30,
2000 and September 30, 1999 were $.89 and $.86 respectively.
The Company recorded special charges of $3.5 million for the nine
months ended September 30, 2000. This amount represents systems conversion
charges of $1.3 million, expense of $1.2 million associated with the purchase of
branches from FleetBoston Financial and, as previously announced in April and
taken as a $1 million pre-tax charge in the second quarter of 2000, an
unfavorable judgement was entered against the Bank in Plymouth Superior Court
concerning a proposed commercial loan that was never consummated.
The annualized consolidated returns on average equity and average
assets for the first nine months of 2000 were 13.47% and 0.83%, respectively.
This compares to annualized consolidated returns on average equity and average
assets for the first nine months of 1999 of 17.28% and 1.06%, respectively. On
an operating basis, the annualized returns on average equity and average assets
for the nine months ended September 30, 2000 were 16.46% and 1.01%.
As of September 30, 2000, total assets amounted to $1.87 billion, an
increase of $280.7 million, or 17.7% from year-end 1999. Investments
increased $51.6 million, or 11.3% from $456.9 million at year-end 1999.
Loans, net of unearned discount, increased $142.4 million, or 13.8%, since
year-end 1999. The Bank acquired $134.3 million in commercial, commercial
real estate, and consumer loans. Excluding the loans acquired from
FleetBoston Financial, commercial real estate loans grew by $17.2 million, or
5.0%, and commercial loans increased by $6.2 million, or 5.7%. The instalment
loan portfolio decreased by $6.5 million, or 2.0%, as payoffs outpaced new
originations. Deposit balances have increased by $403.6 million, or 37.3%.
The acquired deposits amounted to $329 million of this improvement. Excluding
the acquired deposits, deposits increased by $74.5 million, or 6.8%. Newly
opened deposit accounts and a strong economy were the primary contributors to
this improvement. Borrowings decreased by $150.2 million, or 41.8%, since
year-end 1999.
Non-performing assets totaled $4.5 million at September 30, 2000 (24
basis points of total assets), slightly higher than the $3.7 million (23 basis
points of total assets) at December 31, 1999.
NET INTEREST INCOME
The discussion of net interest income, which follows, is presented on a
fully tax-equivalent basis. Net interest income for the nine months ended
September 30, 2000, amounted to $52.9 million, an increase of $6.3 million, or
13.5%, from the comparable 1999 time frame. The Company's net interest margin
for the first nine months of 2000 was 4.56%, compared to 4.25% for the
comparable 1999 time frame. The Company's interest rate spread (the difference
between the weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities) increased by 16 basis points to
3.70%.
The average balance of interest-earning assets for the first nine
months of 2000 amounted to $1.55 billion, an increase of $86.2 million, or 5.9%,
from the comparable 1999 time frame. Income from interest-earning assets
amounted to $93.1 million for the nine months ended September 30, 2000, an
increase of $8.9 million, or 10.5%, from the first nine months of 2000. The
increase in interest income was the result of a $76.7 million or 7.8% increase
in the average balance of the loan portfolio, net of unearned discount. The
commercial real estate portfolio increased by $57.8 million on average, while
all other loans increased by $18.9 million on average. A portion of the
increases can be attributed to the acquisition of loans from FleetBoston
Financial in the third quarter of 2000.
<PAGE>
Interest income is impacted by changes in market rates of interest due
to variable and floating rate loans in the Company's portfolio. At September 30,
2000, loans having interest rates which adjust in accordance with changes in the
Company's base lending rate or other market indices amounted to approximately
$242.2 million, or 20.7% of loans, net of unearned discount.
Interest income is also impacted by the amount of non-performing loans.
The amount of interest due, but not recognized, on non-performing loans amounted
to approximately $248,000 for the nine months ended September 30, 2000 compared
to $237,000 for the nine months ended September 30, 1999.
The average balance of interest-bearing liabilities for the first nine
months of 2000 was $1.2 billion, or 3.1%, higher than the comparable 1999 time
frame. Average interest bearing deposits increased by $82.8 million, or 9.9%,
for the first nine months of 2000 over the same period last year. For the nine
months ended September 30, 2000, average borrowings were $45.1 million, or
12.2%, lower than the first nine months of 1999, primarily in FHLB borrowings
which decreased by $64.7 million. A portion of both the increase in average
interest bearing deposits and the decrease in average borrowing can be
attributed to the acquisition of deposits and net funds received from
FleetBoston Financial in the third quarter of 2000. Interest expense on deposits
increased by $3.1 million to $26.1 million in the first nine months of 2000 and
interest expense on borrowings decreased by $0.5 million, or 3.6%, to $14.1
million as compared to the same period last year. The cost of these interest
bearing liabilities increased from 4.16% in 1999 to 4.31% in 2000.
PROVISION FOR POSSIBLE LOAN LOSSES
The reserve for possible loan losses is maintained at a level that
management considers adequate to provide for potential loan losses based upon
an evaluation of known and inherent risks in the loan portfolio. The reserve
is increased by provisions for possible loan losses and by recoveries of
loans previously charged-off and reduced by loan charge-offs. Determining an
appropriate level of reserve for possible loan losses necessarily involves a
high degree of judgment.
An analysis of individual loans and the overall risk
characteristics and size of the different loan portfolios is conducted on an
ongoing basis. In addition, the Company considers industry trends, regional
and national economic conditions, past estimates of possible losses as
compared to actual losses, and historical loss patterns. Management assesses
the adequacy of the reserve for possible loan losses and reviews that
assessment quarterly with the Board of Directors.
For the nine months ended September 30, 2000, management decreased the
provision for possible loan losses, consistent with the level of loan growth
experienced, to $1.6 million as compared to $2.9 million for the same period
last year. This decrease is the result of continued stability in the risk
profile of the Company's loan portfolio, strong coverage ratios and slowing loan
growth. For the first nine months of 2000, loans charged-off, net of recoveries
of loans previously charged-off, amounted to $1.1 million as compared to $2.0
million for the comparable 1999 time frame.
As of September 30, 2000, the ratio of the reserve for possible loan
losses to loans, net of unearned discount, was 1.32%, as compared to the 1999
year-end level of 1.45%. Purchase accounting requires that a separate credit
quality discount reserve be established specifically for acquired loans. This
credit quality discount represents management's estimate of inherent losses
incurred on the acquired portfolio, which will be used to offset actual losses
on this portfolio in future periods. The credit quality discount totaled $1.4
million, or 1.04% of the acquired loans.
The Company's total reserves available for possible loan loss
(including the credit quality discount reserve) as a percentage of the loan
portfolio was 1.44% at September 30,2000. The
<PAGE>
ratio of the total reserves for possible loan losses to non-performing loans was
371.40% at September 30, 2000, a decrease from the 409.36% coverage recorded at
year-end 1999.
NON-INTEREST INCOME
Non-interest income for the nine months ended September 30, 2000
increased $1.2 million, or 10.6% to $12.1 million, compared to $10.9 million for
the same period in 1999. Income from Service Charges on deposit accounts
increased by $785,000, or 20.0%, primarily due to the acquisition. Asset
Management and Trust Services income increased by $323,000, or 10.4% due to
increased mutual fund sales. Mortgage banking income decreased by $325,000, or
23.4%, from the 1999 time frame due to a slowdown in refinancing activity.
NON-INTEREST EXPENSES
Non-interest expenses totaled $43.8 million for the nine
months ended September 30, 2000, a $9.9 million, or 29.1% increase from the
comparable 1999 period. Salaries and employee benefits increased $2.6 million,
or 14.8% resulting from the addition of approximately one hundred employees
staffing the acquired branches, additions to staff needed to support continued
growth and increases in medical insurance premiums. Occupancy and equipment
expenses increased $693,000, or 13.1% for the first nine months of 2000 from
$5.3 million in the same period last year. Special Charges of $3.5 million
pretax were recorded as discussed above. Other non-interest expenses for the
first nine months of 2000 increased by $2.5 million or 32.2% to $10.2 million
from $7.7 million in the first nine months of 1999 which includes increases in
goodwill amortization of ($580,000), advertising ($246,000), legal expense
($462,000), office supplies and postage ($232,000) and the normal operating
expenses of 17 additional branch locations.
MINORITY INTEREST
In the second quarter of 1997, Independent Capital Trust I (the
"Trust") was formed for the purpose of issuing trust preferred securities (the
"Trust Preferred Securities") and investing the proceeds of the sale of these
securities in junior subordinated debentures issued by the Company. A total of
$28.75 million of 9.28% Trust Preferred Securities were issued and are scheduled
to mature in 2027, callable at the option of the Company after May 19, 2002.
Distributions on these securities are payable quarterly in arrears on the last
day of March, June, September and December, such distributions can be deferred
at the option of the Company for up to five years. The Trust Preferred
Securities can be prepaid in whole or in part on or after May 19, 2002 at a
redemption price equal to $25 per Trust Preferred Security plus accumulated but
unpaid distributions thereon to the date of the redemption.
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
securities in junior subordinated debentures issued by the Company. A total of
$25 million of 11% Trust Preferred Securities were issued 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, and 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.
The Trust Preferred Securities are presented in the consolidated
balance sheets of the Company entitled "Corporation-Obligated Mandatorily
Redeemable Securities of Subsidiary Solely Parent Company Debentures". The
Company records distributions payable on the Trust Preferred Securities as
minority interest expense in its consolidated statements of income. The
<PAGE>
minority interest expense for the nine months ended September 30, 2000 and
September 30, 1999 was $3.9 million and $2.0 million respectively.
INCOME TAXES
The Company records income tax expense pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes". The
Company evaluates the deferred tax asset and the valuation reserve on a
quarterly basis. The Company's effective tax rates for the nine months ended
September 30, 2000 and 1999 were 29.87% and 30.45% respectively.
ASSET/LIABILITY MANAGEMENT
The principal objective of the Company's asset/liability management
strategy is to reduce the vulnerability of the Company to changes in interest
rates. This is accomplished by managing the volume of assets and liabilities
maturing, or subject to repricing, and by adjusting rates in relation to market
conditions to influence volumes and spreads.
The effect of interest rate volatility on net interest income is
minimized when the interest sensitivity gap (the difference between assets and
liabilities that reprice within a given time period) is the smallest. Given the
inherent uncertainty of future interest rates, the Bank's Asset/Liability
Management Committee evaluates the interest sensitivity gap and executes
strategies, which may include off-balance sheet activities, in an effort to
minimize the Company's exposure to interest rate movements while providing
adequate earnings in the most plausible future interest rate environments.
INTEREST RATE RISK
Interest rate risk is the sensitivity of income to variations in
interest rates over both short-term and long-term horizons. The primary goal of
interest-rate risk management is to control this risk within limits approved by
the Board. These limits reflect the Company's tolerance for interest-rate risk
by identifying exposures, quantifying and hedging them as needed. The Company
quantifies its interest-rate exposures using net interest income simulation
models, as well as simpler gap analyses. The Company manages its interest-rate
exposure using a combination of on and off balance sheet instruments, primarily
fixed rate portfolio securities and interest rate swaps.
The Company uses simulation analysis to measure the exposure of net
interest income to changes in interest rates over a relatively short (i.e., less
than 2 years) time horizon. Simulation analysis involves projecting future
interest income and expense from the Company's 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 income for the
next 12 months should decline by less than 6%. The following table reflects the
Company's estimated exposure, as a percentage of estimated net interest income
for the next 12 months.
<TABLE>
<CAPTION>
Rate Change Estimated Exposure as %
(Basis Points) of Net Interest Income
--------------------------------------------------------------------------------
<S> <C>
+200 (2.08%)
-200 2.04%
</TABLE>
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
<PAGE>
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
7.80% and 7.65% at September 30, 2000 and December 31, 1999 while the weighted
average rates of variable interest payments were 7.27% and 7.22% at September
30, 2000 and December 31, 1999. As a result of these interest rate swaps, the
Bank realized net income of $0.3 million for the nine months ended September 30,
2000 and $0.1 million for the year ended December 31, 1999.
Entering into interest rate swap agreements involves both the credit risk
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 $1.2 million
and $0.5 million at September 30, 2000 and December 31, 1999.
LIQUIDITY AND CAPITAL
Liquidity, as it pertains to the Company, is the ability to generate
cash in the most economical way, in order to meet ongoing obligations to pay
deposit withdrawals and to fund loan commitments. The Company's primary sources
of funds are deposits, borrowings, and the amortization, prepayment, and
maturities of loans and investments.
A strong source of liquidity is the Company's core deposits, those
deposits which management considers, based on experience, are not likely to be
withdrawn in the near term. The Company utilizes its extensive branch banking
network to attract retail customers who provide a stable source of core
deposits. In addition, the Company has established five repurchase agreements
with major brokerage firms as potential sources of liquidity. On September 30,
2000, the Company had $35.5 million outstanding under such lines classified on
the Balance Sheet as "Federal Funds Purchased and Assets Sold Under Repurchase
Agreements". As an additional source of funds, the Bank has entered into
repurchase agreements with customers totaling $50.8 million at September 30,
2000. In addition, as a member of the Federal Home Loan Bank, Rockland has
access to approximately $358 million of borrowing capacity. At September 30,
2000, the Company had $116.2 million outstanding under such lines. The Company
actively manages its liquidity position under the direction of the Bank's
Asset/Liability Management Committee. Periodic review under formal policies and
procedures is intended to ensure that the Company will maintain access to
adequate levels of available funds. At September 30, 2000, the Company's
liquidity position was well above policy guidelines and was sufficient to meet
its operating needs.
CAPITAL RESOURCES AND DIVIDENDS
The Company and Rockland are subject to capital requirements
established by the Federal Reserve Board and the FDIC, respectively. One key
measure of capital adequacy is the risk-based ratio for which the regulatory
agencies have established minimum requirements of 4.00% and 8.00% for Tier 1
risk-based capital and total risk-based capital, respectively. As of September
30, 2000, the Company had a Tier 1 risked-based capital ratio of 8.25% and a
total risked-based capital ratio of 10.81%. Rockland had a Tier 1 risked-based
capital ratio of 9.39% and a total risked-based capital ratio of 10.58% as of
the same date.
<PAGE>
An additional capital requirement of a minimum 4.00% Tier 1 leverage
capital is mandated by the regulatory agencies for most banking organizations
and a 5.00% Tier 1 leverage capital ratio is required for a "well capitalized"
institution. As of September 30, 2000, the Company and the Bank had Tier 1
leverage capital ratios of 6.07% and 6.93%, respectively.
In September, the Company's Board of Directors declared a cash dividend
of $.10 per share to shareholders of record as of September 29, 2000. This
dividend was paid on October 13, 2000. On an annualized basis, the dividend
payout ratio amounted to 36.7% of the trailing four quarters earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDING SEPTEMBER 30, 2000
ACQUISITION
On August 4, 2000, the Company and the Bank, acquired 16
Massachusetts branches from Fleet Financial Group (including 4 branches and
associated loans and deposits from Sovereign Bank), which added $336 million
in deposits, and $134.3 million of commercial, commercial real estate and
consumer loans. The total purchase price of the acquisition was approximately
$40 million and was paid in cash. The acquisition resulted from the
divestiture of Fleet branches after its merger with BankBoston. This
acquisition is being accounted for on the financial statements using the
purchase method of accounting. Under purchase accounting, the acquired assets
and liabilities of Fleet Financial Group are recognized at their fair value
as of the date of the acquisition. Goodwill of $37.1 million generated by
this transaction is being amortized on a straight-line basis over 15 years.
Financial results of the acquired branches have been included in the
Company's operations beginning on August 4, 2000. The Company expects to
finalize the allocation of the purchase price in the fourth quarter.
SUMMARY
For the three months ended September 30, 2000, Independent Bank Corp.
(the Company) recorded net income of $3.9 million compared with net income of
$4.4 million for the same period last year. Diluted earnings per share were
$0.27 for the three months ended September 30, 2000 compared to $0.31 per share
for the prior year. Basic earnings per share, before the dilutive effect of
stock options, were $0.27 in 2000 compared to $0.31 for the same period in 1999.
On an operating basis net income decreased $0.2 million or 4.3% as compared to
the same period last year. Net interest income increased $2.9 million, or 18.2%.
The provision for loan losses decreased to $450,000 for the third quarter of
2000 compared with $982,000 for the same period last year. Non-interest income
increased $820,000, or 22.8%, while non-interest expense increased $4.4 million,
or 38.7%, over the third quarter 1999.
On a operating basis, excluding special charges, net income for the
three month period ended September 30, 2000 was $4.2 million, compared with $4.4
million for the same period last year. Diluted earnings per share on an
operating basis for the three months ended September 30, 2000 and September 30,
1999 were $0.30 and $0.31 respectively.
<PAGE>
The Company recorded special charges of $0.5 million for the three
months ended September 30, 2000 associated with the branch acquisition.
The annualized consolidated returns on average equity and average
assets for the third quarter 2000 were 14.89% and 0.87%, respectively. This
compares to annualized consolidated returns on average equity and average assets
for the third quarter 1999 of 18.51% and 1.14%, respectively. On an operating
basis, the annualized returns on average equity and average assets for the three
months ended September 30, 2000 were 16.25% and 0.95%.
NET INTEREST INCOME
The discussion of net interest income, which follows, is presented on a
fully tax-equivalent basis. Net interest income for the three months ended
September 30, 2000, amounted to $18.9 million, an increase of $2.9 million, or
17.9%, from the comparable 1999 time frame. The Company's interest rate spread
(the difference between the weighted average yield on interest-earning assets
and the weighted average cost of interest-bearing liabilities increased by 11
basis points, to 3.78%. The Company's net interest margin for the third quarter
of 2000 was 4.65%, compared to 4.42% for the comparable 1999 time frame.
The average balance of interest-earning assets for the third quarter of
2000 amounted to $1.63 billion an increase of $174.7 million, or 12.0%, over the
comparable 1999 time frame. Income from interest-earning assets amounted to
$33.2 million for the third quarter of 2000, an increase of $4.9 million, or
17.1%, from the third quarter of 1999. The increase in interest income was
attributable to a $113.8 million, or 11.3% increase in the average balance of
the loan portfolio, net of unearned discount. On average the commercial real
estate loan portfolio increased $78.6 million, the commercial portfolio
increased $25.0 million, while all other loans increased by $10.2 million. A
portion of the increases can be attributed to the acquisition of loans from
FleetBoston Financial in the third quarter of 2000. In addition, the securities
portfolio increased by $58.5 million, or 13.2%.
The average balance of interest-bearing liabilities for the third
quarter of 2000 was $114.5 million, or 9.6%, higher than the comparable 1999
time frame. Average interest bearing deposits increased by $200.8 million, or
23.7%, for the third quarter of 2000 over the same period last year, primarily
in the savings and interest checking account category. For the three months
ended September 30, 2000, average borrowings were $86.3 million, or 24.9%, lower
than the third quarter of 1999. A portion of both the increase in average
interest bearing deposits and the decrease in average borrowing can be
attributed to the acquisition of deposits and net funds received from
FleetBoston Financial in the third quarter of 2000. Interest expense on deposits
increased by $2.8 million, or 35.9%, and interest expense on borrowings
decreased by $773,000, or 16.8%.
NON-INTEREST INCOME
Non-interest income for the three months ended September 30, 2000 was
$4.4 million, compared to $3.6 million for the same period in 1999. Income from
Service Charges on Deposit Accounts increased by $493,000, or 36.6% primarily
due to the acquisition. Asset Management and Trust Services income increased by
$0.1 million or 9.6% primarily due to increased mutual fund sales. Other
non-interest income also increased $204,000 or 43.9%, to $669,000 compared to
$465,000 for the same period of 1999.
NON-INTEREST EXPENSES
Non-interest expenses totaled $15.8 million for the three months ended
September 30, 2000, a $4.4 million increase from the comparable 1999 period.
Salaries and employee benefits increased $1.4 million, or 22.8% resulting from
the addition of approximately one hundred
<PAGE>
employees to staff the acquired branches, additions to staff needed to
support continued growth and increases in medical insurance premiums.
Occupancy and equipment expenses for the same three months of 2000 increased
$421,000, or 24.0%, from the comparable 1999 period, reflecting continued
investment in technology. Other non-interest expense increased by $2.1
million, or 80.7%, which includes increases in goodwill amortization
($580,000), advertising ($262,000), legal expense ($200,000), office supplies
($200,000) and the normal operating expenses of 17 additional branch
locations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The preceding Management's Discussion and Analysis and Notes to
Consolidated Financial Statements of this Form 10-Q contain certain
forward-looking statements, including without limitation, statements regarding
(i) the level of reserve for possible loan losses, (ii) the rate of
delinquencies and amounts of charge-offs, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information required by this Item 3 is included in Item 2 of Part I of
this Form 10-Q, entitled "Management's Discussion and Analysis."
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
The financial information detailed below is included
hereafter in this report:
Consolidated Statements of Changes in Stockholders' Equity
Nine months ended September 30, 2000 and the year
ended December 31, 1999
Consolidated Average Balance Sheet and Average Rate
Data - Nine months and three months ended
September 30, 2000 and 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
NO. PAGE
--- ----
<S> <C> <C>
27 Financial Data Schedule E-1
</TABLE>
(b) Reports on Form 8-K
A description of the transaction for the Company `s
acquisition of twelve bank branches from Fleet National Bank and
the acquisition of four additional bank branches from Sovereign
Bank, August 4, 2000, was filed on Form 8-K on August 18, 2000.
A Renewal Rights Agreement was adopted by the
Company's Board of Directors on September 14, 2000. A
description of the Renewal Rights Agreement was filed on Form
8-K on October 23, 2000.
<PAGE>
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED - IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
COMPREHENSIVE
COMMON TREASURY SURPLUS RETAINED INCOME
STOCK STOCK EARNINGS AVAILABLE TOTAL
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ 149 ($ 6,431) $ 45,303 $ 56,063 $ 764 $ 95,848
Net Income 17,031 17,031
Dividends Declared ($.10 per share) (5,547) (5,547)
Proceeds from Exercise of Stock Options 589 (353) 236
Repurchase Common Stock (4,836) (4,836)
Change in Unrealized Gain (Loss) on
Investments Available for Sale, Net of Tax (4,603) (4,603)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 149 ($10,678) $ 44,950 $ 67,547 ($ 3,839) $ 98,129
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 $ 149 ($10,678) $ 44,950 $ 67,547 ($ 3,839) 98,129
Net Income 10,357 10,357
Dividends Declared ($.10 per share) (4,272) (4,272)
Proceeds from Exercise of Stock Options 1,131 (867) 264
Tax Benefit on Stock Option Exercise 32 32
Repurchase Common Stock
Change in Unrealized Gain on Investments 2,717 2,717
Available for Sale, Net of Tax
------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 $ 149 ($ 9,547) $ 44,115 $ 73,632 ($ 1,122) $107,227
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 2000 2000
----------- ---------- -------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $ 437,835 $ 23,433 7.14%
Non-taxable Investment Securities 41,002 2,317 7.53%
Loans, net of Unearned Discount 1,057,737 66,862 8.43%
Federal Funds Sold and Assets Purchased Under Resale Agreements 10,037 456 6.06%
Trading Assets 475 4 1.12%
---------- ---------- -------
Total Interest-Earning Assets $1,547,086 $ 93,072 8.02%
---------- ---------- -------
---------- -------
Cash and Due From Banks 52,892
Other Assets 68,470
----------
Total Assets $1,668,448
----------
----------
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $ 303,300 $ 3,967 1.74%
Money Market & Super Interest Checking Accounts 130,675 2,303 2.35%
Other Time Deposits 485,488 19,858 5.45%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 101,533 4,000 5.25%
Federal Home Loan Bank Borrowings 219,156 9,912 6.03%
Treasury Tax and Loan Notes 4,328 165 5.08%
---------- ---------- ----------
Total Interest-Bearing Liabilities $1,244,480 $ 40,205 4.31%
========== ========== ==========
Demand Deposits 257,527
Company-Obligated Mandatorily Redeemable Securities of Subsidiary
Holding Solely Parent Company Debentures 51,321
Other Liabilities 12,586
----------
Total Liabilities 1,565,914
----------
Stockholders' Equity 102,534
----------
Total Liabilities and Stockholders' Equity $1,668,448
----------
----------
Net Interest Income $ 52,867
----------
----------
Interest Rate Spread 3.70%
==========
Net Interest Margin 4.56%
==========
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $830 in 2000
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 1999 1999
---------- -------------- -----------
<S> <C> <C> <C>
Taxable Investment Securities $ 424,195 $ 21,073 6.62%
Non-taxable Investment Securities 40,451 2,279 7.51%
Loans, net of Unearned Discount 981,076 60,331 8.20%
Federal Funds Sold 15,124 529 4.66%
---------- ---------- -----
Total Interest-Earning Assets $1,460,846 $ 84,212 7.69%
---------- ---------- -----
---------- -----
Cash and Due From Banks 45,618
Other Assets 52,763
----------
Total Assets $1,559,227
----------
----------
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $ 276,533 $ 3,635 1.75%
Money Market & Super Interest Checking Accounts 109,923 1,988 2.41%
Other Time Deposits 450,241 17,393 5.15%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 83,191 2,977 4.77%
Federal Home Loan Bank Borrowings 283,823 11,503 5.40%
Treasury Tax and Loan Notes 3,094 129 5.56%
---------- ---------- -----
Total Interest-Bearing Liabilities $1,206,805 $ 37,625 4.16%
---------- ---------- -----
---------- ---------- -----
Demand Deposits 216,478
Company-Obligated Mandatorily Redeemable Securities of Subsidiary Holding
Solely Parent Company Debentures 28,750
Other Liabilities 11,611
----------
Total Liabilities 1,463,644
----------
Stockholders' Equity 95,583
----------
Total Liabilities and Stockholders' Equity $1,559,227
----------
----------
Net Interest Income $ 46,587
----------
----------
Interest Rate Spread 3.54%
-----
-----
Net Interest Margin 4.25%
-----
-----
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $821 in 1999.
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 2000 2000
----------------- --------------- -------------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $465,564 $8,402 7.22%
Non-taxable Investment Securities 36,877 694 7.53%
Loans, net of Unearned Discount 1,117,611 23,982 8.58%
Federal Funds Sold 8,858 137 6.19%
471 3 2.55%
---------------- ------- -----
Total Interest-Earning Assets 1,629,382 $33,218 8.15%
---------------- ------- -----
------- -----
Cash and Due From Banks 64,957
Other Assets 91,260
----------------
Total Assets $1,785,599
----------------
----------------
Interest-Bearing Liabilities
Savings and Interest Checking Accounts $332,986 $1,613 1.94%
Money Market & Super Interest Checking Accounts 165,866 890 2.15%
Other Time Deposits 547,576 7,945 5.80%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 101,426 1,383 5.45%
Federal Home Loan Bank Borrowings 155,007 2,404 6.20%
Treasury Tax and Loan Notes 4,053 48 4.74%
---------------- ------- -----
Total Interest-Bearing Liabilities $1,306,914 $14,283 4.37%
---------------- ------- -----
---------------- ------- -----
Demand Deposits 305,775
Company-Obligated Mandatorily Redeemable Securities of Subsidiary
Holding Solely Parent Company Debentures 51,274
Other Liabilities 17,264
-----------------
Total Liabilities 1,681,227
-----------------
Stockholders' Equity 104,372
-----------------
Total Liabilities and Stockholders' Equity $1,785,599
=================
Net Interest Income $18,935
==========
Interest Rate Spread 3.78%
=====
Net Interest Margin 4.65%
=====
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $270 in 2000.
<PAGE>
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(Unaudited - in thousands)
<TABLE>
<CAPTION>
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 1999 1999
---------------------- --------------- ---------
<S> <C> <C> <C>
Interest-Earning Assets
Taxable Investment Securities $403,768 $6,877 6.81%
Non-taxable Investment Securities 40,207 785 7.81%
Loans, net of Unearned Discount 1,003,800 20,616 8.22%
Federal Funds Sold 6,928 85 4.91%
--------------------- -------------- ------------
Total Interest-Earning Assets 1,454,703 $28,363 7.80%
--------------------- -------------- ------------
-------------- ------------
Cash and Due From Banks 45,448
Other Assets 54,108
---------------------
Total Assets $1,554,259
---------------------
Interest-Bearing Liabilities
Savings and NOW Accounts $284,404 $1,219 1.71%
Money Market & Super NOW Accounts 105,537 647 2.45%
Other Time Deposits 455,651 5,823 5.11%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 87,329 1,052 4.82%
Federal Home Loan Bank Borrowings 255,019 3,509 5.50%
Treasury Tax and Loan Notes 4,469 47 4.21%
--------------------- -------------- ------------
Total Interest-Bearing Liabilities $1,192,409 $12,297 4.13%
--------------------- -------------- ------------
--------------------- -------------- ------------
Demand Deposits 225,198
Company-Obligated Mandatorily Redeemable
Securities of Subsidiary Holding
Solely Parent Company Debentures 28,750
Other Liabilities 12,145
----------------------
Total Liabilities 1,458,502
----------------------
Stockholders' Equity 95,757
----------------------
Total Liabilities and Stockholders' Equity $1,554,259
----------------------
----------------------
Net Interest Income $16,066
===============
Interest Rate Spread 3.67%
=============
Net Interest Margin 4.42%
=============
</TABLE>
Interest income and yield are stated on a fully tax-equivalent basis. The
total amount of adjustment is $272 in 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENT BANK CORP.
(registrant)
<TABLE>
<S> <C>
Date: November 14, 2000 /s/ Douglas H. Philipsen
Douglas H. Philipsen
President, Chairman of the Board and
Chief Executive Officer
Date: November 14, 2000
/s/ Denis K. Sheahan
Denis K. Sheahan
Chief Financial Officer
and Treasurer
</TABLE>
