SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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)
(617) 878-6100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
As of August 1, 1997 there were 14,653,087 shares of the issuer's common
stock outstanding.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 1997 and December 31, 1996
Consolidated Statements of Income - Six months and quarters ended
June 30, 1997 and 1996
Consolidated Statements of Cash Flows - Six months ended
June 30, 1997 and 1996
Notes to Consolidated Financial Statements - June 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 1 FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31,
(Unaudited - in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and Due From Banks $49,661 $52,836
Federal Funds Sold and Assets Purchased
Under Resale Agreements 11,857 650
Securities Held To Maturity 288,738 290,894
Securities Available For Sale 116,402 26,449
Federal Home Loan Bank Stock 11,111 7,558
Loans, Net of Unearned Discount 760,230 695,406
Less: Reserve for Possible Loan Losses (12,506) (12,221)
- ------------------------------------------------------------------------------------------------------------------------
Net Loans 747,724 683,185
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Bank Premises and Equipment 11,864 10,642
Other Real Estate Owned 377 271
Other Assets 23,017 20,308
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TOTAL ASSETS $1,260,751 $1,092,793
========================================================================================================================
LIABILITIES
Deposits
Demand Deposits $181,625 $176,887
Savings and NOW Accounts 255,811 257,819
Money Market and Super NOW Accounts 108,464 107,084
Time Certificates of Deposit over $100,000 53,873 45,866
Other Time Deposits 358,238 330,916
- ------------------------------------------------------------------------------------------------------------------------
Total Deposits 958,011 918,572
- ------------------------------------------------------------------------------------------------------------------------
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 38,573 840
Federal Home Loan Bank Borrowings 128,000 78,000
Treasury Tax and Loan Notes 7,645 2,296
Other Liabilities 13,729 11,975
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,145,958 1,011,683
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Corporation-Obligated Mandatorily Redeemable Trust Preferred
Securities of Subsidiary Trust Holding Solely Junior Subordinated
debentures of the Corporation 28,750 -
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value, Authorized: 30,000,000 Shares
Outstanding: 14,626,887 Shares at June 30, 1997
and 14,604,501 at December 31, 1996 146 146
Surplus 44,513 44,433
Retained Earnings 40,900 36,666
Unrealized Gain(Loss) on Securities Available For Sale, Net of Tax 484 (135)
- ------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 86,043 81,110
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES
AND STOCKHOLDERS' EQUITY $1,260,751 $1,092,793
========================================================================================================================
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited - in thousands)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest on Loans $31,576 $28,435 $16,346 $14,278
Interest and Dividends on Securities 11,118 9,005 5,749 4,680
Interest on Federal Funds Sold
and Repurchase Agreements 83 116 56 38
Interest on Interest Bearing Deposits - 7 - 3
- ----------------------------------------------------------------------------------------------------------------------
Total Interest Income 42,777 37,563 22,151 18,999
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits 15,311 13,739 7,928 6,860
Interest on Borrowed Funds 2,913 1,921 1,497 1,101
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Total Interest Expense 18,224 15,660 9,425 7,961
- ----------------------------------------------------------------------------------------------------------------------
Net Interest Income 24,553 21,903 12,726 11,038
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PROVISION FOR POSSIBLE LOAN LOSSES 1,030 750 530 500
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Net Interest Income After Provision
For Possible Loan Losses 23,523 21,153 12,196 10,538
- ----------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 2,854 2,904 1,428 1,515
Trust and Investment Services Income 1,558 1,414 827 791
Mortgage Banking Income 1,416 1,588 749 864
Other Non-Interest Income 643 727 310 320
- ----------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income 6,471 6,633 3,314 3,490
- ----------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits 9,911 10,820 5,240 5,365
Occupancy Expenses 1,842 1,674 889 796
Equipment Expenses 1,434 1,251 750 607
Other Non-Interest Expenses 6,508 5,710 3,028 3,000
- ----------------------------------------------------------------------------------------------------------------------
Total Non-Interest Expenses 19,695 19,455 9,907 9,768
- ----------------------------------------------------------------------------------------------------------------------
MINORITY INTEREST
Minority Interest in income of subsidiaries 311 - 311 -
INCOME BEFORE INCOME TAXES 9,988 8,331 5,292 4,260
PROVISION FOR INCOME TAXES 3,406 2,999 1,707 1,505
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $6,582 $5,332 $3,585 $2,755
======================================================================================================================
NET INCOME PER SHARE $0.44 $0.36 $0.24 $0.19
======================================================================================================================
Weighted average common and common
equivalent shares outstanding 14,895,508 14,713,291 14,905,611 14,731,641
======================================================================================================================
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30,
(Unaudited - in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 6,582 5,332
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED FROM OPERATING ACTIVITIES
Depreciation and amortization 1,898 1,667
Provision for loan losses 1,030 750
Loans originated for resale (23,212) (25,130)
Proceeds from mortgage loan sales 23,194 25,147
Loss (gain) on sale of mortgages 18 (17)
Gain recorded from mortgage servicing rights (FAS 122) (221) (254)
Changes in assets and liabilities:
Increase in other assets (2,504) (1,166)
Increase in other liabilities 2,917 2,337
- ---------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 3,120 3,334
- ---------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 9,702 8,666
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in Interest Bearing Deposits - 296
Proceeds from maturities of Securities Held to Maturity 44,635 36,422
Proceeds from maturities of Securities Available for Sale 4,474 2,985
Purchase of Held to Maturity Securities (42,973) (88,014)
Purchase of Available for Sale Securities (93,545) -
Purchase of FHLB Stock (3,553) (3,369)
Net increase in Loans (67,759) (31,037)
Proceeds from sale of OREO 299 810
Investment in Bank Premises and Equipment (2,399) (1,685)
- ---------------------------------------------------------------------------------------------
NET CASH PROVIDED/USED IN INVESTING ACTIVITIES (160,821) (83,592)
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Deposits 39,439 (21,415)
Net increase in Federal Funds Purchased
and Assets Sold Under Repurchase Agreements 37,733 30,668
Net increase in FHLB Borrowings 50,000 40,500
Net increase in TT&L Notes 5,439 2,348
Net decrease in Capital Notes - (9)
Issuance of corporation-obligated mandatorily
redeemable trust preferred securities of subsidiary trust
holding solely junior subordinated debentures of the
Corporation 28,750 -
Dividends Paid (2,200) (1,597)
Proceeds from stock issuance 80 247
- ---------------------------------------------------------------------------------------------
NET CASH PROVIDED FROM FINANCING ACTIVITIES 159,151 50,742
- ---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,032 (24,184)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 53,486 80,354
- ---------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AS OF JUNE 30, 61,518 56,170
============================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation of the financial statements, primarily
consisting of normal recurring adjustments, have been included. Operating
results for the three and six month periods ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997 or any other interim period. For further information, refer to
the consolidated financial statements and footnotes thereto included in
Independent Bank Corp.'s (the "Company") annual report on Form 10-K for the year
ended December 31, 1996.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) issued Statement 128,
Earnings per Share (EPS) in the first quarter of 1997. Statement 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Statement 128 simplifies the calculation of EPS and
replaces primary EPS with basic EPS. Basic EPS is computed by dividing reported
earnings available to common stockholders by the weighted average shares
outstanding. Fully diluted EPS has been modified and replaced with diluted EPS.
Early application is prohibited, although the footnote disclosure of pro forma
EPS amounts computed under the new Statement is permitted.
The pro forma impact of Statement 128 is shown below:
Quarter Ended June 30
1997 1996
Net Income $ 3,585 $ 2,755
=========== ==========
Primary:
Weighted average shares (Basic) 14,623,762 14,543,727
Common stock equivalents 281,849 187,914
----------- ----------
Primary weighted average shares 14,905,611 14,731,641
=========== ==========
Primary earnings per share reported $ 0.24 $ 0.19
=========== ==========
Proforma basic earnings per share $ 0.25 $ 0.19
=========== ==========
Proforma diluted earnings per share $ 0.24 $ 0.19
=========== ==========
CORPORATION-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES
In the second quarter of 1997, Independent Capital Trust I (the "Trust) was
formed for the purpose of issuing trust preferred securities (the "Trust
Preferred Securities") and investing the proceeds of the sale of these
securities in junior subordinated debentures issued by the Company. A total of
$28.75 million of 9.28% Trust Preferred Securities were issued and are scheduled
to mature in 2027, callable at the option of the Company after May 19, 2002.
Distributions on these securities are payable quarterly in arrears on the last
day of March, June, September and December, such distributions can be deferred
at the option of the Company for up to five years. The Trust Preferred
Securities can be prepaid in whole or in part on or after May 19, 2002 at a
redemption price equal to $25 per Trust Preferred Security plus accumulated but
unpaid distributions thereon to the date of the redemption.
The Trust Preferred Securities are presented in the consolidated balance sheets
of the Company entitled "Corporation-Obligated Mandatorily Redeemable Trust
Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated
Debentures of the Corporation". The Company 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
SUMMARY
For the six months ended June 30, 1997, Independent Bank Corp. (the
Company) recorded net income of $6.6 million, or $0.44 per share, compared with
net income of $5.3 million, or $0.36 per share, for the same period last year.
This improvement in net income was due to a $2.7 million, or 12.1% increase in
net interest income. The provision for loan losses increased to $1.0 million for
the first six months of 1997 compared with $750,000 for the same period last
year. Non-interest income and expense were relatively unchanged.
The annualized consolidated returns on average equity and average assets
for the first six months of 1997 were 15.84% and 1.17%, respectively. This
compares to annualized consolidated returns on average equity and average assets
for the first six months of 1996 of 14.38% and 1.07%, respectively.
As of June 30, 1997, total assets amounted to $1.3 billion, an increase of
$168.0 million over the 1996 year end balance. Investments increased $102.6
million, or 31.5% from $325.6 million at year end 1996, primarily due to an
investment leverage strategy that the Company has implemented during the second
quarter of 1997. Loans, net of unearned discount, increased $64.8 million, or
9.3%, since year end 1996 with strong growth in the commercial real estate
portfolio and the installment loan portfolio. Deposit balances have increased by
$39.4 million, or 4.3%, borrowings have increased by $93.1 million, or 114.7%,
since year end 1996.
In the second quarter of 1997, Independent Capital Trust I was formed for
the purpose of issuing Trust Preferred Securities. A total of $28.8 million of
9.28% Cumulative Trust Preferred Securities were issued on May 19, 1997. Net
income for the second quarter of 1997 reflects pre-tax minority interest expense
of $311,000.
Nonperforming assets totaled $5.2 million as of June 30, 1997 compared to
$4.7 million at December 31, 1996. Nonperforming assets represented 42 and 43
basis points of total assets as of June 30, 1997 and December 31, 1996,
respectively.
NET INTEREST INCOME
The discussion of net interest income which follows is presented on a fully
tax-equivalent basis. Net interest income for the six months ended June 30,
1997, amounted to $24.7 million, an increase of $2.6 million, or 11.8%, from the
comparable 1996 time frame. The Company's interest rate spread (the difference
between the weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities) decreased by 3 basis points to
3.85%. This is due to the Company's decision to expand the securities portfolio,
financed by borrowings, to take advantage of a strong capital position. While
these funding and investment actions increased net interest income, the net
interest margin (net interest income as a percent of average interest earning
assets) reflects the lower net interest spread on such transactions. The
Company's net interest margin for the first six months of 1997 was 4.65%,
compared to 4.72% for the comparable 1996 time frame.
The average balance of interest-earning assets for the first six months of
1997 amounted to $1.1 billion, an increase of $126.5 million, or 13.5%, from the
comparable 1996 time frame. Income from interest-earning assets amounted to
$42.9 million for the six months ended June 30, 1997, an increase of $5.2
million, or 13.7%, from the first six months of 1996. The increase in interest
income was due to a $76.3 million, or 11.9% increase in the average balance of
loan portfolio, net of unearned discount, resulting from increases in the
commercial real estate portfolio and indirect automobile lending, as well as a
$51.5 million, or 17.9%, increase in the securities portfolio.
Interest income is impacted by changes in market rates of interest due to
variable and floating rate loans in the Company's portfolio. At June 30, 1997,
loans having interest rates which adjust in accordance with changes in the
Company's base lending rate or other market indices amounted to approximately
$318.9 million, or 42.0% 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 $187,000 for the six months ended June 30, 1997, compared to
$265,000 for the six months ended June 30, 1996.
The average balance of interest-bearing liabilities for the first six
months of 1997 was $112.9 million, or 15.1%, higher than the comparable 1996
time frame. Average interest bearing deposits increased by $72.9 million, or
10.7%, for the first six months of 1997 over the same period last year,
primarily in the consumer certificate of deposit category. For the six months
ended June 30, 1997, average borrowings were $40.0 million, or 60.4%, higher
than the first six months of 1996, primarily in FHLB borrowings which increased
by $38.5 million. Interest expense on deposits increased by $1.6 million, or
11.4%, to $15.3 million in the first six months of 1997 and interest expense on
borrowings increased by $1.0 million, or 51.6%, to 2.9 million as compared to
the same period last year.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses represents the charge to expense
that is required to fund the reserve for possible loan losses. The level of the
reserve for possible loan losses is determined by management of the Company
based upon known and anticipated circumstances and conditions. An analysis of
individual loans and the overall risk characteristics and size of the different
loan portfolios is conducted on an ongoing basis. In addition, the Company
considers industry trends, regional and national economic conditions, past
estimates of possible losses as compared to actual losses, and historical loss
patterns. Management assesses the adequacy of the reserve for possible loan
losses and reviews that assessment quarterly with the Board of Directors.
For the six months ended June 30, 1997, management increased the provision
for possible loan losses, consistent with the level of loan growth experienced,
to $1.0 million as compared to $750,000 for the same period last year. For the
first six months of 1997, loans charged-off, net of recoveries of loans
previously charged-off, amounted to $745,000 as compared to $876,000 for the
comparable 1996 time frame.
As of June 30, 1997, the ratio of the reserve for possible loan losses to
loans, net of unearned discount, was 1.65%, as compared to the 1996 year-end
level of 1.76%. The ratio of the reserve for possible loan losses to
non-performing loans was 257.0% at June 30, 1997, slightly lower than the 273.9%
coverage recorded at year end 1996.
NON-INTEREST INCOME
Non-interest income for the six months ended June 30, 1997 was $6.5
million, compared to $6.6 million for the same period in 1996. Income from Trust
and Financial Services increased by $144,000, or 10.2%, due to an increase in
funds under management and a strong securities market. This increase was offset
by a decrease in mortgage banking income of $172,000, or 10.8%, resulting from
lower loan origination's.
NON-INTEREST EXPENSES
Non-interest expenses totaled $19.7 million for the six months ended
June 30, 1997, a $240,000 increase from the comparable 1996 period. Salaries and
employee benefits decreased by $909,000, or 8.4%. As previously reported, in
connection with a change in the Bank's pension plan which was effective January
1, 1997, the Company recognized $394,000 of previously accrued pension liability
as a credit to salaries and benefits during the first quarter. As a result of
this change in the Bank's pension plan to a defined contribution plan, no
pension expense was recognized in the first six months of 1997. The remainder of
the decrease in salaries and employee benefits is due to the transfer of
sixty-nine employees to the Company's third party data processing provider, as a
result of a facilities management agreement enacted in the first quarter last
year.
Occupancy and equipment expenses for the first six months of 1997 increased
$351,000, or 12%, from the comparable 1996 period as a result of the Company's
commitment to improve facilities and take advantage of current technology.
Other non-interest expenses for the first six months of 1997 increased
$798,000 to $6.5 million from $5.7 million in the first six months of 1996. This
increase is associated with the data processing conversion, completed in the
first quarter of 1997 and to a combination of conversion costs and the data
processing facilities management fee in 1997.
INCOME TAXES
The Company records income tax expense pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes". The Company
evaluates the deferred tax asset and the valuation reserve on a quarterly basis.
The Company's effective tax rates for the six months ended June 30, 1997 and
1996 were 34.1% and 36.0% respectively. The lower rate in 1997 reflects certain
tax planning strategies enacted by the Company in 1997.
ASSET/LIABILITY MANAGEMENT
The principal objective of the Company's asset/liability management
strategy is to reduce the vulnerability of the Company to changes in interest
rates. This is accomplished by managing the volume of assets and liabilities
maturing, or subject to repricing, and by adjusting rates in relation to market
conditions to influence volumes and spreads.
The effect of interest rate volatility on net interest income is minimized
when the interest sensitivity gap (the difference between assets and liabilities
that reprice within a given time period) is the smallest. Given the inherent
uncertainty of future interest rates, Rockland Trust Company's (the Bank or
Rockland) Asset/Liability Management Committee evaluates the interest
sensitivity gap and executes strategies, which may include off-balance sheet
activities, in an effort to minimize the Company's exposure to interest rate
movements while providing adequate earnings in the most plausible future
interest rate environments.
Beginning in 1992, Rockland entered into interest rate swap agreements as a
hedge against stable or declining interest rates. As of June 30, 1997, the Bank
had interest rate swap agreements with a total notional value of $90 million.
These swaps were arranged through two international banking institutions and
have initial maturities ranging from three to five years. The Bank receives
fixed rate payments and pays a variable rate of interest tied to 3-month LIBOR.
LIQUIDITY AND CAPITAL
Liquidity, as it pertains to the Company, is the ability to generate cash
in the most economical way, in order to meet ongoing obligations to pay deposit
withdrawals and to fund loan commitments. The Company's primary sources of funds
are deposits, borrowings, and the amortization, prepayment, and maturities of
loans and investments.
A strong source of liquidity is the Company's core deposits, those deposits
which management considers, based on experience, are not likely to be withdrawn
in the near term. The Company utilizes its extensive branch banking network to
attract retail customers who provide a stable source of core deposits. The
Company has established five repurchase agreements with major brokerage firms as
potential sources of liquidity. On June 30, 1997 the Company had $38.6 million
outstanding under such lines classified on the Balance Sheet as "Federal Funds
Purchased and Assets Sold Under Repurchase Agreements". In addition, as a member
of the Federal Home Loan Bank, Rockland has access to approximately $400 million
of borrowing capacity. At June 30, 1997, the Company had $128.0 million
outstanding under such lines. The Company actively manages its liquidity
position under the direction of the Bank's Asset/Liability Management Committee.
Periodic review under formal policies and procedures is intended to ensure that
the Company will maintain access to adequate levels of available funds. At June
30, 1997, the Company's liquidity position was well above policy guidelines.
CAPITAL RESOURCES AND DIVIDENDS
The Company and Rockland are subject to capital requirements established by
the Federal Reserve Board and the FDIC, respectively. One key measure of capital
adequacy is the risk-based ratio for which the regulatory agencies have
established minimum requirements of 4.00% and 8.00% for Tier 1 risk-based
capital and total risk-based capital, respectively. As of June 30, 1997, the
Company had a Tier 1 risked-based capital ratio of 14.09% and a total
risked-based capital ratio of 15.37%. Rockland had a Tier 1 risked-based capital
ratio of 10.34% and a total risked-based capital ratio of 11.59% 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 June 30, 1997, the Company
and the Bank had Tier 1 leverage capital ratios of 9.66% and 7.06%,
respectively.
The Company's capital ratios increased significantly in the second quarter
of 1997 due to the issuance of $28.8 million of Trust Preferred Securities.
In June, the Company's Board of Directors declared a cash dividend of $.08
per share to shareholders of record as of June 27, 1997. This dividend was paid
on July 11, 1997. On an annualized basis, the dividend payout ratio amounted to
38.9% of the trailing four quarters earnings.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED JUNE 30, 1997
SUMMARY
For the three months ended June 30, 1997, the Company recorded net income
of $3.6 million, or $0.24 per share, compared with net income of $2.8 million,
or $0.19 per share, for the same period last year. This increase was due to
increased net interest income of $1.7 million, or 15.0%. The provision for loan
losses increased to $530,000 for the second quarter of 1997 compared with
$500,000 for the same period last year. Non-interest income and expense were
relatively unchanged.
The annualized consolidated returns on average equity and average assets
for the second quarter of 1997 were 17.12% and 1.24%, respectively. This
compares to annualized consolidated returns on average equity and average assets
for the second quarter of 1996 of 14.70% and 1.09%, respectively.
NET INTEREST INCOME
The discussion of net interest income which follows is presented on a fully
tax-equivalent basis. Net interest income for the three months ended June 30,
1997, amounted to $12.8 million, an increase of $1.7 million, or 15.0%, from the
comparable 1996 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 3 basis points. The
Company's net interest margin for the second quarter of 1997 was 4.71%, compared
to 4.67% for the comparable 1996 time frame.
The average balance of interest-earning assets for the first six months of
1997 amounted to $1.1 billion an increase of $133.9 million, or 14.0%, over the
comparable 1996 time frame. Income from interest-earning assets amounted to
$22.2 million for the second quarter of 1997, an increase of $3.1 million, or
16.4%, from the second quarter of 1996. The increase in interest income was
attributable to a $84.6 million, or 13.0% increase in the average balance of the
loan portfolio, net of unearned discount, resulting from increases in the
commercial real estate portfolio, indirect automobile lending and floor plan
lending. In addition, the securities portfolio increased by $48.2 million, or
16.0% which reflects the Company's strategy of leveraging its capital.
The average balance of interest-bearing liabilities for the first six
months of 1997 was $112.2 million, or 14.7%, higher than the comparable 1996
time frame. Average interest bearing deposits increased by $83.1 million, or
12.1%, for the second quarter of 1997 over the same period last year, primarily
in the consumer certificate of deposit category. For the three months ended June
30, 1997, average borrowings were $29.2 million, or 37.6%, higher than the
second quarter of 1996. Interest expense on deposits increased by $1.1 million,
or 15.6%, while interest expense on borrowings increased by $396,000, or 36.0%.
NON-INTEREST INCOME
Non-interest income for the three months ended June 30, 1997 was $3.3
million, compared to $3.5 million for the same period in 1996. This decline was
primarily due to a decrease in mortgage banking income of $115,000 or 13.3%,
resulting from lower loan origination's.
NON-INTEREST EXPENSES
Non-interest expenses totaled $9.9 million for the three months ended June
30, 1997, a $139,000 increase from the comparable 1996 period. The increase in
non-interest expense was due to $143,000 increase in equipment expenses, as well
as a $93,000 increase in occupancy expenses offset by a decrease in salaries and
employee benefits of $125,000. The increase in occupancy and equipment expenses
was attributable to continued facility and technological improvements while the
decrease in salaries was reflective of the company not recognizing any pension
expense in the second quarter of 1997.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information
The financial information detailed below is included hereafter in this report:
Consolidated Statements of Changes in Stockholders' Equity - Three
months ended June 30, 1997 and the year ended December 31, 1996
Consolidated Average Balance Sheet and Average Rate Data - Six months
and three months ended June 30, 1997 and 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Page
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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 June 30, 1997.
INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Unaudited - in thousands)
UNREALIZED
GAIN (LOSS)
COMMON RETAINED INVESTMENTS
STOCK SURPLUS EARNINGS AVAILABLE TOTAL
- --------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1996 145 43,777 28,710 (60) 72,572
Net Income 11,597 11,597
Dividends Declared (3,641) (3,641)
Common Stock Sold Under Dividend 1 497 498
Reinvestment & Stock Purchase Plan
Stock options Exercised 10,000 shares 105 105
Effect of sold options 54 54
Unrealized Gain (Loss) on Investments (75) (75)
Available for Sale
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 146 44,433 36,666 (135) 81,110
===========================================================================================================================
Balance, January 1, 1997 146 44,433 36,666 (135) 81,110
Net Income 6,582 6,582
Dividends Declared (2,348) (2,348)
Stock Options Exercised 31,734 shares 80 80
Unrealized Gain (loss) on Investments
Available for Sale 619 619
- --------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 146 44,513 40,900 484 86,043
===========================================================================================================================
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
1997 1997 1997
FOR THE SIX MONTHS ENDED JUNE 30, -------------- ------------ ------------
Interest-Earning Assets
Taxable Investment Securities $333,164 $10,961 6.58%
Non-taxable Investment Securities 6,524 224 6.87%
Loans, net of Unearned Discount 719,665 31,671 8.80%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 3,113 83 5.33%
-------- ------- ----
Total Interest-Earning Assets 1,062,466 $42,939 8.08%
========= ======= ====
Cash and Due From Banks 45,695
---------
Other Assets 18,185
---------
Total Assets 1,126,346
=========
Interest-Bearing Liabilities
Savings and NOW Accounts $253,245 $2,698 2.13%
Money Market & Super NOW Accounts 108,508 1,519 2.80%
Other Time Deposits 392,303 11,094 5.66%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 27,491 750 5.46%
Federal Home Loan Bank Borrowings 74,464 2,074 5.57%
Treasury Tax and Loan Notes 4,114 89 4.33%
-------- ------- ----
Total Interest-Bearing Liabilities 860,125 $18,224 4.24%
========= ======= =====
Demand Deposits 162,613
Other Liabilities 20,522
---------
Total Liabilities $1,043,260
---------
Stockholders' Equity $83,086
---------
Total Liabilities and Stockholders' Equity $1,126,346
=========
Net Interest Income $24,715
=======
Interest Rate Spread 3.85%
=====
Net Interest Margin 4.65%
=====
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $162 in 1997.
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
1996 1996 1996
FOR THE SIX MONTHS ENDED JUNE 30, ----------- --------- ---------
Interest-Earning Assets
Taxable Investment Securities $280,962 $8,861 6.31%
Non-taxable Investment Securities 7,219 210 5.82%
Loans, net of Unearned Discount 643,323 28,575 8.88%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 4,209 116 5.51%
Interest Bearing Deposits 257 7 5.45%
------- ------- ----
Total Interest-Earning Assets 935,970 $37,769 8.07%
======= ======= ====
Cash and Due From Banks 46,198
Other Assets 12,304
-------
Total Assets 994,472
=======
Interest-Bearing Liabilities
Savings and NOW Accounts $256,554 $2,765 2.16%
Money Market & Super NOW Accounts 106,517 1,478 2.78%
Other Time Deposits 318,082 9,496 5.97%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 22,422 610 5.44%
Federal Home Loan Bank Borrowings 35,989 1,015 5.64%
Treasury Tax and Loan Notes 2,866 59 4.12%
Subordinated Capital Notes 4,836 237 9.80%
------- ------- ----
Total Interest-Bearing Liabilities 747,266 $15,660 4.19%
======= ====
Demand Deposits 158,577
Other Liabilities 14,457
-------
Total Liabilities $920,300
-------
Stockholders' Equity $74,172
-------
Total Liabilities and Stockholders' Equity $994,472
=======
Net Interest Income $22,109
=======
Interest Rate Spread 3.88%
=======
Net Interest Margin 4.72%
=======
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $207 in 1996.
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 JUNE 30, 1997 1997 1997
----------- --------- --------
Interest-Earning Assets
Taxable Investment Securities $342,378 $5,650 6.60%
Non-taxable Investment Securities 7,019 138 7.86%
Loans, net of Unearned Discount 736,012 16,389 8.91%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 4,112 56 5.45%
---------- ------- ----
Total Interest-Earning Assets 1,089,521 $22,233 8.16%
---------- ======= ====
Cash and Due From Banks 46,939
Other Assets 18,086
-----------
Total Assets 1,154,546
===========
Interest-Bearing Liabilities $254,016
Savings and NOW Accounts $1,355 2.13%
Money Market & Super NOW Accounts 112,300 809 2.88%
Other Time Deposits 401,980 5,764 5.74%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 23,231 326 5.61%
Federal Home Loan Bank Borrowings 78,984 1,117 5.66%
Treasury Tax and Loan Notes 4,684 54 4.61%
--------- ------- ----
Total Interest-Bearing Liabilities 875,195 $9,425 4.31%
========= ====== ====
Demand Deposits 167,577
Other Liabilities 28,016
----------
$1,070,788
Total Liabilities ----------
$83,758
Stockholders' Equity ----------
Total Liabilities and Stockholders' Equity $1,154,546
==========
Net Interest Income $12,808
=======
Interest Rate Spread 3.85%
======
Net Interest Margin 4.71%
======
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $82 in 1997.
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 JUNE 30, 1996 1996 1996
----------- --------- --------
Interest-Earning Assets
Taxable Investment Securities $294,432 $4,616 6.27%
Non-taxable Investment Securities 6,752 96 5.69%
Loans, net of Unearned Discount 651,374 14,342 8.81%
Federal Funds Sold and Assets
Purchased Under Resale Agreements 2,879 38 5.28%
Interest Bearing Deposits 218 2 3.67%
-------- ------- ----
Total Interest-Earning Assets 955,655 $19,094 7.99%
-------- ------- ----
Cash and Due From Banks 48,380
Other Assets 10,475
---------
Total Assets 1,014,510
=========
Interest-Bearing Liabilities
Savings and NOW Accounts $256,028 $1,385 2.16%
Money Market & Super NOW Accounts 110,406 772 2.80%
Other Time Deposits 318,807 4,703 5.90%
Federal Funds Purchased and Assets
Sold Under Repurchase Agreements 24,321 326 5.36%
Federal Home Loan Bank Borrowings 45,940 632 5.50%
Treasury Tax and Loan Notes 2,613 25 3.83%
Subordinated Capital Notes 4,832 118 9.77%
--------- ------- ----
Total Interest-Bearing Liabilities 762,947 $7,961 4.17%
========= ======= ====
Demand Deposits 160,901
Other Liabilities 15,695
----------
$939,543
Total Liabilities ----------
$74,967
Stockholders' Equity ----------
Total Liabilities and Stockholders' $1,014,510
Equity ==========
Net Interest Income $11,133
=======
Interest Rate Spread 3.82%
=====
Net Interest Margin 4.67%
=====
Interest income and yield are stated on a fully tax-equivalent basis.
The total amount of adjustment is $95 in 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENT BANK CORP.
(registrant)
Date: August 14, 1997 /s/ John F. Spence, Jr.
John F. Spence,Jr.
Chairman of the Board and
Chief Executive Officer
Date: August 14, 1997 /s/ Richard J. Seaman
Richard J. Seaman
Chief Financial Officer
and Treasurer