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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 1-9047
INDEPENDENT BANK CORP.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2870273
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
288 Union Street
ROCKLAND, MASSACHUSETTS 02370
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 878-6100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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(Title of Class)
PREFERRED STOCK PURCHASE RIGHTS
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(Title of Class)
Indicate by check mark whether, the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
/X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of February 29, 2000, the aggregate market value of the 11,989,067 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
2,241,003 shares held by all directors and executive officers of the Registrant
as group, was $125,885,204. This figure is based on the closing sale price of
$10.50 per share on February 29, 2000, as reported in The Wall Street Journal on
March 1, 2000.
Number of shares of Common Stock outstanding as of February 29, 2000: 14,230,070
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of Form 10-K into which the document is incorporated:
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1999 are incorporated into Part II, Items 5-8 of
this Form 10-K.
(2) Portions of the Registrant's definitive proxy statement for its 1999 Annual
Meeting of Stockholders are incorporated into Part III, Items 10-13 of this
Form 10-K.
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PART 1.
ITEM 1. BUSINESS
GENERAL. Independent Bank Corp. (the "Company") is a state
chartered, federally registered bank holding company headquartered in
Rockland, Massachusetts. The Company is the sole stockholder of
Rockland Trust Company ("Rockland" or "the Bank"), a Massachusetts
trust company chartered in 1907. The Company is a community-oriented
commercial bank. The community banking business consists of commercial
banking, retail banking and trust services and is managed as a single
strategic unit. The community banking business derives its revenues
from a wide range of banking services, including lending activities,
acceptance of demand, savings and time deposits, trust and investment
management, and mortgage servicing income from investors. Rockland
offers a full range of community banking services through its network
of 34 banking offices, eight commercial lending centers, and two asset
management and trust services offices located in the Plymouth, Norfolk,
and Bristol Counties of Southeastern Massachusetts. At December 31,
1999, the Company had total assets of $1.6 billion, total deposits of
$1.1 billion, stockholders' equity of $98.1 million, and 531 full-time
equivalent employees.
Rockland has a deep-rooted history as a community oriented
commercial bank. As a result of its strong commitment to the local
business community, the Bank has become one of the prominent financial
institutions in Plymouth County, which represents the majority of its
market area. The Bank had approximately 17.37% of the total deposits
within Plymouth County as of June 30, 1999, the most recent date for
which such data is available, or approximately 180% of the market share
of its nearest competitor. Due to the continuing consolidation within
the financial services industry, Rockland is the only remaining locally
based commercial bank in Plymouth County.
In 1997, Independent Capital Trust I (the "Trust") was formed
for the purpose of issuing trust preferred securities (the "Trust
Preferred Securities"). A total of $28.75 million of 9.28% Trust
Preferred Securities were issued by the Trust and are scheduled to
mature in 2027, callable at the option of the company after May 19,
2002. For further information on the Trust Preferred Securities, see
footnote 14 of the Company's 1999 Annual Report to Stockholders.
On January 31, 2000, Independent Capital Trust II ("the Trust
II") was formed for the purpose of issuing trust preferred securities
and investing the proceeds of the sale of these securities in $25.8
million of 11% junior subordinated debentures issued by the Company. A
total of $25 million of 11% Trust Preferred Securities were issued by
the Trust and are scheduled to mature in 2030, callable at the option
of the Company after January 31, 2002. For further information on the
Trust Preferred Securities, see Footnote 14 of the Company's 1999
Annual Report to Stockholders.
The Company experienced significant growth and profitability
during the early and mid-1980's as the New England economy prospered.
Total assets surpassed the $1 billion level and earnings reached record
levels. However, with the onset of an economic recession in New England
in the late 1980's, and a resulting significant decline in local real
estate values, the Company experienced serious financial problems. The
quality of the loan portfolio declined sharply as nonperforming assets
rose to over 10% of total assets. This deterioration required
significant loan loss provisions that resulted in the Company reporting
substantial losses in 1990 and 1991.
After implementing a number of managerial, operational, and
financial changes during 1991 and 1992, the Company returned to
profitability in 1992. In December of that year, the Company issued 9.2
million shares of common stock, strengthening its capital base.
For the year ended December 31, 1999, the Company recorded net
income of $17.0 million, an increase of 5.6% over 1998 earnings of
$16.1 million. The improved 1999 results reflect a 4.5% increase in net
interest income, a 12.7% increase in non-interest income and an
increase of 9.0% in non-interest expenses.
The Company is registered as a bank holding company under the
Bank Holding Company Act of 1956 ("BHCA"), as amended, and as such is
subject to regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve"). Rockland is subject to regulation and
examination by the Commissioner of Banks of the Commonwealth of
Massachusetts (the "Commissioner") and the Federal Deposit Insurance
Corporation ("FDIC"). The majority of Rockland's deposit accounts are
insured to the maximum extent permitted by law by the Bank Insurance
Fund ("BIF") which is administered by the FDIC. In 1994, the Bank
purchased the deposits of three branches of a failed savings and loan
association from the Resolution Trust Corporation. These deposits are
insured to the maximum extent permitted by law by the Savings
Association Insurance Fund ("SAIF").
In September 1999, we entered into an agreement with Fleet
Financial Group, Inc., Fleet National Bank and BankBoston, N.A. to
acquire 12 branches, two of which are located in Brockton,
Massachusetts, which is within our primary market area, and ten of
which are located on Cape Cod, Massachusetts in Barnstable County,
a market contiguous to where we presently operate. The 12
branches to be acquired presently have total deposits aggregating
approximately $269 million. In connection with the acquisition,
we expect to acquire approximately $137 million of commercial and
consumer loans. Following the acquisition, we will have approximately
$1.8 billion in assets, $1.3 billion in deposits and 46 retail
branches. We expect to pay a core deposit premium of approximately
$32 million in connection with the acquisition. We expect that the
transaction will close during the third quarter of 2000.
LENDING ACTIVITIES
GENERAL. The Bank's gross loan portfolio amounted to $1.0
billion on December 31, 1999, or 65.0% of total assets on that date.
The Bank classifies loans as commercial, real estate, or consumer.
Commercial loans consist primarily of loans to businesses for working
capital and other business related purposes and floor plan financing.
Real estate loans are comprised of commercial mortgages that are
secured by nonresidential properties, residential mortgages that are
secured primarily by owner-occupied residences, home equity loans, and
mortgages for the construction of commercial and residential
properties. Consumer loans consist of installment obligations, the
majority of which are automobile loans, and other consumer loans.
The Bank's borrowers consist of small-to-medium sized
businesses and retail customers. The Bank's market area is generally
comprised of Plymouth, Norfolk, and Bristol Counties located in
Southeastern Massachusetts. Substantially all of the Bank's commercial
and consumer loan portfolios consist of loans made to residents of and
businesses located in Southeastern Massachusetts. Virtually all
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of the real estate loans in the Bank's loan portfolio are secured by
properties located within this market area.
In accordance with governing banking statutes, Rockland is
permitted, with certain exceptions, to make loans and commitments to
any one borrower, including related entities, in the aggregate amount
of not more than 20% of the Bank's stockholders' equity, or $21.1
million at December 31, 1999. Notwithstanding the foregoing, the Bank
has established a more restrictive limit of not more than 15% of
stockholders' equity, or $15.8 million at December 31, 1999, which
limit may be exceeded with the approval of the Board of Directors.
There were no borrowers whose total indebtedness aggregated or exceeded
$15.8 million as of December 31, 1999.
The Bank's principal earning assets are its loans. Although
the Bank judges its borrowers to be creditworthy, the risk of
deterioration in borrowers' abilities to repay their loans in
accordance with their existing loan agreements is inherent in any
lending function. Participating as a lender in the credit markets
requires a strict monitoring process to minimize credit risk. This
process requires substantial analysis of the loan application, an
evaluation of the customer's capacity to repay according to the loan's
contractual terms, and an objective determination of the value of the
collateral. The Bank also utilizes the services of an independent
third-party consulting firm to provide loan review services, which
consist of a variety of monitoring techniques performed after a loan
becomes part of the Bank's portfolio.
The Bank's Controlled Asset Department is responsible for the
management and resolution of nonperforming assets. In the course of
resolving nonperforming loans, the Bank may choose to restructure
certain contractual provisions. In order to facilitate the disposition
of other real estate owned (OREO), the Bank may finance the purchase of
such properties at market rates, if the borrower qualifies under the
Bank's standard underwriting guidelines.
LOAN PORTFOLIO COMPOSITION AND MATURITY. The following table sets
forth information concerning the composition of the Bank's loan
portfolio by loan type at the dates indicated.
December 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
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(Dollars in
Thousands)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Commercial ........ $ 137,108 13.3% $127,019 13.3% $138,541 16.2% $127,008 17.9% $121,679 19.1%
Real estate:
Commercial ..... 320,713 31.0 261,332 27.4 238,930 27.9 205,256 29.0 187,608 29.4
Residential .... 208,066 20.1 197,807 20.7 207,555 24.2 202,031 28.5 187,652 29.4
Construction ... 38,034 3.7 44,710 4.7 34,227 4.0 31,633 4.5 27,863 4.4
Consumer:
Installment .... 322,266 31.2 315,419 33.0 227,700 26.6 132,589 18.7 102,088 16.0
Other .......... 7,766 0.7 8,656 0.9 9,849 1.1 10,140 1.4 11,076 1.7
--------- ------- -------- ------ -------- ------- -------- ------- -------- ------
Gross Loans ....... 1,033,953 100.0% 954,943 100.0% 856,802 100.0% 708,657 100.0% 637,966 100.0%
--------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Unearned Discount .. 5,443 13,831 28,670 13,251 9,825
Reserve for Possible
Loan Losses ..... 14,958 13,695 12,674 12,221 12,088
------ -------- -------- -------- --------
Net Loans ......... $1,013,552 $927,417 $815,458 $683,185 $616,053
========== ======== ======== ======== ========
3
The Company's outstanding loans grew by 9.3% in 1999,
following a 13.7% increase in 1998. This loan growth, in 1999, was
primarily attributable to an increase in the commercial real estate
portfolio, with the remaining growth in the residential real estate and
commercial portfolios.
Commercial loans, increased $10.1 million, or 7.9%, in 1999,
following a decrease of $11.5 million, or 8.3%, in 1998.
Real estate loans comprised 54.8% of gross loans at December
31, 1999, as compared to 52.8% at December 31, 1998. Commercial real
estate loans have reflected increases over the last two years of $59.4
million, or 22.7%, in 1999, and $22.4 million, or 9.4%, in 1998. These
increases are indicative of the sound prospects for small and medium
sized businesses in the Bank's market area. Residential real estate
loans increased $10.3 million, or 5.2%, in 1999, and decreased $9.7
million, or 4.7% in 1998. The majority of residential mortgage loans
originated were sold in the secondary market. During 1999, the Bank
sold $51.2 million of the current production of residential mortgages
as part of its overall asset/liability management. Real estate
construction loans decreased $6.7 million, or 14.9%, in 1999, following
an increase of $10.5 million, or 30.6, in 1998.
Consumer installment loans, net of unearned discount,
increased $15.2 million, or 5.1%, and $102.6 million, or 51.5%, during
1999 and 1998, respectively. The increases over the past two years are
attributed to a focused effort directed at expanding banking
relationships with new and used automobile dealers within the market
area. As a result, strong growth was reported in 1999 and 1998. The
decline in the growth rate in 1999 is due to the decline in interest
rates on indirect automobile lending to the point that, in management's
opinion, the risk inherent was not adequately covered in the interest
yield. As of December 31, 1999 and 1998, automobile loans represented
89.4% and 89.2%, respectively, of the Bank's consumer loan portfolio.
Since the sale of the Bank's credit card portfolio during 1991 and
1992, other consumer loans have consisted primarily of cash reserve
loans. Introduced in 1992, cash reserve loans are designed to afford
the Bank's customers overdraft protection. The balances of these loans
decreased $0.89 million, or 10.3%, in 1999 and 1.2 million or 12.1% in
1998.
The following table sets forth the scheduled contractual
amortization of the Bank's loan portfolio at December 31, 1999. Loans
having no schedule of repayments or no stated maturity are reported as
due in one year or less. The following table also sets forth the rate
structure of loans scheduled to mature after one year.
Real Estate - Real Real Consumer - Consumer -
Commercial Commercial Estate - Estate - Installment Other Total
Residential Construction
------------ -------------- ------------ ------------ ------------ ------------ -------------
(Dollars In
Thousands)
Amounts due in:
One year or less .... $107,444 $65,075 $87,503 $30,499 $87,628 $7,766 $385,915
After one year
through five years .. 27,812 209,894 67,016 3,289 228,568 -- 536,579
Beyond five years ... 1,852 45,744 53,547 4,246 6,070 -- 111,459
----- ------ ------ ----- ----- ----- -------
Total ............... $137,108 $320,713 $208,066 $38,034 $322,266 $7,766 $1,033,953
======== ======== ======== ======= ======== ====== ==========
Interest rates on
amounts due after
one year:
Fixed Rate .......... $28,358 $225,097 $109,261 $7,535 $234,638 -- $604,889
Adjustable Rate ..... 1,306 30,541 11,302 -- -- -- 43,149
4
Generally, the actual maturity of loans is substantially less
than their contractual maturity due to prepayments and, in the case of
real estate loans, due-on-sale clauses, which generally gives the Bank
the right to declare a loan immediately due and payable in the event
that, among other things, the borrower sells the property subject to
the mortgage and the loan is not repaid. The average life of real
estate loans tends to increase when current real estate loan rates are
higher than rates on mortgages in the portfolio and, conversely, tends
to decrease when rates on mortgages in the portfolio are higher than
current real estate loan rates. Under the latter scenario, the weighted
average yield on the portfolio tends to decrease as higher yielding
loans are repaid or refinanced at lower rates. Due to the fact that the
Bank may, consistent with industry practice, "roll over" a significant
portion of commercial and commercial real estate loans at or
immediately prior to their maturity by renewing the loans on
substantially similar or revised terms, the principal repayments
actually received by the Bank are anticipated to be significantly less
than the amounts contractually due in any particular period. In
addition, a loan, or a portion of a loan, may not be repaid due to the
borrower's inability to satisfy the contractual obligations of the
loan. As of December 31, 1999, $.1 million of loans scheduled to mature
within one year were nonperforming. See "Lending Activities
Nonperforming Assets."
ORIGINATION OF LOANS. Commercial loan applications are
obtained through existing customers, solicitation by Bank loan
officers, referrals from current or past customers, or walk-in
customers. Commercial real estate loan applications are obtained
primarily from previous borrowers, direct contacts with the Bank, or
referrals. Applications for residential real estate loans and all types
of consumer loans are taken at all of the Bank's full-service branch
offices. Residential real estate loan applications primarily result
from referrals by real estate brokers, homebuilders, and existing or
walk-in customers. The Bank also maintains a staff of field originators
who solicit and refer residential real estate loan applications to the
Bank. These employees are compensated on a commission basis and provide
convenient origination services during banking and non-banking hours.
Consumer loan applications are directly obtained through existing or
walk-in customers who have been made aware of the Bank's consumer loan
services through advertising and other media, as well as indirectly
through a network of automobile dealers.
Commercial loans, commercial real estate loans, and
construction loans may be approved by commercial loan officers up to
their individually assigned lending limits, which are established and
modified periodically to reflect the officer's expertise and
experience. Commercial loans and commercial real estate loans in excess
of a loan officer's assigned lending limit are approved by various
levels of authority within the commercial lending division, depending
on the loan amount, up to and including the Senior Loan Committee and
ultimately the Executive Committee of the Board of Directors.
Residential real estate loans and home equity loans follow a
similar approval process within the retail lending division.
SALE OF LOANS. The Bank's residential real estate loans are
generally originated in compliance with terms, conditions and
documentation which permit the sale of such loans to the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Federal National Mortgage
Association ("FNMA"), the Government National Mortgage Association
("GNMA"), and other investors in the secondary market.
5
The majority of fixed rate, long term residential mortgages originated
by the Bank are sold without recourse in the secondary market. Loan
sales in the secondary market provide funds for additional lending and
other banking activities. The Bank generally retains the servicing on
the loans sold. As part of its asset/liability management strategy, the
Bank may retain a portion of adjustable rate residential real estate
loans or fixed-rate residential real estate loans. During 1999, the
Bank originated $109 million in residential real estate loans of which
$48 million was retained in its portfolio.
The principal balance of loans serviced by the Bank for
investors amounted to $256.8 million at December 31, 1999 and $256.3
million at December 31, 1998. Under its mortgage servicing
arrangements, the Bank generally continues to collect payments on
loans, to inspect the mortgaged property, to make insurance and tax
advances on behalf of borrowers and to otherwise service the loans and
receives a fee for performing these services. Net servicing fee income
amounted to $918,000 and $1,156,000 for the years ended December 31,
1999 and 1998, respectively. Loan origination fees that relate to loans
sold by the Bank are recognized as non-interest income at the time of
the loan sale. Under its sales agreements, the Bank pays the purchaser
of mortgage loans a specified yield on the loans sold. The difference,
after payment of any guarantee fee, is retained by the Bank and
recognized as fee income over the life of the loan. In addition, loans
may be sold at a premium or a discount with any resulting gain or loss
recognized at the time of sale. Effective January 1, 1997 the Bank
adopted SFAS No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
Financial Accounting Standards Board (FASB) Statement No. 125." This
statement, which supercedes SFAS No.122, "Accounting for Mortgage
Servicing Rights," provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. As of December 31, 1999, and 1998, the loan servicing
asset was $1.6 million and $1.4 million, respectively.
COMMERCIAL LOANS. The Bank offers secured and unsecured
commercial loans for business purposes, including issuing letters of
credit. At December 31, 1999, $137.1 million, or 13.3%, of the Bank's
gross loan portfolio consisted of commercial loans, compared to $127.0
million, or 13.3%, at December 31, 1998.
Commercial loans are generally provided to
small-to-medium-sized businesses located within the Company's market
area. Commercial loans may be structured as term loans or as revolving
lines of credit. Commercial term loans generally have a repayment
schedule of five years or less and, although the Bank occasionally
originates some commercial term loans with interest rates which float
in relation to the Rockland Base rate, the majority of commercial term
loans have fixed rates of interest. Generally, Rockland's Base rate is
determined by reference to the Prime rate published daily in the Wall
Street Journal. The Bank's Base rate is monitored by the Executive Vice
President - Commercial Lending Division, and revised when appropriate
in accordance with guidelines established by the Asset/Liability
Management Committee. The majority of commercial term loans are
collateralized by equipment, machinery or other corporate assets. In
addition, the Bank generally obtains personal guarantees from the
principals of the borrower for virtually all of its commercial loans.
The Bank's commercial revolving lines of credit generally are
for the purpose of providing working capital to borrowers and may be
secured or unsecured. Collateral for commercial revolving lines of
credit may consist of accounts receivable, inventory or both, as well
as other corporate assets. Generally, the Bank will lend up to 80% of
accounts receivable, provided that such receivables have not
6
aged more than 60 days and/or up to 20% to 40% of the value of raw
materials and finished goods inventory securing the line. Commercial
revolving lines of credit generally are reviewed on an annual basis and
usually require substantial repayment of principal during the course of
a year. At December 31, 1999, the Bank had $50.3 million outstanding
under commercial revolving lines of credit and $60.1 million of unused
commitments under such lines on that date.
The Bank's standby letters of credit generally are secured,
have terms of not more than one year, and are reviewed for renewal. As
of December 31, 1999, the Bank had $1 million in outstanding
commitments pursuant to standby letters of credit. The Commercial
Lending Division manages these facilities.
The Bank also provides automobile and, to a lesser extent,
boat and other vehicle floor-plan financing. Floor-plan loans, which
are secured by the automobiles, boats, or other vehicles constituting
the dealer's inventory, amounted to $18.7 million as of December 31,
1999. Upon the sale of a floor-plan unit, the proceeds of the sale are
applied to reduce the loan balance. In the event a unit financed under
a floor-plan line of credit remains in the dealer's inventory for an
extended period, the amount of the outstanding balance is reduced with
respect to such unit. Bank personnel make unannounced periodic
inspections of each dealer to review the value and condition of the
underlying collateral.
REAL ESTATE LOANS. The Bank's real estate loans consist of
loans secured by commercial properties, loans secured by 1-4 unit
residential properties, home equity loans, and construction loans. As
of December 31, 1999, the Bank's loan portfolio included $320.7 million
in commercial real estate loans, $208.1 million in residential real
estate loans including $38.9 million in home equity loans, and $38.0
million in construction loans.
A significant portion of the Bank's commercial real estate
portfolio consists of loans to finance the development of residential
projects. These are categorized as commercial construction loans. As
such, a number of commercial real estate loans are primarily secured by
residential development tracts but, to a much greater extent, they are
secured by owner-occupied commercial and industrial buildings and
warehouses. Commercial real estate loans also include multi-family
residential loans that are primarily secured by apartment buildings
and, to a lesser extent, condominiums. The Bank has a very modest
portfolio of loans secured by special purpose properties, such as
hotels, motels, or restaurants.
Although terms vary, commercial real estate loans generally
have maturities of five years or less, amortization periods of 20
years, and interest rates that either float in accordance with a
designated index or have fixed rates of interest. The Bank's
adjustable-rate commercial real estate loans generally are indexed to
the Rockland Base rate. Loan-to-value ratios on commercial real estate
loans generally do not exceed 80% (70% for special purpose properties)
of the appraised value of the property. In addition, as part of the
criteria for underwriting permanent commercial real estate loans, the
Bank generally imposes a debt service coverage ratio of not less than
120%. It is also the Bank's policy to obtain personal guarantees from
the principals of the borrower on commercial real estate loans and to
obtain periodic financial statements from all commercial and
multi-family borrowers on an annual basis and, in some cases, more
frequently.
Commercial real estate lending entails additional risks as
compared to residential real estate lending. Commercial real estate
loans typically involve larger loan balances to single borrowers or
7
groups of related borrowers. Development of commercial real estate
projects also may be subject to numerous land use and environmental
issues. The payment experience on such loans is typically dependent on
the successful operation of the real estate project, which can be
significantly impacted by supply and demand conditions in the market
for commercial and retail space.
Rockland originates both fixed-rate and adjustable-rate
residential real estate loans. The Bank will lend up to 97% of the
lesser of the appraised value of the property securing the loan or the
purchase price, and generally requires borrowers to obtain private
mortgage insurance when the amount of the loan exceeds 80% of the value
of the property. The rates of these loans are typically competitive
with market rates. As previously noted, the Bank's residential real
estate loans are generally originated only under terms, conditions and
documentation, which permit sale in the secondary market.
The Bank generally requires title insurance protecting the
priority of its mortgage lien, as well as fire and extended coverage
casualty insurance in order to protect the properties securing its
residential and other real estate loans. Independent appraisers
appraise properties securing all of the Bank's first mortgage real
estate loans.
Home equity loans may be made as a term loan or under a
revolving line of credit secured by a second mortgage on the borrower's
residence. The Bank will originate home equity loans in an amount up to
80% of the appraised value or, without appraisal, up to 80% of the tax
assessed value, whichever is lower, reduced for any loans outstanding
secured by such collateral. As of December 31, 1999, there was $6.5
million in unused commitments under revolving home equity lines of
credit.
Construction loans are intended to finance the construction of
residential and commercial properties, including loans for the
acquisition and development of land or rehabilitation of existing
homes. Construction loans generally have terms of six months, but not
more than two years. They usually do not provide for amortization of
the loan balance during the term. The majority of the Bank's commercial
construction loans have floating rates of interest based upon the
Rockland Base rate or, in some cases, the prime rate published daily in
the Wall Street Journal
A significant portion of the Bank's construction lending is
related to one-to-four family residential development within the Bank's
market area. The Bank typically has focused its construction lending on
relatively small projects and has developed and maintains a
relationship with a significant number of homebuilders in Plymouth,
Norfolk, and Bristol Counties. As of December 31, 1999, $12.3 million,
or 53.4%, of total construction loans at such date were for the
development of one-to-four family residential lots or the construction
of one-to-four family residences.
The Bank evaluates the feasibility of construction projects
based upon appraisals of the project performed by independent
appraisers. In addition, the Bank may obtain architects' or engineers'
estimations of the cost of construction. The Bank generally requires
the borrower to fund at least 20% of the project costs and generally
does not provide for an interest reserve in its non-residential
construction loans. The Bank's non-residential construction loans
generally do not exceed 80% of the lesser of the appraised value upon
completion or the sales price. Land acquisition and development loans
generally do not exceed the lesser of 70% of the appraised value
(without improvements) or the purchase price. The Bank's loan policy
requires that permanent mortgage financing be secured prior to
extending any non-residential construction loans. In addition, the Bank
generally requires that the units
8
securing its residential construction loans be pre-sold. Loan proceeds
are disbursed in stages after on-site inspections of the project
indicate that the required work has been performed and that such
disbursements are warranted.
Construction loans are generally considered to present a
higher degree of risk than permanent real estate loans. A borrower's
ability to complete construction may be affected by a variety of
factors such as adverse changes in interest rates and the borrower's
ability to control costs and adhere to time schedules. The latter will
depend upon the borrower's management capabilities, and may also be
affected by strikes, adverse weather and other conditions beyond the
borrower's control.
CONSUMER LOANS. The Bank makes loans for a wide variety of
personal and consumer needs. Consumer loans primarily consist of
installment loans and cash reserve loans. As of December 31, 1999,
$328.7 million, or 31.9%, of the Bank's gross loan portfolio consisted
of consumer loans.
The Bank's installment loans consist primarily of automobile
loans, which amounted to $290.0 million at December 31, 1999. A
substantial portion of the Bank's automobile loans are originated
indirectly by a network of approximately 120 new and used automobile
dealers located within the Bank's market area. Indirect automobile
loans accounted for 88% and 92% of the Bank's total installment loan
originations during 1999 and 1998, respectively. Although applications
for such loans are taken by employees of the dealer, the loans are made
pursuant to Rockland's underwriting standards using Rockland's
documentation, and all indirect loans must be approved by a Rockland
loan officer. In addition to indirect automobile lending, the Bank also
originates automobile loans directly.
The maximum term for the Bank's automobile loans is 72 months
for a new car loan and 66 months with respect to a used car loan. The
Bank will lend up to 110% of the purchase price of a new automobile or,
with respect to used cars, up to 105% of the lesser of the purchase
price or the National Automobile Dealer's Association book value. Loans
on new automobiles are generally made without recourse to the dealer.
The Bank requires all borrowers to maintain automobile insurance,
including full collision, fire and theft, with a maximum allowable
deductible and with the Bank listed as loss payee. The majority of the
Bank's loans on used automobiles are made without recourse to the
dealer. Some purchases from used car dealers are under a repurchase
agreement. The dealer is required to pay off the loan (in return for
the vehicle) as long as the bank picks up the vehicle and returns it to
the dealer within 180 days of the most recent delinquency payment. In
addition, in order to ameliorate the adverse effect on interest income
caused by prepayments, all dealers are required to maintain a reserve,
ranging from 0% to 3% of the outstanding balance of the indirect loans
originated by them, which is rebated to the bank on a pro-rata basis in
the event of repayment prior to maturity.
The Bank's installment loans also include unsecured loans and
loans secured by deposit accounts, loans to purchase motorcycles,
recreational vehicles, motor homes, boats, or mobile homes. As of
December 31, 1999, installment loans other than automobile loans
amounted to $32.3 million. The Bank generally will lend up to 100% of
the purchase price of vehicles other than automobiles with terms of up
to three years for motorcycles and up to fifteen years for recreational
vehicles.
Cash reserve loans are made pursuant to previously approved
unsecured cash reserve lines of credit. The rate on these loans is
subject to change due to market conditions. As of December 31, 1999, an
additional $15.8 million had been committed to but was unused under
cash reserve lines of credit.
9
NONPERFORMING ASSETS. The following table sets forth
information regarding nonperforming assets held by the Bank at the
dates indicated.
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------
(Dollars in
Thousands)
Loans past due 90 days
or more but still
accruing $316 $1,026 $737 $516 $553
Loans accounted for on
a nonaccrual basis (1) ...... 3,338 4,330 5,154 3,946 4,718
----- ----- ----- ----- -----
Total non performing
loans ....................... 3,654 5,356 5,891 4,462 5,271
----- ----- ----- ----- -----
Other real estate owned ..... -- 2 271 271 638
Total nonperforming
assets ...................... $3,654 $5,356 $5,893 $4,733 $5,909
====== ====== ====== ====== ======
Restructured loans .......... $694 $1,037 $1,400 $1,658 $2,629
------ ------ ------ ------ ------
Nonperforming loans as
a percent of gross loans .... 0.35% 0.56% 0.69% 0.63% 0.83%
------ ------ ------ ------ ------
Nonperforming assets as
a percent of total
assets ...................... 0.23% 0.34% 0.43% 0.43% 0.60%
------ ------ ------ ------ ------
(1) Includes $.1 million, $.1 million, and $.6 million of
restructured loans at December 31, 1997, 1996 and 1995 respectively,
which were included in nonaccrual loans as of such dates. There were no
restructured, nonaccruing loans at December 31, 1998 and 1999.
Gross interest income that would have been recognized for the
years ended December 31, 1999 and 1998 if nonperforming loans at the
respective dates had been performing in accordance with their original
terms approximated $375,000 and $496,000 respectively. The actual
amount of interest that was collected on these loans during each of
those periods and included in interest income was approximately $50,000
and $66,000, respectively.
Through the Controlled Asset Department, the Bank strives to
ensure that loans do not become nonperforming. In the case that they
do, this department will restore nonperforming assets to performing
status or, alternatively, dispose of such assets. On occasion, this
effort may require the restructure of loan terms for certain
nonperforming loans. At this time, there are no commitments to lend
additional funds to debtors whose loans are non-performing.
RESERVE FOR POSSIBLE LOAN LOSSES. The reserve for possible
loan losses is maintained at a level that management considers adequate
to provide for potential loan losses based upon an evaluation of known
and inherent risks in the loan portfolio. The reserve is increased by
provisions for possible loan losses and by recoveries of loans
previously charged-off and reduced by loan charge-offs. Determining an
appropriate level of reserve for possible loan losses necessarily
involves a high degree of judgment. For additional information, see
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7 hereof.
10
The following table summarizes changes in the reserve for
possible loan losses and other selected statistics for the periods
presented.
Year Ending December 31,
----------------------------------------------------------------
1999 1996 1995
1998 1997
(Dollars In Thousands)
Average loans, net of unearned discount ..... $991,319 $884,205 $757,877 $657,749 $612,481
======== ======== ======== ======== ========
Reserve for Possible loan losses,
beginning of year $13,695 $12,674 $12,221 $12,088 $13,719
Charged-off loans
Commercial .............................. 415 1,206 1,140 1,252 2,097
Real estate - commercial ................ -- -- 95 228 690
Real estate - residential ............... 1 241 261 296 558
Real estate - construction .............. -- -- -- -- --
Consumer - installment .................. 3,060 2108 771 430 273
Consumer - other ........................ 494 542 639 619 464
--- --- --- --- ---
Total charged-off loans ............. 3,970 4,097 2,906 2,825 4,082
----- ----- ----- ----- -----
Recoveries on loans previously charged off
Commercial .............................. 522 630 546 573 436
Real estate - commercial ................ 67 258 265 241 665
Real estate - residential ............... 115 2 0 31 3
Real estate - construction .............. -- -- -- -- --
Consumer - installment .................. 603 266 137 171 169
Consumer - other ........................ (1) 2 151 192 178
--- - --- --- ---
Total recoveries .................... 1,306 1,158 1,099 1,208 1,451
----- ----- ----- ----- -----
Net loans charged-off ....................... 2,664 2,939 1,807 1,617 2,631
Provision for loan losses ................... 3,927 3,960 2,260 1,750 1,000
----- ----- ----- ----- -----
Reserve for possible loan losses,
end of period ............................ $14,958 $13,695 $12,674 $12,221 $12,088
======= ======= ======= ======= =======
Net loans charged-off as a percent of
average loans, net of unearned discount ..... 0.27% 0.33% 0.24% 0.25% 0.43%
Reserve for possible loan losses as a
percent of loans, net of unearned discount .. 1.45% 1.46% 1.67% 1.76% 1.92%
Reserve for possible loan losses as a
percent of nonperforming loans .............. 409.36% 255.69% 215.14% 273.89% 229.33%
Net loans charged-off as a percent of
reserve for possible loan losses ............ 17.81% 21.46% 14.26% 13.23% 21.77%
Recoveries as a percent of charge-offs ...... 32.90% 28.26% 37.82% 42.76% 35.55%
The reserve for possible loan losses is allocated to various loan
categories as part of the Bank's process for evaluating the adequacy of
the reserve for possible loan losses. The following table sets forth
certain information concerning the allocation of the Bank's reserve for
possible loan losses by loan categories at December 31, 1999. For
information about the percent of loans in each category to total loans,
see "Lending Activities - Loan Portfolio Composition and Maturity."
Percent of
Amount Total
Loans by
Category
------------------------------------
(Dollars In Thousands)
Commercial Loans ......... $2,853 2.08%
Real Estate Loans ........ 8,167 1.44%
Consumer Loans ........... 3,938 1.21%
----- ----
Total Loans $14,958 1.45%
====== ====
The Bank determines the level of the reserve for possible loan
losses based on a number of factors. A specific loan grade or rating is
assigned to any commercial, commercial real estate, or construction
loan relationship above $50,000. A portion of the reserve is allocated
as a general reserve for those classes of loans by the level of loan
rating. The better rated loans receive a lower allocation, but each
rated loan class will have an allocation placed against the amount
outstanding. As an
11
alternative to a general allocation by loan rating, certain loans have
specific allocations assigned to them because of greater knowledge of
their underlying collateral's value. In conjunction with its review,
management considers both internal and external factors, which may
affect the adequacy of the reserve for possible loan losses. Such
factors may include, but are not limited to, industry trends, regional
and national economic conditions, past estimates of possible loan
losses as compared to actual losses, and historical loan losses.
Management assesses the adequacy of the reserve for possible loan
losses, and reviews that assessment quarterly, with the Board of
Directors. Management's assessment of the adequacy of the reserve for
possible loan losses is reviewed periodically by the Company's
independent public accountants.
As of December 31, 1999, the reserve for possible loan losses
totaled $14.96 million. Based on the processes described above,
management believes that the level of the reserve for possible loan
losses at December 31, 1999 is adequate. Various regulatory agencies,
as an integral part of their examination process, periodically review
the Company's reserve for possible loan losses. Federal Reserve
regulators most recently examined the Company based on financial data
as of September 30, 1999. The Bank was most recently examined by the
FDIC and by the Commonwealth of Massachusetts Division of Banks in the
third quarter of 1999. No additional provision for possible loan losses
was required as a result of these examinations.
INVESTMENT ACTIVITIES
The Bank's securities portfolio consists of U.S. Treasury and
U.S. Government Agency securities, mortgage-backed securities, and debt
securities issued by other institutions. Most of these securities are
investment grade debt obligations with average maturities of less than
five years. Government and government agency securities entail a lesser
degree of risk than loans made by the Bank by virtue of the guarantees
that back them, require less capital under risk-based capital rules
than non-insured or non-guaranteed mortgage loans, are more liquid than
individual mortgage loans, and may be used to collateralize borrowings
or other obligations of the Bank. However, these securities are subject
to prepayment risk, which could result in significantly less future
income than would have been the case based on the contractual coupon
rate and term. In addition the Bank had $47.6 million, in private issue
mortgage backed securities at December 31, 1999. The Bank had
investments in marketable equity securities at December 31, 1999 of
$465,000 and $350,000 in 1998. The Bank views its securities portfolio
as a source of income and, with regard to maturing securities,
liquidity. Interest payments generated from securities also provide a
source of liquidity to fund loans and meet short-term cash needs. The
Bank's securities portfolio is managed in accordance with the Rockland
Trust Company Investment Policy adopted by the Board of Directors. The
Chief Executive Officer or the Chief Financial Officer may make
investments with the approval of one additional member of the
Asset/Liability Management Committee, subject to limits on the type,
size and quality of all investments, which are specified in the
Investment Policy. The Bank's Asset/Liability Management Committee, or
its designee, is required to evaluate any proposed purchase from the
standpoint of overall diversification of the portfolio.
The investment portfolio includes securities which management
intends to hold until maturity, securities available for sale and
trading assets. This classification of the securities portfolio is
required by Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting For Certain Investments in Debt and Equity Securities,"
which the Bank adopted effective January 1, 1994.
12
Securities held to maturity as of December 31, 1999 are
carried at their amortized cost of $229.0 million and exclude gross
unrealized gains of $.47 million and gross unrealized losses of $10.9
million. A year earlier, securities held to maturity totaled $284.9
million, excluding gross unrealized gains of $3.9 million and gross
unrealized losses of $1.3 million.
Securities available for sale are carried at fair market value
and unrealized gains and losses, net of the related tax effect, are
recognized as a separate component of stockholders' equity. The fair
market value of securities available for sale at December 31, 1999
totaled $201.6 million, and net unrealized losses totaled $5.8 million.
A year earlier, securities available for sale were $195.2 million, with
net unrealized gains of $1.2 million. The Bank realized a gain of
$34,000 and $27,000 on the sale of available-for-sale securities in
1999 and 1998, respectively.
The following table sets forth the amortized cost and
percentage distribution of securities held to maturity at the dates
indicated. For additional information, see Note 3 to the Consolidated
Financial Statements included in Item 8 hereof.
At December 31,
--------------------------------------------------------------
1999 1998 1997
------------------- -------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(Dollars in Thousands)
U.S. treasury and
Government agency
Securities ............. $ 25,996 11.4% $ 29,197 10.3% $ 51,567 16.7%
Mortgage-backed securities.. 101,081 44.1% 143,292 50.3% 199,245 64.7%
Collateralized mortgage
obligations ............ 5,666 2.5% 17,799 6.2% 34,515 11.2%
State. County, and
municipal securities ....... 41,984 18.3% 40,365 14.2% 21,385 6.9%
Other investment
securities .............. 54,316 23.7% 54,291 19.0% 1,400 0.5%
------ ----- ------ ----- ----- ----
$229,043 100.0% $284,944 100.0% $308,112 100.0%
======== ======== ======== ======== ======== ======
The following table sets forth the fair market value and
percentage distribution of securities available for sale at the dates
indicated. For additional information, see Note 4 to the Consolidated
Financial Statements included in Item 8 hereof.
At December 31,
--------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(Dollars in Thousands)
U.S Treasury and U.S
Government Agency ........... $8,467 4.2% $9,045 4.6%
Securities
Mortgage-Backed Securities .. 121,881 60.5% 137,410 70.4% $131,842 100.0%
Collateralized Mortgage ..... 71,266 35.3% 48,320 24.8%
Obligations
Other Securities ............ 424 .2%
-------- ------ -------- ------ -------- -----
$201,614 100.0% $195,199 100.0% $131,842 100.0%
======== ====== ======== ====== ======== =====
At December 31, 1999 and 1998, the Bank had no investments in
obligations of individual states, counties or municipalities which
exceeded 10% of stockholders' equity. In addition, there were no sales
of these securities in 1999 or 1998.
13
SOURCES OF FUNDS
DEPOSITS. Deposits obtained through Rockland's branch banking
network have traditionally been the principal source of the Bank's
funds for use in lending and for other general business purposes. The
Bank has built a stable base of in-market core deposits from the
residents of and businesses located in Southeastern Massachusetts. The
Bank has the ability to solicit brokered deposits. Rockland did not
have any brokered deposits at December 31, 1998. During the first
quarter of 1999, Rockland acquired $20 million of brokered deposits as
an alternative source of funds. Rockland offers a range of demand
deposits, interest checking, money market accounts, savings accounts
and time certificates of deposit. Interest rates on deposits are based
on factors that include loan demand, deposit maturities, and interest
rates offered by competing financial institutions in the Bank's market
area. The Bank believes it has been able to attract and maintain
satisfactory levels of deposits based on the level of service it
provides to its customers, the convenience of its banking locations,
and its interest rates that are generally competitive with those of
competing financial institutions.
Rockland's branch locations are supplemented by the Bank's
Trust/24 and debit cards which may be used to conduct various banking
transactions at automated teller machines ("ATMs") maintained at each
of the Bank's full-service offices and three additional locations. The
Trust/24 and debit cards also allow customers access to the "NYCE"
regional ATM network, as well as the "Cirrus" nationwide ATM network.
These networks provide the Bank's customers access to their accounts
through ATMs located throughout Massachusetts, the United States, and
the world.
The following table sets forth the average balances of the
Bank's deposits for the periods indicated.
Year Ended December 31,
----------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------
(DOLLARS IN
THOUSANDS)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
Demand deposits ......... $ 220,727 20.8% $195,583 19.9% $171,955 18.9%
Savings and Interest
Checking ................ 280,441 26.5% 266,093 27.1% 225,069 24.8%
Money Market and Super
Interest Checking
accounts ................ 108,415 10.2% 107,956 11.0% 109,156 12.0%
Time deposits ........... 450,425 42.5% 411,801 42.0% 402,346 44.3%
------- ---- ------- ---- ------- ----
Total ................... $1,060,008 100.0% $981,433 100.0% $908,526 100.0%
========== ====== ======== ====== ======= ======
The Bank's interest-bearing time certificates of deposit of
$100,000 or more totaled $64.6 million at December 31, 1999. The
maturity of these certificates are as follows: $58.3 million within
three months; $3.5 million 3 to 6 months and 2.8 million 6 through 12
months.
BORROWINGS. Borrowings consist of short-term and
intermediate-term obligations. Short-term borrowings consist primarily
of federal funds purchased; assets sold under repurchase agreements,
and treasury tax and loan notes. The Bank has established two unsecured
federal funds lines totaling $20 million with Boston-based banks. The
Bank also obtains funds under repurchase agreements. In a repurchase
agreement transaction, the Bank will generally sell a security agreeing
to repurchase either the same or a substantially identical security on
a specified later date at a price slightly greater than the original
sales price. The difference in the sale price and purchase price is the
cost of the proceeds. The securities underlying the agreements are
delivered to the dealer who arranges the transactions as security
14
for the repurchase obligation. Payments on such borrowings are interest
only until the scheduled repurchase date, which generally occurs within
a period of 30 days or less. Repurchase agreements represent a
non-deposit funding source for the Bank. However, the Bank is subject
to the risk that the lender may default at maturity and not return the
collateral. In order to minimize this potential risk, the Bank only
deals with established investment brokerage firms when entering into
these transactions. The Bank has repurchase agreements with five major
brokerage firms. At December 31, 1999, the Bank had $39.6 million
outstanding under repurchase agreements and $47.6 million outstanding
in Customer Repurchase Agreements.
In July 1994, Rockland became a member of the Federal Home
Loan Bank ("FHLB") of Boston. Among the many advantages of this
membership, this affiliation provides the Bank with access to
approximately $323 million of short-to-medium term borrowing capacity
as of December 31, 1999, based on the Bank's assets at that time. At
December 31, 1999, the Bank had $256.2 million outstanding in FHLB
borrowings with initial maturities ranging from 1 month to 10 years.
While the Bank has not traditionally placed significant
reliance on borrowings as a source of liquidity, it established the
borrowing arrangements described above in order to provide management
with greater flexibility in overall funds management.
Management believes that the Bank has adequate liquidity
available to respond to current and anticipated liquidity demands. See
Notes 4 and 7 of the Notes to Consolidated Financial Statements,
included in Item 8 hereof.
The following table sets forth the Bank's borrowings at the
dates indicated.
AT DECEMBER 31,
1999 1998 1997
-----------------------------------------------------------------------
(in Thousands)
Federal funds purchased ...... $ 6,170 $ 5,025 $ 845
Assets sold under repurchase
agreements ................ 87,196 77,351 37,482
Treasury tax and loan notes .. 9,877 471 3,217
Federal Home Loan Bank
borrowings ................ 256,224 313,724 206,724
------- ------- -------
$359,467 $396,571 $248,268
======== ======== ========
The following table presents certain information regarding the
Bank's short-term borrowings at the dates and for the periods
indicated.
AT OR FOR THE YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------------
(Dollars in Thousands)
Balance outstanding at end of year .... $103,243 $82,847 $41,544
Average daily balance outstanding ..... 88,215 66,403 48,869
Maximum balance outstanding at any
month-end .......................... 103,248 89,741 84,945
Weighted average interest rate
for the year ....................... 4.83% 5.39% 5.74%
Weighted average interest rate
at end of year ..................... 4.86% 4.72% 5.99%
15
ASSET MANAGEMENT AND TRUST SERVICES
Rockland's Asset Management and Trust Services ("AM&TS") Division
offers a variety of services, including assistance with investments, estate
planning, custody services, employee benefit plans, and tax planning, which are
provided primarily to individuals and small businesses located in Southeastern
Massachusetts. In addition, the Bank acts as executor or administrator of
estates and as trustee for various types of trusts. As of December 31, 1999, the
AM&TS Division maintained approximately 1,697 trust/fiduciary accounts, with an
aggregate market value of over $461 million on that date. Income from the AM&TS
Division amounted to $4.1 million and $3.8 million, for 1999 and 1998,
respectively.
Accounts maintained by the AM&FS Division consist of "managed"
and "non-managed" accounts. "Managed accounts" are those accounts for
which Rockland has responsibility for administration and investment
management and/or investment advice. "Non-managed" accounts are those
accounts for which Rockland acts as a custodian. The Bank receives fees
dependent upon the level and type of service(s) provided.
The administration of trust and fiduciary accounts is
monitored by the Trust Committee of the Bank's Board of Directors. The
Trust Committee has delegated administrative responsibilities to two
committees - one for investments and one for administration - comprised
of Trust and Financial Services Division officers who meet not less
than monthly.
FORWARD-LOOKING INFORMATION
The preceding Management's Discussion and Analysis and Notes
to Consolidated Financial Statements of this Form 10-K contain certain
forward-looking statements, including without limitation, statements
regarding (i) the level of reserve for possible loan losses, (ii) the
rate of delinquencies and amounts of charge-offs and (iii) the rates of
loan growth. Moreover, the Company may from time to time, in both
written reports and oral statements by Company management, express its
expectations regarding future performance of the Company. These
forward-looking statements are inherently uncertain and actual results
may differ from Company expectations. The following factors which,
among others, could impact current and future performance include but
are not limited to: (i) adverse changes in asset quality and resulting
credit risk-related losses and expenses; (ii) adverse changes in the
economy of the New England region, the Company's primary market, (iii)
adverse changes in the local real estate market, as most of the
Company's loans are concentrated in Southeastern Massachusetts and a
substantial portion of these loans have real estate as collateral; (iv)
fluctuations in market rates and prices which can negatively affect net
interest margin asset valuations and expense expectations; and (v)
changes in regulatory requirements of federal and state agencies
applicable to banks and bank holding companies, such as the Company and
Rockland, which could have materially adverse effect on the Company's
future operating results. When relying on forward-looking statements to
make decisions with respect to the Company, investors and others are
cautioned to consider these and other risks and uncertainties.
16
REGULATION
THE COMPANY - GENERAL. The Company, as a federally registered
bank holding company, is subject to regulation and supervision by the
Federal Reserve. The Company is required to file an annual report of
its operations with, and is subject to examination by, the Federal
Reserve.
FINANCIAL SERVICES MODERNIZATION-GRAMM-LEACH-BLILEY ACT OF
1999. On November 12, 1999, President Clinton signed the
Gramm-Leach-Bliley Act of 1999. The Act broadens the scope of the
financial services that banks (and their affiliates) may offer to their
customers. Among other things, the Act provides that a bank holding
company meeting certain specified requirements may qualify as a
financial holding company and provide a wider variety of services that
are financial in nature, including, among other things, securities
underwriting and dealing, merchant banking and insurance activities.
The Act also makes certain changes in the regulatory framework for bank
holding companies and their activities and provides consumers with new
privacy protections with respect to the use of their nonpublic personal
information by financial institutions.
BHCA (THE BANK HOLDING COMPANY ACT) - ACTIVITIES AND OTHER
LIMITATIONS. The BHCA prohibits a bank holding company from acquiring
direct or indirect ownership or control of more than 5% of the voting
shares of any bank, or increasing such ownership or control of any
bank, without prior approval of the Federal Reserve. No approval under
the BHCA is required, however, for a bank holding company already
owning or controlling 50% of the voting shares of a bank to acquire
additional shares of such bank.
The BHCA also prohibits a bank holding company from, with
certain exceptions, acquiring more than 5% of the voting shares of any
company that is not a bank and from engaging in any business other than
banking or managing or controlling banks. Under the BHCA, the Federal
Reserve is authorized to approve the ownership of shares by a bank
holding company in any company, the activities of which the Federal
Reserve has determined to be so closely related to banking or to
managing or controlling banks as to be a proper incident thereto. In
making such determination, the Federal Reserve is required to weigh the
expected benefit to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices.
The Federal Reserve has, by regulation, determined that
certain activities are closely related to banking within the meaning of
the BHCA. These activities include, but are not limited to, operating a
mortgage company, finance company, credit card company, factoring
company, trust company or savings association; performing certain data
processing operations; providing certain securities brokerage services;
acting as an investment or financial adviser; acting as an insurance
agent for certain types of credit-related insurance; engaging in
insurance underwriting under certain limited circumstances; leasing
personal property on a full-payout, nonoperating basis; providing tax
planning and preparation services; operating a collection agency and a
credit bureau; providing consumer financial counseling; and providing
certain courier services. The Federal Reserve also has determined that
certain other activities, including real estate brokerage and
syndication, land development, property management and, except under
limited circumstances, underwriting of life insurance not related to
credit transactions, are not closely related to banking and are not a
proper incident thereto.
17
The Gramm-Leach-Bliley Act of 1999, discussed above, permits
financial holding companies(a new type of bank holding company) to
engage in a broader range of financial activities than traditional bank
holding companies, subject to the requirements of the Act.
INTERSTATE BANKING LEGISLATION. On September 24, 1994,
President Clinton signed, and as of September 29, 1995, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") became effective. The Interstate Act facilitates
interstate branching by permitting (i) bank holding companies that are
adequately capitalized and adequately managed to acquire banks outside
their home states regardless of whether such acquisitions are
permissible under the laws of the target bank's home state; (ii)
commencing June 1, 1997, interstate bank mergers regardless of state
law, unless a state specifically "opts out" or "opts in" after
September 29, 1994 and prior to June 1, 1997; (iii) banks to establish
new branches on an interstate basis provided the state of the new
branch specifically permits such activity; (iv) foreign banks to
establish, with regulatory approval, foreign branches outside their
home state to the same extent as if they were national or state banks;
and (v) affiliates of banks in different states to receive deposits,
renew time deposits, close loans, service loans, and receive loan
payments on loans and other obligations as agents for each other.
Massachusetts has "opted in" to the interstate branching provisions of
the Interstate Act. See discussion under "Massachusetts Law" elsewhere
in this section. In October, 1996, the banking regulators of the six
New England states signed a New England Cooperative Agreement
facilitating and addressing the regulation of state banks with
multistate operations in New England.
CAPITAL REQUIREMENTS. The Federal Reserve has adopted capital
adequacy guidelines pursuant to which it assesses the adequacy of
capital in examining and supervising a bank holding company and in
analyzing applications to it under the BHCA. The Federal Reserve's
capital adequacy guidelines which generally require bank holding
companies to maintain total capital equal to 8% of total risk-adjusted
assets, with at least one-half of that amount consisting of Tier 1, or
core, capital and up to one-half of that amount consisting of Tier 2,
or supplementary, capital. Tier 1 capital for bank holding companies
generally consists of the sum of common stockholders' equity and
perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stocks which may be included
as Tier 1 capital), less goodwill and other intangible assets required
to be deducted from capital. Tier 2 capital generally consists of
perpetual preferred stock which is not eligible to be included as Tier
1 capital; hybrid capital instruments such as perpetual debt and
mandatory convertible debt securities, and term subordinated debt and
intermediate-term preferred stock; and, subject to limitations, the
reserve for loan losses. Assets are adjusted under the risk-based
guidelines to take into account different risk characteristics, with
the categories ranging from 0% (requiring no additional capital) for
assets such as cash to 100% for the majority of assets which are
typically held by a bank holding company, including commercial real
estate loans, commercial loans and consumer loans. Single family
residential first mortgage loans which are not 90 days or more past due
or nonperforming and which have been made in accordance with prudent
underwriting standards are assigned a 50% level in the risk-weighting
system, as are certain privately-issued mortgage-backed securities
representing indirect ownership of such loans and certain multi-family
housing loans. Off-balance sheet items also are adjusted to take into
account certain risk characteristics.
In addition to the risk-based capital requirements, the
Federal Reserve requires bank holding companies to maintain a minimum
leverage capital ratio of Tier 1 capital to total assets of 3.0%. Total
assets for this purpose does not include goodwill and any other
intangible assets or investments that the
18
Federal Reserve determines should be deducted from Tier 1 capital. The
Federal Reserve has announced that the 3.0% Tier 1 leverage capital
ratio requirement is the minimum for the top-rated bank holding
companies without any supervisory, financial or operational weaknesses
or deficiencies or those which are not experiencing or anticipating
significant growth. Other bank holding companies (including the
Company) are expected to maintain Tier 1 leverage capital ratios of at
least 4.0% to 5.0% or more, depending on their overall condition.
The Company currently is in compliance with the
above-described regulatory capital requirements. At December 31, 1999,
the Company had Tier 1 capital and total capital equal to 11.14% and
12.39% of total risk-adjusted assets, respectively, and Tier 1 leverage
capital equal to 8.15% of total assets. As of such date, Rockland
complied with the applicable federal regulatory capital requirements,
with Tier 1 capital and total capital equal to 9.35% and 10.60% of
total risk-adjusted assets, respectively, and Tier 1 leverage capital
equal to 6.86% of total assets.
COMMITMENTS TO AFFILIATED INSTITUTIONS. Under Federal Reserve
policy, the Company is expected to act as a source of financial
strength to Rockland and to commit resources to support Rockland in
circumstances when it might not do so absent such policy.
LIMITATIONS ON ACQUISITIONS OF COMMON STOCK. The federal
Change in Bank Control Act ("CBCA") prohibits a person or group of
persons from acquiring "control" of a bank holding company or bank
unless the appropriate federal bank regulator has been given 60 days
prior written notice of such proposed acquisition and within that time
period such regulator has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days the period during
which such a disapproval may be issued. An acquisition may be made
prior to expiration of the disapproval period if such regulator issues
written notice of its intent not to disapprove the action. The
acquisition of 25% or more of any class of voting securities
constitutes the acquisition of control under the CBCA. In addition,
under a rebuttable presumption established under the CBCA regulations,
the acquisition of 10% or more of a class of voting stock of a bank
holding company or a FDIC-insured bank, with a class of securities
registered under or subject to the requirements of Section 12 of the
Securities Exchange Act of 1934 would, under the circumstances set
forth in the presumption, constitute the acquisition of control.
In addition, any "company" would be required to obtain the
approval of the Federal Reserve under the BHCA before acquiring 25% (5%
in the case of an acquirer that is a bank holding company) or more of
the outstanding common stock of, or such lesser number of shares as
constitute control over, the Company. Such approval would be contingent
upon, among other things, the acquirer registering as a bank holding
company, divesting all impermissible holdings and ceasing any
activities not permissible for a bank holding company.
MASSACHUSETTS LAW. Massachusetts law requires all
Massachusetts bank holding companies (those companies which control,
own, or have the power to vote 25% or more of the stock of each of two
or more Massachusetts based banks) to receive prior written approval of
the Massachusetts Board of Bank Incorporation to, among other things,
acquire all or substantially all of the assets of a banking institution
located within the Commonwealth of Massachusetts or to merge or
consolidate with a Massachusetts bank holding company. The Company owns
no voting stock in any banking institution other than Rockland. In
addition, prior approval of the Board of Bank Incorporation is required
before any Massachusetts bank holding company owning 25% or more of the
stock of two banking institutions
19
may acquire additional voting stock in those banking institutions equal
to 5% or more. Generally, no approval to acquire a banking institution,
acquire additional shares in an institution, acquire substantially all
the assets of a banking institution or merge or consolidate with
another bank holding company may be given if the bank being acquired
has been in existence for a period less than 3 years or, as a result,
the bank holding company would control, in excess of 30%, of the total
deposits of all state and federally chartered banks in Massachusetts,
unless waived by the Commissioner. Similarly, no bank which is not a
member of the Federal Reserve can merge or consolidate with any other
insured depository institution or, either directly or indirectly,
acquire the assets of or assume the liability to pay any deposits made
in any other depository institution except with the prior written
approval of the FDIC.
As noted above, Massachusetts "opted in" to the Interstate Act
in 1996. As such, any out-of-state bank may engage, with the written
approval of the Commissioner, in a merger transaction with a
Massachusetts bank to the fullest extent permitted by the Interstate
Act, provided that the laws of the home state of such out-of-state bank
permit, under conditions no more restrictive than those imposed by
Massachusetts, interstate merger transactions with Massachusetts banks,
and provided further that the Massachusetts bank has been in existence
for at least three years and the resulting bank would not control in
excess of 30% of the total deposits of all state and federally
chartered depository institutions in Massachusetts. The Commissioner
may waive the latter two conditions, in his discretion. Such a merger
transaction may also involve the acquisition of one or more branches of
a Massachusetts bank and not the entire institution. With the prior
written approval of the Commissioner, Massachusetts also permits the
establishment of de novo branches in Massachusetts to the fullest
extent permitted by the Interstate Act, provided the laws of the home
state of such out-of-state bank expressly authorize, under conditions
no more restrictive than those of Massachusetts, Massachusetts banks to
establish and operate de novo branches in such state.
With the prior written approval of the Massachusetts Board of
Bank Incorporation, a bank holding company (as defined under the BHCA)
whose principal operations are located in a state other than
Massachusetts may acquire more than 5% of the voting stock of a
Massachusetts bank or may merge with a Massachusetts bank holding
company or a Massachusetts bank, provided that Massachusetts bank has
been in existence for at least three years and the Massachusetts Board
of Bank Incorporation is satisfied that the transaction will not result
in the out-of-state bank holding company holding or controlling, more
than 30% of the deposits of all state and federally chartered
depository institutions in Massachusetts or such condition is
affirmatively waived by the Board.
SUBSIDIARY BANK - GENERAL. Rockland is subject to extensive
regulation and examination by the Commissioner and by the FDIC, which
insures its deposits to the maximum extent permitted by law, and to
certain requirements established by the Federal Reserve. The federal
and state laws and regulations which are applicable to banks regulate,
among other things, the scope of their business, their investments,
their reserves against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for certain
loans. The laws and regulations governing Rockland generally have been
promulgated to protect depositors and not for the purpose of protecting
stockholders.
DEPOSIT INSURANCE PREMIUMS. Rockland currently pays deposit
insurance premiums to the FDIC based on a single, uniform assessment
rate established by the FDIC for all BIF-member institutions. The
assessment rates range from 0% to .27%. Under the FDIC's risk-based
assessment
20
system, institutions are assigned to one of three capital groups which
assignment is based solely on the level of an institution's capital -
"well capitalized, " "adequately capitalized," and "undercapitalized"
which are defined in the same manner as the regulations establishing
the prompt corrective action system under Section 38 of the Federal
Deposit Insurance Act ("FDIA"), as discussed below. These three groups
are then divided into three subgroups which reflect varying levels of
supervisory concern, from those which are considered to be healthy to
those which are considered to be of substantial supervisory concern.
The matrix so created results in nine assessment risk classifications,
with rates ranging from 0% for well capitalized, healthy institutions
to .27% for undercapitalized institutions with substantial supervisory
concerns. Rockland is presently "well capitalized" and as a result,
Rockland was not subject to any FDIC premium obligation as of January
1, 2000.
The FDIC Board of Directors voted in 1996 to collect an
assessment against BIF assessable deposits to be paid to the Financing
Corporation (FICO). The Board stipulated that the FICO assessment rate
that is applied to BIF assessable deposits must equal one-fifth of the
rate that is applied to SAIF assessable deposits. The actual assessment
rates are approximately 8.48 basis points, on an annual basis, for BIF
assessable deposits and SAIF assessable deposits.
CAPITAL REQUIREMENTS. The FDIC has promulgated regulations and
adopted a statement of policy regarding the capital adequacy of
state-chartered banks, which, like Rockland, are not members of the
Federal Reserve System. These requirements are substantially similar to
those adopted by the Federal Reserve regarding bank holding companies,
as described above.
The FDIC's capital regulations establish a minimum 3.0% Tier 1
leverage capital to total assets requirement for the most highly-rated
state-chartered, nonmember banks, with an additional cushion of at
least 100 to 200 basis points for all other state-chartered, nonmember
banks, which effectively will increase the minimum Tier 1 leverage
capital ratio for such banks to 4.0% or 5.0% or more. Under the FDIC's
regulations, the highest-rated banks are those that the FDIC determines
are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure,
excellent asset quality, high liquidity, good earnings and in general
which are considered strong banking organizations, rated composite 1
under the Uniform Financial Institutions Rating System. A bank having
less than the minimum leverage capital requirement shall, within 45
days of the date as of which it receives notice or is deemed to have
notice that it is undercapitalized, submit to its FDIC regional
director for review and approval a written capital restoration plan
describing the means and timing by which the bank shall achieve its
minimum leverage capital requirement. A bank which fails to file such
plan with the FDIC is deemed to be operating in an unsafe and unsound
manner, and could subject the bank to a cease and desist order from the
FDIC. The FDIC's regulations also provide that any insured depository
institution with a ratio of Tier 1 capital to total assets that is less
than 2.0% is deemed to be operating in an unsafe or unsound condition
pursuant to Section 8(a) of the FDIA and is subject to potential
termination of deposit insurance. However, such an institution will not
be subject to an enforcement proceeding thereunder solely on account of
its capital ratios if it has entered into and is in compliance with a
written agreement with the FDIC to increase its Tier 1 leverage capital
ratio to such level as the FDIC deems appropriate and to take such
other action as may be necessary for the institution to be operated in
a safe and sound manner. The FDIC capital regulation also provides for,
among other things, the issuance by the FDIC or its designee(s) of a
capital directive, which is a final order issued to a bank that fails
to maintain minimum capital to restore its capital to the minimum
leverage capital
21
requirement within a specified time period. Such directive is
enforceable in the same manner as a final cease and desist order.
Pursuant to the requirements of the FDIA, each federal banking
agency has adopted or proposed regulations relating to its review of
and revisions to its risk-based capital standards for insured
institutions to ensure that those standards take adequate account of
interest-rate risk, concentration of credit risk and the risks of
non-traditional activities, as well as to reflect the actual
performance and expected risk of loss on multi-family residential
loans.
PROMPT CORRECTIVE ACTION. Under Section 38 of the FDIA, as
amended by the Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), each federal banking agency has broad powers to implement a
system of prompt corrective action to resolve problems of institutions
which it regulates which are not adequately capitalized. Under FDICIA,
a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or
more and is not subject to any written capital order or directive; (ii)
"adequately capitalized" if it has a total risk-based capital ratio of
8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more, a Tier
1 leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized";
(iii) "undercapitalized" if it has a total risk-based capital ratio
that is less than 8.0%, or a Tier 1 risk-based capital ratio that is
less than 4.0% or a Tier 1 leverage capital ratio of less than 4.0%
(3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is
less than 6.0%, or a Tier 1 risk-based capital ratio that is less than
3.0%, or a Tier 1 leverage capital ratio that is less than 3.0%; and
(v) "critically undercapitalized" if it has a ratio of tangible equity
to total assets that is equal to or less than 2.0%. FDICIA also
specifies circumstances under which a federal banking agency may
reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an
undercapitalized institution to comply with supervisory actions as if
it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized). As of December 31, 1999, Rockland was deemed a
"well-capitalized institution" for this purpose.
BROKERED DEPOSITS. FDICIA restricts the use of brokered
deposits by certain depository institutions. Well capitalized insured
depository institutions may solicit and accept, renew or roll over any
brokered deposit without restriction. Adequately capitalized insured
depository institutions may not accept, renew or roll over any brokered
deposit unless they have applied for and been granted a waiver of this
prohibition by the FDIC. Undercapitalized insured depository
institutions may not (i) accept, renew or roll over any brokered
deposit or (ii) solicit deposits by offering an effective yield that
exceeds by more than 75 basis points the prevailing effective yields on
insured deposits of comparable maturity in such institution's normal
market area or in the market area in which such deposits are being
solicited. At December 31, 1999, the Bank's funding sources included
brokered deposits of $20 million.
SAFETY AND SOUNDNESS. In August, 1995, the FDIC adopted
regulations pursuant to FDICIA relating to operational and managerial
safety and soundness standards for financial institutions relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset
growth and compensation, fees, and benefits. The standards are to serve
as guidelines for institutions to help identify potential safety and
soundness concerns. If an institution fails to meet any safety and
soundness standard, the FDIC may require it to submit a written
22
safety and soundness compliance plan within thirty (30) days following
a request therefor, and if it fails to do so or fails to correct safety
and soundness deficiencies, the FDIC may take administrative
enforcement action against the institution, including assessing civil
money penalties, issuing supervisory orders and other available
remedies.
COMMUNITY REINVESTMENT ACT ("CRA")
Pursuant to the Community Reinvestment Act ("CRA") and similar
provisions of Massachusetts law, regulatory authorities review the
performance of the Company and Rockland in meeting the credit needs of
the communities served by Rockland. The applicable regulatory
authorities consider compliance with this law in connection with
applications for, among other things, approval of branches, branch
relocations, engaging in certain new financial activities under
Gramm-Leach-Bliley Act of 1999, and acquisitions of banks and bank
holding companies. Currently, the FDIC's CRA rating of Rockland is
outstanding. The Massachusetts Commissioner currently has given
Rockland a CRA rating of outstanding.
MISCELLANEOUS. Rockland is subject to certain restrictions on
loans to the Company, on investments in the stock or securities
thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of
credit on behalf of the Company. Rockland also is subject to certain
restrictions on most types of transactions with the Company, requiring
that the terms of such transactions be substantially equivalent to
terms of similar transactions with non-affiliated firms. In addition
under state law, there are certain conditions for and restrictions on
the distribution of dividends to the Company by Rockland.
In addition to the laws and regulations discussed above,
regulations have been promulgated under FDICIA which increase the
requirements for independent audits, set standards for real estate
lending and increase lending restrictions with respect to bank officers
and directors. FDICIA also contains provisions which amend various
consumer banking laws, limit the ability of "undercapitalized banks" to
borrow from the Federal Reserve Board's discount window, and require
regulators to perform annual on-site bank examinations.
REGULATORY ENFORCEMENT AUTHORITY. The Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") included
substantial enhancement to the enforcement powers available to federal
banking regulators, This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to initiate injunctive actions against
banking organizations and institution-affiliated parties, as defined.
In general, these enforcement actions may be initiated for violations
of laws and regulations and unsafe or unsound practices. Other actions
or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities.
FIRREA significantly increased the amount of and grounds for civil
money penalties and requires, except under certain circumstances,
public disclosure of final enforcement actions by the federal banking
agencies.
The foregoing references to laws and regulations which are
applicable to the Company and Rockland are brief summaries thereof
which do not purport to be complete and which are qualified in their
entirety by reference to such laws and regulations.
23
FEDERAL TAXATION. The Company and its subsidiaries are subject
to those rules of federal income taxation generally applicable to
corporations under the Internal Revenue Code (the "Code"). The Company
and its subsidiaries, as members of an affiliated group of corporations
within the meaning of Section 1504 of the Code, file a consolidated
federal income tax return, which has the effect of eliminating or
deferring the tax consequences of inter-company distributions,
including dividends, in the computation of consolidated taxable income.
STATE TAXATION. The Commonwealth of Massachusetts imposes a
tax on the Massachusetts net income of banks at a rate of 10.5% as of
December 31, 1999. In addition, the Company is subject to an excise tax
at the rate of .26% of its net worth. The Bank's security corporation
subsidiaries are, for state tax purposes, taxed at a rate of 1.32% of
its gross income. Massachusetts net income for banks is generally
similar to federal taxable income except deductions with respect to the
following items are generally not allowed: (i) dividends received, (ii)
losses sustained in other taxable years, and (iii) income or franchise
taxes imposed by other states. The Company is permitted to carry a
percentage of its losses forward for not more than five years, while
Rockland is not permitted to carry its losses forward or back for
Massachusetts tax purposes.
For additional information, see Note 9 of the Notes to
Consolidated Financial Statements included in Item 8 hereof.
ITEM 2. PROPERTIES
At February 29, 2000, the Bank conducted its business from its
headquarters and main office at 288 Union Street, Rockland,
Massachusetts, and 33 other branch offices located in Southeastern
Massachusetts in Plymouth County, Bristol County and Norfolk County. In
addition to its main office, the Bank owns five of its branch offices
and leases the remaining 28 offices. Of the branch offices which are
leased by the Bank, 2 have remaining lease terms, including options
renewable at the Bank's option, of five years or less, 12 have
remaining lease terms of greater than five years and less than 10
years, and 14 have a remaining lease term of 10 years or more. The
Bank's aggregate rental expense under such leases was $1.6 million in
1999. Certain of the Bank's branch offices are leased from companies
with whom directors of the Company are affiliated. The Bank leases
space for its AM&TS Division in a building in Hanover, Massachusetts
developed by a joint venture consisting of the Bank and A. W. Perry,
Inc., and in Attleboro. It also leases office space in two buildings in
Rockland, Massachusetts for administrative purposes as well as space in
four additional facilities used as lending centers. In the first
quarter of 2000 the Bank agreed to lease a property in Plymouth,
Massachusetts that will become the Bank's new Data Center. At December
31, 1999, the net book value of the property and leasehold improvements
of the offices of the Bank amounted to $8.5 million. The Bank's
properties that are not leased are owned free and clear of any
mortgages. The Bank believes that all of its properties are well
maintained and are suitable for their respective present needs and
operations. For additional information regarding the Bank's lease
obligations, see Note 13 to the Consolidated Financial Statements,
included in Item 8 hereof.
24
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in routine legal proceedings that
arise in the ordinary course of business. Management has reviewed these
actions with legal counsel and has taken into consideration the view of
counsel as to the outcome of the litigation. In the opinion of
management, final disposition of these lawsuits is not expected to have
a material adverse effect on the Company's financial position or
results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required herein is incorporated by reference
from page 33 of the Company's 1999 Annual Report to Stockholders
("Annual Report"), which is included herein as Exhibit 13. The
Registrant did not sell any unregistered equity securities during the
year-ended December 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference
from page 1 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required herein is incorporated by reference
from pages 2 through 11 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required
herein are incorporated by reference from pages 12 through 32 of the
Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference
from the Company's definitive proxy statement (the "Proxy Statement")
relating to its 1999 Annual Meeting of Stockholders filed with the
Commission on March 20, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required herein is incorporated by reference
from the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference
from the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference
from the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)(1) The following financial statements are incorporated
herein by reference from pages 12 through 32 of the Annual Report.
Report of Independent Public Accountants
Consolidated balance sheets as of December 31, 1999 and 1998.
Consolidated statements of income for each of the years in the
three year period ended December 31, 1999
Consolidated statements of stockholder's equity for each of
the years in the three year period ended 12/31/99
Consolidated statements of Comprehensive Income for each of
the years in the three year period ended December 31, 1999
Consolidated statements of cash flows for each of the years in
the three year period ended December 31, 1999
26
Notes to Consolidated Financial Statements
(a)(2) There are no financial statement schedules filed
herewith. All information required by financial statement schedules is
disclosed in Notes to Consolidated Financial Statements or is not
applicable to the Company.
(a)(3) The following exhibits are filed as part of this
report.
EXHIBIT INDEX
NO. EXHIBIT FOOTNOTE
---------- ----------------------------------- ---------
3.(i) Restated Articles of Organization, as (6)
amended to date
3.(ii) Bylaws of the Company, as amended (1)
to date
4.1 Specimen Common Stock Certificate (5)
4.2 Specimen Preferred Stock Purchase (2)
Rights Certificate
4.3 Amended and Restated Independent (7)
Bank Corp. 1987 Incentive Stock
Option Plan ("Stock Option Plan").
(Management contract under Item
601(10)(iii)(A).
4.4 Independent Bank Corp. 1996 (9)
Non-Employee Directors' Stock
Option Plan (Management contract
under Item 901(10)(iii)(A)).
4.5 Independent Bank Corp. 1997 (10)
Employee Stock Option Plan
(Management contract under
Item 601 (10)(iii)(A)).
10.1 Amendment No. 1 to Third Amended and (8)
Restated Employment Agreement between the
Company, Rockland and Douglas H.
Philipsen, dated June 25, 1997
("Philipsen Employment Agreement").
(Management contract under Item
601(10)(iii)(A)).
27
NO. EXHIBIT FOOTNOTE
---------- ----------------------------------- ---------
10.2 Amendment No. 1 to Second Amended and (8)
Restated Employment Agreement between
Rockland Trust Company and Richard
F. Driscoll, dated January 19, 1996
(the "Driscoll Agreement").
Employment Agreements between
Rockland and Richard J. Seaman,
Ferdinand T. Kelley,
and Raymond G. Fuerschbach are
substantially similar to the Driscoll
agreement. (Management contract
under Item 601(10)(iii)(A)).
10.3 Rockland Trust Company Deferred (3)
Compensation Plan for Directors, as
Amended and Restated dated
September 1992. (Management
contract under Item 601(10)(iii)(A)).
10.4 Stockholders Rights Agreement, dated (2)
January 24, 1991, between the Company
and Rockland, as Rights Agent
10.5 Master Securities Repurchase (3)
Agreement
10.6 Purchase and Assumption Agreement dated as
of 9/27/99, between Rockland Trust
Company and Fleet Financial Group, Inc.
(Exhibit to Form 8-K filed on 10/1/99)
13 Annual Report to Stockholders
21 Subsidiaries of the Registrant (3)
23 Consent of Independent Public
Accountants
27 Financial Data Schedule
(FOOTNOTES ON NEXT PAGE)
28
Footnotes:
(1) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1990.
(2) Exhibit is incorporated by reference to the Form 8-A
Registration Statement (No. 0-19264) filed by the Company.
(3) Exhibit is incorporated by reference to the Form S-1 Registration
Statement (No. 33-52216) filed by the Company.
(4) Exhibit is incorporated by reference to the Form S-3
Registration Statement (No. 333-89835) filed by the Company.
(5) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1992.
(6) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1993.
(7) Incorporated by reference from the Company's report on Form 10-K
for the year ended December 31, 1994.
(8) Incorporated by reference from the Company's report on Form
10-K for the year ended December 31, 1998.
(9) Incorporated by reference from the Company's definitive Proxy
Statement for the 1996 Annual Meeting of Stockholders filed
with the Commission on March 19, 1996.
(10) Incorporated by reference from the Company's definitive Proxy
Statement for the 1997 Annual Meeting of Stockholders filed
with the Commission on March 20, 1997.
(b) One report on Form 8-K was filed by the Company on
10/1/99 related to the Purchase and Assumption Agreement, dated
as of 9/27/99 between Rockland Trust Company and Fleet Financial
Group, Inc.
(c) See (a)(3) above for all exhibits filed herewith and the
Exhibit Index.
(d) All schedules are omitted as the required information is
not applicable or the information is presented in the Consolidated
Financial Statements or related notes.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INDEPENDENT BANK CORP.
Date: March 9, 2000 /s/ Douglas H. Philipsen,
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the followings persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Each person whose signature appears below hereby makes, constitutes and
appoints Douglas H. Philipsen and Richard Seaman and each of them
acting individually, his true and lawful attorneys, with full power to
sign for such person and in such person's name and capacity indicated
below any and all amendments to this Form 10-K, hereby ratifying and
confirming such person's signature as it may be signed by said
attorneys to any and all amendments.
/s/ Richard S. Anderson Date: March 9, 2000
Richard S. Anderson
Director
/s/ W. Paul Clark Date: March 9, 2000
W. Paul Clark
Director
/s/ Robert L. Cushing Date: March 9, 2000
Robert L. Cushing
Director
/s/ Alfred L. Donovan Date: March 9, 2000
Alfred L. Donovan
Director
30
/s/ Benjamin A Gilmore, II Date: March 9, 2000
Benjamin A. Gilmore, II
Director
/s/ Lawrence M. Levinson Date: March 9, 2000
Lawrence M. Levinson
Director
/s/ Richard H. Sgarzi Date: March 9, 2000
Richard H. Sgarzi
Director
/s/ Robert J. Spence Date: March 9, 2000
Robert J. Spence
Director
/s/ William J. Spence Date: March 9, 2000
William J. Spence
Director
/s/ John H. Spurr, Jr. Date: March 9, 2000
John H. Spurr, Jr.
Director
/s/ Robert D. Sullivan Date: March 9, 2000
Robert D. Sullivan
Director
/s/ Brian S. Tedeschi Date: March 9, 2000
Brian S. Tedeschi
Director
/s/ Thomas J. Teuten Date: March 9, 2000
Thomas J. Teuten
Director
31
/s/ Richard J. Seaman Date: March 9, 2000
Richard J. Seaman
Chief Financial Officer and Treasurer
(principal financial and accounting officer)
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