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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
- - ---
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - --- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
or
- - ---
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- - --- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 1-9047
Independent Bank Corp.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2870273
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
288 Union Street
Rockland, Massachusetts 02370
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 878-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.0l par value per share
- - --------------------------------------------------------------------------------
(Title of Class)
Preferred Stock Purchase Rights
- - --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether, the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
- - --- ---
X Yes No
- - --- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
As of February 28, 1999, the aggregate market value of the 12,100,781 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
2,109,297 shares held by all directors and executive officers of the Registrant
as group, was $182,268,014. This figure is based on the closing sale price of
$15.0625 per share on February 28, 1999, as reported in The Wall Street Journal
on March 1, 1999.
Number of shares of Common Stock outstanding as of February 28, 1999: 14,210,078
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of Form 10-K into which the document is incorporated:
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1998 are incorporated into Part II, Items 5-8 of
this Form 10-K.
(2) Portions of the Registrant's definitive proxy statement for its 1999 Annual
Meeting of Stockholders are incorporated into Part III, Items 10-13 of this
Form 10-K.
================================================================================
PART 1.
Item 1. Business
General. Independent Bank Corp. (the "Company") is a state chartered,
federally registered bank holding company headquartered in Rockland,
Massachusetts. The Company is the sole stockholder of Rockland Trust Company
("Rockland" or "the Bank"), a Massachusetts trust company chartered in 1907. The
Company is a community oriented commercial bank. The community banking business
consists of commercial banking, retail banking and trust services and is managed
as a single strategic unit. The community banking business derives its revenues
from a wide range of banking services, including lending activities, acceptance
of demand, savings and time deposits, trust and investment management, and
mortgage servicing income from investors. Rockland offers a full range of
community banking services through its network of 33 banking offices, eight
commercial lending centers, and two trust and financial services offices located
in the Plymouth, Norfolk, and Bristol Counties of Southeastern Massachusetts. At
December 31, 1998, the Company had total assets of $1,575.1 million, total
deposits of $1,043.3 million, stockholders' equity of $95.8 million, and 519
full-time equivalent employees.
Rockland has a deep rooted history as a community oriented commercial bank.
As a result of its strong commitment to the local business community, the Bank
has become one of the prominent financial institutions in Plymouth County which
represents the majority of its market area. The Bank had approximately 22.36% of
the total deposits within Plymouth County as of June 30, 1998, the most recent
date for which such data is available, or approximately 178% of the market share
of its nearest competitor. Due to the continuing consolidation within the
financial services industry, Rockland is the only remaining locally based
commercial bank in Plymouth County.
In 1997, Independent Capital Trust I (the "Trust") was formed for the
purpose of issuing trust preferred securities (the "Trust Preferred
Securities"). A total of $28.75 million of 9.28% Trust Preferred Securities were
issued by the Trust and are scheduled to mature in 2027, callable at the option
of the company after May 19, 2002. For further information on the Trust
Preferred Securities, see footnote 13 of the Company's 1998 Annual Report to
Stockholders.
The Company experienced significant growth and profitability during the
early and mid-1980's as the New England economy prospered. Total assets
surpassed the $1 billion level and earnings reached record levels. However, with
the onset of an economic recession in New England in the late 1980's, and a
resulting significant decline in local real estate values, the Company
experienced serious financial problems. The quality of the loan portfolio
declined sharply as nonperforming assets rose to over 10% of total assets. This
deterioration required significant loan loss provisions which resulted in the
Company reporting substantial losses in 1990 and 1991.
After implementing a number of managerial, operational, and financial
changes during 1991 and 1992, the Company returned to profitability in 1992. In
December of that year, the Company issued 9.2 million shares of common stock,
strengthening its capital base. These measures contributed to improved operating
results for the Company which recorded net income of $4.6 million, $8.1 million,
$10.4 million and $11.6 million for the years ended December 31, 1993, 1994,
1995 and 1996, respectively.
The improvement in 1996 earnings over 1995 was attributable to an increase in
net interest income, an increase in non-interest income, and a decrease in
non-interest expenses.
For the year ended December 31, 1998, the Company recorded net income of
$16.1 million, an increase of 14.0% over 1997 earnings of $14.2 million. The
improved 1998 results reflect a 13.2% increase in net interest income, an 11.8%
increase in non-interest income and an increase of 8.0% in non-interest
expenses.
The Company is registered as a bank holding company under the Bank Holding
Company Act of 1956 ("BHCA"), as amended, and as such is subject to regulation
by the Board of Governors of the Federal Reserve System ("Federal Reserve").
Rockland is subject to regulation and examination by the Commissioner of Banks
of the Commonwealth of Massachusetts (the "Commissioner") and the Federal
Deposit Insurance Corporation ("FDIC"). The majority of Rockland's deposit
accounts are insured to the maximum extent permitted by law by the Bank
Insurance Fund ("BIF") which is administered by the FDIC. In 1994, the Bank
purchased the deposits of three branches of a failed savings and loan
association from the Resolution Trust Corporation. These deposits are insured to
the maximum extent permitted by law by the Savings Association Insurance Fund
("SAIF").
Lending Activities
General. The Bank's gross loan portfolio amounted to $954.9 million on
December 31, 1998, or 60.6% of total assets on that date. The Bank classifies
loans as commercial, real estate, or consumer. Commercial loans consist
primarily of loans to businesses for working capital and other business related
purposes and floor plan financing. Real estate loans are comprised of commercial
mortgages which are secured by nonresidential properties, residential mortgages
which are secured primarily by owner-occupied residences, home equity loans, and
mortgages for the construction of commercial and residential properties.
Consumer loans consist of instalment obligations, the majority of which are
automobile loans, and other consumer loans.
The Bank's borrowers consist of small-to-medium sized businesses and retail
customers. The Bank's market area is generally comprised of Plymouth, Norfolk,
and Bristol Counties located in Southeastern Massachusetts. Substantially all of
the Bank's commercial and consumer loan portfolios consist of loans made to
residents of and businesses located in Southeastern Massachusetts. Virtually all
of the real estate loans in the Bank's loan portfolio are secured by properties
located within this market area.
In accordance with governing banking statutes, Rockland is permitted, with
certain exceptions, to make loans and commitments to any one borrower, including
related entities, in the aggregate amount of not more than 20% of the Bank's
stockholders' equity, or $19.8 million at December 31, 1998. Notwithstanding the
foregoing, the Bank has established a more restrictive limit of not more than
15% of stockholders' equity, or $14.8 million at December 31, 1998, which limit
may be exceeded with the approval of the Board of Directors. There were no
borrowers whose total indebtedness aggregated or exceeded $14.8 million as of
December 31, 1998.
2
The Bank's principal earning assets are its loans. Although the Bank judges
its borrowers to be creditworthy, the risk of deterioration in borrowers'
abilities to repay their loans in accordance with their existing loan agreements
is inherent in any lending function. Participating as a lender in the credit
markets requires a strict monitoring process to minimize credit risk. This
process requires substantial analysis of the loan application, an evaluation of
the customer's capacity to repay according to the loan's contractual terms, and
an objective determination of the value of the collateral. The Bank also
utilizes the services of an independent third-party consulting firm to provide
loan review services, which consist of a variety of monitoring techniques
performed after a loan becomes part of the Bank's portfolio.
The Bank's Controlled Asset Department is responsible for the management
and resolution of nonperforming assets. In the course of resolving nonperforming
loans, the Bank may choose to restructure certain contractual provisions. In
order to facilitate the disposition of other real estate owned (OREO), the Bank
may finance the purchase of such properties at market rates, if the borrower
qualifies under the Bank's standard underwriting guidelines.
Loan Portfolio Composition and Maturity. The following table sets forth
information concerning the composition of the Bank's loan portfolio by loan type
at the dates indicated.
December 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------- ------------------- ------------------ -------------------
(Dollars in
Thousands)
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Commercial $127,019 13.3% $138,541 16.2% $127,008 17.9% $121,679 19.1% $122,944 20.5%
Real estate:
Commercial 261,332 27.4 238,930 27.9 205,256 29.0 187,608 29.4 169,693 28.4
Residential 197,807 20.7 207,555 24.2 202,031 28.5 187,652 29.4 184,958 30.9
Construction 44,710 4.7 34,227 4.0 31,633 4.5 27,863 4.4 28,892 4.8
Consumer:
Instalment 315,419 33.0 227,700 26.6 132,589 18.7 102,088 16.0 80,441 13.4
Other 8,656 0.9 9,849 1.1 10,140 1.4 11,076 1.7 11,882 2.0
-------- ----- -------- ----- ------- ----- -------- ----- ------- -----
Gross Loans 954,943 100.0% 856,802 100.0% 708,657 100.0% 637,966 100.0% 598,810 100.0%
-------- ----- -------- ----- ------- ----- -------- ----- ------- -----
Unearned Discount 13,831 28,670 13,251 9,825 8,121
Reserve for
Possible
Loan Losses
13,695 12,674 12,221 12,088 13,719
-------- -------- -------- -------- --------
Net Loans $927,417 $815,458 $683,185 $616,053 $576,970
======== ======== ======== ======== ========
The Company's outstanding loans grew by 13.6% in 1998, following a 19.1%
increase in 1997. This loan growth, in 1997, was primarily attributable to an
increase in the consumer loan portfolio, with the remaining growth in the
construction loan and commercial real estate portfolios.
Commercial loans, primarily floorplan, decreased $11.5 million, or 8.3%, in
1998, following an increase of $11.5 million, or 9.1%, in 1997.
Real estate loans comprised 52.8% of gross loans at December 31, 1998, as
compared to 56.1% at December 31, 1997. Commercial real estate loans have
reflected increases over the last two years of $22.4 million, or 9.4%, in 1998,
and $33.7 million, or 16.4%, in 1997. These increases are indicative of the
sound prospects for small and medium sized businesses in the Bank's market area.
Residential real estate loans decreased $9.7 million, or 4.7%, in 1998, and
increased $5.5 million, or 2.7% in 1997. The majority of residential mortgage
loans originated were sold in the secondary market. During 1998, the Bank sold
$87.9 million of the current production of residential mortgages as part of its
overall
3
asset/liability management. Real estate construction loans increased $10.5
million, or 30.6%, in 1998, following an increase of $2.6 million, or 8.2%, in
1997.
Consumer instalment loans, net of unearned discount, increased $102.6
million, or 51.5%, and $79.7 million, or 66.8%, during 1998 and 1997,
respectively. The increases over the past two years are attributed to a focused
effort directed at expanding banking relationships with new and used automobile
dealers within the market area. As a result, strong growth was reported in 1998
and 1997. As of December 31, 1998 and 1997, automobile loans represented 89.2%
and 76.4%, respectively, of the Bank's consumer loan portfolio. Since the sale
of the Bank's credit card portfolio during 1991 and 1992, other consumer loans
have consisted primarily of cash reserve loans. Introduced in 1992, cash reserve
loans are designed to afford the Bank's customers overdraft protection. The
balances of these loans decreased $1.2 million, or 12.1%, in 1998 and $298,000
or 2.9% in 1997.
The following table sets forth the scheduled contractual amortization of
the Bank's loan portfolio at December 31, 1998. Loans having no schedule of
repayments or no stated maturity are reported as due in one year or less. The
following table also sets forth the rate structure of loans scheduled to mature
after one year.
Real Real
Real Estate Estate - Estate - Consumer - Consumer -
Commercial Commercial Residential Construction Instalment Other Total
------------ -------------- ------------ ------------ ------------ ------------ -------------
(Thousands)
Amounts due in:
One year or less $91,186 $ 81,910 $88,862 $35,928 $ 71,788 $8,656 $378,330
After one year
through five years 27,928 152,707 79,540 7,511 235,638 --- 503,324
Beyond five years 7,905 26,715 29,405 1,271 7,993 --- 73,289
-------- -------- -------- ------- -------- ------ --------
Total $127,019 $261,332 $197,807 $44,710 $315,419 $8,656 $954,943
======== ======== ======== ======= ======== ====== ========
Interest rates on
amounts due after
one year:
Fixed Rate $ 29,419 $166,152 $ 83,516 $ 8,735 $242,330 --- $530,151
Adjustable Rate 6,257 12,378 24,981 --- --- --- 43,616
Generally, the actual maturity of loans is substantially less than their
contractual maturity due to prepayments and, in the case of real estate loans,
due-on-sale clauses, which generally gives the Bank the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells the property subject to the mortgage and the loan is not repaid. The
average life of real estate loans tends to increase when current real estate
loan rates are higher than rates on mortgages in the portfolio and, conversely,
tends to decrease when rates on mortgages in the portfolio
4
are higher than current real estate loan rates. Under the latter scenario, the
weighted average yield on the portfolio tends to decrease as higher yielding
loans are repaid or refinanced at lower rates. Due to the fact that the Bank
may, consistent with industry practice, "roll over" a significant portion of
commercial and commercial real estate loans at or immediately prior to their
maturity by renewing the loans on substantially similar or revised terms, the
principal repayments actually received by the Bank are anticipated to be
significantly less than the amounts contractually due in any particular period.
In addition, a loan, or a portion of a loan, may not be repaid due to the
borrower's inability to satisfy the contractual obligations of the loan. As of
December 31, 1998, $.1 million of loans scheduled to mature within one year were
nonperforming. See "Lending Activities - Nonperforming Assets."
Origination of Loans. Commercial loan applications are obtained through
existing customers, solicitation by Bank loan officers, referrals from current
or past customers, or walk-in customers. Commercial real estate loan
applications are obtained primarily from previous borrowers, direct contacts
with the Bank, or referrals. Applications for residential real estate loans and
all types of consumer loans are taken at all of the Bank's full-service branch
offices. Residential real estate loan applications primarily result from
referrals by real estate brokers, home builders, and existing or walk-in
customers. The Bank also maintains a staff of field originators who solicit and
refer residential real estate loan applications to the Bank. These employees are
compensated on a commission basis and provide convenient origination services
during banking and non-banking hours. Consumer loan applications are directly
obtained through existing or walk-in customers who have been made aware of the
Bank's consumer loan services through advertising and other media, as well as
indirectly through a network of automobile dealers.
Commercial loans, commercial real estate loans, and construction loans may
be approved by commercial loan officers up to their individually assigned
lending limits which are established and modified periodically to reflect the
officer's expertise and experience. Commercial loans and commercial real estate
loans in excess of a loan officer's assigned lending limit are approved by
various levels of authority within the commercial lending division, depending on
the loan amount, up to and including the Senior Loan Committee and ultimately
the Executive Committee of the Board of Directors.
Residential real estate loans and home equity loans follow a similar
approval process within the retail lending division.
Sale of Loans. The Bank's residential real estate loans are generally
originated in compliance with terms, conditions and documentation which permit
the sale of such loans to the Federal Home Loan Mortgage Corporation ("FHLMC"),
the Federal National Mortgage Association ("FNMA"), the Government National
Mortgage Association ("GNMA"), and other institutional investors in the
secondary market. The majority of fixed rate, long term residential mortgages
originated by the Bank are sold without recourse in the secondary market. Loan
sales in the secondary market provide funds for additional lending and other
banking activities. The Bank generally retains the servicing on the loans sold.
As part of its asset/liability management strategy, the Bank may retain a
portion of adjustable rate residential real estate loans or fixed-rate
residential real estate loans. During 1998, the Bank originated $149.1 million
in residential real estate loans of which $55.6 million was retained in its
portfolio.
The principal balance of loans serviced by the Bank for investors amounted
to $256.3 million at December 31, 1998 and $263.2 million at December 31, 1997.
Under its mortgage servicing
5
arrangements, the Bank generally continues to collect payments on loans, to
inspect the mortgaged property, to make insurance and tax advances on behalf of
borrowers and to otherwise service the loans and receives a fee for performing
these services. Net servicing fee income amounted to $652,000 and $800,000 for
the years ended December 31, 1998 and 1997, respectively. Loan origination fees
which relate to loans sold by the Bank are recognized as non-interest income at
the time of the loan sale. Under its sales agreements, the Bank pays the
purchaser of mortgage loans a specified yield on the loans sold. The difference,
after payment of any guarantee fee, is retained by the Bank and recognized as
fee income over the life of the loan. In addition, loans may be sold at a
premium or a discount with any resulting gain or loss recognized at the time of
sale. Effective January 1, 1997 the Bank adopted SFAS No. 125 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
as amended by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of Financial Accounting Standards Board (FASB) Statement No. 125."
This statement, which supercedes SFAS No.122, "Accounting for Mortgage Servicing
Rights," provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. As of December 31, 1998,
and 1997, the loan servicing asset was $1.1 million and $.6 million,
respectively.
Commercial Loans. The Bank offers secured and unsecured commercial loans
for business purposes, including issuing letters of credit. At December 31,
1998, $127.0 million, or 13.3%, of the Bank's gross loan portfolio consisted of
commercial loans, compared to $138.5 million, or 16.2%, at December 31, 1997.
The increase in 1997 and subsequent decrease in 1998 was primarily as a result
of one automobile dealer relationship. This relationship was gained in 1997 and
refinanced to another institution in 1998.
Commercial loans are generally provided to small-to-medium-sized businesses
located within the Company's market area. Commercial loans may be structured as
term loans or as revolving lines of credit. Commercial term loans generally have
a repayment schedule of five years or less, and although the Bank does originate
some commercial term loans with interest rates which float in relation to the
Rockland Base rate, the majority of commercial term loans have fixed rates of
interest. Generally, Rockland's Base rate is determined by reference to the Wall
Street Journal prime rate. The Bank's Base rate is monitored by the Executive
Vice President - Commercial Lending Division, and revised when appropriate in
accordance with guidelines established by the Asset/Liability Management
Committee. The majority of commercial term loans are collateralized by
equipment, machinery or other corporate assets. In addition, the Bank generally
obtains personal guarantees from the principals of the borrower for virtually
all of its commercial loans.
The Bank's commercial revolving lines of credit generally are for the
purpose of providing working capital to the borrower and may be secured or
unsecured. Collateral for commercial revolving lines of credit may consist of
accounts receivable, inventory or both, as well as other corporate assets.
Generally, the Bank will lend up to 80% of accounts receivable, provided that
such receivables have not aged more than 60 days and/or up to 20% to 40% of the
value of raw materials and finished goods inventory securing the line.
Commercial revolving lines of credit generally are reviewed on an annual basis
and usually require substantial repayment of principal during the year. At
December 31, 1998, the Bank had $44.1 million outstanding under commercial
revolving lines of credit, and $56.7 million of unused commitments under such
lines on that date.
6
The Bank's standby letters of credit generally are secured, have terms of
not more than one year, and are reviewed for renewal. As of December 31, 1998,
the Bank had $1.5 million in outstanding commitments pursuant to standby letters
of credit. These facilities are managed by the Commercial Lending Division.
The Bank also provides automobile and, to a lesser extent, boat and other
vehicle floor-plan financing. Floor-plan loans, which are secured by the
automobiles, boats, or other vehicles constituting the dealer's inventory,
amounted to $20.4 million as of December 31, 1998. Upon the sale of a floor-plan
unit, the proceeds of the sale are applied to reduce the loan balance. In the
event a unit financed under a floor-plan line of credit remains in the dealer's
inventory for an extended period, the amount of the outstanding balance is
reduced with respect to such unit. Bank personnel make unannounced monthly
inspections of each dealer to review the value and condition of the underlying
collateral.
Real Estate Loans. The Bank's real estate loans consist of loans secured by
commercial properties, loans secured by 1-4 unit residential properties, home
equity loans, and construction loans. As of December 31, 1998, the Bank's loan
portfolio included $261.3 million in commercial real estate loans, $158.3
million in residential real estate loans, $39.5 million in home equity loans,
and $44.7 million in construction loans.
A significant portion of the Bank's commercial real estate portfolio
consists of loans to finance the development of residential projects. These are
categorized as commercial construction loans. As such, a number of commercial
real estate loans are primarily secured by residential development tracts but,
to a much greater extent, they are secured by owner-occupied commercial and
industrial buildings and warehouses. Commercial real estate loans also include
multi-family residential loans which are primarily secured by apartment
buildings and, to a lesser extent, condominiums. The Bank does not emphasize
loans secured by special purpose properties, such as hotels, motels, or
restaurants.
Although terms vary, commercial real estate loans generally have maturities
of five years or less, amortization periods of 20 years, and interest rates
which either float in accordance with a designated index or have fixed rates of
interest. The Bank's adjustable-rate commercial real estate loans generally are
indexed to the Rockland Base rate. Loan-to-value ratios on commercial real
estate loans generally do not exceed 80% (70% for special purpose properties) of
the appraised value of the property. In addition, as part of the criteria for
underwriting permanent commercial real estate loans, the Bank generally imposes
a debt service coverage ratio of not less than 120%. It is also the Bank's
policy to obtain personal guarantees from the principals of the borrower on
commercial real estate loans and to obtain periodic financial statements from
all commercial and multi-family borrowers on an annual basis and, in some cases,
more frequently.
Commercial real estate lending entails additional risks as compared to
residential real estate lending. Commercial real estate loans typically involve
larger loan balances to single borrowers or groups of related borrowers.
Development of commercial real estate projects also may be subject to numerous
land use and environmental issues. The payment experience on such loans is
typically dependent on the successful operation of the real estate project which
can be significantly impacted by supply and demand conditions in the market for
commercial and retail space.
7
Rockland originates both fixed-rate and adjustable-rate residential real
estate loans. The Bank will lend up to 97% of the lesser of the appraised value
of the property securing the loan or the purchase price, and generally requires
borrowers to obtain private mortgage insurance when the amount of the loan
exceeds 80% of the value of the property. The rates of these loans are typically
competitive with market rates. As previously noted, the Bank's residential real
estate loans are generally originated only under terms, conditions and
documentation which permit sale in the secondary market.
The Bank generally requires title insurance protecting the priority of its
mortgage lien, as well as fire and extended coverage casualty insurance in order
to protect the properties securing its residential and other real estate loans.
Properties securing all of the Bank's first mortgage real estate loans are
appraised by independent appraisers.
Home equity loans may be made as a term loan or under a revolving line of
credit secured by a second mortgage on the borrower's residence. The Bank will
originate home equity loans in an amount up to 80% of the appraised value or,
without appraisal, up to 80% of the tax assessed value, whichever is lower,
reduced for any loans outstanding secured by such collateral. As of December 31,
1998, there was $35.2 million in unused commitments under revolving home equity
lines of credit.
Construction loans are intended to finance the construction of residential
and commercial properties, including loans for the acquisition and development
of land or rehabilitation of existing homes. Construction loans generally have
terms of six months, but not more than, two years. They usually do not provide
for amortization of the loan balance during the term. The majority of the Bank's
commercial construction loans have floating rates of interest based upon the
Rockland Base rate or, in some cases, the Wall Street Journal prime rate.
A significant portion of the Bank's construction lending has been related
to one-to-four family residential development within the Bank's market area. The
Bank typically has focused its construction lending on relatively small projects
and the Bank has developed and maintains a relationship with a significant
number of homebuilders in Plymouth, Norfolk, and Bristol Counties. As of
December 31, 1998, $16.0 million, or 35.9%, of total construction loans at such
date were for the acquisition and development of one-to-four family residential
lots or the construction of one-to-four family residences.
The Bank evaluates the feasibility of construction projects based upon
appraisals of the project performed by independent appraisers. In addition, the
Bank may obtain architects' or engineers' estimations of the cost of
construction. The Bank generally requires the borrower to fund at least 20% of
the project costs and generally does not provide for an interest reserve in its
non-residential construction loans. The Bank's non-residential construction
loans generally do not exceed 80% of the lesser of the appraised value upon
completion or the sales price. Land acquisition and development loans generally
do not exceed the lesser of 70% of the appraised value (without improvements) or
the purchase price. The Bank's loan policy requires that permanent mortgage
financing be secured prior to extending any non-residential construction loans.
In addition, the Bank generally requires that the units securing its residential
construction loans be pre-sold. Loan proceeds are disbursed in stages after
inspections of the project indicate that the required work has been performed
and that such disbursements are warranted.
Construction loans are generally considered to present a higher degree of
risk than permanent real estate loans. A borrower's ability to complete
construction may be affected by a variety of factors such as adverse changes in
interest rates and the borrower's ability to control costs and adhere to time
8
schedules. The latter will depend upon the borrower's management capabilities,
and may also be affected by strikes, adverse weather and other conditions beyond
the borrower's control.
Consumer Loans. The Bank makes loans for a wide variety of personal and
consumer needs. Consumer loans primarily consist of instalment loans and cash
reserve loans. As of December 31, 1998, $324.1 million, or 33.9%, of the Bank's
gross loan portfolio consisted of consumer loans.
The Bank's instalment loans consist primarily of automobile loans, which
amounted to $289.0 million at December 31, 1998. A substantial portion of the
Bank's automobile loans are originated indirectly by a network of approximately
120 new and used automobile dealers located within the Bank's market area.
Indirect automobile loans accounted for 92.0% and 86.7% of the Bank's total
instalment loan originations during 1998 and 1997, respectively. The increase in
indirect automobile loan originations in 1998 and 1997 reflects the effect of a
focused program undertaken by the Bank to improve business relationships with
automobile dealers within its market area. Although applications for such loans
are taken by employees of the dealer, the loans are made pursuant to Rockland's
underwriting standards using Rockland's documentation, and all indirect loans
must be approved by a Rockland loan officer. In addition to indirect automobile
lending, the Bank also originates automobile loans directly.
The maximum term for the Bank's automobile loans is 72 months for a new car
loan and 66 months with respect to a used car loan. The Bank will lend up to
110% of the purchase price of a new automobile or, with respect to used cars, up
to 105% of the lesser of the purchase price or the National Automobile Dealer's
Association book value. Loans on new automobiles are generally made without
recourse to the dealer. The Bank requires all borrowers to maintain automobile
insurance, including full collision, fire and theft, with a maximum allowable
deductible and with the Bank listed as loss payee. The majority of the Bank's
loans on used automobiles are made without recourse to the dealer. Some
purchases from used car dealers are under a repurchase agreement. The dealer is
required to pay off the loan (in return for the vehicle) as long as the bank
picks up the vehicle and returns it to the dealer within 180 days of the most
recent delinquency payment. In addition, in order to ameliorate the adverse
effect on interest income caused by prepayments, all dealers are required to
maintain a reserve, ranging from 0% to 3% of the outstanding balance of the
indirect loans originated by them, which is rebated to the bank on a pro-rata
basis in the event of repayment prior to maturity.
The Bank's instalment loans also include unsecured loans and loans secured
by deposit accounts, loans to purchase motorcycles, recreational vehicles, motor
homes, boats, or mobile homes. As of December 31, 1998, instalment loans other
than automobile loans amounted to $26.4 million. The Bank generally will lend up
to 100% of the purchase price of vehicles other than automobiles with terms of
up to three years for motorcycles and up to fifteen years for recreational
vehicles.
Cash reserve loans are made pursuant to previously approved unsecured cash
reserve lines of credit. The rate on these loans is subject to change due to
market conditions. As of December 31, 1998, an additional $15.9 million had been
committed to but was unused under cash reserve lines of credit.
Nonperforming Assets. The following table sets forth information regarding
nonperforming assets held by the Bank at the dates indicated.
9
December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------
(Dollars in Thousands)
Loans past due 90 days or
more but still accruing $1,026 $737 $516 $553 $598
Loans accounted for
on a nonaccrual basis (1) 4,330 5,154 3,946 4,718 7,266
----- ----- ----- ----- -----
Total non performing loans 5,356 5,891 4,462 5,271 7,864
----- ----- ----- ----- -----
Other real estate owned - 2 271 638 3,866
Total nonperforming assets $5,356 $5,893 $4,733 $5,909 $11,730
====== ====== ====== ====== =======
Restructured loans $1,037 $1,400 $1,658 $2,629 $2,898
------ ------ ------ ------ ------
Nonperforming loans
as a percent of gross loans 0.56% 0.69% 0.63% 0.83% 1.31%
------ ----- ----- ----- -----
Nonperforming assets as a
percent of total assets 0.34% 0.43% 0.43% 0.60% 1.26%
====== ===== ===== ===== =====
(1) Includes $.1 million, $.1 million, $.6 million, and $1.1 million of
restructured loans at December 31, 1997, 1996, 1995, and 1994 respectively,
which were included in nonaccrual loans as of such dates. There were no
restructured, nonaccruing loans at December 31, 1998.
Gross interest income that would have been recognized for the years ended
December 31, 1998 and 1997 if nonperforming loans at the respective dates had
been performing in accordance with their original terms approximated $496,000
and $438,000, respectively. The actual amount of interest that was collected on
these loans during each of those periods and included in interest income was
approximately 66,000 and $55,000, respectively.
Through the Controlled Asset Department, the Bank strives to ensure that
loans do not become nonperforming. In the case that they do, this department
will restore nonperforming assets to performing status or, alternatively,
dispose of such assets. On occasion, this effort may require the restructure of
loan terms for certain nonperforming loans. The Bank works closely with
independent real estate brokers throughout its market area, and all of the
Bank's other real estate owned is listed with brokers who are members of a
multiple listing service.
Reserve for Possible Loan Losses. The reserve for possible loan losses is
maintained at a level that management considers adequate to provide for
potential loan losses based upon an evaluation of known and inherent risks in
the loan portfolio. The reserve is increased by provisions for possible loan
losses and by recoveries of loans previously charged-off and reduced by loan
charge-offs. Determining an appropriate level of reserve for possible loan
losses necessarily involves a high degree of judgment. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 hereof.
The following table summarizes changes in the reserve for possible loan
losses and other selected statistics for the periods presented.
10
Year Ending December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------
(Dollars In Thousands)
Average loans, net of unearned discount $884,205 $757,877 $657,749 $612,481 $534,052
======== ======== ======== ======== ========
Reserve for Possible loan losses,
beginning of year $12,674 $12,221 $12,088 $13,719 $15,485
Charged-off loans
Commercial 1,206 1,140 1,252 2,097 2,396
Real estate - commercial -- 95 228 690 682
Real estate - residential 241 261 296 558 618
Real estate - construction -- -- -- -- 63
Consumer - instalment 2108 771 430 273 188
Consumer - other 542 639 619 464 346
--- --- --- --- ---
Total charged-off loans 4,097 2,906 2,825 4,082 4,293
----- ----- ----- ----- -----
Recoveries on loans previously charged off
Commercial 630 546 573 436 890
Real estate - commercial 258 265 241 665 425
Real estate - residential 2 0 31 3 2
Real estate - construction -- -- -- -- --
Consumer - instalment 266 137 171 169 133
Consumer - other 2 151 192 178 276
- --- --- --- ---
Total recoveries 1,158 1,099 1,208 1,451 1,726
----- ----- ----- ----- -----
Net loans charged-off 2,939 1,807 1,617 2,631 2,567
Provision for loan losses 3,960 2,260 1,750 1,000 801
----- ----- ----- ----- ---
Reserve for possible loan losses, end of
period $13,695 $12,674 $12,221 $12,088 $13,719
======= ======= ======= ======= =======
Net loans charged-off as a percent of
average loans, net of unearned discount 0.33% 0.24% 0.25% 0.43% 0.48%
Reserve for possible loan losses as a
percent of loans, net of unearned discount 1.46% 1.67% 1.76% 1.92% 2.32%
Reserve for possible loan losses as a
percent of nonperforming loans 255.69% 215.14% 273.89% 229.33% 174.45%
Net loans charged-off as a percent of
reserve for possible loan losses 21.46% 14.26% 13.23% 21.77% 18.71%
Recoveries as a percent of charge-offs 28.26% 37.82% 42.76% 35.55% 40.20%
The reserve for possible loan losses is allocated to various loan
categories as part of the Bank's process for evaluating the adequacy of the
reserve for possible loan losses. The following table sets forth certain
information concerning the allocation of the Bank's reserve for possible loan
losses by loan categories at December 31, 1998. For information about the
percent of loans in each category to total loans, see "Lending Activities - Loan
Portfolio Composition and Maturity."
Percent of Total
Amount Loans by Category
---------------- -------------------
(Dollars In Thousands)
Commercial Loans $2,912 2.29%
Real Estate Loans 7,118 1.41%
Consumer Loans 3,665 1.18%
----- ----
Total Loans $13,695 1.46%
====== ====
The Bank determines the level of the reserve for possible loan losses based
on a number of factors. A specific loan grade or rating is assigned to any
commercial, commercial real estate, or construction loan relationships above
$25,000. A portion of the reserve is allocated as a general reserve for those
classes of loans by the level of loan rating. The better rated loans receive a
lower allocation, but each rated loan class will have an allocation placed
against the amount outstanding. As an alternative to a general allocation by
loan rating, certain loans have specific allocations assigned to them because of
greater knowledge of their underlying collateral's value. In conjunction with
its review, management considers both internal and external factors which may
affect the adequacy of the reserve for possible loan losses. Such factors may
include, but are not limited to, industry trends, regional and national economic
conditions, past estimates of possible loan losses as compared to actual losses,
and historical loan losses. Management assesses the adequacy of the reserve for
possible loan losses, and reviews that assessment quarterly, with the Board of
Directors. Management's assessment of the
11
adequacy of the reserve for possible loan losses is reviewed periodically by the
Company's independent public accountants.
As of December 31, 1998, the reserve for possible loan losses totaled $13.7
million. Based on the processes described above, management believes that the
level of the reserve for possible loan losses at December 31, 1998 is adequate.
Various regulatory agencies, as an integral part of their examination
process, periodically review the Company's reserve for possible loan losses.
Federal Reserve regulators most recently examined the Company in the second
quarter of 1998. The Bank was most recently examined by the fourth quarter of
1997 and by the Commonwealth of Massachusetts Division of Banks in the first
quarter of 1996. No additional provision for possible loan losses was required
as a result of these examinations.
Investment Activities
The Bank's securities portfolio consists of U.S. Treasury and U.S.
Government Agency securities, mortgage-backed securities, and debt securities
issued by other institutions. Most of these securities are investment grade debt
obligations with average maturities of less than five years. Government and
government agency securities entail a lesser degree of risk than loans made by
the Bank by virtue of the guarantees that back them, require less capital under
risk-based capital rules than non-insured or non-guaranteed mortgage loans, are
more liquid than individual mortgage loans, and may be used to collateralize
borrowings or other obligations of the Bank. However, these securities are
subject to prepayment risk which could result in significantly less future
income than would have been the case based on the contractual coupon rate and
term. In addition the Bank had $18.7 million, in private issue mortgage backed
securities at December 31, 1998. The Bank had investments in marketable equity
securities at December 31, 1998 of $350,000 and no like investments in 1997.
The Bank views its securities portfolio as a source of income and, with
regard to maturing securities, liquidity. Interest payments generated from
securities also provide a source of liquidity to fund loans and meet short-term
cash needs. The Bank's securities portfolio is managed in accordance with the
Rockland Trust Company Investment Policy adopted by the Board of Directors.
Investments may be made by the Chief Executive Officer or the Chief Financial
Officer with the approval of one additional member of the Asset/Liability
Management Committee, subject to limits on the type, size and quality of all
investments, which are specified in the Investment Policy. The Bank's
Asset/Liability Management Committee, or its designee, is required to evaluate
any proposed purchase from the standpoint of overall diversification of the
portfolio.
The investment portfolio includes securities which management intends to
hold until maturity and securities available for sale. This classification of
the securities portfolio is required by Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting For Certain Investments in Debt and Equity
Securities," which the Bank adopted effective January 1, 1994.
12
Securities held to maturity as of December 31, 1998 are carried at their
amortized cost of $284.9 million and exclude gross unrealized gains of $3.9
million and gross unrealized losses of $1.3 million. A year earlier, securities
held to maturity totaled $308.1 million, excluding gross unrealized gains of
$2.8 million and gross unrealized losses of $1.3 million.
Securities available for sale are carried at fair market value and
unrealized gains and losses, net of the related tax effect, are recognized as a
separate component of stockholders' equity. The fair market value of securities
available for sale at December 31, 1998 totaled $195.2 million, and net
unrealized gains totaled $0.8 million. A year earlier, securities available for
sale were $131.8 million, with net unrealized gains of $1.4 million. In 1998,
the Bank realized a net gain of $27,000 on the sale of two available for sale
securities. In 1997, the Bank realized a loss of $8,000 on the sale of an
available for sale security.
The following table sets forth the amortized cost and percentage
distribution of securities held to maturity at the dates indicated. For
additional information, see Note 3 to the Consolidated Financial Statements
included in Item 8 hereof.
At December 31,
------------------------------------------------------------
1998 1997 1996
------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
U.S. treasury and
Government agency
Securities $ 29,197 10.3% $ 51,567 16.7% $ 71,104 24.4%
Mortgage-backed securities 143,292 50.3% 199,245 64.7% 193,854 66.7%
Collateralized mortgage
obligations 17,799 6.2% 34,515 11.2% 19,526 6.7%
State. County, and
municipal secirotoes 40,365 14.2% 21,385 6.9% 5,410 1.9%
Other investment
securities 54,291 19.0% 1,400 0.5% 1,000 0.3%
-------- ------ -------- ------ -------- ------
$284,944 100.0% $308,112 100.0% $290,894 100.0%
======== ====== ======== ====== ======== ======
The following table sets forth the fair market value and percentage
distribution of securities available for sale at the dates indicated. For
additional information, see Note 3 to the Consolidated Financial Statements
included in Item 8 hereof.
At December 31,
-----------------------------------------------------------
1998 1997 1996
------------------- -------------------- ------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
U.S Treasury and U.S
Government Agency $9,045 4.6%
Securities
Mortgage-Backed 137,410 70.4% $131,842 100.0% $24,796 93.8%
Securities
Collateralized Mortgage 48,320 24.8% $1,653 6.2%
Obligations
Other Securities 424 .2%
------- --- -------- ------- ------
$195,199 100.0% $131,842 100.0% $26,449 100.0%
======== ====== ======== ====== ======= ======
At December 31, 1998 and 1997, the Bank had no investments in obligations
of individual states, counties or municipalities which exceeded 10% of
stockholders' equity. In addition, there were no sales of these securities in
1998, 1997 or 1996.
13
Sources of Funds
Deposits. Deposits obtained through Rockland's branch banking network have
traditionally been the principal source of the Bank's funds for use in lending
and for other general business purposes. The Bank has built a stable base of
in-market core deposits from the residents of and businesses located in
Southeastern Massachusetts. The Bank has the ability to solicit brokered
deposits. Rockland did not have any brokered deposits at December 31,1998.
During the first quarter of 1999, Rockland acquired $20 million of brokered
deposits as an alternative source of funds. Rockland offers a range of demand
deposits, interest checking, money market accounts, savings accounts and time
certificates of deposit. Interest rates on deposits are based on factors which
include loan demand, deposit maturities, and interest rates offered by competing
financial institutions in the Bank's market area. The Bank believes it has been
able to attract and maintain satisfactory levels of deposits based on the level
of service it provides to its customers, the convenience of its banking
locations, and its interest rates which are generally competitive with those of
competing financial institutions.
Rockland's branch locations are supplemented by the Bank's Trust/24 and
debit cards which may be used to conduct various banking transactions at
automated teller machines ("ATMs") maintained at each of the Bank's full-service
offices and three additional locations. The Trust/24 and debit cards also allow
customers access to the "NYCE" regional ATM network, as well as the "Cirrus"
nationwide ATM network. These networks provide the Bank's customers access to
their accounts through ATMs located throughout Massachusetts, the United States,
and the world.
The following table sets forth the average balances of the Bank's deposits
for the periods indicated.
Year Ended December 31,
----------------------------------------------------------------------
1998 1997 1996
---------------------- ------------------------ ----------------------
(Dollars in Thousands)
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ --------
Demand deposits $195,583 19.9% $171,955 18.9% $161,475 18.9%
Savings and Interest
Checking 266,093 27.1% 225,069 24.8% 257,294 30.2%
Money Market and Super
Interest Checking
account 107,956 11.0% 109,156 12.0% 105,706 12.4%
Time deposits 411,801 42.0% 402,346 44.3% 328,232 38.5%
------- ---- ------- ---- ------- ----
Total $981,433 100.0% $908,526 100.0% $852,707 100.0%
======== ===== ======== ===== ======== =====
The Bank's interest-bearing time certificates of deposit of $100,000 or
more totaled $95.7 million at December 31, 1998. The maturity of these
certificates are as follows: $69.0 million within three months; $20.9 million
over three through 12 months; and $5.8 million thereafter.
Borrowings. Borrowings consist of short-term and intermediate-term
obligations. Short-term borrowings consist primarily of federal funds purchased,
assets sold under repurchase agreements, and
14
treasury tax and loan notes. The Bank has established two unsecured federal
funds lines totaling $20 million with Boston-based banks. The Bank also obtains
funds under repurchase agreements. In a repurchase agreement transaction, the
Bank will generally sell a security agreeing to repurchase either the same or a
substantially identical security on a specified later date at a price slightly
greater than the original sales price. The difference in the sale price and
purchase price is the cost of the proceeds. The securities underlying the
agreements are delivered to the dealer who arranges the transactions as security
for the repurchase obligation. Payments on such borrowings are interest only
until the scheduled repurchase date, which generally occurs within a period of
30 days or less. Repurchase agreements represent a non-deposit funding source
for the Bank. However, the Bank is subject to the risk that the lender may
default at maturity and not return the collateral. In order to minimize this
potential risk, the Bank only deals with established investment brokerage firms
when entering into these transactions. The Bank has repurchase agreements with
five major brokerage firms. At December 31, 1998, the Bank had $30.0 million
outstanding under repurchase agreements and $47.4 million outstanding in
Customer Repurchase Agreement.
In July 1994, Rockland became a member of the Federal Home Loan Bank
("FHLB") of Boston. Among the many advantages of this membership, this
affiliation provides the Bank with access to approximately $375 million of
short-to-medium term borrowing capacity as of December 31, 1998, based on the
Bank's assets at that time. At December 31, 1998, the Bank had $313.7 million
outstanding in FHLB borrowings with initial maturities ranging from 1 month to
10 years.
While the Bank has not traditionally placed significant reliance on
borrowings as a source of liquidity, it established the borrowing arrangements
described above in order to provide management with greater flexibility in
overall funds management.
Management believes that the Bank has adequate liquidity available to
respond to current and anticipated liquidity demands. See Notes 3 and 6 of the
Notes to Consolidated Financial Statements, included in Item 8 hereof.
15
The following table sets forth the Bank's borrowings at the dates
indicated.
At December 31,
-----------------------------------------
1998 1997 1996
-----------------------------------------
(in Thousands)
Federal funds purchased $5,025 $845 $840
Assets sold under
repurchase agreements 77,351 37,482 --
Treasury tax and loan notes 471 3,217 2,296
Federal Home Loan Bank
borrowings 313,724 206,724 78,000
-------- -------- -------
$396,571 $248,268 $81,136
======== ======== =======
The following table presents certain information regarding the Bank's
short-term borrowings at the dates and for the periods indicated.
At or For the Year Ended December 31,
-------------------------------------
1998 1997 1996
-------------------------------------
(Dollars in Thousands)
Balance outstanding at end of year $82,847 $41,544 $ 3,136
Average daily balance outstanding 66,403 48,869 26,534
Maximum balance outstanding at any 89,741 84,945 44,545
month-end Weighted average interest
rate for the year 5.39% 5.74% 5.36%
Weighted average interest rate at end
of year 4.72% 5.99% 5.35%
Trust and Financial Services
Rockland's Trust and Financial Services Division offers a variety of
services, including assistance with investments, estate planning, custody
services, employee benefit plans, and tax planning, which are provided primarily
to individuals and small businesses located in Southeastern Massachusetts. In
addition, the Bank acts as executor or administrator of estates and as trustee
for various types of trusts. As of December 31, 1998, the Trust and Financial
Services Division maintained approximately 1,804 trust/fiduciary accounts, with
an aggregate market value of over $562 million on that date. Income from the
Trust and Financial Services Division amounted to $3.8 million and $3.1 million,
for 1998 and 1997, respectively.
Accounts maintained by the Trust and Financial Services Division consist of
"managed" and "non-managed" accounts. "Managed accounts" are those accounts for
which Rockland has responsibility for administration and investment management
and/or investment advice. "Non-managed" accounts are those accounts for which
Rockland acts as a custodian. The Bank receives fees dependent upon the level
and type of service(s) provided.
The administration of trust and fiduciary accounts is monitored by the
Trust Committee of the Bank's Board of Directors. The Trust Committee has
delegated administrative responsibilities to two committees - one for
investments and one for administration - comprised of Trust and Financial
Services Division officers who meet not less than monthly.
16
Forward-Looking Information
The preceding Management's Discussion and Analysis and Notes to
Consolidated Financial Statements of this Form 10-K contain certain
forward-looking statements, including without limitation, statements regarding
(i) the level of reserve for possible loan losses, (ii) the rate of
delinquencies and amounts of charge-offs, (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.
Regulation
The Company - General. The Company, as a federally registered bank holding
company, is subject to regulation and supervision by the Federal Reserve. The
Company is required to file an annual report of its operations with, and is
subject to examination by, the Federal Reserve.
BHCA (the Bank Holding Company Act) - Activities and Other Limitations. The
BHCA prohibits a bank holding company from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any bank, or
increasing such ownership or control of any bank, without prior approval of the
Federal Reserve. No approval under the BHCA is required, however, for a bank
holding company already owning or controlling 50% of the voting shares of a bank
to acquire additional shares of such bank.
The BHCA also prohibits a bank holding company from, with certain
exceptions, acquiring more than 5% of the voting shares of any company that is
not a bank and from engaging in any business other than banking or managing or
controlling banks. Under the BHCA, the Federal Reserve is authorized to approve
the ownership of shares by a bank holding company in any company, the activities
of which the Federal Reserve has determined to be so closely related to banking
or to managing or controlling banks as to be a proper incident thereto. In
making such determination, the Federal Reserve is required to weigh the expected
benefit to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest or unsound banking practices.
The Federal Reserve has, by regulation, determined that certain activities
are closely related to banking within the meaning of the BHCA. These activities
include, but are not limited to, operating a mortgage company, finance company,
credit card company, factoring company, trust company or savings association;
performing certain data processing operations; providing certain securities
brokerage services; acting as an investment or financial adviser; acting as an
insurance agent for certain types of
17
credit-related insurance; engaging in insurance underwriting under certain
limited circumstances; leasing personal property on a full-payout, nonoperating
basis; providing tax planning and preparation services; operating a collection
agency and a credit bureau; providing consumer financial counseling; and
providing certain courier services. The Federal Reserve also has determined that
certain other activities, including real estate brokerage and syndication, land
development, property management and, except under limited circumstances,
underwriting of life insurance not related to credit transactions, are not
closely related to banking and are not a proper incident thereto.
Interstate Banking Legislation. On September 24, 1994, President Clinton
signed, and as of September 29, 1995, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") became effective. The
Interstate Act facilitates interstate branching by permitting (i) bank holding
companies that are adequately capitalized and adequately managed to acquire
banks outside their home states regardless of whether such acquisitions are
permissible under the laws of the target bank's home state; (ii) commencing June
1, 1997, interstate bank mergers regardless of state law, unless a state has
specifically "opts out" or "opts in" after September 29, 1994 and prior to June
1, 1997; (iii) banks to establish new branches on an interstate basis provided
the state of the new branch specifically permits such activity; (iv) foreign
banks to establish, with regulatory approval, foreign branches outside their
home state to the same extent as if they were national or state banks; and (v)
affiliates of banks in different states to receive deposits, renew time
deposits, close loans, service loans, and receive loan payments on loans and
other obligations as agents for each other. Massachusetts has "opted in" to the
interstate branching provisions of the Interstate Act. See discussion under
"Massachusetts Law" elsewhere in this section. In October, 1996, the banking
regulators of the six New England states signed a New England Cooperative
Agreement facilitating and addressing the regulation of state banks with
multistate operations in New England.
Capital Requirements. The Federal Reserve has adopted capital adequacy
guidelines pursuant to which it assesses the adequacy of capital in examining
and supervising a bank holding company and in analyzing applications to it under
the BHCA. The Federal Reserve's capital adequacy guidelines which generally
require bank holding companies to maintain total capital equal to 8% of total
risk-adjusted assets, with at least one-half of that amount consisting of Tier
1, or core, capital and up to one-half of that amount consisting of Tier 2, or
supplementary, capital. Tier 1 capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier 1 capital), less goodwill and other
intangible assets required to be deducted from capital. Tier 2 capital generally
consists of perpetual preferred stock which is not eligible to be included as
Tier 1 capital; hybrid capital instruments such as perpetual debt and mandatory
convertible debt securities, and term subordinated debt and intermediate-term
preferred stock; and, subject to limitations, the reserve for loan losses.
Assets are adjusted under the risk-based guidelines to take into account
different risk characteristics, with the categories ranging from 0% (requiring
no additional capital) for assets such as cash to 100% for the majority of
assets which are typically held by a bank holding company, including commercial
real estate loans, commercial loans and consumer loans. Single family
residential first mortgage loans which are not 90 days or more past due or
nonperforming and which have been made in accordance with prudent underwriting
standards are assigned a 50% level in the risk-weighting system, as are certain
privately-issued mortgage-backed securities representing indirect ownership of
such loans and certain multi-family housing loans. Off-balance sheet items also
are adjusted to take into account certain risk characteristics.
18
In addition to the risk-based capital requirements, the Federal Reserve
requires bank holding companies to maintain a minimum leverage capital ratio of
Tier 1 capital to total assets of 3.0%. Total assets for this purpose does not
include goodwill and any other intangible assets or investments that the Federal
Reserve determines should be deducted from Tier 1 capital. The Federal Reserve
has announced that the 3.0% Tier 1 leverage capital ratio requirement is the
minimum for the top-rated bank holding companies without any supervisory,
financial or operational weaknesses or deficiencies or those which are not
experiencing or anticipating significant growth. Other bank holding companies
(including the Company) are expected to maintain Tier 1 leverage capital ratios
of at least 4.0% to 5.0% or more, depending on their overall condition.
The Company currently is in compliance with the above-described regulatory
capital requirements. At December 31, 1998, the Company had Tier 1 capital and
total capital equal to 11.38% and 12.63% of total risk-adjusted assets,
respectively, and Tier 1 leverage capital equal to 7.91% of total assets. As of
such date, Rockland complied with the applicable federal regulatory capital
requirements, with Tier 1 capital and total capital equal to 9.09% and 10.34% of
total risk-adjusted assets, respectively, and Tier 1 leverage capital equal to
6.32% of total assets.
Commitments to Affiliated Institutions. Under Federal Reserve policy, the
Company is expected to act as a source of financial strength to Rockland and to
commit resources to support Rockland in circumstances when it might not do so
absent such policy.
Limitations on Acquisitions of Common Stock. The federal Change in Bank
Control Act ("CBCA") prohibits a person or group of persons from acquiring
"control" of a bank holding company or bank unless the appropriate federal bank
regulator has been given 60 days prior written notice of such proposed
acquisition and within that time period such regulator has not issued a notice
disapproving the proposed acquisition or extending for up to another 30 days the
period during which such a disapproval may be issued. An acquisition may be made
prior to expiration of the disapproval period if such regulator issues written
notice of its intent not to disapprove the action. The acquisition of 25% or
more of any class of voting securities constitutes the acquisition of control
under the CBCA. In addition, under a rebuttable presumption established under
the CBCA regulations, the acquisition of 10% or more of a class of voting stock
of a bank holding company or a FDIC-insured bank, with a class of securities
registered under or subject to the requirements of Section 12 of the Securities
Exchange Act of 1934 would, under the circumstances set forth in the
presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the approval of the
Federal Reserve under the BHCA before acquiring 25% (5% in the case of an
acquirer that is a bank holding company) or more of the outstanding common stock
of, or such lesser number of shares as constitute control over, the Company.
Such approval would be contingent upon, among other things, the acquirer
registering as a bank holding company, divesting all impermissible holdings and
ceasing any activities not permissible for a bank holding company.
Massachusetts Law. Massachusetts law requires all Massachusetts bank
holding companies (those companies which control, own, or have the power to vote
25% or more of the stock of each of two or more Massachusetts based banks) to
receive prior written approval of the Massachusetts Board of Bank Incorporation
to, among other things, acquire all or substantially all of the assets of a
banking institution located within the Commonwealth of Massachusetts or to merge
or consolidate with a Massachusetts bank holding company. The Company owns no
voting stock in any banking institution
19
other than Rockland. In addition, prior approval of the Board of Bank
Incorporation is required before any Massachusetts bank holding company owning
25% or more of the stock of two banking institutions may acquire additional
voting stock in those banking institutions equal to 5% or more. Generally, no
approval to acquire a banking institution, acquire additional shares in an
institution, acquire substantially all the assets of a banking institution or
merge or consolidate with another bank holding company may be given if the bank
being acquired has been in existence for a period of centrum 3 years or, as a
result, the bank holding company would control, in excess of 30%, of the total
deposits of all state and federally chartered banks in Massachusetts, unless
waived by the Community. Similarly, no bank which is not a member of the Federal
Reserve can merge or consolidate with any other insured depository institution
or, either directly or indirectly, acquire the assets of or assume the liability
to pay any deposits made in any other depository institution except with the
prior written approval of the FDIC.
As noted above, Massachusetts "opted in" to the Interstate Act in 1996. As
such, any out-of-state bank may engage, with the written approval of the
Commissioner, in a merger transaction with a Massachusetts bank to the fullest
extent permitted by the Interstate Act, provided that the laws of the home state
of such out-of-state bank permit, under conditions no more restrictive than
those imposed by Massachusetts, interstate merger transactions with
Massachusetts banks, and provided further that the Massachusetts bank has been
in existence for at least three years and the resulting bank would not control
in excess of 30% of the total deposits of all state and federally chartered
depository institutions in Massachusetts. The Commissioner may waive the latter
two conditions, in his discretion. Such a merger transaction may also involve
the acquisition of one or more branches of a Massachusetts bank and not the
entire institution. With the prior written approval of the Commissioner,
Massachusetts also permits the establishment of de novo branches in
Massachusetts to the fullest extent permitted by the Interstate Act, provided
the laws of the home state of such out-of-state bank expressly authorize, under
conditions no more restrictive than those of Massachusetts, Massachusetts banks
to establish and operate do novo branches in such state.
With the prior written approval of the Massachusetts Board of Bank
Incorporation, a bank holding company (as defined under the BHCA) whose
principal operations are located in a state other than Massachusetts may acquire
more than 5% of the voting stock of a Massachusetts bank or may merge with a
Massachusetts bank holding company or a Massachusetts bank, provided that
Massachusetts bank has been in existence for at least three years and the
Massachusetts Board of Bank Incorporation is satisfied that the transaction will
not result in the out-of-state bank holding company holding or controlling, more
than 30% of the deposits of all state and federally chartered depository
institutions in Massachusetts or such condition is affirmatively waived by the
Board.
Subsidiary Bank - General. Rockland is subject to extensive regulation and
examination by the Commissioner and by the FDIC, which insures its deposits to
the maximum extent permitted by law, and to certain requirements established by
the Federal Reserve. The federal and state laws and regulations which are
applicable to banks regulate, among other things, the scope of their business,
their investments, their reserves against deposits, the timing of the
availability of deposited funds and the nature and amount of and collateral for
certain loans. The laws and regulations governing Rockland generally have been
promulgated to protect depositors and not for the purpose of protecting
stockholders.
20
Deposit Insurance Premiums. Rockland currently pays deposit insurance
premiums to the FDIC based on a single, uniform assessment rate established by
the FDIC for all BIF-member institutions. The assessment rates range from 0% to
.27%. Under the FDIC's risk-based assessment system, institutions are assigned
to one of three capital groups which assignment is based solely on the level of
an institution's capital - "well capitalized, " "adequately capitalized," and
"undercapitalized" - which are defined in the same manner as the regulations
establishing the prompt corrective action system under Section 38 of the Federal
Deposit Insurance Act ("FDIA"), as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The matrix so created
results in nine assessment risk classifications, with rates ranging from 0% for
well capitalized, healthy institutions to .27% for undercapitalized institutions
with substantial supervisory concerns. Rockland is presently "well capitalized"
and as a result, Rockland was not subject to any FDIC premium obligation as of
January 1, 1999.
The FDIC Board of Directors voted in 1996 to collect an assessment against
BIF assessable deposits to be paid to the Financing Corporation (FICO). The
Board stipulated that the FICO assessment rate that is applied to BIF assessable
deposits must equal one-fifth of the rate that is applied to SAIF assessable
deposits. The actual assessment rates are approximately 1.22 basis points, on an
annual basis, for BIF assessable deposits and approximately 6.10 basis points
for SAIF assessable deposits.
Capital Requirements. The FDIC has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered banks
which, like Rockland, are not members of the Federal Reserve System. These
requirements are substantially similar to those adopted by the Federal Reserve
regarding bank holding companies, as described above.
The FDIC's capital regulations establish a minimum 3.0% Tier 1 leverage
capital to total assets requirement for the most highly-rated state-chartered,
nonmember banks, with an additional cushion of at least 100 to 200 basis points
for all other state-chartered, nonmember banks, which effectively will increase
the minimum Tier 1 leverage capital ratio for such banks to 4.0% or 5.0% or
more. Under the FDIC's regulations, the highest-rated banks are those that the
FDIC determines are not anticipating or experiencing significant growth and have
well diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and in general which are considered
strong banking organizations, rated composite 1 under the Uniform Financial
Institutions Rating System. A bank having less than the minimum leverage capital
requirement shall, within 45 days of the date as of which it receives notice or
is deemed to have notice that it is undercapitalized, submit to its FDIC
regional director for review and approval a written capital restoration plan
describing the means and timing by which the bank shall achieve its minimum
leverage capital requirement. A bank which fails to file such plan with the FDIC
is deemed to be operating in an unsafe and unsound manner, and could subject the
bank to a cease and desist order from the FDIC. The FDIC's regulations also
provide that any insured depository institution with a ratio of Tier 1 capital
to total assets that is less than 2.0% is deemed to be operating in an unsafe or
unsound condition pursuant to Section 8(a) of the FDIA and is subject to
potential termination of deposit insurance. However, such an institution will
not be subject to an enforcement proceeding thereunder solely on account of its
capital ratios if it has entered into and is in compliance with a written
agreement with the FDIC to increase its Tier 1 leverage capital ratio to such
level as the FDIC deems appropriate and to take such other action as may be
necessary for the institution
21
to be operated in a safe and sound manner. The FDIC capital regulation also
provides for, among other things, the issuance by the FDIC or its designee(s) of
a capital directive, which is a final order issued to a bank that fails to
maintain minimum capital to restore its capital to the minimum leverage capital
requirement within a specified time period. Such directive is enforceable in the
same manner as a final cease and desist order.
Pursuant to the requirements of the FDIA, each federal banking agency has
adopted or proposed regulations relating to its review of and revisions to its
risk-based capital standards for insured institutions to ensure that those
standards take adequate account of interest-rate risk, concentration of credit
risk and the risks of non-traditional activities, as well as to reflect the
actual performance and expected risk of loss on multi-family residential loans.
Prompt Corrective Action. Under Section 38 of the FDIA, as amended by the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), each federal
banking agency has broad powers to implement a system of prompt corrective
action to resolve problems of institutions which it regulates which are not
adequately capitalized. Under FDICIA, a bank shall be deemed to be (i) "well
capitalized" if it has total risk-based capital of 10.0% or more, has a Tier 1
risk-based capital ratio of 6.0% or more, has a Tier 1 leverage capital ratio of
5.0% or more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or
more, a Tier 1 risk-based capital ratio of 4.0% or more, a Tier 1 leverage
capital ratio of 4.0% or more (3.0% under certain circumstances) and does not
meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a
total risk-based capital ratio that is less than 8.0%, or a Tier 1 risk-based
capital ratio that is less than 4.0% or a Tier 1 leverage capital ratio of less
than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, or a Tier 1 risk-based capital ratio that is less than 3.0%, or a Tier 1
leverage capital ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. FDICIA also specifies circumstances under which a
federal banking agency may reclassify a well capitalized institution as
adequately capitalized and may require an adequately capitalized institution or
an undercapitalized institution to comply with supervisory actions as if it were
in the next lower category (except that the FDIC may not reclassify a
significantly undercapitalized institution as critically undercapitalized). As
of December 31, 1998, Rockland was deemed a "well-capitalized institution" for
this purpose.
Brokered Deposits. FDICIA restricts the use of brokered deposits by certain
depository institutions. Well capitalized insured depository institutions may
solicit and accept, renew or roll over any brokered deposit without restriction.
Adequately capitalized insured depository institutions may not accept, renew or
roll over any brokered deposit unless they have applied for and been granted a
waiver of this prohibition by the FDIC. Undercapitalized insured depository
institutions may not (i) accept, renew or roll over any brokered deposit or (ii)
solicit deposits by offering an effective yield that exceeds by more than 75
basis points the prevailing effective yields on insured deposits of comparable
maturity in such institution's normal market area or in the market area in which
such deposits are being solicited. At December 31, 1998, the Bank did not have
any brokered deposits. During the first quarter of 1999, the Bank expanded its
funding sources to include brokered deposits of $20 million.
22
Safety and Soundness. In August, 1995, the FDIC adopted regulations
pursuant to FDICIA relating to operational and managerial safety and soundness
standards for financial institutions relating to internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation, fees, and benefits. The
standards are to serve as guidelines for institutions to help identify potential
safety and soundness concerns. If an institution fails to meet any safety and
soundness standard, the FDIC may require it to submit a written safety and
soundness compliance plan within thirty (30) days following a request therefor,
and if it fails to do so or fails to correct safety and soundness deficiencies,
the FDIC may take administrative enforcement action against the institution,
including assessing civil money penalties, issuing supervisory orders and other
available remedies.
Miscellaneous. Rockland is subject to certain restrictions on loans to the
Company, on investments in the stock or securities thereof, on the taking of
such stock or securities as collateral for loans to any borrower, and on the
issuance of a guarantee or letter of credit on behalf of the Company. Rockland
also is subject to certain restrictions on most types of transactions with the
Company, requiring that the terms of such transactions be substantially
equivalent to terms of similar transactions with non-affiliated firms. In
addition under state law, there are certain conditions for and restrictions on
the distribution of dividends to the Company by Rockland.
In addition to the laws and regulations discussed above, regulations have
been promulgated under FDICIA which increase the requirements for independent
audits, set standards for real estate lending and increase lending restrictions
with respect to bank officers and directors. FDICIA also contains provisions
which amend various consumer banking laws, limit the ability of
"undercapitalized banks" to borrow from the Federal Reserve Board's discount
window, and require regulators to perform annual on-site bank examinations.
Regulatory Enforcement Authority. The Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 ("FIRREA") included substantial
enhancement to the enforcement powers available to federal banking regulators,
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to
initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inaction's may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities. FIRREA significantly increased the amount of and grounds
for civil money penalties and requires, except under certain circumstances,
public disclosure of final enforcement actions by the federal banking agencies.
The foregoing references to laws and regulations which are applicable to
the Company and Rockland are brief summaries thereof which do not purport to be
complete and which are qualified in their entirety by reference to such laws and
regulations.
Federal Taxation. The Company and its subsidiaries are subject to those
rules of federal income taxation generally applicable to corporations under the
Internal Revenue Code (the "Code"). The Company and its subsidiaries, as members
of an affiliated group of corporations within the meaning of Section 1504 of the
Code, file a consolidated federal income tax return, which has the effect of
eliminating or deferring the tax consequences of inter-company distributions,
including dividends, in the computation of consolidated taxable income.
23
State Taxation. The Commonwealth of Massachusetts imposes a tax on the
Massachusetts net income of banks at a rate of 10.91% as of December 31, 1998.
As a result of legislation in 1995, the state tax rate for financial
institutions and their related corporations will be gradually reduced to 10.5%
by January 1, 1999. In addition, the Company is subject to an excise tax at the
rate of .26% of its net worth. The Bank's security corporation subsidiaries are,
for state tax purposes, taxed at a rate of 1.32% of its gross income.
Massachusetts net income for banks is generally similar to federal taxable
income except deductions with respect to the following items are generally not
allowed: (i) dividends received, (ii) losses sustained in other taxable years,
and (iii) income or franchise taxes imposed by other states. The Company is
permitted to carry a percentage of its losses forward for not more than five
years, while Rockland is not permitted to carry its losses forward or back for
Massachusetts tax purposes.
For additional information, see Note 8 of the Notes to Consolidated
Financial Statements included in Item 8 hereof.
Item 2. Properties
At February 28, 1999, the Bank conducted its business from its headquarters
and main office at 288 Union Street, Rockland, Massachusetts, and 32 other
branch offices located in Southeastern Massachusetts in Plymouth County, Bristol
County and Norfolk County. In addition to its main office, the Bank owns five of
its branch offices and leases the remaining 27 offices. Of the branch offices
which are leased by the Bank, 6 have remaining lease terms, including options
renewable at the Bank's option, of five years or less, 10 have remaining lease
terms of greater than five years and less than 10 years, and 11 have a remaining
lease term of 10 years or more. The Bank's aggregate rental expense under such
leases was $1.6 million in 1998. Certain of the Bank's branch offices are leased
from companies with whom directors of the Company are affiliated. The Bank
leases space for its Trust and Financial Services Division in a building in
Hanover, Massachusetts developed by a joint venture consisting of the Bank and
A. W. Perry, Inc., and in Attleboro. It also leases office space in two
buildings in Rockland, Massachusetts for administrative purposes as well as
space in four additional facilities used as lending centers. At December 31,
1998, the net book value of the property and leasehold improvements of the
offices of the Bank amounted to $8.9 million. The Bank's properties which are
not leased are owned free and clear of any mortgages. The Bank believes that all
of its properties are well maintained and are suitable for their respective
present needs and operations. For additional information regarding the Bank's
lease obligations, see Note 12 to the Consolidated Financial Statements,
included in Item 8 hereof.
24
Item 3. Legal Proceedings
The Company is involved in routine legal proceedings which arise in the
ordinary course of business. Management has reviewed these actions with legal
counsel and has taken into consideration the view of counsel as to the outcome
of the litigation. In the opinion of management, final disposition of these
lawsuits is not expected to have a material adverse effect on the Company's
financial position or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required herein is incorporated by reference from page 39
of the Company's 1998 Annual Report to Stockholders ("Annual Report"), which is
included herein as Exhibit 13. The Registrant did not sell any unregistered
equity securities during the year-ended December 31, 1998.
Item 6. Selected Financial Data
The information required herein is incorporated by reference from page 1 of
the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required herein is incorporated by reference from pages 2
through 15 of the Annual Report.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required herein are
incorporated by reference from pages 16 through 38 of the Annual Report.
25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required herein is incorporated by reference from the
Company's definitive proxy statement (the "Proxy Statement") relating to its
1998 Annual Meeting of Stockholders filed with the Commission on March 5, 1999.
Item 11. Executive Compensation
The information required herein is incorporated by reference from the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required herein is incorporated by reference from the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The information required herein is incorporated by reference from the Proxy
Statement.
26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following financial statements are incorporated herein by
reference from pages 16 through 38 of the Annual Report.
Report of Independent Public Accountants
Consolidated balance sheets as of December 31, 1998 and 1997
Consolidated statements of income for each of the years in the three year
period ended December 31, 1998
Consolidated statements of stockholder's equity for each of the years in
the three year period ended 12/31/98
Consolidated statements of Comprehensive Income for each of the years in
the three year period ended December 31, 1998
Consolidated statements of cash flows for each of the years in the three
year period ended December 31, 1998
Notes to Consolidated Financial Statements
(a)(2) There are no financial statement schedules filed herewith. All
information required by financial statement schedules is disclosed in Notes to
Consolidated Financial Statements or is not applicable to the Company.
(a)(3) The following exhibits are filed as part of this report.
27
EXHIBIT INDEX
No. Exhibit Footnote
- - --------- ----------------------------------- -------
3.(i) Restated Articles of Organization, as (5)
amended to date
3.(ii) Bylaws of the Company, as amended (1)
to date
4.1 Specimen Common Stock Certificate (4)
4.2 Specimen Preferred Stock Purchase (2)
Rights Certificate
4.3 Amended and Restated Independent (6)
Bank Corp. 1987 Incentive Stock
Option Plan ("Stock Option Plan").
(Management contract under Item
601(10)(iii)(A).
4.4 Independent Bank Corp. 1996 (8)
Non-Employee Directors' Stock
Option Plan (Management contract
under Item 901(10)(iii)(A)).
4.5 Independent Bank Corp. 1997 (9)
Employee Stock Option Plan
(Management contract under
Item 601 (10)(iii)(A)).
10.1 Amendment No. 1 to Third Amended and E-44
Restated Employment Agreement between the
Company, Rockland and Douglas H.
Philipsen, dated July 8, 1998
("Philipsen Employment Agreement").
(Management contract under Item
601(10)(iii)(A)).
10.3 Amendment No. 1 to Second Amended and E-48
Restated Employment Agreement between
Rockland Trust Company and Richard
F. Driscoll, dated July 8, 1998
(the "Driscoll Agreement").
Employment Agreements between
Rockland and Richard J. Seaman,
Ferdinand T. Kelley, Debra A. Charbonnet,
and Raymond G. Fuerschbach are
substantially similar to the Driscoll
agreement. (Management contract
under Item 601(10)(iii)(A)).
28
10.3 Rockland Trust Company Deferred (3)
Compensation Plan for Directors, as
Amended and Restated dated
September 1992. (Management
contract under Item 601(10)(iii)(A)).
10.4 Stockholders Rights Agreement, dated (2)
January 24, 1991, between the Company
and Rockland, as Rights Agent
10.5 Master Securities Repurchase (3)
Agreement
13 Annual Report to Stockholders E - 37
21 Subsidiaries of the Registrant (3)
23 Consent of Independent Public E - 52
Accountants
27 Financial Data Schedule E - 53
(Footnotes on next page)
29
Footnotes:
(1) Incorporated by reference from the Company's report on Form 10-K for the
year ended December 31, 1990.
(2) Exhibit is incorporated by reference to the Form 8-A Registration Statement
(No. 0-19264) filed by the Company.
(3) Exhibit is incorporated by reference to the Form S-1 Registration Statement
(No. 33-52216) filed by the Company.
(4) Incorporated by reference from the Company's report on Form 10-K for the
year ended December 31, 1992.
(5) Incorporated by reference from the Company's report on Form 10-K for the
year ended December 31, 1993.
(6) Incorporated by reference from the Company's report on Form 10-K for the
year ended December 31, 1994.
(7) Incorporated by reference from the Company's report on Form 10-K for the
year ended December 31, 1995.
(8) Incorporated by reference from the Company's definitive Proxy Statement for
the 1996 Annual Meeting of Stockholders filed with the Commission on March
19, 1996.
(9) Incorporated by reference from the Company's definitive Proxy Statement for
the 1997 Annual Meeting of Stockholders filed with the Commission on March
20, 1997.
(b) There were no reports on Form 8-K filed by the Company during the three
months ended December 31, 1998.
(c) See (a)(3) above for all exhibits filed herewith and the Exhibit Index.
(d) All schedules are omitted as the required information is not applicable
or the information is presented in the Consolidated Financial
Statements or related notes.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INDEPENDENT BANK CORP.
Date: March 11, 1999 /s/ Douglas H. Philipsen,
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the followings persons on behalf of the Registrant and
in the capacities and on the dates indicated. Each person whose signature
appears below hereby makes, constitutes and appoints Douglas H. Philipsen and
Richard Seaman and each of them acting individually, his true and lawful
attorneys, with full power to sign for such person and in such person's name and
capacity indicated below any and all amendments to this Form 10-K, hereby
ratifying and confirming such person's signature as it may be signed by said
attorneys to any and all amendments.
/s/ Richard S. Anderson Date: March 11, 1999
Richard S. Anderson
Director
/s/ Donald K. Atkins Date: March 11, 1999
Donald K. Atkins
Director
/s/ W. Paul Clark Date: March 11, 1999
W. Paul Clark
Director
/s/ Robert L. Cushing Date: March 11, 1999
Robert L. Cushing
Director
/s/ Benjamin A Gilmore, II Date: March 11, 1999
Benjamin A. Gilmore, II
Director
31
/s/ Lawrence M. Levinson Date: March 11, 1999
Lawrence M. Levinson
Director
/s/ Richard H. Sgarzi Date: March 11, 1999
- - ---------------------
Richard H. Sgarzi
Director
/s/ Robert J. Spence Date: March 11, 1999
- - ---------------------------
Robert J. Spence
Director
/s/ William J. Spence Date: March 11, 1999
- - ---------------------
William J. Spence
Director
/s/ Brian S. Tedeschi Date: March 11, 1999
- - ---------------------
Brian S. Tedeschi
Director
/s/ Thomas J. Teuten Date: March 11, 1999
- - --------------------
Thomas J. Teuten
Director
/s/ Richard J. Seaman Date: March 11, 1999
- - ---------------------
Richard J. Seaman
Chief Financial Officer and Treasurer
(principal financial and accounting officer)