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, 1998 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 1,1998 there were 14,863,821 shares of the registrant's common stock outstanding, par value $.01 per share.
INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 Consolidated Statements of Income - Nine months and quarters ended September 30, 1998 and 1997 Consolidated Statements of Cash Flows - Nine months ended September 30, 1998 and 1997 Notes to Consolidated Financial Statements - September 30, 1998 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
PART 1 FINANCIAL INFORMATION <TABLE> <CAPTION> Item 1. Financial Statements - ---------------------------- INDEPENDENT BANK CORP. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, (Unaudited - in thousands) 1998 1997 - ----------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Cash and Due From Banks $42,510 $42,544 Federal Funds Sold 14,490 22,472 Securities Held To Maturity 308,743 308,112 Securities Available For Sale 200,916 131,842 Federal Home Loan Bank Stock 16,035 16,035 Loans, Net of Unearned Discount 909,284 828,132 Less: Reserve for Possible Loan Losses (13,600) (12,674) - ----------------------------------------------------------------------------------------------------- Net Loans 895,684 815,458 - ----------------------------------------------------------------------------------------------------- Bank Premises and Equipment 15,143 12,776 Other Real Estate Owned -- 2 Other Assets 21,209 20,766 ===================================================================================================== TOTAL ASSETS $1,514,730 $1,370,007 ===================================================================================================== LIABILITIES Deposits Demand Deposits $199,493 $189,577 Savings and Interest Checking Accounts 267,703 257,980 Money Market and Super Interest Checking Accounts 101,212 119,316 Time Certificates of Deposit over $100,000 71,646 69,424 Other Time Deposits 346,278 351,851 - ----------------------------------------------------------------------------------------------------- Total Deposits 986,332 988,148 - ----------------------------------------------------------------------------------------------------- Federal Funds Purchased and Assets Sold Under Repurchase Agreements 80,811 38,327 Federal Home Loan Bank Borrowings 301,224 206,724 Treasury Tax and Loan Notes 5,123 3,217 Other Liabilities 16,199 12,348 - ----------------------------------------------------------------------------------------------------- Total Liabilities 1,389,689 1,248,764 - ----------------------------------------------------------------------------------------------------- Company-Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated debentures of the 28,750 28,750 Company - ----------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common Stock, $.01 par value, Authorized: 30,000,000 Shares Outstanding: 14,863,821 Shares at September 30, 1998 and 14,801,904 at December 31, 1997 149 148 Treasury Stock at cost-250,688 shares (3,921) -- Surplus 45,343 45,147 Retained Earnings 53,104 45,825 Accumulated Other Comprehensive Income 1,616 1,373 - ----------------------------------------------------------------------------------------------------- Total Stockholders' Equity 96,291 92,493 - ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES AND STOCKHOLDERS' EQUITY $1,514,730 $1,370,007 ===================================================================================================== </TABLE>
INDEPENDENT BANK CORP. CONSOLIDATED STATEMENT OF INCOME (Unaudited - in thousands, except share and per share data) <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> INTEREST INCOME Interest on Loans $56,628 $48,753 $19,375 $17,177 Interest and Dividends on Securities 23,113 18,816 8,347 7,698 Interest on Federal Funds Sold 621 132 290 49 - ---------------------------------------------------------------------------------------------------------------------- Total Interest Income 80,362 67,701 28,012 24,924 - ---------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on Deposits 23,617 23,471 8,047 8,160 Interest on Borrowed Funds 12,863 6,057 5,017 3,144 - ---------------------------------------------------------------------------------------------------------------------- Total Interest Expense 36,480 29,528 13,064 11,304 - ---------------------------------------------------------------------------------------------------------------------- Net Interest Income 43,882 38,173 14,948 13,620 - ---------------------------------------------------------------------------------------------------------------------- PROVISION FOR POSSIBLE LOAN LOSSES 2,721 1,560 907 530 - ---------------------------------------------------------------------------------------------------------------------- Net Interest Income After Provision For Possible Loan Losses 41,161 36,613 14,041 13,090 - ---------------------------------------------------------------------------------------------------------------------- NON-INTEREST INCOME Service Charges on Deposit Accounts 3,999 4,255 1,335 1,401 Trust and Investment Services Income 2,824 2,284 849 726 Mortgage Banking Income 2,695 2,083 908 667 Other Non-Interest Income 1,310 952 527 309 - ---------------------------------------------------------------------------------------------------------------------- Total Non-Interest Income 10,828 9,574 3,619 3,103 - ---------------------------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSES Salaries and Employee Benefits 16,675 15,129 5,688 5,218 Occupancy Expenses 2,802 2,692 930 850 Equipment Expenses 2,180 2,080 737 646 Other Non-Interest Expenses 10,798 9,718 3,615 3,210 - ---------------------------------------------------------------------------------------------------------------------- Total Non-Interest Expenses 32,455 29,619 10,970 9,924 - ---------------------------------------------------------------------------------------------------------------------- Minority Interest Expense 2,001 978 667 667 INCOME BEFORE INCOME TAXES 17,533 15,590 6,023 5,602 PROVISION FOR INCOME TAXES 5,785 5,316 1,928 1,910 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $11,748 $10,274 $4,095 $3,692 ====================================================================================================================== BASIC EARNINGS PER SHARE $0.79 $0.70 $0.28 $0.25 ====================================================================================================================== DILUTED EARNINGS PER SHARE $0.78 $0.69 $0.27 $0.25 ====================================================================================================================== Weighted average common shares (Basic) 14,812,566 14,629,145 14,774,324 14,646,537 Common stock equivalents 225,785 292,533 209,022 323,365 - ---------------------------------------------------------------------------------------------------------------------- Weighted average common shares (Diluted) 15,038,351 14,921,678 14,983,346 14,969,902 ====================================================================================================================== </TABLE>
<TABLE> <CAPTION> INDEPENDENT BANK CORP. NINE MONTHS ENDED CONSOLIDATED STATEMENTS OF CASH FLOWS SEPTEMBER 30, (Unaudited - in thousands) 1998 1997 - --------------------------------------------------------------------------------------------------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $11,748 $10,274 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED FROM OPERATING ACTIVITIES Depreciation and amortization 3,090 2,860 Provision for loan losses 2,721 1,560 Loans originated for resale (57,522) (33,539) Proceeds from mortgage loan sales 57,388 33,497 Loss on sale of mortgages 134 42 Gain recorded from mortgage servicing rights (546) (316) Other Real Estate Owned recoveries (157) (110) Changes in assets and liabilities:: Decrease (increase) in other assets 103 (1,143) Increase in other liabilities 3,728 6,656 - --------------------------------------------------------------------------------------------------------- TOTAL ADJUSTMENTS 8,939 9,507 - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 20,688 19,781 - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of Securities Held to Maturity 85,098 59,318 Proceeds from maturities of Securities Available for Sale 54,158 11,577 Purchase of Held to Maturity Securities (86,339) (99,009) Purchase of Available for Sale Securities (123,387) (123,937) Purchase of FHLB Stock -- (7,329) Net increase in Loans (82,947) (97,724) Proceeds from sale of OREO 159 404 Investment in Bank Premises and Equipment (4,326) (2,903) - --------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (157,584) (259,603) - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in Deposits (1,816) 36,537 Net increase in Federal Funds Purchased and Assets Sold Under Repurchase Agreements 42,484 79,146 Net increase in FHLB Borrowings 94,500 93,500 Net increase in TT&L Notes 1,906 2,663 Issuance of company-obligated mandatorily Redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the company -- 28,750 Dividends Paid (4,469) (3,371) Proceeds from stock issuance 511 205 Payments for treasury stock purchase (4,235) -- - --------------------------------------------------------------------------------------------------------- NET CASH PROVIDED FROM FINANCING ACTIVITIES 128,881 237,430 - --------------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (8,016) (2,392) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 65,016 53,486 - --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AS OF SEPTEMBER 30, $57,000 $51,094 - --------------------------------------------------------------------------------------------------------- </TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the three and nine month periods ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998 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, 1997. RECENT ACCOUNTING DEVELOPMENTS In March, 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1). SOP 98-1 requires computer software costs associated with internal use software to be expensed as incurred until certain capitalization criteria are met. The Company does not believe that adoption of SOP 98-1 will have a material impact on the Company's financial statements. In April, 1998, the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires all costs associated with pre-opening, pre-operating, and organization activities to be expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999. The Company believes that adoption of SOP 98-5 will have no material impact on the Company's financial statements. 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 earnings 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 income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). Statement 133 cannot be applied retroactively. Statement 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the Company's election, before January 1, 1998). The Company does not expect that the adoption of this statement will have a material impact on the Company's financial position or results of operation.
EARNINGS PER SHARE In 1997, the Company adopted the provisions of Statement of Financial Accounting Standards Board (SFAS) No. 128, "Earnings per share." This statement was issued by the Financial Accounting Standards Board (FASB) in March 1997 and establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. This statement replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerators and denominators of the basic and diluted EPS computations. The company's common stock equivalents consist of dilutive outstanding stock options computed under the treasury stock method. This statement also requires a restatement of all prior period EPS data presented. <TABLE> <CAPTION> (In Thousands, except per share data) NET INCOME WEIGHTED AVERAGE NET INCOME SHARES PER SHARE - ---------------------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 1998 1997 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Basic EPS $11,748 $10,274 14,812 14,629 $0.79 $0.70 Effect of dilutive securities 226 293 0.01 0.01 Diluted EPS $11,748 $10,274 15,038 14,922 $0.78 $0.69 - ---------------------------------------------------------------------------------------------------------------------------- </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, 1998 1997 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Basic EPS $4,095 $3,692 14,774 14,647 $0.28 $0.25 Effect of dilutive securities 209 323 0.01 0.00 Diluted EPS $4,095 $3,692 14,983 14,970 $0.27 $0.25 - ------------------------------------------------------------------------------------------------------------------------- </TABLE> COMPREHENSIVE INCOME In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses and all other nonowner changes in equity). This statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid in capital in the equity section of a statement of financial position. Comprehensive income is reported net of taxes, as follows: <TABLE> <CAPTION> For the Nine Months Ended For the Three Months Ended September 30, September 30, 1998 1997 1998 1997 --------------------------------------------------------------------- <S> <C> <C> <C> <C> Net Income $11,748 $10,274 $4,095 $3,692 Other Comprehensive Income, net of tax: Unrealized gain/(loss) on Securities Available for Sale 257 1,246 585 704 Reclassification adjustment for (gains)/losses included in net income (14) 7 (12) -- --------------------------------------------------------------------- Other Comprehensive Income 243 1,253 573 704 --------------------------------------------------------------------- Comprehensive Income $11,991 $11,527 $4,668 $4,396 ===================================================================== </TABLE>
SEGMENT INFORMATION In June, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This statement establishes standards for reporting information about segments in annual and interim financial statements. SFAS 131 introduces a new model for segment reporting, called the "management approach." The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operation decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure - any manner in which management disaggregates a company. This statement is effective and will be adopted for the Company's financial statements for the fiscal year ending December 31, 1998 and requires the restatement of previously reported segment information for all periods presented. 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, 1998 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, 1997. The discussion contains certain forward-looking statements regarding the future performance of the Company. All forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates or expectations reflected or contained in the forward-looking information. Please refer to `Cautionary Statement Regarding Forward-looking Information" of this Form 10-Q for a further discussion. SUMMARY For the nine months ended September 30, 1998, Independent Bank Corp. (the Company) recorded net income of $11.7 million compared with net income of $10.3 million for the same period last year. Diluted earnings per share were $.78 for the nine months ended September 30, 1998 compared to $.69 per share for the prior year. Basic earnings per share, before the dilutive effect of stock options, were $.79 in 1998 compared to $.70 for the same period in 1997. Per share earnings have been calculated in accordance with SFAS No. 128, "Earnings per Share." This improvement in net income was due to a $5.7 million, or 15.0% increase in net interest income. The provision for loan losses increased to $2.7 million for the first nine months of 1998 compared with $1.6 million for the same period last year. Non-interest income increased $1.3 million or 13.1%, while non-interest expenses increased $2.8 million, or 9.6% over the first nine months of 1997. The annualized consolidated returns on average equity and average assets for the first nine months of 1998 were 16.20% and 1.11%, respectively. This compares to annualized consolidated returns on average equity and average assets for the first nine months of 1997 of 16.21% and 1.16%, respectively. As of September 30, 1998, total assets amounted to $1.5 billion, an increase of $144.7 million over the 1997 year end balance. Investments increased $69.7 million, or 15.8% from $440.0 million at year-end 1997, primarily due to an investment leverage strategy that the Company has implemented during the second and third quarters of 1998. Loans, net of unearned discount, increased $81.2 million, or 9.8%, since year-end 1997 with strong growth in the commercial real
estate portfolio and the installment loan portfolio. Deposit balances have decreased by $1.8 million, or 18 basis points. Borrowings increased by $138.9 million, or 55.9%, since year-end 1997. In the second quarter of 1997, Independent Capital Trust I (a subsidiary of the Company) was formed for the purpose of issuing Trust Preferred Securities. A total of $28.8 million of 9.28% Trust Preferred Securities were issued on May 19, 1997. Net income for the nine months ended September 30, 1998, reflects pre-tax minority interest expense of $2.0 million, while the period ended September 30,1997 reflected $978,000. Nonperforming assets totaled $5.6 million as of September 30, 1998 compared to $5.9 million at December 31, 1997. Nonperforming assets represented 37 and 43 basis points of total assets as of September 30, 1998 and December 31,1997, respectively. NET INTEREST INCOME The discussion of net interest income, which follows, is presented on a fully tax-equivalent basis. Net interest income for the nine months ended September 30, 1998, amounted to $44.5 million, an increase of $6.0 million, or 15.6%, from the comparable 1997 time frame. This is due to strong loan growth as well as an expanding 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 nine months of 1998 was 4.39%, compared to 4.58% for the comparable 1997 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 24 basis points to 3.50%. The average balance of interest-earning assets for the first nine months of 1998 amounted to $1.35 billion, an increase of $230 million, or 20.5%, from the comparable 1997 time frame. Income from interest-earning assets amounted to $81.0 million for the nine months ended September 30, 1998, an increase of $13.0 million, or 19.1%, from the first nine months of 1997. The increase in interest income was the result of a $131.2 million, or 17.8% increase in the average balance of the loan portfolio, net of unearned discount, resulting from increases in the commercial real estate portfolio and indirect automobile lending, as well as a $87.2 million, or 23.0%, 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 September 30, 1998, loans having interest rates which adjust in accordance with changes in the Company's base lending rate or other market indices amounted to approximately $234.2 million, or 25.7% 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 $354,000 for the nine months ended September 30, 1998 compared to $263,000 for the nine months ended September 30, 1997. The average balance of interest-bearing liabilities for the first nine months of 1998 was $180.5 million, or 20.0%, higher than the comparable 1997 time frame. Average interest bearing deposits increased by $19.9 million, or 2.6%, for the first nine months of 1998 over the same period last year, with increases evenly split between savings and interest checking accounts and consumer certificates of deposit. For the nine months ended September 30, 1998, average borrowings were $160.6 million, or 113.8%, higher than the first nine months of 1997, primarily in FHLB borrowings which increased by $144.4 million. Interest expense on deposits increased by $146,000 to $23.6 million in the first nine months of 1998 and interest expense on borrowings increased by $6.8 million, or 112.4%, to $12.9 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 nine months ended September 30, 1998, management increased the provision for possible loan losses, consistent with the level of loan growth experienced, to $2.7 million as compared to $1.6 million for the same period last year. For the first nine months of 1998, loans charged-off, net of recoveries of loans previously charged-off, amounted to $1.8 million as compared to $1.2 million for the comparable 1997 time frame. As of September 30, 1998, the ratio of the reserve for possible loan losses to loans, net of unearned discount, was 1.50%, as compared to the 1997 year-end level of 1.60%. The ratio of the reserve for possible loan losses to non-performing loans was 242.94% at September 30, 1998, an increase over the 215.14% coverage recorded at year-end 1997. NON-INTEREST INCOME Non-interest income for the nine months ended September 30, 1998 was $10.8 million, compared to $9.6 million for the same period in 1997. Income from Trust and Financial Services increased by $540,000, or 23.6%, due to an increase in funds under management. Mortgage banking income increased by $612,000, or 29.4%, over the 1997 time frame due to a strong refinancing market. These increases were slightly offset by a decrease in service charge income of $256,600, or 6.0%, primarily in lower overdraft revenue. NON-INTEREST EXPENSES Non-interest expenses totaled $32.5 million for the nine months ended September 30, 1998, a $2.8 million, or 9.6% increase from the comparable 1997 period. Salaries and employee benefits increased $1.5 million, or 10.2%. 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 of 1997. Excluding this item, non-interest expenses increased by $2.4 million, or 8.1% and salaries and employee benefits increased $1.1 million, or 7.4% from the same period in 1997. Occupancy and equipment expenses for the first nine months of 1998 increased $210,000, or 4.4%, from the comparable 1997 period. This increase is due to a combination of the cost of facility upgrades and bankwide technology improvements. Other non-interest expenses for the first nine months of 1998 increased $1.1 million to $10.8 million from $9.7 million in the first nine months of 1997. This increase was primarily due to a combination of increased collection expenses associated with the Bank's indirect automobile lending, increased facilities management expense, as well as a second quarter 1997 recovery of a fraudulent check loss. MINORITY INTEREST In the second quarter of 1997, Independent Capital Trust I (the "Trust") was formed for the purpose of issuing trust preferred securities (the "Trust Preferred Securities") and investing the proceeds of the sale of these securities in junior subordinated debentures issued by the Company. A total of $28.75 million of 9.28% Trust Preferred Securities were issued and are scheduled to mature in 2027, callable at the option of the Company after May 19, 2002. Distributions on these
securities are payable quarterly in arrears on the last day of March, June, September and December, such distributions can be deferred at the option of the Company for up to five years. The Trust Preferred Securities can be prepaid in whole or in part on or after May 19, 2002 at a redemption price equal to $25 per Trust Preferred Security plus accumulated but unpaid distributions thereon to the date of the redemption. The Trust Preferred Securities are presented in the consolidated balance sheets of the Company entitled "Corporation-Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company". The Company records distributions payable on the Trust Preferred Securities as minority interest expense in its consolidated statements of income. The minority interest expense for the nine months ended September 30, 1998 was $2.0 million as compared to the $978,000 recorded as of September 30, 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 nine months ended September 30, 1998 and 1997 were 33.0% and 34.1% respectively. The lower rate in 1998 reflects tax planning strategies enacted by the Company in 1997 and continued in 1998. 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 September 30, 1998, the Bank had one interest rate swap agreement with a notional value of $20 million. This swap as arranged through an international banking institution and has an initial maturity of three years. The Bank receives fixed rate payments and pays a variable rate of interest tied to 3-month LIBOR. INTEREST RATE RISK Interest rate risk is the sensitivity of income to variations in interest rates over both short-term and long-term horizons. The primary goal of interest-rate risk management is to control this risk within limits approved by the Board. These limits reflect the Company's tolerance for interest-rate risk by identifying exposures, quantifying and hedging them as needed. The Company quantifies its interest-rate exposures using net interest income simulation models, as well as simpler gap analyses. The Company manages its interest-rate exposure using a combination of on and off balance sheet instruments, primarily fixed rate portfolio securities and interest rate swaps. The Company uses simulation analysis to measure the exposure of net interest income to changes in interest rates over a relatively short (i.e., less than 2 years) time horizon. Simulation analysis involves projecting future interest income and expense from the Company's asset, liabilities and off balance sheet positions under various scenarios.
The Company's limits on interest rate risk specify that if interest rates were to shift up or down 200 basis points, estimated net income for the next 12 months should decline by less than 6%. The following table reflects the Company's estimated exposure, as a percentage of estimated net interest income for the next 12 months. <TABLE> <CAPTION> Rate Change Estimated Exposure as % (Basis Points) of Net Interest Income - -------------------------------------------------------------------------------- <S> <C> +200 (1.54%) -200 0.67% </TABLE> LIQUIDITY AND CAPITAL Liquidity, as it pertains to the Company, is the ability to generate cash in the most economical way, in order to meet ongoing obligations to pay deposit withdrawals and to fund loan commitments. The Company's primary sources of funds are deposits, borrowings, and the amortization, prepayment, and maturities of loans and investments. A strong source of liquidity is the Company's core deposits, those deposits which management considers, based on experience, are not likely to be withdrawn in the near term. The Company utilizes its extensive branch banking network to attract retail customers who provide a stable source of core deposits. The Company has established five repurchase agreements with major brokerage firms as potential sources of liquidity. On September 30, 1998, the Company had $34.2 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 $46.6 million at September 30, 1998. In addition, as a member of the Federal Home Loan Bank, Rockland has access to approximately $400 million of borrowing capacity. At September 30, 1998, the Company had $301.2 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, 1998, the Company's liquidity position was well above policy guidelines. CAPITAL RESOURCES AND DIVIDENDS The Company and Rockland are subject to capital requirements established by the Federal Reserve Board and the FDIC, respectively. One key measure of capital adequacy is the risk-based ratio for which the regulatory agencies have established minimum requirements of 4.00% and 8.00% for Tier 1 risk-based capital and total risk-based capital, respectively. As of September 30, 1998, the Company had a Tier 1 risked-based capital ratio of 11.97% and a total risked-based capital ratio of 13.23%. Rockland had a Tier 1 risked-based capital ratio of 9.18% and a total risked-based capital ratio of 10.43% as of the same date. An additional capital requirement of a minimum 4.00% Tier 1 leverage capital is mandated by the regulatory agencies for most banking organizations and a 5.00% Tier 1 leverage capital ratio is required for a "well capitalized" institution. As of September 30, 1998, the Company and the Bank had Tier 1 leverage capital ratios of 8.13% and 6.32%, 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 September, the Company's Board of Directors declared a cash dividend of $.10 per share to shareholders of record as of September 25, 1998. This dividend was paid on October 9, 1998. On an annualized basis, the dividend payout ratio amounted to 39.0% of the trailing four quarters earnings.
On July 9, 1998, the Company announced that its Board of Directors approved a plan to buy back up to five percent, or approximately 743,000 shares of its outstanding common stock. The Company has 14,863,821 shares of common stock outstanding as of September 30, 1998. The Company placed no deadline on the purchase plan but expects to make open market and/or privately negotiated purchases, from time to time based on stock price and market conditions. As of September 30, 1998, the company had re-purchased 271,500 shares. Year 2000 Readiness Disclosure - ------------------------------ The Company's state of readiness - --------------------------------- The Company has developed plans to address the possible exposure related to the impact of the Year 2000 on its computer systems and key service providers. These plans were approved by Senior Management and the Board of Directors. The following five phases were identified as critical to the success of the Company's Year 2000 plan: <TABLE> <CAPTION> Phase Description Progress/Anticipated Completion - ----- ----------- ------------------------------- <S> <C> <C> Awareness Process that identifies the Year Complete. - --------- 2000 problem, establishes a project team and develops a plan to rectify. Assessment Inventory of Information Complete. Assessments need continual - ---------- Technology (IT) and Non-IT update based on changes to inventory i.e. Systems and vendors. Assign new vendor relationships, additional priorities based upon level of equipment purchases. risk. Establish continual monitoring process. Renovation Code enhancements, See Note (1). The Company has been - ---------- hardware, software upgrades advised by its key third party software vendors that software renovation is complete. Management will perform comprehensive tests to ensure compliance Validation Process where upgraded The Company's testing program for - ---------- hardware, software etc. is mission critical systems began in tested. September 1998. The Company's Testing Plan calls for this process to be substantially complete by March 1999. Implementation Systems should be certified as This phase is planned to be completed in - -------------- Year 2000 complaint and put 1999. into production. </TABLE> Notes: (1) The Company relies upon third party vendors to provide the Bank with various products and services that are fundamental to the delivery of products and services to customers. These third party vendors are responsible for the renovations and replacements necessary to achieve Year 2000 compliance for their products and services. The Company has established a process that will continually monitor and test these vendors' abilities to achieve Year 2000 compliance. In 1997, the Company converted its core operating system software to a leading provider of data processing services, Alltel. As a consequence, Alltel is leading the effort for ensuring Year 2000 compliance for all mainframe application software. Management has overall responsibility for ensuring compliant systems and is working closely with Alltel to ensure this compliance by
December 31, 1999. Costs related to this aspect of the Year 2000 effort are the responsibility of Alltel. Management believes Alltel has the financial resources to complete this effort. The costs to address the Company's Year 2000 issues - --------------------------------------------------- The Company expects to incur costs to replace existing personal computer hardware and software, which will be capitalized and amortized in accordance with the Company's existing accounting policy. The replacement of this hardware and software is, with few exceptions, a component of the Company's existing technology plan and not as a result of Year 2000 deficiencies. In addition to capitalizing hardware and software, the Company will incur expenses in 1998 and 1999, estimated to be $500,000, which represents the out of pocket costs to address the Year 2000 problem. These costs totaled $63,000 year to date September 30, 1998. This cost estimate does not include the existing cost of the Data Processing Facilities Management Agreement with Alltel. A large part of the resources associated with this agreement are dedicated to the Year 2000 Project. Under other circumstances these resources could be employed in improving customer services and the introduction of new products. It is difficult to estimate this lost opportunity cost. The risks of the Company's Year 2000 issues - ------------------------------------------- All financial institutions are heavily dependent on technology and the services of third party vendors in the delivery of products and services. An interruption in these services would severely hamper the Company's ability to provide products and services to its customers. For example, without telephone, power or mainframe computer access in 2000 the Company would have to resort to manual processing in order to serve customers. This type of scenario could not continue indefinitely without severe erosion in service levels and consequently earnings. An additional type of risk that Banks face is customer risk. Specifically, large corporate borrowers face many of the Year 2000 issues that the Bank faces. To the extent that many of these issues are not resolved and the viability of the borrower organization is compromised, a credit risk issue could be created for the Bank. Management has initiated a process to monitor and manage the customer risk posed in this type of scenario. Bank regulatory agencies have issued guidance as to the standards they will use when assessing Year 2000 readiness. The failure of a financial institution, such as the Company, to take appropriate steps to address deficiencies in its Year 2000 project management process may result in regulatory enforcement actions which could have material adverse effect on the institution, result in the imposition of civil money penalties, or result in the delay (or receipt of an unfavorable or critical evaluation of the management of a financial institution in connection with regulatory review) of applications seeking to acquire other entities or otherwise expand the institution's activities. The Company's Contingency Plans - ------------------------------- The Company is in the process of developing contingency plans in response to the Year 2000 challenge. The contingency plans will take into consideration the type of risks identified above and are expected to be completed by March 31, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE QUARTER ENDING SEPTEMBER 30, 1998 SUMMARY For the three months ended September 30, 1998, Independent Bank Corp. (the Company) recorded net income of $4.1 million compared with net income of $3.7 million for the same period last year. Diluted earnings per share were $.27 for the three months ended September 30, 1998 versus $.25 per share for the same period in the prior year. Basic earnings per share, before the dilutive effect of stock options, were $.28 in 1998 compared with $.25 for the same period in 1997. Per share earnings have been calculated in accordance with SFAS No. 128, "Earnings per Share." This improvement in net income was due to a $1.3 million, or 9.8% increase in net interest income. The provision for loan losses increased to $907,000 for the third quarter of 1998 compared with $530,000 for the same period last year. Non-interest income increased $516,000, or 16.6%, while non-interest expenses increased $1.0 million, or 10.5% over the third quarter of 1997. The annualized consolidated returns on average equity and average assets for the third quarter of 1998 were 16.67% and 1.10%, respectively. This compares to annualized consolidated returns on average equity and average assets for the third quarter of 1997 of 16.91% and 1.14%, respectively. NET INTEREST INCOME The discussion of net interest income, which follows, is presented on a fully tax-equivalent basis. Net interest income for the three months ended September 30, 1998, amounted to $15.2 million, an increase of $1.4 million, or 10.4%, from the comparable 1997 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 15 basis points, to 3.40%. The Company's net interest margin for the third quarter of 1998 was 4.27%, compared to 4.46% for the comparable 1997 time frame. The average balance of interest-earning assets for the third quarter of 1998 amounted to $1.42 billion an increase of $188.2 million, or 15.2%, over the comparable 1997 time frame. Income from interest-earning assets amounted to $28.3 million for the third quarter of 1998, an increase of $3.2 million, or 12.7%, from the third quarter of 1997. The increase in interest income was attributable to a $121.5 million, or 15.7% increase in the average balance of the loan portfolio, net of unearned discount, resulting from increases in the commercial real estate portfolio and indirect automobile lending. In addition, the securities portfolio increased by $49.5 million, or 10.8% which reflects the Company's strategy of leveraging its capital. The average balance of interest-bearing liabilities for the third quarter of 1998 was $161.2 million, or 16.3%, higher than the comparable 1997 time frame. Average interest bearing deposits increased by $17.0 million, or 2.2%, for the third quarter of 1998 over the same period last year, with the increases divided between savings and consumer time deposits. For the three months ended September 30, 1998, average borrowings were $144.2 million, or 68.3%, higher than the third quarter of 1997. Interest expense on deposits decreased by $113 thousand or 1.34%. Interest expense on borrowings increased by $1.6 million, or 50.0%. Interest expense on deposit accounts, remained virtually unchanged for the quarter ended September 30, 1998 and the quarter ended September 30, 1997. While balances increased, the Bank has decreased its cost for these deposits. NON-INTEREST INCOME Non-interest income for the three months ended September 30, 1998 was $3.6 million, compared to $3.1 million for the same period in 1997. Income from Trust and Financial Services
increased by $123,000, or 16.9%, due to an increase in funds under management. Mortgage banking income also increased by $241,000, or 36.1%, over the 1997 time frame due to a strong refinancing market. NON-INTEREST EXPENSES Non-interest expenses totaled $11.0 million for the three months ended September 30, 1998, a $1.0 million increase from the comparable 1997 period. The increase in non-interest expense was due to a $470,000 or 9.0% increase in salaries and employee benefits, due to anticipated merit increases and additions to staff associated with business expansion, as well as a $405,000, or 12.6% increase in other non-interest expenses. Occupancy and equipment expenses increased $171,000 or 11.4%. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION The preceding Management's Discussion and Analysis and Notes to Consolidated Financial Statements of this Form 10-Q contain certain forward-looking statements, including without limitation, statements regarding (i) the level of reserve for possible loan losses, (ii) the rate of delinquencies and amounts of charge-offs, (iii) the rates of loan growth, and (iv) the Company's ability to minimize any detrimental effects of the Year 2000 problem and associated expenses. Moreover, the Company may from time to time, in both written reports and oral statements by Company management, express its expectations regarding future performance of the Company. These forward-looking statements are inherently uncertain and actual results may differ from Company expectations. The following factors which, among others, could impact current and future performance include but are not limited to: (I) adverse changes in asset quality and resulting credit risk-related losses and expenses; (ii) adverse changes in the economy of the New England region, the Company's primary market, (iii) adverse changes in the local real estate market, as most of the Company's loans are concentrated in Southeastern Massachusetts and a substantial portion of these loans have real estate as collateral; (iv) fluctuations in market rates and prices which can negatively affect net interest margin asset valuations and expense expectations; and (v) changes in regulatory requirements of federal and state agencies applicable to banks and bank holding companies, such as the Company and Rockland, which could have materially adverse effect on the Company's future operating results. When relying on forward-looking statements to make decisions with respect to the Company, investors and others are cautioned to consider these and other risks and uncertainties. Item 3. Quantitative and Qualitative Disclosures About Market Risk Information required by this Item 3 is included in Item 2 of Part I of this Form 10-Q, entitled "Management's Discussion and Analysis."
PART II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information The financial information detailed below is included hereafter in this report: Consolidated Statements of Changes in Stockholders' Equity Three months ended September 30, 1998 and the year ended December 31, 1997 Consolidated Average Balance Sheet and Average Rate Data - Nine months and three months ended September 30, 1998 and 1997. 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 September 30, 1998.
- -------------------------------------------------------------------------------- INDEPENDENT BANK CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited - in thousands) <TABLE> <CAPTION> UNREALIZED GAIN (LOSS) COMMON TREASURY RETAINED INVESTMENTS STOCK STOCK SURPLUS EARNINGS AVAILABLE TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balance, January 1, 1997 $146 $44,433 $36,666 ($135) $81,110 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 14,158 14,158 Dividends Declared (4,999) (4,999) Proceeds From Exercise of Stock Options 2 710 712 Tax Benefit of Stock Option Exercises 4 4 Change in Unrealized Gain (Loss) on Securities Available for Sale, Net of Tax 1,508 1,508 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 148 45,147 45,825 1,373 92,493 - ----------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1998 148 45,147 45,825 1,373 92,493 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 11,748 11,748 Dividends Declared (4,469) (4,469) Common Stock Re-purchased Net of Stock Issued (3,921) (3,921) Due to Stock Options Exercised Proceeds From Exercise of Stock Options 1 196 197 Change in Unrealized Gain on Securities Available for Sale, Net of Tax 243 243 =================================================================================================================================== Balance, September 30, 1998 $149 ($3,921) $45,343 $53,104 $1,616 $96,291 =================================================================================================================================== </TABLE>
INDEPENDENT BANK CORP. SUPPLEMENTAL FINANCIAL INFORMATION CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA (Unaudited - in thousands) <TABLE> <CAPTION> AVERAGE OUTSTANDING INTEREST EARNED/ AVERAGE BALANCE PAID YIELD FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 1998 1998 ----------------- -------------------- ------------------- <S> <C> <C> <C> Interest-Earning Assets Taxable Investment Securities $437,418 $22,028 6.71% Non-taxable Investment Securities 28,627 1,599 7.45% Loans, net of Unearned Discount 869,512 56,742 8.70% Federal Funds Sold 15,128 621 5.47% ----------------- -------------------- ------------------- Total Interest-Earning Assets $1,350,685 $80,990 7.99% ----------------- ==================== =================== Cash and Due From Banks 41,686 Other Assets 19,741 ----------------- Total Assets $1,412,112 ================= Interest-Bearing Liabilities Savings and Interest Checking Accounts $263,620 $3,975 2.01% Money Market & Super Interest Checking Accounts 108,884 2,175 2.66% Other Time Deposits 409,443 17,467 5.69% Federal Funds Purchased and Assets Sold Under Repurchase Agreements 56,789 2,375 5.58% Federal Home Loan Bank Borrowings 241,844 10,343 5.70% Treasury Tax and Loan Notes 2,984 145 6.48% ----------------- -------------------- ------------------- Total Interest-Bearing Liabilities $1,083,564 $36,480 4.49% ================= ==================== =================== Demand Deposits 190,665 Corporation-Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior 28,750 Subordinated debentures of the Corporation Other Liabilities 12,431 ----------------- Total Liabilities 1,315,410 ----------------- Stockholders' Equity 96,702 ----------------- Total Liabilities and Stockholders' Equity $1,412,112 ================= Net Interest Income $44,510 ==================== Interest Rate Spread 3.50% =================== Net Interest Margin 4.39% =================== </TABLE> Interest income and yield are stated on a fully tax-equivalent basis. The total amount of adjustment is $628 in 1998.
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, 1997 1997 1997 --------------- --------------- ------- <S> <C> <C> <C> Interest-Earning Assets Taxable Investment Securities $367,768 $18,400 6.67% Non-taxable Investment Securities 11,110 600 7.20% Loans, net of Unearned Discount 738,293 48,895 8.83% Federal Funds Sold and Assets Purchased Under Resale Agreements 3,267 132 5.39% ----------- ----------- ------- Total Interest-Earning Assets 1,120,438 $68,027 8.10% ----------- ----------- ------- Cash and Due From Banks 43,724 Other Assets 18,908 ----------- Total Assets 1,183,070 ----------- Interest-Bearing Liabilities Savings and Interest Checking Accounts $254,419 $4,079 2.14% Money Market & Super Interest Checking Accounts 108,450 2,279 2.80% Other Time Deposits 399,158 17,113 5.72% Federal Funds Purchased and Assets Sold Under Repurchase Agreements 39,890 1,695 5.67% Federal Home Loan Bank Borrowings 97,473 4,221 5.77% Treasury Tax and Loan Notes 3,704 141 5.08% ----------- ------------ ------ Total Interest-Bearing Liabilities $903,094 $29,528 4.36% ----------- ------------ ------ Demand Deposits 167,062 Corporation-Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated debentures of the Corporation 7,526 Other Liabilities 20,891 ----------- Total Liabilities 1,098,573 ----------- Stockholders' Equity 84,497 Total Liabilities and Stockholders' Equity $1,183,070 =========== Net Interest Income $38,499 ============ Interest Rate Spread 3.74% ======= Net Interest Margin 4.58% ======= </TABLE> Interest income and yield are stated on a fully tax-equivalent basis. The total amount of adjustment is $326 in 1997.
INDEPENDENT BANK CORP. SUPPLEMENTAL FINANCIAL INFORMATION CONSOLIDATED AVERAGE BALANCE SHEET AND AVERAGE RATE DATA (Unaudited - in thousands) <TABLE> <CAPTION> AVERAGE INTEREST OUTSTANDING EARNED/ AVERAGE BALANCE PAID YIELD FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 1998 1998 ------------------- --------------- --------------- <S> <C> <C> <C> Interest-Earning Assets Taxable Investment Securities $468,172 $7,858 6.71% Non-taxable Investment Securities 38,581 727 7.54% Loans, net of Unearned Discount 897,086 19,408 8.65% Federal Funds Sold 20,770 290 5.58% ------------------- --------------- --------------- Total Interest-Earning Assets 1,424,609 $28,283 7.94% ------------------- =============== =============== Cash and Due From Banks 43,962 Other Assets 21,859 ------------------- Total Assets 1,490,430 =================== Interest-Bearing Liabilities Savings and Interest Checking Accounts $269,586 $1,332 1.98% Money Market & Super Interest Checking Accounts 105,516 701 2.66% Other Time Deposits 419,879 6,014 5.73% Federal Funds Purchased and Assets Sold Under Repurchase Agreements 73,251 1,000 5.46% Federal Home Loan Bank Borrowings 278,506 3,951 5.67% Treasury Tax and Loan Notes 3,482 66 7.58% ------------------- --------------- --------------- Total Interest-Bearing Liabilities $1,150,220 $13,064 4.54% =================== =============== =============== Demand Deposits 201,089 Corporation-Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated debentures of the Corporation 28,750 Other Liabilities 12,093 ------------------- Total Liabilities 1,392,152 ------------------- Stockholders' Equity 98,278 ------------------- Total Liabilities and Stockholders' Equity $1,490,430 =================== Net Interest Income $15,219 =============== Interest Rate Spread 3.40% =============== Net Interest Margin 4.27% =============== </TABLE> Interest income and yield are stated on a fully tax-equivalent basis. The total amount of adjustment is $271 in 1998.
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, 1997 1997 1997 -------------- ---------------- -------------- <S> <C> <C> <C> Interest-Earning Assets Taxable Investment Securities $436,976 $7,439 6.81% Non-taxable Investment Securities 20,282 376 7.42% Loans, net of Unearned Discount 775,549 17,224 8.88% Federal Funds Sold 3,575 49 5.48% -------------- ---------------- -------------- Total Interest-Earning Assets 1,236,382 $25,088 8.12% -------------- ================ ============== Cash and Due From Banks 39,782 Other Assets 20,354 -------------- Total Assets $1,296,518 ============== Interest-Bearing Liabilities Savings and NOW Accounts $256,767 $1,381 2.15% Money Market & Super NOW Accounts 108,334 2.81% 760 Other Time Deposits 412,868 6,019 5.83% Federal Funds Purchased and Assets Sold Under Repurchase Agreements 64,688 945 5.84% Federal Home Loan Bank Borrowings 143,491 2,147 5.99% Treasury Tax and Loan Notes 2,884 52 7.21% -------------- ---------------- -------------- Total Interest-Bearing Liabilities $989,032 $11,304 4.57% ============== ================ ============== Demand Deposits 175,960 Corporation-Obligated Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated debentures of the Corporation 28,750 Other Liabilities 15,457 -------------- Total Liabilities 1,209,199 -------------- Stockholders' Equity 87,319 -------------- Total Liabilities and Stockholders' -------------- Equity $1,296,518 ============== Net Interest Income $13,784 ================ Interest Rate Spread 3.55% ============== Net Interest Margin 4.46% ============== </TABLE> Interest income and yield are stated on a fully tax-equivalent basis. The total amount of adjustment is $164 in 1997.
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: November 13, 1998 /s/ Douglas H. Philipsen Douglas H. Philipsen President, Chairman of the Board and Chief Executive Officer Date: November 13, 1998 /s/ Richard J. Seaman Richard J. Seaman Chief Financial Officer and Treasurer