UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number: 1-9047

Independent Bank Corp.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:

(781) 878-6100

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.0l par value per share

(Title of Class)

Preferred Stock Purchase Rights

(Title of Class)

          Indicate by check mark whether, the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ          No o

     As of June 30, 2004, the aggregate market value of voting stock held by non-affiliates of the registrant was $403,424,041, based on the closing price on such date of the registrant’s common stock on the NASDAQ National Market.

     Number of shares of Common Stock outstanding as of January 31, 2005: 15,349,186

DOCUMENTS INCORPORATED BY REFERENCE

          List hereunder the following documents incorporated by reference and the Part of Form 10-K into which the document is incorporated:

INDEPENDENT BANK CORP.

2004 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

      A number of the presentations and disclosures in this Form 10-K, 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 within the meaning of the Private Securities Litigation Reform Act of 1995.

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

      Although the Company believes that the expectations reflected in the Company’s 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 the Company’s control). The following factors, among others, could cause the Company’s financial performance to differ materially from the Company’s goals, plans, objectives, intentions, expectations and other forward-looking statements:

      If one or more of the factors affecting the Company’s forward-looking information and statements proves incorrect, then the Company’s 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-K. Therefore, the Company cautions you not to place undue reliance on the Company’s forward-looking information and statements.

      The Company does not intend to update the Company’s forward-looking information and statements, whether written or oral, to reflect change. All forward-looking statements attributable to the Company are expressly qualified by these cautionary statements.

PART I.

General

      Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company headquartered in Rockland, Massachusetts and was incorporated in 1986. The Company is the sole stockholder of Rockland Trust Company (“Rockland” or the “Bank”), a Massachusetts trust company chartered in 1907. The Company is a community-oriented commercial bank. The community banking business, the Company’s only reportable operating segment, consists of commercial banking, retail banking and investment management services and is managed as a single strategic unit. The community banking business derives its revenues from a wide range of banking services, including lending activities, acceptance of demand, savings and time deposits, trust and investment management services, and mortgage banking income. Rockland offers a full range of community banking services through its network of 53 banking offices (including 51 full-service branches), seven commercial lending centers, three investment management offices and four residential lending centers, all of which are located in the Plymouth, Norfolk, Barnstable and Bristol Counties of southeastern Massachusetts and Cape Cod. At December 31, 2004, the Company had total assets of $2.9 billion, total deposits of $2.1 billion, stockholders’ equity of $210.7 million, and 750 full-time equivalent employees.

Market Area and Competition

      The Bank contends with considerable competition both in generating loans and attracting deposits. The Bank’s competition for loans is primarily from other commercial banks, savings banks, credit unions, mortgage banking companies, insurance companies, finance companies, and other institutional lenders. Competitive factors considered for loan generation include interest rates and terms offered, loan fees charged, loan products offered, service provided, and geographic locations.

      In attracting deposits, the Bank’s primary competitors are savings banks, commercial and co-operative banks, credit unions, as well as other non-bank institutions that offer financial alternatives such as brokerage firms and insurance companies. Competitive factors considered in attracting and retaining deposits include deposit and investment products and their respective rates of return, liquidity, and risk among other factors, convenient branch locations and hours of operation, personalized customer service, online access to accounts, and automated teller machines.

      The Bank’s market area is attractive and entry into the market by financial institutions previously not competing in the market area may continue to occur. The entry into the market area by these institutions, and other non-bank institutions that offer financial alternatives could impact the Bank’s growth or profitability.

Lending Activities

      The Bank’s gross loan portfolio (loans before allowance for loan losses) amounted to $1.9 billion on December 31, 2004 or 65.1% of total assets on that date. The Bank classifies loans as commercial, real estate, or consumer. Commercial loans consist primarily of loans to businesses for working capital and other business-related purposes and floor plan financing. Real estate loans are comprised of commercial mortgages that are secured by non-residential properties, residential mortgages that are secured primarily by owner-occupied residences and mortgages for the construction of commercial and residential properties. Consumer loans consist primarily of automobile loans and home equity loans.

      The Bank’s borrowers consist of small-to-medium sized businesses and retail customers. The Bank’s market area is generally comprised of the Plymouth, Norfolk, Barnstable and Bristol Counties located in southeastern Massachusetts and Cape Cod. Substantially all of the Bank’s commercial and consumer loan portfolios consist of loans made to residents of and businesses located in southeastern Massachusetts and Cape Cod. The majority of the real estate loans in the Bank’s loan portfolio are secured by properties located within this market area.

      Interest rates charged on loans may be fixed or variable and vary with the degree of risk, loan term, underwriting and servicing costs, loan amount and the extent of other banking relationships maintained with

customers. Rates are further subject to competitive pressures, the current interest rate environment, availability of funds and government regulations.

      The Bank’s principal earning assets are its loans. Although the Bank judges its borrowers to be creditworthy, the risk of deterioration in borrowers’ abilities to repay their loans in accordance with their existing loan agreements is inherent in any lending function. Participating as a lender in the credit markets requires a strict monitoring process to minimize credit risk. This process requires substantial analysis of the loan application, an evaluation of the customer’s capacity to repay according to the loan’s contractual terms, and an objective determination of the value of the collateral. The Bank also utilizes the services of an independent third-party consulting firm to provide loan review services, which consist of a variety of monitoring techniques performed after a loan becomes part of the Bank’s portfolio.

      The Bank’s Controlled Asset Department is responsible for the management and resolution of nonperforming assets. In the course of resolving nonperforming loans, the Bank may choose to restructure certain contractual provisions. Nonperforming assets are comprised of nonperforming loans, nonperforming securities and Other Real Estate Owned (“OREO”). Nonperforming loans consist of loans that are more than 90 days past due but still accruing interest and nonaccrual loans. OREO includes properties held by the Bank as a result of foreclosure or by acceptance of a deed in lieu of foreclosure. In order to facilitate the disposition of OREO, the Bank may finance the purchase of such properties at market rates, if the borrower qualifies under the Bank’s standard underwriting guidelines.

      Origination of Loans Commercial loan applications are obtained through existing customers, solicitation by Bank loan officers, referrals from current or past customers, or walk-in customers. Commercial real estate loan applications are obtained primarily from previous borrowers, direct contacts with the Bank, or referrals. Applications for residential real estate loans and all types of consumer loans are taken at all of the Bank’s full-service branch offices. Residential real estate loan applications primarily result from referrals by real estate brokers, homebuilders, and existing or walk-in customers. The Bank also maintains a staff of field originators who solicit and refer residential real estate loan applications to the Bank. These employees are compensated on a commission basis and provide convenient origination services during banking and non-banking hours. Consumer loan applications are directly obtained through existing or walk-in customers who have been made aware of the Bank’s consumer loan services through advertising and other media, as well as indirectly through a network of automobile, recreational vehicle and boat dealers.

      Commercial loans, commercial real estate loans, and construction loans may be approved by commercial loan officers up to their individually assigned lending limits, which are established and modified periodically by management, with ratification by the Board of Directors, to reflect the officer’s expertise and experience. Any of those types of loans which are in excess of a commercial loan officer’s assigned lending authority must be approved by various levels of authority within the Commercial Lending Division, depending on the loan amount, up to and including the Senior Loan Committee and, ultimately, the Executive Committee of the Board of Directors.

      In accordance with governing banking statutes, Rockland is permitted, with certain exceptions, to make loans and commitments to any one borrower, including related entities, in the aggregate amount of not more than 20% of the Bank’s stockholders’ equity, or $51.4 million at December 31, 2004. Notwithstanding the foregoing, the Bank has established a more restrictive limit of not more than 75% of the Bank’s legal lending limit, or $38.6 million at December 31, 2004, which may only be exceeded with the approval of the Board of Directors. There were no borrowers whose total indebtedness in aggregate exceeded $38.6 million as of December 31, 2004.

      Sale of Loans The Bank’s residential real estate loans are generally originated in compliance with terms, conditions and documentation which permit the sale of such loans to the Federal Home Loan Mortgage Corporation (“FHLMC”), the Federal National Mortgage Association (“FNMA”), the Government National Mortgage Association (“GNMA”), and other investors in the secondary market. Loan sales in the secondary market provide funds for additional lending and other banking activities. The Bank may retain the servicing on the loans sold. As part of its asset/liability management strategy, the Bank may retain a portion of the adjustable and fixed rate residential real estate loan originations for its portfolio. During 2004, the Bank

originated $299.2 million in residential real estate loans of which $146.0 million was retained in its portfolio, and comprised primarily of adjustable rate loans.

      Commercial and Industrial Loans The Bank offers secured and unsecured commercial loans for business purposes, including issuing letters of credit. At December 31, 2004, $176.9 million, or 9.2% of the Bank’s gross loan portfolio consisted of commercial loans. Commercial loans generated 7.5%, 7.7%, and 6.8% of total interest income for the fiscal years ending 2004, 2003 and 2002, respectively.

      Commercial loans may be structured as term loans or as revolving lines of credit. Commercial term loans generally have a repayment schedule of five years or less and, although the Bank occasionally originates some commercial term loans with interest rates which float in accordance with a designated index rate, the majority of commercial term loans have fixed rates of interest. The majority of commercial term loans are collateralized by equipment, machinery or other corporate assets. In addition, the Bank generally obtains personal guarantees from the principals of the borrower for virtually all of its commercial loans. At December 31, 2004 there were $66.1 million of term loans in the commercial loan portfolio.

      Collateral for commercial revolving lines of credit may consist of accounts receivable, inventory or both, as well as other business assets. Commercial revolving lines of credit generally are reviewed on an annual basis and usually require substantial repayment of principal during the course of a year. The vast majority of these revolving lines of credit have variable rates of interest. At December 31, 2004 there were $110.8 million of revolving lines of credit in the commercial loan portfolio.

      The Bank’s standby letters of credit generally are secured, have terms of not more than one year, and are reviewed for renewal. At December 31, 2004, the Bank had $7.1 million of standby letters of credit.

      The Bank also provides automobile and, to a lesser extent, boat and other vehicle floor plan financing. Floor plan loans are secured by the automobiles, boats, or other vehicles, which constitute the dealer’s inventory. Upon the sale of a floor plan unit, the proceeds of the sale are applied to reduce the loan balance. In the event a unit financed under a floor plan line of credit remains in the dealer’s inventory for an extended period, the Bank requires the dealer to pay-down the outstanding balance associated with such unit. Bank personnel make unannounced periodic inspections of each dealer to review the value and condition of the underlying collateral.

      Real Estate Loans The Bank’s real estate loans consist of loans secured by commercial properties, loans secured by one-to-four family residential properties, and construction loans. As of December 31, 2004, the Bank’s loan portfolio included $613.3 million in commercial real estate loans, $438.5 million in residential real estate loans, $126.6 million in commercial construction loans and $7.3 million in residential construction loans, altogether totaling 61.9% of the Bank’s gross loan portfolio. Real estate loans generated an aggregate of 46.2%, 45.6%, and 40.4% of total interest income for the fiscal years ending December 31, 2004, 2003 and 2002, respectively.

      A significant portion of the Bank’s commercial real estate portfolio consists of loans secured by owner occupied commercial and industrial buildings and warehouses. As such, a number of commercial real estate loans are primarily secured by residential development tracts but, to a much greater extent, they are secured by owner-occupied commercial and industrial buildings and warehouses. Commercial real estate loans also include multi-family residential loans that are primarily secured by apartment buildings and, to a much lesser extent, condominiums. The Bank has a modest portfolio of loans secured by special purpose properties, such as hotels, motels, or restaurants.

      Although terms vary, commercial real estate loans generally have maturities of five years or less, amortization periods of 20 years, and interest rates that either float in accordance with a designated index or have fixed rates of interest. It is also the Bank’s policy to obtain personal guarantees from the principals of the borrower on commercial real estate loans and to obtain financial statements at least annually from all commercial and multi-family borrowers.

      Commercial real estate lending entails additional risks as compared to residential real estate lending. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Development of commercial real estate projects also may be subject to numerous land use and environmental issues. The payment experience on such loans is typically dependent on the successful

operation of the real estate project, which can be significantly impacted by supply and demand conditions in the market for commercial and retail space.

      Rockland originates both fixed-rate and adjustable-rate residential real estate loans. The Bank will lend up to 100% of the lesser of the appraised value of the residential property securing the loan or the purchase price, and generally requires borrowers to obtain private mortgage insurance when the amount of the loan exceeds 80% of the value of the property. The rates of these loans are typically competitive with market rates. The Bank’s residential real estate loans are generally originated only under terms, conditions and documentation, which permit sale in the secondary market.

      The Bank generally requires title insurance protecting the priority of its mortgage lien, as well as fire, extended coverage casualty and flood insurance when necessary in order to protect the properties securing its residential and other real estate loans. Independent appraisers appraise properties securing all of the Bank’s first mortgage real estate loans.

      Construction loans are intended to finance the construction of residential and commercial properties, including loans for the acquisition and development of land or rehabilitation of existing homes. Construction loans generally have terms of six months, but not more than two years. They usually do not provide for amortization of the loan balance during the term. The majority of the Bank’s commercial construction loans have floating rates of interest based upon the Rockland Base Rate or the Prime Rate published daily in the Wall Street Journal.

      A significant portion of the Bank’s construction lending is related to one-to-four family residential development within the Bank’s market area. The Bank typically has focused its construction lending on relatively small projects and has developed and maintains a relationship with a significant number of homebuilders in the Plymouth, Norfolk, Barnstable and Bristol Counties of southeastern Massachusetts and Cape Cod.

      Construction loans are generally considered to present a higher degree of risk than permanent real estate loans. A borrower’s ability to complete construction may be affected by a variety of factors such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules. The latter will depend upon the borrower’s management capabilities, and may also be affected by strikes, adverse weather and other conditions beyond the borrower’s control.

      Consumer Loans The Bank makes loans for a wide variety of personal and consumer needs. Consumer loans primarily consist of installment loans, home equity loans, cash reserve loans and small business lines. As of December 31, 2004, $553.7 million, or 28.9%, of the Bank’s gross loan portfolio consisted of consumer loans. Consumer loans generated 20.8%, 21.3% and 21.0% of total interest income for the fiscal years ending December 31, 2004, 2003, and 2002, respectively.

      The Bank’s installment loans consist primarily of automobile loans, which were $284.0 million, at December 31, 2004. A substantial portion of the Bank’s automobile loans are originated indirectly by a network of approximately 150 new and used automobile dealers located within the Bank’s market area. Although employees of the dealer take applications for such loans, the loans are made pursuant to Rockland’s underwriting standards using Rockland’s documentation, and a Rockland loan officer must approve all indirect loans. In addition to indirect automobile lending, the Bank also originates automobile loans directly.

      The maximum term for the Bank’s automobile loans is 84 months for a new car loan and 72 months with respect to a used car loan. Loans on new and used automobiles are generally made without recourse to the dealer. The Bank requires all borrowers to maintain automobile insurance, including full collision, fire and theft, with a maximum allowable deductible and with the Bank listed as loss payee. Some purchases from used car dealers are under a repurchase agreement. The dealer is required to pay off the loan (in return for the vehicle) as long as the bank picks up the vehicle and returns it to the dealer within 180 days of the most recent delinquency payment. In addition, in order to mitigate the adverse effect on interest income caused by prepayments, all dealers are required to maintain a reserve, of up to 3% of the outstanding balance of the indirect loans originated by them. Reserve option “A” allows the Bank to be rebated on a pro-rata basis in the event of prepayment prior to maturity. Reserve option “B” allows the dealer to share the reserve with the

Bank, split 75/25, however for the Bank’s receipt of 25%, no rebates are applied to the account after 90 days from date of first payment.

      The Bank’s consumer loans also include home equity, unsecured loans and loans secured by deposit accounts, loans to purchase motorcycles, recreational vehicles, motor homes, boats, or mobile homes. The Bank generally will lend up to 100% of the purchase price of vehicles other than automobiles with terms of up to three years for motorcycles and up to fifteen years for recreational vehicles.

      Home equity loans may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or second mortgage on the borrower’s residence or second home. At December 31, 2004, $29.5 million, or 15.2%, of the home equity portfolio were term loans and $165.0 million, or 84.8% of the home equity portfolio were revolving lines of credit. The Bank will originate home equity loans in an amount up to 89.99% of the appraised value or on-line valuation, without appraisal or on-line valuation up to 80% of the tax assessed value, reduced for any loans outstanding secured by such collateral. Home equity loans are underwritten in accordance with the Bank’s loan policy which includes a combination of credit score, loan to value ratio, employment history and debt to income ratio.

      Cash reserve loans are made pursuant to previously approved unsecured cash reserve lines of credit. The rate on these loans is tied to the prime rate.

Investment Activities

      The Bank’s securities portfolio consists of U.S. Government and U.S. Government agency obligations, state, county and municipal securities, mortgage-backed securities, Federal Home Loan Bank (“FHLB”) stock, corporate debt securities and equity securities held for the purpose of funding supplemental executive retirement plan obligations through a Rabbi Trust. Most of these securities are investment grade debt obligations with average lives of five years or less. U.S. Government and U.S. Government agency securities entail a lesser degree of risk than loans made by the Bank by virtue of the guarantees that back them, require less capital under risk-based capital rules than non-insured or non-guaranteed mortgage loans, are more liquid than individual mortgage loans, and may be used to collateralize borrowings or other obligations of the Bank. The Bank views its securities portfolio as a source of income and liquidity. Interest and principal payments generated from securities provide a source of liquidity to fund loans and meet short-term cash needs. The Bank’s securities portfolio is managed in accordance with the Rockland Trust Company Investment Policy adopted by the Board of Directors. The Chief Executive Officer or the Chief Financial Officer may make investments with the approval of one additional member of the Asset/ Liability Management Committee, subject to limits on the type, size and quality of all investments, which are specified in the Investment Policy. The Bank’s Asset/ Liability Management Committee, or its appointee, is required to evaluate any proposed purchase from the standpoint of overall diversification of the portfolio. At December 31, 2004, securities totaled $818.2 million. Total securities generated interest and dividends on securities of 25.5%, 25.4%, and 29.7% of total interest income for the fiscal years ended 2004, 2003 and 2002, respectively.

Sources of Funds

      Deposits Deposits obtained through Rockland’s branch banking network have traditionally been the principal source of the Bank’s funds for use in lending and for other general business purposes. The Bank has built a stable base of in-market core deposits from the residents of businesses, and municipalities located in southeastern Massachusetts and Cape Cod. Rockland offers a range of demand deposits, interest checking, money market accounts, savings accounts, and time certificates of deposit. Interest rates on deposits are based on factors that include loan demand, deposit maturities, alternative costs of funds, and interest rates offered by competing financial institutions in the Bank’s market area. The Bank believes it has been able to attract and maintain satisfactory levels of deposits based on the level of service it provides to its customers, the convenience of its banking locations, and its interest rates that are generally competitive with those of competing financial institutions. Rockland has a municipal department that focuses on providing service to local municipalities, at December 31, 2004 there were municipal deposits from customers of $164.5 million and are included in total deposits. As of December 31, 2004, total deposits were $2.1 billion.

      Rockland’s branch locations are supplemented by the Bank’s internet banking services as well as automated teller machine (“ATM”) cards and debit cards which may be used to conduct various banking transactions at ATMs maintained at each of the Bank’s full-service offices and seven additional remote ATM locations. The ATM cards and debit cards also allow customer’s access to the “NYCE” regional ATM network, as well as the “Cirrus” nationwide ATM network. In addition, Rockland is a member of the “SUM” network, which allows access to 2,800 participating ATM machines free of surcharge. In Massachusetts there are 337 participating institutions and more than 1,860 ATMs. These networks provide the Bank’s customers access to their accounts through ATMs located throughout Massachusetts, the United States, and the world. The debit card also can be used at any place that accepts MasterCard worldwide.

      Borrowings Borrowings consist of short-term and intermediate-term obligations. Short-term borrowings can consist of FHLB advances, federal funds purchased, treasury tax and loan notes and assets sold under repurchase agreements. In a repurchase agreement transaction, the Bank will generally sell a security agreeing to repurchase either the same or a substantially identical security on a specified later date at a price slightly greater than the original sales price. The difference in the sale price and purchase price is the cost of the proceeds. The securities underlying the agreements are delivered to the dealer who arranges the transactions as security for the repurchase obligation. Payments on such borrowings are interest only until the scheduled repurchase date, which generally occurs within a period of 30 days or less. Repurchase agreements represent a non-deposit funding source for the Bank. However, the Bank is subject to the risk that the lender may default at maturity and not return the collateral. In order to minimize this potential risk, the Bank only deals with established investment brokerage firms when entering into these transactions. On December 31, 2004 the Bank had no repurchase agreements with investment brokerage firms. In addition to agreements with brokers, the Bank has entered into similar agreements with its customers. At December 31, 2004 the Bank had $61.5 million of customer repurchase agreements outstanding.

      In July 1994, Rockland became a member of the FHLB of Boston. Among the many advantages of this membership, this affiliation provides the Bank with access to short-to-medium term borrowing capacity. At December 31, 2004, the Bank had $537.9 million outstanding in FHLB borrowings with initial maturities ranging from 3 days to 19 years. In addition, the Bank has a remaining $279.8 million line of credit with the FHLB.

      Also included in borrowings are junior subordinated debentures payable to the Company’s unconsolidated special purpose entities (Capital Trust III (“Trust III”) and Capital Trust IV (“Trust IV”)) that issued trust preferred securities to the public. The Company pays interest of 8.625% and 8.375% on $25.8 million of junior subordinated debentures issued by each Trust III and Trust IV, respectively on a quarterly basis in arrears. The debentures have a stated maturity date of December 31, 2031, and April 30, 2032, for amounts due to Trust III and Trust IV, respectively and callable by the option of the Trusts on or after December 31, 2006 and April 30, 2007 for amounts due to Trust III and Trust IV, respectively.

Investment Management and Mutual Fund Sales

      Investment Management The Rockland Trust Investment Management Group provides investment and trust services to individuals, small businesses, and charitable institutions throughout southeastern Massachusetts and Cape Cod. In addition, the Bank serves as executor or administrator of estates.

      Accounts maintained by the Rockland Trust Investment Management Group consist of “managed” and “non-managed” accounts. “Managed” accounts are those for which the Bank is responsible for administration and investment management and/or investment advice. “Non-managed” accounts are those for which the Bank acts solely as a custodian or directed trustee. The Bank receives fees dependent upon the level and type of service(s) provided. For the year ended December 31, 2004, the Investment Management Group generated gross fee revenues of $4.2 million. Total assets under administration as of December 31, 2004, were $563.9 million.

      The administration of trust and fiduciary accounts is monitored by the Trust Committee of the Bank’s Board of Directors. The Trust Committee has delegated administrative responsibilities to three committees, one for investments, one for administration, and one for operations, all of which are comprised of Investment Management Group officers who meet not less than monthly.

      Mutual Fund Sales In 1999, the Bank entered into an agreement with Independent Financial Market Group (“IFMG”), a Sun Life Financial Company for the sale of mutual fund shares, unit investment trust shares, interests in direct participation programs, similar non-insurance investment products, and general securities brokerage services. IFMG Securities Incorporated has placed their registered representatives on-site to sell these services to the Bank’s customer base.

Regulation

      The following discussion sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to the Company. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. A change in applicable statutes, regulations or regulatory policy may have a material effect on our business. The laws and regulations governing the Company and Rockland generally have been promulgated to protect depositors and not for the purpose of protecting stockholders.

      General The Company is registered as a bank holding company under the Bank Holding Company Act of 1956 (“BHCA”), as amended, and as such is subject to regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve”). Rockland is subject to regulation and examination by the Commissioner of Banks of the Commonwealth of Massachusetts (the “Commissioner”) and the Federal Deposit Insurance Corporation (“FDIC”). The majority of Rockland’s deposit accounts are insured to the maximum extent permitted by law by the Bank Insurance Fund (“BIF”) which is administered by the FDIC. In 1994, the Bank purchased the deposits of three branches of a failed savings and loan association from the Resolution Trust Corporation. These deposits are insured to the maximum extent permitted by law by the Savings Association Insurance Fund (“SAIF”).

      The Bank Holding Company Act (“BHCA”) BHAC prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of any class of voting shares of any bank, or increasing such ownership or control of any bank, without prior approval of the Federal Reserve. The BHCA also prohibits the Company from, with certain exceptions, acquiring more than 5% of any class of voting shares of any company that is not a bank and from engaging in any business other than banking or managing or controlling banks.

      Under the BHCA, the Federal Reserve is authorized to approve the ownership by the Company of shares in any company, the activities of which the Federal Reserve has determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. The Federal Reserve has, by regulation, determined that some activities are closely related to banking within the meaning of the BHCA. These activities include, but are not limited to, operating a mortgage company, finance company, credit card company, factoring company, trust company or savings association; performing data processing operations; providing some securities brokerage services; acting as an investment or financial adviser; acting as an insurance agent for types of credit-related insurance; engaging in insurance underwriting under limited circumstances; leasing personal property on a full-payout, non-operating basis; providing tax planning and preparation services; operating a collection agency and a credit bureau; providing consumer financial counseling and courier services. The Federal Reserve also has determined that other activities, including real estate brokerage and syndication, land development, property management and, except under limited circumstances, underwriting of life insurance not related to credit transactions, are not closely related to banking and are not a proper incident thereto.

      Interstate Banking Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Banking Act”), bank holding companies may acquire banks in states other than their home state without regard to the permissibility of such acquisitions under state law, but subject to any state requirement that the bank has been organized and operating for a minimum period of time, not to exceed five years, and the requirement that the bank holding company, after the proposed acquisition, controls no more than 10 percent of the total amount of deposits of insured depository institutions in the United States and no more than 30 percent or such lesser or greater amount set by state law of such deposits in that state.

      Pursuant to Massachusetts law, no approval to acquire a banking institution, acquire additional shares in a banking institution, acquire substantially all the assets of a banking institution or merge or consolidate with

another bank holding company may be given if the bank being acquired has been in existence for a period less than three years or, as a result, the bank holding company would control, in excess of 30%, of the total deposits of all state and federally chartered banks in Massachusetts, unless waived by the Commissioner. With the prior written approval of the Commissioner, Massachusetts also permits the establishment of de novo branches in Massachusetts to the fullest extent permitted by the Interstate Banking Act, provided the laws of the home state of such out-of-state bank expressly authorize, under conditions no more restrictive than those of Massachusetts, Massachusetts banks to establish and operate de novo branches in such state.

      Capital Requirements The Federal Reserve has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a bank holding company and in analyzing applications to it under the BHCA. The Federal Reserve’s capital adequacy guidelines which generally require bank holding companies to maintain total capital equal to 8% of total risk-adjusted assets, with at least one-half of that amount consisting of Tier 1, or core, capital and up to one-half of that amount consisting of Tier 2, or supplementary, capital. Tier 1 capital for bank holding companies generally consists of the sum of common stockholders’ equity and perpetual preferred stock (subject in the case of the latter to limitations on the kind and amount of such stocks which may be included as Tier 1 capital), less net unrealized gains on available for sale securities and on cash flow hedges, and goodwill and other intangible assets required to be deducted from capital. Tier 2 capital generally consists of perpetual preferred stock which is not eligible to be included as Tier 1 capital; hybrid capital instruments such as perpetual debt and mandatory convertible debt securities, and term subordinated debt and intermediate-term preferred stock; and, subject to limitations, the allowance for loan losses. Assets are adjusted under the risk-based guidelines to take into account different risk characteristics, with the categories ranging from 0% (requiring no additional capital) for assets such as cash to 100% for the majority of assets which are typically held by a bank holding company, including commercial real estate loans, commercial loans and consumer loans. Single family residential first mortgage loans which are not 90 days or more past due or nonperforming and which have been made in accordance with prudent underwriting standards are assigned a 50% level in the risk-weighting system, as are certain privately-issued mortgage-backed securities representing indirect ownership of such loans and certain multi-family housing loans. Off-balance sheet items also are adjusted to take into account certain risk characteristics.

      In addition to the risk-based capital requirements, the Federal Reserve requires bank holding companies to maintain a minimum leverage capital ratio of Tier 1 capital to total assets of 3.0%. Total assets for this purpose do not include goodwill and any other intangible assets or investments that the Federal Reserve determines should be deducted from Tier 1 capital. The Federal Reserve has announced that the 3.0% Tier 1 leverage capital ratio requirement is the minimum for the top-rated bank holding companies without any supervisory, financial or operational weaknesses or deficiencies or those which are not experiencing or anticipating significant growth. Other bank holding companies (including the Company) are expected to maintain Tier 1 leverage capital ratios of at least 4.0% to 5.0% or more, depending on their overall condition.

      The Company currently is in compliance with the above-described regulatory capital requirements. At December 31, 2004, the Company had Tier 1 capital and total capital equal to 10.19% and 11.44% of total risk-adjusted assets, respectively, and Tier 1 leverage capital equal to 7.06% of total assets. As of such date, Rockland complied with the applicable federal regulatory capital requirements, with Tier 1 capital and total capital equal to 10.04% and 11.29% of total risk-adjusted assets, respectively, and Tier 1 leverage capital equal to 6.95% of total assets.

      The FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks, which, like Rockland, are not members of the Federal Reserve System. These requirements are substantially similar to those adopted by the Federal Reserve regarding bank holding companies, as described above. The FDIC’s capital regulations establish a minimum 3.0% Tier 1 leverage capital to total assets requirement for the most highly-rated state-chartered, non-member banks, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively will increase the minimum Tier 1 leverage capital ratio for such banks to 4.0% or 5.0% or more. Under the FDIC’s regulations, the highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate

risk exposure, excellent asset quality, high liquidity, good earnings and in general which are considered strong banking organizations, rated composite 1 under the Uniform Financial Institutions Rating System.

      Each federal banking agency has broad powers to implement a system of prompt corrective action to resolve problems of institutions, which it regulates, which are not adequately capitalized. A bank shall be deemed to be (i) “well capitalized” if it has total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-based capital ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and is not subject to any written capital order or directive; (ii) “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 4.0% or more, a Tier 1 leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of “well capitalized”; (iii) “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, or a Tier 1 risk-based capital ratio that is less than 4.0% or a Tier 1 leverage capital ratio of less than 4.0% (3.0% under certain circumstances); (iv) “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6.0%, or a Tier 1 risk-based capital ratio that is less than 3.0%, or a Tier 1 leverage capital ratio that is less than 3.0%; and (v) “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. As of December 31, 2004 Rockland was deemed a “well-capitalized institution” for this purpose.

      Commitments to Affiliated Institutions Under Federal Reserve policy, the Company is expected to act as a source of financial strength to Rockland and to commit resources to support Rockland. This support may be required at times when the Company may not be able to provide such support. Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance Act, in the event of a loss suffered or anticipated by the FDIC — either as a result of default of a banking or thrift subsidiary of a bank/financial holding company such as the Company or related to FDIC assistance provided to a subsidiary in danger of default — the other banking subsidiaries of such bank/financial holding company may be assessed for the FDIC’s loss, subject to certain exceptions.

      Limitations on Acquisitions of Common Stock The federal Change in Bank Control Act (“CBCA”) prohibits a person or group of persons from acquiring “control” of a bank holding company or bank unless the appropriate federal bank regulator has been given 60 days prior written notice of such proposed acquisition and within that time period such regulator has not issued a notice disapproving the proposed acquisition or extending for up to another 30 days the period during which such a disapproval may be issued. The acquisition of 25% or more of any class of voting securities constitutes the acquisition of control under the CBCA. In addition, under a rebuttal presumption established under the CBCA regulations, the acquisition of 10% or more of a class of voting stock of a bank holding company or a FDIC insured bank, with a class of securities registered under or subject to the requirements of Section 12 of the Securities Exchange Act of 1934 would, under the circumstances set forth in the presumption, constitute the acquisition of control.

      Any “company” would be required to obtain the approval of the Federal Reserve under the BHCA before acquiring 25% (5% in the case of an acquirer that is a bank holding company) or more of the outstanding common stock of, or such lesser number of shares as constitute control over, the Company. Such approval would be contingent upon, among other things, the acquirer registering as a bank holding company, divesting all impermissible holdings and ceasing any activities not permissible for a bank holding company. The Company owns no voting stock in any banking institution that would require approval of the Federal Reserve.

      Deposit Insurance Premiums Rockland currently pays deposit insurance premiums to the FDIC based on a single, uniform assessment rate established by the FDIC for all BIF-member institutions. The assessment rates range from 0% to 0.27%. Under the FDIC’s risk-based assessment system, institutions are assigned to one of three capital groups which assignment is based solely on the level of an institution’s capital — “well capitalized,” “adequately capitalized,” and “undercapitalized” — which are defined in the same manner as the regulations establishing the prompt corrective action system under the Federal Deposit Insurance Act (“FDIA”). Rockland is presently “well capitalized” and as a result, Rockland is currently not subject to any FDIC premium obligation.

      Community Reinvestment Act (“CRA”) Pursuant to the Community Reinvestment Act (“CRA”) and similar provisions of Massachusetts’ law, regulatory authorities review the performance of the Company and Rockland in meeting the credit needs of the communities served by Rockland. The applicable regulatory authorities consider compliance with this law in connection with applications for, among other things, approval

of new branches, branch relocations, engaging in certain new financial activities under the Gramm-Leach-Bliley Act of 1999, as discussed below, and acquisitions of banks and bank holding companies. The FDIC and the Massachusetts Division of Banks has assigned the Bank a CRA rating of outstanding as of the latest examinations.

      Bank Secrecy Act The Bank Secrecy Act requires financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax and regulatory matters, and to implement counter-money laundering programs and compliance procedures.

      USA Patriot Act of 2001 In October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington D.C. which occurred on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

      Financial Services Modernization Legislation In November 1999, the Gramm-Leach-Bliley Act (“GLB”) of 1999, was enacted. The GLB repeals provisions of the Glass-Steagall Act which restricted the affiliation of Federal Reserve member banks with firms “engaged principally” in specified securities activities, and which restricted officer, director or employee interlocks between a member bank and any company or person “primarily engaged” in specified securities activities.

      In addition, the GLB also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers by revising and expanding the Bank Holding Company Act framework to permit a holding company to engage in a full range of financial activities through a new entity known as a “financial holding company.” “Financial activities” is broadly defined to include not only banking, insurance and securities activities, but also merchant banking and additional activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

      The GLB also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance investments, real estate investment or development, or merchant banking, which may only be conducted through a subsidiary of a financial holding company. Financial activities include all activities permitted under new sections of the Bank Holding Company Act or permitted by regulation.

      To the extent that the GLB permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. The GLB is intended to grant to community banks certain powers as a matter of right that larger institutions have accumulated on an ad hoc basis and which unitary savings and loan holding companies already possess. Nevertheless, the GLB may have the result of increasing the amount of competition that the Company faces from larger institutions and other types of companies offering financial products, many of which may have substantially more financial resources than the Company.

      Sarbanes-Oxley Act of 2002 On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act (“SOA”) of 2002. The stated goals of the SOA are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws.

      The SOA includes very specific additional disclosure requirements and new corporate governance rules, requires the Securities and Exchange Commission (“SEC”) and securities exchanges to adopt extensive

additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General.

      The SOA’s principal legislation includes:

      The SEC has been delegated the task of enacting rules to implement various provisions with respect to, among other matters, disclosure in periodic filings pursuant to the Exchange Act. To date, the SEC has implemented some of the provisions of the SOA. However, the SEC continues to issue final rules, reports and press releases. As the SEC provides new requirements, we review those rules and comply as required.

      Although we anticipated that we will incur additional expense in complying with the provisions of the SOA and the resulting regulations, management doe not expect that such compliance will have a material impact on our results of operation or financial condition.

      Regulation W Transactions between a bank and its “affiliates” are quantitatively and qualitatively restricted under the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember banks in the same manner and to the same extent as if they were members of the Federal Reserve System. The Federal Reserve Board has also recently issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act and interpretative guidance with respect to affiliate transactions. Regulation W incorporates the exemption from the affiliate transaction rules but expands the exemption to cover the purchase of any type of loan or extension of credit from an affiliate. Affiliates of a bank include, among other entities, the bank’s holding company and companies that are under common control with the bank. The Company is considered to be an affiliate of the Bank. In general, subject

to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” with affiliates:

      In addition, a bank and its subsidiaries may engage in covered transactions and other specified transactions only on terms and under circumstances that are substantially the same, or at least as favorable to the bank or its subsidiary, as those prevailing at the time for comparable transactions with nonaffiliated companies. A “covered transaction” includes:

      In addition, under Regulation W:

      Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the Federal Reserve Board decides to treat these subsidiaries as affiliates.

      Employees As of December 31, 2004, the Bank had 750 full time equivalent employees. None of the Company’s employees are represented by a labor union and management considers relations with its employees to be good.

      Miscellaneous Rockland is subject to certain restrictions on loans to the Company, on investments in the stock or securities thereof, on the taking of such stock or securities as collateral for loans to any borrower, and on the issuance of a guarantee or letter of credit on behalf of the Company. Rockland also is subject to certain restrictions on most types of transactions with the Company, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms. In addition under state law, there are certain conditions for and restrictions on the distribution of dividends to the Company by Rockland.

      The regulating information referenced briefly summarizes certain material statutes and regulations affecting the Company and the Bank and is qualified in its entirety by reference to the particular statutory and regulatory provisions.

Statistical Disclosure by Bank Holding Companies

      The following information, included under Items 6, 7, and 8 of this report are incorporated by reference herein.

      Note 8, “Borrowings” within Notes to the Consolidated Financial Statements which includes information regarding short-term borrowings and is included in Item 8 hereof.

      For additional information regarding the Company’s business and operations, see Selected Financial Data in Item 6 hereof, Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 hereof and the Consolidated Financial Statements in Item 8 hereof.

Securities and Exchange Commission Availability of Filings on Company Web Site

      Under the Securities Exchange Act of 1934 Sections 13 and 15(d), periodic and current reports must be filed with the SEC. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0030. The Company electronically files the following reports with the SEC: Form 10-K (Annual Report), Form 10-Q (Quarterly Report), Form 11-K (Annual Report for Employees’ Stock Purchase and Savings Plans), Form 8-K (Report of Unscheduled Material Events), Form S-4, S-3 and 8-A (Registration Statements), and Form DEF 14A (Proxy Statement). The Company may file additional forms. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at www.sec.gov, in which all forms filed electronically may be accessed. Additionally, our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC and additional shareholder information are available free of charge on the Company’s website: www.RocklandTrust.com. The Company’s Code of Ethics is also available on the Company’s website in the investor relations section of the website.

      At December 31, 2004, the Bank conducted its business from its headquarters and main office located at 288 Union Street, Rockland, Massachusetts and fifty-two banking offices located within Barnstable, Bristol, Norfolk and Plymouth Counties in southeastern Massachusetts and Cape Cod. In addition to its main office, the Bank owned twenty of its branches and leased the remaining thirty-two branches. All of the Bank’s properties are considered to be in good condition and adequate for the purposes for which they are used. In addition to these branch locations, the Bank had eight remote ATM locations all of which were leased.

      The Bank conducted business in eight administrative locations. These locations housed executive, administrative, investment management offices, residential lending centers, commercial lending centers and back office support staff and warehouse space. The bank owned two of its administrative offices and leased the remaining six offices.

      For additional information regarding our premises and equipment and lease obligations, see Notes 6 and 16 respectively, to the Consolidated Financial Statements included in Item 8 hereof.

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

      In July 1995 the Bank filed a Complaint against CA in federal court in Boston which asserted claims for breach of the Agreement, breach of express warranty, breach of the implied covenant of good faith and fair dealing, fraud, and for unfair and deceptive practices in violation of section 11 of Chapter 93A of the Massachusetts General Laws (the “93A Claim”). The Bank is seeking damages of at least $1.23 million from CA. Under Massachusetts’s law, interest will be computed at a 12% rate on any damages which the Bank recovers, 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 operating 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.

      In addition to the foregoing, the Company is involved in routine legal proceedings occurring in the ordinary course of business which in the aggregate are believed by us to be immaterial to our financial condition and results of operations.

      There were no matters submitted to a vote of our security holders in the fourth quarter of 2004.

PART II

      Independent Bank Corp.’s common stock trades on the NASDAQ National Market under the symbol INDB. The Company declared cash dividends of $0.56 per share in 2004 and $0.52 per share in 2003. The ratio of dividends paid to earnings in 2004 and 2003 was 27.23% and 28.6%, respectively.

      Payment of dividends by the Company on its common stock is subject to various regulatory restrictions and guidelines. Since substantially all of the funds available for the payment of dividends are derived from the Bank, future dividends will depend on the earnings of the Bank, its financial condition, its need for funds, applicable governmental policies and regulations, and other such matters as the Board of Directors deem appropriate. Management believes that the Bank will continue to generate adequate earnings to continue to pay dividends on a quarterly basis.

      The following schedule summarizes the price range of common stock and the cash dividends paid for the fiscal years ended 2004 and 2003.

Table 1 — Price Range of Common Stock

      As of December 31, 2004 there were 15,326,236 shares of common stock outstanding which were held by approximately 6,993 holders of record. The closing price of the Company’s stock on December 31, 2004 was $33.75. Such number of record holders does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage firms and other nominees.

      During the three months ended December 31, 2004 the Company did not repurchase any of its common stock. The Company currently does not have a stock repurchase plan.

      The selected consolidated financial and other data of the Company set forth below does not purport to be complete and should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including the Consolidated Financial Statements and related notes, appearing elsewhere herein.

      See Item 8. Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements, Note (1) Summary of Significant Accounting Policies, Goodwill and Note (10) Goodwill and Intangible Assets, for information related to the Company’s acquisitions and adoption of Statement of Financial Accounting Standards (“SFAS”) No. 147 “Acquisitions of Certain Financial Institutions”, and Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46 “Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin No. 51” for information related to the Company’s adoption of Fin No. 46R which affects the comparability of the information reflected in the selected financial data.

      Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company headquartered in Rockland, Massachusetts and was incorporated in 1986. The Company is the sole stockholder of Rockland Trust Company (“Rockland” or “the Bank”), a Massachusetts trust company chartered in 1907. The Company also owns 100% of the common stock of Independent Capital Trust III (“Trust III”) and Independent Capital Trust IV (“Trust IV”), each of which have issued trust preferred securities to the public. As of March 31, 2004, Trust III and Trust IV are no longer included in the Company’s consolidated financial statements (see discussion in Recent Accounting Pronouncements Fin No. 46 within Item 7 hereof). The Bank’s subsidiaries consist of two Massachusetts securities corporations, RTC Securities Corp. I 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 make loans and to provide financial assistance to qualified businesses and individuals in low-income communities in accordance with New Markets Tax Credit Program criteria. All material intercompany balances and transactions have been eliminated in consolidation. The following should be read in conjunction with the Consolidated Financial Statements and related notes thereto.

Critical Accounting Policies

      Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that our most critical accounting policies upon which our financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows:

      Allowance for Loan Losses: Arriving at an appropriate level of allowance for loan losses involves a high degree of judgment. The Company’s allowance for loan losses provides for probable losses based upon evaluations of known and inherent risks in the loan portfolio. Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans previously charged-off and reduced by loans charged-off. For a full discussion of the Company’s methodology of assessing the adequacy of the allowance for loan losses, see the Allowance for Loan Loss and Provision for Loan Loss sections within the Management’s Discussion and Analysis of Financial Condition and Results of Operation to follow.

      Income Taxes: The Company estimates income tax expense based on the amount it expects to owe various tax authorities. Taxes are discussed in more detail in Note 11 of the Consolidated Financial Statements. Accrued taxes represent the net estimated amount due to or to be received from taxing authorities. In estimating accrued taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance in the context of our tax position. Although the Company uses available information to record accrued income taxes, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances such as changes in tax laws influencing the Company’s overall tax position.

      Valuation of Goodwill/ Intangible Assets and Analysis for Impairment: Independent Bank Corp. in part has increased its market share through the acquisition of entire financial institutions accounted for under the purchase method of accounting, as well as from the acquisition of financial institution’s branches (not the

entire institution). For acquisitions under the purchase method and the acquisition of financial institution branches, the Company is required to record assets acquired and liabilities assumed at their fair value which is an estimate determined by the use of internal or other valuation techniques. These valuation estimates result in goodwill and other intangible assets. Goodwill is subject to ongoing periodic impairment tests and is evaluated using various fair value techniques including multiples of price/equity and price/earnings ratios.

Executive Level Overview

      The Company’s results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and interest paid on deposits and borrowings. The results of operations are also affected by the level of income/fees from loans, deposits, mortgage banking, and investment management activities, as well as operating expenses, the provision for loan losses, the impact of federal and state income taxes, and the relative levels of interest rates and economic activity.

      The Company reported record financial results in 2004 despite a flattening yield curve and the costs associated with implementing numerous strategic initiatives. 2004 proved to be a year of many significant accomplishments which management is confident will serve to enhance the Company’s performance in years to come.

     2004 Significant Accomplishments

      In 2004, as compared to 2003, the Company experienced compression in its net interest margin, some of which began to reverse in the second half of 2004. The compression in the first half of 2004 was driven by two factors. First, existing fixed rate assets were being replaced with new assets being priced in a lower rate environment. Second, demand for deposits and therefore competitive pricing for deposits began to increase. However, in the second half of 2004 the Company benefited from a continued focus on adjustable rate lending as the Federal Reserve began to raise rates thus repricing adjustable rate loans higher, resulting in a modest expansion in the net interest margin.

      The following shows the trend of the Net Interest Margin for the 2002 — 2004 period:

Quarterly Net Interest Margin*

(Fully Taxable Equivalent)

     *The net interest margin of the Company was negatively impacted by 0.13% for the full year due to the adoption of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46R “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (see Recent Accounting Pronouncements, Fin No. 46 in Item 7 hereof) effective March 31, 2004. The net interest margin for prior periods shown above have not been adjusted to reflect the adoption of this interpretation.

     During this historically low interest rate environment, management has focused greater effort, as shown below, on the origination of variable and adjustable rate loans.

      The following represents the change in mix of variable rate loans and fixed rate loans from 2002 through 2004:

Mix of Variable and Fixed Rate Loans

      This emphasis on adjustable lending resulted in a modest expansion in the Company’s net interest margin in the second half of 2004, from a low of 3.84% in the second quarter to 3.96% in the fourth quarter of the year. Following increases in Fed Funds and the prime rate, the Company was able to increase the yield on interest bearing assets, without a corresponding increase in the cost of deposits.

      The following shows the historical prime lending rate from 2002 though 2004.

Historical Prime Lending Rate

Source: Bloomberg LP

     Net interest income increased $2.0 million during 2004 as compared to 2003, despite a reduction in the net interest margin, primarily as a result of strong loan growth during the year.

      To diversify earnings and mitigate the impact to the net interest margin compression the Company focuses on non-interest income opportunities. During 2004 service charges on deposit accounts increased by $936,000, or 8.2%, as compared to 2003 as a result of the strong growth in core deposits experienced during the year. This increase was offset however in mortgage banking income, which experienced a decline of $1.7 million, or 37.9%, as a result of the inevitable slowdown in the refinance market experienced during 2004. Management believes that despite the downturn in mortgage banking income in 2004, the retooling that has taken place in the residential lending division will better position the Company to focus on the purchase mortgage market going forward. Investment management services income increased by $343,000, or 7.9%, attributable to the growth in managed assets. Total non-interest income, excluding securities gains and the gain recognized from the sale of a branch, decreased by $24,000.

      Non-interest expense increased by $3.9 million, or 5.2%, for the year ended December 31, 2004, respectively, as compared to the prior year. Salaries and employee benefits increased by $3.4 million, or 8.2%, for the year ended December 31, 2004, as compared to the prior year partially reflecting additions to staff to support continued growth as well as increased pension and medical expenses, partially offset by lower incentive compensation. Other non-interest expenses increased by $1.6 million, or 9.2%, for the year ended December 31, 2004 as compared to the prior year. The increase in other non-interest expenses is primarily attributable to expenditures associated with the Company’s key business initiatives.

      The Company estimates that the total cost associated with its business initiatives was approximately $2.1 million in 2004. In addition, advertising and business development increased by $739,000 in 2004 compared to 2003 to support the aforementioned business initiatives and capitalize on market changes due to merger and acquisition activity.

      Looking ahead to 2005, the Company expects the net interest margin to contract modestly to 3.85% for the year. The additional margin compression is a result of an anticipated increase in funding costs and the run-off of deferred gains on sales of interest rate swaps that were amortized into interest income on home equity loans. Management plans to mitigate the impact of net interest margin compression through continued prudent asset growth, increasing deposit originations, generating growth in non-interest income, and non-interest expense control. Additionally, there are a number of initiatives that are expected to contribute to 2005

and beyond. The Company’s success in 2005 will be predicated upon the disciplined execution and the careful monitoring of the Strategic Plan that has been put in place.

      The Strategic Plan includes:

      The year 2004 was about strengthening the Company’s foundation. Year 2005 will be about refining and leveraging what we have developed, and relentlessly executing our strategies.

Financial Position

      The Company’s total assets increased by $507.2 million, or 21%, from $2.4 billion at December 31, 2003 to $2.9 billion at December 31, 2004. Total average assets were $2.7 billion and $2.4 billion in 2004 and 2003, respectively. These increases were primarily due to growth in securities and loans. Total liabilities, minority interest in subsidiaries, and stockholders’ equity increased by $507.2 million in 2004, primarily due to a growth in core deposits. During 2004, the Company completed the acquisition of Falmouth Bancorp, Inc., parent of Falmouth Co-Operative Bank (“Falmouth”) resulting in total assets acquired of $158.4 million, total liabilities assumed of $141.6 million, or $16.8 million of net assets. The acquisition contributed to many of the balance variances discussed below. Large variances will be specifically addressed, otherwise for more insight into the acquisition see Acquisition within Managements’ Discussion and Analysis hereof.

      Loan Portfolio At December 31, 2004, the Bank’s loan portfolio amounted to $1.9 billion, an increase of $335.2 million, or 21.2%, from year-end 2003. This increase was primarily in real estate loans, both commercial and residential, which increased $99.7 million, or 15.6% and $110.6 million, or 33.0%, respectively, and consumer loans which in total increased $119.2 million or 27.4%.

      In accordance with governing banking statutes, Rockland is permitted, with certain exceptions, to make loans and commitments to any one borrower, including related entities, in the aggregate amount of not more than 20% of the Bank’s stockholders’ equity, or $51.4 million at December 31, 2004. Notwithstanding the foregoing, the Bank has established a more restrictive limit of not more than 75% of the Bank’s legal lending limit, or $38.6 million at December 31, 2004, which may only be exceeded with the approval of the Board of Directors. There were no borrowers whose total indebtedness in aggregate exceeded $38.6 million as of December 31, 2004.

      The following table sets forth information concerning the composition of the Bank’s loan portfolio by loan type at the dates indicated.

Table 2 — Loan Portfolio Composition

      At December 31, 2004, $176.9 million, or 9.2%, of the Bank’s gross loan portfolio consisted of commercial and industrial loans, compared to $171.2 million, or 10.8%, at December 31, 2003. The Bank’s commercial revolving lines of credit generally are for the purpose of providing working capital to borrowers and may be secured or unsecured. At December 31, 2004, the Bank had $87.7 million outstanding under commercial revolving lines of credit compared to $76.5 million at December 31, 2003 and $126.6 million of unused commitments under such lines at December 31, 2004 compared to $116.8 million in the prior year. As of December 31, 2004, the Bank had $7.1 million in outstanding commitments pursuant to standby letters of credit compared to $6.2 million at December 31, 2003. Floor plan loans, which are included in commercial and industrial loans, and are secured by the automobiles, boats, or other vehicles constituting the dealer’s inventory, amounted to $17.1 million as of December 31, 2004 compared to $23.9 million at the prior year-end.

      Real estate loans totaling $1.2 billion comprised 61.9% of gross loans at December 31, 2004, as compared to $975.4 million or 61.7% of gross loans at December 31, 2003. The Bank’s real estate loan portfolio included $613.3 million in commercial real estate loans at December 31, 2004. This category has reflected increases over the last year of $48.4 million, or 8.6%. Commercial construction of $126.6 million increased by $51.3 million, or 68.0% compared to year-end 2003. Residential real estate loans, including residential loans held for sale, which were $438.5 million at year-end 2004, increased $113.0 million, or 34.7%, in 2004. During 2004, the Bank sold $145.0 million of the current production of residential mortgages as part of its overall asset/liability management. Residential loans of $53.9 million acquired from Falmouth contributed to this increase.

      Consumer loans primarily consist of automobile, home equity, and other consumer loans. As of December 31, 2004, $553.7 million, or 28.9%, of the Bank’s gross loan portfolio, consisted of consumer loans compared to $434.5 million, or 27.5%, of the Bank’s gross loans at December 31, 2003. Consumer home equity loans of $194.5 million, increased $61.8 million, or 46.6%, in 2004 and represented 35% of the total consumer loan portfolio. As of December 31, 2004 and 2003, automobile loans, which make up the majority of the Bank’s consumer loans, were $284.0 million, representing 51.3%, and $240.5 million, representing 55.4%, respectively, of the Bank’s consumer loan portfolio. As of December 31, 2004, other consumer loans amounted to $75.3 million compared to $61.3 million as December 31, 2003. These loans were largely constituted by

loans secured by recreational vehicles, motor homes, boats, mobile homes, and motorcycles and cash reserve loans.

      Cash reserve loans are designed to afford the Bank’s customers overdraft protection. Cash reserve loans are made pursuant to previously approved unsecured cash reserve lines of credit. The rate on these loans is subject to change due to market conditions. As of December 31, 2004 and 2003, $20.6 million had been committed to but was unused under cash reserve lines of credit.

      Home equity loans may be made as a term loan or under a revolving line of credit secured by a first or second mortgage on the borrower’s residence. As of December 31, 2004, there were $162.9 million in unused commitments under revolving home equity lines of credit compared to $112.2 million at December 31, 2003.

      The following table sets forth the scheduled contractual amortization of the Bank’s loan portfolio at December 31, 2004. Loans having no schedule of repayments or no stated maturity are reported as due in one year or less. The following table also sets forth the rate structure of loans scheduled to mature after one year.

Table 3 — Scheduled Contractual Loan Amortization At December 31, 2004

      As of December 31, 2004, $191,000 of loans scheduled to mature within one year were nonperforming.

      Generally, the actual maturity of loans is substantially shorter than their contractual maturity due to prepayments and, in the case of real estate loans, due-on-sale clauses, which generally gives the Bank the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage and the loan is not repaid. The average life of real estate loans tends to increase when current real estate loan rates are higher than rates on mortgages in the portfolio and, conversely, tends to decrease when rates on mortgages in the portfolio are higher than current real estate loan rates. Under the latter scenario, the weighted average yield on the portfolio tends to decrease as higher yielding loans are repaid or refinanced at lower rates. Due to the fact that the Bank may, consistent with industry practice, “roll over” a significant portion of commercial and commercial real estate loans at or immediately prior to their maturity by renewing the loans on substantially similar or revised terms, the principal repayments actually received by the Bank are anticipated to be significantly less than the amounts contractually due in any particular period. In addition, a loan, or a portion of a loan, may not be repaid due to the borrower’s inability to satisfy the contractual obligations of the loan.

      Residential mortgage loans originated for sale are classified as held for sale. These loans are specifically identified and carried at the lower of aggregate cost or estimated market value. Forward commitments to sell residential real estate mortgages are contracts that the Bank enters into for the purpose of reducing the market risk associated with originating loans for sale should interest rates change. Forward commitments to sell as well as commitments to originate rate-locked loans are recorded at fair value.

      During 2004 and 2003, the Bank originated residential loans with the intention of selling these loans in the secondary market. Loans are sold both with servicing rights released and servicing rights retained. Loans originated and sold with servicing rights released were $110.4 million and $13.9 million in 2004 and 2003,

respectively. Loans originated and sold with servicing rights retained were $34.6 million and $245.7 million in 2004 and 2003, respectively.

      The principal balance of loans serviced by the Bank on behalf of investors amounted to $392.0 million at December 31, 2004 and $398.9 million at December 31, 2003. The fair value of the servicing rights associated with these loans was $3.3 million and $3.2 million as of December 31, 2004 and 2003, respectively.

      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 4 — Summary of Delinquency Information

      Nonaccrual Loans 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. 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 in certain instances remains current

for up to three months) 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.

      Nonperforming Assets Nonperforming assets are comprised of nonperforming loans, nonperforming securities and Other Real Estate Owned (“OREO”). Nonperforming loans consist of loans that are more than 90 days past due but still accruing interest and nonaccrual loans. OREO includes properties held by the Bank as a result of foreclosure or by acceptance of a deed in lieu of foreclosure. As of December 31, 2004, nonperforming assets totaled $2.7 million, a decrease of $812,000 or 23.1%, from the prior year-end. Nonperforming assets represented 0.09% of total assets for the year ending December 31, 2004 and 0.14% for the year ending December 31, 2003. There were no OREO or nonperforming securities for the periods ended December 31, 2004 or December 31, 2003.

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

Table 5 — Nonperforming Assets

      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 ability of the borrower to repay in line with its current financial status. It is the Bank’s policy to maintain restructured loans on nonaccrual status for approximately six months before management considers its return to accrual status. At December 31, 2004, the Bank had $416,000 of restructured loans. At December 31, 2004, the Bank had four potential problem loan relationships not included in nonperforming loans with an outstanding balance of $10.7 million. At December 31, 2003, the Bank had two potential problem loans not included in nonperforming loans with an outstanding balance of $3.3 million. Potential problem loans are any loans, which are not included in nonaccrual or non-performing loans and which are not considered troubled debt restructures, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms.

      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 cost 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 years ended December 31, 2004, 2003 and 2002, if nonperforming loans at the respective dates had been performing in accordance with their original terms approximated $312,000, $210,000, and $227,000, respectively. The actual amount of interest that was collected on these nonaccrual and restructured loans during each of those periods and included in interest income was approximately $140,000, $261,000, and $194,000, 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, commercial real estate, 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 December 31, 2004, impaired loans include all commercial real estate loans and commercial and industrial loans on nonaccrual status and restructured loans. Total impaired loans at December 31, 2004 and 2003 were $2.6 million and $2.1 million, respectively.

      Allowance for Loan Losses While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on increases in nonperforming loans, changes in economic conditions, or for other reasons. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Federal Reserve regulators examined the Company in the third quarter of 2004 and the Bank was most recently examined by the Federal Deposit Insurance Corporation, “FDIC”, in the first quarter of 2004. No additional provision for loan losses was required as a result of these examinations.

      The allowance for loan losses is maintained at a level that management considers adequate to provide for probable loan losses based upon 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. Additionally, in 2004 the Bank’s allowance increased by $870,000 upon acquisition of Falmouth Bankcorp, Inc. This increase represents management’s estimate of potential inherent losses in the acquired portfolio.

      The Bank’s total allowances for loan losses was $25.2 million at December 31, 2004, compared to $23.2 million at December 31, 2003.

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

Table 6 — Summary of Changes in the Allowance for Loan Losses

      The allowance for loan losses is allocated to various loan categories as part of the Bank’s process of evaluating the adequacy of the allowance for loan losses. Allocated allowances increased by approximately

$2.2 million to $22.4 million at December 31, 2004, with increases shown in each of the various loan portfolio components except commercial and industrial loans, which decreased in 2004. Increased amounts of allowance were allocated to six major portfolio components: commercial real estate, real estate construction, residential real estate, consumer home equity, consumer auto and consumer other. The increased amounts allocated to these portfolio components represented substantially all of the increase in the allocated allowance amounts, as compared to the amounts shown at December 31, 2003.

      The decrease in the amount of allowance allocated to the commercial and industrial portfolio component is attributed to the re-categorization of certain loan balances and to portfolio turnover. Additionally, those loan balances in certain commercial and industrial loan groupings that have been repaid were replaced by newly originated loan balances that have been placed into other loan groupings within this portfolio component that require different levels of allocated allowance based upon the ascertainable risk characteristics of those loans.

      The increase in the amount of allowance allocated to the commercial real estate portfolio component is due to loan balance growth within this portfolio component attributed to new loan origination and, to a certain extent, the Falmouth acquisition. Loan balances outstanding in this portfolio component, at December 31, 2004, increased by 8.6%, while the amount of allowance allocated to this portfolio component grew by 7.7%, as compared to those respective amounts shown at December 31, 2003. The amount of allowance allocated reflects concerted increases in loan balances distributed among certain loan groupings within commercial real estate that require different levels of allocated allowance based upon the ascertainable risk characteristics of those loans.

      The increase in the amount of allowance allocated to the real estate construction portfolio component is due to loan balance growth within this portfolio component attributed to new loan origination. Loan balances outstanding in this portfolio component, at December 31, 2004, increased by 57.6%, while the corresponding amount of allowance allocated increased by 109.1%, as compared to those respective amounts shown at December 31, 2003. The amount of allowance allocated within the real estate — construction portfolio component reflects loan balance growth distributed among certain loan groupings within this portfolio component that require different levels of allocated allowance based upon the ascertainable risk characteristics of those loans.

      The increase in the amount of allowance allocated to the residential real estate portfolio component is due to growth in this loan portfolio attributed to new loan origination and, to a certain extent, the Falmouth acquisition. Outstanding balances at December 31, 2004 in this loan category, excluding construction loans, grew by 34.7% as compared to the amount shown at December 31, 2003.

      The increase in the amount of allowance allocated to the consumer home equity portfolio component is due to growth in this loan portfolio attributed to new loan origination and, to a certain extent, the Falmouth acquisition. Outstanding balances at December 31, 2004 in this loan category grew by 46.6% as compared to the amount shown at December 31, 2003.

      The increase in the amount of allowance allocated to the consumer auto loan portfolio component reflects 18.1% growth in loan balances, which was led by the indirect financing subsets of this portfolio component.

      The increase in the amount of allowance allocated to the consumer other loan portfolio component reflects 22.7% growth in loan balances as compared to those balances shown at December 31, 2003. This loan grouping is comprised of other consumer loan product types including non-auto installment loans, overdraft lines and other credit line facilities.

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

Table 7 — Summary of Allocation of Allowance for Loan Losses