INDEPENDENT BANK CORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2003
Commission File Number: 1-9047

Independent Bank Corp.

(Exact name of registrant as specified in its charter)


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

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

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

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

Yes [X] No [ ]

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

Yes [X] No [ ]

As of November 1, 2003, there were 14,625,154 shares of the issuer’s common stock outstanding, par value $.01 per share.

TABLE OF CONTENTS


PART 1. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
			NOTE 1 - BASIS OF PRESENTATION
			NOTE 2 - STOCK BASED COMPENSATION
			NOTE 3 – RECENT ACCOUNTING DEVELOPMENTS
			NOTE 4 - SETTLEMENT OF REAL ESTATE INVESTMENT TRUST (“REIT”) RETROACTIVE TAXATION DISPUTE
			NOTE 5 - EARNINGS PER SHARE
			NOTE 6 - REDEMPTION/ISSUANCE OF TRUST PREFERRED SECURITIES
			NOTE 7 - COMPREHENSIVE INCOME
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Table 1 - Summary of Delinquency Information
		Table 2 - Nonperforming Assets / Loans
		Table 3 - Summary of Changes in the Allowance for Loan Losses
		Table 4 - Summary of Allocation of the Allowance for Loan Losses
		Table 5 - Average Balance, Interest Earned/Paid & Average Yields
		Table 6 - Average Balance, Interest Earned/Paid & Average Yields
		Table 7 - Volume Rate Analysis
		Table 8 - Interest Rate Sensitivity
		Table 9 - Contractual Obligations and Commitments by Maturity
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds - None
	Item 3. Defaults Upon Senior Securities – None
	Item 4. Submission of Matters to a Vote of Security Holders — None
	Item 5. Other Information — None
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Ex-31.1 Section 302 Certification of CEO
Ex-31.2 Section 302 Certification of CFO
Ex 32 Section 906 Certification of CEO & CFO

INDEX


				PAGE #
PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Consolidated Balance Sheets (unaudited) -			3
			September 30, 2003 and December 31, 2002
		Consolidated Statements of Income (unaudited) -			4
			Nine months and three months ended September 30, 2003 and 2002
		Consolidated Statements of Stockholder’s Equity (unaudited) -			5
			Nine months ended September 30, 2003 and for the year ended December 31, 2002
		Consolidated Statements of Cash flows (unaudited) -			6
			Nine months ended September 30, 2003 and 2002
		Condensed Notes to Consolidated Financial Statements -
			September 30, 2003
			Note 1 - Basis of Presentation		7
			Note 2 - Stock Based Compensation		7
			Note 3 - Recent Accounting Developments		9
			Note 4 - Settlement of Real Estate Investment Trust (“REIT”) Retroactive Taxation Dispute		11
			Note 5 - Earnings Per Share		11
			Note 6 - Redemption/Issuance of Trust Preferred Securities		12
			Note 7 - Comprehensive Income		13
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations				14
			Table 1 - Summary of Delinquency Information		17
			Table 2 - Nonperforming Assets / Loans		18
			Table 3 - Summary of Changes in the Allowance for Loan Losses		21
			Table 4 - Summary of Allocation of the Allowance for Loan Losses		22
			Table 5 - Average Balance, Interest Earned/Paid & Average Yields - Three months ended September 30, 2003 and 2002		25
			Table 6 - Average Balance, Interest Earned/Paid & Average Yields - Nine months ended September 30, 2003 and 2002		26
			Table 7 - Volume Rate Analysis		28
			Table 8 - Interest Rate Sensitivity		33
			Table 9 - Contractual Obligations and Commitments by Maturity		35
	Item 3. Quantitative and Qualitative Disclosures About Market Risk				36
	Item 4. Controls and Procedures				36
PART II. OTHER INFORMATION					36
	Item 1. Legal Proceedings				36
	Item 2. Changes in Securities and Use of Proceeds				37
	Item 3. Defaults Upon Senior Securities				37
	Item 4. Submission of Matters to a Vote of Security Holders				37
	Item 5. Other Information				37
	Item 6. Exhibits and Reports on Form 8-K				37
Signatures					41
Exhibit 31.1 – Certification 302					42
Exhibit 31.2 – Certification 302					44
Exhibit 32 – Certification 906					46

PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements

INDEPENDENT BANK CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited, Dollars In Thousands, Except Share Amounts)


					September 30,			December 31,
					2003			2002

ASSETS
	CASH AND DUE FROM BANKS				$	68,810		$	71,317
	FEDERAL FUNDS SOLD & SHORT TERM INVESTMENTS					—			3,169
	INVESTMENTS
				Trading Assets		1,146			1,075
				Securities Available for Sale		552,161			501,828
				Securities Held to Maturity (fair value $134,956 and $152,566)		129,537			149,071
				Federal Home Loan Bank Stock		21,907			17,036

	TOTAL INVESTMENTS					704,751			669,010

	LOANS
				Commercial & Industrial		171,563			151,591
				Commercial Real Estate		559,184			511,102
				Residential Real Estate		319,240			281,452
				Real Estate Construction		75,158			59,371
				Consumer - Installment		299,239			323,501
				Consumer - Other		124,643			104,585

	TOTAL LOANS					1,549,027			1,431,602
			LESS: ALLOWANCE FOR LOAN LOSSES			(23,103	)		(21,387	)

			NET LOANS			1,525,924			1,410,215

	BANK PREMISES AND EQUIPMENT, Net					32,119			30,872
	GOODWILL					36,236			36,236
	MORTGAGE SERVICING RIGHTS					3,135			2,039
	BANK OWNED LIFE INSURANCE					39,986			37,133
	OTHER ASSETS					20,073			25,381

		TOTAL ASSETS			$	2,431,034		$	2,285,372

LIABILITIES
	DEPOSITS
				Demand Deposits	$	447,167		$	429,042
				Savings and Interest Checking Accounts		537,162			464,318
				Money Market and Super Interest Checking Accounts		359,746			320,819
				Time Certificates of Deposit over $100,000		119,078			101,835
				Other Time Certificates of Deposits		343,795			372,718

			TOTAL DEPOSITS			1,806,948			1,688,732

	FEDERAL FUNDS PURCHASED AND ASSETS SOLD UNDER REPURCHASE AGREEMENTS					49,037			58,092
	TREASURY TAX AND LOAN NOTES					4,868			6,471
	FEDERAL HOME LOAN BANK BORROWINGS					331,636			297,592
	OTHER LIABILITIES					21,988			25,469

			TOTAL LIABILITIES		$	2,214,477		$	2,076,356

	COMMITMENTS AND CONTINGENCIES
	CORPORATION-OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE CORPORATION Outstanding: 2,000,000 shares				$	47,835		$	47,774

STOCKHOLDERS’ EQUITY
PREFERRED STOCK, $.01 par value. Authorized: 1,000,000 Shares Outstanding: None						—			—
COMMON STOCK, $.01 par value. Authorized: 30,000,000 Issued: 14,863,821 Shares at September 30, 2003 and December 31, 2002.						149			149
TREASURY STOCK: 256,192 Shares at September 30, 2003 and 402,340 Shares at December 31, 2002.						(4,006	)		(6,292	)
TOTAL OUTSTANDING STOCK: 14,607,629 at September 30, 2003 and 14,461,481 at December 31, 2002
TREASURY STOCK SHARES HELD IN RABBI TRUST AT COST						(1,223	)		(1,189	)
DEFERRED COMPENSATION OBLIGATION						1,223			1,189
ADDITIONAL PAID IN CAPITAL						42,061			41,994
RETAINED EARNINGS						124,350			110,910
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET OF TAX						6,168			14,481

				TOTAL STOCKHOLDERS’ EQUITY		168,722			161,242

TOTAL LIABILITIES, MINORITY INTEREST IN SUBSIDIARIES, AND STOCKHOLDERS’ EQUITY					$	2,431,034		$	2,285,372

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

INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, Dollars In Thousands, Except Share and Per Share Data)


			NINE MONTHS ENDED					THREE MONTHS ENDED
			SEPTEMBER 30,					SEPTEMBER 30,
			2003		2002 (1)			2003		2002

	Interest on Loans		$	72,202	$	74,306		$	24,057	$	24,907
	Interest and Dividends on Securities			24,773		31,724			7,864		10,444
	Interest on Federal Funds Sold and Short-Term Investments			32		330			14		189

		Total Interest Income		97,007		106,360			31,935		35,540

INTEREST EXPENSE
	Interest on Deposits			13,462		19,609			4,303		6,056
	Interest on Borrowings			11,463		12,001			3,517		4,057

		Total Interest Expense		24,925		31,610			7,820		10,113

		Net Interest Income		72,082		74,750			24,115		25,427

PROVISION FOR LOAN LOSSES				2,790		3,600			930		1,200

		Net Interest Income After Provision For Loan Losses		69,292		71,150			23,185		24,227

NON-INTEREST INCOME
	Service Charges on Deposit Accounts			8,473		7,368			2,952		2,562
	Investment Management Services			3,274		4,079			1,053		1,133
	Mortgage Banking Income			3,752		1,924			1,718		470
	BOLI Income			1,410		1,376			480		468
	Net Gain/(Loss) on Sales of Securities			2,327		(38	)		124		(38	)
	Other Non-Interest Income			2,329		1,763			866		570

		Total Non-Interest Income		21,565		16,472			7,193		5,165

NON-INTEREST EXPENSE
	Salaries and Employee Benefits			31,244		28,791			10,629		10,362
	Occupancy and Equipment Expenses			6,707		6,473			2,042		2,154
	Data Processing & Facilities Management			3,387		3,185			1,182		1,011
	Pre-payment Penalty on Borrowings			1,941		—			—		—
	Impairment Charge			—		4,372			—		—
	Other Non-Interest Expense			12,938		14,133			4,292		4,222

		Total Non-Interest Expense		56,217		56,954			18,145		17,749

	Minority Interest Expense			3,268		3,950			1,095		1,082

INCOME BEFORE INCOME TAXES				31,372		26,718			11,138		10,561
PROVISION FOR INCOME TAXES				12,252		8,675			3,620		3,588

NET INCOME			$	19,120	$	18,043		$	7,518	$	6,973

Less: Trust Preferred Issuance Cost Write-off (Net of Tax)				—		1,505			—		—

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS			$	19,120	$	16,538		$	7,518	$	6,973

BASIC EARNINGS PER SHARE			$	1.32	$	1.15		$	0.52	$	0.48

DILUTED EARNINGS PER SHARE			$	1.30	$	1.13		$	0.51	$	0.48

Weighted average common shares (Basic)				14,537,294		14,402,509			14,582,168		14,446,066
Common stock equivalents				164,513		211,198			189,656		163,950

Weighted average common shares (Diluted)				14,701,807		14,613,707			14,771,824		14,610,016

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

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

INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited - Dollars in Thousands, Except Per Share Data)


														OTHER
								ADDITIONAL						ACCUMULATED
			COMMON		TREASURY			PAID-IN			RETAINED			COMPREHENSIVE
			STOCK		STOCK			CAPITAL			EARNINGS			INCOME			TOTAL

BALANCE DECEMBER 31, 2001			$	149	($	8,369	)	$	43,633		$	92,779		$	5,069		$	133,261

	Net Income (1)											25,066						25,066
	Cash Dividends Declared ($.48 per share)											(6,935	)					(6,935	)
	Write-Off of Stock Issuance Costs, Net of Tax								(1,505	)								(1,505	)
	Proceeds From Exercise of Stock Options					2,077			(564	)								1,513
	Tax Benefit on Stock Option Exercise								430									430
	Change in Fair Value of Derivatives During Period, Net of Tax and Realized Gains														2,009			2,009
	Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains														7,403			7,403

BALANCE DECEMBER 31, 2002			$	149	($	6,292	)	$	41,994		$	110,910		$	14,481		$	161,242

BALANCE DECEMBER 31, 2002			$	149	($	6,292	)	$	41,994		$	110,910		$	14,481		$	161,242

	Net Income											19,120						19,120
	Cash Dividends Declared ($.39 per share)											(5,680	)					(5,680	)
	Proceeds From Exercise of Stock Options					2,286			(290	)								1,996
	Tax Benefit on Stock Option Exercise								357									357
	Change in Fair Value of Derivatives During Period, Net of Tax and Realized Gains														(1,716	)		(1,716	)
	Change in Unrealized Gain on Securities Available For
		Sale, Net of Tax and Realized Gains													(6,597	)		(6,597	)

BALANCE SEPTEMBER 30, 2003			$	149	($	4,006	)	$	42,061		$	124,350		$	6,168		$	168,722

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

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

INDEPENDENT BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited- In Thousands)


				NINE MONTHS ENDED
				SEPTEMBER 30,
				2003			2002 (1)

CASH FLOWS FROM OPERATING ACTIVITIES:
	Net Income			$	19,120		$	18,043
	ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED FROM OPERATING ACTIVITIES:
		Depreciation and amortization			4,336			3,745
		Provision for loan losses			2,790			3,600
		Deferred income tax (expense)/benefit			(6,208	)		4,493
		Loans originated for resale			(226,724	)		(103,242	)
		Proceeds from mortgage loan sales			237,468			102,025
		Gain on sale of mortgages			(1,692	)		(169	)
		(Gain)/loss on sale of investments			(2,327	)		38
		Prepayment penalty on borrowings			1,941			—
		Impairment charge on Security			—			4,372
		Gain recorded from mortgage servicing rights, net of amortization			(1,097	)		(56	)
		Changes in assets and liabilities:
			Decrease in other assets		871			2,478
			Increase in other liabilities		5,518			1,728

TOTAL ADJUSTMENTS					14,876			19,012

	NET CASH PROVIDED FROM OPERATING ACTIVITIES				33,996			37,055

CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from maturities and principal repayments of Securities Held to Maturity				20,487			11,545
	Proceeds from maturities and principal repayments and sales of Securities Available For Sale				309,545			165,735
	Purchase of Securities Held to Maturity				(1,000	)		(41,673	)
	Purchase of Securities Available For Sale				(369,966	)		(136,658	)
	Purchase of Federal Home Loan Bank Stock				(4,871	)		—
	Net increase in Loans				(127,551	)		(85,195	)
	Investment in Bank Premises and Equipment				(4,399	)		(4,195	)

	NET CASH USED IN INVESTING ACTIVITIES				(177,755	)		(90,441	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net decrease in Time Deposits				(11,680	)		(61,750	)
	Net increase in Other Deposits				129,896			172,176
	Net (decrease) /increase in Federal Funds Purchased and Assets Sold Under Repurchase Agreements				(9,055	)		9,221
	Net increase/(decrease) in Federal Home Loan Bank Borrowings				34,044			(20,305	)
	Net decrease in Treasury Tax & Loan Notes				(1,603	)		(3,768	)
	Redemption of corporation-obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the Corporation				—			(53,750	)
	Issuance of corporation-obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the Corporation				—			23,756
	Proceeds from stock issuance				1,996			1,362
	Dividends Paid				(5,515	)		(5,032	)

	NET CASH PROVIDED FROM FINANCING ACTIVITIES				138,083			61,910

	NET (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS				(5,676	)		8,524

	CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD				74,486			72,967

	CASH AND CASH EQUIVALENTS AS OF JUNE 30,			$	68,810		$	81,491

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine months for:
	Interest on deposits and borrowings			$	26,979		$	30,711
	Interest on shares subject to mandatory redemption				3,268			3,950
	Income taxes				13,430			4,417
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
	Decrease in fair value of derivatives, net of tax				1,716			1,387
	Transfer of securities from HTM to AFS				—			750
	Loans transferred to OREO				—			—
	Issuance of shares from Treasury Stock for the exercise of stock options				2,286			1,878
	Write-off of unamortized Trust Preferred issuance costs upon redemption, net of tax				—			1,505

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

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

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company headquartered in Rockland, Massachusetts. The Company is the sole stockholder of Rockland Trust Company (“Rockland” or “the Bank”), a Massachusetts trust company chartered in 1907. The Company’s other subsidiaries are Independent Capital Trust III and Independent Capital Trust IV, each of which have issued trust preferred securities to the public. The Bank’s subsidiaries consist of two Massachusetts securities corporations, RTC Securities Corp. and RTC Securities Corp. X, Taunton Avenue Inc., and Rockland Trust Community Development LLC. Taunton Avenue Inc. was formed in May 2003 to hold loans, industrial development bonds and other assets. Rockland Trust Community Development LLC was formed in August 2003 to provide investment capital to low-income communities and low-income persons.

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

NOTE 2 - STOCK BASED COMPENSATION

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

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


Three Months Ended September 30,		2003		2002

Net Income Available to Common Stockholders:	As Reported (000’s)	$	7,518	$	6,973
	Pro Forma (000’s)	$	7,394	$	6,852
Basic EPS:	As Reported	$	0.52	$	0.48
	Pro Forma	$	0.51	$	0.47
Diluted EPS:	As Reported	$	0.51	$	0.48
	Pro Forma	$	0.50	$	0.47


Nine Months Ended September 30,		2003		2002

Net Income Available to Common Stockholders:	As Reported (000’s)	$	19,120	$	16,538
	Pro Forma (000’s)	$	18,580	$	16,141
Basic EPS:	As Reported	$	1.32	$	1.15
	Pro Forma	$	1.28	$	1.12
Diluted EPS:	As Reported	$	1.30	$	1.13
	Pro Forma	$	1.26	$	1.10

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


			1997 Plan				1996 Plan

Risk Free Interest Rate
	September 30, 2003			2.33	%	(1)		2.41	%	(2)
		Fiscal Year 2002		2.88	%			4.52	%
Expected Dividend Yields
	September 30, 2003			2.13	%	(1)		2.56	%	(2)
		Fiscal Year 2002		2.05	%			1.77	%
Expected Lives
	September 30, 2003		3 years			(1)	3.5 years			(2)
		Fiscal Year 2002	3 years				3.5 years
Expected Volatility
	September 30, 2003			33	%	(1)		31	%	(2)
		Fiscal Year 2002		33	%			33	%

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

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

NOTE 3 – RECENT ACCOUNTING DEVELOPMENTS

Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, which amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Companies are able to eliminate a “ramp-up” effect that the SFAS No. 123 transition rule creates in the year of adoption and allows companies to elect a method that will provide for comparability amongst years reported. In addition, SFAS No. 148 amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the fair value based method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company is currently considering the adoption of fair value based method of accounting for stock-based employee compensation, and if the Company does elect to adopt such accounting, the historical impact can be seen in Note 2, “Stock Based Compensation.”

FASB issued Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities – an Interpretation of Accounting Research Bulletin No. 51.” FIN 46 establishes accounting guidance for consolidation of variable interest entities (“VIE”) that function to support the activities of the primary beneficiary. The primary beneficiary of a VIE entity is the entity that absorbs a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns, or both, as a result of ownership, controlling interest, contractual relationship or other business relationship with a VIE. Prior to the implementation of FIN 46, VIEs were generally consolidated by an enterprise when the enterprise had a controlling financial interest through ownership of a majority of voting interest in the entity. The Company adopted FIN No. 46 as of February 1, 2003 for all arrangements entered into after January 31, 2003 and will adopt as of December 31, 2003 for other arrangements entered into prior to January 31, 2003 per FASB Staff Position No. FIN 46-6. The Company does not believe the adoption of this interpretation will have a material impact on the Company’s financial position or results of operation.

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

SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” In April 2003, the FASB issued SFAS No. 149, which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” resulting in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively. Implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 should continue to be applied in accordance with their respective effective dates. The Company adopted this statement on July 1, 2003. There was no material impact on the Company’s financial position or results of operations.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” In May 2003, the FASB issued SFAS No. 150, which establishes standards for how certain financial instruments with characteristics of both liabilities and equity should be measured and classified. Certain financial instruments with characteristics of both liabilities and equity will be required to be classified as a liability. This

statement is effective for financial instruments entered into or modified after May 31, 2003, and July 1, 2003 for all other financial instruments with the exception of existing mandatorily redeemable financial instruments issued by limited life subsidiaries which have been indefinitely deferred from the scope of the statement. On November 7, 2003, subsequent to the Company’s filing of its earnings release on October 9, 2003, the FASB issued a FASB Staff Position (“FSP”) FAS 150-3, “Effective Date, Disclosures, and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests under FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” FSP FAS 150-3 indefinitely defers paragraph 9 of SFAS No. 150 for mandatorily redeemable financial instruments issued by limited life subsidiaries. Paragraph 9 provides guidance on the measurement requirements for mandatorily redeemable financial instruments. Therefore, at September 30, 2003, the junior subordinated debentures continue to be classified as a separate line item between total liabilities and stockholders’ equity, mezzanine section, on the Consolidated Balance Sheet. Further consideration will be given to the classification of these trust preferred securities back into debt upon further clarification of existing guidance.

NOTE 4 - SETTLEMENT OF REAL ESTATE INVESTMENT TRUST (“REIT”) RETROACTIVE TAXATION DISPUTE

In June of 2003, two of the Company’s subsidiaries settled a state tax dispute with the Commonwealth of Massachusetts Department of Revenue (“DOR”). The settlement resulted from a negotiation between the DOR and a group of approximately 50 to 60 banks. The dispute that led to the settlement arose from the assessment by the DOR in approximately June 2002, of additional state taxes against Massachusetts banks that had a REIT in their corporate structure. The dispute was exacerbated when, on March 5, 2003, the Governor of Massachusetts signed legislation that declared that the dividends which banks received from REIT subsidiaries were subject to state taxation, retroactive to 1999. Under the settlement, approximately $3.2 million, prior to federal deduction, was paid to the DOR on June 23, 2003 on behalf of the Company’s two subsidiaries.

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

NOTE 5 - EARNINGS PER SHARE

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

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

Earnings per share consisted of the following components for the nine months and the three months ended September 30, 2003 and 2002:


	Net Income

For the Three Months Ended September 30,	2003		2002 (1)

	(In Thousands)
Net Income	$	7,518	$	6,973

Net Income Available for Common Stockholders	$	7,518	$	6,973


					Net Income Available To
					Common
	Weighted Average				Stockholders
	Shares				Per Share

For the Three Months Ended September 30,	2003		2002		2003			2002 (1)

Basic EPS		14,582,168		14,446,066	$	0.52		$	0.48
Effect of dilutive securities		189,656		163,950	($	0.01	)		—

Diluted EPS		14,771,824		14,610,016	$	0.51		$	0.48


	Net Income

For the Nine Months Ended September 30,	2003		2002 (1)

	(In Thousands)
Net Income	$	19,120	$	18,043
Less: Trust preferred issuance costs write-off after tax		—		1,505

Net Income Available for Common Stockholders	$	19,120	$	16,538


					Net Income Available To
					Common
	Weighted Average				Stockholders
	Shares				Per Share

For the Nine Months Ended September 30,	2003		2002		2003			2002 (1)

Basic EPS		14,537,294		14,402,509	$	1.32		$	1.15
Effect of dilutive securities		164,513		211,198	($	0.02	)	($	0.02	)

Diluted EPS		14,701,807		14,613,707	$	1.30		$	1.13

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

Options to purchase common stock with an exercise price greater than the average market price of common shares for the period are excluded from the calculation of diluted earnings per share, as their effect on earnings per share would be antidilutive. For the three and nine months ended September 30, 2003, there were 11,217 and 184,234, respectively, of shares excluded from the calculation of diluted earnings per share. For the three and nine months ended September 30, 2002, there were 14,000 and 8,615, respectively, of shares excluded from the calculation of diluted earnings per share.

NOTE 6 - REDEMPTION/ISSUANCE OF TRUST PREFERRED SECURITIES

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

annual pre-tax interest expense on mandatory redeemable securities by approximately $594,000.

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

NOTE 7 - COMPREHENSIVE INCOME

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

Comprehensive income is reported net of taxes, as follows:
(unaudited, In Thousands)


	FOR THE NINE						FOR THE THREE
	MONTHS ENDED						MONTHS ENDED
	SEPTEMBER 30,			SEPTEMBER 30,			SEPTEMBER 30,			SEPTEMBER 30,
	2003			2002			2003			2002

Net Income	$	19,120		$	18,043	(1)	$	7,518		$	6,973
Other Comprehensive Loss, Net of Tax:
(Decrease) Increase in unrealized gains on securities available for sale, net of tax of $3,842 and $5,577, for the nine months ending September 30, 2003 and September 30, 2002, respectively, and $1,519 and $3,123 for the three months ended September 30, 2003 and September 30, 2002, respectively.		(5,223	)		8,633			(2,575	)		4,932
Less: reclassification adjustment for realized (gains)losses included in net earnings, net of tax of $810 and 0, for the nine months ending September 30, 2003 and September 30, 2002, respectively, and $82 and $63, for the three months ending September 30, 2003 and September 30, 2002, respectively.		(1,374	)		—			(114	)		87

Net change in unrealized gains on securities available for sale, net of tax of $4,652 and $5,577 for the nine months ending September 30, 2003 and September 30, 2002, respectively and $1,601 and $3,186 for the three months ending September 30, 2003 and September 30, 2002, respectively.		(6,597	)		8,633			(2,688	)		5,019
(Decrease) Increase in fair value of derivatives, net of tax of $389 and $163 for the nine months ending September 30, 2003 and September 30, 2002, respectively and $106 and $95 for the three months ending September 30, 2003 and September 30, 2002, respectively.		(722	)		303			196			(177	)
Less: reclassification of realized gains on derivatives, net of tax of $720 and $997, for the nine months ending September 30, 2003 and September 30, 2002, respectively and $240 and $1,132 for the three months ending September 30, 2003 and September 30, 2002, respectively.		(994	)		(1,690	)		(331	)		(1,940	)

Net change in fair value of derivatives, net of tax of $1,109 and $834, for the nine months ending September 30, 2003 and September 30, 2002, respectively and $134 and $1,227 the three months ending September 30, 2003 and September 30, 2002, respectively.		(1,716	)		(1,387	)		(135	)		(2,117	)

Other Comprehensive (Loss)/Gain		(8,313	)		7,246			(2,823	)		2,902

Comprehensive Income	$	10,806		$	25,289		$	4,695		$	9,875

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

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

The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed with the Securities and Exchange Commission.

Cautionary Statement Regarding Forward-Looking Statements

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

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

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

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

• adverse changes in the local real estate market, as most of the Company’s loans are concentrated in Southeastern Massachusetts and a substantial portion of these loans have real estate as collateral;

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

• inflation, interest rate, market and monetary fluctuations;

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

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

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

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

• technological changes;

• changes in consumer spending and savings habits; and

• regulatory or judicial proceedings.

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

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

OVERVIEW

The Company’s total assets increased $145.7 million, or 6.4%, from December 31, 2002 to a total of $2.4 billion at September 30, 2003. The investment portfolio increased by $35.7 million, or 5.3%, to $704.8 million at September 30, 2003 as compared to fiscal year-end 2002. Loans increased $117.4 million, or 8.2%, during the nine months ending 2003. At September 30, 2003, total deposits increased $118.2 million, or 7.0% as compared to December 31, 2002 to $1.8 billion from $1.7 billion; however, the mix of deposits changed with an increase in core deposits of $129.9 million, or 10.7%, and a decrease in the more expensive time deposit category of $11.7 million, or 2.5%.

Net income for the three months ended September 30, 2003 was $7.5 million, an increase of $0.5 million, or 7.8%, compared to the three months ended September 30, 2002. Diluted earnings per share were $0.51, a 6.3% increase compared to $0.48 for the same period last year. The third quarter 2003 results reflect a decrease in net interest income of $1.3 million, or 5.2%, an increase in non-interest income of $2.0 million, or 39.3%, and an increase in non-interest expense of $0.4 million, or 2.2%.

Net income for the nine months ended September 30, 2003 was $19.1 million, an increase of $1.1 million, or 6.0%, compared to the nine months ended September 30, 2002. Diluted earnings per share were $1.30, a 15.0% increase compared to $1.13 for the same period last year. The nine months ended September 30, 2003 results also reflect a decrease in net interest income of $2.7 million, or 3.6%, an increase in non-interest income of $5.1 million, or 30.9%, and a decrease in non-interest expense of $737,000, or 1.3%.

Provision for loan losses decreased by $270,000 to $930,000 from $1.2 million for the three months ended September 30, 2003 compared to September 30, 2002, and $810,000 to $2.8 million from $3.6 million for the nine months ended September 30, 2003 compared to September 30, 2002, as a result of continued strength in loan quality.

The Company’s effective income tax rate was 32.50% compared to 33.97%, for the quarters ending September 30, 2003 and September 30, 2002, respectively. The effective income tax rate for nine months ending September 30, 2003 was 39.05% compared to 32.47%.

FINANCIAL POSITION

Loan Portfolio Total loans increased by $117.4 million, or 8.2%, during the nine months ended September 30, 2003 compared to the balance at December 31, 2002. The increases were mainly in commercial real estate, residential real estate and commercial and industrial loans, which increased $48.1 million, or 9.4%, $37.8 million, or 13.4%, and $20.0 million, or 13.2%, respectively. Consumer loans decreased $4.2 million, or 1.0%, primarily due to a decrease in indirect auto loans ($30.2 million) but was somewhat offset by the growth in home equity lines of $17.2 million.

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

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

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

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


		Table 1 - Summary of Delinquency Information

		At September 30, 2003								At December 31, 2002

		60-89 days				90 days or more				60-89 days				90 days or more

		Number		Principal		Number		Principal		Number		Principal		Number		Principal
		of Loans		Balance		of Loans		Balance		of Loans		Balance		of Loans		Balance

		(Dollars in Thousands)
Real Estate Loans:
	Residential		1	$	80		1	$	40		2	$	197		1	$	2
	Commercial		—		—		1		865		2		88		5		1,022
	Construction		—		—		—		—		1		1,400		—		—
Commercial and Industrial Loans			3		740		9		1,248		2		63		4		252
Consumer Installment			63		462		56		331		41		241		32		220
Consumer Other			13		13		25		62		8		14		29		42

Total			80	$	1,295		92	$	2,546		56	$	2,003		71	$	1,538

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

Nonperforming Assets Nonperforming assets are comprised of nonperforming loans, other real estate owned (“OREO”) and nonperforming investment securities. Nonperforming loans consist of nonaccrual loans and loans that are more than 90 days past due but still accruing interest. OREO includes properties held by the Bank as a result of foreclosure or by acceptance of a deed in lieu of foreclosure. Nonperforming investment securities consist of investments that have been identified as other than temporarily impaired and are no longer accruing interest. The Company’s strong underwriting guidelines, prudent investment practices, and the resilient local economy continue to result in very strong asset quality. Nonperforming assets totaled $3.2 million at September 30, 2003 (0.13% of total assets), as compared to the $3.1 million (0.13% of total assets) reported at December 31, 2002. The Company’s total allowance for loan losses (which included $0.5 million credit quality discount at December 31, 2002, which is discussed under “Allowance for Loan Losses” below),represented, as a percentage of the total loan portfolio, 1.49% of those totals at September 30, 2003 and 1.53% at December 31, 2002. The Bank held no OREO property on September 30, 2003 and all investment securities were performing.

Repossessed automobiles loan balances continue to be classified as nonperforming loans, and not as other assets, because the borrower has the potential capacity to satisfy the obligation within twenty days from the date of repossession (before the Bank can schedule disposal of the collateral). The borrower can redeem the property by payment in full at anytime prior to the disposal of it by the Bank. Repossessed automobiles loan balances amounted to $413,000, $663,000, and $568,000 for the periods ending September 30, 2003, December 31, 2002, and September 30, 2002, respectively.

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

Table 2 - Nonperforming Assets / Loans
(Dollars In Thousands)


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

Loans accounted for on a nonaccrual basis (1)
	Commercial & Industrial			$	1,391		$	300		$	631
	Real Estate - Commercial Mortgage				865			1,320			1,442
	Real Estate - Residential Mortgage				367			533			720
	Consumer Installment				413			663			568

		Total		$	3,036		$	2,816		$	3,361

Loans past due 90 days or more but still accruing
	Consumer Installment				100			220			187
	Consumer Other				62			41			126

			Total	$	162		$	261		$	313

Total nonperforming loans				$	3,198		$	3,077		$	3,674

Total nonperforming assets				$	3,198		$	3,077		$	3,674

Restructured loans				$	467		$	497		$	605

Nonperforming loans as a percent of gross loans					0.21	%		0.21	%		0.27	%

Nonperforming assets as a percent of total assets					0.13	%		0.13	%		0.16	%

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

In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain commercial and real estate loans. Terms may be modified to fit the capacity of the borrower to repay in line with the current financial status of the borrower. It is the Bank’s policy to maintain restructured loans on nonaccrual status for approximately six months before management considers a return to accrual status. At September 30, 2003, the Bank had $467,000 of restructured loans. At September 30, 2003, the Bank also had one potential problem loan which was not included in nonperforming loans with an outstanding balance of $0.3 million.

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

Interest income that would have been recognized for the three months ended September 30, 2003 and September 30, 2002, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $46,000 and

$119,000, respectively. Interest income that would have been recognized for the nine months ended September 30, 2003 and September 30, 2002, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $157,000 and $225,000, respectively. The actual amount of interest that was collected on nonaccrual and restructured loans during the three months ended September 30, 2003 and September 30, 2002 and included in interest income was approximately $16,000 and $68,000, respectively. The actual amount of interest that was collected on nonaccrual and restructured loans during the nine months ended September 30, 2003 and September 30, 2002 and included in interest income was approximately $199,000 and $124,000, respectively.

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

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual, consumer, or residential loans for impairment disclosures. At September 30, 2003 and December 31, 2002, impaired loans were $2.7 million and $2.1 million, respectively, which include all commercial real estate loans and commercial and industrial loans on nonaccrual status and restructured loans.

Allowance For Loan Losses While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on increases in nonperforming loans, changes in economic conditions, or for other reasons. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. The Bank was most recently examined by the Federal Deposit Insurance Corporation, (“FDIC”), in the first quarter of 2003. No additional provision for loan losses was required as a result of that examination.

As of September 30, 2003, the allowance for loan losses totaled $23.1 million as compared to $21.4 million at December 31, 2002. Based on the analyses described below, management believes that the level of the allowance for loan losses at September 30, 2003 is adequate.

The allowance for loan losses is maintained at a level that management considers adequate to provide for potential loan losses based upon an evaluation of known and inherent risks in the loan portfolio. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. In 2000, the Bank established a separate “credit quality discount” as a reduction of the loan balances

acquired from FleetBoston Financial. The credit quality discount is a separate allowance that was established for the acquired loan balances. This credit quality discount represents inherent losses in the acquired loan portfolio. The credit quality discount was amortized over the remaining average life of the loans purchased and amortized into interest income proportionately with the loan balances and absorbs charge-offs on these loans. The level of credit quality discount was $0.5 million at December 31, 2002 and there was no longer any credit quality discount remaining as of September 30, 2003.

The total allowance for loan losses was $23.1 million at September 30, 2003 compared to $21.9 million at December 31, 2002 (including credit quality discount). As of September 30, 2003, the allowance for loan losses as a percentage of total loans was 1.49% and December 31, 2002 (excluding the credit quality discount). As of September 30, 2003, the total allowance for loan losses represented 1.49% of loans, as compared to 1.53% at December 31, 2002 (including the credit quality discount described above).

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

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


						Quarter to Date

			September 30,			June 30,			March 31,			December 31,			September 30,
			2003			2003			2003			2002			2002

			(Dollars in Thousands)
Average total loans			$	1,535,419		$	1,504,014		$	1,448,261		$	1,395,325		$	1,352,826

Allowance for loan losses, beginning of quarter			$	22,472		$	21,924		$	21,387		$	20,836		$	19,953
Charged-off loans:
	Commercial & industrial			39			—			—			59			—
	Real estate - commercial			—			—			—			—			—
	Real estate - residential			—			—			—			—			—
	Real estate - construction			—			—			—			—			—
	Consumer - installment			382			473			574			530			458
	Consumer - other			47			41			60			98			83

		Total charged-off loans		468			514			634			687			541

Recoveries on loans previously charged-off:
	Commercial & industrial			62			13			149			58			142
	Real estate - commercial			1			—			1			—			1
	Real estate - residential			—			—			—			—			—
	Real estate - construction			—			—			—			—			—
	Consumer - installment			71			105			78			104			58
	Consumer - other			35			14			13			26			23

		Total recoveries		169			132			241			188			224

Net loans charged-off				299			382			393			499			317
Provision for loan losses				930			930			930			1,050			1,200

Allowance for loan losses, end of period			$	23,103		$	22,472		$	21,924		$	21,387		$	20,836

Credit quality discount on acquired loans				—			425			467			518			587
Total allowances for loan losses, end of quarter			$	23,103		$	22,897		$	22,391		$	21,905		$	21,423

Net loans charged-off as a percent of average total loans				0.02	%		0.03	%		0.03	%		0.04	%		0.02	%
Allowance for loan losses as a percent of total loans				1.49	%		1.48	%		1.49	%		1.49	%		1.50	%
Allowance for loan losses as a percent of nonperforming loans				722.42	%		817.16	%		560.43	%		695.06	%		567.12	%
Total allowances for loan losses as a percent of total loans (including credit quality discount)				1.49	%		1.50	%		1.52	%		1.53	%		1.55	%
Total allowance for loan losses as a percent of nonperforming loans (including credit quality discount)				722.42	%		832.62	%		572.37	%		711.89	%		583.10	%
Net loans charged-off as a percent of allowance for loan losses				1.29	%		1.70	%		1.79	%		2.33	%		1.52	%
Recoveries as a percent of charge-offs				36.11	%		25.68	%		38.01	%		27.37	%		41.40	%

The allowance for loan losses is allocated to various loan categories as part of the Bank’s process of evaluating its adequacy. The allocated amount of allowance was $19.0 million at September 30, 2003, up from $17.0 million at December 31, 2002. The distribution of allowances allocated among the various loan categories was comparable to the distribution as of December 31, 2002. Increases in the amounts allocated were observed in all loan type categories except Consumer – Installment, which exhibited a decrease. These changes are attributed to changes in portfolio balances outstanding and the results of recent assessments of the loan portfolio.

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

Table 4 - Summary of Allocation of the Allowance for Loan Losses
(Dollars - In Thousands)


		AT SEPTEMBER 30,					AT DECEMBER 31,
		2003					2002

				Percent of							Percent of
				Loans					Credit		Loans
		Allowance		In Category			Allowance		Quality		In Category
		Amount		To Total Loans			Amount		Discount		To Total Loans

Allocated Allowances:
	Commercial & Industrial	$	4,220		11.1	%	$	3,435	$	10		10.6	%
	Commercial Real Estate		9,004		36.1	%		7,906		419		35.7	%
	Residential Real Estate		1,312		20.6	%		649		63		19.7	%
	Real Estate Construction		774		4.9	%		1,196		—		4.1	%
	Consumer - Installment		2,801		19.3	%		3,008		22		22.6	%
	Consumer - Other		872		8.0	%		765		4		7.3	%
Non-specific Allowance			4,120	NA				4,428		—	NA

Total Allowance for Loan Losses		$	23,103		100.0	%	$	21,387	$	518		100.0	%

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

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

Due to the imprecise nature of the loan loss estimation process and ever changing conditions, these risk attributes may not be adequately captured in data related to the formula-based loan loss components used to determine allocations in the Bank’s analysis of the adequacy of the allowance for loan losses. Management, therefore, has established and maintains a non-specific allowance for loan losses. The amount of non-specific allowance was $4.1 million at September 30, 2003, compared to $4.4 million at December 31, 2002.

Investments Total investments increased $35.7 million, or 5.3%, to $704.8 million at September 30, 2003 from December 31, 2002, attributable to increases in the available for sale portfolio. Purchases were concentrated in mortgage backed securities collateralized by

10 and 15 year mortgages, and government agency securities. During the second quarter ending June 30, 2003, the Company sold $20.0 million of investment securities, recognizing a gain on the sale of securities of $2.0 million. The sale of the securities was part of an effort to improve the Company’s overall interest rate risk position as well as to offset compression in the net interest margin. In connection with the sale of the securities, the Company prepaid $31.5 million of fixed, high-rate borrowings, incurring a prepayment penalty of $1.9 million. The prepayment penalty is reflected in non-interest expense. Increases in the available for sale portfolio were partially offset by a decrease in the held to maturity portfolio due to maturities and pay-downs.

Deposits Total deposits of $1.8 billion at September 30, 2003 increased $118.2 million since year-end 2002. Core deposits increased by $129.9 million, or 10.7%, which enabled the Company to reduce the balance of more expensive time deposits by $11.7 million, or 2.5%, contributing to a reduction in its overall cost of funds from 2.26% to 2.00% from the fourth quarter 2002 to the third quarter 2003.

Borrowings Total borrowings increased $23.4 million, or 6.5%, to $385.5 million at September 30, 2003 from December 31, 2002. As discussed above within Investments, as part of an effort to improve the Company’s interest rate risk position and to offset compression in the net interest margin, the Company prepaid $31.5 million of fixed rate, 4.9% borrowings and incurred a prepayment penalty of $1.9 million during the second quarter of 2003.

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

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” effective on July 1, 2003 for existing financial instruments and indefinitely deferred for mandatorily redeemable securities see Note 3, for the impact of SFAS No. 150 if required to adopt for manditorily redeemable securities.

Stockholders’ Equity Stockholders’ equity as of September 30, 2003 totaled $168.7 million as compared to $161.2 million at December 31, 2002.

Equity to Assets Ratio The ratio of equity to assets was 6.9% at September 30, 2003 compared to 7.1% at December 31, 2002.

RESULTS OF OPERATIONS

Summary of Results of Operations The Company reported net income of $7.5 million for the third quarter 2003 as compared with net income of $7.0 million for the third quarter of 2002. Diluted earnings per share were $0.51 for the three months ended September 30, 2003, compared to $0.48 per share for the prior year’s quarter.

Net income for the nine months ended September 30, 2003 was $19.1 million compared to $18.0 million for the same period last year. Diluted earnings per share were $1.30 and $1.13 for the nine months ended September 30, 2003 and September 30, 2002, respectively.

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

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

On a fully taxable equivalent basis, net interest income for the third quarter of 2003 decreased $1.2 million, or 4.7%, to $24.6 million, as compared to the third quarter of 2002. The Company’s net interest margin decreased to 4.37% for the third quarter of 2003 from 4.90% in the third quarter of 2002. The Company’s interest rate spread (the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) decreased by 39 basis points to 3.95% during the third quarter of 2003 as compared to the third quarter of 2002.

The Company’s fully tax equivalent net interest income for the nine months ended September 30, 2003 amounted to $73.5 million, a decrease of $2.5 million, or 3.3%, from the comparable nine months in 2002. The net interest margin decreased from 4.90% to 4.45% for the nine months ended September 30, 2003 as compared to the same period last year.

Despite strong loan growth for the three months and nine months ended September 30, 2003, the interest rate environment continues to compress the net interest margin. Management anticipates the net interest margin will continue to contract in the coming months as assets continue to reprice downward.

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

The following tables presents the Company’s average balances, net interest income, interest rate spread, and net interest margin for the three and nine months ending September 30, 2003 and September 30, 2002. Non-taxable income from loans and securities is presented on a fully tax equivalent basis, whereby tax exempt income is adjusted upward by

an amount equivalent to the prevailing federal income taxes that would have been paid if income had been fully taxable.

Table 5 - Average Balance, Interest Earned/Paid & Average Yields
(Unaudited - Dollars in Thousands)


				INTEREST							INTEREST
		AVERAGE		EARNED/		AVERAGE			AVERAGE		EARNED/		AVERAGE
		BALANCE		PAID		YIELD			BALANCE		PAID		YIELD
FOR THE THREE MONTHS ENDED SEPTEMBER 30,		2003		2003		2003			2002		2002		2002

Interest-earning Assets:
Federal Funds Sold and Assets Purchased Under Resale Agreement		$	68	$	—		—		$	41,310	$	189		1.83	%
Trading Assets			1,157		14		4.84	%		1,105		13		4.71	%
Taxable Investment Securities			649,601		7,101		4.37	%		657,095		9,779		5.95	%
Non-taxable Investment Securities (1)			68,843		1,174		6.82	%		55,842		986		7.06	%
Loans (1)			1,535,419		24,142		6.29	%		1,352,826		24,982		7.39	%

Total Interest-Earning Assets		$	2,255,088	$	32,431		5.75	%	$	2,108,178	$	35,949		6.82	%

Cash and Due from Banks			67,626							60,094
Other Assets			98,284							104,455

	Total Assets	$	2,420,998						$	2,272,727

Interest-bearing Liabilities:
Savings and Interest Checking Accounts		$	515,197	$	557		0.43	%	$	428,056	$	732		0.68	%
Money Market & Super Interest Checking Accounts			362,536		1,107		1.22	%		348,998		1,505		1.72	%
Time Deposits			461,380		2,638		2.29	%		485,537		3,819		3.15	%
Federal Funds Purchased and Assets Sold Under Repurchase Agreement			53,167		117		0.88	%		71,920		213		1.18	%
Treasury Tax and Loan Notes			3,608		4		0.44	%		4,652		13		1.12	%
Federal Home Loan Bank Borrowings			340,507		3,397		3.99	%		294,320		3,831		5.21	%

Total Interest-Bearing Liabilities		$	1,736,395	$	7,820		1.80	%	$	1,633,483	$	10,113		2.48	%

Demand Deposits			447,290							417,275
Corporation Obligated Mandatorily Redeemable Trust Preferred Securities of SubsidiaryTrust Holding Solely Junior Subordinated Debentures of the Corporation			47,825							47,729
Other Liabilities			20,892							26,407

	Total Liabilities		2,252,402						$	2,124,894
Stockholders’ Equity			168,596							147,833

	Total Liabilities and Stockholders’ Equity	$	2,420,998						$	2,272,727

Net Interest Income				$	24,611						$	25,836

Interest Rate Spread (2)							3.95	%						4.34	%

Net Interest Margin (2)							4.37	%						4.90	%

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $496 and $409 for the three months ended September 30, 2003 and 2002, respectively. Also, non-accrual loans have been included in the average loan category; however, unpaid interest on non-accrual loans has not been included for purposes of determining interest income.

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

Table 6 - Average Balance, Interest Earned/Paid & Average Yields
(Unaudited - Dollars in Thousands)


				INTEREST							INTEREST
		AVERAGE		EARNED/		AVERAGE			AVERAGE		EARNED/		AVERAGE
		BALANCE		PAID		YIELD			BALANCE		PAID		YIELD
FOR THE NINE MONTHS ENDED SEPTEMBER 30,		2003		2003		2003			2002		2002		2002

Interest-earning Assets:
Federal Funds Sold and Assets Purchased Under Resale Agreement		$	46	$	—		—		$	23,626	$	330		1.86	%
Trading Assets			1,105		32		3.86	%		1,136		21		2.46	%
Taxable Investment Securities			641,062		22,618		4.70	%		656,995		29,773		6.04	%
Non-taxable Investment Securities (1)			63,924		3,301		6.89	%		55,550		2,925		7.02	%
Loans (1)			1,496,217		72,447		6.46	%		1,329,000		74,515		7.48	%

Total Interest-Earning Assets		$	2,202,354	$	98,398		5.96	%	$	2,066,307	$	107,564		6.94	%

Cash and Due from Banks			65,139							59,666
Other Assets			99,743							104,261

	Total Assets	$	2,367,236						$	2,230,234

Interest-bearing Liabilities:
Savings and Interest Checking Accounts		$	479,350	$	1,540		0.43	%	$	419,257	$	2,423		0.77	%
Money Market & Super Interest Checking Accounts			346,921		3,198		1.23	%		317,219		4,422		1.86	%
Time Deposits			464,709		8,724		2.50	%		507,477		12,764		3.35	%
Federal Funds Purchased and Assets Sold Under Repurchase Agreement			53,577		381		0.95	%		69,644		606		1.16	%
Treasury Tax and Loan Notes			2,713		9		0.44	%		4,281		35		1.09	%
Federal Home Loan Bank Borrowings			360,232		11,073		4.10	%		300,088		11,360		5.05	%

Total Interest-Bearing Liabilities		$	1,707,502	$	24,925		1.95	%	$	1,617,966	$	31,610		2.60	%

Demand Deposits			421,386							391,720
Corporation Obligated Mandatorily Redeemable Trust Preferred Securities of SubsidiaryTrust Holding Solely Junior Subordinated Debentures of the Corporation			47,804							55,581
Other Liabilities			24,909							23,542

	Total Liabilities	$	2,201,601						$	2,088,809
Stockholders’ Equity			165,635							141,425

	Total Liabilities and Stockholders’ Equity	$	2,367,236						$	2,230,234

Net Interest Income				$	73,473						$	75,954

Interest Rate Spread (2)							4.01	%						4.34	%

Net Interest Margin (2)							4.45	%						4.90	%

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1,391 and $1,204 for the nine months ended September 30, 2003 and 2002, respectively. Also, non-accrual loans have been included in the average loan category; however, unpaid interest on non-accrual loans has not been included for purposes of determining interest income.

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

The average balance of interest-earning assets for the third quarter of 2003 amounted to $2.3 billion, an increase of $146.9 million, or 7.0%, from the comparable time frame in 2002. Average loans increased by $182.6 million, or 13.5%. Average investments increased by $5.6 million, or 0.8%. Income from interest-earning assets amounted to $32.4 million for the three months ended September 30, 2003, a decrease of $3.5 million, or 9.8%, from the three months ended September 30, 2002. The yield on interest earning assets was 5.75% for the three months ending 2003 compared to 6.82% in 2002.

The average balance of interest-earning assets for the nine months ended September 30, 2003 amounted to $2.2 billion, an increase of $136.0 million, or 6.6%, from the comparable time frame in 2002. Average loans increased by $167.2 million, or 12.6%. Average investments decreased by $7.6 million, or 1.1%. Income from interest-earning assets amounted to $98.4 million for the nine months ended September 30, 2003, a decrease of $9.2 million, or 8.5%, from the nine months ended September 30, 2002. The yield on interest earning assets was 5.96% for the nine months ended 2003 compared to 6.94% for the nine months ended September 30, 2002.

The average balance of interest-bearing liabilities for the third quarter 2003 was $1.7 billion, or 6.3% higher than the comparable 2002 time frame. Average interest bearing deposits were higher by $76.5 million, or 6.1%, for the three months ending September 30, 2003 compared to the same period last year. The growth in non-interest bearing demand deposits was $30.0 million, or 7.2%, for the quarter ending September 30, 2003 as compared to the same period in 2002. For the three months ended September 30, 2003, average borrowings were $397.3 million, representing an increase of $26.4 million, or 7.1%, from the three months ended September 30, 2002. Notwithstanding the increase in the average balance of interest-bearing, liabilities interest expense decreased by $2.3 million, or 22.7%, to $7.8 million in the third quarter of 2003 as compared to the same period last year, due to the cost of funds being 1.80% in 2003 compared to 2.48% in 2002.

The average balance of interest-bearing liabilities for the nine months ended September 30, 2003 was $1.7 billion, or 5.5% higher than the comparable 2002 time frame. Average interest bearing deposits were higher by $47.0 million, or 3.8%, for the nine months ended September 30, 2003 compared to the same period last year. The growth in average non-interest bearing demand deposits was $29.7 million, or 7.6%, for the nine months ending September 30, 2003 as compared to the same period in 2002. For the nine months ended September 30, 2003, average borrowings were $416.5 million, representing an increase of $42.5 million, or 11.4%, from the nine months ended June 30, 2002. Notwithstanding the increase in the average balance of interest-bearing liabilities, interest expense decreased by $6.7 million, or 21.1%, to $24.9 million for the nine months ended September 30, 2003 as compared to the same period last year, due to the cost of funds being 1.95% in 2003 compared to 2.60% in 2002.

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


		Table 7 - Volume Rate Analysis

		Three Months Ended September 30,
		2003 Compared to 2002

								Change
		Change			Change			Due to
		Due to			Due to			Volume/			Total
		Rate			Volume			Rate			Change

		(In Thousands)
Income on interest-earning assets:
Federal funds sold		$	(189	)	$	(189	)	$	189		$	(189	)
Taxable securities			(2,596	)		(112	)		30			(2,678	)
Non-taxable securities (1)			(34	)		230			(8	)		188
Trading assets			—			1			—			1
Loans (1) (2)			(3,711	)		3,372			(501	)		(840	)

	Total	$	(6,530	)	$	3,302		$	(290	)	$	(3,518	)

Expense of interest-bearing liabilities:
Savings and Interest Checking accounts		$	(269	)	$	149		$	(55	)	$	(175	)
Money Market and Super Interest Checking account			(439	)		58			(17	)		(398	)
Time deposits			(1,043	)		(190	)		52			(1,181	)
Federal funds purchased and assets sold under repurchase agreements			(54	)		(56	)		14			(96	)
Treasury tax and loan notes			(8	)		(3	)		2			(9	)
Federal Home Loan Bank borrowings			(895	)		601			(140	)		(434	)

	Total	$	(2,708	)	$	559		$	(144	)	$	(2,293	)

Change in net interest income		$	(3,822	)	$	2,743		$	(146	)	$	(1,225	)

[Additional columns below]

[Continued from above table, first column(s) repeated]

Table 7 - Volume Rate Analysis

Nine Months Ended September 30,

2003 Compared to 2002

Change

Change Change Due to

Due to Due to Volume/ Total

Rate Volume Rate Change

(In Thousands)

Income on interest-earning assets:

Federal funds sold
$ (330 ) $ (329 ) $ 329 $ (330 )

Taxable securities
(6,593 ) (722 ) 160 (7,155 )

Non-taxable securities (1)
(56 ) 441 (9 ) 376

Trading assets
11 — — 11

Loans (1) (2)
(10,165 ) 9,376 (1,279 ) (2,068 )

Total
$ (17,133 ) $ 8,766 $ (799 ) $ (9,166 )

Expense of interest-bearing liabilities:

Savings and Interest Checking accounts
$ (1,076 ) $ 347 $ (154 ) $ (883 )

Money Market and Super Interest Checking account
(1,498 ) 414 (140 ) (1,224 )

Time deposits
(3,237 ) (1,076 ) 273 (4,040 )

Federal funds purchased and assets sold under repurchase agreements
(111 ) (140 ) 26 (225 )

Treasury tax and loan notes
(21 ) (13 ) 8 (26 )

Federal Home Loan Bank borrowings
(2,136 ) 2,277 (428 ) (287 )

Total
$ (8,079 ) $ 1,809 $ (415 ) $ (6,685 )

Change in net interest income
$ (9,054 ) $ 6,957 $ (384 ) $ (2,481 )

(1) The total amount of adjustment to present income and yield on a fully tax-equivalent basis is $496 and $409 for the three months ended September 30, 2003 and 2002, respectively, and $1,391 and $1,204 for the nine months ended September 30, 2003, respectively.

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

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

The provision for loan losses decreased to $930,000 for the three months ended September 30, 2003 compared with $1.2 million for the three months ended September 30, 2002. The provision for loan losses decreased to $2.8 million for the nine months ended September 30, 2003 compared with $3.6 million for the nine months ended September 30, 2002. Asset quality remains strong with nonperforming assets of $3.2 million at September 30, 2003. At September 30, 2003, the allowance for loan loss covered nonperforming loans 7.2 times.

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

Non-Interest Income Non-interest income, the leading contributor to the Company’s core business growth period over period, improved by $2.0 million, or 39.3%, for the quarter ended September 30, 2003, as compared to the same period last year. Service charges on deposit revenue increased by $0.4 million, or 15.2%, reflecting growth in core deposits and lower earnings credit rates. Investment management service revenue decreased $0.1 million, or 7.1%, due to the general performance of the equities market over the past few years shifting customers’ bias towards fixed income products which generate lower fees. The increase of $1.2 million in mortgage banking income is attributable to a strong refinance market. The balance of the mortgage servicing asset was $3.1 million and loans serviced amounted to $405.5 million as of September 30, 2003. Security gains were $0.1 million for the three months ended September 30, 2003. There was a $38,000 security loss for the three months ended September 30, 2002. Other non-interest income increased by $300,000 for the three months ended September 30, 2003, mainly due to prepayment penalties received on loan payoffs.

Non-interest income improved by $5.1 million, or 30.9%, for the nine months ending September 30, 2003, as compared to the same period last year. Service charges on deposit accounts revenue increased by $1.1 million, or 15.0%, reflecting growth in core deposits and lower earnings credit rates. Investment management service revenue decreased $805,000, or 19.7%, due to the general performance of the equities market over the past few years shifting customers’ bias towards fixed income products which generate lower fees and higher estate and trust distribution fees during the first quarter ending March 31, 2002. The increase of $1.8 million in mortgage banking income is attributable to a strong refinance market. Security gains were $2.3 million for the nine months ended September 30, 2003. In an effort to improve Rockland’s overall interest rate risk position as well as to increase the net interest margin, the Bank prepaid $31.5 million of fixed, high rate borrowings and sold $20.0 million of investment securities during the second quarter. The gain on the sale of securities was $2.0 million, while the prepayment penalty on the borrowings totaled $1.9 million, the latter was recorded as part of non-interest expense. There were security losses of $38,000 for the nine months ended September 30, 2002. Other non-interest income increased $566,000 for the nine months ended September 30, 2003, mainly due to prepayment penalties received on loan payoffs.

Non-Interest Expenses Non-interest expenses increased by $396,000, or 2.2%, to $18.1 million for the three months ended September 30, 2003 as compared to the same period in 2002. Salaries and employee benefits increased by $267,000, or 2.6%, due to additions to staff needed to support continued growth, merit increases, pension expense, and incentive compensation, offset by lower executive retirement cost. As previously disclosed, the Company is a member of the Financial Institutions Retirement Fund, a defined benefit plan. Management has been notified by the administrator that, primarily due to the poor performance of the equities markets in the last several years, a contribution will be required for the plan year beginning July 1, 2003 and ending June 30, 2004. The contribution calculation has been finalized and will be $1.6 million pre-tax. The Company has therefore accrued $400,000 during the third quarter of 2003. No pension expense was recorded in the comparative periods.

Occupancy and equipment expense decreased by $112,000, or 5.2% when comparing the quarter ending September 30, 2003 to the quarter ending September 30, 2002. Data Processing and Facilities Management increased $171,000, or 16.9% for the three months ending September 30, 2003 as compared to the same period in 2002. Other non-interest expenses increased by $70,000, or 1.7%.

Non-interest expenses decreased by $737,000, or 1.3%, to $56.2 million for the nine months ended September 30, 2003 as compared to the same period in 2002. Salaries and employee benefits increased by $2.5 million, or 8.5%, due to the same reasons set forth above. Occupancy and equipment related expense increased by $234,000, or 3.6%, due to increased snow removal costs resulting from record snow fall and higher energy costs in the first quarter of 2003. Included in non-interest expense for the nine months ending September 30, 2003 is the $1.9 million prepayment penalty on borrowings. During the nine months ending September 30, 2002, the Company recognized an impairment charge of $4.4 million, pre-tax, on an investment in corporate bonds issued by WorldCom, which is the primary reason for the decrease in non-interest expense when comparing this period to the nine months ending September 30, 2003. Other non-interest expenses decreased by $1.2 million, or 8.5%, mainly due to decreases in costs associated with information technology consulting, executive recruitment, office supplies and telephone expenses somewhat offset by losses recorded on a CRA investment.

Income Taxes For the quarters ending September 30, 2003 and 2002, the Company recorded combined federal and state income tax provisions of $3.6 million for both quarters, respectively. These provisions reflect effective income tax rates of 32.50% and 33.97%, for the quarters ending September 30, 2003 and September 30, 2002, respectively.

For the nine months ending September 30, 2003 and 2002, the Company recorded combined federal and state income tax provisions of $12.3 million and $8.7 million, respectively. These provisions reflect effective income tax rates of 39.05% and 32.47%, for the nine months ending September 30, 2003 and September 30, 2002, respectively. The effective rate for the nine months ending September 30, 2003 was impacted by the settlement with the Commonwealth of Massachusetts Department of Revenue related to the REIT of $2.0 million as a direct charge to the provision for income taxes. See Note 4 “Settlement of Real Estate Investment Trust (“REIT”) Retroactive Taxation Dispute.” The effective rate for the nine months ending September 30, 2002, benefited from $1.8 million of tax benefits recognized on the $4.4 million WorldCom bonds impairment charge at a higher rate than the effective rate.

Minority Interest Minority interest expense is the interest expense associated with the trust preferred securities and was $1.1 million for both the quarters ending September 30, 2003 and 2002. For the nine months ended September 30, 2003, the minority interest expense was $3.3 million compared to $4.0 million at the nine months ended September 30, 2002. The decrease in minority interest expense is a result of refinancing the 11% Trust Preferred Security issuance of Trust II with 8.625% Trust Preferred Securities of Trust III on January 31, 2002 and the refinancing of the 9.28% Trust Preferred Security issuance of Trust I with 8.375% Trust Preferred Securities of Trust IV on April 12, 2002. See Note 3, “Recent Accounting Developments for the impact of SFAS No. 150 if required to reclassify trust preferred securities.”

Return on Average Assets and Equity The annualized consolidated returns on average equity and average assets for the three months ended September 30, 2003 were 17.84% and 1.24%, respectively, compared to 18.87% and 1.23% reported for the same period last year. For the nine months ended September 30, 2003, the annualized consolidated returns on average equity and average assets were 15.39% and 1.08%, respectively, compared to 17.01% and 1.08% reported for the nine months ended September 30, 2002, respectively.

Asset/Liability Management

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

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

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

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

On September 30, 2003 and December 31, 2002, the Company had interest rate swap commitments with a total notional amount of $50.0 million, which will hedge future LIBOR (London Interbank Offered Rate) based borrowings. The fair value of these commitments at September 30, 2003 and December 31, 2002 were ($1.8 million) and ($677,000). Under these swap commitments, the Company will pay a fixed rate of 3.65% and will receive payments based on the 3 month LIBOR rate. These interest rate swaps meet the criteria for cash flow hedges under SFAS No. 133. All changes in the fair value of the interest rate swaps are recorded, net of tax, in equity as other comprehensive income.

To improve the Company’s asset sensitivity, the Company sold interest rate swaps hedged against loans during the year ending December 31, 2002, resulting in total deferred gains of $7.1 million. At September 30, 2003, the remaining deferred gains were $4.3 million. The interest rate swaps sold had total notional amounts of $225.0 million. These swaps were accounted for as cash flow hedges, and therefore, the deferred gains will be amortized into

interest income over the remaining life of the hedged item, which range between two and five years.

Additionally, the Company enters into commitments to fund residential mortgage loans with the intention of selling them in the secondary markets. The Company also enters into forward sales agreements for certain funded loans and loan commitments to protect against changes in interest rates. The Company records unfunded commitments and forward sales agreements at fair value with changes in fair value as a component of Mortgage Banking Income. At September 30, 2003, the Company had residential mortgage loan commitments with a fair value of $9.5 million and forward sales agreements with a fair value of $10.1 million. The net fair value decreased $96,000 and increased $275,000 for the quarters ending September 30, 2003 and 2002, respectively, and were recorded as a component of mortgage banking income.

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

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

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

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

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

The Company manages the interest-rate risk inherent in its mortgage banking operations by entering into forward sales contracts. An increase in market interest rates between the time the Company commits to terms on a loan and the time the Company ultimately sells the loan in the secondary market will have the effect of reducing the gain (or

increasing the loss) the Company records on the sale. The Company attempts to mitigate this risk by entering into forward sales commitments in amounts sufficient to cover all closed loans and a majority of rate-locked loan commitments.

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

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

Table 8 - Interest Rate Sensitivity


	200 Basis			100 Basis
	Point			Point
	Rate			Rate
	Increase			Decrease

September 30, 2003		-1.96	%		+ 0.59	%
September 30, 2002		-1.01	%		- 0.43	%

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

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

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

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

The Bank utilizes its extensive branch network to access retail customers who provide a stable base of in-market core deposits. These funds are principally comprised of demand deposits, interest checking accounts, savings accounts, and money market accounts. Deposit levels are greatly influenced by interest rates, economic conditions, and competitive factors. The Bank has also established repurchase agreement lines, with major brokerage firms as potential sources of liquidity. At September 30, 2003 the Company had no advances outstanding under these lines. In addition to these lines, the Bank also had customer repurchase agreements outstanding amounting to $49.0 million at September 30, 2003. As a member of the FHLB, the Bank has access to a total of $661.4 million, of which approximately $329.8 million remains unused, of borrowing capacity. On September 30, 2003 the Bank had $331.6 million outstanding in FHLB borrowings.

At September 30, 2003, the Company had outstanding commitments to originate mortgage and non-mortgage loans (including unused lines of credit of $151.0 million and letters of credit of $6.1 million) of $404.4 million. Certificates of deposit which are scheduled to mature within one year totaled $347.5 million at September 30, 2003, and borrowings that are scheduled to mature within the same period amounted to $131.4 million. The Company anticipates that it will have sufficient funds available to meet its current loan commitments.

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

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

Capital Resources and Dividends The Federal Reserve Board, the Federal Deposit Insurance Corporation, and other regulatory agencies have established capital guidelines for banks and bank holding companies. Risk-based capital guidelines issued by the federal regulatory agencies require banks to meet a minimum Tier 1 risk-based capital ratio of 4.0% and a total risk-based capital ratio of 8.0%. At September 30, 2003, the Company had a Tier 1 risked-based capital ratio of 10.69% and total risked-based capital ratio 11.94%. The Bank had a Tier 1 risked-based capital ratio of 10.14% and a total risked-based capital ratio of 11.39% as of the same date.

A minimum requirement of 4.0% Tier 1 leverage capital is also mandated. On September 30, 2003, the Company and the Bank had Tier 1 leverage capital ratios of 7.37% and 6.99%, respectively.

In September the Company’s Board of Directors declared a cash dividend of $0.13 per share to stockholders of record as of the close of business on September 26, 2003. This

dividend was paid on October 10, 2003. On an annualized basis, the dividend payout ratio amounted to 29.67% of the trailing four quarters’ earnings.

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

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

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

Table 9 - Contractual Obligations and Commitments by Maturity
(Dollars in Thousands)


				Payments Due - By Period
				Less than		One to		Four to		After
		Total		One Year		Three Years		Five Years		Five Years

Contractual Obligations
FHLB advances		$	331,636	$	126,500	$	25,000	$	10,000	$	170,136
Mandatorily redeemable trust preferred securities			50,000		—		—		—		50,000
Lease obligations			11,382		2,146		3,400		1,937		3,899
Other
	Treasury Tax & Loan Notes		4,868		4,868		—		—		—
	Customer Repurchase Agreements		49,037		49,037		—		—		—

Total contractual cash obligations		$	446,923	$	182,551	$	28,400	$	11,937	$	224,035

Other Commitments
Lines of credit		$	172,940		21,965		—		—		150,975
Standby letters of credit			6,102		6,102		—		—		—
Other loan commitments			225,398		199,471		18,458		3,149		4,320
Forward commitments to sell loans			10,079		10,079		—		—		—

Total Commitments		$	414,519	$	237,617	$	18,458	$	3,149	$	155,295

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

As of the date of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(b). Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic Securities and Exchange Commission (“SEC”) filings. There have been no changes in the Company’s internal controls or in other factors which could significantly affect these control over financial reporting that have materially affected, or are, are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Bank is a party to the pending case known as Rockland Trust Company v. Computer Associates International, Inc., United States District Court for the District of Massachusetts Civil Action No. 95-11683-DPW. The case arises from a 1991 License Agreement (the “Agreement”) between the Bank and Computer Associates International, Inc. (“CA”) for an integrated system of banking software products.

In July 1995, the Bank filed a Complaint against CA in federal court in Boston which asserted claims for breach of the Agreement, breach of express warranty, breach of the implied covenant of good faith and fair dealing, fraud, and for unfair and deceptive practices in violation of section 11 of Chapter 93A of the Massachusetts General Laws (the “93A Claim”). The Bank is seeking damages of at least $1.23 million from CA. Under Massachusetts’s law, interest will be computed at a 12% rate on any damages, which the Bank would recover, if successful, either from the date of breach or the date on which the case was filed. If the Bank prevails on the 93A Claim, it shall be entitled to recover its attorney fees and costs and may

also recover double or triple damages. CA asserted a Counterclaim against the Bank for breach of the Agreement. CA seeks to recover damages of at least $1.1 million from the Bank, plus interest at a rate as high as 24% pursuant to the Agreement.

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

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

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

Item 3. Defaults Upon Senior Securities – None

Item 4. Submission of Matters to a Vote of Security Holders – None

Item 5. Other Information – None

Item 6. Exhibits and Reports on Form 8-K

Exhibits


No.		Exhibit

	3.(i)	Restated Articles of Organization, as amended to date, incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1993.

	3.(ii)	Bylaws of the Company, as amended to date, incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2000. On September 14, 2000, section 2 of the Company’s By-Laws were amended so as to require an agreement of at least two thirds (rather than a majority) of shareholders to call a special shareholders meeting.

	3 (iii)	Bylaws of the Company, as amended as of January 9, 2003, are filed herewith.

	4.1	Specimen Common Stock Certificate, incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1992.

	4.2	Specimen Preferred Stock Purchase Rights Certificate, incorporated by reference to the Company’s Form 8-A Registration Statement filed by the Company on November 5, 2001.


4.3		Indenture of Registrant relating to the 8.625% Junior Subordinated Debentures issued Independent Capital Trust III, incorporated by reference to the Form 8-K filed by the Company on April 18, 2002.

4.4		Form of Certificate of 8.625% Junior Subordinated Debenture (included as Exhibit A to Exhibit 4.3).

4.5		Amended and Restated Declaration of Trust for Independent Capital Trust III, incorporated by reference to the Form 8-K filed by the Company on April 18, 2002.

4.6		Form of Preferred Security Certificate for Independent Capital Trust III (included as Exhibit D to Exhibit 4.5).

4.7		Preferred Securities Guarantee Agreement of Independent Capital Trust III, incorporated by reference to the Form 8-K filed by the Company on April 18, 2002.

4.8		Indenture of Registrant relating to the 8.375% Junior Subordinated Debentures issued to Independent Capital Trust IV, incorporated by reference to the Form 8-K filed by the Company on April 18, 2002.

4.9		Form of Certificate of 8.375% Junior Subordinated Debenture (included as Exhibit A to Exhibit 4.8).

4.10		Amended and Restated Declaration of Trust for Independent Capital Trust IV, incorporated by reference to the Form 8-K filed by the Company on April 18, 2002

4.11		Form of Preferred Security Certificate for Independent Capital Trust IV (included as Exhibit D to Exhibit 4.10).

4.12		Preferred Securities Guarantee Agreement of Independent Capital Trust IV, incorporated by reference to the Form 8-K filed by the Company on April 18, 2002.

10.1		Amended and Restated Independent Bank Corp. 1987 Incentive Stock Option Plan (“Stock Option Plan”) (Management contract under Item 601(10)(iii)(A)). Incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1994.

10.2		Independent Bank Corp. 1996 Non-Employee Directors’ Stock Option Plan (Management contract under Item 901(10)(iii)(A)). Incorporated by reference to the Company’s Definitive Proxy Statement for the 1996 Annual Meeting of Stockholders filed with the Commission on March 19, 1996.
10.3		Independent Bank Corp. 1997 Employee Stock Option Plan (Management contract under Item 601 (10)(iii)(A)). Incorporated by reference to the Company’s Definitive Proxy Statement for the 1997 Annual Meeting of Stockholders filed with the Commission on March 20, 1997.

10.4		Renewal Rights Agreement noted as of September 14, 2000 by and between the Company and Rockland, as Rights Agent


		(Exhibit to Form 8-K filed on October 23, 2000). Incorporated by reference to the Company’s Definitive Proxy Statement for the 1997 Annual Meeting of Stockholders filed with the Commission on March 20, 1997.

10.5		Amendment No. 1 to Third Amended and Restated Employment Agreement by and among the Company, Rockland and Douglas H. Philipsen, dated June 25, 1997 (“Philipsen Employment Agreement”) (Management contract under Item 601(10)(iii)(A)). Incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1998.

10.5.1		Amendment No. 2 to Third Amended and Restated Employment Agreement between Douglas H. Philipsen and the Company and Rockland Trust dated January 9, 2003, is an exhibit to Form 8-K filed on January 9, 2003.

10.6		Amendment No. 1 to Second Amended and Restated Employment Agreement by and between Rockland Trust Company and Richard F. Driscoll, dated January 19, 1996 (the “Driscoll Agreement”). (Management contract under Item 601 (10)(iii)(A)). Incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 1998.

		Employment Agreements by and between Rockland Trust Company and Edward H. Seksay, Ferdinand T. Kelley, Denis K. Sheahan and Raymond G. Fuerschbach, respectively. Incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2001.

10.7		Independent Bank Corp. Deferred Compensation Program for Directors (restated as amended as of December 1, 2000). Incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2000.

10.8		Master Securities Repurchase Agreement, incorporated by reference to Form S-1 Registration Statement filed by the Company on September 18, 1992.

10.9		Purchase and Assumption Agreement, dated as of September 27, 1999, by and between Rockland Trust Company and Fleet Financial Group, Inc. (Exhibit to Form 8-K filed on October 1, 1999).

10.10		Employment Agreement between Christopher Oddleifson and the Company and Rockland Trust dated January 9, 2003 is filed as an exhibit under the Form 8-K filed on January 9, 2003.

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

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

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

*Filed herewith

+Furnished herewith

Reports on Form 8-K

(a) Reports on Form 8-K

July 1, 2003 -		related to benefits awarded to retiring chairman.

July 10, 2003 -		related to second quarter 2003 earnings release.

July 15, 2003 -		information filed pursuant to Regulation FD in conjunction with INDB’s July 10, 2003 press release announcing second quarter earnings and July 14, 2003 earnings conference call.

September 11, 2003 - related to third quarter 2003 dividend.

SIGNATURES

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

INDEPENDENT BANK CORP.
(registrant)


Date: November 5, 2003	/s/ Christopher Oddleifson

		Christopher Oddleifson
		President and Chief Executive Officer

Date: November 5, 2003	/s/ Denis K. Sheahan

		Denis K. Sheahan
		Chief Financial Officer and Treasurer
		(Principal Financial and
		Principal Accounting Officer)

INDEPENDENT BANK CORP.
(registrant)

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

	•		adverse changes in the local real estate market, as most of the Company’s loans are concentrated in Southeastern Massachusetts and a substantial portion of these loans have real estate as collateral;

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

	•		inflation, interest rate, market and monetary fluctuations;

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

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

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

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

	•		technological changes;

	•		changes in consumer spending and savings habits; and

	•		regulatory or judicial proceedings.

(1)		The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $496 and $409 for the three months ended September 30, 2003 and 2002, respectively. Also, non-accrual loans have been included in the average loan category; however, unpaid interest on non-accrual loans has not been included for purposes of determining interest income.

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