SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

Commission File Number: 1-9047

Independent Bank Corp.

(Exact name of registrant as specified in its charter)

Massachusetts		04-2870273
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

288 Union Street, Rockland, Massachusetts 02370
(Address of principal executive offices, including zip code)

(781) 878-6100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ý No o

As of August 1, 2003, there were 14,585,248 shares of the issuer’s common stock outstanding, par value $.01 per share.

INDEX

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements		3
		Consolidated Balance Sheets (unaudited) - June 30, 2003 and December 31, 2002	3
		Consolidated Statements of Income (unaudited) - Six months and quarter ended June 30, 2003 and 2002	4
		Consolidated Statements of Stockholders Equity (unaudited) - Six months ended June 30, 2003 and for the year ended December 31, 2002	5
		Consolidated Statements of Cash flows (unaudited) - Six months ended June 30, 2003 and 2002	6
		Condensed Notes to Consolidated Financial Statements – June 30, 2003	7
		Note 1 - Basis of Presentation	7
		Note 2 - Stock Based Compensation	7
		Note 3 - Recent Accounting Developments	9
		Note 4 - Goodwill and Intangibles	11
		Note 5 - Settlement of Real Estate Investment Trust (“REIT”) Retroactive Taxation Dispute	11
		Note 6 - Earnings Per Share	12
		Note 7 - Redemption/Issuance of Trust Preferred Securities	13
		Note 8 - Comprehensive Income	14
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
		Table 1 - Summary of Delinquency Information	18
		Table 2 - Nonperforming Assets / Loans	19
		Table 3 - Summary of Changes in the Allowance for Loan Losses	22
		Table 4 - Summary of Allocation of the Allowance for Loan Losses	23
		Table 5 - Average Balance, Interest Earned/Paid & Average Yields - Quarter to Date	27
		Table 6 - Average Balance, Interest Earned/Paid & Average Yields - Year to Date	28
		Table 7 - Volume Rate Analysis	30
		Table 8 - Interest Rate Sensitivity	35
		Table 9 - Contractual Obligations and Commitments by Maturity	37
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		38
	Item 4. Controls and Procedures		38

PART II. OTHER INFORMATION			38
	Item 1. Legal Proceedings		38
	Item 2. Changes in Securities and Use of Proceeds		39
	Item 3. Defaults Upon Senior Securities		39
	Item 4. Submission of Matters to a Vote of Security Holders		40
	Item 5. Other Information		40
	Item 6. Exhibits and Reports on Form 8-K		40

Signatures			41
Exhibit 31.1 – Certification 302
Exhibit 31.2 – Certification 302
Exhibit 32.1 – Certification 906

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT BANK CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited, Dollars In Thousands, Except Share Amounts)

	June 30, 2003			December 31, 2002

ASSETS
CASH AND DUE FROM BANKS	$	84,610		$	71,317
FEDERAL FUNDS SOLD & SHORT TERM INVESTMENTS	—			3,169
INVESTMENTS
Trading Assets	1,157			1,075
Securities Available for Sale	557,399			501,828
Securities Held to Maturity (fair value $142,322 and $152,566)	134,702			149,071
Federal Home Loan Bank Stock	21,907			17,036
TOTAL INVESTMENTS	715,165			669,010
LOANS
Commercial & Industrial	171,296			151,591
Commercial Real Estate	545,202			511,102
Residential Real Estate	315,108			281,452
Real Estate Construction	64,742			59,371
Consumer - Installment	306,631			323,501
Consumer - Other	119,897			104,585
TOTAL LOANS	1,522,876			1,431,602
LESS: ALLOWANCE FOR LOAN LOSSES	(22,472		)	(21,387		)
NET LOANS	1,500,404			1,410,215
BANK PREMISES AND EQUIPMENT, Net	31,796			30,872
GOODWILL	36,236			36,236
MORTGAGE SERVICING RIGHTS	2,260			2,039
BANK OWNED LIFE INSURANCE	38,063			37,133
OTHER REAL ESTATE OWNED	227			—
OTHER ASSETS	19,308			25,381
TOTAL ASSETS	$	2,428,069		$	2,285,372

LIABILITIES
DEPOSITS
Demand Deposits	$	449,430		$	429,042
Savings and Interest Checking Accounts	496,921			464,318
Money Market and Super Interest Checking Accounts	356,802			320,819
Time Certificates of Deposit over $100,000	107,067			101,835
Other Time Certificates of Deposits	353,447			372,718
TOTAL DEPOSITS	1,763,667			1,688,732
FEDERAL FUNDS PURCHASED AND ASSETS SOLD UNDER REPURCHASE AGREEMENTS	50,874			58,092
TREASURY TAX AND LOAN NOTES	2,353			6,471
FEDERAL HOME LOAN BANK BORROWINGS	376,932			297,592
OTHER LIABILITIES	21,728			25,469
TOTAL LIABILITIES	$	2,215,554		$	2,076,356
COMMITMENTS AND CONTINGENCIES
CORPORATION-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE CORPORATION
Outstanding: 2,000,000 shares at June 30, 2003 and at December 31, 2002	$	47,817		$	47,774
STOCKHOLDERS’ EQUITY
PREFERRED STOCK, $.01 par value. Authorized: 1,000,000 Shares Outstanding: None	—			—
COMMON STOCK, $.01 par value. Authorized: 30,000,000 Issued: 14,863,821 Shares at June 30, 2003 and December 31, 2002.	149			149
TREASURY STOCK: 335,320 Shares at June 30, 2003 and 402,340 Shares at December 31, 2002.	(5,244		)	(6,292		)
TOTAL OUTSTANDING STOCK:14,528,501 at June 30, 2003 and 14,461,481 at December 31, 2002
TREASURY STOCK SHARES HELD IN RABBI TRUST AT COST	(1,202		)	(1,189		)
DEFERRED COMPENSATION OBLIGATION	1,202			1,189
ADDITIONAL PAID IN CAPITAL	42,070			41,994
RETAINED EARNINGS	118,732			110,910
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX	8,991			14,481
TOTAL STOCKHOLDERS’ EQUITY	164,698			161,242
TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES, AND STOCKHOLDERS’ EQUITY	$	2,428,069		$	2,285,372

The accompanying notes are an integral part of these consolidated financial statements.

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, Dollars In Thousands, Except Per Share Data)

	SIX MONTHS ENDED JUNE 30,				THREE MONTHS ENDED JUNE 30,
	2003		2002 (1)		2003		2002 (1)

Interest on Loans	$	48,145	$	49,399	$	24,146	$	24,878
Interest and Dividends on Securities	16,927		21,280		8,563		10,794
Interest on Federal Funds Sold and Short-Term Investments	—		141		—		96
Total Interest Income	65,072		70,820		32,709		35,768
INTEREST EXPENSE
Interest on Deposits	9,159		13,553		4,449		6,688
Interest on Borrowings	7,946		7,944		3,995		4,010
Total Interest Expense	17,105		21,497		8,444		10,698
Net Interest Income	47,967		49,323		24,265		25,070
PROVISION FOR LOAN LOSSES	1,860		2,400		930		1,200
Net Interest Income After Provision For Loan Losses	46,107		46,923		23,335		23,870
NON-INTEREST INCOME
Service Charges on Deposit Accounts	5,521		4,806		2,858		2,471
Investment Management Services	2,221		2,946		1,220		1,371
Mortgage Banking Income	2,034		1,450		975		594
BOLI Income	930		908		467		450
Net Gain on Sales of Securities	2,203		—		1,956		—
Other Non-Interest Income	1,462		1,193		807		583
Total Non-Interest Income	14,371		11,303		8,283		5,469
NON-INTEREST EXPENSE
Salaries and Employee Benefits	20,615		18,425		10,246		9,539
Occupancy and Equipment Expenses	4,665		4,319		2,259		2,071
Data Processing & Facilities Management	2,205		2,174		1,147		1,093
Pre-payment Penalty on Borrowings	1,941		—		1,941		—
Impairment Charge	—		4,372		—		4,372
Other Non-Interest Expense	8,646		9,911		4,405		4,984
Total Non-Interest Expense	38,072		39,201		19,998		22,059
Minority Interest Expense	2,173		2,868		1,083		1,399
INCOME BEFORE INCOME TAXES	20,233		16,157		10,537		5,881
PROVISION FOR INCOME TAXES	8,631		5,087		1,365		1,654
NET INCOME	$	11,602	$	11,070	$	9,172	$	4,227
Less: Trust Preferred Issuance Cost Write-off (Net of Tax)	—		1,505		—		767
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	11,602	$	9,565	$	9,172	$	3,460
BASIC EARNINGS PER SHARE	$	0.80	$	0.67	$	0.63	$	0.24
DILUTED EARNINGS PER SHARE	$	0.79	$	0.65	$	0.63	$	0.24

Weighted average common shares (Basic)	14,510,396		14,383,385		14,525,868		14,414,068
Common stock equivalents	152,134		235,506		143,066		224,669
Weighted average common shares (Diluted)	14,662,530		14,618,891		14,668,934		14,638,737

(1) Reflects the restatement of the six and three months ended June 30, 2002 for the nonamortization of goodwill in accordance with SFAS No. 147.

The accompanying notes are an integral part of these consolidated financial statements.

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited - - Dollars in Thousands, Except Per Share Data)

	COMMON STOCK		TREASURY STOCK			ADDITIONAL PAID-IN CAPITAL			RETAINED EARNINGS			OTHER ACCUMULATED COMPREHENSIVE INCOME			TOTAL
BALANCE DECEMBER 31, 2001	$	149	$	(8,369	)	$	43,633		$	92,779		$	5,069		$	133,261
Net Income (1)									25,066						25,066
Cash Dividends Declared ($.48 per share)									(6,935		)				(6,935		)
Write-Off of Stock Issuance Costs, Net of Tax						(1,505		)							(1,505		)
Proceeds From Exercise of Stock Options			2,077			(564		)							1,513
Tax Benefit on Stock Option Exercise						430									430
Change in Fair Value of Derivatives During Period, Net of Tax and Realized Gains												2,009			2,009
Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains												7,403			7,403
BALANCE DECEMBER 31, 2002	$	149	$	(6,292	)	$	41,994		$	110,910		$	14,481		$	161,242

BALANCE DECEMBER 31, 2002	$	149	$	(6,292	)	$	41,994		$	110,910		$	14,481		$	161,242
Net Income									11,602						11,602
Cash Dividends Declared ($.26 per share)									(3,780		)				(3,780		)
Proceeds From Exercise of Stock Options			1,048			(36		)							1,012
Tax Benefit on Stock Option Exercise						112									112
Change in Fair Value of Derivatives During Period, Net of Tax and Realized Gains												(1,581		)	(1,581		)
Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains												(3,909		)	(3,909		)
BALANCE JUNE 30, 2003	$	149	$	(5,244	)	$	42,070		$	118,732		$	8,991		$	164,698

(1) Reflects the restatement of the six months ended June 30, 2002 for the nonamotization of goodwill in accordance with SFAS No. 147.

The accompanying notes are an integral part of these consolidated financial statements.

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited- In Thousands)

	SIX MONTHS ENDED JUNE 30,
	2003			2002 (1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	11,602		$	11,070
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Depreciation and amortization	2,781			2,643
Provision for loan losses	1,860			2,400
Deferred income tax benefit/ (expense)	4,227			(3,370		)
Loans originated for resale	(145,622		)	(176,240		)
Proceeds from mortgage loan sales	146,831			179,502
Gain on sale of mortgages	(1,092		)	(76		)
Gain on sale of investments	(2,203		)	—
Impairment charge on Security	—			4,372
Gain recorded from mortgage servicing rights, net of amortization	(221		)	(366		)
Changes in assets and liabilities:
Decrease/ (Increase) in other assets	5,256			(725		)
(Decrease)/Increase in other liabilities	(6,644		)	5,101
TOTAL ADJUSTMENTS	5,173			13,241
NET CASH PROVIDED FROM OPERATING ACTIVITIES	16,775			24,311
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal repayments of Securities Held to Maturity	14,327			4,450
Proceeds from maturities and principal repayments and sales of Securities Available For Sale	215,332			108,192
Purchase of Securities Held to Maturity	—			(36,023		)
Purchase of Securities Available For Sale	(276,280		)	(81,729		)
Purchase of Federal Home Loan Bank Stock	(4,871		)	—
Net increase in Loans	(92,393		)	(48,817		)
Investment in Bank Premises and Equipment	(3,090		)	(3,211		)
NET CASH USED IN INVESTING ACTIVITIES	(146,975		)	(57,138		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in Time Deposits	(14,039		)	(46,976		)
Net increase in Other Deposits	88,974			139,124
Net (decrease) /increase in Federal Funds Purchased and Assets Sold Under Repurchase Agreements	(7,218		)	916
Net increase/(decrease) in Federal Home Loan Bank Borrowings	79,340			(18,519		)
Net decrease in Treasury Tax & Loan Notes	(4,118		)	(732		)
Redemption of corporation-obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the Corporation	—			(53,750		)
Issuance of corporation-obligated mandatorily redeemable trust preferred securitiesof subsidiary trust holding solely junior subordinated debentures of the Corporation	—			23,834
Proceeds from stock issuance	1,012			1,291
Dividends Paid	(3,627		)	(3,299		)
NET CASH PROVIDED FROM FINANCING ACTIVITIES	140,324			41,889
NET INCREASE IN CASH AND CASH EQUIVALENTS	10,124			9,062
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD	74,486			72,967
CASH AND CASH EQUIVALENTS AS OF JUNE 30,	$	84,610		$	82,029
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the quarter for:
Interest on deposits and borrowings	$	17,474		$	21,004
Minority Interest	2,173			2,868
Income taxes	8,768			2,852
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Decrease (Increase) in fair value of derivatives, net of tax	919			(738		)
Transfer of securities from HTM to AFS	—			750
Loans transferred to OREO	227			—
Issuance of shares from Treasury Stock for the exercise of stock options	1,048			1,786
Write-off of unamortized Trust Preferred issuance costs upon redemption, net of tax	—			1,505

(1) Reflects the restatement of the six months ended June 30, 2003 for the nonamortization of goodwill in accordance with SFAS No. 147.

The accompanying notes are an integral part of these consolidated financial statements.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company headquartered in Rockland, Massachusetts. The Company is the sole stockholder of Rockland Trust Company (“Rockland” or “the Bank”), a Massachusetts trust company chartered in 1907. The Company’s other subsidiaries are Independent Capital Trust III and Independent Capital Trust IV, each of which have issued trust preferred securities to the public. Independent Capital Trust I and II were liquidated in 2002 upon redemption of their trust preferred securities. The Bank’s subsidiaries consist of two Massachusetts securities corporations; RTC Securities Corp. and RTC Securities Corp. X, and Taunton Avenue Inc. Taunton Avenue Inc. is a new subsidiary that was formed in May 2003 to hold loans, industrial development bonds and other assets. South Shore Holdings, Ltd. (“South Shore Holdings”), a holding Company for Rockland Preferred Capital Corporation was liquidated along with Rockland Preferred Capital Corporation in June 2003.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the six month period and quarter ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003 or any other interim period. All significant inter-company balances and transactions have been eliminated in consolidation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission.

NOTE 2 - STOCK BASED COMPENSATION

The Company has three stock option plans; the Amended and Restated 1987 Incentive Stock Option Plan (“The 1987 Plan”), the 1996 Non-employee Directors’ Stock Option Plan (“The 1996 Plan”) and the 1997 Employee Stock Option Plan (“The 1997 Plan”). All three plans were approved by the Company’s board of directors. The Company measures compensation cost for stock-based compensation plans as the excess, if any, of the exercise price of options granted over the fair market value of the Company’s stock at the grant date. Compensation cost is not recognized as the exercise price has historically equaled the grant date fair value of the underlying stock; however, the Company discloses pro forma net income and earnings per share in the notes to its consolidated financial statements as if compensation was measured at the date of grant based on the fair value, as determined using the Black Scholes model, of the award and recognized over the service period.

Had the Company recognized compensation cost for these plans determined as the fair market value of the Company’s stock at the grant date and recognized over the service period, the Company’s net income available to common stockholders and earnings per share would have been reduced to the following pro forma amounts:

Six Months Ended June 30,		2003		2002
Net Income Available to Common Stockholders:	As Reported (000’s)	$	11,602	$	9,565
	Pro Forma (000’s)	$	11,186	$	9,289

Basic EPS:	As Reported	$	0.80	$	0.67
	Pro Forma	$	0.77	$	0.65

Diluted EPS:	As Reported	$	0.79	$	0.65
	Pro Forma	$	0.76	$	0.64

Three Months Ended June 30,		2003		2002
Net Income Available to Common Stockholders:	As Reported (000’s)	$	9,172	$	3,460
	Pro Forma (000’s)	$	9,044	$	3,311

Basic EPS:	As Reported	$	0.63	$	0.24
	Pro Forma	$	0.62	$	0.23

Diluted EPS:	As Reported	$	0.63	$	0.24
	Pro Forma	$	0.62	$	0.23

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. Annual grant dates for the 1997 plan are in December, consequently full year 2002 assumptions are shown below for the 1997 plan. On an exception basis, grants are made to new employees that meet plan specifications. The following weighted average assumptions were used for grants under the 1997 and 1996 plans:

	1997 Plan		1996 Plan
Risk Free Interest Rate
June 30, 2003	2.33	%(1)	2.41	%(2)
Fiscal Year 2002	2.88	%	4.52	%

Expected Dividend Yields
June 30, 2003	2.13	%(1)	2.56	%(2)
Fiscal Year 2002	2.05	%	1.77	%

Expected Lives
June 30, 2003	3 years	(1)	3.5 years	(2)
Fiscal Year 2002	3 years		3.5 years

Expected Volatility
June 30, 2003	33	%(1)	31	%(2)
Fiscal Year 2002	33	%	33	%

(1) On January 9, 2003, 50,000 options were granted from the 1997 plan to the new President and Chief Executive Officer. The risk free rate, the expected dividend yield, expected life and expected volatility for this grant was determined on January 9, 2003. The normal annual grant of 1997 Plan options is expected to occur in December of 2003 upon which a risk free interest rate, expected dividend yield, expected life and expected volatility will be determined for those grants.

(2) On April 15, 2003, 11,000 options were granted from the 1996 plan to the Company's Board of Directors. The risk free rate, the expected dividend yield, expected life and expected volatility for this grant was determined on April 15, 2003.

NOTE 3 – RECENT ACCOUNTING DEVELOPMENTS

Statement of Financial Accounting Standards (“SFAS”) No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure.” In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, which amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Companies are able to eliminate a “ramp-up” effect that the SFAS No. 123 transition rule creates in the year of adoption and allows companies to elect a method that will provide for comparability amongst years reported. In addition, SFAS No. 148 amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the fair value based method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company is currently considering the adoption of fair value based method of accounting for stock-based employee compensation,

and if the Company does elect to adopt such accounting, the historical impact can be seen within Note 2; “Stock Based Compensation.”

FASB issued Interpretation ("FIN") No. 46 "Consolidation of Variable Interest Entities – an Interpretation of Accounting Research Bulletin No. 51." In No. 46 "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51", establishes accounting guidance for consolidation of variable interest entities (VIE) that function to support the activities of the primary beneficiary. The primary beneficiary of a VIE entity is the entity that absorbs a majority of the VIE's expected losses, receives a majority of the VIE's expected residual returns, or both, as a result of ownership, controlling interest, contractual relationship or other business relationship with a VIE. Prior to the implementation of FIN 46, VIE's were generally consolidated by an enterprise when the enterprise had a controlling financial interest through ownership of a majority of voting interest in the entity. The provisions of FIN 46 were effective immediately for all arrangements entered into after January 31, 2003, and are otherwise effective at the beginning of the first interim period beginning after June 15, 2003.

The Company adopted FIN 46 on July 1, 2003. In its current form, FIN 46 may require the Company to deconsolidate its investment in Capital Trust III and IV in future financial statements. The potential de-consolidation of subsidiary trust of bank holding companies formed in connection with the issuance of trust preferred securities appears to be an unintended consequence of FIN 46. It is currently unknown if, or when, the Financial Accounting Standards Board will address this issue. In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include the trust preferred securities in their Tier I capital for regulatory capital purposes until notice is given to the contrary. The Federal Reserve intends to review the regulatory implications of any accounting treatment changes and, if necessary or warranted, provide further appropriate guidance. There can be no assurance that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier I capital for regulatory capital purposes. [As of June 30, 2003, assuming the Company was not allowed to include the $50.0 million in trust preferred securities issued by Capital Trust III and Capital Trust IV in Tier I capital, the Company would still exceed the regulatory required minimums for capital adequacy purposes.] If the trust preferred securities were no longer allowed to be included in Tier I capital, the Company would also be permitted to redeem the capital securities, which bear interest at 8.625% and 8.375%, respectively, without penalty.

SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” In April 2003, the FASB issued SFAS No. 149, which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” resulting in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively. Implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 should continue to be applied in accordance with their respective effective dates. The Company does not believe the adoption of this statement will have a material impact on the Company’s financial position or results of operations.

SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” In May 2003, the FASB issued SFAS No. 150, which establishes standards for how certain financial instruments with characteristics of both liabilities and equity should be measured and classified. Certain financial instruments with characteristics of both liabilities and equity will be required to be classified as a liability. This statement is effective for financial instruments entered into or modified after May 31, 2003, and July 1, 2003 for all other financial instruments. On July 1, 2003, the Company adopted SFAS No. 150 which results in the Company reclassifying its Corporation-Obligation Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Corporation to borrowings. The unamortized portion of the issuance costs was separated from the value of these securities and reclassified into Other Assets. At June 30, 2003, the trust preferred securities, or junior subordinated debentures, are classified as a separate line item between total liabilities and stockholders’ equity, the mezzanine section, on the consolidated balance sheet. Prior period financial statements will not be restated, therefore, all prior periods presented will have these securities net of the related issuance costs classified in the mezzanine section. The Company does not anticipate a material fair value impact upon adoption. Additionally, the interest cost on the trust preferred securities, which through June 30, 2003 is considered minority interest on the consolidated statement of income, will become interest on borrowings. The minority interest recognized in prior periods will not be reclassified to interest cost upon transition, it will remain as minority interest. The

reclassification of the interest cost into borrowings will have an impact of 0.20% on an annualized basis to the net interest margin. There will be no impact to earnings.

NOTE 4 - GOODWILL AND INTANGIBLES

On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” This statement addresses the method of identifying goodwill and other intangible assets acquired in a business combination and eliminated further amortization of non-SFAS No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions,” goodwill, subject to an annual evaluation of goodwill balances for impairment, or more often in certain circumstances. The Company has total goodwill that meets the criteria of SFAS No. 142 of $761,000 at June 30, 2003 from the acquisitions of Middleboro Trust Company in January 1986 and Pawtucket Trust Company in May 1994.

On October 1, 2002, the FASB released SFAS No. 147, “Acquisitions of Certain Financial Institutions.” The statement allows for financial institutions that have certain unidentifiable intangible assets that arose from business combinations where the fair value of liabilities assumed exceeded the fair value of assets acquired (or SFAS No. 72 assets) to reclassify these assets to goodwill as of the later of the date of acquisition or the application date of SFAS No. 142, January 1, 2002. The reclassified goodwill is accounted for and reported prospectively as goodwill under SFAS No.142. Any previously recognized amortization of such reclassified unidentified intangible asset that was recorded subsequent to the adoption of SFAS No. 142 is restated to the application date of SFAS No. 142, January 1, 2002. The reclassified goodwill is subject to the impairment provisions of SFAS No. 142.

NOTE 5 - SETTLEMENT OF REAL ESTATE INVESTMENT TRUST (“REIT”) RETROACTIVE TAXATION DISPUTE

In June of 2003, two of the Company’s subsidiaries settled a state tax dispute with the Department of Revenue (“DOR”). Under the settlement approximately $3.2 million, prior to federal deduction, was paid to the Massachusetts DOR on June 23, 2003 on behalf of the Company’s two subsidiaries.

In the first quarter of 2003 the Company recorded a $4.1 million charge to earnings due to the state tax dispute between its subsidiaries and the DOR. As a result of the settlement, the Company recognized a credit of approximately $2.1 million to income in the second quarter. Both the $4.1 million charge and the $2.1 million credit were computed including interest, and net of applicable tax benefits.

The settlement entered into in June of 2003 between the Company’s subsidiaries and the DOR arises from a negotiation with the DOR on behalf of a group of approximately 50 to 60 banks. The dispute that led to the settlement began in approximately June 2002, when the DOR began assessing additional state taxes against Massachusetts’ banks that have a REIT, in their corporate structure. The dispute between the DOR and banks was exacerbated on March 5, 2003, when the Governor of Massachusetts signed legislation that declared that the dividends which banks received from a REIT subsidiary are subject to state taxation, retroactive to 1999.

NOTE 6 - EARNINGS PER SHARE

Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that share in the earnings of the entity.

During the six months ending June 30, 2002, the Company wrote-off $1.5 million, net of tax, of stock issuance costs associated with Independent Capital Trust I and II upon their liquidation. During the three months ending June 30, 2002, the Company wrote-off $767,000, net of tax, of the above amount related to the Independent Capital Trust I liquidation. These costs were directly charged to equity in accordance with Generally Accepted Accounting Principles (“GAAP”). Although these amounts did not impact net income, they are included in the calculation of EPS. Therefore, the calculation of EPS in 2002 is determined by dividing net income available to common stockholders, which includes the write-off of stock issuance costs, by the weighted average number of common shares outstanding for the period.

Earnings per share consisted of the following components for the six months and the quarter ended June 30, 2003 and 2002:

	Net Income
For the Quarter Ended June 30,	2003		2002 (1)
	(In Thousands)
Net Income	$	9,172	$	4,227
Less: Trust preferred issuance costs write-off after tax	—		767
Net Income Available for Common Stockholders	$	9,172	$	3,460

	Weighted Average Shares		Net Income Available To Common Stockholders Per Share
For the Quarter Ended June 30,	2003	2002	2003		2002 (1)

Basic EPS	14,525,868	14,414,068	$	0.63	$	0.24
Effect of dilutive securities	143,066	224,669	—		—
Diluted EPS	14,668,934	14,638,737	$	0.63	$	0.24

	Net Income
For the Six Months Ended June 30,	2003		2002 (1)
	(In Thousands)
Net Income	$	11,602	$	11,070
Less: Trust preferred issuance costs write-off after tax	—		1,505
Net Income Available for Common Stockholders	$	11,602	$	9,565

	Weighted Average Shares		Net Income Available To Common Stockholders Per Share
For the Six Months Ended June 30,	2003	2002	2003		2002 (1)

Basic EPS	14,510,396	14,383,385	$	0.80	$	0.67
Effect of dilutive securities	152,134	235,506	$	0.01	$	0.02
Diluted EPS	14,662,530	14,618,891	$	0.79	$	0.65

(1) Reflects the restatement of the six months and quarter ended June 30, 2002 for the nonamortization of goodwill in accordance with SFAS No. 147.

Options to purchase common stock with an exercise price greater than the average market price of common shares for the period are excluded from the calculation of diluted earnings per share, as their effect on earnings per share would be antidilutive. For the three and six months ended June 30, 2003, there were 187,155 and 185,278, respectively, of shares excluded from the calculation of diluted earnings per share. For the three and six months ended June 30, 2002 there were 11,640 and 5,788, respectively, of shares excluded from the calculation of diluted earnings per share.

NOTE 7 - REDEMPTION/ISSUANCE OF TRUST PREFERRED SECURITIES

On December 11, 2001, the Company issued, through Independent Capital Trust III, 1,000,000 shares of 8.625% Trust Preferred Securities, $25 face value, due December 31, 2031 but callable at the option of the Company on or after December 31, 2006. On January 31, 2002, the Company used the net proceeds from the transaction to call the 1,000,000 shares of 11% Trust Preferred Securities issued by Independent Capital Trust II. Upon redemption of the 11% Trust Preferred Securities, the Company wrote-off the associated unamortized issuance costs ($738,000, net of tax) through a charge to equity. This charge, which did not impact net income, is included in the calculation of earnings per share available to common stockholders. The Company expects the refinancing of the 11% Trust Preferred Security issuance to reduce annual pre-tax minority interest expense by approximately $594,000.

On April 12, 2002, the Company issued, through Independent Capital Trust IV, 1,000,000 shares of 8.375% Trust Preferred Securities, $25 face value, due April 30, 2032 but callable at the option of the Company on or after April 30, 2007. On May 20, 2002, the Company used the net proceeds from the transaction to call the 1,150,000 shares of 9.28% Trust Preferred Securities issued by Independent Capital Trust I. Upon redemption of the 9.28% Trust Preferred Securities, the Company wrote-off the associated unamortized issuance cost of $767,000, net of tax, through a direct charge to equity. The write-off of these unamortized costs is included in the calculation of earnings per share. The Company expects the refinancing of the 9.28% Trust Preferred Security issuance to reduce annual pre-tax minority interest expense by approximately $574,000.

See Footnote 3, Recent Accounting Developments, for the impact of adoption of SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”

NOTE 8 - COMPREHENSIVE INCOME

Information on the Company’s comprehensive income, presented net of taxes, is set forth below for the six months and quarter ended June 30, 2003 and 2002.

Comprehensive income is reported net of taxes, as follows:

(unaudited, In Thousands)

	FOR THE SIX MONTHS ENDED						FOR THE THREE MONTHS ENDED
	JUNE 30, 2003			JUNE 30, 2002			JUNE 30, 2003			JUNE 30, 2002
Net Income	$	11,602		$	11,070	(1)	$	9,172		$	4,227	(1)
Other Comprehensive Loss, Net of Tax:
(Decrease) /Increase in unrealized gains on securities available for sale, net of tax of $2,413 and $2,391, for the six months ending June 30, 2003 and June 30, 2002 respectively, and $1,735 and $2,719 for the three months ended June 30, 2003 and June 30, 2002, respectively.	(2,648		)	3,614			(1,990		)	4,136

Less: reclassification adjustment for realized gains included in net earnings, net of tax of $728 and $0, for the six months ending June 30, 2003 and June 30, 2002 respectively, and $592 and $0, for the three months ending June 30, 2003 and June 30, 2002, respectively.	(1,261		)	—			(1,053		)	—

Net change in unrealized gain on securities available for sale, net of tax of $3,141 and $2,391 for the six months ending June 30, 2003 and June 30, 2002, respectively and $2,327 and $2,719 for the three months ending June 30, 2003 and June 30, 2003, respectively.	(3,909		)	3,614			(3,043		)	4,136

(Decrease)/ Increase in fair value of derivatives, net of tax of $494 and $393 for he six months ending June 30, 2003 and June 30, 2002, respectively and $343 and $594 for the three months ending June 30, 2003 and June 30, 2002, respectively.	(919		)	738			(638		)	1,111

Less: reclassification of realized gains on derivatives, net of tax of $480 and $0, for the six months ending June 30, 2003 and June 30, 2002, respectively and $240 and $0 for the three months ending June 30, 2003 and June 30, 2002, respectively.	(662		)	—			(331		)	—

Net change in fair value of derivatives, net of tax of $974 and $393, for the six months ending June 30, 2003 and June 30, 2002, respectively and $583 and $594 for the three months ending June 30, 2003 and June 30, 2002, respectively.	(1,581		)	738			(969		)	1,111

Other Comprehensive (Loss)/Gain	(5,490		)	4,352			(4,012		)	5,247
Comprehensive Income	$	6,112		$	15,422		$	5,160		$	9,474

(1) Reflects the restatement of the six months and three months ended June 30, 2002 for the nonamortization of goodwill in accordance with SFAS No. 147.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission. The discussion may contain certain forward-looking statements regarding the future performance of the Company. All forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates or expectations reflected or contained in the forward-looking information.

Cautionary Statement Regarding Forward-Looking Statements

A number of the presentations and disclosures in this Form 10-Q, including, without limitation, statements regarding the level of allowance for loan losses, the rate of delinquencies and amounts of charge-offs, and the rates of loan growth, and any statements preceded by, followed by or which include the words “may,” “could,” “should,” “will,” “would,” “hope,” “might,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “assume” or similar expressions constitute forward-looking statements.

These forward-looking statements, implicitly and explicitly, include the assumptions underlying the statements and other information with respect to our beliefs, plans, objectives, goals, expectations, anticipations, estimates, intentions, financial condition, results of operations, future performance and business, including our expectations and estimates with respect to our revenues, expenses, earnings, return on equity, return on assets, efficiency ratio, asset quality and other financial data and capital and performance ratios.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, these statements involve risks and uncertainties that are subject to change based on various important factors (some of which are beyond our control). The following factors, among others, could cause our financial performance to differ materially from our goals, plans, objectives, intentions, expectations and other forward-looking statements:

• the strength of the United States economy in general and the strength of the regional and local economies within the New England region and Massachusetts;

• 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;

• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

• inflation, interest rate, market and monetary fluctuations;

• adverse changes in asset quality and the resulting credit risk-related losses and expenses;

• our timely development of new products and services in a changing environment, including the features, pricing and quality of our products and services compared to the products and services of our competitors;

• the willingness of users to substitute competitors’ products and services for our products and services;

• the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;

• technological changes;

• changes in consumer spending and savings habits; and

• regulatory or judicial proceedings.

If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements.

We do not intend to update our forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

OVERVIEW

The Company’s total assets increased $142.7 million, or 6.2%, from December 31, 2002 to a total of $2.4 billion at June 30, 2003. The investment portfolio increased by $46.2 million, or 6.9%, to $715.2 million at June 30, 2003 as compared to fiscal year-end 2002. Loans increased $91.3 million, or 6.4%, during the six months ending 2003. At June 30, 2003, total deposits increased slightly as compared to December 31, 2002 to $1.8 billion from $1.7 billion; however, the mix of deposits changed with an increase in core deposits of $89.0 million, or 7.3%, and a decrease in the more expensive time deposit category of $14.0 million, or 3.0%.

Net income for the three months ended June 30, 2003 was $9.2 million, an increase of $4.9 million, or 117.0%, compared to the three months ended June 30, 2002. Diluted earnings per share were $0.63, a 162.5% increase compared to $0.24 for the same period last year. The second quarter 2003 results reflect a decrease in net interest income of $805,000, or 3.2%, an increase in non-interest income of $2.8 million, or 51.5%, and a decrease in non-interest expense of $2.1 million, or 9.3%.

Two items, one during the current quarter and one during the same period last year, are the primary reasons why there are significant increases in earnings and earnings per share when the second quarter of 2003 is compared to the same period in 2002. A favorable item occurred during the current quarter, namely the Company’s recognition of a $2.1 million credit, net of applicable tax benefits, to the provision for income taxes due to settlement of a state tax dispute. (See Footnote 5, “Settlement of Real Estate Investment Trust (“REIT”) Retroactive

Taxation Dispute,” to the Condensed Notes to Consolidated Financial Statements.) In the same quarter of 2002, the Company experienced a $2.5 million charge, net of tax, for a write-down of WorldCom Bonds within non-interest expense.

Net income for the six months ended June 30, 2003 was $11.6 million, an increase of $532,000, or 4.8%, compared to the six months ended June 30, 2002. Diluted earnings per share were $0.79, a 21.5% increase compared to $0.65 for the same period last year.

The six months ended June 30, 2003 results also reflect a decrease in net interest income of $1.4 million, or 2.8%, an increase in non-interest income of $3.1 million, or 27.1%, and an decrease in non-interest expense of $1.1 million, or 2.9%.

Provision for loan losses decreased by $270,000 to $930,000 from $1.2 million for the three months ended June 30, 2003 compared to June 30, 2002, as a result of continued strength in loan quality.

The Company’s effective income tax rate was 12.95% compared to 28.12%, for the quarters ending June 30, 2003 and June 30, 2002, respectively, with the majority of the change reflective of the aforementioned settlement with the Massachusetts DOR.

FINANCIAL POSITION

Loan Portfolio Total loans increased by $91.3 million, or 6.4%, during the six months ended June 30, 2003 compared to the balance at December 31, 2002. The increases were mainly in commercial real estate, residential real estate and commercial and industrial loans, which increased $34.1 million, or 6.7%, $33.7 million, or 12.0%, and $19.7 million, or 13.0%, respectively. Consumer loans decreased $1.6 million, or 0.4%, primarily due to a decrease in indirect auto loans but was somewhat offset by the growth in home equity lines of $22.4 million.

Asset Quality Rockland Trust Company actively manages all delinquent loans in accordance with formally drafted policies and established procedures. In addition, Rockland Trust Company’s Board of Directors reviews delinquency statistics, by loan type, on a monthly basis.

Delinquency The Bank’s philosophy toward managing its loan portfolios is predicated upon careful monitoring which stresses early detection and response to delinquent and default situations. The Bank seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time frame. Generally, the Bank requires that a delinquency notice be mailed to a borrower upon expiration of a grace period (typically no longer than 15 days beyond the due date). Reminder notices and telephone calls may be issued prior to the expiration of the grace period. If the delinquent status is not resolved within a reasonable time frame following the mailing of a delinquency notice, the Bank’s personnel charged with managing its loan portfolios, contacts a borrower to ascertain the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as is much as reasonably possible without jeopardizing the Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period.

On loans secured by one-to-four family, owner-occupied properties, the Bank attempts to work out an alternative payment schedule with the borrower in order to avoid foreclosure action. If such efforts do not result in a satisfactory arrangement, the loan is referred to legal counsel whereupon counsel initiates foreclosure proceedings. At any time prior to a sale of the property at foreclosure, the Bank may and will terminate foreclosure proceedings if the borrower is able to work out a satisfactory payment plan. On loans secured by commercial real estate or other business assets, the Bank similarly seeks to reach a satisfactory payment plan so as to avoid foreclosure or liquidation.

The following table sets forth a summary of certain delinquency information as of the dates indicated:

Table 1 - Summary of Delinquency Information

	At June 30, 2003						At December 31, 2002
	60-89 days			90 days or more			60-89 days			90 days or more
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance
	(Dollars in Thousands)
Real Estate Loans:
Residential	2	$	123	1	$	1	2	$	197	1	$	2
Commercial	—	—		—	—		2	88		5	1,022
Construction	—	—		—	—		1	1,400		—	—
Commercial and Industrial Loans	5	234		14	1,178		2	63		4	252
Consumer Installment	67	440		44	364		41	241		32	220
Consumer Other	17	30		27	42		8	14		29	42
Total	91	$	827	86	$	1,585	56	$	2,003	71	$	1,538

Nonaccrual Loans As a general rule, a commercial or real estate loan more than 90 days past due with respect to principal or interest is classified as a nonaccrual loan. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. A loan remains on nonaccrual status until it becomes current with respect to principal and interest, when the loan is liquidated, or when the loan is determined to be uncollectible and is charged-off against the allowance for loan losses. As permitted by banking regulations, consumer loans and home equity loans past due 90 days or more continue to accrue interest. In addition, certain commercial and real estate loans that are more than 90 days past due may be kept on an accruing status if the loan is well secured and in the process of collection.

Nonperforming Assets Nonperforming assets are comprised of nonperforming loans, other real estate owned (“OREO”) and nonperforming investment securities. Nonperforming loans consist of nonaccrual loans and loans that are more than 90 days past due but still accruing interest. OREO includes properties held by the Bank as a result of foreclosure or by acceptance of a deed in lieu of foreclosure. Nonperforming investment securities consist of investments that have been identified as other than temporarily impaired and are no longer accruing interest. The Company’s strong underwriting guidelines, prudent investment practices, and the resilient local economy continue to result in very strong asset quality. Nonperforming assets totaled $3.0 million at June 30, 2003 (0.12% of total assets), as compared to the $3.1 million (0.13% of total assets) reported at December 31, 2002. The Company’s total allowance for loan losses (including the credit quality discount of $0.4 million at June 30, 2003 and $0.5 million at December 31, 2002, which is discussed under “Allowance for Loan Losses” below),represented, as a percentage of the total loan portfolio, 1.50% of

those totals at June 30, 2003 and 1.53% at December 31, 2002. The Bank held $227,000 in OREO property on June 30, 2003 and all investment securities were performing.

Repossessed automobiles loan balances continue to be classified as nonperforming loans because the borrower has the potential capacity to satisfy the obligation within twenty days from the date of repossession (before the Bank can schedule disposal of the collateral). The borrower can redeem the property by payment in full at anytime prior to the disposal of it by the Bank. Repossessed automobiles loan balances amounted to $560,000, $663,000, and $416,000 for the periods ending June 30, 2003, December 31, 2002, and June 30, 2002, respectively.

The following table sets forth information regarding nonperforming assets held by the Company at the dates indicated.

Table 2 - - Nonperforming Assets / Loans

(Dollars In Thousands)

	As of June 30, 2003			As of December 31, 2002			As of June 30, 2002

Loans accounted for on a nonaccrual basis (1)
Commercial & Industrial	$	1,236		$	300		$	283
Real Estate - Commercial Mortgage	—			1,320			1,056
Real Estate - Residential Mortgage	548			533			911
Consumer Installment	560			663			416
Total	$	2,344		$	2,816		$	2,666

Loans past due 90 days or more but still accruing
Real Estate - Residential Mortgage	$	—		$	—		$	—
Consumer Installment	364			220			177
Consumer Other	42			41			125
Total	$	406		$	261		$	302

Total nonperforming loans	$	2,750		$	3,077		$	2,968

Nonperforming Investment	—			—			900
Other real estate owned	227			—			—
Total nonperforming assets	$	2,977		$	3,077		$	3,868

Restructured loans	$	477		$	497		$	621

Nonperforming loans as a percent of gross loans	0.18		%	0.21		%	0.22		%

Nonperforming assets as a percent of total assets	0.12		%	0.13		%	0.17		%

(1) There were no restructured nonaccruing loans at June 30, 2003 and December 31, 2002 and $0.1 million restructured nonaccruing loans at June 30, 2002.

In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain commercial and real estate loans. Terms may be modified to fit the capacity of the borrower to repay in line with the current financial status of the borrower. It is the Bank’s policy to maintain restructured loans on nonaccrual status for approximately six months before management considers a return to accrual status. At June 30, 2003, the Bank had $477,000 of restructured loans. At June 30, 2003, the Bank also had three potential problem loans which were not included in nonperforming loans with an outstanding balance of $2.6 million.

Real estate acquired by the Bank through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO. When property is acquired, it is recorded at the lesser of the loan’s remaining principal balance or the estimated fair value of the property acquired, less estimated costs to sell. Any loan balance in excess of the estimated fair value (less estimated costs to sell on the date of transfer) is charged to the allowance for loan losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value, are charged to non-interest expense.

Interest income that would have been recognized for the three months ended June 30, 2003 and June 30, 2002, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $59,000 and $42,000, respectively. Interest income that would have been recognized for the six months ended June 30, 2003 and June 30, 2002, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $116,000 and $106,000, respectively. The actual amount of interest that was collected on nonaccrual and restructured loans during the three months ended June 30, 2003 and June 30, 2002 and included in interest income was approximately $71,000 and $39,000, respectively. The actual amount of interest that was collected on nonaccrual and restructured loans during the six months ended June 30, 2003 and June 30, 2002 and included in interest income was approximately $183,000 and $57,000, respectively.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual, consumer, or residential loans for impairment disclosures. At June 30, 2003 and December 31, 2002, impaired loans were $1.7 million and $2.1 million, respectively, which include all commercial real estate loans and commercial and industrial loans on nonaccrual status and restructured loans.

Allowance For Loan Losses While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on increases in nonperforming loans, changes in economic conditions, or for other reasons. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Federal Reserve regulators examined the Company in the first quarter of 2002 and the Bank was most recently examined by the Federal Deposit Insurance Corporation, (“FDIC”), in the first quarter of 2003. No additional provision for loan losses was required as a result of these examinations. As of June 30, 2003, the allowance for loan losses totaled $22.5 million as compared to $21.4 million at December 31, 2002. Based on the analyses described above, management believes that the level of the allowance for loan losses at June 30, 2003 is adequate.

The allowance for 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 allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. In 2000, the Bank established a separate “credit quality discount” as a reduction of the loan balances acquired from FleetBoston Financial. The credit quality discount is a separate allowance that was established for the acquired loan balances. This credit quality discount represents inherent losses in the acquired loan portfolio. The credit quality discount is amortized over the remaining average life of the loans purchased and amortized into interest income proportionately with the loan balances. The level of credit quality discount was $0.4 million at June 30, 2003 and $0.5 million at December 31, 2002.

Including the credit quality discount, the total allowances for loan losses was $22.9 million at June 30, 2003 compared to $21.9 million at December 31, 2002.

As of June 30, 2003, the allowance for loan losses as a percentage of total loans was 1.48% as compared to 1.49% at December 31, 2002. As of June 30, 2003, the total allowance for loan losses (including the credit quality discount described above) represented 1.50% of loans, as compared to 1.53% at December 31, 2002.

The following table summarizes changes in the allowance for loan losses and other selected statistics for the periods presented:

Table 3 - Summary of Changes in the Allowance for Loan Losses

	Quarter to Date
	June 30, 2003			March 31, 2003			December 31, 2002			September 30, 2002			June 30, 2002
	(Dollars in Thousands)
Average total loans	$	1,504,014		$	1,448,261		$	1,395,325		$	1,352,826		$	1,329,834
Allowance for loan losses, beginning of quarter	$	21,924		$	21,387		$	20,836		$	19,953		$	19,080
Charged-off loans:
Commercial & industrial	—			—			59			—			48
Real estate - commercial	—			—			—			—			—
Real estate - residential	—			—			—			—			—
Real estate - construction	—			—			—			—			—
Consumer - installment	473			574			530			458			463
Consumer - other	41			60			98			83			125
Total charged-off loans	514			634			687			541			636
Recoveries on loans previously charged-off:
Commercial & industrial	13			149			58			142			219
Real estate - commercial	0			1			—			1			—
Real estate - residential	—			—			—			—			—
Real estate - construction	—			—			—			—			—
Consumer - installment	105			78			104			58			72
Consumer - other	14			13			26			23			18
Total recoveries	132			241			188			224			309
Net loans charged-off	382			393			499			317			327
Provision for loan losses	930			930			1,050			1,200			1,200
Allowance for loan losses, end of period	$	22,472		$	21,924		$	21,387		$	20,836		$	19,953
Credit quality discount on acquired loans	425			467			518			587			705
Total allowances for loan losses, end of quarter	$	22,897		$	22,391		$	21,905		$	21,423		$	20,658

Net loans charged-off as a percent of average total loans	0.03		%	0.03		%	0.04		%	0.02		%	0.02		%
Allowance for loan losses as a percent of total loans	1.48		%	1.49		%	1.49		%	1.50		%	1.48		%
Allowance for loan losses as a percent of nonperforming loans	817.16		%	560.43		%	695.06		%	567.12		%	672.27		%
Total allowances for loan losses as a percent of total loans (including credit quality discount)	1.50		%	1.52		%	1.53		%	1.55		%	1.54		%
Total allowance for loan losses as a percent of nonperforming loans (including credit quality discount)	832.62		%	572.37		%	711.89		%	583.10		%	696.02		%
Net loans charged-off as a percent of allowance for loan losses	1.70		%	1.79		%	2.33		%	1.52		%	1.64		%
Recoveries as a percent of charge-offs	25.68		%	38.01		%	27.37		%	41.40		%	48.58		%

The allowance for loan losses is allocated to various loan categories as part of the Bank’s process of evaluating its adequacy. The allocated amount of allowance was $17.9 million at June 30, 2003, up from $17.0 million at December 31, 2002. The distribution of allowances allocated among the various loan categories was comparable to the distribution as of December 31, 2002. Increases in the amounts allocated were observed in all loan type categories except Consumer – Installment and Real Estate – Construction, which exhibited

decreases. These changes are attributed to changes in portfolio balances outstanding and the results of recent assessments of the loan portfolio.

The following table summarizes the allocation of the allowance for loan losses for the dates indicated:

Table 4 - Summary of Allocation of the Allowance for Loan Losses

(Dollars - In Thousands)

	AT JUNE 30, 2003						AT DECEMBER 31, 2002
	Allowance Amount		Credit Quality Discount		Percent of Loans In Category To Total Loans		Allowance Amount		Credit Quality Discount		Percent of Loans In Category To Total Loans
Allocated Allowances:
Commercial & Industrial	$	3,958	$	9	11.2	%	$	3,435	$	10	10.6	%
Commercial Real Estate	8,289		392		35.8	%	7,906		419		35.7	%
Residential Real Estate	732		—		20.7	%	649		63		19.7	%
Real Estate Construction	1,159		—		4.3	%	1,196		—		4.1	%
Consumer - Installment	2,858		23		20.1	%	3,008		22		22.6	%
Consumer - Other	854		1		7.9	%	765		4		7.3	%
Non-specific Allowance	4,622		—		NA		4,428		—		NA

Total Allowance for Loan Losses	$	22,472	$	425	100.0	%	$	21,387	$	518	100.0	%

A portion of the allowance for loan losses is not allocated to any specific segment of the loan portfolio. This non-specific allowance is maintained for two primary reasons: (a.) there exists an inherent subjectivity and imprecision to the analytical processes employed and (b.) the prevailing business environment, as it is affected by changing economic conditions and various exogenous factors, may impact the portfolio in ways currently unforeseen.

Moreover, management has identified certain risk factors, which are not readily quantifiable, but which could still impact the degree of loss sustained within the portfolio. These include: (a.) market risk factors, such as the effects of economic variability on the entire portfolio, and (b.) unique portfolio risk factors that are inherent characteristics of the Bank’s loan portfolio. Market risk factors may consist of changes to general economic and business conditions that may impact the Bank’s loan portfolio customer base in terms of ability to repay and that may result in changes in value of underlying collateral. Unique portfolio risk factors may include industry concentration or covariant industry concentrations, geographic concentrations, or trends that may exacerbate losses resulting from economic events which the Bank may not be able to fully diversify out of its portfolio.

Due to the imprecise nature of the loan loss estimation process and ever changing conditions, these risk attributes may not be adequately captured in data related to the formula-based loan loss components used to determine allocations in the Bank’s analysis of the adequacy of the allowance for loan losses. Management, therefore, has established and maintains a non-specific allowance for loan losses. The amount of non-specific allowance was $4.6 million at June 30, 2003, compared to $4.4 million at December 31, 2002.

Management increased the measurement imprecision allocation primarily based on concerns regarding how the overall weakening of the national economy may affect borrowers in its loan portfolio. Through the fiscal year ending 2002 and through the second quarter ending June 30, 2003, the general state of the U.S. economy has exhibited well publicized weaknesses such as lackluster growth and rising rates of unemployment. National economic conditions notwithstanding, the reported slowdown of economic activity has not yet had a significant effect on the overall credit quality or incidence of default within the Bank’s loan portfolio. Management, nonetheless, increased the measurement imprecision allocation of loan loss allowance by $194,000 during the six months ended June 30, 2003 based upon its belief that some of the Bank’s customer base may lag behind larger national firms with respect to the effects of a recession.

Investments Total investments increased $46.2 million, or 6.9%, to $715.2 million at June 30, 2003 from December 31, 2002, attributable to increases in the available for sale portfolio. Purchases were concentrated in mortgage backed securities collateralized by 10 and 15 year mortgages, and to a lesser extent government agency securities. Also during the second quarter ending June 30, 2003, the Company sold $20.0 million of investment securities recognizing a gain on the sale of securities of $2.0 million. The sale of the securities was part of an effort to improve the Company’s overall interest rate risk position as well as to offset compression in the net interest margin. In connection with the sale of the securities, the Company prepaid $31.5 million of fixed, high-rate borrowings, incurring a prepayment penalty of $1.9 million, recorded in non-interest expense. Increases in the available for sale portfolio were partially offset by a decrease in the held to maturity portfolio due to maturities and pay-downs.

Deposits Total deposits of $1.8 billion at June 30, 2003 increased $74.9 million since year-end 2002. Core deposits increased by $89.0 million, or 7.3%, which enabled the Company to reduce the balance of more expensive time deposits by $14.0 million, or 3.0%, contributing to a reduction in its overall cost of funds from 2.26% to 1.96% from the fourth quarter 2002 to the second quarter 2003.

Borrowings Total borrowings increased $68.0 million, or 18.8%, to $430.2 million at June 30, 2003 from December 31, 2002. As discussed above within Investments, as part of an effort to improve the Company’s interest rate risk position and to offset compression in the net interest margin, the Company prepaid $31.5 million of fixed rate, 4.9% borrowings incurring a prepayment penalty of $1.9 million. Short term borrowings were increased to fund asset growth.

Corporation-Obligated Mandatorily Redeemable Trust Preferred Securities In December 2001, the Company issued trust preferred securities through Independent Captial Trust III (“Trust III”), the proceeds of which were used to redeem in full on January 31, 2002, higher rate securities issued through Independent Capital Trust II (“Trust II”). As the low interest rate environment continued into 2002, the Company issued trust preferred securities through Independent Capital Trust IV (“Trust IV”) on April 12, 2002, the proceeds of which were used to redeem in full on May 20, 2002, the higher rate securities issued through Independent Capital Trust I (“Trust I”). Therefore, Trust I and II were liquidated in 2002. The remaining issuance costs related to the issuance of Trust I and Trust II of $767,000, net of tax, and $ 738,000, net of tax, respectively, were written-off as a direct charge to equity. The Company expects the refinancing of the Trust Preferred Security issuances of Trust II and Trust I to reduce the Company’s annual pre-tax minority interest expense by approximately $594,000 and $574,000, respectively.

The interest expense associated with the trust preferred securities is reported as minority interest expense on the Consolidated Statements of Income and were $1.1 million and $1.4 million for the quarters ending June 30, 2003 and 2002, respectively.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” effective on July 1, 2003 for existing financial instruments. The statement establishes standards for issuers’ classification of liabilities in the statement of financial position of financial instruments that have characteristics of both liabilities and equity. As a result of this statement, the Company will be required to reclassify its Corporation-Obligation Mandatorily Redeemable Trust Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Corporation to borrowings. The unamortized portion of the issuance costs will be separated from the value of these securities and be reclassified into Other Assets. Currently, the trust preferred securities, or junior subordinated debentures, are classified as a separate line item between total liabilities and stockholders’ equity on the consolidated balance sheet. Prior period financial statements will not be restated, therefore, all prior periods presented will have these securities net of the related issuance costs classified in the mezzanine section. The Company does not anticipate a material fair value impact upon adoption. In addition, the interest cost on the trust preferred securities, which is currently considered minority interest on the consolidated statement of income, will become interest on borrowings. The minority interest recognized in prior periods will not be reclassified to interest cost upon transition, it will remain as minority interest. The reclassification of the interest cost into borrowings will have an impact of 0.20% on an annualized basis to the net interest margin. There will be no impact to earnings.

Stockholders’ Equity Stockholders’ equity as of June 30, 2003 totaled $164.7 million as compared to $161.2 million at December 31, 2002.

Equity to Assets Ratio The ratio of equity to assets was 6.8% at June 30, 2003 compared to 7.1% at December 31, 2002.

RESULTS OF OPERATIONS

Summary of Results of Operations The Company reported net income of $9.2 million for the second quarter 2003 as compared with net income of $4.2 million for the second quarter of 2002. Diluted earnings per share were $0.63 for the three months ended June 30, 2003, compared to $0.24 per share for the prior year’s quarter. Two items, one during the current quarter and one during the same period last year, are the primary reasons why there are significant increases in earnings and earnings per share when the second quarter of 2003 is compared to the same period in 2002. A favorable item occurred during the current quarter, namely the Company’s recognition of a $2.1 million credit, net of applicable tax benefits, to the provision for income taxes due to settlement of a state tax dispute. (See footnote 5 to the Condensed Notes to Consolidated Financial Statements.) In the same quarter of 2002, the Company experienced a $2.5 million charge, net of tax, for the write-down of WorldCom Bonds.

Net income for the six months ended June 30, 2003 was $11.6 million compared to $11.1 million for the same period last year. Diluted earnings per share were $0.79 and $0.65 for the six months ended June 30, 2003 and June 30, 2002, respectively.

Earnings per share for the three and six months ending June 30, 2002 was also impacted by a direct charge to equity for the write-off of issuance costs associated with the redemption of the trust preferred securities of $767,000 and $1.5 million, respectively. The charge, although not included in net income, is included in the calculation of earnings per share.

Net Interest Income The amount of net interest income is affected by changes in interest rates and by the volume and mix of interest earning assets and interest bearing liabilities.

On a fully taxable equivalent basis, net interest income for the second quarter of 2003 decreased $731,000, or 2.9%, to $24.8 million, as compared to the second quarter of 2002. The Company’s net interest margin decreased to 4.47% for the second quarter of 2003 from 4.90% in the second quarter of 2002. The compression in the net interest margin can be attributed to the repricing of assets at historically low levels without a proportional decrease in rates paid on deposits and borrowings. The Company’s interest rate spread (the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) decreased by 30 basis points to 4.03% during the second quarter of 2003 as compared to the second quarter of 2002. Management anticipates that the net interest margin and interest rate spread will continue to contract in the coming months as the uncertainty of global events and a weak economy continue to suppress interest rates.

The Company’s fully tax equivalent net interest income for the six months ended June 30, 2003 amounted to $48.9 million, a decrease of $1.3 million, or 2.5%, from the comparable six months in 2002. The net interest margin decreased from 4.90% to 4.49% for the six months ended June 30, 2003 as compared to the same period last year.

Management continues its focus on long-term earnings growth and maintains a disciplined approach to asset generation in this low rate environment. Loan generation has focused on adjustable rate or short-term fixed rate products and investment purchases are generally short-term in nature with limited extension risk.

The following tables presents the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and six months ending June 30, 2003 and June 30, 2002. Non-taxable income from loans and securities is presented on a fully tax equivalent basis, whereby tax exempt income is adjusted upward by an amount equivalent to the prevailing federal income taxes that would have been paid if income had been fully taxable.

Table 5 - Average Balance, Interest Earned/Paid & Average Yields

(Unaudited - Dollars in Thousands)

FOR THE THREE MONTHS ENDED JUNE 30,	AVERAGE BALANCE 2003		INTEREST EARNED/ PAID 2003		AVERAGE YIELD 2003		AVERAGE BALANCE 2002 (3)		INTEREST EARNED/ PAID 2002		AVERAGE YIELD 2002

Interest-earning Assets:
Federal Funds Sold and Assets Purchased Under Resale Agreement	$	20	$	—	—		$	20,151	$	96	1.91	%
Trading Assets	1,083		4		1.48	%	1,153		5		1.73	%
Taxable Investment Securities	645,299		7,817		4.85	%	670,605		10,136		6.05	%
Non-taxable Investment Securities (1)	66,036		1,142		6.92	%	56,305		991		7.04	%
Loans (1)	1,504,014		24,231		6.44	%	1,329,834		24,951		7.50	%
Total Interest-Earning Assets	$	2,216,452	$	33,194	5.99	%	$	2,078,048	$	36,179	6.96	%
Cash and Due from Banks	65,291						60,366
Other Assets	101,245						105,143
Total Assets	$	2,382,988					$	2,243,557

Interest-bearing Liabilities:
Savings and Interest Checking Accounts	$	469,294	$	471	0.40	%	$	420,045	$	863	0.82	%
Money Market & Super Interest Checking Accounts	345,297		1,050		1.22	%	329,992		1,602		1.94	%
Time Deposits	464,340		2,928		2.52	%	509,415		4,223		3.32	%
Federal Funds Purchased and Assets Sold Under Repurchase Agreement	51,754		126		0.97	%	69,290		201		1.16	%
Treasury Tax and Loan Notes	2,060		2		0.39	%	2,949		6		0.81	%
Federal Home Loan Bank Borrowings	392,492		3,867		3.94	%	296,731		3,803		5.13	%
Total Interest-Bearing Liabilities	$	1,725,237	$	8,444	1.96	%	$	1,628,422	$	10,698	2.63	%
Demand Deposits	417,306						392,773

Corporation Obligated Mandatorily Redeemable Trust Preferred Securities of SubsidiaryTrust Holding Solely Junior Subordinated Debentures of the Corporation	47,804						59,747
Other Liabilities	28,813						22,384
Total Liabilities	$	2,219,160					$	2,103,326
Stockholders’ Equity	163,828						140,231
Total Liabilities and Stockholders’ Equity	$	2,382,988					$	2,243,557

Net Interest Income			$	24,750					$	25,481

Interest Rate Spread (2)					4.03	%					4.33	%

Net Interest Margin (2)					4.47	%					4.90	%

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $485 and $411 for the three months ended June 30, 2003 and 2002, respectively. Also, non-accrual loans have been included in the average loan category; however, unpaid interest on non-accrual loans has not been included for purposes of determining interest income.

(2) Interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. Net interest margin represents annualized net interest income as a percent of average interest-earning assets.

(3) Reflects the restatement of the three months ended June 30, 2002 for the nonamortization of goodwill in accordance with SFAS No. 147.

Table 6 - - Average Balance, Interest Earned/Paid & Average Yields

(Unaudited - - Dollars in Thousands)

FOR THE SIX MONTHS ENDED JUNE 30,	AVERAGE BALANCE 2003		INTEREST EARNED/ PAID 2003		AVERAGE YIELD 2003		AVERAGE BALANCE 2002 (3)		INTEREST EARNED/ PAID 2002		AVERAGE YIELD 2002

Interest-earning Assets:
Federal Funds Sold and Assets Purchased Under Resale Agreement	$	35	$	—	—		$	14,638	$	141	1.93	%
Trading Assets	1,079		18		3.34	%	1,152		7		1.22	%
Taxable Investment Securities	636,722		15,517		4.87	%	656,944		19,993		6.09	%
Non-taxable Investment Securities (1)	61,423		2,127		6.93	%	55,401		1,939		7.00	%
Loans (1)	1,476,292		48,305		6.54	%	1,316,890		49,535		7.52	%
Total Interest-Earning Assets	$	2,175,551	$	65,967	6.06	%	$	2,045,025	$	71,615	7.00	%
Cash and Due from Banks	63,874						59,448
Other Assets	100,484						104,163
Total Assets	$	2,339,909					$	2,208,636

Interest-bearing Liabilities:
Savings and Interest Checking Accounts	$	461,130	$	983	0.43	%	$	414,783	$	1,691	0.82	%
Money Market & Super Interest Checking Accounts	338,984		2,091		1.23	%	301,066		2,917		1.94	%
Time Deposits	466,401		6,085		2.61	%	518,628		8,945		3.45	%
Federal Funds Purchased and Assets Sold Under Repurchase Agreement	53,785		263		0.98	%	68,488		393		1.15	%
Treasury Tax and Loan Notes	2,258		6		0.53	%	4,092		22		1.08	%
Federal Home Loan Bank Borrowings	370,257		7,677		4.15	%	303,020		7,529		4.97	%
Total Interest-Bearing Liabilities	$	1,692,815	$	17,105	2.02	%	$	1,610,077	$	21,497	2.67	%
Demand Deposits	408,219						378,730

Corporation Obligated Mandatorily Redeemable Trust Preferred Securities of SubsidiaryTrust Holding Solely Junior Subordinated Debentures of the Corporation	47,793						59,572
Other Liabilities	26,952						22,089
Total Liabilities	$	2,175,779					$	2,070,468
Stockholders’ Equity	164,130						138,168
Total Liabilities and Stockholders’ Equity	$	2,339,909					$	2,208,636

Net Interest Income			$	48,862					$	50,118

Interest Rate Spread (2)					4.04	%					4.33	%

Net Interest Margin (2)					4.49	%					4.90	%

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $895 and $795 for the six months ended June 30, 2003 and 2002, respectively. Also, non-accrual loans have been included in the average loan category; however, unpaid interest on non-accrual loans has not been included for purposes of determining interest income.

(3) Reflects the restatement of the six months ended June 30, 2002 for the nonamortization of goodwill in accordance with SFAS No. 147.

The average balance of interest-earning assets for the second quarter of 2003 amounted to $2.2 billion, an increase of $138.4 million, or 6.7%, from the comparable time frame in 2002. Average loans increased by $174.2 million, or 13.1%. Average investments decreased by $15.6 million, or 2.1%. Income from interest-earning assets amounted to $33.2 million for the three months ended June 30, 2003, a decrease of $3.0 million, or 8.3%, from the three months ended June 30, 2002. The yield on interest earning assets was 5.99% for the three months ending 2003 compared to 6.96% in 2002.

The average balance of interest-earning assets for the six months ended June 30, 2003 amounted to $2.2 billion, an increase of $130.5 million, or 6.4%, from the comparable time frame in 2002. Average loans increased by $159.4 million, or 12.1%. Average investments decreased by $14.3 million, or 2.0%. Income from interest-earning assets amounted to $66.0 million for the six months ended June 30, 2003, a decrease of $5.6 million, or 7.9%, from the six months ended June 30, 2002. The yield on interest earning assets was 6.06% for the six months ended 2003 compared to 7.00% for the six months ended 2002.

The average balance of interest-bearing liabilities for the second quarter 2003 was $1.7 billion, or 5.9% higher than the comparable 2002 time frame. Average interest bearing deposits were higher by $19.5 million, or 1.5%, at June 30, 2003 compared to the same period last year. The majority of the growth in average deposits was in non-interest bearing demand deposits of $24.5 million, or 6.3%, for the quarter ending June 30, 2003 as compared to the same period in 2002. For the three months ended June 30, 2003, average borrowings were $446.3 million, representing an increase of $77.3 million, or 21.0%, from the three months ended June 30, 2002. Notwithstanding the increase in the average balance of interest-bearing liabilities, interest expense decreased by $2.3 million, or 21.1%, to $8.4 million in the second quarter of 2003 as compared to the same period last year, due to the cost of funds being 1.96% in 2003 compared to 2.63% in 2002.

The average balance of interest-bearing liabilities for the six months ended June 30, 2003 was $1.7 billion, or 5.1% higher than the comparable 2002 time frame. Average interest bearing deposits were higher by $32.0 million, or 2.6%, for the six months ended June 30, 2003 compared to the same period last year. The majority of the growth in average deposits was in non-interest bearing demand deposits of $29.5 million, or 7.8%, for the six months ending June 30, 2003 as compared to the same period in 2002. For the six months ended June 30, 2003, average borrowings were $426.3 million, representing an increase of $50.7 million, or 13.5%, from the six months ended June 30, 2002. Notwithstanding the increase in the average balance of interest-bearing liabilities, interest expense decreased by $4.4 million, or 20.4%, to $17.1 million for the six months ended June 30, 2003 as compared to the same period last year, due to the cost of funds being 2.02% in 2003 compared to 2.67% in 2002.

The following table presents certain information on a fully tax-equivalent basis regarding changes in the Company’s interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (1) changes in rate (change in rate multiplied by old volume), (2) changes in volume (change in volume multiplied by old rate) and (3) changes in volume/rate (change in volume multiplied by change in rate).

Table 7 - Volume Rate Analysis

	Three Months Ended June 30, 2003 Compared to 2002												Six Months Ended June 30, 2003 Compared to 2002
	Change Due to Rate			Change Due to Volume			Change Due to Volume/ Rate			Total Change			Change Due to Rate			Change Due to Volume			Change Due to Volume/ Rate			Total Change
	(In Thousands)												(In Thousands)
Income on interest-earning assets:
Federal funds sold	$	(96	)	$	(96	)	$	96		$	(96	)	$	(141	)	$	(141	)	$	141		$	(141	)
Taxable securities	(2,013		)	(382		)	76			(2,319		)	(3,984		)	(615		)	123			(4,476		)
Non-taxable securities (1)	(17		)	171			(3		)	151			(21		)	211			(2		)	188
Trading assets	(1		)	(0		)	0			(1		)	12			(0		)	(1		)	11
Loans (1) (2)	(3,526		)	3,268			(462		)	(720		)	(6,446		)	5,996			(780		)	(1,230		)
Total	$	(5,653	)	$	2,961		$	(293	)	$	(2,985	)	$	(10,580	)	$	5,451		$	(519	)	$	(5,648	)

Expense of interest-bearing liabilities:
Savings and Interest Checking accounts	$	(441	)	$	101		$	(52	)	$	(392	)	$	(807	)	$	189		$	(90	)	$	(708	)
Money Market and Super Interest Checking account	(598		)	74			(28		)	(552		)	(1,060		)	367			(133		)	(826		)
Time deposits	(1,010		)	(374		)	89			(1,295		)	(2,178		)	(901		)	219			(2,860		)
Federal funds purchased and assets sold under repurchase agreements	(32		)	(51		)	8			(75		)	(58		)	(84		)	12			(130		)
Treasury tax and loan notes	(3		)	(2		)	1			(4		)	(11		)	(10		)	5			(16		)
Federal Home Loan Bank borrowings	(879		)	1,227			(284		)	64			(1,247		)	1,671			(276		)	148
Total	$	(2,963	)	$	975		$	(266	)	$	(2,254	)	$	(5,361	)	$	1,232		$	(263	)	$	(4,392	)
Change in net interest income	$	(2,690	)	$	1,986		$	(27	)	$	(731	)	$	(5,219	)	$	4,219		$	(256	)	$	(1,256	)

(1) The total amount of adjustment to present income and yield on a fully tax-equivalent basis is $485 and $411 for the three months ended June 30, 2003 and 2002, respectively, and $895 and $795 for the six months ended June 30, 2003,respectively.

(2) Loans include portfolio loans, loans held for sale and nonperforming loans; however unpaid interest on nonaccrual loans has not been included for purposes of determining interest income.

Provision For Loan Losses The provision for loan losses represents the charge to expense that is required to maintain an adequate level of allowance for loan losses. Management’s periodic evaluation of the adequacy of the allowance considers past loan loss experience, known and inherent risks in the loan portfolio, adverse situations which may affect the borrowers’ ability to repay, the estimated value of the underlying collateral, if any, and current and prospective economic conditions. Substantial portions of the Company’s loans are secured by real estate in Massachusetts. Accordingly, the ultimate collectibility of a substantial portion of the Company’s loan portfolio is susceptible to changes in property values within the state.

The provision for loan losses decreased to $930,000 for the three months ended June 30, 2003 compared with $1.2 million for the three months ended June 30, 2002. Asset quality remains strong with nonperforming assets of $3.0 million at June 30, 2003. At June 30, 2003, the allowance for loan loss covered nonperforming loans 8.2 times. The provision for loan losses decreased to $1.9 million for the six months ended June 30, 2003 compared with $2.4 million for the six months ended June 30, 2002.

The provision for loan losses is based upon management’s evaluation of the level of the allowance for loan losses in relation to the estimate of loss exposure in the loan portfolio. An analysis of individual loans and the overall risk characteristics and size of the different loan portfolios is conducted on an ongoing basis. This managerial evaluation is reviewed periodically by a third-party loan review consultant. As adjustments are identified, they are reported in the earnings of the period in which they became known.

Non-Interest Income Non-interest income, the leading contributor to the Company’s core business growth period over period, improved by $2.8 million, or 51.5%, for the quarter ended June 30, 2003, as compared to the same period last year. Service charges on deposit revenue increased by $387,000, or 15.7%, reflecting growth in core deposits and lower earnings credit rates. Investment management service revenue decreased $151,000, or 11.0%, due to the general performance of the equities market over the past few years shifting customers’ bias towards fixed income products which generate lower fees, as well as higher estate and trust distribution fees during the first quarter of 2002. The increase of $381,000 in mortgage banking income is attributable to a strong refinance market. The balance of the mortgage servicing asset was $2.3 million and loans serviced amounted to $393.4 million as of June 30, 2003. Security gains were $2.0 million for the three months ended June 30, 2003. As aforementioned, in an effort to improve Rockland’s overall interest rate risk position, as well as to increase the net interest margin, the Bank, prepaid $31.5 million of fixed, high rate borrowings and sold $20.0 million of investment securities during the second quarter. The gain on the sale of the securities was $2.0 million, while the prepayment penalty on the borrowings totaled $1.9 million, the latter recorded as part of non-interest expense. There were no security gains or losses for the three months ended June 30, 2002. Other non-interest income increased by $224,000 for the three months ended June 30, 2003, mainly due to prepayment penalties received on Commercial and Installment loan payoffs.

Non-interest income improved by $3.1 million, or 27.1%, for the six months ending June 30, 2003, as compared to the same period last year. Service charges on deposit revenue increased by $715,000, or 14.9%, reflecting growth in core deposits and lower earnings credit rates. Investment management service revenue decreased $725,000, or 24.6%, due to the general performance of the equities market over the past few years shifting customers’ bias towards fixed income products which generate lower fees and higher estate and trust distribution fees during the first quarter ending March 31, 2002. The increase of $584,000 in mortgage banking income is attributable to a strong refinance market. Security gains were $2.2 million for the six months ended June 30, 2003. As aforementioned, in an effort to improve Rockland’s overall interest rate risk position as well as to increase the net interest margin, the Bank prepaid $31.5 million of fixed, high rate borrowings and sold $20.0 million of investment securities during the second quarter. The gain on the sale of securities was $2.0 million, while the prepayment penalty on the borrowings totaled $1.9 million, the latter was recorded as part of non-interest expense. There were no security gains or losses for the six months ended June 30, 2002. Other non-interest income increased $269,000 for the six months ended June 30, 2003, mainly due to prepayment penalties received on Commercial and Installment loan payoffs.

Non-Interest Expenses Non-interest expenses decreased by $2.1 million, or 9.3%, to $20.0 million for the three months ended June 30, 2003 as compared to the same period in 2002. This is mainly due to the pre-tax $4.4 million charge taken in the second quarter of 2002 on an investment in corporate bonds issued by WorldCom. Salaries and employee benefits increased by $707,000, or 7.4%, due to additions to staff needed to support continued growth, merit increases, and increases in supplemental executive retirement costs. Occupancy and equipment related expense increased by $188,000, or 9.1%. As previously mentioned the Company incurred a penalty of $1.9 million associated with the prepayment of certain borrowings. Other non-interest expenses decreased by $579,000, or 11.6%, mainly due to decreases in costs associated with information technology consulting, executive recruitment, and a lower loss on a CRA equity investment.

Non-interest expenses decreased by $1.1 million, or 2.9%, to $38.1 million for the six months ended June 30, 2003 as compared to the same period in 2002. Salaries and employee benefits increased by $2.2 million, or 11.9%, due to the same reasons set forth above. Occupancy and equipment related expense increased by $346,000, or 8.0%, due to increased snow removal costs resulting from record snow fall and higher energy costs in the first quarter of 2003. As previously mentioned the Company incurred a penalty of $1.9 million associated with the prepayment of certain borrowings. Other non-interest expenses decreased by $1.3 million, or 12.8%, mainly due to the same reasons set forth above.

The Company adopted SFAS No. 142, “Goodwill and Other Intangibles,” as of January 1, 2002. Upon adoption, the Company ceased amortization of goodwill, as defined at that time, of $0.8 million. In September 2002, the Company adopted, and retroactively applied to January 1, 2002, SFAS No. 147, “Acquisitions of Certain Financial Institutions.” Upon adoption, the previously defined balance of unidentifiable intangibles was reclassified to goodwill effective January 1, 2002. All 2002 unidentifiable intangible asset amortization expense recorded through September 30, 2002 was reversed and all future amortization was halted. The restated goodwill balance is $36.2 million. As a result of the adoption of SFAS No. 142 and SFAS No. 147, the Company retroactively restated intangible asset amortization expense for the three and six months ending June 30, 2002 of $444,000, or $0.03 per share, and $887,000, or $0.06 per share, respectively.

Income Taxes For the quarters ending June 30, 2003 and 2002, the Company recorded combined federal and state income tax provisions of $1.4 million and $1.7 million, respectively. These provisions reflect effective income tax rates of 12.95% and 28.12%, for the quarters ending June 30, 2003 and June 30, 2002, respectively. The effective tax rate for the quarter ending June 30, 2003 benefited from the $2.1 million credit recognized directly to the provision for income taxes related to the settlement of state tax dispute on the REIT. The quarter ending June 30, 2002 benefited from $1.8 million of tax benefits recognized at a higher rate than the effective rate on the $4.4 million WorldCom bonds impairment charge.

For the six months ending June 30, 2003 and 2002, the Company recorded combined federal and state income tax provisions of $8.6 million and $5.1 million, respectively. These provisions reflect effective income tax rates of 42.66% and 31.48%, for the six months ending June 30, 2003 and June 30, 2002, respectively. The effective rate for the six months ending June 30, 2003 was impacted by the net settlement to the Massachusetts Department of Revenue related to the REIT of $2.0 million as a direct charge to the provision for income taxes. (See Note 5 “Settlement of Real Estate Investment Trust (“REIT”) Retroactive Taxation Dispute” to the Condensed Notes to Consolidated Financial Statements.) The effective rate for the six months ending June 30, 2002, benefited from $1.8 million of the tax benefits recognized at a higher rate than the effective rate on the $4.4 million WorldCom bonds impairment charge.

Minority Interest Minority interest expense is the interest expense associated with the trust preferred securities and was $1.1 million and $1.4 million for the quarters ending June 30, 2003 and 2002, respectively. For the six months ended June 30, 2003, the minority interest expense was $2.2 million compared to $2.9 million at the six months ended June 30, 2002. The decrease in minority interest expense is a result of refinancing the 11% Trust Preferred Security issuance of Trust II with 8.625% Trust Preferred Securities of Trust III on January 31, 2002 and the refinancing of the 9.28% Trust Preferred Security issuance of Trust I with 8.375% Trust Preferred Securities of Trust IV on April 12, 2002. Beginning July 1, 2003, the Company will no longer recognize minority interest. See Note 3, “Recent Accounting Developments.”

Return on Average Assets and Equity The annualized consolidated returns on average equity and average assets for the three months ended June 30, 2003 were 22.39% and 1.54%, respectively, compared to 12.06% and 0.75% reported for the same period last year. For the six months ended June 30, 2003, the annualized consolidated returns on average equity and average assets were 14.13% and 0.99%, respectively, compared to 16.02% and 1.00% reported for the six months ended June 30, 2002, respectively.

Asset/Liability Management

The Bank’s asset/liability management process monitors and manages, among other things, the interest rate sensitivity of the balance sheet, the composition of the securities portfolio, funding needs and sources, and the liquidity position. All of these factors, as well as projected asset growth, current and potential pricing actions, competitive influences, national monetary and fiscal policy, and the regional economic environment are considered in the asset/liability management process.

The Asset/Liability Management Committee (“ALCO”), whose members are comprised of the Bank’s senior management, develops procedures consistent with policies established by the Board of Directors, which monitor and coordinate the Bank’s interest rate sensitivity and the sources, uses, and pricing of funds. Interest rate sensitivity refers to the Bank’s exposure to fluctuations in interest rates and its effect on earnings. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is management’s objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities and, when necessary, within prudent limits, through the use of off-balance sheet hedging instruments such as interest rate swaps. The Committee employs simulation analyses in an attempt to quantify, evaluate, and manage the impact of changes in interest rates on the Bank’s net interest income. In addition, the Bank engages an independent consultant to render advice with respect to asset and liability management strategy.

The Bank is careful to increase deposits without adversely impacting the weighted average cost of those funds. Accordingly, management has implemented funding strategies that include FHLB advances and repurchase agreement lines. These non-deposit funds are also viewed as a contingent source of liquidity and, when profitable lending and investment opportunities exist, access to such funds provides a means to leverage the balance sheet.

From time to time, the Bank has utilized interest rate swap agreements as hedging instruments against interest rate risk. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from a second party. The assets relating to the notional principal amount are not actually exchanged.

On June 30, 2003 and December 31, 2002, the Company had interest rate swap commitments with a total notional amount of $50.0 million, which will hedge future LIBOR (London Interbank Offered Rate) based borrowings. The fair value of these commitments at June 30, 2003 and December 31, 2002 were ($2.1 million) and ($677,000). Under these swap commitments, the Company will pay a fixed rate of 3.65% and will receive payments based on the 3 month LIBOR rate. These interest rate swaps meet the criteria for cash flow hedges

under SFAS No. 133. All changes in the fair value of the interest rate swaps are recorded, net of tax, in equity as other comprehensive income.

To improve the Company’s asset sensitivity, the Company sold interest rate swaps hedged against loans during the year ending December 31, 2002, resulting in total deferred gains of $7.1 million. At June 30, 2003, the remaining deferred gains were $4.8 million. The interest rate swaps sold had total notional amounts of $225.0 million. These swaps were accounted for as cash flow hedges, and therefore, the deferred gains will be amortized into interest income over the remaining life of the hedged item, which range between two and five years.

Additionally, the Company enters into commitments to fund residential mortgage loans with the intention of selling them in the secondary markets. The Company also enters into forward sales agreements for certain funded loans and loan commitments to protect against changes in interest rates. The Company records unfunded commitments and forward sales agreements at fair value with changes in fair value as a component of Mortgage Banking Income. At June 30, 2003, the Company had residential mortgage loan commitments with a fair value of $44.6 million and forward sales agreements with a fair value of $45.0 million. The fair value decreased $184,000 and increased $25,000 for the quarters ending June 30, 2003 and 2002, respectively, and were recorded as a component of mortgage banking income.

Market Risk Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices. The Company has no trading operations and thus is only exposed to non-trading market risk.

Interest-rate risk is the most significant non-credit risk to which the Company is exposed. Interest-rate risk is the sensitivity of income to changes in interest rates. Changes in interest rates, as well as fluctuations in the level and duration of assets and liabilities, affect net interest income, the Company’s primary source of revenue. Interest-rate risk arises directly from the Company’s core banking activities. In addition to directly impacting net interest income, changes in the level of interest rates can also affect the amount of loans originated, the timing of cash flows on loans and investments and the fair value of securities and derivatives as well as other affects.

The primary goal of interest-rate risk management is to control this risk within limits approved by the Board. These limits reflect the Company’s tolerance for interest-rate risk over both short-term and long-term horizons. The Company attempts to control interest-rate risk by identifying, quantifying and, where appropriate, hedging its exposure. The Company manages its interest-rate exposure using a combination of on and off-balance sheet instruments, primarily fixed rate portfolio securities, and interest rate swaps.

The Company quantifies its interest-rate exposures using net interest income simulation models, as well as simpler gap analysis, and Economic Value of Equity (EVE) analysis. Key assumptions in these simulation analyses relate to behavior of interest rates and the behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of nonmaturity deposits (e.g. DDA, NOW, savings and money market). The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, the resultant interest rate sensitivity of loan assets cannot be determined exactly.

To mitigate these uncertainties, the Company gives careful attention to its assumptions. In the case of prepayment of residential mortgage assets, assumptions are derived from published dealer median prepayment estimates for comparable mortgage loans.

The Company manages the interest-rate risk inherent in its mortgage banking operations by entering into forward sales contracts. An increase in market interest rates between the time the Company commits to terms on a loan and the time the Company ultimately sells the loan in the secondary market will have the effect of reducing the gain (or increasing the loss) the Company records on the sale. The Company attempts to mitigate this risk by entering into forward sales commitments in amounts sufficient to cover all closed loans and a majority of rate-locked loan commitments.

The Company’s policy on interest-rate risk simulation specifies that if interest rates were to shift gradually up or down 200 basis points, estimated net interest income for the subsequent twelve months should decline by less than 6%. Given the unusually low rate environments at June 30, 2003 and 2002, the Company assumed a 100 basis point decline in interest rates in addition to the normal 200 basis point increase in rates.

The following table sets forth the estimated effects on the Company’s net interest income over a twelve month period following the indicated dates in the event of the indicated increases or decreases in market interest rates:

Table 8 - Interest Rate Sensitivity

	200 Basis Point Rate Increase		100 Basis Point Rate Decrease
June 30, 2003	-1.19	%	+0.05	%
June 30, 2002	-2.22	%	-1.13	%

The results implied in the above table indicate estimated changes in simulated net interest income for the subsequent twelve months assuming a gradual shift up or down in market rates of 100 and 200 basis points across the entire yield curve. It should be emphasized, however, that the results are dependent on material assumptions such as those discussed above. For instance, asymmetrical rate behavior can have a material impact on the simulation results.

The most significant factors affecting market risk exposure of the Company’s net interest income during the second quarter of 2003 were (i) changes in the composition and prepayment speeds of mortgage assets and loans (ii) the shape of the U.S. Government securities and interest rate swap yield curve (iii) the level of U.S prime interest rates and the (iv) level of rates paid on deposit accounts.

The Company’s earnings are not directly and materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have an indirect but modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related businesses.

Liquidity Liquidity, as it pertains to the Company, is the ability to generate adequate amounts of cash in the most economical way for the institution to meet its ongoing obligations to pay deposit withdrawals and to fund loan commitments. The Company’s primary sources of funds are deposits, borrowings, and the amortization, prepayment and maturities of loans and investments.

The Bank utilizes its extensive branch network to access retail customers who provide a stable base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors. The Bank has also established repurchase agreement lines, with major brokerage firms as potential sources of liquidity. At June 30, 2003 the Company had no advances outstanding under these lines. In addition to these lines, the Bank also had customer repurchase agreements outstanding amounting to $50.9 million at June 30, 2003. As a member of the FHLB, the Bank has access to approximately $671.4 million of borrowing capacity. On June 30, 2003 the Bank had $376.9 million outstanding in FHLB borrowings.

At June 30, 2003, the Company had outstanding commitments to originate mortgage and non-mortgage loans (including unused lines of credit of $143.0 million and letters of credit of $5.4 million) of $424.6 million. Certificates of deposit which are scheduled to mature within one year totaled $697.3 million at June 30, 2003, and borrowings that are scheduled to mature within the same period amounted to $174.3 million. The Company anticipates that it will have sufficient funds available to meet its current loan commitments.

The Company, as a separately incorporated bank holding company, has no significant operations other than serving as the sole stockholder of the Bank. Its commitments and debt service requirement, at June 30, 2003, consisted of junior subordinated debentures, including accrued interest, issued to two subsidiaries, $25.8 million to Trust III and $25.8 million to Trust IV, in connection with the issuance of 8.625% Trust Preferred Securities due in 2031 and 8.375% Trust Preferred Securities due in 2032, respectively. The Company’s sole obligations relate to its reporting obligations under the Securities and Exchange Act of 1934, as amended and related expenses as a publicly traded company. The Company is directly reimbursed by the Bank for virtually all such expenses.

The Company actively manages its liquidity position under the direction of the Asset/Liability Management Committee. Periodic review under prescribed policies and procedures is intended to ensure that the Company will maintain adequate levels of available funds. At June 30, 2003, the Company’s liquidity position was well above policy guidelines. Management believes that the Bank has adequate liquidity available to respond to current and anticipated liquidity demands.

Capital Resources and Dividends The Federal Reserve Board (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), and other regulatory agencies have established capital guidelines for banks and bank holding companies. Risk-based capital guidelines issued by the federal regulatory agencies require banks to meet a minimum Tier 1 risk-based capital ratio of 4.0% and a total risk-based capital ratio of 8.0%. At June 30, 2003, the Company had a Tier 1 risked-based capital ratio of 10.49% and total risked-based capital ratio 11.74%. The Bank had a Tier 1 risked-based capital ratio of 10.00% and a total risked-based capital ratio of 11.25% as of the same date.

A minimum requirement of 4.0% Tier 1 leverage capital is also mandated. On June 30, 2003, the Company and the Bank had Tier 1 leverage capital ratios of 7.21% and 6.87%, respectively.

In June, the Company’s Board of Directors declared a cash dividend of $0.13 per share to stockholders of record as of the close of business on June 27, 2003. This dividend was paid on July 11, 2003. On an annualized basis, the dividend payout ratio amounted to 36.58% of the trailing four quarters’ earnings.

Commitments and Contingency The Bank is a member of the Financial Institutions Retirement Fund, a defined benefit pension plan. Management has been notified by the administrator that, primarily due to the poor performance of the equity markets in the last several years, a contribution will be required for the plan year beginning July 1, 2003 and ending June 30, 2004. The contribution calculation is not yet finalized and is currently expected to be approximately $1.5 million pre-tax. Management expects to wholly or partially mitigate the impact of this charge to earnings through a combination of revenue enhancement and expense reduction.

In connection with the issuance of the Trust III and Trust IV preferred securities, the Company has committed to irrevocably and unconditionally guarantee the following payments or distributions with respect to the preferred securities to the holders thereof to the extent that Trust III or Trust IV, respectively, has not made such payments or distributions and has the funds therefore: (i) accrued and unpaid distributions, (ii) the redemption price, and (iii) upon a dissolution or termination of the trust, the lesser of the liquidation amount and all accrued and unpaid distributions and the amount of assets of the trust remaining available for distribution.

The following table shows the Contractual Obligation and Commitments by Maturity as of June 30, 2003:

Table 9 - Contractual Obligations and Commitments by Maturity

(Dollars in Thousands)

	Payments Due - By Period
Contractual Obligations	Total		Less than One Year		One to Three Years		Four to Five Years		After Five Years
FHLB advances	$	376,932	$	171,932	$	25,000	$	10,000	$	170,000
Mandatorily redeemable trust preferred	50,000		—		—		—		50,000
Lease obligations	11,969		2,196		3,574		2,090		4,109
Other
TT&L	2,353		2,353		—		—		—
Customer Repo’s	50,874		50,874		—		—		—
Total contractual cash obligations	$	492,128	$	227,355	$	28,574	$	12,090	$	224,109

Other Commitments
Lines of credit	$	164,314	21,321		—		—		142,993
Standby letters of credit	5,367		5,367		—		—		—
Other loan commitments	254,946		234,111		16,172		1,564		3,099
Forward commitments to sell loans	45,042		45,042		—		—		—
Total Commitments	$	469,669	$	305,841	$	16,172	$	1,564	$	146,092

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information required by this Item 3 is included in Item 2 of Part I of this Form 10-Q, entitled “Management’s Discussion and Analysis.”

Item 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) Rule 13a-14. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic Securities and Exchange Commission (“SEC”) filings. There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect these controls subsequent to the date the Company carried out its evaluation.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company expects that the federal judge presiding over the pending case known as Rockland Trust Company v. Computer Associates International, Inc., United States District Court for the District of Massachusetts Civil Action No. 95-11683-DPW, will issue a final trial court decision, in the form of Findings Of Fact and Conclusions Of Law, sometime soon. The case arises from a 1991 License Agreement (the “Agreement”) between the Bank and Computer Associates International, Inc. (“CA”) for an integrated system of banking software products.

In July 1995, the Bank filed a Complaint against CA in federal court in Boston which asserted claims for breach of the Agreement, breach of express warranty, breach of the implied covenant of good faith and fair dealing, fraud, and for unfair and deceptive practices in

violation of section 11 of Chapter 93A of the Massachusetts General Laws (the “93A Claim”). The Bank is seeking damages of at least $1.23 million from CA. Under Massachusetts’s law, interest will be computed at a 12% rate on any damages, which the Bank would recover, if successful, either from the date of breach or the date on which the case was filed. If the Bank prevails on the 93A Claim, it shall be entitled to recover its attorney fees and costs and may also recover double or triple damages. CA asserted a Counterclaim against the Bank for breach of the Agreement. CA seeks to recover damages of at least $1.1 million from the Bank, plus interest at a rate as high as 24% pursuant to the Agreement.

The non-jury trial of the case was conducted in January 2001. The trial concluded with post-trial submissions to and argument before the Court in February 2001. In September 2002 the court, in response to a joint inquiry from counsel for the Bank and counsel for CA, indicated that the judge is “actively working” on the case and anticipated, at that time, rendering a decision sometime in the fall of 2002. The court, however, has not yet rendered a decision.

The Company has considered the potential impact of this case, and all cases pending in the normal course of business, when preparing its financial statements. While the trial court decision may affect the Company’s financial results for the quarter in which the decision is rendered in either a favorable or unfavorable manner, the final outcome of this case will not likely have any material, long-term impact on the Company’s financial condition.

Item 2. Changes in Securities and Use of Proceeds - None

Item 3. Defaults Upon Senior Securities – None

Item 4. Submission of Matters to a Vote of Security Holders –

The Annual Stockholders’ Meeting was held April 10, 2003. Board of Directors information can be found in the Proxy Statement in Section VI. Board of Directors (Pg 3-7).

Voting Results:

Proposal 1 – To re-elect Richard S. Anderson, Kevin J. Jones, Richard H. Sgarzi, and Thomas J. Teuten to serve as Class I Directors.

Voting Results

Proposals	FOR	WITHHELD
1. Reelection of Class I Directors
Richard S. Anderson	12,033,169	299,828
Kevin J. Jones	12,283,241	49,756
Richard H. Sgarzi	12,284,130	48,867
Thomas J. Teuten	11,994,484	338,513

Item 5. Other Information – None

Item 6. Exhibits and Reports on Form 8-K

Exhibits

31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.*

31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.*

32.1 Certification by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.+

*Filed herewith

+Furnished herewith

Reports on Form 8-K

(a) Reports on Form 8-K

April 10, 2003 -	related to first quarter 2003 earnings release.
June 12, 2003 -	related to second quarter 2003 common dividend.
June 20, 2003 -	related to the election of the Chairman of the Board of Directors.
June 23, 2003 -	related to the settlement of tax dispute on the REIT

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEPENDENT BANK CORP.

(registrant)

Date:	August 7, 2003	/s/ Christopher Oddleifson
		Christopher Oddleifson
		President and Chief Executive Officer


Date:	August 7, 2003	/s/ Denis K. Sheahan
		Chief Financial Officer and Treasurer
		(Principal Financial and Principal Accounting Officer)

INDEPENDENT BANK CORP.

(registrant)