SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 1, 2000 there were 14,230,071 shares of the issuer's common
stock outstanding.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999
Consolidated Statements of Income - Three months ended
March 31, 2000 and 1999
Consolidated Statements of Cash Flows - Three months ended
March 31, 2000 and 1999
Notes to Consolidated Financial Statements - March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure 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
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED - IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
Cash and Due From Banks ................................................ $ 49,168 $ 48,949
Federal Funds Sold ..................................................... 15,002 8,719
Trading Assets ......................................................... 469 486
Securities Held To Maturity ............................................ 222,885 229,043
Securities Available For Sale .......................................... 229,233 201,614
Federal Home Loan Bank Stock ........................................... 17,036 17,036
Loans, Net of Unearned Discount ........................................ 1,024,229 1,028,510
Less: Reserve for Possible Loan Losses ............................... (15,263) (14,958)
----------- -----------
Net Loans .......................................................... 1,008,966 1,013,552
----------- -----------
Bank Premises and Equipment ............................................ 14,155 14,268
Other Assets ........................................................... 62,561 56,389
----------- -----------
TOTAL ASSETS ............................................................. $ 1,619,475 $ 1,590,056
=========== ===========
LIABILITIES
Deposits
Demand Deposits ...................................................... $ 233,937 $ 226,044
Savings and Interest Checking Accounts ............................... 297,245 262,516
Money Market and Super Interest Checking Accounts .................... 110,800 107,624
Time Certificates of Deposit over $100,000 ........................... 102,556 113,632
Other Time Deposits .................................................. 325,877 351,790
----------- -----------
Total Deposits ..................................................... 1,070,415 1,081,806
----------- -----------
Federal Funds Purchased and Assets Sold Under Repurchase Agreements .... 114,132 93,366
Federal Home Loan Bank Borrowings ...................................... 266,836 256,224
Treasury Tax and Loan Notes ............................................ 667 9,877
Other Liabilities ...................................................... 14,863 21,904
----------- -----------
Total Liabilities .................................................. 1,466,913 1,463,177
----------- -----------
Corporation-obligated mandatorily redeemable trust preferred securities
of subsidiary trusts holding solely junior subordinated debentures of
the Corporation ........................................................ 51,325 28,750
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value Authorized: 30,000,000 Shares
Outstanding: 14,863,821 Shares at March 31, 2000
and 14,863,821 at December 31, 1999 ............................... 149 149
Treasury Stock: 633,750 Shares at March 31, 2000
and 684,463 Shares at December 31, 1999 ............................ (9,886) (10,678)
Surplus ................................................................ 44,387 44,950
Retained Earnings ...................................................... 70,354 67,547
Accumulated other Comprehensive Income .................................. (3,767) (3,839)
----------- -----------
Total Stockholders' Equity ......................................... 101,237 98,129
----------- -----------
TOTAL LIABILITIES, MINORITY INTEREST & STOCKHOLDERS' EQUITY ............. $ 1,619,475 $ 1,590,056
=========== ===========
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
----------- ------------
INTEREST INCOME
Interest on Loans ..................... $ 21,266 $ 19,556
Interest and Dividends on Securities... 7,936 7,886
Interest on Federal Funds Sold
And Repurchase Agreements ........... 85 165
Interest on Interest Bearing Deposits.. 1 --
----------- -----------
Total Interest Income .............. 29,288 27,607
----------- -----------
INTEREST EXPENSE
Interest on Deposits .................. 7,610 7,472
Interest on Borrowed Funds ............ 5,140 5,273
----------- -----------
Total Interest Expense ............. 12,750 12,745
----------- -----------
Net Interest Income ................... 16,538 14,862
----------- -----------
PROVISION FOR POSSIBLE LOAN LOSSES ....... 717 981
----------- -----------
Net Interest Income After Provision
For Possible Loan Losses ........... 15,821 13,881
----------- -----------
NON-INTEREST INCOME
Service Charges on Deposit Accounts ... 1,385 1,271
Trust and Investment Services Income... 1,133 917
Mortgage Banking Income ............... 313 501
Other Non-Interest Income ............. 802 736
----------- -----------
Total Non-Interest Income .......... 3,633 3,425
----------- -----------
NON-INTEREST EXPENSES
Salaries and Employee Benefits ........ 6,321 5,662
Occupancy Expenses .................... 1,003 961
Equipment Expenses .................... 907 767
Other Non-Interest Expenses ........... 3,996 3,719
----------- -----------
Total Non-Interest Expenses ........ 12,227 11,109
----------- -----------
Minority Interest ..................... 1,149 667
INCOME BEFORE INCOME TAXES ............... 6,078 5,530
PROVISION FOR INCOME TAXES ............... 1,847 1,684
----------- -----------
NET INCOME ............................... $ 4,231 $ 3,846
=========== ===========
BASIC EARNINGS PER SHARE ................. $ 0.30 $ 0.27
=========== ===========
DILUTED EARNINGS PER SHARE ............... $ 0.30 $ 0.27
=========== ===========
Weighted average common shares (Basic) ... 14,215,268 14,312,093
Common stock equivalents ................. 76,053 169,506
----------- -----------
Weighted average common shares (Diluted)... 14,291,321 14,481,599
=========== ===========
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
2000 1999
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ...................................................... $ 4,231 $ 3,846
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Depreciation and amortization ................................. 1,078 1,270
Provision for loan losses ..................................... 717 981
Loans originated for resale ................................... (5,767) (16,793)
Proceeds from mortgage loan sales ............................. 5,722 16,730
Loss on sale of mortgages ..................................... 45 63
Gain on mortgage servicing rights ............................. (62) (97)
Changes in assets and liabilities:
Decrease/(Increase) in other assets ........................ (7,393) (1,100)
(Decrease)/Increase in other liabilities ................... (6,497) 4,063
-------- --------
TOTAL ADJUSTMENTS ................................................. (12,157) 5,117
-------- --------
NET CASH (USED IN) PROVIDED FROM OPERATING ACTIVITIES ......... (7,926) 8,963
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of Investment Securities ............. 18,396 36,108
Purchase of Investment Securities ............................. (40,497) (22,874)
Net (Increase)/Decrease in Loans .............................. 3,869 (33,005)
Investment in Bank Premises and Equipment ..................... (791) (1,055)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ......................... (19,023) (20,826)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Deposits ...................................... (11,391) (9,884)
Net increase/(decrease) in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements ................. 20,766 (1,564)
Net increase/(decrease) in FHLB Borrowings .................... 10,612 (2,500)
Net increase/(decrease) in TT&L Notes ......................... (9,210) 1,084
Issuance of corporation-obligated mandatorily redeemable trust
preferred securities of subsidiary trusts holding solely junior
subordinated debentures of the Corporation .................... 23,858 --
Dividends Paid ................................................ (1,413) (1,315)
Purchase of Treasury Shares ................................... -- (4,787)
Proceeds from stock issuance .................................. 229 98
-------- --------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES ......... 33,451 (18,868)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ....................... 6,502 (30,731)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR .......... 57,668 86,198
-------- --------
CASH AND CASH EQUIVALENTS AS OF MARCH 31, ..................... $ 64,170 $ 55,467
======== ========
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 accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation of the financial statements, primarily consisting of normal
recurring adjustments, have been included. Operating results for the three month
period ended March 31, 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 September 27, 1999, the Company and the Bank, entered into a
purchase and assumption agreement with Fleet Financial Group to acquire 12
Massachusetts branches totaling $269 million in deposits and $37 million in
consumer and SBA loans. In addition, the Company will purchase approximately
$100 million of commercial real estate loans at par from BankBoston's Small
Business Banking Developmental Real Estate portfolio. The acquisitions result
from the divestiture of Fleet branches after its merger with BankBoston. This
transaction has received regulatory approval.
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.
CORPORATION-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES
In the first quarter of 2000, Independent Capital Trust II (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
$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 will record
distributions payable on the Trust Preferred Securities as a minority interest
expense in its consolidated statements of income.
The Company will unconditionally guarantee all of the Trust's
obligations under the Trust Preferred Securities
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair
value be recognized currently in income unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the statement of income and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 as amended by SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities Deferral of the Effective Date
of FASB Statement No. 133" shall be effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. 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.
EARNINGS PER SHARE
NET INCOME WEIGHTED AVERAGE SHARES NET INCOME PER SHARE
March 31, March 31, March 31, March 31, March 31, March 31,
2000 1999 2000 1999 2000 1999
----------------------------------------------------------------------------------------------
Basic EPS ..................... $4,231 $3,846 14,215 14,312 $0.30 $0.27
Effect of dilutive securities.. -- -- 76 170 -- --
----------------------------------------------------------------------------------------------
Diluted EPS.................... $4,231 $3,846 14,291 14,482 $0.30 $0.27
----------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Comprehensive income is reported net of taxes, as follows:
March 31,
2000 1999
---- ----
Net Income .................................................................. $4,231 $3,846
Change in unrealized gain/(loss) on securities available for sale ........... 72 (168)
Less: reclassification adjustment for losses included in net income ......... -- --
------ ------
Comprehensive Income ........................................................ $4,303 $3,678
------ ------
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 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 March 31, follows (in thousands):
RECONCILIATION TO CONSOLIDATED FINANCIAL INFORMATION
Community Other Adjustments
Banking Other and Eliminations Consolidated
March 31, 2000
Total Assets ........................ 1,617,535 211,075 (209,135) 1,619,475
Net Interest Income ................. 16,139 399 -- 16,538
Total Non-Interest Income ........... 3,633 5,062 (5,062) 3,633
Net Income .......................... $5,026 $4,267 ($5,062) $4,231
March 31, 1999
Total Assets ........................ 1,560,106 154,262 (150,512) 1,563,856
Net Interest Income ................. 14,684 178 -- 14,862
Total Non-Interest Income ........... 3,424 4,411 (4,410) 3,425
Net Income .......................... $4,389 $3,867 ($4,410) $3,846
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 it 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2000
SUMMARY
For the three months ended March 31, 2000, Independent Bank Corp. (the
Company) recorded net income of $4.23 million, compared with net income of $3.85
million for the same period last year. Diluted and Basic earnings per share were
$.30 for the quarter ended March 31, 2000 versus $.27 per share for the prior
year. This improvement in 2000 is primarily due to increased net interest
income.
Interest income associated with loan growth and a higher yielding
securities portfolio, contributed to an increase in net interest income of $1.6
million (to $16.5 million in 2000 from $14.9 million) in 1999. The provision for
loan losses decreased to $717,000 for the first three months of 2000 compared
with $981,000 for the same period last year consistent with the continued
improvement in the risk profile of the Company's loan portfolio. Non-interest
income and non-interest expenses increased 6.07% and 10.06% respectively from
the same period last year.
The annualized consolidated returns on average equity and average
assets for the first three months of 2000 were 16.87% and 1.06%, respectively.
This compares to annualized consolidated returns on average equity and average
assets for the first three months of 1999 of 16.13% and .99%, respectively.
As of March 31, 2000, total assets amounted to $1.62 billion, a
increase of $29.4 million or 1.85 % over the 1999 year end balance. Loans, net
of unearned discount, decreased $4.28 million, or 0.4% and investments increased
by $21.5 million, or 4.79% from year-end 1999. Asset growth was funded by
borrowings, an increase of $22.2 million since year-end 1999 and the net
proceeds of the Trust Preferred Securities offering, $23.9 million. Deposit
balances have decreased by $11.4 million since year-end 1999, reflecting normal
seasonal fluctuations.
Nonperforming assets totaled $3.2 million as of March 31, 2000 down
from $3.7 million on December 31, 1999. Nonperforming assets were 20 and 23
basis points of total assets for the respective periods.
NET INTEREST INCOME
The discussion of net interest income that follows is presented on a
fully tax-equivalent basis. Net interest income for the three months ended March
31, 2000, amounted to $16.8 million, an increase of $1.7 million, or 11.2%, 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 25 basis points. This reflects the
increase yield on earning assets.
The average balance of interest-earning assets for the first three
months of 2000 was $36 million, or 2.5%, higher than the comparable 1999 time
frame, while the average balance of interest-bearing liabilities was $3.2
million, or 0.3% lower. The Company's net interest margin for the first three
months of 2000 was 4.50% as compared to 4.15% for the comparable 1999 time
frame. The increase in the net interest margin is primarily due to a higher
yield on earning assets, 7.91% in 2000 compared to 7.64% in 1999.
Income from interest-earning assets amounted to $29.6 million for the
three months ended March 31, 2000, an increase of $1.7 million, or 6.05%, from
the first three months of 1999. The average balance of taxable investment
securities decreased by $28.7 million, or 6.4% and the average balance of loans,
net of unearned discount, increased $71.4 million, or 7.5% resulting from strong
growth in the Commercial and Industrial and Commercial Real Estate loan
categories.
Interest income is impacted by changes in market rates of interest due
to variable and floating rate loans in the Company's portfolio. At March 31,
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
$246.2 million, or 25.3% 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 $73,366 for the three months ended March 31, 2000, compared to
$108,000 for the three months ended March 31, 1999.
Average interest bearing deposits increased by $35.6 million, or 4.4%,
for the first three months of 2000 over the same period last year, in the
consumer certificate of deposit, savings and interest checking categories.
Demand deposits continue to show remarkable growth of $19.1 million or 9.3%
since March 31,1999. For the three months ended March 31, 2000, average
borrowings were $38.8 million, or 9.6%, lower than the first three months of
1999.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents the charge to expense
that is required to fund the reserve for possible loan losses. Management of the
Company, based upon known and anticipated circumstances and conditions,
determines the level of the reserve for possible loan losses. An analysis of
individual loans and the overall risk characteristics and size of the different
loan portfolios is conducted on an ongoing basis. In addition, the Company
considers industry trends, regional and national economic conditions, past
estimates of possible losses as compared to actual losses, and historical loss
patterns. Management assesses the adequacy of the reserve for possible loan
losses and reviews that assessment quarterly with the Board of Directors.
For the three months ended March 31, 2000, Management decreased the
provision for possible loan losses, consistent with the reduction in the level
of non-performing loans as well as lower delinquencies, to $717,000 as compared
to $981,000 for the same period last year. For the first three months of 2000,
loans charged-off, net of recoveries of loans previously charged-off, amounted
to $412,000 as compared to $780,000 for the comparable 1999 time frame.
As of March 31, 2000, the ratio of the reserve for possible loan losses
to loans, net of unearned discount, was 1.49%, as compared to the 1999 year-end
level of 1.45%. The ratio of the reserve for possible loan losses to
non-performing loans was 469.92% at March 31, 2000, higher than the 409.36%
coverage recorded at year-end.
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 2000 was $3.6
million, compared to $3.4 million for the same period in 1999, due to increased
revenue from the Asset Management and Trust Services Division, as well as, an
increase in deposit service charge revenues. Mortgage Banking income decreased
from $501,000 to $313,000 for the three months ended March 31, 2000 and 1999,
respectively due to an increasing rate environment and a near term lack of
sellers and housing inventory.
NON-INTEREST EXPENSES
Non-interest expenses totaled $12.2 million for the three months ended
March 31, 2000, a $1.1 million or 10.1% increase from the comparable 1999
period. Salaries and employee benefits increased by $659,000 or 11.6% resulting
from additions to staff needed to support planned internal growth as well as the
acquisition of twelve branches from FleetBoston Financial. Occupancy and
equipment expenses increased $182,000 or 10.5% to $1.91 million for the first
three months of 2000 from $1.73 million in the same period last year. Other
non-interest expenses for the first three months of 2000 increased by $277,000
or 7.45% to $4.0 million from $3.7 million in the first quarter of 1999
primarily, due to data processing costs.
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, 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 Trusts Holding Solely Junior
Subordinated Debentures of the Corporation". The Company records distributions
payable on the
Trust Preferred Securities as minority interest expense in its consolidated
statements of income. The minority interest expense was $1,149,000 and $667,000
for the three months ended March 31, 2000 and March 31, 1999.
INCOME TAXES
The Company records income tax expense pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes". The
Company evaluates the deferred tax asset and the valuation reserve on a
quarterly basis. The Company's effective tax rates for the three months ended
March 31, 2000 and 1999 were 30.4% and 30.5% 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 likely future interest rate environments.
Beginning in 1992, Rockland entered into interest rate swap agreements
as a hedge against stable or declining interest rates. As of March 31, 2000, the
Bank had interest rate swap agreements with a total notional value of $90
million. These swaps were arranged through international banking institution and
mature in a range from 3 months to 5 years. The Bank receives fixed rate
payments and pays a variable rate of interest tied to LIBOR indices.
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 and quantifying and hedging them.
The Company quantifies its interest-rate exposures using simulation models, as
well as simpler gap analyses. The Company manages its interest-rate exposure
using a combination of on and off balance sheet instruments, primarily
fixed-rate portfolio securities, interest rate swaps and options.
The Company uses simulation analysis to measure the exposure of net
interest income to changes in interest rates over a relatively short (i.e., less
than 2 years) time horizon. Simulation analysis involves projecting future
interest income and expense from the Company's asset, liabilities and off
balance sheet positions under various scenarios.
The Company's limits on interest rate risk specify that if interest
rates were to shift up or down 200 basis points, estimated net income for the
next 12 months should
decline by less than 6%. The following table reflects the Company's estimated
exposure, as a percentage of estimated net interest income for the next 12
months.
Rate Change Estimated Exposure as %
(Basis Points) of Net Interest Income
- --------------------------------------------------------------------------------
+200 (3.37%)
-200 3.08%
LIQUIDITY AND CAPITAL
Liquidity, as it pertains to the Company, is the ability to generate
cash in the most economical way, in order to meet ongoing obligations to pay
deposit withdrawals and to fund loan commitments. The Company's primary sources
of funds are deposits, borrowings, and the amortization, prepayment, and
maturities of loans and investments.
A strong source of liquidity is the Company's core deposits, those
deposits which management considers, based on experience, not likely to be
withdrawn in the near term. The Company utilizes its extensive branch-banking
network to attract retail customers who provide a stable source of core
deposits. The Company has established five repurchase agreements with major
brokerage firms as potential sources of liquidity. On March 31, 2000 the Company
had $64.4 million outstanding under such lines. As an additional source of
funds, the Bank has entered into repurchase agreements with customers totaling
$47.4 million at March 31, 2000. These two sources of funds are classified on
the Balance Sheet as "Federal Funds Purchased and Assets Sold Under Repurchase
Agreements". As a member of the Federal Home Loan Bank, Rockland has access to
approximately $305.0 million of borrowing capacity. At March 31, 2000, the
Company had $266.8 million outstanding under such lines. The Company actively
manages its liquidity position under the direction of the Bank's Asset/Liability
Management Committee. Periodic review under formal policies and procedures is
intended to ensure that the Company will maintain access to adequate levels of
available funds. At March 31, 2000, the Company's liquidity position was above
policy guidelines.
CAPITAL RESOURCES AND DIVIDENDS
The Company and Rockland are subject to capital requirements
established by the Federal Reserve Board and the FDIC, respectively. One key
measure of capital adequacy is the risk-based ratio for which the regulatory
agencies have established minimum requirements of 4.00% and 8.00% for Tier 1
risk-based capital and total risk-based capital, respectively. As of March 31,
2000, the Company had a Tier 1 risk-based capital ratio of 11.85% and a total
risk-based capital ratio of 14.72%. Rockland had a Tier 1 risk-based capital
ratio of 9.52% and a total risk-based capital ratio of 10.77% as of the same
date.
An additional capital requirement of a minimum 4.00% Tier 1 leverage
capital is mandated by the regulatory agencies. As of March 31, 2000, the
Company and the Bank had Tier 1 leverage capital ratios of 8.66% and 6.98%,
respectively.
In March, the Company's Board of Directors declared a cash dividend of
$.10 per share to shareholders of record as of March 31, 2000. This dividend was
paid on April 14, 2000. On an annualized basis, the dividend payout ratio
amounted to 33.42% of the trailing four quarters earnings.
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."
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
A judgement was rendered against the Bank in the second quarter of 2000
in the Plymouth Superior Court, Massachusetts, relating to a lawsuit filed in
1994 by Charles J. Tufankjian, Jr. concerning a proposed loan transaction that
was never consummated. The plaintiff asserted compensatory damages of
$232,116.00 in the lawsuit.
Superior Court Justice Elizabeth Donovan awarded the damages asserted
by the plaintiff and trebled them to $696,348.00. The Bank was also ordered to
pay plaintiff's legal fees of $102,392.50. There may also be interest due on
this claim at the statutory rate of 12% from 1994.
The impact of this decision will be charged against earnings for the second
quarter of 2000. The Bank will appeal the verdict in this case.
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
The financial information detailed below is included
hereafter in this report:
Consolidated Statements of Changes in Stockholders' Equity
Three months ended March 31, 2000 and the year ended
December 31, 1999
Consolidated Average Balance Sheet and Average Rate Data -
Three months ended March 31, 2000 and 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No Page
-- ----
27 Financial Data Schedule E-1
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 2000.
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED - IN THOUSANDS)
OTHER
COMMON TREASURY RETAINED COMPREHENSIVE
STOCK STOCK SURPLUS EARNINGS INCOME TOTAL
------ -------- ------- -------- ------------- -----
Balance, January 1, 1999 ............................ $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 ............. 589 (353) 236
Repurchase Common Stock ............................. (4,836) (4,836)
Change in Unrealized Gain (Loss) on Investments ..... (4,603) (4,603)
Available for Sale, Net of Tax
---- ------- ------- ------- ------- --------
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 .......................................... 4,231 4,231
Dividends Declared ($.10 per share) ................. (1,424) (1,424)
Proceeds from Exercise of Stock Options ............. 792 (595) 197
Repurchase Common Stock
Tax Benefit on Stock Option Exercise ................ 32 32
Change in Unrealized Gain on Investments ............ 72
Available for Sale, Net of Tax ...................... 72
---- ------- ------- ------- ------- --------
Balance, March 31, 2000 ............................ $149 (9,886) $44,387 $70,354 ($3,767) $101,237
==== ======= ======= ======= ======= ========
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(UNAUDITED - IN THOUSANDS)
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE THREE MONTHS ENDED MARCH 31, 2000 2000 2000
----------- -------- -------
Interest-Earning Assets
Taxable Investment Securities .............................. $420,377 $7,391 7.03%
Non-taxable Investment Securities .......................... 43,080 810 7.52%
Loans, net of Unearned Discount ............................ 1,026,125 21,281 8.30%
Federal Funds Sold ......................................... 6,024 85 5.64%
Trading Assets ............................................. 485 1 .82%
---------- ------- -----
Total Interest-Earning Assets .............................. $1,496,091 $29,568 7.91%
========== ======= =====
Cash and Due From Banks .................................... 42,755
Other Assets ............................................... 56,639
----------
Total Assets ............................................... $1,595,485
==========
Interest-Bearing Liabilities
Savings and Interest Checking Accounts .................... $284,994 $1,167 1.64%
Money Market & Super Interest Checking Accounts ............ 108,380 651 2.40%
Time Deposits .............................................. 453,378 5,793 5.11%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements ........................ 93,632 1,160 4.96%
Federal Home Loan Bank Borrowings .......................... 267,453 3,922 5.87%
Treasury Tax and Loan Notes ................................ 4,389 58 5.29%
---------- ------- -----
Total Interest-Bearing Liabilities ......................... $1,212,226 $12,751 4.21%
========== ======= =====
Demand Deposits ............................................ 224,077
Corporation-obligated mandatorily redeemable trust
preferred securities of subsidiary trusts holding
solely junior subordinated debentures of the Corporation ... 53,750
Other Liabilities .......................................... 5,136
----------
Total Liabilities .......................................... 1,495,189
----------
Stockholders' Equity ....................................... 100,296
----------
Total Liabilities and Stockholders' Equity ...................... $1,595,485
==========
Net Interest Income ........................................ $16,817
=======
Interest Rate Spread ....................................... 3.69%
=====
Net Interest Margin ........................................ 4.50%
=====
Interest income and yield are stated on a fully
tax-equivalent basis
The total amount of adjustment is $279 in 2000.
INDEPENDENT BANK CORP.
SUPPLEMENTAL FINANCIAL INFORMATION
CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA
(UNAUDITED - IN THOUSANDS)
AVERAGE INTEREST
OUTSTANDING EARNED/ AVERAGE
BALANCE PAID YIELD
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1999 1999
------------ --------- -------
Interest-Earning Assets
Taxable Investment Securities ................................. $449,080 $7,355 6.55%
Non-taxable Investment Securities ............................. 41,768 789 7.56%
Loans, net of Unearned Discount ............................... 954,764 19,572 8.20%
Federal Funds Sold ............................................ 14,486 165 4.56%
---------- ------- -----
Total Interest-Earning Assets ................................. $1,460,098 $27,881 7.64%
========== ======= =====
Cash and Due From Banks ....................................... 44,464
Other Assets .................................................. 49,945
==========
Total Assets .................................................. $1,554,507
==========
Interest-Bearing Liabilities
Savings and Interest Checking Accounts ........................ $273,394 $1,210 1.77%
Money Market & Super Interest Checking Accounts ............... 106,695 644 2.41%
Time Deposits ................................................. 431,092 5,618 5.21%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements ........................... 80,884 957 4.73%
Federal Home Loan Bank Borrowings ............................. 321,326 4,277 5.32%
Treasury Tax and Loan Notes ................................... 2,039 39 7.65%
---------- ------- -----
Total Interest-Bearing Liabilities ............................ $1,215,430 $12,745 4.19%
========== ======= =====
Demand Deposits ............................................... 204,933
Corporation-obligated mandatorily redeemable trust
preferred securities of subsidiary trusts holding
solely junior subordinated debentures of the Corporation ...... 28,750
Other Liabilities ............................................. 10,015
----------
Total Liabilities ............................................. 1,459,128
----------
Stockholders' Equity .......................................... 95,379
----------
Total Liabilities and Stockholders' Equity ......................... $1,554,507
==========
Net Interest Income ........................................... $15,136
=======
Interest Rate Spread .......................................... 3.44%
=====
Net Interest Margin ........................................... 4.15%
=====
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $274 in 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENT BANK CORP.
(registrant)
Date: May 11, 2000 /s/ Douglas H. Philipsen
-------------------------
Douglas H. Philipsen
Chairman of the Board, President
and Chief Executive Officer
Date: May 11, 2000 /s/ Denis K. Sheahan
-------------------------
Denis K. Sheahan
Chief Financial Officer
and Treasurer
(Principal Financial and
Principal Accounting Officer)