e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number: 1-9047
Independent Bank
Corp.
(Exact name of registrant as
specified in its charter)
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Massachusetts
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04-2870273
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Office Address: 2036 Washington Street,
Hanover Massachusetts
Mailing Address: 288 Union Street,
Rockland, Massachusetts
(Address of principal
executive offices)
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02339
02370
(Zip Code)
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Registrants telephone number, including area code:
(781) 878-6100
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $.01 par value per share
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NASDAQ Global Select Market
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Preferred Stock Purchase Rights
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NASDAQ Global Select Market
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Securities
registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes o No þ
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 (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this
chapter) is not contained herein, and will not be contained, to
the best of registrants 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 a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the registrant, computed by reference to the
closing price of such stock on June 30, 2009, was
approximately $381,868,602.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date. January 31,
2010 20,935,456
DOCUMENTS
INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the Part of the
Form 10-K
(e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) Any annual report to security holders;
(2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under
the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended
December 24, 1980).
Portions of the Registrants definitive proxy statement for
its 2009 Annual Meeting of Stockholders are incorporated into
Part III,
Items 10-13
of this
Form 10-K.
INDEPENDENT
BANK CORP.
2009
ANNUAL REPORT ON
FORM 10-K
TABLE OF
CONTENTS
1
GLOSSARY
OF TERMS
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ARRA American Recovery and Reinvestment Act of
2009 An act making supplemental appropriations
for job preservation and creation, infrastructure investment,
energy efficiency and science, assistance to the unemployed, and
State and local fiscal stabilization, and for other purposes.
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Assets Under Administration (AUA) the total
market value of assets under the investment advisory and
discretion of Investment Management Group which generate asset
management fees based on a percentage of the assets market
value. AUA reflects assets which are generally managed for
institutional, high net-worth and retail clients and are
distributed through various investment products including mutual
funds, other commingled vehicles and separate accounts.
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Automated Teller Machine (ATM) Is a
computerized telecommunications device that provides the clients
of a financial institution with access to financial transactions
in a public space without the need for a cashier, human clerk or
bank teller. On most modern ATMs, the customer is identified by
inserting a plastic ATM card with a magnetic stripe or a plastic
smartcard with a chip that contains a unique card number and
some security information, such as an expiration date.
Authentication is provided by the customer entering a personal
identification number.
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Ben Franklin Benjamin Franklin Bancorp.,
Inc. The bank holding company that Independent
Bank Corp. acquired in April 2009.
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BHCA Bank Holding Company Act of
1956 A United States Act of Congress that
regulates the actions of bank holding companies.
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CAMELS Ratings A US supervisory rating of the
banks overall condition used to classify the nations
8,500 banks. This rating is based on financial statements of the
bank and
on-site
examination by regulators like the Federal Reserve, the Office
of the Comptroller of the Currency and Federal Deposit Insurance
Corporation. The scale is from 1 to 5 with 1 being strongest and
5 being weakest.
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CDARS Certificate of Deposit Account Registry
Service A private, patented, for-profit service
that breaks up large deposits (from individuals, companies,
nonprofits, public funds, etc.) and places them across a network
of about 2,700 banks and savings associations around the United
States. This allows depositors to deal with a single bank that
participates in CDARS but avoid having funds above the FDIC
deposit insurance limits in any one bank. The service can place
as much as $50 million per customer allowing all of it to
qualify for FDIC insurance coverage.
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CDE Community Development Entity
A broad term referring to
not-for-profit
organizations incorporated to provide programs, offer services,
and engage in other activities that promote and support a
community. Community Development Entities usually serve a
geographic location such as a neighborhood or a town. They can
be involved in a variety of activities including economic
development, education, community organizing and real estate
development. These organizations are often associated with the
development of affordable housing.
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COSO Committee of Sponsoring
Organizations Comprising of certain professional
associations, the committee of Sponsoring Organizations (COSO)
is a voluntary private-sector organization. COSO is dedicated to
guiding executive management and governance entities toward the
establishment of more effective, efficient, and ethical business
operations on a global basis. It sponsors and disseminates
frameworks and guidance based on in-depth research, analysis,
and best practices.
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CPP Capital Purchase Program
A preferred stock and equity warrant purchase
program conducted by the US Treasurys Office of Financial
Stability as part of Troubled Assets Relief Program.
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CRA Community Reinvestment Act A
United States federal law designed to encourage commercial banks
and savings associations to meet the needs of borrowers in all
segments of their communities, including low and moderate income
neighborhoods.
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DIF Deposit Insurance Fund The
Federal Deposit Insurance Corporations insurance fund used
to insure deposits at financial institutions up to a certain
amount. The FDIC maintains the DIF by assessing
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depository institutions an insurance premium. The amount each
institution is assessed is based both on the balance of insured
deposits as well as on the degree of risk the institution poses
to the insurance fund.
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Derivative A contract or agreement whose
value is derived from changes in an underlying index such as
interest rates, foreign exchange rates, or prices of securities.
Derivatives utilized by the Corporation include interest rate
swaps, foreign exchange contracts and loan level swaps.
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EESA Emergency Economic Stabilization Act of
2008 Is a law enacted in response to the
subprime mortgage crisis authorizing the United States Secretary
of the Treasury to spend up to $700 billion to purchase
distressed assets, especially mortgage-backed securities, and
make capital injections into banks.
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EITF Emerging Issues Task Force
An organization formed by the Financial Accounting Standards
Board (FASB) to provide assistance with timely financial
reporting. The mission of the EITF is to assist the FASB in
improving financial reporting through the timely identification,
discussion, and resolution of financial accounting issues within
the framework of existing authoritative literature.
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EPS Earnings Per Share The
portion of a companys profit allocated to each outstanding
share of common stock. Earnings per share serves as an indicator
of a companys profitability.
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Calculated as:
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Net Income Available to Common Shareholders
Weighted Average Outstanding Shares
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When calculating, use a weighted average number of shares
outstanding over the reporting term is used, because the number
of shares outstanding can change over time. In addition to
reporting earnings per share, corporations must report diluted
earnings per share. This accounts for the possibility that all
outstanding warrants and stock options are exercised, and all
convertible bonds and preferred shares are exchanged for common
stock.
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FASB Financial Accounting Standards
Board The designated organization in the private
sector for establishing standards of financial accounting and
reporting. Those standards govern the preparation of financial
reports. They are officially recognized as authoritative by the
Securities and Exchange Commission and the American Institute of
Certified Public Accountants. Such standards are essential to
the efficient functioning of the economy because investors,
creditors, auditors, and others rely on credible, transparent,
and comparable financial information.
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FASB ASC FASB Accounting Standards
Codification The codification is the single
source of authoritative nongovernmental U.S. generally
accepted accounting principles (US GAAP). The Codification is
effective for interim and annual periods ending after
September 15, 2009. All previous level (a)-(d) US GAAP
standards issued by a standard setter are superseded.
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FDIC Federal Deposit Insurance
Corporation Is an independent agency created by
the Congress to maintain stability and public confidence in the
nations financial system by: insuring deposits, examining
and supervising financial institutions for safety soundness and
consumer protection, and managing receiverships.
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FHLB Federal Home Loan Banks
Provide stable, on-demand, low-cost funding to American
financial institutions for home mortgage loans, small business,
rural, agricultural, and economic development lending. With
their members, the FHLB Bank System represents the largest
collective source of home mortgage and community credit in the
United States. The banks do not provide loans directly to
individuals, only to other banks.
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FICO Score Fair Isaac Corporation
Score Represents a consumer credit score
determined by the Fair Isaac Corporation, with data provided by
the three major credit repositories (Trans Union, Experian, and
Equifax). This score predicts the likelihood of loan default.
The lower the score, the more likely an individual is to
default. The actual FICO scores range from 300 to 850.
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GAAP Generally Accepted Accounting
Principles The common set of accounting
principles, standards and procedures that companies use to
compile their financial statements. GAAP are a
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combination of authoritative standards (set by policy boards)
and simply the commonly accepted ways of recording and reporting
accounting information.
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GLB Gramm-Leach-Bliley Act A
Federal act which allows commercial banks, securities firms and
insurance companies to consolidate.
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Interest Rate Lock Commitments Commitment
with a loan applicant in which the loan terms, including
interest rate, are guaranteed for a designated period of time
subject to credit approval.
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Letter of Credit A document issued by the
Corporation on behalf of a customer to a third party promising
to pay that third party upon presentation of specified
documents. A letter of credit effectively substitutes the
Corporations customer and facilitates trade.
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LIBOR London Interbank Offered
Rate Is a daily reference rate based on the
interest rates at which banks borrow unsecured funds from other
banks in the London wholesale money market (or interbank market).
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Loan-to-Value
The ratio of the total potential exposure of a loan to the fair
market value of the collateral. The higher the
Loan-to-Value,
the higher the loss risk in the event of default.
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Mortgage Servicing Rights The right to
service a mortgage loan when the underlying loan is sold or
securitized. Servicing includes collections for principal,
interest, and escrow payments from borrowers and accounting for
the remitting principal and interest payments to investors.
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NASDAQ National Association of Securities and
Dealers Automated Quotations A stock exchange.
It is the largest electronic screen-based equity securities
trading market in the United States. With approximately
3,700 companies and corporations, it has more trading
volume than any other stock exchange in the world.
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Other Comprehensive Income Other
comprehensive income includes those items in comprehensive
income that are excluded from net income. Items of other
comprehensive income are pension minimum liability adjustments,
unrealized gains and losses on available for sale securities,
and the effective portion of cash flow hedges.
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OTTI
Other-Than-Temporary
Impairment For individual securities classified
as either
available-for-sale
or
held-to-maturity,
an enterprise shall determine whether a decline in fair value
below the amortized cost basis is other than temporary. For
example, if it is probable that the investor will be unable to
collect all amounts due according to the contractual terms of a
debt security, an
other-than-temporary
impairment shall be considered to have occurred. If the decline
in fair value is judged to be
other-than-temporary,
the cost basis of the individual security shall be written down
to fair value as a new cost basis and the amount of the
write-down associated with credit, shall be included in
earnings, with the remainder being recognized in other
comprehensive income.
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PCAOB Public Company Accounting Oversight
Board A non-profit organization that regulates
auditors of publicly traded companies. The PCAOB was established
as a result of the creation of the Sarbanes-Oxley Act of 2002.
The boards aim is to protect investors and other
stakeholders of public companies by ensuring that the auditor of
a companys financial statements has followed a set of
strict guidelines.
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Return on Average Assets (ROAA) Measures how
profitable a companys assets are in generating revenue.
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Calculated as:
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Net Income Available to Common Shareholders
Average Total Assets
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This number tells you what the company can do with what it has,
i.e. how many dollars of earnings they derive from each dollar
of assets they control. Its a useful number for comparing
competing companies in the same industry. The number will vary
widely across different industries. Return on average assets
gives
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an indication of the capital intensity of the company, which
will depend on the industry; companies that require large
initial investments will generally have lower return on assets.
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Return on Average Common Equity (ROAE)
Measures the rate of return on the ownership interest
(stockholders equity) of the common stock owners. It
measures a firms efficiency at generating profits from
every unit or stockholders equity (also known as net
assets or assets minus liabilities). ROAE shows how well a
company uses investment funds to generate earnings growth.
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Calculated as:
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Net Income Available to Common Shareholders
Average Total Equity
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SEC Securities and Exchange
Commission A government commission created by
Congress to regulate the securities markets and protect
investors. In addition to regulation and protection, it also
monitors the corporate takeovers in the U.S. The SEC is
composed of five commissioners appointed by the
U.S. President and approved by the Senate. The statutes
administered by the SEC are designed to promote full public
disclosure and to protect the investing public against
fraudulent and manipulative practices in the securities markets.
Generally, most issues of securities offered in interstate
commerce, through the mail or on the internet must be registered
with the SEC.
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Slades Slades Ferry
Bancorp. The bank holding company that
Independent Bank Corp. acquired in March 2008.
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SOX Sarbanes-Oxley Act of 2002 A
United States federal law enacted on July 30, 2002. The
bill was enacted as a reaction to a number of major corporate
and accounting scandals. The legislation set new or enhanced
standards for all U.S. public company boards, management
and public accounting firms. The act contains 11 titles, or
sections, ranging from additional corporate board
responsibilities to criminal penalties, and requires the
Securities and Exchange Commission to implement rulings on
requirements to comply with the new law.
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Temporary Liquidity Guarantee Program (TLGP)
A program adopted by the Federal Deposit Insurance Corporation
on October 13, 2008 during the Global financial crisis of
2008 to encourage liquidity in the interbank lending market.
Several stated purposes of this program are (1) to decrease
the cost of bank funding so that bank lending to consumers and
businesses will normalize and (2) to strengthen confidence
and encourage liquidity in the banking system by guaranteeing
newly issued senior unsecured debt of banks, thrifts, and
certain holding company, and by providing full coverage of
non-interest bearing deposit transaction accounts, regardless of
the dollar amount.
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Troubled Assets Relief Program (TARP) Is a
program of the United States government whose primary objective
was to purchase assets and equity from financial institutions to
strengthen its financial sector. It is the largest component of
the governments measures in 2008 to address the subprime
mortgage crisis.
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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 safe harbor provisions 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 Independent Bank Corp.s (the
Company) beliefs, plans, objectives, goals,
expectations, anticipations, estimates, intentions, financial
condition, results of operations, future performance and
business, including the Companys expectations and
estimates with respect to the Companys revenues, expenses,
earnings, return on average equity, return on average assets,
efficiency ratio, asset quality and other financial data and
capital and performance ratios.
Although the Company believes that the expectations reflected in
the Companys 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 Companys control). The following
factors, among others, could cause the Companys financial
performance to differ materially from the Companys goals,
plans, objectives, intentions, expectations and other
forward-looking statements:
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A weakening in the strength of the United States economy in
general and the strength of the regional and local economies
within the New England region and Massachusetts which could
result in a deterioration of credit quality, a change in the
allowance for loan losses or a reduced demand for the
Companys credit or
fee-based
products and services;
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adverse changes in the local real estate market, could result in
a deterioration of credit quality and an increase in the
allowance for loan loss, as most of the Companys loans are
concentrated in southeastern Massachusetts and Cape Cod, and to
a lesser extent, Rhode Island and a substantial portion of these
loans have real estate as collateral;
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the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the Board
of Governors of the Federal Reserve System, could affect the
Companys business environment or affect the Companys
operations;
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the effects of, any changes in, and any failure by the Company
to comply with tax laws generally and requirements of the
federal New Markets Tax Credit program in particular could
adversely affect the Companys tax provision and its
financial results;
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inflation, interest rate, market and monetary fluctuations could
reduce net interest income and could increase credit losses;
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adverse changes in asset quality could result in increasing
credit risk-related losses and expenses;
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changes in the deferred tax asset valuation allowance in future
periods may result in adversely affecting financial results;
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competitive pressures could intensify and affect the
Companys profitability, including as a result of continued
industry consolidation, the increased financial services
provided by non-banks and banking reform;
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a deterioration in the conditions of the securities markets
could adversely affect the value or credit quality of the
Companys assets, the availability and terms of funding
necessary to meet the Companys liquidity needs and the
Companys ability to originate loans;
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the potential to adapt to changes in information technology
could adversely impact the Companys operations and require
increased capital spending;
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changes in consumer spending and savings habits could negatively
impact the Companys financial results;
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acquisitions may not produce results at levels or within time
frames originally anticipated and may result in unforeseen
integration issues or impairment of goodwill
and/or other
intangibles;
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adverse conditions in the securities markets could lead to
impairment in the value of securities in the Companys
investment portfolios and consequently have an adverse effect on
the Companys earnings; and
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laws and programs designed to address capital and liquidity
issues in the banking system, including, but not limited to, the
Federal Deposit Insurance Corporations Temporary Liquidity
Guaranty Program and the U.S. Treasury Departments
Capital Purchase Program and Troubled Asset Relief Program may
continue to have significant effects on the financial services
industry, the exact nature and extent of which is still
uncertain.
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If one or more of the factors affecting the Companys
forward-looking information and statements proves incorrect,
then the Companys 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 Companys forward-looking information and statements.
The Company does not intend to update the Companys
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.
8
PART I.
General
Independent Bank Corp. (the Company) is a state
chartered, federally registered bank holding company
headquartered in Rockland, Massachusetts that was incorporated
under Massachusetts law in 1985. The Company is the sole
stockholder of Rockland Trust Company (Rockland
or the Bank), a Massachusetts trust company
chartered in 1907. Rockland is a community-oriented commercial
bank. The community banking business is the Companys only
reportable operating segment. The community banking business is
managed as a single strategic unit and derives its revenues from
a wide range of banking services, including lending activities,
acceptance of demand, savings, and time deposits, and wealth
management. At December 31, 2009, the Company had total
assets of $4.5 billion, total deposits of
$3.4 billion, stockholders equity of
$412.6 million, and 907 full-time equivalent employees.
The Company is currently the sponsor of Independent Capital
Trust V (Trust V), a Delaware statutory
trust, Slades Ferry Statutory Trust I
(Slades Ferry Trust I), a Connecticut
statutory trust, and Benjamin Franklin Capital Trust I
(Ben Franklin Trust I), an inactive Delaware
statutory trust, each of which was formed to issue trust
preferred securities. Trust V, Slades Ferry
Trust I, and Ben Franklin Trust I are not included in
the Companys consolidated financial statements in
accordance with the requirements of the consolidation topic of
the Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC).
As of December 31, 2009, the Bank had the following
corporate subsidiaries, all of which were wholly-owned by the
Bank and included in the Companys consolidated financial
statements:
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Three Massachusetts security corporations, namely Rockland
Borrowing Collateral Securities Corp., Rockland Deposit
Collateral Securities Corp., and Taunton Avenue Securities
Corp., which hold securities, industrial development bonds, and
other qualifying assets;
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Rockland Trust Community Development Corporation, which has
two wholly-owned subsidiaries named Rockland
Trust Community Development LLC (RTC CDE I) and
Rockland Trust Community Development Corporation II
(RTC CDE II) and which also serves as the Manager of
two Limited Liability Company subsidiaries wholly-owned by the
Bank named Rockland Trust Community Development III
LLC (RTC CDE III) and Rockland Trust Community
Development IV LLC, all of which were all formed to qualify
as community development entities under the federal New Markets
Tax Credit Program criteria;
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Rockland Trust Phoenix LLC, which was established to hold
other real estate owned acquired during loan workouts; and
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Compass Exchange Advisors LLC which provides like-kind exchange
services pursuant to section 1031 of the Internal Revenue
Code.
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On April 10, 2009 the Company completed its acquisition of
Benjamin Franklin Bancorp, Inc. (Ben Franklin), the
parent of Benjamin Franklin Bank. The transaction qualified as a
tax-free reorganization for federal income tax purposes, and
former Ben Franklin shareholders received 0.59 shares of
the Companys common stock for each share of Ben Franklin
common stock which they owned. Under the terms of the merger,
cash was issued in lieu of fractional shares. Based upon the
Companys $18.27 per share closing price on April 9,
2009, the transaction was valued at $10.7793 per share of Ben
Franklin common stock or approximately $84.5 million in the
aggregate. As a result of the acquisition, the Companys
outstanding shares increased by 4,624,948 shares.
Market
Area and Competition
The Bank contends with considerable competition both in
generating loans and attracting deposits. The Banks
competition for generating 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, terms offered, loan fees
charged, loan products offered, service provided, and geographic
locations.
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In attracting deposits, the Banks primary competitors are
savings banks, commercial and co-operative banks, credit unions,
internet banks, 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, such as convenient branch locations
and hours of operation, personalized customer service, online
access to accounts, and automated teller machines.
The Banks market area is attractive and entry into the
market by financial institutions previously not competing in the
market area may continue to occur which could impact the
Banks growth or profitability.
Lending
Activities
The Banks gross loan portfolio (loans before allowance for
loan losses) amounted to $3.4 billion on December 31,
2009, or 75.8% of total assets. The Bank classifies loans as
commercial, consumer real estate, or other consumer. Commercial
loans consist primarily of loans to businesses with credit needs
in excess of $250,000 and revenue in excess of
$2.5 million, for working capital and other
business-related purposes and floor plan financing. Also in the
commercial category are small business loans which consist
primarily of loans to businesses with commercial credit needs of
less than or equal to $250,000 and revenues of less than
$2.5 million. Commercial real estate loans are comprised of
commercial mortgages that are secured by non-residential
properties. Consumer real estate consists of residential
mortgages that are secured primarily by owner-occupied
residences and mortgages for the construction of residential
properties and home equity loans and lines. Other consumer loans
are mainly personal loans and automobile loans.
The Banks borrowers consist of
small-to-medium
sized businesses and retail customers. The Banks market
area is generally comprised of eastern Massachusetts, including
Cape Cod, and to a lesser extent, Rhode Island. Substantially
all of the Banks commercial, consumer real estate, and
other consumer loan portfolios consist of loans made to
residents of and businesses located in the Banks market
area. The majority of the real estate loans in the Banks
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 Banks 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
market requires a strict underwriting and monitoring process to
minimize credit risk. This process requires substantial analysis
of the loan application, an evaluation of the customers
capacity to repay according to the loans 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 Banks portfolio.
The Banks Controlled Asset and Consumer Collections
departments are 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, other real estate owned
(OREO), and other assets in possession.
Nonperforming loans consist of loans that are more than
90 days past due but still accruing interest and loans no
longer accruing interest. In the course of resolving
nonperforming loans, the Bank may choose to restructure the
contractual terms of certain loans. Terms may be modified to fit
the ability of the borrower to repay in line with its current
financial status. It is the Banks policy to have any
restructured loans which are on nonaccrual status prior to being
modified remain on nonaccrual status for approximately six
months before management considers its return to accrual status.
If the restructured loan is not on nonaccrual status prior to
being modified, it is reviewed to determine if the modified loan
should remain on accrual status. Nonperforming securities
consist of securities that are on nonaccrual status. 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
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the borrower qualifies under the Banks standard
underwriting guidelines. The Bank had nineteen and seven
properties held as OREO for the periods ending December 31,
2009 and December 31, 2008, totaling $4.0 million and
$1.8 million, respectively. Other assets in possession
reflect the estimated discounted cash flow value of retention
payments from the sale of a customer list associated with a
troubled borrower.
Origination of Loans Commercial and
industrial, commercial real estate, and construction loan
applications are obtained through existing customers,
solicitation by Bank personnel, referrals from current or past
customers, or walk-in customers. Small business loan
applications are typically originated by the Banks retail
staff, through a dedicated team of business officers, by
referrals from other areas of the Bank, referrals from current
or past customers, or through walk-in customers. Customers for
residential real estate loans are referred to Mortgage Loan
Officers who will meet with the borrowers at the borrowers
convenience. Residential real estate loan applications primarily
result from referrals by real estate brokers, homebuilders, and
existing or walk-in customers. Mortgage Loan Officers 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
Banks consumer loan services through advertising and other
media.
Loans are approved based upon a hierarchy of authority,
predicated upon the size of the loan. Levels within the
hierarchy of lending authorities range from individual lenders
up 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 Banks
stockholders equity, which is the Banks legal
lending limit, or $92.4 million at December 31,
2009. Notwithstanding the foregoing, the Bank has established a
more restrictive limit of not more than 75% of the Banks
legal lending limit, or $69.3 million at December 31,
2009, which may only be exceeded with the approval of the Board
of Directors. There were no borrowers whose total indebtedness
in aggregate exceeded the Banks self imposed restrictive
limit.
Sale of Loans The Banks 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), Fannie Mae (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 sells the servicing on a majority
of the sold loans for a servicing released premium, simultaneous
with the sale of the loan. As part of its asset/liability
management strategy, the Bank may retain a portion of the
adjustable rate and fixed rate residential real estate loan
originations for its portfolio. During 2009, the Bank originated
$422.0 million in residential real estate loans of which
$68.3 million were retained in its portfolio, comprised
primarily of fifteen or twenty year terms.
Commercial Loans Commercial loans consist of
commercial and industrial loans, commercial real estate loans,
commercial construction loans and small business loans. The Bank
offers secured and unsecured commercial loans for business
purposes, including issuing letters of credit. At
December 31, 2009, $2.2 billion, or 66.1% of the
Banks gross loan portfolio consisted of commercial and
industrial loans. Commercial loans generated 57.3%, 55.1%, and
50.9% of total interest income for the fiscal years ending 2009,
2008 and 2007, respectively.
Commercial loans may be structured as term loans or as revolving
lines of credit including overdraft protection, credit cards,
automatic clearinghouse (ACH) exposure, owner and
non-owner occupied commercial mortgages and standby letters 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 and 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,
2009, there were $163.6 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, 2009, there were
$209.9 million of revolving lines of credit in the
commercial loan portfolio.
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The Banks standby letters of credit generally are secured,
have terms of not more than one year, and are reviewed for
renewal on an annualized basis. At December 31, 2009, the
Bank had $19.1 million of commercial and 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 dealers 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 dealers 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. At
December 31, 2009, there were $23.3 million in floor
plan loans, all of which have variable rates of interest.
Small business lending caters to all of the banking needs of
businesses with commercial credit requirements and revenues
typically less than or equal to $250,000 and $2.5 million,
respectively, and uses partially automated loan underwriting
capabilities.
The small business team makes use of the Banks authority
as a preferred lender with the U.S. Small Business
Administration (SBA). At December 31, 2009,
there were $5.0 million of SBA guaranteed loans in the
small business loan portfolio.
The Banks commercial real estate portfolio, which includes
commercial construction, the largest loan type concentration, is
well-diversified with loans secured by a variety of property
types, such as owner-occupied and non-owner-occupied commercial,
retail, office, industrial, warehouse and other special purpose
properties, such as hotels, motels, nursing homes, restaurants,
churches, recreational facilities, marinas, and golf courses.
Commercial real estate also includes loans secured by certain
residential-related property types including multi-family
apartment buildings, residential development tracts and
condominiums. The following pie chart shows the diversification
of the commercial real estate portfolio as of December 31,
2009.
Commercial
Real Estate Portfolio by Property Type as of 12/31/09
Although terms vary, commercial real estate loans generally have
maturities of five years or less, or rate resets every five
years for longer duration loans, amortization periods of 20 to
25 years, and have interest rates that float in accordance
with a designated index or that are fixed during the origination
process. It is the Banks 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 actively managed 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
12
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 within
the markets for commercial, retail, office, industrial/warehouse
and multi-family tenancy.
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 properties. Non-permanent construction loans generally
have terms of at least six months, but not more than two years.
They usually do not provide for amortization of the loan balance
during the construction term. The majority of the Banks
commercial construction loans have floating rates of interest
based upon the Rockland base rate or the Prime or London
interbank offered rate (LIBOR) rates published daily
in the Wall Street Journal.
Construction loans are generally considered to present a higher
degree of risk than permanent real estate loans and may be
affected by a variety of factors, such as adverse changes in
interest rates and the borrowers ability to control costs
and adhere to time schedules. Other construction-related risks
may include market risk, that is, the risk that
for-sale or for-lease units may or may
not be absorbed by the market within a developers
anticipated time-frame or at a developers anticipated
price. When the Company enters into a loan agreement with a
borrower on a construction loan, an interest reserve is often
included in the amount of the loan commitment to the borrower
and it allows the lender to periodically advance loan funds to
pay interest charges on the outstanding balance of the loan. The
interest is capitalized and added to the loan balance.
Management actively tracks and monitors these accounts. At
December 31, 2009 the amount of interest reserves relating
to construction loans was approximately $1.1 million.
Consumer Real Estate Loans The Banks
consumer real estate loans consist of loans secured by
one-to-four
family residential properties, construction loans and home
equity loans and lines. As of December 31, 2009, the
Banks loan portfolio included $1.0 billion in
consumer real estate loans, which included $555.3 million
in residential real estate, $10.7 million in residential
construction loans, and $471.9 million in home equity,
altogether totaling 30.6% of the Banks gross loan
portfolio.
Consumer real estate loans generated an aggregate of 22.5%,
23.3%, and 24.7% of total interest income for the fiscal years
ending December 31, 2009, 2008, and 2007, respectively.
The Banks residential construction lending is related to
residential development within the Banks market area. The
Bank typically has focused its construction lending on
relatively small projects and has developed and maintains
relationships with developers and operative homebuilders in the
Plymouth, Norfolk, Barnstable, Bristol, Middlesex, and Worcester
Counties of Massachusetts, and, to a lesser extent, in the state
of Rhode Island.
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
Banks 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 Banks first
mortgage real estate loans, as required by regulatory standards.
Residential lending portfolio loans had a current weighted
average Fair Isaac Corporation (FICO) score of 740
and a weighted average combined loan-to-value ratio of 67.0%.
The average FICO scores are based upon re-scores available as of
January 2010. Use of re-score data enables the Bank to better
understand the current credit risk associated with these loans,
but is not the only factor relied upon in determining a
borrowers credit worthiness.
Home equity loans and lines 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 borrowers residence
or second home. At December 31, 2009, $109.3 million,
or 23.2%, of the home equity portfolio was term loans and
$362.6 million, or 76.8%, of the home equity portfolio was
comprised of revolving lines of credit. The Bank will originate
home equity loans and lines in an amount up to 89.9% of the
appraised value or on-line valuation, reduced for any loans
outstanding which are
13
secured by such collateral. Home equity loans and lines are
underwritten in accordance with the Banks loan policy,
which includes a combination of credit score,
loan-to-value
ratio, employment history and
debt-to-income
ratio. Home equity lines of credit had a current weighted
average FICO score of 760 and a weighted average combined
loan-to-value
ratio of 61.0%. The average FICO scores are based upon re-scores
available from November 2009 and actual score data for loans
booked between December 1 and December 31, 2009 and the
loan-to-value
ratios are based on updated automated valuation as of
November 30, 2009, where available.
Other Consumer Loans The Bank makes loans for
a wide variety of personal needs. Consumer loans primarily
consist of installment loans and overdraft protection. As of
December 31, 2009, $111.7 million, or 3.3%, of the
Banks gross loan portfolio consisted of other consumer
loans. Other consumer loans generated 5.1%, 7.5% and 9.6% of
total interest income for the fiscal years ending
December 31, 2009, 2008, and 2007, respectively.
The Banks consumer loans also include auto, unsecured
loans, loans secured by deposit accounts, loans to purchase
motorcycles, recreational vehicles, or boats. The lending policy
allows lending up to 80% 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.
The Banks installment loans consist primarily of
automobile loans, which totaled $79.3 million, at
December 31, 2009, or 2.3% of loans, a decrease from 4.8%
of loans at year-end 2008. Effective August 1, 2009 the
Company chose to exit the indirect automobile business. Prior to
August, a portion of the banks automobile loans were
originated indirectly by a network of new and used automobile
dealers located within the Banks market area.
Investment
Activities
The Banks securities portfolio consists of
U.S. Treasury Securities, agency mortgage-backed
securities, agency collateralized mortgage obligations, private
mortgage-backed securities, state, county, and municipal
securities, corporate debt securities, single issuer trust
preferred securities issued by banks, pooled trust preferred
securities issued by banks and insurers, equity securities held
for the purpose of funding supplemental executive retirement
plan obligations, and equity securities comprised of an
investment in a community development affordable housing mutual
fund. The majority of these securities are investment grade debt
obligations with average lives of five years or less.
U.S. Treasury and Government Sponsored Enterprises 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 Banks 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 Banks
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, 2009, securities totaled $608.2 million.
Total securities generated interest and dividends of 14.6%,
14.2%, and 14.3% of total interest income for the fiscal years
ended 2009, 2008 and 2007, respectively.
Sources
of Funds
Deposits At December 31, 2009 total
deposits were $3.4 billion. Deposits obtained through
Rocklands branch banking network have traditionally been
the principal source of the Banks funds for use in lending
and for other general business purposes. The Bank has built a
stable base of in-market core deposits from consumers,
businesses, and municipalities located in eastern Massachusetts,
including Cape Cod. Rockland offers a range of demand deposits,
interest checking, money market accounts, savings accounts, and
time certificates of deposit. The Bank also holds deposits for
customers executing like-kind exchanges pursuant to
section 1031 of the Internal Revenue Code of 1986, as
amended. 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 Banks market area. The Bank believes
it has been able to attract and maintain satisfactory levels of
deposits based on the
14
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 Trust also participates in the
Certificate of Deposit Registry Service (CDARS)
program, allowing the Bank to provide easy access to
multi-million dollar Federal Deposit Insurance Corporation
(FDIC) insurance protection on Certificate of
Deposit (CD) investments for consumers, businesses
and public entities. The economic downturn and subsequent flight
to safety makes a fully insured deposit product such as CDARS an
attractive alternative. As of December 31, 2009, CDARS
deposits totaled $52.9 million. Rockland has a municipal
banking department that focuses on providing depository services
to local municipalities. As of December 31, 2009, municipal
deposits totaled $303.0 million.
The Federal Governments Emergency Economic Stabilization
Act of 2008 introduced the Temporary Liquidity Guarantee Program
(TLGP) effective November 2008. One of the
TLGPs main components resulted in a temporary increase,
through December 2013, of deposit insurance coverage from
$100,000 to $250,000, per depositor. At December 31, 2009
there were $976.4 million in deposits with balances over
$250,000. Additionally, the Company elected to participate in
the portion of this program that fully guarantees non-interest
bearing transaction accounts through June 30, 2010.
A further component of this program is the Debt Guarantee
Program, by which the FDIC will guarantee the payment of certain
newly issued senior unsecured debt, in a total amount up to 125%
of the par or face value of the senior unsecured debt
outstanding, excluding debt extended to affiliates. If an
insured depository institution had no senior unsecured debt, or
only had Federal Funds purchased, the Companys limit for
coverage under the TLGP Debt Guarantee Program would be 2% of
the Companys consolidated total liabilities as of
September 30, 2008. As of December 31, 2009, the
Company had no senior unsecured debt outstanding.
Rockland Trusts branch locations are supplemented by the
Banks 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 Banks full-service offices and
five additional remote ATM locations. The ATM cards and debit
cards also allow customers access to a variety of national and
international ATM networks. The chart below shows the categories
of deposits at December 31, 2009:
Total
Deposits
Borrowings As of December 31, 2009, total
borrowings were $647.4 million. Borrowings consist of
short-term and intermediate-term obligations. Short-term
borrowings may consist of Federal Home Loan Bank of Boston
(FHLBB) advances, federal funds purchased, treasury
tax and loan notes and assets sold under repurchase agreements.
In July 1994, Rockland became a member of the FHLBB. Among the
many advantages of this membership, this affiliation provides
the Bank with access to
short-to-medium
term borrowing capacity. At December 31, 2009, the Bank had
$362.9 million outstanding in FHLB borrowings with initial
maturities ranging from 3 months to 20 years. In addition,
the Bank had $356.0 million of borrowing capacity remaining
with the FHLB at December 31, 2009.
15
The FHLBB indefinitely suspended its dividend payment beginning
in the first quarter of 2009, and continued the moratorium, put
into effect during the fourth quarter of 2008, on all excess
stock repurchases in an effort to help preserve capital. A
significant portion of the Banks liquidity needs are
satisfied through its access to funding pursuant to its
membership in the FHLBB. Should the FHLBB experience further
deterioration in its capital, it may restrict the FHLBBs
ability to meet the funding needs of its members, and as result,
may have an adverse affect on the Banks liquidity position.
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 greater than the original sales price. The difference in
the sale price and purchase price is the cost of the proceeds
recorded as interest expense. The securities underlying the
agreements are delivered to whom arranges the transactions as
security for the repurchase obligation. Payments on such
borrowings are interest only until the scheduled repurchase
date. Repurchase agreements represent a non-deposit funding
source for the Bank and the Bank is subject to the risk that the
purchaser may default at maturity and not return the collateral.
In order to minimize this potential risk, the Bank only deals
with established firms when entering into these transactions. On
December 31, 2009, the Bank had $50.0 million
outstanding under these repurchase agreements with investment
brokerage firms. In addition to agreements with brokers, the
Bank has entered into similar retail agreements with its
customers. Under the customer agreements, the securities
underlying the agreement are not delivered to the customer,
instead they are held in segregated safekeeping accounts by the
Companys safekeeping agents. At December 31, 2009,
the Bank had $140.5 million of customer repurchase
agreements outstanding.
Also included in borrowings at December 31, 2009 were
$61.8 million of junior subordinated debentures, of which
$51.5 million were issued to an unconsolidated subsidiary,
Independent Capital Trust V, in connection with the
issuance of variable rate (LIBOR plus 1.48%) capital securities
due in 2037, which is callable in March 2012. The Company has
locked in a fixed rate of interest of 6.52%, for 10 years,
through an interest rate swap which matures on December 28,
2016. The Company also has $10.3 million of outstanding
junior subordinated debentures issued to an unconsolidated
subsidiary, Slades Ferry Trust I, in connection with
the issuance of variable rate (LIBOR plus 2.79%) capital
securities due in 2034, which is callable every quarter until
maturity.
During 2008, Rockland Trust Company issued
$30.0 million of subordinated debt to USB Capital Resources
Inc., a wholly-owned subsidiary of U.S. Bank National
Association. The subordinated debt, which qualifies as
Tier 2 capital under FDIC rules and regulations, was issued
to support growth and for other corporate purposes. The
subordinated debt matures on August 27, 2018. Rockland
Trust may, with regulatory approval, redeem the subordinated
debt without penalty at any time on or after August 27,
2013. The interest rate for the subordinated debt is fixed at
7.02% until August 27, 2013. After that point the
subordinated debt, if not redeemed, will have a floating
interest rate determined, at the option of the Bank, at either,
the then current London Inter-Bank Offered Rate plus 3.00% or
the U.S. Bank base rate plus 1.25%.
See Note 8, Borrowings within Notes to the
Consolidated Financial Statements included in Item 8 hereof
for more information regarding borrowings.
Wealth
Management
Investment Management The Rockland
Trust Investment Management Group provides investment
management and trust services to individuals, institutions,
small businesses, and charitable institutions throughout eastern
Massachusetts, including Cape Cod, and Rhode Island.
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, 2009, the Investment Management Group
generated gross fee revenues of $8.6 million. Total assets
under administration as of December 31, 2009, were
$1.3 billion, an increase of $155.0 million, or 13.8%,
from December 31, 2008. This increase is largely due to
general market appreciation and strong sales results.
16
The administration of trust and fiduciary accounts is monitored
by the Trust Committee of the Banks 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.
Retail Wealth Management The Bank has an
agreement with LPL Financial (LPL) and its
affiliates and their insurance subsidiary LPL Insurance
Associates, Inc. to offer the sale of mutual fund shares, unit
investment trust shares, general securities, fixed and variable
annuities and life insurance. Registered representatives who are
both employed by the Bank and licensed and contracted with LPL
are onsite to offer these products to the Banks customer
base. The Bank also has an agreement with Savings Bank Life
Insurance of Massachusetts (SBLI) to enable
appropriately licensed Bank employees to offer SBLIs fixed
annuities and life insurance to the Banks customer base.
For the year ended December 31, 2009, the retail
investments and insurance group generated gross fee revenues of
$1.4 million.
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 the Bank 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 FDIC. The majority of Rocklands deposit accounts are
insured to the maximum extent permitted by law by the Deposit
Insurance Fund (DIF) which is administered by the
FDIC.
The Bank Holding Company Act BHCA 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
17
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 full
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 Reserves 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 latter case to limitations on the kind and amount of such
stocks which may be included as Tier 1 capital), less net
unrealized gains and losses on available for sale securities and
on cash flow hedges, post retirement adjustments recorded in
accumulated other comprehensive income (AOCI), 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, up to 1250%, which is a
dollar-for-dollar
capital charge on certain assets such as securities that are not
eligible for the ratings based approach. The majority of assets
held by a bank holding company are risk weighted at 100%,
including certain 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, 2009, the
Company had Tier 1 capital and total capital equal to 9.83%
and 11.92% of total risk-adjusted assets, respectively, and
Tier 1 leverage capital equal to 7.87% of total assets. As
of such date, Rockland complied with the applicable bank federal
regulatory risked based capital requirements, with Tier 1
capital and total capital equal to 9.41% and 11.49% of total
risk-adjusted assets, respectively, and Tier 1 leverage
capital equal to 7.55% of total assets.
The FDIC has promulgated regulations and adopted a statement of
policy regarding the capital adequacy of state-chartered banks,
which, like the Bank, 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
18
above. The FDICs 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.
Each federal banking agency has broad powers to implement a
system of prompt corrective action to resolve problems of
financial institutions that it regulates which are not
adequately capitalized. The minimum levels are defined as
follows:
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Bank
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Holding Company
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Tier 1
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Tier 1
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Total
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Tier 1
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Leverage
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Total
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Tier 1
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Leverage
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Risk-Based
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Risk-Based
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Capital
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Risk-Based
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Risk-Based
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Capital
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Category
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Ratio
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Ratio
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Ratio
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Ratio
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Ratio
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Ratio
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Well Capitalized
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³
10% and
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³
6% and
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³
5%
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n/a
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n/a
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n/a
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Adequately Capitalized
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³
8% and
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³
4% and
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³
4%
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*
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³
8
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% and
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³
4
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% and
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³
4
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%
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Undercapitalized
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< 8% or
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< 4% or
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< 4%
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*
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< 8
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% or
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< 4
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% or
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< 4
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%
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Significantly Undercapitalized
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< 6% or
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< 3% or
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< 3%
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n/a
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n/a
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n/a
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* |
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3% for institutions with a rating of one under the regulatory
CAMELS or related rating system that are not anticipating or
experiencing significant growth and have well-diversified risk. |
A bank is considered critically undercapitalized if it has a
ratio of tangible equity to total assets that is equal to or
less than 2.0% at December 31, 2009 the Companys
tangible equity ratio was 6.2%, The Companys tangible
common equity ratio was 6.7%, which is the pro forma ratio,
which includes the tax deductibility of goodwill and excludes
the impact of the Companys participation in and exit from
the Troubled Asset Relief Program Capital Purchase Program (the
CPP). As of December 31, 2009, Rockland was
deemed a well-capitalized institution as defined by
federal banking agencies.
Commitments to Affiliated Institutions Under
Federal Reserve policy, the Company is expected to act as a
source of financial strength to the Bank and to commit resources
to support the Bank. 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 FDICs 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 does not own more than 5% voting stock in
any banking institution.
Deposit Insurance Premiums The FDIC approved
new deposit insurance assessment rates that took effect on
January 1, 2007. During 2007, the Banks assessment
rate under the new FDIC system was the minimum 5 basis
19
points on total deposits. Additionally, the Federal Deposit
Insurance Reform Act of 2005 allowed eligible insured depository
institutions to share in a one-time assessment credit pool of
approximately $4.7 billion, effectively reducing the amount
these institutions are required to submit as an overall
assessment. The Banks one-time assessment credit was
approximately $1.3 million, of which $556,000 was remaining
at December 31, 2007. During 2008, the company had
exhausted the remaining $556,000 of the assessment credit.
The Emergency Economic Stabilization Act of 2008 (the
EESA) introduced the Temporary Liquidity Guarantee
Program (TLGP) effective November 2008 which
resulted in a temporary increase, through December 2009, of
deposit insurance coverage from $100,000 to $250,000 per
depositor. The December 2009 expiration of this temporary
increase has been extended through December 2013. Additionally,
the Company has elected to participate in the portion of the
program that provides a full guarantee on non-interest and
certain interest bearing deposit accounts through the same
period. The associated additional premium is approximately
9 basis points on total deposits and was effective
April 1, 2009.
On May 22, 2009, the FDIC voted to increase the deposit
insurance assessments and rebuild the Deposit Insurance Fund
(DIF). The FDIC imposed a special assessment on insured
institutions of five basis points on each FDIC-insured
depository institutions assets, minus its Tier 1
capital, as of June 30, 2009. The assessment amount was
also capped at 10 basis points of an institutions
domestic deposits. As such, the Bank was assessed and paid a
special assessment on September 30, 2009 of
$2.1 million.
On November 12, 2009, the FDIC voted to amend its
assessment regulations to require all institutions to prepay, on
December 30, 2009, the estimated risk-based assessments for
the fourth quarter of 2009 (which would have been due in March
2010), for all of 2010, 2011, and 2012. As a result, the Bank
was required to pay $20.4 million on December 30,
2009, of which approximately $17.9 reflected the prepayment for
2010 through 2012.
Community Reinvestment Act
(CRA) Pursuant to the CRA and similar
provisions of Massachusetts law, regulatory authorities review
the performance of the Company and the Bank in meeting the
credit needs of the communities served by the Bank. 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 (GLB), 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 examination.
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 The Patriot Act
strengthens U.S. law enforcements and the
intelligence communities abilities to work cohesively to
combat terrorism on a variety of fronts. The 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 GLB 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 BHCA 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
20
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 BHCA 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 The Sarbanes-Oxley
Act (SOX) of 2002 includes very specific disclosure
requirements and corporate governance rules, and the Securities
and Exchange Commission (SEC) and securities
exchanges have adopted extensive disclosure, corporate
governance and other related rules, due to the SOX. The Company
has incurred additional expenses in complying with the
provisions of the SOX and the resulting regulations. As the SEC
provides any new requirements under the SOX, management will
review those rules, comply as required and may incur more
expense. However, management does not expect that such
compliance will have a material impact on the 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 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 banks 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 and
its subsidiaries are limited in their ability to engage in
covered transactions with affiliates:
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to an amount equal to 10% of the banks capital and
surplus, in the case of covered transactions with any one
affiliate; and
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to an amount equal to 20% of the banks capital and
surplus, in the case of covered transactions with all affiliates.
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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:
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a loan or extension of credit to an affiliate;
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a purchase of, or an investment in, securities issued by an
affiliate;
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a purchase of assets from an affiliate, with some exceptions;
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the acceptance of securities issued by an affiliate as
collateral for a loan or extension of credit to any
party; and
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the issuance of a guarantee, acceptance or letter of credit on
behalf of an affiliate.
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In addition, under Regulation W:
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a bank and its subsidiaries may not purchase a low-quality asset
from an affiliate;
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21
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covered transactions and other specified transactions between a
bank or its subsidiaries and an affiliate must be on terms and
conditions that are consistent with safe and sound banking
practices; and
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with some exceptions, each loan or extension of credit by a bank
to an affiliate must be secured by collateral with a market
value ranging from 100% to 130%, depending on the type of
collateral, of the amount of the loan or extension of credit.
|
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.
Emergency Economic Stabilization Act of
2008 In response to the financial crisis
affecting the banking and financial markets, in October 2008,
the EESA was signed into law. Pursuant to the EESA,
the U.S. Treasury (the Treasury) has the
authority to, among other things, purchase up to
$700 billion of mortgages, mortgage-backed securities and
certain other financial instruments from financial institutions
for the purpose of stabilizing and providing liquidity to the
U.S. financial markets.
The Treasury was authorized to purchase equity stakes in
U.S. financial institutions. Under this program, known as
the CPP, from the $700 billion authorized by the EESA, the
Treasury made $250 billion of capital available to
U.S. financial institutions through the purchase of
preferred stock or subordinated debentures by the Treasury. In
conjunction with the purchase of preferred stock from
publicly-held financial institutions, the Treasury also received
warrants to purchase common stock with an aggregate market price
equal to 15% of the total amount of the preferred investment.
Participating financial institutions are required to adopt the
Treasurys standards for executive compensation and
corporate governance for the period during which the Treasury
holds equity issued under the CPP and are restricted from
increasing dividends to common shareholders or repurchasing
common stock for three years without the consent of the Treasury.
The Company had initially elected to participate in the CPP in
January of 2009 and subsequently returned the funds in April of
2009. For further details, see Note 11
Capital Purchase Program in Item 8 hereof.
Employees As of December 31, 2009, the
Bank had 907 full time equivalent employees. None of the
Companys employees are represented by a labor union and
management considers relations with its employees to be good.
Miscellaneous The Bank is subject to certain
restrictions on loans to the Company, investments in the stock
or securities thereof, the taking of such stock or securities as
collateral for loans to any borrower, and the issuance of a
guarantee or letter of credit on behalf of the Company. The Bank
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 the Bank.
The regulatory 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
For information regarding borrowings, see Note 8,
Borrowings within Notes to the Consolidated
Financial Statements included in Item 8 hereof, which
includes information regarding short-term borrowings.
For information regarding the Companys business and
operations, see Selected Financial Data in Item 6
hereof, Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 7
hereof and the Consolidated Financial Statements in
Item 8 hereof and incorporated by reference herein.
Securities
and Exchange Commission Availability of Filings on Company Web
Site
Under Section 13 and 15(d) of the Securities Exchange Act
of 1934 the Company must file periodic and current reports with
the SEC. The public may read and copy any materials filed with
the SEC at the SECs Public
22
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 Public Reference Room at
1-800-SEC-0330.
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 Savings, Profit Sharing and
Stock Ownership Plan),
Form 8-K
(Report of Unscheduled Material Events),
Forms 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, the Companys annual report on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after the Company electronically files
such material with, or furnishes to, the SEC and additional
shareholder information are available free of charge on the
Companys website: www.RocklandTrust.com (within the
investor relations tab). Information contained on the
Companys website and the SEC website is not incorporated
by reference into this
Form 10-K.
The Company has included the web address and the SEC website
address only as inactive textual references and does not intend
them to be active links to our website or the SEC website. The
Companys Code of Ethics and other Corporate Governance
documents are also available on the Companys website in
the Investor Relations section of the website.
23
Changes in interest rates could adversely impact the
Companys financial condition and results of
operations. The Companys ability to make a
profit, like that of most financial institutions, substantially
depends upon its net interest income, which is the difference
between the interest income earned on interest earning assets,
such as loans and investment securities, and the interest
expense paid on interest-bearing liabilities, such as deposits
and borrowings. However, certain assets and liabilities may
react differently to changes in market interest rates. Further,
interest rates on some types of assets and liabilities may
fluctuate prior to changes in broader market interest rates,
while rates on other types of assets may lag behind.
Additionally, some assets such as adjustable-rate mortgages have
features, and rate caps, which restrict changes in their
interest rates.
Factors such as inflation, recession, unemployment, money
supply, global disorder, instability in domestic and foreign
financial markets, and other factors beyond the Companys
control, may affect interest rates. Changes in market interest
rates will also affect the level of voluntary prepayments on
loans and the receipt of payments on mortgage-backed securities,
resulting in the receipt of proceeds that may have to be
reinvested at a lower rate than the loan or mortgage-backed
security being prepaid.
There has recently been considerable disruption and volatility
in the financial and credit markets that began with the fallout
associated with rising defaults within many
sub-prime
mortgage-backed structured investment vehicles held by banks and
other investors. A major consequence of these changes in market
conditions has been significant tightening in the availability
of credit. These conditions have been exacerbated further by the
continuation of a correction in real estate market prices and
sales activity and rising foreclosure rates, resulting in
increases in loan losses and loan-related investment losses
incurred by many lending institutions.
The present state of the financial and credit markets has
severely impacted the global and domestic economies and has led
to a significantly tighter environment in terms of liquidity and
availability of credit. In addition, economic growth has slowed
down both nationally and globally, and, the national economy has
experienced and continues to experience a deep economic
recession. Market disruption, government, and central bank
policy actions intended to counteract the effects of recession,
changes in investor expectations regarding compensation for
market risk, credit risk and liquidity risk and changing
economic data could continue to have dramatic effects on both
the volatility of and the magnitude of the directional movements
of interest rates. Although the Company pursues an
asset-liability management strategy designed to control its risk
from changes in interest rates, changes in market interest rates
can have a material adverse effect on the Companys
profitability.
If the Company has higher loan losses than it has modeled,
its earnings could materially decrease. The
Companys loan customers may not repay loans according to
their terms, and the collateral securing the payment of loans
may be insufficient to assure repayment. The Company may
therefore experience significant credit losses which could have
a material adverse effect on its operating results and capital
ratios. The Company makes various assumptions and judgments
about the collectability of its loan portfolio, including the
creditworthiness of borrowers and the value of the real estate
and other assets serving as collateral for the repayment of
loans. In determining the size of the allowance for loan losses,
the Company relies on its experience and its evaluation of
economic conditions. If its assumptions prove to be incorrect,
its current allowance for loan losses may not be sufficient to
cover losses inherent in its loan portfolio and an adjustment
may be necessary to allow for different economic conditions or
adverse developments in its loan portfolio. Consequently, a
problem with one or more loans could require the Company to
significantly increase the level of its provision for loan
losses. In addition, federal and state regulators periodically
review the Companys allowance for loan losses and may
require it to increase its provision for loan losses or
recognize further loan charge-offs. Material additions to the
allowance would materially decrease the Companys net
income.
A significant amount of the Companys loans are
concentrated in Massachusetts, and adverse conditions in this
area could negatively impact its
operations. Substantially all of the loans the
Company originates are secured by properties located in, or are
made to businesses which operate in Massachusetts. Because of
the current concentration of the Companys loan origination
activities in Massachusetts in the event of continued adverse
economic conditions, including, but not limited to, increased
unemployment, continued downward pressure on the value of
residential and commercial real estate, political or business
developments or natural hazards which could be exacerbated by
global climate change, that may affect Massachusetts and the
ability of property owners and
24
businesses in Massachusetts to make payments of principal and
interest on the underlying loans, the Company would likely
experience higher rates of loss and delinquency on its loans
than if its loans were more geographically diversified, which
could have an adverse effect on its results of operations or
financial condition.
The Company operates in a highly regulated environment and
may be adversely impacted by changes in law and
regulations. The Company is subject to extensive
regulation, supervision and examination. See
Regulation in Item 1 hereof, Business.
Any change in the laws or regulations and failure by the
Company to comply with applicable law and regulation, or a
change in regulators supervisory policies or examination
procedures, whether by the Massachusetts Commissioner of Banks,
the FDIC, the Federal Reserve Board, other state or federal
regulators, the United States Congress, or the Massachusetts
legislature could have a material adverse effect on the
Companys business, financial condition, results of
operations, and cash flows.
The Company has strong competition within its market area
which may limit the Companys growth and
profitability. The Company faces significant
competition both in attracting deposits and in the origination
of loans. See Market Area and Competition in
Item 1 hereof, Business. Commercial banks, credit
unions, savings banks, savings and loan associations operating
in our primary market area have historically provided most of
our competition for deposits. Competition for the origination of
real estate and other loans come from other commercial banks,
thrift institutions, credit unions, insurance companies, finance
companies, other institutional lenders and mortgage companies.
The success of the Company is dependent on hiring and
retaining certain key personnel. The
Companys performance is largely dependent on the talents
and efforts of highly skilled individuals. The Company relies on
key personnel to manage and operate its business, including
major revenue generating functions such as loan and deposit
generation. The loss of key staff may adversely affect the
Companys ability to maintain and manage these functions
effectively, which could negatively affect the Companys
revenues. In addition, loss of key personnel could result in
increased recruiting and hiring expenses, which could cause a
decrease in the Companys net income. The Companys
continued ability to compete effectively depends on its ability
to attract new employees and to retain and motivate its existing
employees.
The Companys business strategy of growth in part
through acquisitions could have an impact on its earnings and
results of operations that may negatively impact the value of
the Companys stock. In recent years, the
Company has focused, in part, on growth through acquisitions. In
March 2008, the Company completed the acquisition of
Slades Ferry Bancorp., headquartered in Somerset,
Massachusetts. The Company completed the acquisition of Benjamin
Franklin Bancorp, Inc., in April 2009, headquartered in
Franklin, Massachusetts.
From time to time in the ordinary course of business, the
Company engages in preliminary discussions with potential
acquisition targets. The consummation of any future acquisitions
may dilute stockholder value.
Although the Companys business strategy emphasizes organic
expansion combined with acquisitions, there can be no assurance
that, in the future, the Company will successfully identify
suitable acquisition candidates, complete acquisitions and
successfully integrate acquired operations into our existing
operations or expand into new markets. There can be no assurance
that acquisitions will not have an adverse effect upon the
Companys operating results while the operations of the
acquired business are being integrated into the Companys
operations. In addition, once integrated, acquired operations
may not achieve levels of profitability comparable to those
achieved by the Companys existing operations, or otherwise
perform as expected. Further, transaction-related expenses may
adversely affect the Companys earnings. These adverse
effects on the Companys earnings and results of operations
may have a negative impact on the value of the Companys
stock.
Difficult market conditions have adversely affected the
industry in which the Company operates. Dramatic
declines in the housing market over the past year, with falling
real estate values and increasing foreclosures and unemployment,
have negatively impacted the credit performance of mortgage
loans and resulted in significant write-downs of asset values by
financial institutions, including Government-Sponsored Entities
as well as major commercial and investment banks. These
write-downs, initially of mortgage-backed securities but
spreading to credit default swaps and other derivative and cash
securities, in turn, have caused many financial institutions to
seek additional capital, to merge with larger and stronger
institutions and, in some cases to fail. Reflecting concern
about the stability of the financial markets generally and the
strength of counterparties, many lenders and institutional
25
investors have reduced or ceased providing funding to borrowers,
including to other financial institutions. This market turmoil
and tightening of credit have led to an increased level of
commercial and consumer delinquencies, lack of consumer
confidence, increased market volatility and widespread reduction
of business activity generally. The resulting economic pressure
on consumers and lack of confidence in the financial markets
could materially affect the Companys business, financial
condition and results of operations. A worsening of these
conditions would likely exacerbate the adverse effects of these
difficult market conditions on the Company and others in the
financial services industry. In particular, the Company may face
the following risks in connection with these events:
|
|
|
|
|
The Company may expect to face increased regulation of its
industry. Compliance with such regulation may increase its costs
and limit its ability to pursue business opportunities.
|
|
|
|
Market developments may affect customer confidence levels and
may cause increases in loan delinquencies and default rates,
which the Company expects could impact its loan charge-offs and
provision for loan losses.
|
|
|
|
Continued illiquidity in the capital markets for certain types
of investment securities may cause additional credit related
other-than-temporary
impairment charges to the Companys income statement.
|
|
|
|
The Companys ability to borrow from other financial
institutions or to access the debt or equity capital markets on
favorable terms or at all could be adversely affected by further
disruptions in the capital markets or other events, including
actions by rating agencies and deteriorating investor
expectations.
|
|
|
|
Competition in the industry could intensify as a result of the
increasing consolidation of financial services companies in
connection with current market conditions.
|
|
|
|
The Company may be required to pay significantly higher FDIC
premiums because market developments have significantly depleted
the insurance fund of the FDIC and reduced the ratio of reserves
to insured deposits.
|
|
|
|
It may become necessary or advisable for the Company, due to
changes in regulatory requirements, change in market conditions,
or for other reasons, to hold more capital or to alter the forms
of capital it currently maintains.
|
The Companys securities portfolio performance in
difficult market conditions could have adverse effects on the
Companys results of operations. Under
Generally Accepted Accounting Principles, the Company is
required to review the Companys investment portfolio
periodically for the presence of
other-than-temporary
impairment of its securities, taking into consideration current
market conditions, the extent and nature of change in fair
value, issuer rating changes and trends, volatility of earnings,
current analysts evaluations, the Companys ability
and intent to hold investments until a recovery of fair value,
as well as other factors. Adverse developments with respect to
one or more of the foregoing factors may require us to deem
particular securities to be
other-than-temporarily
impaired, with the credit related portion of the reduction in
the value recognized as a charge to the Companys earnings.
Recent market volatility has made it extremely difficult to
value certain of the Companys securities. Subsequent
valuations, in light of factors prevailing at that time, may
result in significant changes in the values of these securities
in future periods. Any of these factors could require the
Company to recognize further impairments in the value of the
Companys securities portfolio, which may have an adverse
effect on the Companys results of operations in future
periods.
There can be no assurance that the Emergency Economic
Stabilization Act of 2008 (the EESA), the American
Recovery and Reinvestment Act of 2009 (the ARRA) and
other government programs will stabilize the financial services
industry or the U.S. economy. In 2008 and
early 2009 the U.S. Government took steps to stabilize and
stimulate the financial services industry and overall
U.S. economy, including the enactment of the EESA and the
ARRA. This legislation reflected the initial legislative
response to the financial crises affecting the banking system
and financial markets and going concern threats to financial
institutions. Pursuant to the EESA, the U.S. Treasury has
the authority to, among other things, purchase up to
$700 billion of mortgages, mortgage-backed securities and
certain other financial instruments for financial institutions
for the purpose of stabilizing and providing liquidity to the
U.S. financial markets. The ARRA represents a further
effort by the U.S. Government to stabilize and stimulate
the U.S. economy. The failure of the EESA, the ARRA and
other programs to help stabilize
26
the financial markets and a continuation or worsening of current
financial market conditions could materially and adversely
affect the Companys business, financial condition, results
of operations, access to credit and the trading price of its
common stock. There can be no assurance as to the actual impact
that the EESA, the ARRA and other programs will continue to have
on the financial markets, including volatility and limited
credit availability.
Impairment of goodwill
and/or
intangible assets could require charges to earnings, which could
result in a negative impact on our results of
operations. Goodwill arises when a business is
purchased for an amount greater than the net fair value of its
assets. The Bank has recognized goodwill as an asset on the
balance sheet in connection with several recent acquisitions
(see Note 6 Goodwill and Identifiable Intangible
Assets within Notes to the Consolidated Financial
Statements in Item 8 hereof). When an intangible asset
is determined to have an indefinite useful life, it shall not be
amortized, and instead is evaluated for impairment. The Company
evaluates goodwill and intangibles for impairment at least
annually by comparing fair value to carrying amount. Although
the Company determined that goodwill and other intangible assets
were not impaired during 2009, a significant and sustained
decline in our stock price and market capitalization, a
significant decline in our expected future cash flows, a
significant adverse change in the business climate, slower
growth rates or other factors could result in impairment of
goodwill or other intangible assets. If the Company were to
conclude that a future write-down of the goodwill or intangible
assets are necessary, then the Company would record the
appropriate charge to earnings, which could be materially
adverse to the results of operations and financial position.
Deterioration in the Federal Home Loan Bank Bostons
(FHLBB) capital might restrict the FHLBBs
ability to meet the funding needs of its members, cause the
suspension of its dividend to continue, and cause its stock to
be determined to be impaired. Significant
components of the Banks liquidity needs are met through
its access to funding pursuant to its membership in the FHLBB.
The FHLBB is a cooperative that provides services to its member
banking institutions. The primary reason for joining the FHLBB
is to obtain funding from the FHLBB. The purchase of stock in
the FHLBB is a requirement for a member to gain access to
funding.
In February 2009, FHLBB announced that it has indefinitely
suspended its dividend payment beginning in the first quarter of
2009, and will continue the moratorium, put into effect during
the fourth quarter of 2008, on all excess stock repurchases in
an effort to help preserve capital. As a significant portion of
the Banks liquidity needs are satisfied through its access
to funding pursuant to its membership in the FHLBB, should the
FHLBB experience further deterioration in its capital, it may
restrict the FHLBBs ability to meet the funding needs of
its members and, as a result, may have an adverse affect on the
Banks liquidity position. Further, as a FHLBB stockholder,
the Banks net income has been adversely impacted by the
suspension of the dividend and would be further adversely
impacted should the stock be determined to be impaired.
Reductions in the value of our deferred tax assets could
affect earnings adversely. A deferred tax asset
is created by the tax effect of the differences between an
assets book value and its tax basis. The Company assesses
the deferred tax assets periodically to determine the likelihood
of the Companys ability to realize their benefits. These
assessments consider the performance of the associated business
and its ability to generate future taxable income. If the
information available to the Company at the time of assessment
indicates there is a greater than 50% chance that the Company
will not realize the deferred tax asset benefit, the Company is
required to establish a valuation allowance for it and reduce
our future tax assets to the amount the Company believes could
be realized in future tax returns. Recording such a valuation
allowance could have a material adverse effect on the results of
operations or financial position.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None
At December 31, 2009, the Bank conducted its business from
its main office located at 288 Union Street, Rockland,
Massachusetts and seventy banking offices located within
Barnstable, Bristol, Middlesex, Norfolk, Plymouth and Worcester
Counties in eastern Massachusetts. In addition to its main
office, the Bank leased fifty-three of its branches and owned
the remaining seventeen branches. In addition to these branch
locations, the Bank had five remote ATM locations all of which
were leased.
27
The Banks administrative and operations locations are
generally housed in several campuses:
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|
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|
|
Finance and Treasury in Rockland, Massachusetts
|
|
|
|
Executive and other corporate offices in Hanover, Massachusetts.
|
|
|
|
Technology and deposit services in Plymouth, Massachusetts.
|
|
|
|
Loan operations in Middleboro, Massachusetts.
|
|
|
|
Commercial lending and branch administration in Brockton,
Massachusetts.
|
There are a number of additional sales offices not associated
with a branch location throughout the Banks footprint.
For additional information regarding the Companys premises
and equipment and lease obligations, see Notes 5,
Bank Premises and Equipment and 18,
Commitments and Contingencies, respectively, within
Notes to Consolidated Financial Statements in Item 8
hereof.
|
|
Item 3.
|
Legal
Proceedings
|
The Company is not involved in any legal proceedings other than
routine legal proceedings occurring in the ordinary course of
business. Management believes that those routine legal
proceedings involve, in the aggregate, amounts that are
immaterial to the Companys financial condition and results
of operations.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
There were no matters submitted to a vote of security holders in
the fourth quarter of 2009.
28
PART II
|
|
Item 5.
|
Market
for Independent Bank Corp.s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
|
(a.) Independent Bank Corp.s common stock trades on
the National Association of Securities Dealers Automated
Quotation System (NASDAQ) under the symbol INDB. The
Company declared cash dividends of $0.72 per share in 2009 and
in 2008. The ratio of dividends paid to earnings in 2009 and
2008 was 82.8% and 49.0%, 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 common
dividends on a quarterly basis.
On January 9, 2009, as part of the Capital Purchase Program
established by the U.S. Department of Treasury
(Treasury) under the EESA of 2008, the Company
entered into a Letter Agreement with the Treasury pursuant to
which the Company issued and sold to the Treasury
78,158 shares of the Companys Fixed Rate Cumulative
Perpetual Preferred Stock, Series C, par value $0.01 per
share, having a liquidation preference of $1,000 per share and a
ten-year warrant to purchase up to 481,664 shares of the
Companys common stock, par value $0.01 per share, at an
initial exercise price of $24.34 per share, for an aggregate
purchase price of $78,158,000 in cash. All of the proceeds for
the sale of the Series C Preferred Stock were treated as
Tier 1 capital.
On April 22, 2009 the Company, repaid, with regulatory
approval, the preferred stock issued to the Treasury pursuant to
the Capital Purchase Program. As a result, during the second
quarter the Company recorded a $4.4 million non-cash deemed
dividend charged to earnings, amounting to $0.22 per diluted
share, associated with the repayment of the preferred stock and
an additional preferred stock dividend of $141,000 for the
second quarter of 2009. The Company and the Bank remained well
capitalized following this event. The Company also repurchased
the common stock warrant issued to the Treasury for
$2.2 million, the cost of which was recorded as a reduction
in capital, in accordance with U.S. GAAP.
On April 10, 2009 the Company completed its acquisition of
Ben Franklin, the parent of Benjamin Franklin Bank. The
transaction qualified as a tax-free reorganization for federal
income tax purposes, and former Ben Franklin shareholders
received 0.59 shares of the Companys common stock for
each share of Ben Franklin common stock which they owned. Under
the terms of the merger, cash was issued in lieu of fractional
shares. Based upon the Companys $18.27 per share closing
price on April 9, 2009, the transaction was valued at
$10.7793 per share of Ben Franklin common stock or approximately
$84.5 million in the aggregate. As a result of the
acquisition, the Companys outstanding shares increased by
4,624,948 shares.
The following schedule summarizes the closing price range of
common stock and the cash dividends paid for the fiscal years
2009 and 2008.
Price
Range of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
High
|
|
Low
|
|
Dividend
|
|
4th Quarter
|
|
$
|
22.80
|
|
|
$
|
20.06
|
|
|
$
|
0.18
|
|
3rd Quarter
|
|
|
24.34
|
|
|
|
19.19
|
|
|
|
0.18
|
|
2nd Quarter
|
|
|
21.75
|
|
|
|
14.93
|
|
|
|
0.18
|
|
1st Quarter
|
|
|
26.26
|
|
|
|
10.94
|
|
|
|
0.18
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
High
|
|
Low
|
|
Dividend
|
|
4th Quarter
|
|
$
|
31.97
|
|
|
$
|
19.02
|
|
|
$
|
0.18
|
|
3rd Quarter
|
|
|
39.17
|
|
|
|
20.12
|
|
|
|
0.18
|
|
2nd Quarter
|
|
|
31.77
|
|
|
|
23.83
|
|
|
|
0.18
|
|
1st Quarter
|
|
|
31.91
|
|
|
|
24.00
|
|
|
|
0.18
|
|
As of December 31, 2009 there were 20,935,421 shares
of common stock outstanding which were held by approximately
2,767 holders of record. The closing price of the Companys
stock on December 31, 2009 was $20.86. The number of record
holders may not reflect the number of persons or entities
holding stock in nominee name through banks, brokerage firms,
and other nominees.
The information required by S-K Item 201(d) is incorporated
by reference from Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters hereof.
30
Comparative
Stock Performance Graph
The stock performance graph below and associated table compare
the cumulative total shareholder return of the Companys
common stock from December 31, 2004 to December 31,
2009 with the cumulative total return of the NASDAQ Composite
Index (U.S. Companies) and the SNL Bank NASDAQ Index. The
lines in the graph and the numbers in the table below represent
monthly index levels derived from compounded daily returns that
include reinvestment or retention of all dividends. If the
monthly interval, based on the last day of fiscal year, was not
a trading day, the preceding trading day was used. The index
value for all of the series was set to 100.00 on
December 31, 2004 (which assumes that $100.00 was invested
in each of the series on December 31, 2004).
Independent
Bank Corp.
Total Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ending
|
Index
|
|
12/31/04
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
|
12/31/09
|
|
Independent Bank Corp.
|
|
|
100.00
|
|
|
|
86.34
|
|
|
|
111.20
|
|
|
|
85.92
|
|
|
|
84.81
|
|
|
|
70.20
|
|
NASDAQ Composite Index
|
|
|
100.00
|
|
|
|
101.37
|
|
|
|
111.02
|
|
|
|
121.92
|
|
|
|
72.49
|
|
|
|
104.31
|
|
SNL Bank NASDAQ Index
|
|
|
100.00
|
|
|
|
96.95
|
|
|
|
108.85
|
|
|
|
85.46
|
|
|
|
62.06
|
|
|
|
50.34
|
|
(b.) Not applicable
(c.) Not applicable
31
|
|
Item 6.
|
Selected
Financial Data
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or For the Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
|
FINANCIAL CONDITION DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
$
|
508,650
|
|
|
$
|
575,688
|
|
|
$
|
427,998
|
|
|
$
|
395,378
|
|
|
$
|
552,229
|
|
Securities held to maturity
|
|
|
93,410
|
|
|
|
32,789
|
|
|
|
45,265
|
|
|
|
76,747
|
|
|
|
104,268
|
|
Loans
|
|
|
3,395,515
|
|
|
|
2,652,536
|
|
|
|
2,031,824
|
|
|
|
2,013,050
|
|
|
|
2,035,787
|
|
Allowance for loan losses
|
|
|
42,361
|
|
|
|
37,049
|
|
|
|
26,831
|
|
|
|
26,815
|
|
|
|
26,639
|
|
Goodwill and Core Deposit Intangibles
|
|
|
143,730
|
|
|
|
125,710
|
|
|
|
60,411
|
|
|
|
56,535
|
|
|
|
56,858
|
|
Total assets
|
|
|
4,482,021
|
|
|
|
3,628,469
|
|
|
|
2,768,413
|
|
|
|
2,828,919
|
|
|
|
3,041,685
|
|
Total deposits
|
|
|
3,375,294
|
|
|
|
2,579,080
|
|
|
|
2,026,610
|
|
|
|
2,090,344
|
|
|
|
2,205,494
|
|
Total borrowings
|
|
|
647,397
|
|
|
|
695,317
|
|
|
|
504,344
|
|
|
|
493,649
|
|
|
|
587,810
|
|
Stockholders equity
|
|
|
412,649
|
|
|
|
305,274
|
|
|
|
220,465
|
|
|
|
229,783
|
|
|
|
228,152
|
|
Non-performing loans
|
|
|
36,183
|
|
|
|
26,933
|
|
|
|
7,644
|
|
|
|
6,979
|
|
|
|
3,339
|
|
Non-performing assets
|
|
|
41,245
|
|
|
|
29,883
|
|
|
|
8,325
|
|
|
|
7,169
|
|
|
|
3,339
|
|
OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
202,689
|
|
|
$
|
175,440
|
|
|
$
|
158,524
|
|
|
$
|
166,298
|
|
|
$
|
154,405
|
|
Interest expense
|
|
|
51,995
|
|
|
|
58,926
|
|
|
|
63,555
|
|
|
|
65,038
|
|
|
|
49,818
|
|
Net interest income
|
|
|
150,694
|
|
|
|
116,514
|
|
|
|
94,969
|
|
|
|
101,260
|
|
|
|
104,587
|
|
Provision for loan losses
|
|
|
17,335
|
|
|
|
10,888
|
|
|
|
3,130
|
|
|
|
2,335
|
|
|
|
4,175
|
|
Non-interest income
|
|
|
38,192
|
|
|
|
29,032
|
|
|
|
33,265
|
|
|
|
28,039
|
|
|
|
28,529
|
|
Non-interest expenses
|
|
|
141,815
|
|
|
|
104,143
|
|
|
|
87,932
|
|
|
|
79,354
|
|
|
|
80,615
|
|
Net income
|
|
|
22,989
|
|
|
|
23,964
|
|
|
|
28,381
|
|
|
|
32,851
|
|
|
|
33,205
|
|
Preferred stock dividend
|
|
|
5,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to the common shareholder
|
|
|
17,291
|
|
|
|
23,964
|
|
|
|
28,381
|
|
|
|
32,851
|
|
|
|
33,205
|
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income Basic
|
|
$
|
0.88
|
|
|
$
|
1.53
|
|
|
$
|
2.02
|
|
|
$
|
2.20
|
|
|
$
|
2.16
|
|
Net income Diluted
|
|
|
0.88
|
|
|
|
1.52
|
|
|
|
2.00
|
|
|
|
2.17
|
|
|
|
2.14
|
|
Cash dividends declared
|
|
|
0.72
|
|
|
|
0.72
|
|
|
|
0.68
|
|
|
|
0.64
|
|
|
|
0.60
|
|
Book value(1)
|
|
|
19.71
|
|
|
|
18.75
|
|
|
|
16.04
|
|
|
|
15.65
|
|
|
|
14.81
|
|
OPERATING RATIOS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.40
|
%
|
|
|
0.73
|
%
|
|
|
1.05
|
%
|
|
|
1.12
|
%
|
|
|
1.11
|
%
|
Return on average common equity
|
|
|
4.29
|
%
|
|
|
8.20
|
%
|
|
|
12.93
|
%
|
|
|
14.60
|
%
|
|
|
15.10
|
%
|
Net interest margin (on a fully tax equivalent basis)
|
|
|
3.89
|
%
|
|
|
3.95
|
%
|
|
|
3.90
|
%
|
|
|
3.85
|
%
|
|
|
3.88
|
%
|
Equity to assets
|
|
|
9.21
|
%
|
|
|
8.41
|
%
|
|
|
7.96
|
%
|
|
|
8.12
|
%
|
|
|
7.50
|
%
|
Dividend payout ratio
|
|
|
82.79
|
%
|
|
|
48.95
|
%
|
|
|
33.41
|
%
|
|
|
29.10
|
%
|
|
|
27.79
|
%
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or For the Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
|
ASSET QUALITY RATIOS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percent of gross loans
|
|
|
1.07
|
%
|
|
|
1.02
|
%
|
|
|
0.38
|
%
|
|
|
0.35
|
%
|
|
|
0.16
|
%
|
Non-performing assets as a percent of total assets
|
|
|
0.92
|
%
|
|
|
0.82
|
%
|
|
|
0.30
|
%
|
|
|
0.25
|
%
|
|
|
0.11
|
%
|
Allowance for loan losses as a percent of total loans
|
|
|
1.25
|
%
|
|
|
1.40
|
%
|
|
|
1.32
|
%
|
|
|
1.33
|
%
|
|
|
1.31
|
%
|
Allowance for loan losses as a percent of non-performing loans
|
|
|
117.07
|
%
|
|
|
137.56
|
%
|
|
|
351.01
|
%
|
|
|
384.22
|
%
|
|
|
797.81
|
%
|
CAPITAL RATIOS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage capital ratio
|
|
|
7.87
|
%
|
|
|
7.55
|
%
|
|
|
8.02
|
%
|
|
|
8.05
|
%
|
|
|
7.71
|
%
|
Tier 1 risk-based capital ratio
|
|
|
9.83
|
%
|
|
|
9.50
|
%
|
|
|
10.27
|
%
|
|
|
11.05
|
%
|
|
|
10.74
|
%
|
Total risk-based capital ratio
|
|
|
11.92
|
%
|
|
|
11.85
|
%
|
|
|
11.52
|
%
|
|
|
12.30
|
%
|
|
|
11.99
|
%
|
|
|
|
(1) |
|
Calculated by dividing total stockholders equity by the
total outstanding shares as of the end of each period. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The Company is a state chartered, federally registered bank
holding company, incorporated in 1985. The Company is the sole
stockholder of Rockland Trust, a Massachusetts trust company
chartered in 1907. For a full list of corporate entities see
Item 1 Business General
hereto.
All material intercompany balances and transactions have been
eliminated in consolidation. When necessary, certain amounts in
prior year financial statements have been reclassified to
conform to the current years presentation. The following
should be read in conjunction with the Consolidated Financial
Statements and related notes thereto.
Executive
Level Overview
The Companys results of operations are largely dependent
on net interest income, which is the difference between the
interest earned on loans and securities and the 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 wealth 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. During 2009, the
Companys business lines continued to perform well. The
Company was able to generate robust loan and core deposit
volumes, despite a tumultuous economy. The Company was able to
attain this growth by attracting customers from industry
fallout, building franchise value by market extension, promotion
of its strong balance sheet, stability over a long period, and
enduring commitment to the community.
The Companys earnings performance, while still positive,
was impacted by increased costs associated with the recession
including loan workout costs, loss provisions, and deposit
insurance assessment fees. In addition the cost of entering and
exiting the U.S. Treasury CPP program were significant.
The Company takes a careful, opportunistic, and selective
approach to merger and acquisition possibilities. On
April 10, 2009 the Company completed its acquisition of Ben
Franklin, the parent of Benjamin Franklin Bank, and opened
eleven new Rockland Trust branches, located primarily in the
Middlesex and Norfolk counties. There were $1.0 billion in
total assets acquired, of which $687.4 million were
attributable to the loan portfolio, and $921.9 million in
total liabilities acquired, of which $701.4 million were
attributable to total deposits. The transaction was valued at
approximately $84.5 million.
33
On March 1, 2008, the Company completed the acquisition of
Slades, parent of Slades Ferry Trust Company doing
business as Slades Bank. Slades Bank had nine branches located
in the south coast of Massachusetts and along the Rhode Island
border, $662.6 million in total assets, of which
$465.7 million was attributable to the loan portfolio, and
$586.4 million in total liabilities, of which
$410.8 million was attributable to total deposits. The
transaction was valued at approximately $102.2 million.
The Company reported diluted earnings per share of $0.88 for the
year ending December 31, 2009, representing a decrease from
prior years. Additionally, the Companys return on average
assets and return on average equity were 0.40% and 4.29%,
respectively, for the year ended December 31, 2009. The
Companys return on average assets and return on average
equity were 0.73% and 8.20%, respectively, for the year ended
December 31, 2008.
Over the past few years the Company has been working to
reposition the balance sheet. During 2009, management has
continued to implement its strategy to alter the overall
composition of the Companys earning assets in order to
focus resources in higher return segments. This strategy
encompasses a focus on commercial lending, home equity lending,
a strong core deposit franchise and growth in fee revenue,
particularly in the wealth management area. This banking
philosophy has served the Company well thus far in this
challenging economic cycle.
The pie charts below display the shift in the Companys
overall composition of the Companys earning assets over
the past few years:
* includes loans held for sale
As the absolute level of interest rates on investment securities
has declined to historic lows, the Company has allowed its
investment portfolio to continue to decline on a relative basis
(as a percent of assets), opting instead, to deploy funds into
lending when possible.
The Companys loan portfolio has seen strong organic
growth. A majority of the organic growth has been seen in the
Companys commercial loan categories. The Company continues
to focus on its ability to generate commercial loan originations
as part of the Companys strategic growth plan. The
commercial loan originations were approximately
$510.6 million, an increase of 28.3% from the prior year.
The Company is able to generate this
34
volume of lending due to the Companys in-depth knowledge
of local markets and the dislocation of customers dissatisfied
with larger competitors. The following table summarizes loan
growth during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Franklin
|
|
|
Organic
|
|
|
|
2009
|
|
|
2008
|
|
|
Acquisition
|
|
|
Growth/(Decline)
|
|
|
|
(Dollars in thousands)
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Commercial Real Estate Loans
|
|
$
|
2,163,317
|
|
|
$
|
1,569,082
|
|
|
$
|
402,947
|
|
|
$
|
191,288
|
|
Small Business
|
|
|
82,569
|
|
|
|
86,670
|
|
|
|
|
|
|
|
(4,101
|
)
|
Residential Real Estate
|
|
|
566,042
|
|
|
|
423,974
|
|
|
|
241,239
|
|
|
|
(99,171
|
)
|
Home Equity
|
|
|
471,862
|
|
|
|
406,240
|
|
|
|
41,125
|
|
|
|
24,497
|
|
Consumer Other
|
|
|
111,725
|
|
|
|
166,570
|
|
|
|
2,133
|
|
|
|
(56,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
3,395,515
|
|
|
$
|
2,652,536
|
|
|
$
|
687,444
|
|
|
$
|
55,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits of $3.4 billion at December 31, 2009
increased $796.2 million, or 30.9%, compared to
December 31, 2008. Of the increase, $701.4 million is
a result of the Ben Franklin acquisition. The Company remains
committed to deposit generation, with careful management of
deposit pricing and selective deposit promotion. In an effort to
control the Companys cost of funds the Companys core
deposit focus acts as a mitigant to rising rate exposures. In
the current interest rate environment, the Company is focused on
cultivating a strong deposit base with rational pricing for
customer retention as well as core deposit growth. At
December 31, 2009 core deposits were 72.8% of total
deposits. The following table summarizes deposit growth during
the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Franklin
|
|
|
Organic
|
|
|
|
2009
|
|
|
2008
|
|
|
Acquisition
|
|
|
Growth/(Decline)
|
|
|
|
(Dollars in thousands)
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
$
|
721,792
|
|
|
$
|
519,326
|
|
|
$
|
122,391
|
|
|
$
|
80,075
|
|
Savings and Interest Checking Accounts
|
|
|
1,073,990
|
|
|
|
725,313
|
|
|
|
172,263
|
|
|
|
176,414
|
|
Money Market
|
|
|
661,731
|
|
|
|
488,345
|
|
|
|
164,369
|
|
|
|
9,017
|
|
Time Certificates of Deposit
|
|
|
917,781
|
|
|
|
846,096
|
|
|
|
242,384
|
|
|
|
(170,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
3,375,294
|
|
|
$
|
2,579,080
|
|
|
$
|
701,407
|
|
|
$
|
94,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 borrowings were $647.4 million.
The Bank utilizes borrowings as a source of liquidity and more
importantly as a means to manage interest rate risk by executing
term funding to mitigate the interest rate risk inherent in the
origination of fixed rate assets.
While the Company has been experiencing increases in the level
of nonperforming assets, loan charge-offs, delinquencies, and
other asset quality measurements, the Companys increases
are consistent with the weakening economy. While some individual
borrowers will likely encounter difficulties, the Company does
not currently anticipate a broad-based weakening of its loan
portfolio. The table below shows our asset quality for the
periods indicated:
35
The following graph displays the Companys levels of loan
loss reserves for the periods indicated:
The Companys capital position is sound. The Companys
tangible common equity ratio is 6.7%, which is the pro forma
ratio, which includes the tax deductibility of goodwill and
excludes the impact of the Companys participation in and
exit from the CPP. Regulatory capital levels exceed prescribed
thresholds, while the Company maintained a common stock dividend
of $0.18 each quarter in 2009, consistent with 2008.
The Company reported net income of $23.0 million for the
year ended December 31, 2009, a decrease of 4.1% as
compared to the same period in 2008. Excluding certain non-core
items mentioned below, net operating earnings were
$28.0 million for the year ended December 31, 2009, up
10.8% from the same period in the prior year.
The following table summarizes the impact of non-core items
recorded for the time periods indicated below and reconciles
them to the most comparable amounts calculated in accordance
with GAAP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
Diluted
|
|
|
|
Available to Common
|
|
|
Earnings Per
|
|
|
|
Shareholders
|
|
|
Share
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
AS REPORTED (GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
22,989
|
|
|
$
|
23,964
|
|
|
$
|
1.17
|
|
|
$
|
1.52
|
|
Preferred Stock Dividend
|
|
|
(5,698
|
)
|
|
|
|
|
|
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income available to Common Shareholders (GAAP)
|
|
$
|
17,291
|
|
|
$
|
23,964
|
|
|
$
|
0.88
|
|
|
$
|
1.52
|
|
Non-GAAP Measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gain/Loss on Sale of Securities
|
|
|
(880
|
)
|
|
|
396
|
|
|
|
(0.04
|
)
|
|
|
0.03
|
|
Gain Resulting from Early Termination of Hedging Relationship
|
|
|
(2,456
|
)
|
|
|
|
|
|
|
(0.12
|
)
|
|
|
|
|
Non-Interest Expense Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation Reserve/Recovery
|
|
|
|
|
|
|
488
|
|
|
|
|
|
|
|
0.03
|
|
WorldCom Bond Loss Recovery
|
|
|
|
|
|
|
(272
|
)
|
|
|
|
|
|
|
(0.02
|
)
|
Merger & Acquisition Expenses
|
|
|
9,706
|
|
|
|
728
|
|
|
|
0.49
|
|
|
|
0.05
|
|
Deemed Preferred Stock Dividend
|
|
|
4,384
|
|
|
|
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL IMPACT OF NON-CORE ITEMS
|
|
|
10,754
|
|
|
|
1,340
|
|
|
|
0.55
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS ADJUSTED (NON-GAAP)
|
|
$
|
28,045
|
|
|
$
|
25,304
|
|
|
$
|
1.43
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, the Company recorded
other-than-temporary
impairment (OTTI) on certain securities, resulting
in a negative charge to non-interest income of approximately
$9.0 million for the portion
36
of OTTI which was determined to be credit related, with the
remainder of the OTTI recorded through other comprehensive
income (OCI). The tables above do not reflect the
impact of the OTTI recorded by the Company, as the Company has
determined those items to be core in nature.
When management assesses the Companys financial
performance for purposes of making
day-to-day
and strategic decisions it does so based upon the performance of
its core banking business, which is primarily derived from the
combination of net interest income and non-interest or fee
income, reduced by operating expenses, the provision for loan
losses, and the impact of income taxes. The Companys
financial performance is determined in accordance with Generally
Accepted Accounting Principles (GAAP), which,
sometimes includes gain or loss due to items that management
does not believe are related to its core banking business, such
as gains or losses on the sales of securities, merger and
acquisition expenses, and other items. Management, therefore,
also computes the Companys non-GAAP operating earnings,
which excludes these items, to measure the strength of the
Companys core banking business and to identify trends that
may to some extent be obscured by gains or losses which
management deems not to be core to the Companys
operations. Management believes that the financial impact of the
items excluded when computing non-GAAP operating earnings will
disappear or become immaterial within a near-term finite
period.
Managements computation of the Companys non-GAAP
operating earnings are set forth above because management
believes it may be useful for investors to have access to the
same analytical tool used by management to evaluate the
Companys core operational performance so that investors
may assess the Companys overall financial health and
identify business and performance trends that may be more
difficult to identify and evaluate when non-core items are
included. Management also believes that the computation of
non-GAAP operating earnings may facilitate the comparison of the
Company to other companies in the financial services
industry.
Non-GAAP operating earnings should not be considered a
substitute for GAAP operating results. An item which management
deems to be non-core and excludes when computing non-GAAP
operating earnings can be of substantial importance to the
Companys results for any particular quarter or year. The
Companys non-GAAP operating earnings set forth above are
not necessarily comparable to non-GAAP information which may be
presented by other companies.
A key determinant in the Companys profitability is the net
interest margin, which represents the difference between the
yield on interest earning assets and the cost of liabilities.
The Company has effectively managed its net interest margin
despite a volatile interest rate environment. The Companys
net interest margin was 3.89% and 3.95% for the years ended
December 31, 2009 and December 31, 2008, respectively.
The following graph shows the trend in the Companys net
interest margin versus the Federal Funds Rate for nine quarters
beginning with the quarter ended December 31, 2007 and
ending with the quarter ended December 31, 2009:
37
Non-interest income increased by 31.6% for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. Excluding certain items, non-interest
income increased $5.2 million, or 14.0%, when compared to
2008. The table below reconciles non-interest income adjusted
for certain items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Variance
|
|
|
% Variance
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Non-Interest Income GAAP
|
|
$
|
38,192
|
|
|
$
|
29,032
|
|
|
$
|
9,160
|
|
|
|
31.6
|
%
|
Less/Add Net Gain/ Loss on Sale of Securities
|
|
|
(1,354
|
)
|
|
|
609
|
|
|
|
(1,963
|
)
|
|
|
322.3
|
%
|
Less Gain Resulting from Early Termination of
Hedging Relationship
|
|
|
(3,778
|
)
|
|
|
|
|
|
|
(3,778
|
)
|
|
|
|
|
Add Loss on Write-Down of Investments to Fair Value
|
|
|
8,958
|
|
|
|
7,211
|
|
|
|
1,747
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Income as Adjusted (Non-GAAP)
|
|
$
|
42,018
|
|
|
$
|
36,852
|
|
|
$
|
5,166
|
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys Wealth Management business had aggregate
revenues of $10.0, which declined by 9.8% for the year ended
December 31, 2009 as compared to the same period in 2008.
Assets under administration amounted to $1.3 billion, an
increase of $155.0 million, or 13.8%, as compared to the
assets under administration at December 31, 2008. This
increase is due to general market appreciation and strong sales.
Non-interest expense has grown by 36.2% for the year ended
December 31, 2009, as compared to the prior year. When
adjusting the reported level of non-interest expense for merger
and acquisition expenses in 2009, non-interest expense increased
$25.2 million, or 24.2%, for the year ended
December 31, 2009, as compared to the prior year. The table
below reconciles non-interest expense adjusted for certain items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$ Variance
|
|
|
% Variance
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Non-Interest Expense GAAP
|
|
$
|
141,815
|
|
|
$
|
104,143
|
|
|
$
|
37,672
|
|
|
|
36.2
|
%
|
Less Merger & Acquisition Expenses
|
|
|
(12,423
|
)
|
|
|
(1,120
|
)
|
|
|
(11,303
|
)
|
|
|
1009.2
|
%
|
Add Litigation Reserve
|
|
|
|
|
|
|
750
|
|
|
|
(750
|
)
|
|
|
n/a
|
|
Add WorldCom Bond Loss Recovery
|
|
|
|
|
|
|
418
|
|
|
|
(418
|
)
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Expense as Adjusted (Non-GAAP)
|
|
$
|
129,392
|
|
|
$
|
104,191
|
|
|
$
|
25,201
|
|
|
|
24.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in expenses is primarily attributable to the Ben
Franklin merger which closed in the second quarter of 2009
increases in FDIC deposit insurance assessment fees, and loan
workout costs.
The Company had several significant accomplishments in 2009:
|
|
|
|
|
Despite a very challenging operating environment, the
Companys 2009 overall financial performance was strong
and, for the most recent period for which comparable data was
available, exceeded that of its peers with respect to return on
average equity and return on average assets.
|
|
|
|
Rockland Trust took advantage of market opportunities, had
strong new business volumes, and recorded organic growth in
commercial loans of 12% and recorded organic growth in core
deposits of 15%.
|
|
|
|
The Company closed and successfully integrated the acquisition
of Benjamin Franklin Bancorp, Inc. and its wholly-owned
subsidiary Benjamin Franklin Bank.
|
|
|
|
The Company strengthened its balance sheet and capital position,
growing tangible common equity by almost one hundred basis
points.
|
|
|
|
Significant risks were well-managed, including interest rate
risk and liquidity risk.
|
|
|
|
Assets quality performed as expected. While the losses
recognized for some asset classes increased, asset quality was
stable and delinquency, both early and late stage, was stable.
|
38
|
|
|
|
|
Also, in April 2009, the Company fully repaid the Treasury
Capital Purchase Program funds without raising additional
equity. As a result, during the second quarter the Company
recorded a $4.4 million non-cash deemed dividend change to
earnings, amounting to $0.22 per diluted share, associated with
the repayment of the preferred stock.
|
|
|
|
Additionally, a wholly-owned subsidiary of the Company was
awarded $50.0 million in tax credit allocation authority
pursuant to the federal New Markets Tax Credit programs, which
encourages community developments lending.
|
Financial
Position
The Companys total assets increased by
$853.6 million, or 23.5%, to $4.5 billion at
December 31, 2009. Total securities decreased
$27.6 million, or 4.3%, and loans increased by
$743.0 million, or 28.0%, during 2009. Total deposits
increased by $796.2 million, or 30.9%, and total borrowings
decreased by $47.9 million, or 6.9%, during the same
period. Stockholders equity increased by
$107.4 million in 2009. The increases in the Companys
balance sheet are primarily a result of the Ben Franklin
acquisition, which closed in April 2009, as well as organic
growth. The acquisition had a significant impact on comparative
period results and will be discussed throughout as it applies.
Loan Portfolio Management has been focusing on
changing the overall composition of the balance sheet by
emphasizing the commercial and home equity lending categories,
while placing less emphasis on the other lending categories.
While changing the composition of the Companys loan
portfolio has led to a slower growth rate, management believes
the change to be prudent, given the prevailing interest rate and
economic environment. At December 31, 2009, the Banks
loan portfolio amounted to $3.4 billion, an increase of
$743.0 million, or 28.0%, from year-end 2008. Total
commercial loan category, which includes small business loans,
increased by $590.1 million, or 35.6%, with commercial real
estate comprising most of the change with an increase of
$488.2 million, or 43.3%. Home equity loans increased
$65.6 million, or 16.2%, during the year ended
December 31, 2009. Consumer auto loans decreased
$48.7 million, or 38.1%, and total residential real estate
loans increased $142.1 million, or 33.5%, during the year
ended December 31, 2009, mainly due to the Ben Franklin
acquisition. The following table summarizes loan growth during
the year ending December 31, 2009:
Table
1 Components of Loan Growth/(Decline)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Franklin
|
|
|
Organic
|
|
|
|
2009
|
|
|
2008
|
|
|
Acquisition
|
|
|
Growth/(Decline)
|
|
|
|
(Dollars in thousands)
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Commercial Real Estate Loans
|
|
$
|
2,163,317
|
|
|
$
|
1,569,082
|
|
|
$
|
402,947
|
|
|
$
|
191,288
|
|
Small Business
|
|
|
82,569
|
|
|
|
86,670
|
|
|
|
|
|
|
|
(4,101
|
)
|
Residential Real Estate
|
|
|
566,042
|
|
|
|
423,974
|
|
|
|
241,239
|
|
|
|
(99,171
|
)
|
Home Equity
|
|
|
471,862
|
|
|
|
406,240
|
|
|
|
41,125
|
|
|
|
24,497
|
|
Consumer Other
|
|
|
111,725
|
|
|
|
166,570
|
|
|
|
2,133
|
|
|
|
(56,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans
|
|
$
|
3,395,515
|
|
|
$
|
2,652,536
|
|
|
$
|
687,444
|
|
|
$
|
55,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
The following table sets forth information concerning the
composition of the Banks loan portfolio by loan type at
the dates indicated:
Table
2 Loan Portfolio Composition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and Industrial
|
|
$
|
373,531
|
|
|
|
11.0
|
%
|
|
$
|
270,832
|
|
|
|
10.2
|
%
|
|
$
|
190,522
|
|
|
|
9.4
|
%
|
|
$
|
174,356
|
|
|
|
8.7
|
%
|
|
$
|
155,081
|
|
|
|
7.6
|
%
|
Commercial Real Estate
|
|
|
1,614,474
|
|
|
|
47.5
|
%
|
|
|
1,126,295
|
|
|
|
42.4
|
%
|
|
|
797,416
|
|
|
|
39.2
|
%
|
|
|
740,517
|
|
|
|
36.7
|
%
|
|
|
683,240
|
|
|
|
33.7
|
%
|
Commercial Construction
|
|
|
175,312
|
|
|
|
5.2
|
%
|
|
|
171,955
|
|
|
|
6.5
|
%
|
|
|
133,372
|
|
|
|
6.6
|
%
|
|
|
119,685
|
|
|
|
5.9
|
%
|
|
|
140,643
|
|
|
|
6.9
|
%
|
Small Business
|
|
|
82,569
|
|
|
|
2.4
|
%
|
|
|
86,670
|
|
|
|
3.3
|
%
|
|
|
69,977
|
|
|
|
3.4
|
%
|
|
|
59,910
|
|
|
|
3.0
|
%
|
|
|
51,373
|
|
|
|
2.5
|
%
|
Residential Real Estate
|
|
|
555,306
|
|
|
|
16.4
|
%
|
|
|
413,024
|
|
|
|
15.6
|
%
|
|
|
323,847
|
|
|
|
15.9
|
%
|
|
|
378,368
|
|
|
|
18.8
|
%
|
|
|
428,343
|
|
|
|
21.0
|
%
|
Residential Construction
|
|
|
10,736
|
|
|
|
0.3
|
%
|
|
|
10,950
|
|
|
|
0.4
|
%
|
|
|
6,115
|
|
|
|
0.3
|
%
|
|
|
7,277
|
|
|
|
0.4
|
%
|
|
|
8,316
|
|
|
|
0.4
|
%
|
Home Equity
|
|
|
471,862
|
|
|
|
13.9
|
%
|
|
|
406,240
|
|
|
|
15.3
|
%
|
|
|
308,744
|
|
|
|
15.2
|
%
|
|
|
277,015
|
|
|
|
13.8
|
%
|
|
|
251,852
|
|
|
|
12.4
|
%
|
Consumer Auto
|
|
|
79,273
|
|
|
|
2.3
|
%
|
|
|
127,956
|
|
|
|
4.8
|
%
|
|
|
156,006
|
|
|
|
7.7
|
%
|
|
|
206,845
|
|
|
|
10.3
|
%
|
|
|
263,179
|
|
|
|
12.9
|
%
|
Consumer Other
|
|
|
32,452
|
|
|
|
1.0
|
%
|
|
|
38,614
|
|
|
|
1.5
|
%
|
|
|
45,825
|
|
|
|
2.3
|
%
|
|
|
49,077
|
|
|
|
2.4
|
%
|
|
|
53,760
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Loans
|
|
|
3,395,515
|
|
|
|
100.0
|
%
|
|
|
2,652,536
|
|
|
|
100.0
|
%
|
|
|
2,031,824
|
|
|
|
100.0
|
%
|
|
|
2,013,050
|
|
|
|
100.0
|
%
|
|
|
2,035,787
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses
|
|
|
42,361
|
|
|
|
|
|
|
|
37,049
|
|
|
|
|
|
|
|
26,831
|
|
|
|
|
|
|
|
26,815
|
|
|
|
|
|
|
|
26,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loans
|
|
$
|
3,353,154
|
|
|
|
|
|
|
$
|
2,615,487
|
|
|
|
|
|
|
$
|
2,004,993
|
|
|
|
|
|
|
$
|
1,986,235
|
|
|
|
|
|
|
$
|
2,009,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the scheduled contractual
amortization of the Banks loan portfolio at
December 31, 2009. Loans having no schedule of repayments
or no stated maturity are reported as due in one year or less.
Adjustable rate mortgages are included in the adjustable rate
category. 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, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Commercial
|
|
|
Small
|
|
|
Residential
|
|
|
Residential
|
|
|
Consumer
|
|
|
Consumer
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Business
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Home Equity
|
|
|
Auto
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
(Dollars In thousands)
|
|
|
Amounts due in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
206,339
|
|
|
$
|
211,612
|
|
|
$
|
89,238
|
|
|
$
|
18,489
|
|
|
$
|
23,975
|
|
|
$
|
10,736
|
|
|
$
|
7,926
|
|
|
$
|
28,875
|
|
|
$
|
5,099
|
|
|
$
|
602,289
|
|
|
|
|
|
After one year through five years
|
|
|
113,453
|
|
|
|
780,143
|
|
|
|
41,049
|
|
|
|
35,955
|
|
|
|
92,971
|
|
|
|
|
|
|
|
32,964
|
|
|
|
49,905
|
|
|
|
11,137
|
|
|
|
1,157,577
|
|
|
|
|
|
Beyond five years
|
|
|
53,739
|
|
|
|
622,719
|
|
|
|
45,025
|
|
|
|
28,125
|
|
|
|
438,360
|
|
|
|
|
|
|
|
430,972
|
|
|
|
493
|
|
|
|
16,216
|
|
|
|
1,635,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
373,531
|
|
|
$
|
1,614,474
|
|
|
$
|
175,312
|
(1)
|
|
$
|
82,569
|
|
|
$
|
555,306
|
|
|
$
|
10,736
|
|
|
$
|
471,862
|
|
|
$
|
79,273
|
|
|
$
|
32,452
|
|
|
$
|
3,395,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate terms on amounts due after one year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
77,144
|
|
|
$
|
708,211
|
|
|
$
|
44,613
|
|
|
$
|
27,422
|
|
|
$
|
321,590
|
|
|
$
|
|
|
|
$
|
101,332
|
|
|
$
|
50,398
|
|
|
$
|
26,482
|
|
|
$
|
1,357,192
|
|
|
|
|
|
Adjustable Rate
|
|
|
90,048
|
|
|
|
694,651
|
|
|
|
41,461
|
|
|
|
36,658
|
|
|
|
209,647
|
|
|
|
|
|
|
|
362,604
|
|
|
|
|
|
|
|
871
|
|
|
|
1,435,940
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes certain construction loans
that convert to commercial mortgages. These loans are
reclassified to commercial real estate after the construction
phase.
|
As of December 31, 2009, $1.4 million 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
40
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 borrowers 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
intended for sale are recorded at fair value.
During 2009 and 2008, 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. The amounts of loans originated and sold with
servicing rights released were $338.5 million and
$219.7 million in 2009 and 2008, respectively. The amounts
of loans originated and sold with servicing rights retained were
$11.6 million and $8.7 million in 2009 and 2008,
respectively.
The principal balance of loans serviced by the Bank on behalf of
investors amounted to $350.5 million at December 31,
2009 and $250.5 million at December 31, 2008. The fair
value of the servicing rights associated with these loans was
$2.2 million and $1.5 million as of December 31,
2009 and 2008, respectively.
Asset Quality The Bank actively manages all
delinquent loans in accordance with formally drafted policies
and established procedures.
Delinquency The Banks 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 Banks 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 borrowers needs are considered as much as
reasonably possible without jeopardizing the Banks
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. Any loans that are modified are
reviewed by the Bank to identify if a troubled debt
restructuring (TDR) has occurred. A troubled debt
restructuring is when, for economic or legal reasons related to
a borrowers financial difficulties, the Bank grants a
concession to the borrower that it would not otherwise consider.
The restructuring of the loan may include the transfer of assets
from the borrower to satisfy the debt, a modification of loan
terms, or a combination of the two. As of December 31, 2009
and 2008 there were 93 and 16 loans, respectively, that were
listed as troubled debt restructures, respectively. If such
efforts by the Bank 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. Due to current economic conditions, the Company
anticipates an increase in delinquencies in the future.
41
The following table sets forth a summary of troubled debt
restructured loans at December 31, 2009:
Table
4 Troubled Debt Restructured Loans
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Balance of
|
|
|
|
Loans
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
TDRs on accrual status
|
|
|
93
|
|
|
$
|
7,070
|
|
TDRs on nonaccrual status
|
|
|
11
|
|
|
|
3,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
$
|
10,568
|
|
The following table sets forth a summary of certain delinquency
information as of the dates indicated:
Table
5 Summary of Delinquency Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
At December 31, 2008
|
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90 days or more
|
|
|
30-59 days
|
|
|
60-89 days
|
|
|
90 days or more
|
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
Number
|
|
|
Principal
|
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
of Loans
|
|
|
Balance
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and Industrial
|
|
|
22
|
|
|
$
|
3,519
|
|
|
|
8
|
|
|
$
|
2,182
|
|
|
|
18
|
|
|
$
|
3,972
|
|
|
|
8
|
|
|
$
|
564
|
|
|
|
8
|
|
|
$
|
1,672
|
|
|
|
9
|
|
|
$
|
1,790
|
|
Commercial Real Estate
|
|
|
22
|
|
|
|
5,803
|
|
|
|
8
|
|
|
|
6,163
|
|
|
|
43
|
|
|
|
16,875
|
|
|
|
10
|
|
|
|
2,331
|
|
|
|
8
|
|
|
|
2,649
|
|
|
|
9
|
|
|
|
3,051
|
|
Commercial Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
4,080
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
2,313
|
|
Small Business
|
|
|
34
|
|
|
|
945
|
|
|
|
13
|
|
|
|
163
|
|
|
|
21
|
|
|
|
419
|
|
|
|
41
|
|
|
|
1,236
|
|
|
|
12
|
|
|
|
303
|
|
|
|
32
|
|
|
|
1,025
|
|
Residential Real Estate
|
|
|
11
|
|
|
|
2,815
|
|
|
|
12
|
|
|
|
2,431
|
|
|
|
22
|
|
|
|
5,130
|
|
|
|
11
|
|
|
|
1,952
|
|
|
|
8
|
|
|
|
3,076
|
|
|
|
26
|
|
|
|
5,767
|
|
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
26
|
|
|
|
1,956
|
|
|
|
7
|
|
|
|
303
|
|
|
|
14
|
|
|
|
876
|
|
|
|
24
|
|
|
|
2,978
|
|
|
|
9
|
|
|
|
1,221
|
|
|
|
11
|
|
|
|
749
|
|
Consumer Auto
|
|
|
371
|
|
|
|
3,041
|
|
|
|
26
|
|
|
|
522
|
|
|
|
16
|
|
|
|
248
|
|
|
|
405
|
|
|
|
4,002
|
|
|
|
94
|
|
|
|
869
|
|
|
|
75
|
|
|
|
552
|
|
Consumer Other
|
|
|
109
|
|
|
|
858
|
|
|
|
20
|
|
|
|
237
|
|
|
|
31
|
|
|
|
261
|
|
|
|
130
|
|
|
|
1,416
|
|
|
|
44
|
|
|
|
256
|
|
|
|
42
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
595
|
|
|
$
|
18,937
|
|
|
|
94
|
|
|
$
|
12,001
|
|
|
|
165
|
|
|
$
|
27,781
|
|
|
|
631
|
|
|
$
|
18,559
|
|
|
|
183
|
|
|
$
|
10,046
|
|
|
|
210
|
|
|
$
|
15,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual Loans As permitted by banking
regulations, certain consumer 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,
within commercial and real estate categories, or home equity,
loans more than 90 days past due with respect to principal
or interest are classified as a nonaccrual loan. Income accruals
are suspended on all nonaccrual loans and all previously accrued
and uncollected interest is reversed against current income. A
loan remains on nonaccrual status until it becomes current with
respect to principal and interest (and in certain instances
remains current for up to six months), when the loan is
liquidated, or when the loan is determined to be uncollectible
it is charged-off against the allowance for loan losses.
Nonperforming Assets Nonperforming assets are
comprised of nonperforming loans, nonperforming securities,
Other Real Estate Owned (OREO) and other assets in
possession. Nonperforming loans consist of loans that are more
than 90 days past due but still accruing interest and
nonaccrual loans. Nonperforming securities consist of securities
that are on nonaccrual status. OREO includes properties held by
the Bank as a result of foreclosure or by acceptance of a deed
in lieu of foreclosure. Other assets in possession reflect the
estimated discounted cash flow value of retention payments from
the sale of a customer list associated with a troubled borrower.
As of December 31, 2009, nonperforming assets totaled
$41.2 million, an increase of $11.4 million from the
prior year-end. The increase in nonperforming assets is
attributable mainly to increases in nonperforming loans, with
increases in the commercial real estate and commercial and
industrial categories and, to a lesser extent, in the
residential lending categories, as well as the Ben Franklin
acquisition. Nonperforming assets represented 0.92% of total
assets at December 31, 2009, as compared to 0.82% at
December 31, 2008. The Bank had nineteen properties
totaling $4.0 million and seven properties totaling
$1.8 million held as OREO as of December 31, 2009 and
December 31, 2008, respectively.
Repossessed automobile loan balances continue to be classified
as nonperforming loans, and not as other assets, because the
borrower has the potential to satisfy the obligation within
twenty days from the date of repossession (before the Bank can
schedule disposal of the collateral). The borrower can redeem
the property by
42
payment in full at any time prior to the disposal of it by the
Bank. Repossessed automobile loan balances amounted to $198,000
and $642,000 for the periods ending December 31, 2009, and
December 31, 2008, respectively.
The following table sets forth information regarding
nonperforming assets held by the Bank at the dates indicated:
Table
6 Nonperforming Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Loans past due 90 days or more but still accruing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Auto
|
|
$
|
44
|
|
|
$
|
170
|
|
|
$
|
378
|
|
|
$
|
252
|
|
|
$
|
165
|
|
Consumer Other
|
|
|
248
|
|
|
|
105
|
|
|
|
122
|
|
|
|
137
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
292
|
|
|
$
|
275
|
|
|
$
|
500
|
|
|
$
|
389
|
|
|
$
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans accounted for on a nonaccrual basis(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
$
|
4,205
|
|
|
$
|
1,942
|
|
|
$
|
306
|
|
|
$
|
872
|
|
|
$
|
245
|
|
Small Business
|
|
|
793
|
|
|
|
1,111
|
|
|
|
439
|
|
|
|
74
|
|
|
|
47
|
|
Commercial Real Estate
|
|
|
18,525
|
|
|
|
12,370
|
|
|
|
2,568
|
|
|
|
2,346
|
|
|
|
313
|
|
Residential Real Estate
|
|
|
10,829
|
|
|
|
9,394
|
|
|
|
2,380
|
|
|
|
2,318
|
|
|
|
1,876
|
|
Home Equity
|
|
|
1,166
|
|
|
|
1,090
|
|
|
|
872
|
|
|
|
358
|
|
|
|
|
|
Consumer Auto
|
|
|
198
|
|
|
|
642
|
|
|
|
455
|
|
|
|
451
|
|
|
|
509
|
|
Consumer Other
|
|
|
175
|
|
|
|
109
|
|
|
|
124
|
|
|
|
171
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,891
|
|
|
$
|
26,658
|
|
|
$
|
7,144
|
|
|
$
|
6,590
|
|
|
$
|
3,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
$
|
36,183
|
|
|
$
|
26,933
|
|
|
$
|
7,644
|
|
|
$
|
6,979
|
|
|
$
|
3,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual securities
|
|
|
920
|
|
|
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets in possession
|
|
|
148
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned
|
|
|
3,994
|
|
|
|
1,809
|
|
|
|
681
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
41,245
|
|
|
$
|
29,883
|
|
|
$
|
8,325
|
|
|
$
|
7,169
|
|
|
$
|
3,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans as a percent of gross loans
|
|
|
1.07
|
%
|
|
|
1.02
|
%
|
|
|
0.38
|
%
|
|
|
0.35
|
%
|
|
|
0.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets as a percent of total assets
|
|
|
0.92
|
%
|
|
|
0.82
|
%
|
|
|
0.30
|
%
|
|
|
0.25
|
%
|
|
|
0.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performing restructured loans
|
|
$
|
7,070
|
|
|
$
|
1,063
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
There were $3.4 million and $74,000 restructured,
nonaccruing loans at December 31, 2009 and 2008, and none
at December 31, 2007, 2006, and 2005. |
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 Banks policy to have any
restructured loans which are on nonaccrual status prior to being
modified, remain on nonaccrual status for approximately six
months before management considers its return to accrual status.
If the restructured loan is not on nonaccrual status prior to
being modified, it is reviewed to determine if the modified loan
should remain on accrual status.
Potential problem loans are any loans which are not included in
nonaccrual or nonperforming 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. At December 31, 2009 and
2008, the Bank had 102 and 45 potential problem loan
relationships, respectively, with an outstanding balance of
$122.1 million and $78.7 million, respectively. At
December 31, 2009,
43
these potential problem loans continued to perform with respect
to payments. Management actively monitors these loans and
strives to minimize any possible adverse impact to the Bank.
The table below for interest income that was recognized or
collected on the nonaccrual loans as of the dates indicated:
Table
7 Interest Income Recognized/Collected on Nonaccrual
/ Troubled Debt Restructured Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Interest income that would have been recognized if nonaccruing
loans at their respective dates had been performing
|
|
$
|
2,004
|
|
|
$
|
890
|
|
|
$
|
634
|
|
Interest income recognized on troubled debt restructured
accruing loans at their respective dates(1)
|
|
|
330
|
|
|
|
21
|
|
|
|
n/a
|
|
Interest collected on these nonaccrual and restructured loans
and included in interest income(1)
|
|
$
|
359
|
|
|
$
|
198
|
|
|
$
|
120
|
|
|
|
|
(1) |
|
There were no restructured loans at December 31, 2007. |
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 borrowers 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 categories by either
the present value of expected future cash flows discounted at
the loans effective interest rate, the loans
obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
At December 31, 2009, impaired loans included all
commercial real estate loans and commercial and industrial loans
on nonaccrual status, troubled debt restructures, and other
loans that have been categorized as impaired. Total impaired
loans at December 31, 2009 and 2008 were $39.2 million
and $15.6 million, respectively.
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 loans 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. In the event the real estate is utilized as a rental
property, rental income and expenses are recorded as incurred
and included in non-interest income and non-interest expense on
the consolidated income statement.
The Company holds six collateralized debt obligation securities
(CDOs) comprised of pools of trust preferred
securities issued by banks and insurance companies, which are
currently deferring interest payments on certain tranches within
the bonds structures including the tranches held by the
Company. The bonds are anticipated to continue to defer interest
until cash flows are sufficient to satisfy certain
collateralization levels designed to protect more senior
tranches. As a result the Company has placed the six securities
on nonaccrual status and has reversed any previously accrued
income related to these securities.
Allowance for Loan Losses 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.
44
The allowance is increased by provisions for loan losses and by
recoveries of loans previously charged-off and is reduced by
loans charged-off.
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. Additionally, various
regulatory agencies, as an integral part of the Banks
examination process, periodically assess the adequacy of the
allowance for loan losses.
As of December 31, 2009, the allowance for loan losses
totaled $42.4 million, or 1.25% of total loans as compared
to $37.0 million, or 1.39% of total loans, at
December 31, 2008. The increase in allowance was due to a
combination of factors including changes in asset quality and
organic loan growth. The decrease in the ratio of allowance to
total loans was due to the implementation of recent accounting
guidance pertaining to the business combinations topic of the
FASB ASC, which precluded the combination of any general
allowance amounts associated with the acquired loans within the
Ben Franklin loan portfolio.
Accordingly, loans obtained in connection with the acquisition
have been recorded at fair value. Determining the fair value of
the acquired loans required estimating cash flows expected to be
collected on the loans. Estimated credit losses on the acquired
loans were considered in those cash flow estimates in the
determination of fair value as of the acquisition date. Based on
managements analysis, management believes that the level
of the allowance for loan losses at December 31, 2009 is
adequate.
45
The following table summarizes changes in the allowance for loan
losses and other selected statistics for the periods presented:
Table
8 Summary of Changes in the Allowance for Loan
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Average total loans
|
|
$
|
3,177,949
|
|
|
$
|
2,489,028
|
|
|
$
|
1,994,273
|
|
|
$
|
2,041,098
|
|
|
$
|
1,987,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, beginning of year
|
|
$
|
37,049
|
|
|
$
|
26,831
|
|
|
$
|
26,815
|
|
|
$
|
26,639
|
|
|
$
|
25,197
|
|
Charged-off loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
|
1,663
|
|
|
|
595
|
|
|
|
498
|
|
|
|
185
|
|
|
|
120
|
|
Small Business
|
|
|
2,047
|
|
|
|
1,350
|
|
|
|
789
|
|
|
|
401
|
|
|
|
505
|
|
Commercial Real Estate
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Real Estate
|
|
|
829
|
|
|
|
362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
2,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
1,799
|
|
|
|
1,200
|
|
|
|
122
|
|
|
|
|
|
|
|
|
|
Consumer Auto
|
|
|
1,935
|
|
|
|
2,078
|
|
|
|
1,456
|
|
|
|
1,713
|
|
|
|
1,772
|
|
Consumer Other
|
|
|
1,469
|
|
|
|
1,553
|
|
|
|
1,003
|
|
|
|
881
|
|
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charged-off loans
|
|
|
13,255
|
|
|
|
7,138
|
|
|
|
3,868
|
|
|
|
3,180
|
|
|
|
3,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries on loans previously charged-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
|
27
|
|
|
|
168
|
|
|
|
63
|
|
|
|
219
|
|
|
|
85
|
|
Small Business
|
|
|
204
|
|
|
|
159
|
|
|
|
26
|
|
|
|
92
|
|
|
|
14
|
|
Commercial Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
128
|
|
Residential Real Estate
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity
|
|
|
41
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Consumer Auto
|
|
|
662
|
|
|
|
434
|
|
|
|
425
|
|
|
|
516
|
|
|
|
350
|
|
Consumer Other
|
|
|
193
|
|
|
|
178
|
|
|
|
240
|
|
|
|
193
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1,232
|
|
|
|
944
|
|
|
|
754
|
|
|
|
1,021
|
|
|
|
741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off
|
|
|
12,023
|
|
|
|
6,194
|
|
|
|
3,114
|
|
|
|
2,159
|
|
|
|
2,733
|
|
Allowance related to business combinations
|
|
|
|
|
|
|
5,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
17,335
|
|
|
|
10,888
|
|
|
|
3,130
|
|
|
|
2,335
|
|
|
|
4,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowances for loan losses, end of year
|
|
$
|
42,361
|
|
|
$
|
37,049
|
|
|
$
|
26,831
|
|
|
$
|
26,815
|
|
|
$
|
26,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans charged-off as a percent of average total loans
|
|
|
0.38
|
%
|
|
|
0.25
|
%
|
|
|
0.16
|
%
|
|
|
0.11
|
%
|
|
|
0.14
|
%
|
Allowance for loan losses as a percent of total loans
|
|
|
1.25
|
%
|
|
|
1.40
|
%
|
|
|
1.32
|
%
|
|
|
1.33
|
%
|
|
|
1.31
|
%
|
Allowance for loan losses as a percent of nonperforming loans
|
|
|
117.07
|
%
|
|
|
137.56
|
%
|
|
|
351.01
|
%
|
|
|
384.22
|
%
|
|
|
797.81
|
%
|
Net loans charged-off as a percent of allowance for loan losses
|
|
|
28.38
|
%
|
|
|
16.72
|
%
|
|
|
11.61
|
%
|
|
|
8.05
|
%
|
|
|
10.26
|
%
|
Recoveries as a percent of charge-offs
|
|
|
9.29
|
%
|
|
|
13.22
|
%
|
|
|
19.49
|
%
|
|
|
32.11
|
%
|
|
|
21.33
|
%
|
46
The allowance for loan losses is allocated to various loan
categories as part of the Banks process of evaluating the
adequacy of the allowance for loan losses. During 2009,
allocated allowance amounts increased by approximately
$5.3 million to $42.4 million at December 31,
2009.
The allocation of the allowance for loan losses is made to each
loan category using the analytical techniques and estimation
methods described herein. While these amounts represent
managements best estimate of the distribution of expected
losses at the evaluation dates, they are not necessarily
indicative of either the categories in which actual losses may
occur or the extent of such actual losses that may be recognized
within each category. The total allowance is available to absorb
losses from any segment of the loan portfolio. The following
table sets forth the allocation of the allowance for loan losses
by loan category at the dates indicated:
Table
9 Summary of Allocation of Allowance for Loan
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
Loans
|
|
|
|
|
|
Loans
|
|
|
|
|
|
Loans
|
|
|
|
|
|
Loans
|
|
|
|
Allowance
|
|
|
In Category
|
|
|
Allowance
|
|
|
In Category
|
|
|
Allowance
|
|
|
In Category
|
|
|
Allowance
|
|
|
In Category
|
|
|
Allowance
|
|
|
In Category
|
|
|
|
Amount
|
|
|
To Total Loans
|
|
|
Amount
|
|
|
To Total Loans
|
|
|
Amount
|
|
|
To Total Loans
|
|
|
Amount
|
|
|
To Total Loans
|
|
|
Amount
|
|
|
To Total Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and Industrial
|
|
$
|
7,545
|
|
|
|
11.0
|
%
|
|
$
|
5,532
|
|
|
|
10.2
|
%
|
|
$
|
3,850
|
|
|
|
9.4
|
%
|
|
$
|
3,615
|
|
|
|
8.7
|
%
|
|
$
|
3,134
|
|
|
|
7.6
|
%
|
Small Business
|
|
|
3,372
|
|
|
|
2.4
|
%
|
|
|
2,170
|
|
|
|
3.3
|
%
|
|
|
1,265
|
|
|
|
3.4
|
%
|
|
|
1,340
|
|
|
|
3.0
|
%
|
|
|
1,193
|
|
|
|
2.5
|
%
|
Commercial Real Estate
|
|
|
19,451
|
|
|
|
47.5
|
%
|
|
|
15,942
|
|
|
|
42.4
|
%
|
|
|
13,939
|
|
|
|
39.2
|
%
|
|
|
13,136
|
|
|
|
36.7
|
%
|
|
|
11,554
|
|
|
|
33.7
|
%
|
Real Estate Construction
|
|
|
2,457
|
|
|
|
5.5
|
%
|
|
|
4,203
|
|
|
|
6.9
|
%
|
|
|
3,408
|
|
|
|
6.9
|
%
|
|
|
2,955
|
|
|
|
6.3
|
%
|
|
|
3,474
|
|
|
|
7.3
|
%
|
Residential Real Estate
|
|
|
2,840
|
|
|
|
16.4
|
%
|
|
|
2,447
|
|
|
|
15.6
|
%
|
|
|
741
|
|
|
|
15.9
|
%
|
|
|
566
|
|
|
|
18.8
|
%
|
|
|
650
|
|
|
|
21.0
|
%
|
Home Equity
|
|
|
3,945
|
|
|
|
13.9
|
%
|
|
|
3,091
|
|
|
|
15.3
|
%
|
|
|
1,326
|
|
|
|
15.2
|
%
|
|
|
1,024
|
|
|
|
13.8
|
%
|
|
|
755
|
|
|
|
12.4
|
%
|
Consumer Auto
|
|
|
1,422
|
|
|
|
2.3
|
%
|
|
|
2,122
|
|
|
|
4.8
|
%
|
|
|
1,609
|
|
|
|
7.7
|
%
|
|
|
2,066
|
|
|
|
10.3
|
%
|
|
|
2,629
|
|
|
|
12.9
|
%
|
Consumer Other
|
|
|
1,329
|
|
|
|
1.0
|
%
|
|
|
1,542
|
|
|
|
1.5
|
%
|
|
|
693
|
|
|
|
2.3
|
%
|
|
|
652
|
|
|
|
2.4
|
%
|
|
|
757
|
|
|
|
2.6
|
%
|
Imprecision Allowance
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
1,461
|
|
|
|
N/A
|
|
|
|
2,493
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance for Loan Losses
|
|
$
|
42,361
|
|
|
|
100.0
|
%
|
|
$
|
37,049
|
|
|
|
100.0
|
%
|
|
$
|
26,831
|
|
|
|
100.0
|
%
|
|
$
|
26,815
|
|
|
|
100.0
|
%
|
|
$
|
26,639
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The allowance for loan losses is allocated to loan types using
both a formula-based approach applied to groups of loans and an
analysis of certain individual loans for impairment. The
formula-based approach emphasizes loss factors derived from
actual historical portfolio loss rates, which are combined with
an assessment of certain qualitative factors to determine the
allowance amounts allocated to the various loan categories.
Management has identified certain qualitative risk factors which
impact the inherent risk of loss within the portfolio
represented by historic measures. These include: (a) market
risk factors, such as the effects of economic variability on the
entire portfolio, and (b) unique portfolio risk factors
that are inherent characteristics of the Banks loan
portfolio. Market risk factors consist of changes to general
economic and business conditions that impact the Banks
loan portfolio customer base in terms of ability to repay and
that may result in changes in value of underlying collateral.
Unique portfolio risk factors may include industry concentration
or covariant industry concentrations, geographic concentrations
or trends that impact the inherent risk of loss in the loan
portfolio resulting from economic events which the Bank may not
be able to fully diversify out of its portfolios. These
qualitative risk factors capture the element of loan loss
associated with current market and portfolio conditions that may
not be adequately reflected in the loss factors derived from
historic experience.
The formula-based approach evaluates groups of loans with common
characteristics, which consist of similar loan types with
similar terms and conditions, to determine the allocation
appropriate within each portfolio section. This approach
incorporates qualitative adjustments based upon
managements assessment of various market and portfolio
specific risk factors into its formula-based estimate.
The allowance for loan loss also includes a component as an
addition to the amount of allowance determined to be required
using the formula-based estimation techniques described herein.
This component is maintained as a margin for imprecision to
account for the inherent subjectivity and imprecise nature of
the analytical processes employed. Due to the imprecise nature
of the loan loss estimation process and ever changing
conditions, the qualitative risk attributes may not adequately
capture amounts of incurred loss in the formula-based loan loss
47
components used to determine allocations in the Banks
analysis of the adequacy of the allowance for loan losses. As
noted above, this component is allocated to the various loan
types.
It is managements objective to strive to minimize the
amount of allowance attributable to the margin for
imprecision, as the quantitative and qualitative factors,
together with the results of its analysis of individual impaired
loans, are the primary drivers in estimating the required
allowance and the testing of its adequacy.
Amounts of allowance may also be assigned to individual loans on
the basis of loan impairment. Certain loans are evaluated
individually and are judged to be impaired when management
believes it is probable that the Bank will not collect all of
the contractual interest and principal payments as scheduled in
the loan agreement. Under this method, loans are selected for
evaluation based upon a change in internal risk rating,
occurrence of delinquency, loan classification, loan
modifications meeting the definition of a troubled debt
restructure, or nonaccrual status. A specific allowance amount
is allocated to an individual loan when such loan has been
deemed impaired and when the amount of a probable loss is able
to be estimated on the basis of: (a) the present value of
anticipated future cash flows or on the loans observable
fair market value, or (b) the fair value of collateral, if
the loan is collateral dependent. Loans evaluated individually
for impairment and the amount of specific allowance assigned to
such loans totaled $39.2 million and $1.8 million,
respectively, at December 31, 2009 and $15.6 million
and $2.1 million respectively, at December 31, 2008.
Impaired loans at December 31, 2009 exclude those loans
acquired from Ben Franklin which were recorded at fair value at
the date of acquisition, and for which impairment amounts were
recorded based upon an estimate of cash flows to be collected
over the life of the loan at the time. However, loans acquired
from Ben Franklin that were not impaired at the acquisition
date, but were subsequently indentified as impaired loans have
been included in the impaired total with their respective
allowance amounts.
Goodwill and Identifiable Intangible
Assets Goodwill and Identifiable Intangible
Assets were $143.7 million and $125.7 million at
December 31, 2009 and December 31, 2008, respectively.
The increase was as a result of the Ben Franklin acquisition.
Trading Assets Trading Assets were
$6.2 million at December 31, 2009 as compared to
$2.7 million at December 31, 2008.
Equity securities which are held for the purpose of funding
Rabbi Trust obligations (see Note 14 Employee
Benefits Plan within Notes to Consolidated Financial
Statements in Item 8 hereof) are classified as trading
assets. Additionally, the Company has a $3.2 million
equities portfolio which was acquired as part of the Slades and
Ben Franklin acquisitions that is included in trading assets.
This portfolio is entirely comprised of a fund whose investment
objective is to invest in geographically specific private
placement debt securities designed to support underlining
economic activities such as community development and affordable
housing. Trading assets are recorded at fair value with changes
in fair value recorded in earnings.
Securities Portfolio The Companys
securities portfolio consists of securities available for sale,
and securities which management intends to hold until maturity.
Securities decreased by $27.6 million, or 4.3%, at
December 31, 2009 as compared to December 31, 2008.
The ratio of securities to total assets as of December 31,
2009 was 13.6%, compared to 17.5% at December 31, 2008. As
the absolute levels of interest rates on investment securities
has declined to historic lows, the Company has allowed the
securities portfolio to continue to decline on a relative basis
(as a percent of assets), opting instead, to deploy funds into
lending when possible. During 2009, the Company sold
$67.4 million of securities resulting in a gain on sale of
$1.4 million and sold the majority of the Ben Franklin
securities portfolio, resulting in a loss of $25,000.
The Company continually reviews investment securities for the
presence of OTTI. Further analysis of the Companys OTTI
can be found in Note 3 Securities within
Notes to Consolidated Financial Statements in Item 8
hereof.
.
48
The following table sets forth the amortized cost and percentage
distribution of securities held to maturity at the dates
indicated:
Table
10 Amortized Cost of Securities Held to
Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Agency Mortgage-Backed Securities
|
|
$
|
54,064
|
|
|
|
57.9
|
%
|
|
$
|
3,470
|
|
|
|
10.6
|
%
|
|
$
|
4,488
|
|
|
|
9.9
|
%
|
Agency Collateralized Mortgage Obligations
|
|
|
14,321
|
|
|
|
15.3
|
%
|
|
|
0
|
|
|
|
|
|
|
|
699
|
|
|
|
1.5
|
%
|
State, County and Municipal Securities
|
|
|
15,252
|
|
|
|
16.3
|
%
|
|
|
19,517
|
|
|
|
59.5
|
%
|
|
|
30,245
|
|
|
|
66.9
|
%
|
Single Issuer Trust Preferred Securities Issued by Banks
|
|
|
9,773
|
|
|
|
10.5
|
%
|
|
|
9,803
|
|
|
|
29.9
|
%
|
|
|
9,833
|
|
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,410
|
|
|
|
100.0
|
%
|
|
$
|
32,790
|
|
|
|
100.0
|
%
|
|
$
|
45,265
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the fair value and percentage
distribution of securities available for sale at the dates
indicated:
Table
11 Fair Value of Securities Available for
Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. Treasury Securities and Government Sponsored Enterprises
|
|
$
|
744
|
|
|
|
0.1
|
%
|
|
$
|
710
|
|
|
|
0.1
|
%
|
|
$
|
69,663
|
|
|
|
15.7
|
%
|
Agency Mortgage-Backed Securities
|
|
|
451,909
|
|
|
|
88.9
|
%
|
|
|
475,083
|
|
|
|
79.1
|
%
|
|
|
237,816
|
|
|
|
53.6
|
%
|
Agency Collateralized Mortgage Obligations
|
|
|
32,022
|
|
|
|
6.3
|
%
|
|
|
56,784
|
|
|
|
9.5
|
%
|
|
|
72,082
|
|
|
|
16.2
|
%
|
Corporate Debt Securities
|
|
|
|
|
|
|
|
|
|
|
25,852
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
Private Mortgage Backed Securities
|
|
|
14,289
|
|
|
|
2.8
|
%
|
|
|
15,513
|
|
|
|
2.6
|
%
|
|
|
24,803
|
|
|
|
5.6
|
%
|
State, County and Municipal Securities
|
|
|
4,081
|
|
|
|
0.8
|
%
|
|
|
18,954
|
|
|
|
3.2
|
%
|
|
|
18,814
|
|
|
|
4.2
|
%
|
Single Issuer Trust Preferred Securities Issued by Banks
|
|
|
3,010
|
|
|
|
0.6
|
%
|
|
|
2,202
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
Pooled Trust Preferred Securities Issued by Banks and
Insurers
|
|
|
2,595
|
|
|
|
0.5
|
%
|
|
|
5,193
|
|
|
|
0.8
|
%
|
|
|
21,080
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
508,650
|
|
|
|
100.0
|
%
|
|
$
|
600,291
|
|
|
|
100.0
|
%
|
|
$
|
444,258
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
The following two tables set forth contractual maturities of the
Banks securities portfolio at December 31, 2009.
Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Table
12 Amortized Cost of Securities Held to Maturity
Amounts Maturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
Weighted
|
|
|
One Year
|
|
|
|
|
|
Weighted
|
|
|
Five
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
One
|
|
|
% of
|
|
|
Average
|
|
|
to Five
|
|
|
% of
|
|
|
Average
|
|
|
Years to
|
|
|
% of
|
|
|
Average
|
|
|
Over Ten
|
|
|
% of
|
|
|
Average
|
|
|
|
|
|
% of
|
|
|
Average
|
|
|
|
Year
|
|
|
Total
|
|
|
Yield
|
|
|
Years
|
|
|
Total
|
|
|
Yield
|
|
|
Ten Years
|
|
|
Total
|
|
|
Yield
|
|
|
Years
|
|
|
Total
|
|
|
Yield
|
|
|
Total
|
|
|
Total
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Agency Mortgage Backed Securities
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
$
|
2,455
|
|
|
|
2.6
|
%
|
|
|
5.5
|
%
|
|
$
|
51,609
|
|
|
|
55.2
|
%
|
|
|
4.3
|
%
|
|
$
|
54,064
|
|
|
|
57.8
|
%
|
|
|
4.3
|
%
|
Agency Collateralized Mortgage Obligations
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
14,321
|
|
|
|
15.3
|
%
|
|
|
3.6
|
%
|
|
|
14,321
|
|
|
|
15.3
|
%
|
|
|
3.6
|
%
|
State, County and Municipal Securities
|
|
|
588
|
|
|
|
0.6
|
%
|
|
|
3.9
|
%
|
|
|
7,350
|
|
|
|
7.9
|
%
|
|
|
4.2
|
%
|
|
|
5,189
|
|
|
|
5.6
|
%
|
|
|
4.7
|
%
|
|
|
2,125
|
|
|
|
2.3
|
%
|
|
|
5.0
|
%
|
|
|
15,252
|
|
|
|
16.4
|
%
|
|
|
4.5
|
%
|
Single Issuer Trust Preferred Securities Issued by Banks
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
9,773
|
|
|
|
10.5
|
%
|
|
|
7.6
|
%
|
|
|
9,773
|
|
|
|
10.5
|
%
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
588
|
|
|
|
0.6
|
%
|
|
|
3.9
|
%
|
|
$
|
7,350
|
|
|
|
7.9
|
%
|
|
|
4.2
|
%
|
|
$
|
7,644
|
|
|
|
8.2
|
%
|
|
|
4.9
|
%
|
|
$
|
77,828
|
|
|
|
83.3
|
%
|
|
|
4.6
|
%
|
|
$
|
93,410
|
|
|
|
100.0
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table
13 Fair Value of Securities Available for Sale
Amounts Maturing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
|
|
|
|
|
|
|
|
|
Five
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
|
|
|
|
|
|
Weighted
|
|
|
Year to
|
|
|
|
|
|
Weighted
|
|
|
Years to
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
One
|
|
|
% of
|
|
|
Average
|
|
|
Five
|
|
|
% of
|
|
|
Average
|
|
|
Ten
|
|
|
% of
|
|
|
Average
|
|
|
Over Ten
|
|
|
% of
|
|
|
Average
|
|
|
|
|
|
% of
|
|
|
Average
|
|
|
|
Year
|
|
|
Total
|
|
|
Yield
|
|
|
Years
|
|
|
Total
|
|
|
Yield
|
|
|
Years
|
|
|
Total
|
|
|
Yield
|
|
|
Years
|
|
|
Total
|
|
|
Yield
|
|
|
Total
|
|
|
Total
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
U.S. Treasury Securities
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
$
|
744
|
|
|
|
0.1
|
%
|
|
|
0.9
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
$
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
$
|
744
|
|
|
|
0.1
|
%
|
|
|
0.9
|
%
|
Agency Mortgage-Backed Securities
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
35,649
|
|
|
|
7.0
|
%
|
|
|
4.1
|
%
|
|
|
97,499
|
|
|
|
19.2
|
%
|
|
|
4.5
|
%
|
|
|
318,761
|
|
|
|
62.7
|
%
|
|
|
5.0
|
%
|
|
|
451,909
|
|
|
|
88.9
|
%
|
|
|
4.9
|
%
|
Agency Collateralized Mortgage Obligations
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
254
|
|
|
|
0.0
|
%
|
|
|
3.7
|
%
|
|
|
29,520
|
|
|
|
5.9
|
%
|
|
|
3.6
|
%
|
|
|
2,248
|
|
|
|
0.4
|
%
|
|
|
3.8
|
%
|
|
|
32,022
|
|
|
|
6.3
|
%
|
|
|
3.6
|
%
|
Private Mortgage-Backed Securities(1)
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
14,289
|
|
|
|
2.8
|
%
|
|
|
6.1
|
%
|
|
|
14,289
|
|
|
|
2.8
|
%
|
|
|
6.1
|
%
|
State, County and Municipal Securities
|
|
|
4,081
|
|
|
|
0.8
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
4,081
|
|
|
|
0.8
|
%
|
|
|
3.3
|
%
|
Corporate Debt Securities
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Single Issuer Trust Preferred Securities Issued by Banks
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
3,010
|
|
|
|
0.6
|
%
|
|
|
7.7
|
%
|
|
|
3,010
|
|
|
|
0.6
|
%
|
|
|
7.7
|
%
|
Pooled Trust Preferred Securities Issued by Banks and
Insurers(1)
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
2,595
|
|
|
|
0.5
|
%
|
|
|
0.8
|
%
|
|
|
2,595
|
|
|
|
0.5
|
%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,081
|
|
|
|
0.8
|
%
|
|
|
3.3
|
%
|
|
$
|
36,647
|
|
|
|
7.1
|
%
|
|
|
4.0
|
%
|
|
$
|
127,019
|
|
|
|
25.1
|
%
|
|
|
4.3
|
%
|
|
$
|
340,903
|
|
|
|
67.0
|
%
|
|
|
5.0
|
%
|
|
$
|
508,650
|
|
|
|
100.0
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the year ended December 31, 2009, the Company
recorded OTTI of $9.0 million, included in the
$9.0 million of OTTI was $1.6 million which the
Company had previously reclassed from OCI to earnings as it was
considered to be non-credit related within these categories. |
At December 31, 2009 and 2008, the Bank had no investments
in obligations of individual states, counties or municipalities
which exceeded 10% of stockholders equity. The Company
sold municipal securities in 2009 of $14.9 million and
$3.0 million in 2008.
Federal Home Loan Bank Stock The Company held
an investment in Federal Home Loan Bank Boston
(FHLBB) of $35.9 million and $24.6 million
at December 31, 2009 and December 31, 2008,
respectively. The increase in 2009 is due to the Ben Franklin
acquisition. The FHLBB is a cooperative that provides services
to its member banking institutions. The primary reason for
joining the FHLBB was to obtain funding from the FHLBB. The
purchase of stock in the FHLBB is a requirement for a member to
gain access to funding. The Company
50
purchases FHLBB stock proportional to the volume of funding
received and views the purchases as a necessary long-term
investment for the purposes of balance sheet liquidity and not
for investment return.
In February 2009 the FHLBB announced that it had indefinitely
suspended its dividend payment which began in the first quarter
of 2009, and continued the moratorium, put into effect during
the fourth quarter of 2008, on all excess stock repurchases in
an effort to help preserve capital. Although the FHLBB reported
a net loss for the years ended December 31, 2009 and
December 31, 2008, the Company reviewed recent public
filings and rating agencies analysis which showed high
ratings, capital position which exceeds all required capital
levels, and other factors, which were considered by the
Companys management when determining if an OTTI exists
with respect to the Companys investment in FHLBB. As a
result of the Companys review for OTTI, management deemed
the investment in the FHLBB stock not to be OTTI as of
December 31, 2009 and it will continue to be monitored
closely. There can be no assurance as to the outcome of
managements future evaluation of the Companys
investment in the FHLBB.
Bank Owned Life Insurance The bank holds Bank
Owned Life Insurance (BOLI) for the purpose of
offsetting the Banks future obligations to its employees
under its retirement and benefits plans. The value of BOLI was
$79.3 and $65.0 million at December 31, 2009 and
December 31, 2008, respectively. The increase is largely
due to the Ben Franklin acquisition. The bank recorded income
from BOLI of $2.9 million in 2009, $2.6 million in
2008, and $2.0 million in 2007. The increase at
December 31, 2009 in both balance and revenue is primarily
due to insurance policies assumed as part of the Companys
recent acquisitions. As part of these acquisitions, the Company
assumed split-dollar bank owned insurance arrangements, whereby
the policy benefits will be split between the employer and the
employee, the portion of anticipated policy benefits that will
be paid to the employee is accordingly recorded as a liability.
The Companys balance sheet includes a $1.6 million
related liability.
Deposits As of December 31, 2009,
deposits of $3.4 billion were $796.2 million, or
30.9%, higher than the prior year-end. Core deposits increased
by $724.5 million, or 41.8% during 2009.
The following table summarizes deposit growth during the year
ending December 31, 2009:
Table
14 Components of Deposit Growth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benjamin
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
Franklin
|
|
|
Organic
|
|
|
|
2009
|
|
|
2008
|
|
|
Acquisition
|
|
|
Growth/(Decline)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
$
|
721,792
|
|
|
$
|
519,326
|
|
|
$
|
122,391
|
|
|
$
|
80,075
|
|
Savings and Interest Checking Accounts
|
|
|
1,073,990
|
|
|
|
725,313
|
|
|
|
172,263
|
|
|
|
176,414
|
|
Money Market
|
|
|
661,731
|
|
|
|
488,345
|
|
|
|
164,369
|
|
|
|
9,017
|
|
Time Certificates of Deposit
|
|
|
917,781
|
|
|
|
846,096
|
|
|
|
242,384
|
|
|
|
(170,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
3,375,294
|
|
|
$
|
2,579,080
|
|
|
$
|
701,407
|
|
|
$
|
94,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
The following table sets forth the average balances of the
Banks deposits for the periods indicated:
Table
15 Average Balances of Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(Dollars in thousands)
|
|
|
Demand Deposits
|
|
$
|
659,916
|
|
|
|
21.0
|
%
|
|
$
|
533,543
|
|
|
|
21.9
|
%
|
|
$
|
485,922
|
|
|
|
23.7
|
%
|
Savings and Interest Checking
|
|
|
913,881
|
|
|
|
29.2
|
%
|
|
|
688,336
|
|
|
|
28.3
|
%
|
|
|
575,269
|
|
|
|
28.0
|
%
|
Money Market
|
|
|
639,231
|
|
|
|
20.4
|
%
|
|
|
472,065
|
|
|
|
19.4
|
%
|
|
|
462,434
|
|
|
|
22.5
|
%
|
Time Certificates of Deposits
|
|
|
921,787
|
|
|
|
29.4
|
%
|
|
|
740,779
|
|
|
|
30.4
|
%
|
|
|
531,016
|
|
|
|
25.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,134,815
|
|
|
|
100.0
|
%
|
|
$
|
2,434,723
|
|
|
|
100.0
|
%
|
|
$
|
2,054,641
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Banks time certificates of deposit in an amount of
$100,000 or more totaled $304.6 million at
December 31, 2009. The maturity of these certificates is as
follows:
Table
16 Maturities of Time Certificate of Deposits Over
$100,000
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Percentage
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
1 to 3 months
|
|
$
|
119,171
|
|
|
|
39.1
|
%
|
4 to 6 months
|
|
|
88,755
|
|
|
|
29.1
|
%
|
7 to 12 months
|
|
|
44,043
|
|
|
|
14.5
|
%
|
Over 12 months
|
|
|
52,652
|
|
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
304,621
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The Bank also participates in the Certificate of Deposit
Registry Service (CDARS) program, allowing the Bank
to provide easy access to multi-million dollar FDIC deposit
insurance protection on certificate of deposits investments for
consumers, businesses and public entities. The economic downturn
and subsequent flight to safety makes CDARS an attractive
alternative and as of December 31, 2009 and 2008, CDARS
deposits totaled $52.9 million and $81.8 million,
respectively.
Borrowings The Companys borrowings
amounted to $647.4 million at December 31, 2009, a
decrease of $47.9 million from year-end 2008, this decrease
can be attributed to an increase in the Companys deposits
balances. At December 31, 2009, the Banks borrowings
consisted primarily of FHLB borrowings totaling
$362.9 million, a decrease of $66.7 million from the
prior year-end.
The remaining borrowings consisted of federal funds purchased,
assets sold under repurchase agreements, junior subordinated
debentures and other borrowings. These borrowings totaled
$284.5 million at December 31, 2009, an increase of
$18.8 million from the prior year-end. See Note 8,
Borrowings within Notes to Consolidated Financial
Statements included in Item 8 hereof for a schedule of
borrowings outstanding, their interest rates, other information
related to the Companys borrowings and for further
information regarding the trust preferred securities,
subordinated debentures, and junior subordinated debentures of
Trust V and Slades Ferry Trust I.
Capital Purchase Program On January 9,
2009, as part of the Capital Purchase Program established by the
U.S. Department of Treasury (Treasury) under
the Emergency Economic Stabilization Act of 2008, the Company
entered into a Letter Agreement with the Treasury pursuant to
which the Company issued and sold to the Treasury
78,158 shares of the Companys Fixed Rate Cumulative
Perpetual Preferred Stock, Series C, par value $0.01 per
share, having a liquidation preference of $1,000 per share and a
ten-year warrant to purchase up to 481,664 shares of the
Companys common stock, par value $0.01 per share, at an
initial exercise price of $24.34 per share, for an aggregate
purchase price of $78,158,000 in cash. All of the proceeds for
the sale of the Series C Preferred Stock were treated as
Tier 1 capital for regulatory purposes.
52
On April 22, 2009 the Company, repaid, with regulatory
approval, the preferred stock issued to the Treasury pursuant to
the Capital Purchase Program. As a result, during the second
quarter of 2009 the Company recorded a $4.4 million
non-cash deemed dividend charge to earnings, amounting to $0.22
per diluted share, associated with the repayment of the
preferred stock and an additional preferred stock dividend. The
Company also recorded preferred stock dividends amounting to
$1.3 million in 2009. The Company and the Bank remain well
capitalized following this event. The Company also repurchased
the common stock warrants issued to the Treasury for
$2.2 million, the cost of which was recorded as a reduction
in capital, in accordance with U.S. GAAP.
Wealth
Management
Investment Management As of December 31,
2009, the Rockland Trust Investment Management Group had
assets under administration of $1.3 billion which
represents approximately 2,922 trust, fiduciary, and agency
accounts. At December 31, 2008, assets under administration
were $1.1 billion, representing approximately 2,756 trust,
fiduciary, and agency accounts. Revenue from the Investment
Management Group amounted to $8.6 million,
$9.9 million, and $7.0 million for 2009, 2008, and
2007, respectively.
Retail Investments and Insurance For the years
ending December 31, 2009, 2008 and 2007, retail investments
and insurance revenue was $1.4 million, $1.2 million,
and $1.1 million, respectively. Retail investments and
insurance includes revenue from LPL Financial (LPL)
and its affiliates, LPL Insurance Associates, Inc., Savings Bank
Life Insurance of Massachusetts (SBLI), Independent
Financial Market Group, Inc. (IFMG) and their
insurance subsidiary IFS Agencies, Inc. (IFS).
RESULTS
OF OPERATIONS
Summary of Results of Operations Net income
was $23.0 million for the year ended December 31,
2009, compared to $24.0 million for the year ended
December 31, 2008. Net income available to common
shareholders in 2009 was $17.3 million and included the
preferred dividends related to the Treasurys Capital
Purchase Program. Diluted earnings per share were $0.88 and
$1.52 for the years ended 2009 and 2008, respectively.
The primary reasons for the decrease in net income and earnings
per share were merger and acquisition expenses of
$12.4 million, securities impairment charges amounting to
$9.0 million, FDIC assessment fees of $7.0 million, a
year-over-year
increase in the provision for loan losses of $6.4 million,
as well as preferred stock dividends of $5.7 million,
relating to the Companys participation in CPP.
Return on average assets and return on average equity were 0.40%
and 4.29%, respectively, for the year ending December 31,
2009 as compared to 0.73% and 8.20%, respectively, for the year
ending December 31, 2008. Stockholders equity as a
percentage of assets was 9.2% as of December 31, 2009,
compared to 8.4% for the same period last year.
Net Interest Income The amount of net interest
income is affected by changes in interest rates and by the
volume, mix, and interest rate sensitivity of interest-earning
assets and interest-bearing liabilities.
On a fully tax-equivalent basis, net interest income was
$151.7 million in 2009, a 28.7% increase from 2008 net
interest income of $117.9 million.
53
The following table presents the Companys average
balances, net interest income, interest rate spread, and net
interest margin for 2009, 2008, and 2007. Non-taxable income
from loans and securities is presented on a fully tax-equivalent
basis whereby tax-exempt income is adjusted upward by an amount
equivalent to the prevailing federal income taxes that would
have been paid if the income had been fully taxable.
Table
17 Average Balance, Interest Earned/Paid &
Average Yields
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
|
Balance
|
|
|
Paid
|
|
|
Yield
|
|
|
Balance
|
|
|
Paid
|
|
|
Yield
|
|
|
Balance
|
|
|
Paid
|
|
|
Yield
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Cash, Federal Funds Sold, and Short Term
Investments
|
|
$
|
67,296
|
|
|
$
|
290
|
|
|
|
0.43
|
%
|
|
$
|
5,908
|
|
|
$
|
148
|
|
|
|
2.51
|
%
|
|
$
|
26,630
|
|
|
$
|
1,468
|
|
|
|
5.51
|
%
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Assets
|
|
|
12,126
|
|
|
|
239
|
|
|
|
1.97
|
%
|
|
|
3,060
|
|
|
|
140
|
|
|
|
4.58
|
%
|
|
|
1,692
|
|
|
|
48
|
|
|
|
2.84
|
%
|
Taxable Investment Securities
|
|
|
605,453
|
|
|
|
28,456
|
|
|
|
4.70
|
%
|
|
|
447,343
|
|
|
|
22,359
|
|
|
|
5.00
|
%
|
|
|
416,300
|
|
|
|
19,480
|
|
|
|
4.68
|
%
|
Non-Taxable Investment Securities(1)
|
|
|
22,671
|
|
|
|
1,457
|
|
|
|
6.43
|
%
|
|
|
41,203
|
|
|
|
2,597
|
|
|
|
6.30
|
%
|
|
|
51,181
|
|
|
|
3,288
|
|
|
|
6.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities
|
|
|
640,250
|
|
|
|
30,152
|
|
|
|
4.71
|
%
|
|
|
491,606
|
|
|
|
25,096
|
|
|
|
5.10
|
%
|
|
|
469,173
|
|
|
|
22,816
|
|
|
|
4.86
|
%
|
Loans(2)
|
|
|
3,177,949
|
|
|
|
172,615
|
|
|
|
5.43
|
%
|
|
|
2,482,786
|
|
|
|
151,247
|
|
|
|
6.09
|
%
|
|
|
1,987,328
|
|
|
|
135,541
|
|
|
|
6.82
|
%
|
Loans Held for Sale
|
|
|
14,320
|
|
|
|
629
|
|
|
|
4.39
|
%
|
|
|
6,242
|
|
|
|
325
|
|
|
|
5.21
|
%
|
|
|
6,945
|
|
|
|
333
|
|
|
|
4.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Earning Assets
|
|
$
|
3,899,815
|
|
|
$
|
203,686
|
|
|
|
5.22
|
%
|
|
$
|
2,986,542
|
|
|
$
|
176,816
|
|
|
|
5.92
|
%
|
|
$
|
2,490,076
|
|
|
$
|
160,158
|
|
|
|
6.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Due from Banks
|
|
|
65,509
|
|
|
|
|
|
|
|
|
|
|
|
65,992
|
|
|
|
|
|
|
|
|
|
|
|
59,009
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank Stock
|
|
|
33,135
|
|
|
|
|
|
|
|
|
|
|
|
23,325
|
|
|
|
|
|
|
|
|
|
|
|
16,886
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
278,057
|
|
|
|
|
|
|
|
|
|
|
|
219,517
|
|
|
|
|
|
|
|
|
|
|
|
148,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
4,276,516
|
|
|
|
|
|
|
|
|
|
|
$
|
3,295,376
|
|
|
|
|
|
|
|
|
|
|
$
|
2,714,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and Interest Checking Accounts
|
|
$
|
913,881
|
|
|
$
|
4,753
|
|
|
|
0.52
|
%
|
|
$
|
688,336
|
|
|
$
|
6,229
|
|
|
|
0.90
|
%
|
|
$
|
575,269
|
|
|
$
|
7,731
|
|
|
|
1.34
|
%
|
Money Market
|
|
|
639,231
|
|
|
|
6,545
|
|
|
|
1.02
|
%
|
|
|
472,065
|
|
|
|
9,182
|
|
|
|
1.95
|
%
|
|
|
462,434
|
|
|
|
13,789
|
|
|
|
2.98
|
%
|
Time Certificates of Deposits
|
|
|
921,787
|
|
|
|
19,865
|
|
|
|
2.16
|
%
|
|
|
740,779
|
|
|
|
23,485
|
|
|
|
3.17
|
%
|
|
|
531,016
|
|
|
|
22,119
|
|
|
|
4.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Bearing Deposits
|
|
|
2,474,899
|
|
|
|
31,163
|
|
|
|
1.26
|
%
|
|
|
1,901,180
|
|
|
|
38,896
|
|
|
|
2.05
|
%
|
|
|
1,568,719
|
|
|
|
43,639
|
|
|
|
2.78
|
%
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank Borrowings
|
|
|
409,551
|
|
|
|
11,519
|
|
|
|
2.81
|
%
|
|
|
312,451
|
|
|
|
10,714
|
|
|
|
3.43
|
%
|
|
|
254,516
|
|
|
|
11,316
|
|
|
|
4.45
|
%
|
Federal Funds Purchased and Assets Sold Under Repurchase
Agreements
|
|
|
180,632
|
|
|
|
3,396
|
|
|
|
1.88
|
%
|
|
|
154,440
|
|
|
|
4,663
|
|
|
|
3.02
|
%
|
|
|
109,344
|
|
|
|
3,395
|
|
|
|
3.10
|
%
|
Junior Subordinated Debentures
|
|
|
61,857
|
|
|
|
3,739
|
|
|
|
6.04
|
%
|
|
|
60,166
|
|
|
|
3,842
|
|
|
|
6.39
|
%
|
|
|
59,950
|
|
|
|
5,048
|
|
|
|
8.42
|
%(5)
|
Subordinated Debt
|
|
|
30,000
|
|
|
|
2,178
|
|
|
|
7.26
|
%
|
|
|
10,410
|
|
|
|
750
|
|
|
|
7.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Borrowings
|
|
|
2,054
|
|
|
|
|
|
|
|
0.00
|
%
|
|
|
2,381
|
|
|
|
61
|
|
|
|
2.56
|
%
|
|
|
2,627
|
|
|
|
157
|
|
|
|
5.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings
|
|
|
684,094
|
|
|
|
20,832
|
|
|
|
3.05
|
%
|
|
|
539,848
|
|
|
|
20,030
|
|
|
|
3.71
|
%
|
|
|
426,437
|
|
|
|
19,916
|
|
|
|
4.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Liabilities
|
|
$
|
3,158,993
|
|
|
$
|
51,995
|
|
|
|
1.65
|
%
|
|
$
|
2,441,028
|
|
|
$
|
58,926
|
|
|
|
2.41
|
%
|
|
$
|
1,995,156
|
|
|
$
|
63,555
|
|
|
|
3.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits
|
|
|
659,916
|
|
|
|
|
|
|
|
|
|
|
|
533,543
|
|
|
|
|
|
|
|
|
|
|
|
485,922
|
|
|
|
|
|
|
|
|
|
Other Liabilities
|
|
|
54,697
|
|
|
|
|
|
|
|
|
|
|
|
28,692
|
|
|
|
|
|
|
|
|
|
|
|
13,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
3,873,606
|
|
|
|
|
|
|
|
|
|
|
$
|
3,003,263
|
|
|
|
|
|
|
|
|
|
|
$
|
2,494,992
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
402,910
|
|
|
|
|
|
|
|
|
|
|
|
292,113
|
|
|
|
|
|
|
|
|
|
|
|
219,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
4,276,516
|
|
|
|
|
|
|
|
|
|
|
$
|
3,295,376
|
|
|
|
|
|
|
|
|
|
|
$
|
2,714,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income(1)
|
|
|
|
|
|
$
|
151,691
|
|
|
|
|
|
|
|
|
|
|
$
|
117,890
|
|
|
|
|
|
|
|
|
|
|
$
|
96,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Spread(3)
|
|
|
|
|
|
|
|
|
|
|
3.58
|
%
|
|
|
|
|
|
|
|
|
|
|
3.51
|
%
|
|
|
|
|
|
|
|
|
|
|
3.24
|
%(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin(4)
|
|
|
|
|
|
|
|
|
|
|
3.89
|
%
|
|
|
|
|
|
|
|
|
|
|
3.95
|
%
|
|
|
|
|
|
|
|
|
|
|
3.88
|
%(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits, Including Demand Deposits
|
|
$
|
3,134,815
|
|
|
$
|
31,163
|
|
|
|
|
|
|
$
|
2,434,723
|
|
|
$
|
38,896
|
|
|
|
|
|
|
$
|
2,054,641
|
|
|
$
|
43,639
|
|
|
|
|
|
Cost of Total Deposits
|
|
|
|
|
|
|
|
|
|
|
0.99
|
%
|
|
|
|
|
|
|
|
|
|
|
1.60
|
%
|
|
|
|
|
|
|
|
|
|
|
2.12
|
%
|
Total Funding Liabilities, Including Demand Deposits
|
|
$
|
3,818,909
|
|
|
$
|
51,995
|
|
|
|
|
|
|
$
|
2,974,571
|
|
|
$
|
58,926
|
|
|
|
|
|
|
$
|
2,481,078
|
|
|
$
|
63,555
|
|
|
|
|
|
Cost of Total Funding Liabilities
|
|
|
|
|
|
|
|
|
|
|
1.36
|
%
|
|
|
|
|
|
|
|
|
|
|
1.98
|
%
|
|
|
|
|
|
|
|
|
|
|
2.56
|
%
|
|
|
|
(1) |
|
The total amount of adjustment to present interest income and
yield on a fully tax-equivalent basis is $997, $1,376 and $1,634
in 2009, 2008 and 2007, respectively. |
54
|
|
|
(2) |
|
Average nonaccruing loans are included in loans. |
|
(3) |
|
Interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the
weighted average costs of interest-bearing liabilities. |
|
(4) |
|
Net interest margin represents net interest income as a
percentage of average interest-earning assets. |
|
(5) |
|
In 2007, the yield on junior subordinated debentures, the
interest rate spread and the net interest margin include the
write-off of $907,000 of unamortized issuance costs related to
refinancing of $25.7 million of junior subordinated
debentures. The yield on junior subordinated debentures, the
interest rate spread, and the net interest margin excluding the
write-off, would have been 6.91%, 3.30%, and 3.94%. |
The following table presents certain information on a fully-tax
equivalent basis regarding changes in the Companys
interest income and interest expense for the periods indicated.
For each category of interest-earning assets and
interest-bearing liabilities, information is provided with
respect to changes attributable to (1) changes in rate
(change in rate multiplied by prior year volume),
(2) changes in volume (change in volume multiplied by prior
year rate) and (3) changes in volume/rate (change in rate
multiplied by change in volume) which is allocated to the change
due to rate column.
Table
18 Volume Rate Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009 Compared To 2008
|
|
|
2008 Compared To 2007
|
|
|
2007 Compared To 2006
|
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
Due to
|
|
|
Due to
|
|
|
Total
|
|
|
Due to
|
|
|
Due to
|
|
|
Total
|
|
|
Due to
|
|
|
Due to
|
|
|
Total
|
|
|
|
Rate(1)
|
|
|
Volume
|
|
|
Change
|
|
|
Rate(1)
|
|
|
Volume
|
|
|
Change
|
|
|
Rate(1)
|
|
|
Volume
|
|
|
Change
|
|
|
|
(Dollars in thousands)
|
|
|
Income on Interest-Earning Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Bearing Cash, Federal Funds Sold and Short Term
Investments
|
|
$
|
(1,396
|
)
|
|
$
|
1,538
|
|
|
$
|
142
|
|
|
$
|
(178
|
)
|
|
$
|
(1,142
|
)
|
|
$
|
(1,320
|
)
|
|
$
|
99
|
|
|
$
|
(145
|
)
|
|
$
|
(46
|
)
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Assets
|
|
|
(316
|
)
|
|
|
415
|
|
|
|
99
|
|
|
|
53
|
|
|
|
39
|
|
|
|
92
|
|
|
|
3
|
|
|
|
3
|
|
|
|
6
|
|
Taxable Securities
|
|
|
(1,806
|
)
|
|
|
7,903
|
|
|
|
6,097
|
|
|
|
822
|
|
|
|
1,791
|
|
|
|
2,613
|
|
|
|
405
|
|
|
|
(6,940
|
)
|
|
|
(6,535
|
)
|
Non-Taxable Securities(2)
|
|
|
28
|
|
|
|
(1,168
|
)
|
|
|
(1,140
|
)
|
|
|
(50
|
)
|
|
|
(641
|
)
|
|
|
(691
|
)
|
|
|
(152
|
)
|
|
|
(439
|
)
|
|
|
(591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities:
|
|
|
(2,094
|
)
|
|
|
7,150
|
|
|
|
5,056
|
|
|
|
825
|
|
|
|
1,189
|
|
|
|
2,014
|
|
|
|
256
|
|
|
|
(7,376
|
)
|
|
|
(7,120
|
)
|
Loans Held for Sale
|
|
|
(117
|
)
|
|
|
421
|
|
|
|
304
|
|
|
|
26
|
|
|
|
(34
|
)
|
|
|
(8
|
)
|
|
|
(28
|
)
|
|
|
49
|
|
|
|
21
|
|
Loans(2)(3)
|
|
|
(20,980
|
)
|
|
|
42,348
|
|
|
|
21,368
|
|
|
|
(18,037
|
)
|
|
|
33,743
|
|
|
|
15,706
|
|
|
|
2,238
|
|
|
|
(3,187
|
)
|
|
|
(949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(24,587
|
)
|
|
$
|
51,457
|
|
|
$
|
26,870
|
|
|
$
|
(17,364
|
)
|
|
$
|
33,756
|
|
|
$
|
16,392
|
|
|
$
|
2,565
|
|
|
$
|
(10,659
|
)
|
|
$
|
(8,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense of Interest-Bearing Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings and Interest Checking Accounts
|
|
$
|
(3,517
|
)
|
|
$
|
2,041
|
|
|
$
|
(1,476
|
)
|
|
$
|
(3,021
|
)
|
|
$
|
1,519
|
|
|
$
|
(1,502
|
)
|
|
$
|
2,822
|
|
|
$
|
99
|
|
|
$
|
2,921
|
|
Money Market
|
|
|
(5,888
|
)
|
|
|
3,251
|
|
|
|
(2,637
|
)
|
|
|
(4,894
|
)
|
|
|
287
|
|
|
|
(4,607
|
)
|
|
|
671
|
|
|
|
(1,754
|
)
|
|
|
(1,083
|
)
|
Time Certificates of Deposits
|
|
|
(9,359
|
)
|
|
|
5,739
|
|
|
|
(3,620
|
)
|
|
|
(7,371
|
)
|
|
|
8,737
|
|
|
|
1,366
|
|
|
|
2,215
|
|
|
|
(1,207
|
)
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Deposits:
|
|
|
(18,764
|
)
|
|
|
11,031
|
|
|
|
(7,733
|
)
|
|
|
(15,286
|
)
|
|
|
10,543
|
|
|
|
(4,743
|
)
|
|
|
5,708
|
|
|
|
(2,862
|
)
|
|
|
2,846
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank Borrowings
|
|
|
(2,525
|
)
|
|
|
3,330
|
|
|
|
805
|
|
|
|
(3,178
|
)
|
|
|
2,576
|
|
|
|
(602
|
)
|
|
|
509
|
|
|
|
(4,717
|
)
|
|
|
(4,208
|
)
|
Federal Funds Purchased and Assets Sold Under Repurchase
Agreements
|
|
|
(2,058
|
)
|
|
|
791
|
|
|
|
(1,267
|
)
|
|
|
(132
|
)
|
|
|
1,400
|
|
|
|
1,268
|
|
|
|
339
|
|
|
|
(115
|
)
|
|
|
224
|
|
Junior Subordinated Debentures
|
|
|
(211
|
)
|
|
|
108
|
|
|
|
(103
|
)
|
|
|
(1,224
|
)
|
|
|
18
|
|
|
|
(1,206
|
)
|
|
|
(1,310
|
)
|
|
|
854
|
|
|
|
(456
|
)(4)
|
Subordinated Debt
|
|
|
17
|
|
|
|
1,411
|
|
|
|
1,428
|
|
|
|
750
|
|
|
|
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Borrowings
|
|
|
(53
|
)
|
|
|
(8
|
)
|
|
|
(61
|
)
|
|
|
(81
|
)
|
|
|
(15
|
)
|
|
|
(96
|
)
|
|
|
45
|
|
|
|
66
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Borrowings
|
|
|
(4,830
|
)
|
|
|
5,632
|
|
|
|
802
|
|
|
|
(3,865
|
)
|
|
|
3,979
|
|
|
|
114
|
|
|
|
(417
|
)
|
|
|
(3,912
|
)
|
|
|
(4,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(23,594
|
)
|
|
$
|
16,663
|
|
|
$
|
(6,931
|
)
|
|
$
|
(19,151
|
)
|
|
$
|
14,522
|
|
|
$
|
(4,629
|
)
|
|
$
|
5,291
|
|
|
$
|
(6,774
|
)
|
|
$
|
(1,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Net Interest Income
|
|
$
|
(993
|
)
|
|
$
|
34,794
|
|
|
$
|
33,801
|
|
|
$
|
1,787
|
|
|
$
|
19,234
|
|
|
$
|
21,021
|
|
|
$
|
(2,726
|
)
|
|
$
|
(3,885
|
)
|
|
$
|
(6,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The changes for each category of interest income and expense are
divided between the portion of change attributable to the
variance in volume and the portion of the change attributable to
the variances in rate for that category. The unallocated change
in rate or volume variance has been allocated to the rate
variances. |
55
|
|
|
(2) |
|
The total amount of adjustment to present interest income and
yield on a fully tax-equivalent basis is $997, $1,376 and $1,634
in 2009, 2008 and 2007, respectively. |
|
(3) |
|
Loans include portfolio loans and nonaccrual loans, however
unpaid interest on nonperforming loans has not been included for
purposes of determining interest income. |
|
(4) |
|
In 2007, the yield on junior subordinated debentures, the
interest rate spread and the net interest margin includes the
write-off of $907,000 of unamortized issuance costs related to
refinancing $25.7 million of junior subordinated
debentures. The yield on junior subordinated debentures, the
interest rate spread, and the net interest margin, excluding the
write-off, would have been 6.91%, 3.30%, and 3.94%. In 2006, the
yield on junior subordinated debentures, the interest rate
spread and the net interest margin includes the write-off of
$995,000 of unamortized issuance costs related to the
refinancing of $25.8 million of junior subordinated
debentures. The yield on junior subordinated debentures, the
interest rate spread, and the net interest margin, excluding the
write-off, would have been 8.69%, 3.32%, and 3.89%, respectively. |
Net interest income on a fully tax-equivalent basis increased by
$33.8 million in 2009 compared to 2008. Interest income on
a fully tax-equivalent basis increased by $26.9 million, or
15.2%, to $203.7 million in 2009 as compared to the prior
year primarily due to increases in the Companys loan
portfolio driven by the Ben Franklin acquisition and organic
growth. Interest income on the loan portfolio increased
$21.4 million in 2009. Interest income from taxable
securities increased by $6.1 million, or 27.3%, to
$28.5 million in 2009 as compared to the prior year. The
overall yield on interest earning assets decreased by
70 basis points to 5.22% in 2009 as compared to 5.92% in
2008.
Interest expense for the year ended December 31, 2009
decreased to $52.0 million from the $58.9 million
recorded in 2008, a decrease of $6.9 million, or 11.8%, of
which $18.8 million is due to the decrease in rates on
deposits partially offset by $11.0 million of additional
expense associated with the growth in deposit balances. The
total cost of funds decreased 62 basis points to 1.36% for
2009 as compared to 1.98% for 2008. Average interest-bearing
deposits increased $573.7 million, or 30.2%, over
the prior year while the cost of these deposits decreased from
2.05% to 1.26% primarily attributable to the active management
of deposit costs.
Average borrowings increased in 2009 by $144.2 million, or
26.7%, from the 2008 average balance. The majority of this
increase is attributable to the Ben Franklin acquisition and
organic loan growth. The average cost of borrowings decreased to
3.05% from 3.71%.
Provision For Loan Losses The provision for
loan losses represents the charge to expense that is required to
maintain an adequate level of allowance for loan losses. The
provision for loan losses totaled $17.3 million in 2009,
compared with $10.9 million in 2008, an increase of
$6.4 million. The Companys allowance for loan losses,
as a percentage of total loans, was 1.25%, as compared to 1.40%
at December 31, 2008. For the year ended December 31,
2009, net loan charge-offs totaled $12.0 million, an
increase of $5.8 million from the prior year.
The increase in the amount of the provision for loan losses is
the result of a combination of factors including: shifting
growth rates among various components of the Banks loan
portfolio with differing facets of risk; higher levels of net
loan charge-offs in 2009; and changing expectations with respect
to the economic environment, increases in specific allocations
for impaired loans, and the level of loan delinquencies and
nonperforming loans. While the total loan portfolio increased by
28.0% for the year ended December 31, 2009, as compared to
30.5% for 2008, growth among the commercial components of the
loan portfolio outpaced growth among those consumer components,
which exhibit different credit risk characteristics.
Regional and local general economic conditions deteriorated
during 2009, as measured in terms of employment levels,
statewide economic activity, and other regional economic
indicators. Additionally, despite showing recent signs of
stabilization, continued weak market fundamentals were observed
in residential real estate markets. Regional commercial real
estate markets also softened during 2009, characterized by
higher vacancy rates, declining rents, and negative absorption.
While certain leading indicators signal the potential for
economic improvement in 2010, a struggling labor market and weak
consumer spending suggest the economic environment will remain
challenging in 2010.
Managements periodic evaluation of the adequacy of the
allowance for loan losses considers past loan loss experience,
known and inherent risks in the loan portfolio, adverse
situations which may affect the borrowers
56
ability to repay, the estimated value of the underlying
collateral, if any, and current and prospective economic
conditions. Substantial portions of the Banks loans are
secured by real estate in Massachusetts. Accordingly, the
ultimate collectability of a substantial portion of the
Banks loan portfolio is susceptible to changes in property
values within the state.
Non-Interest Income The following table sets
forth information regarding non-interest income for the periods
shown:
Table
19 Non-Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Service charges on deposit accounts
|
|
$
|
17,060
|
|
|
$
|
15,595
|
|
|
$
|
14,414
|
|
Wealth management
|
|
|
10,047
|
|
|
|
11,133
|
|
|
|
8,110
|
|
Mortgage banking
|
|
|
4,857
|
|
|
|
3,072
|
|
|
|
3,166
|
|
Bank owned life insurance
|
|
|
2,939
|
|
|
|
2,555
|
|
|
|
2,004
|
|
Net gain/(loss) on sales of securities
|
|
|
1,354
|
|
|
|
(609
|
)
|
|
|
|
|
Gain resulting from early termination of hedging relationship
|
|
|
3,778
|
|
|
|
|
|
|
|
|
|
Gross loss on write-down of certain investments to fair value
|
|
|
(7,382
|
)
|
|
|
(7,211
|
)
|
|
|
|
|
Less: non-credit related
other-than-temporary
impairment
|
|
|
(1,576
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on write-down of certain investments to fair value
|
|
|
(8,958
|
)
|
|
|
(7,211
|
)
|
|
|
|
|
Other non-interest income
|
|
|
7,115
|
|
|
|
4,497
|
|
|
|
5,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,192
|
|
|
$
|
29,032
|
|
|
$
|
33,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents losses previously recognized in other comprehensive
income now determined to be credit related. |
Non-interest income, which is generated by deposit account
service charges, investment management services, mortgage
banking activities, and miscellaneous other sources, amounted to
$38.2 million in 2009, a $9.2 million, or 31.6%,
increase from the prior year.
Service charges on deposit accounts, which represented 44.7% of
total non-interest income in 2009, increased from
$15.6 million in 2008 to $17.1 million in 2009,
primarily due to the Ben Franklin acquisition.
Wealth management revenue decreased by $1.1 million, or
9.8%, for the year ended December 31, 2009, as compared to
the same period in 2008. Assets under administration at
December 31, 2009 were $1.3 billion, an increase of
$155.0 million, or 13.8%, as compared to December 31,
2008.
Mortgage banking revenue of $4.9 million in 2009, increased
by 58.1% from the $3.1 million recorded in 2008. The
Banks mortgage banking revenue consists primarily of
premiums received on loans sold with servicing released,
origination fees, and gains and losses on sold mortgages. Gains
and losses on sales of mortgage loans are recorded as mortgage
banking income. The gains and losses resulting from the sales of
loans with servicing retained are adjusted to recognize the
present value of future servicing fee income over the estimated
lives of the related loans. Residential real estate loans and
the related servicing rights are sold on a flow basis.
Capitalized servicing rights are reported as mortgage servicing
rights and are amortized into non-interest income in proportion
to, and over the period of, the estimated future servicing of
the underlying financial assets. The Banks assumptions
with respect to prepayments, which affect the estimated average
life of the loans, are adjusted periodically to consider market
consensus loan prepayment predictions at that date. At
December 31, 2009 the mortgage servicing rights asset
totaled $2.2 million, or 0.63% of the serviced loan
portfolio. At December 31, 2008 the mortgage servicing
rights asset totaled $1.5 million, or 0.60%, of the
serviced loan portfolio.
BOLI income increased compared to the prior year by $384,000, or
15.0%. The increase is primarily due to insurance policies
assumed as part of the Ben Franklin acquisition.
57
A $1.4 million net gain on the sale of securities was
recorded for the year ended December 31, 2009. A
$609,000 net loss on the sale of securities was recorded
for the year ended December 31, 2008.
The Company recorded total credit related impairment charges on
certain pooled trust preferred securities and one private
mortgage-backed security of $9.0 million and
$7.2 million, pre-tax, for the years ending
December 31, 2009 and December 31, 2008, respectively.
Included in the $9.0 million of OTTI was $1.6 million
which the Company reclassed from other comprehensive income to
earnings for OTTI previously considered to be non-credit
related. For the year ended December 31, 2008 the Company
recorded OTTI on certain investment grade pooled trust preferred
securities, which resulted in a charge to non-interest income of
$7.2 million. Pursuant to the Investments Debt
and Equity Securities topic of the FASB ASC which states that
previously recorded impairment charges which did not relate to
credit loss should be reclassified from retained earnings to OCI
as of January 1, 2009, the Company recorded a cumulative
effect adjustment that increased retained earnings and decreased
OCI by $6.0 million, or $3.8 million, net of tax. The
remaining $1.2 million of the original $7.2 million
OTTI charge was deemed to be credit related.
Other non-interest income increased by $2.6 million, or
58.2%, for the year ended December 31, 2009, as compared to
the same period in 2008, largely attributable to increases in
trading asset income of $991,000, gain on the disposition of
other real estate owned of $606,000, and a gain on tax credits
purchased of $413,000.
Non-Interest Expense The following table sets
forth information regarding non-interest expense for the periods
shown:
Table
20 Non-Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and employee benefits
|
|
$
|
68,257
|
|
|
$
|
58,275
|
|
|
$
|
52,520
|
|
Occupancy and equipment expenses
|
|
|
15,673
|
|
|
|
12,757
|
|
|
|
9,932
|
|
Data processing and facilities management
|
|
|
5,779
|
|
|
|
5,574
|
|
|
|
4,584
|
|
Merger and acquisition expense
|
|
|
12,423
|
|
|
|
1,120
|
|
|
|
|
|
Recovery on WorldCom bond claims
|
|
|
|
|
|
|
(418
|
)
|
|
|
|
|
FDIC Assessment
|
|
|
6,975
|
|
|
|
1,388
|
|
|
|
260
|
|
Legal fees
|
|
|
2,961
|
|
|
|
1,154
|
|
|
|
665
|
|
Telephone
|
|
|
2,635
|
|
|
|
1,694
|
|
|
|
1,421
|
|
Other Intangibles Amortization
|
|
|
2,539
|
|
|
|
1,803
|
|
|
|
332
|
|
Advertising
|
|
|
2,199
|
|
|
|
2,016
|
|
|
|
1,717
|
|
Consulting
|
|
|
1,951
|
|
|
|
1,852
|
|
|
|
1,073
|
|
Software maintenance
|
|
|
1,862
|
|
|
|
1,486
|
|
|
|
1,314
|
|
Other losses and charge-offs
|
|
|
779
|
|
|
|
1,061
|
|
|
|
1,636
|
|
Other non-interest expense
|
|
|
17,782
|
|
|
|
14,381
|
|
|
|
12,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141,815
|
|
|
$
|
104,143
|
|
|
$
|
87,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense increased by $37.7 million, or 36.2%,
during the year ended December 31, 2009 as compared to the
same period in 2008.
Salaries and employee benefits increased by $10.0 million,
or 17.1%, for the year ended December 31, 2009, as compared
to the same period in 2008. The increase in salaries and
benefits is primarily attributable to the Ben Franklin
acquisition in the second quarter of 2009 as well as incentive
compensation, sales commissions, and medical insurance increases.
58
Occupancy and equipment expense increased by $2.9 million,
or 22.9%, for the year ended December 31, 2009, as compared
to the same period in 2008. The increase is mainly due to
increases in rent expense due to the effects of the Ben Franklin
acquisition.
Data processing and facilities management expense increased by
$205,000, or 3.7%, in 2009 compared to 2008.
Merger and acquisition related expenditures totaled
$12.4 million and $1.1 million, for the year ended
December 31, 2009 and 2008, respectively, associated with
the Ben Franklin acquisition in April 2009 and the Slades
acquisition in March 2008.
The FDIC deposit insurance assessment increased
$5.6 million for the years ended December 31, 2009, as
compared to the same period in 2008, partially due to a special
assessment imposed to replenish the Deposit Insurance Fund
during 2009.
Total other non-interest expense increased by $7.2 million,
or 28.5%, for the year ended December 31, 2009, as compared
to the same period in 2008. The increase is primarily
attributable to the increases in loan work out costs of
$2.6 million, telephone expenses of $941,000, amortization
of intangible assets of $736,000, OREO valuation adjustments of
$450,000, software maintenance of $376,000, and internet banking
of $226,000.
Income Taxes For the years ended
December 31, 2009, 2008 and 2007 the Company recorded
combined federal and state income tax provisions of
$6.7 million, $6.6 million and $8.8 million,
respectively. These provisions reflect effective income tax
rates of 22.7%, 21.5% and 23.7%, in 2009, 2008, and 2007,
respectively, which are less than the Banks blended 2009
federal and state statutory tax rate of 40.9%. The lower
effective income tax rates are attributable to certain tax
preference assets such as BOLI and tax exempt bonds as well as
federal tax credits recognized in connection with the New
Markets Tax Credit (NMTC) program. Effective
July 1, 2008 Massachusetts state legislation was passed
which enacted corporate tax reform. As a result of this new
legislation, the state tax will be reduced 1.5% and will be
phased in over three years beginning on or after January 1,
2010. As a result of the change in tax rate, the Company
recorded $109,000 of tax expense during the third quarter of
2008, in order to correctly reflect deferred taxes at the new
rate.
Deferred tax assets generally represent items that can be used
as a tax deduction or credit in future income tax returns, for
which a financial statement tax benefit has already been
recognized. The realization of the net deferred tax asset
generally depends upon future levels of taxable income and the
existence of prior years taxable income to which
carry back refund claims could be made. Valuation
allowances are established against those deferred tax assets
determined not likely to be realized. The Company had no
recorded tax valuation allowance as of December 31, 2009
and 2008.
The Company has several wholly-owned community development
entity, or CDE, subsidiaries which are described
above in the General section of Item 1
Business. During 2004, the Company announced that one of its
CDE subsidiaries (described below as RTC CDE I), had been
awarded $30.0 million in tax credit allocation authority
under the NMTC program of the United States Department of
Treasury. During 2006, the Company, through another of its CDE
subsidiaries, (described below as RTC CDE II), was awarded an
additional $45.0 million in tax credit allocation authority
under the NMTC program. During 2009, the Company was awarded an
additional $50.0 million in tax credit allocation authority
to a third CDE entity (described below as RTC CDE III).
In both 2004 and 2005, the Bank invested $15.0 million
during each year from the first $30.0 million award into
RTC CDE I. During 2007 the Bank invested $38.2 million into
RTC CDE II to provide it with the capital necessary to begin
assisting qualified businesses in low-income communities
throughout its market area. During 2008 the Bank invested the
remaining $6.8 million into RTC CDE II. During 2009 the
Bank invested $10.0 million into RTC CDE III. Based upon
the Banks total $85.0 million investment in RTC
CDE I, RTC CDE II, and RTC CDE III it is eligible to
receive tax credits over a seven year period totaling 39.0% of
its investment, or $33.2 million. The Company recognized a
$4.6 million, $4.1 million, and $3.6 million
benefit from these tax
59
credits for the years ending December 31, 2009, 2008 and
2007, respectively. The following table details the tax credit
recognition by year:
Table
21 New Markets Tax Credit Recognition
Schedule
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Investment(a)
|
|
|
2004 - 2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Credits
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
2004
|
|
$
|
15M
|
|
|
$
|
4,050
|
|
|
$
|
900
|
|
|
$
|
900
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,850
|
|
2005
|
|
$
|
15M
|
|
|
|
3,150
|
|
|
|
900
|
|
|
|
900
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,850
|
|
2007
|
|
$
|
38.2M
|
|
|
|
3,820
|
|
|
|
1,910
|
|
|
|
2,292
|
|
|
|
2,292
|
|
|
|
2,292
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
14,898
|
|
2008
|
|
$
|
6.8M
|
|
|
|
340
|
|
|
|
340
|
|
|
|
340
|
|
|
|
408
|
|
|
|
408
|
|
|
|
408
|
|
|
|
408
|
|
|
|
|
|
|
|
2,652
|
|
2009
|
|
$
|
10.0M
|
|
|
|
|
|
|
|
500
|
|
|
|
500
|
|
|
|
500
|
|
|
|
600
|
|
|
|
600
|
|
|
|
600
|
|
|
|
600
|
|
|
|
3,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
85.0M
|
|
|
$
|
11,360
|
|
|
$
|
4,550
|
|
|
$
|
4,932
|
|
|
$
|
4,100
|
|
|
$
|
3,300
|
|
|
$
|
3,300
|
|
|
$
|
1,008
|
|
|
$
|
600
|
|
|
$
|
33,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes $40.0 million of tax credit allocation authority
that has yet to be invested. |
The tax effects of all income and expense transactions are
recognized by the Company in each years consolidated
statements of income regardless of the year in which the
transactions are reported for income tax purposes.
Comparison of 2008 vs. 2007 The Companys
total assets increased by $860.1 million, or 31.1%,
increasing to $3.6 billion at December 31, 2008
compared to December 31, 2007. Total average assets were
$3.3 billion and $2.7 billion in 2008 and 2007,
respectively. Total securities of $635.8 million, at
December 31, 2008, increased $144.6 million compared
to the $491.2 million reported on December 31, 2007.
Total loans of $2.7 billion, at December 31, 2008
increased $620.7 million compared to the prior year ended
December 31, 2007. Total deposits of $2.6 billion at
December 31, 2008 reflected an increase of
$552.5 million, or 27.3%, compared to December 31,
2007. Borrowings increased by $191.0 million, or 37.9%,
during the year ended December 31, 2008. Stockholders
equity increased by $84.8 million in 2008. The increases in
the Companys balance sheet for the year ended
December 31, 2008 versus 2007 are primarily a result of the
Slades acquisition which closed in March 2008 as well as organic
growth.
On March 1, 2008, the Company successfully completed its
acquisition of Slades Ferry Bancorp. (Slades),
parent of Slades Bank. The acquisition was accounted for under
the purchase method of accounting and, as such, is included in
the results of operations from the date of acquisition. The
Company issued 2,492,854 shares of common stock in
connection with the acquisition. The value of the common stock,
$30.59, was determined based on the average closing price of the
Companys shares over a five day period including the two
days preceding the announcement date of the acquisition, the
announcement date of the acquisition and the two days subsequent
to the announcement date of the acquisition. The Company also
paid cash of $25.9 million, for total consideration of
$102.2 million.
Net income for 2008 was $24.0 million, or $1.52 per diluted
share, compared to $28.4 million, or $2.00 per diluted
share, for 2007. Return on average assets and return on average
equity were 0.73% and 8.20%, respectively, for 2008 and 1.05%
and 12.93%, respectively, for 2007.
Net interest income on a fully tax-equivalent basis increased by
$21.3 million in 2008 compared to 2007. Interest income on
a fully tax-equivalent basis increased by $16.7 million, or
10.4%, to $176.8 million in 2008 as compared to the prior
year. Interest income on a fully tax equivalent basis on the
loan portfolio increased $15.7 million in 2008. Interest
income from taxable securities increased by $2.9 million,
or 14.8%, to $22.4 million in 2008 as compared to the prior
year. The overall yield on interest earning assets decreased by
51 basis points to 5.92% in 2008 as compared to 6.43% in
2007.
Interest expense for the year ended December 31, 2008
decreased to $58.9 million from the $63.6 million
recorded in 2007, a decrease of $4.6 million, or 7.3%, of
which $12.6 million is due to the decrease in rates on
deposits partially offset by $10.5 million of additional
expense associated with the growth in deposit balances. The
60
total cost of funds decreased 58 basis points to 1.98% for
2008 as compared to 2.56% for 2007. Average interest-bearing
deposits increased $332.5 million, or 21.2%, over the prior
year while the cost of these deposits decreased from 2.78% to
2.05% primarily attributable to a lower rate environment.
Average borrowings increased in 2008 by $113.4 million, or
26.6%, from the 2007 average balance. The majority of this
increase is attributable to the Slades acquisition and organic
loan growth. Additionally, the Company issued $30.0 million
of subordinated debt during the year ended December 31,
2008, which will be used to support additional loan growth,
particularly in commercial lending. The subordinated debt, which
qualifies as Tier 2 regulatory capital, has a 10 year
maturity and may be called at the option of the Company after
five years, and is priced at a fixed rate of 7.02% for the first
five year period. The average cost of borrowings decreased to
3.71% from 4.67%.
The provision for loan losses totaled $10.9 million in
2008, compared with $3.1 million in 2007, an increase of
$7.8 million. The Companys allowance for loan losses,
as a percentage of total loans, was 1.39%, as compared to 1.31%
at December 31, 2007. For the year ended December 31,
2008, net loan charge-offs totaled $6.2 million, an
increase of $3.1 million from the prior year.
The increase in the amount of the provision for loan losses is
the result of a combination of factors including: shifting
growth rates among various components of the Banks loan
portfolio with differing facets of risk; higher levels of net
loan charge-offs in 2008; and changing expectations with respect
to the economic environment, increases in specific allocations
for impaired loans, and the level of loan delinquencies and
non-performing loans. While the total loan portfolio increased
by 30.5% for the year ended December 31, 2008, as compared
to 0.9% for 2007, growth among the commercial components of the
loan portfolio outpaced growth among those consumer components,
which exhibit different credit risk characteristics.
Non-interest income, which is generated by deposit account
service charges, investment management services, mortgage
banking activities, and miscellaneous other sources, amounted to
$29.0 million in 2008, a $4.2 million, or 12.7%,
decrease from the prior year.
Service charges on deposit accounts, which represented 55.5% of
total non-interest income in 2008, increased from
$14.4 million in 2007 to $15.6 million in 2008,
primarily due to the Slades acquisition.
Wealth management revenue increased by $3.0 million, or
37.3%, for the year ended December 31, 2008, as compared to
the same period in 2007. Assets under administration at
December 31, 2008 were $1.1 billion, a decrease of
$165.1 million, or 12.8%, as compared to December 31,
2007. This decrease is due to the difficult stock market
downturn experienced in the latter part of 2008.
Mortgage banking income of $3.1 million in 2008, decreased
by 3.0% from the $3.2 million recorded in 2007. At
December 31, 2008 the mortgage servicing rights asset
totaled $1.5 million, or 0.60% of the serviced loan
portfolio. At December 31, 2007 the mortgage servicing
rights asset totaled $2.1 million, or 0.81%, of the
serviced loan portfolio.
BOLI income increased for the year compared to the prior year by
$551,000, or 27.5%. The increase is primarily due to an increase
in cash surrender value and Slades insurance policies acquired
during the Slades acquisition.
A $609,000 net loss on the sale of securities was recorded
for the year ended December 31, 2008 and there were no
security sales in 2007.
The Company recorded OTTI on certain pooled trust preferred
securities, resulting in a negative charge to non-interest
income of $7.2 million for the year ended December 31,
2008.
Other non-interest income decreased by $1.1 million, or
19.2%, for the year ended December 31, 2008, as compared to
the same period in 2007, largely attributable to trading asset
losses due to decreases in the equities markets and declines in
1031 exchange income as a result of the slowdown in the national
commercial real estate markets.
Non-interest expense increased by $16.2 million, or 18.4%,
during the year ended December 31, 2008 as compared to the
same period last year.
61
Salaries and employee benefits increased by $5.8 million,
or 11.0%, for the year ending December 31, 2008, as
compared to the same period in 2007. The increase in salaries
and benefits is primarily attributable to the Slades acquisition
in the first quarter of 2008 as well as annual merit and medical
insurance increases.
Occupancy and equipment expense increased by $2.8 million,
or 28.4%, for the year ending December 31, 2008, as
compared to the same period in 2007. The increase is mainly due
to increases in rent expense due to two new locations, increased
utility costs for the period, and the effects of the Slades
acquisition.
Data processing and facilities management expense increased by
$990,000, or 21.6%, in 2008 compared to 2007. The increase is
partially a result of new functionality as well as an increase
in volume primarily attributable to the 2008 Slades acquisition.
During the first quarter of 2008, the Company recognized a
$418,000 recovery on a 2002 WorldCom bond loss. Merger and
acquisition related expenditures totaled $1.1 million, for
the year ending December 31, 2008, associated with the
Slades acquisition in March 2008. There were no merger and
acquisition expenses for the comparable 2007 period.
Total other non-interest expense increased by $5.9 million,
or 28.4%, for the year ending December 31, 2008, as
compared to the same period in 2007. The increase is primarily
attributable to the increases in amortization of intangible
assets of $1.5 million, FDIC deposit insurance assessment
of $1.1 million, consulting fees of $779,000, litigation
settlement in the amount of $750,000, legal loan collection fees
of $489,000 due to collection activity and $299,000 of
advertising expense.
Risk Management The Companys Board of
Directors and Executive Management have identified eight
significant Risk Categories consisting of credit,
interest rate, liquidity, operations, compliance, reputation,
accounting, and strategic risk. The Board of Directors has
approved a Risk Management Policy that addresses each category
of risk. The chief executive officer, chief financial officer,
chief technology and operations officer, the senior lending
officer and other members of management provide regular reports
to the Board of Directors that review the level of risk to
limits established by the Risk Management Policy and other
policies approved by the Board of Directors that address risk
and any key risk issues and plans to address these issues.
Asset/Liability Management The Banks
asset/liability management process monitors and manages, among
other things, the interest rate sensitivity of the balance
sheet, the composition of the securities portfolio, funding
needs and sources, and the liquidity position. All of these
factors, as well as projected asset growth, current and
potential pricing actions, competitive influences, national
monetary and fiscal policy, and the regional economic
environment are considered in the asset/liability management
process.
The Asset/Liability Management Committee (ALCO),
whose members are comprised of the Banks senior
management, develops procedures consistent with policies
established by the Board of Directors, which monitor and
coordinate the Banks interest rate sensitivity and the
sources, uses, and pricing of funds. Interest rate sensitivity
refers to the Banks exposure to fluctuations in interest
rates and its effect on earnings. If assets and liabilities do
not re-price simultaneously and in equal volume, the potential
for interest rate exposure exists. It is managements
objective to maintain stability in the growth of net interest
income through the maintenance of an appropriate mix of
interest-earning assets and interest-bearing liabilities and,
when necessary, within prudent limits, through the use of
off-balance sheet hedging instruments such as interest rate
swaps, floors and caps. The ALCO employs simulation analyses in
an attempt to quantify, evaluate, and manage the impact of
changes in interest rates on the Banks net interest
income. In addition, the Bank engages an independent consultant
to render advice with respect to asset and liability management
strategy.
The Bank is careful to increase deposits without adversely
impacting the weighted average cost of those funds. Accordingly,
management has implemented funding strategies that include FHLB
advances and repurchase agreement lines. These non-deposit funds
are also viewed as a contingent source of liquidity and, when
profitable lending and investment opportunities exist, access to
such funds provides a means to leverage the balance sheet.
The Bank may choose to utilize interest rate swap agreements and
interest rates caps and floors to mitigate interest rate risk.
An interest rate swap is an agreement whereby one party agrees
to pay a floating rate of interest on a notional principal
amount in exchange for receiving a fixed rate of interest on the
same notional amount for a
62
predetermined period of time from a second party. Interest rate
caps and floors are agreements whereby one party agrees to pay a
floating rate of interest on a notional principal amount for a
predetermined period of time to a second party if certain market
interest rate thresholds are realized. The amounts relating to
the notional principal amount are not actually exchanged. See
Note 12, Derivatives and Hedging Activities
within Notes to Consolidated Financial Statements included
in Item 8 hereof for additional information regarding the
Companys Derivative Financial Instruments.
Market Risk Market risk is the sensitivity of
income to changes in interest rates, foreign exchange rates,
commodity prices and other market-driven rates or prices. The
Company has no trading operations, with the exception of funds
held in a Rabbi Trust managed by the Companys investment
management group and that are held within a trust to fund
non-qualified executive retirement obligations, Savings Bank
Life Insurance Company of Massachusetts (SBLI) stock
acquired through the Ben Franklin acquisition, and an equity
portfolio acquired as part of the Slades and Ben Franklin
acquisitions. The acquired portfolio is entirely comprised of a
fund whose investment objective is to invest in geographically
specific private placement debt securities designed to support
underlining economic activities such as community development
and affordable housing (see Note 3,
Securities within the Notes to the Consolidated
Financial Statements included in Item 8 hereof), and
thus is primarily only exposed to non-trading market risk.
Interest-rate risk is the most significant non-credit risk to
which the Company is exposed. Interest-rate risk is the
sensitivity of income to changes in interest rates. Changes in
interest rates, as well as fluctuations in the level and
duration of assets and liabilities, affect net interest income,
the Companys primary source of revenue. Interest-rate risk
arises directly from the Companys core banking activities.
In addition to directly impacting net interest income, changes
in the level of interest rates can also affect the amount of
loans originated, the timing of cash flows on loans and
securities, and the fair value of securities and derivatives, as
well as other affects.
The primary goal of interest-rate risk management is to control
this risk within limits approved by the Board of Directors.
These limits reflect the Companys tolerance for
interest-rate risk over both short-term and long-term horizons.
The Company attempts to control interest-rate risk by
identifying, quantifying, and where appropriate, hedging its
exposure. The Company manages its interest-rate exposure using a
combination of on and off-balance sheet instruments, primarily
fixed rate portfolio securities, and interest rate swaps.
The Company quantifies its interest-rate exposures using net
interest income simulation models, as well as simpler gap
analysis, and Economic Value of Equity (EVE) analysis. Key
assumptions in these simulation analyses relate to behavior of
interest rates and behavior of the Companys deposit and
loan customers. The most material assumptions relate to the
prepayment of mortgage assets (including mortgage loans and
mortgage-backed securities) and the life and sensitivity of
non-maturity deposits (e.g. DDA, NOW, savings and money market).
The risk of prepayment tends to increase when interest rates
fall. Since future prepayment behavior of loan customers is
uncertain, the resultant interest rate sensitivity of loan
assets cannot be determined exactly.
To mitigate these uncertainties, the Company gives careful
attention to its assumptions. In the case of prepayment of
mortgage assets, assumptions are derived from published dealer
median prepayment estimates for comparable mortgage loans.
The Company manages the interest-rate risk inherent in its
mortgage banking operations by entering into forward sales
contracts. An increase in market interest rates between the time
the Company commits to terms on a loan and the time the Company
ultimately sells the loan in the secondary market will have the
effect of reducing the gain (or increasing the loss) the Company
records on the sale. The Company attempts to mitigate this risk
by entering into forward sales commitments in amounts sufficient
to cover all closed loans and a majority of rate-locked loan
commitments.
The Companys earnings are not directly and materially
impacted by movements in foreign currency rates or commodity
prices. Movements in equity prices may have an indirect but
modest impact on earnings by affecting the volume of activity or
the amount of fees from investment-related business lines, as
well as changes in the fair value of trading securities.
The Companys policy on interest-rate risk simulation
specifies that if interest rates were to shift gradually up or
down 200 basis points, estimated net interest income for
the subsequent 12 months should decline by less than
63
6.0%. Given the unusually low rate environment at
December 31, 2009 and 2008, the Company also assumed a
100 basis point decline in interest rates, for certain
points of the yield curve, in addition to the normal
200 basis point increase in rates. The Company was well
within policy limits at December 31, 2009 and 2008.
The following table sets forth the estimated effects on the
Companys net interest income over a
12-month
period following the indicated dates in the event of the
indicated increases or decreases in market interest rates:
Table
22 Interest Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
200 Basis Point
|
|
100 Basis Point
|
|
|
Rate Increase
|
|
Rate Decrease
|
|
December 31, 2009
|
|
|
(0.9
|
)%
|
|
|
+0.4
|
%
|
December 31, 2008
|
|
|
+0.01
|
%
|
|
|
(1.2
|
)%
|
The results implied in the above table indicate estimated
changes in simulated net interest income for the subsequent
12 months assuming a gradual shift up in market rates of
200 basis points or down in market rates of 100 basis
points across the entire yield curve. It should be emphasized,
however, that the results are dependent on material assumptions
such as those discussed above. For instance, asymmetrical rate
behavior can have a material impact on the simulation results.
If competition for deposits forced the Company to raise rates on
those liabilities quicker than is assumed in the simulation
analysis without a corresponding increase in asset yields, net
interest income may be negatively impacted. Alternatively, if
the Company is able to lag increases in deposit rates as loans
re-price upward net interest income would be positively impacted.
The most significant factors affecting market risk exposure of
the Companys net interest income during 2009 were
(i) the shape of the U.S. Government securities and
interest rate swap yield curve, (ii) the level of
U.S. prime interest rate and LIBOR rates, and
(iii) the level of rates paid on deposit accounts.
The table below provides information about the Companys
derivative financial instruments and other financial instruments
that are sensitive to changes in interest rates, including
interest rate swaps, and debt obligations. For debt obligations,
the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest
rate swaps, the table presents notional amounts and weighted
average interest rates by expected maturity dates. Notional
amounts are used to calculate the contractual payments to be
exchanged under the contract. Weighted average variable rates
are based on implied forward rates at the reporting date.
Table
23 Expected Maturities of Long Term Debt and
Interest Rate Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014*
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(Dollars in thousands)
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
$
|
50,003
|
|
|
$
|
45,003
|
|
|
$
|
93,003
|
|
|
$
|
25,003
|
|
|
$
|
5,003
|
|
|
$
|
63,104
|
|
|
$
|
281,119
|
|
|
$
|
290,064
|
|
Average interest rate
|
|
|
4.95
|
%
|
|
|
3.80
|
%
|
|
|
3.78
|
%
|
|
|
3.15
|
%
|
|
|
4.59
|
%
|
|
|
5.55
|
%
|
|
|
4.35
|
%
|
|
|
|
|
Variable Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,857
|
|
|
$
|
61,857
|
|
|
$
|
52,888
|
|
Average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.91
|
%
|
|
|
1.91
|
%
|
|
|
|
|
INTEREST RATE DERIVATIVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
35,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
75,000
|
|
|
$
|
50,000
|
|
|
$
|
75,000
|
|
|
$
|
235,000
|
|
|
$
|
(2,616
|
)
|
Average pay rate
|
|
|
2.28
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
2.44
|
%
|
|
|
3.04
|
%
|
|
|
4.34
|
%
|
|
|
3.15
|
%
|
|
|
|
|
Average receive rate
|
|
|
0.28
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.26
|
%
|
|
|
0.25
|
%
|
|
|
0.25
|
%
|
|
|
0.26
|
%
|
|
|
|
|
Fixed to Variable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average pay rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average receive rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity Liquidity, as it pertains to the
Company, is the ability to generate adequate amounts of cash in
the most economical way for the institution to meet its ongoing
obligations to pay deposit withdrawals and to fund loan
commitments. The Companys primary sources of funds are
deposits, borrowings, and the amortization, prepayment and
maturities of loans and securities.
64
The Bank utilizes its extensive branch network to access retail
customers who provide a stable base of in-market core deposits.
These funds are principally comprised of demand deposits,
interest checking accounts, savings accounts, and money market
accounts. Deposit levels are greatly influenced by interest
rates, economic conditions, and competitive factors. The Bank
has also established repurchase agreements, with major brokerage
firms as potential sources of liquidity. At December 31,
2009, the Bank had $50.0 million outstanding of such
repurchase agreements. In addition to agreements with brokers,
the Bank also had customer repurchase agreements outstanding
amounting to $140.5 million at December 31, 2009. As a
member of the FHLB, the Bank has access to approximately
$356.0 million of remaining borrowing capacity. On
December 31, 2009, the Bank had $362.9 million
outstanding in FHLB borrowings.
Also included in borrowings at December 31, 2009 were
$61.8 million of junior subordinated debentures, of which
$51.5 million were issued to an unconsolidated subsidiary,
Independent Capital Trust V, in connection with the
issuance of variable rate (LIBOR plus 1.48%) capital securities
due in 2037, which is callable in March 2012. The Company has
locked in a fixed rate of interest of 6.52%, for 10 years,
through an interest rate swap. The Company also has
$10.3 million of outstanding junior subordinated debentures
issued to an unconsolidated subsidiary, Slades Ferry
Trust I, in connection with the issuance of variable rate
(LIBOR plus 2.79%) capital securities due in 2034, which is
callable quarterly until maturity. On August 27, 2008 the
Bank, announced that it had issued $30 million of
subordinated debt to USB Capital Resources Inc., a wholly-owned
subsidiary of U.S. Bank National Association.
As previously mentioned, the Company is participating in the
TLGP. A component of this program is the Debt Guarantee Program,
by which the FDIC will guarantee the payment of certain newly
issued senior unsecured debt, in a total amount up to 125% of
the par or face value of the senior unsecured debt outstanding,
excluding debt extended to affiliates. As of December 31,
2009, the Company had no senior unsecured debt outstanding. If
an insured depository institution had no senior unsecured debt,
or only had Federal funds purchased, the Companys limit
for coverage under the TLGP Debt Guarantee Program would be 2%
of the Companys consolidated total liabilities as of
September 30, 2008.
The Company actively manages its liquidity position under the
direction of the ALCO. Periodic review under prescribed policies
and procedures is intended to ensure that the Company will
maintain adequate levels of available funds. At
December 31, 2009 the Companys liquidity position was
well above policy guidelines. Management believes that the Bank
has adequate liquidity available to respond to current and
anticipated liquidity demands.
Capital Resources The Federal Reserve, the
FDIC, and other regulatory agencies have established capital
guidelines for banks and bank holding companies. Risk-based
capital guidelines issued by the federal regulatory agencies
require banks to meet a minimum Tier 1 risk-based capital
ratio of 4.0% and a total risk-based capital ratio of 8.0%. A
minimum requirement of 4.0% Tier 1 leverage capital is also
mandated. At December 31, 2009, the Company and the Bank
exceeded the minimum requirements for Tier 1 risk-based,
total risk-based capital, and Tier 1 leverage capital.
Table
24 Capital Ratios for the Company and the
Bank
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
2009
|
|
2008
|
|
The Company
|
|
|
|
|
|
|
|
|
Tier 1 leverage capital ratio
|
|
|
7.87
|
%
|
|
|
7.55
|
%
|
Tier 1 risk-based capital ratio
|
|
|
9.83
|
%
|
|
|
9.50
|
%
|
Total risk-based capital ratio
|
|
|
11.92
|
%
|
|
|
11.85
|
%
|
The Bank
|
|
|
|
|
|
|
|
|
Tier 1 leverage capital ratio
|
|
|
7.55
|
%
|
|
|
7.56
|
%
|
Tier 1 risk-based capital ratio
|
|
|
9.41
|
%
|
|
|
9.49
|
%
|
Total risk-based capital ratio
|
|
|
11.49
|
%
|
|
|
11.83
|
%
|
65
(See Note 19, Regulatory Capital
Requirements within Notes to Consolidated Financial
Statements in Item 8 hereof for more information
regarding limitations on capital requirements.)
Contractual
Obligations, Commitments, Contingencies, and Off-Balance Sheet
Financial Instruments
The Company has entered into contractual obligations,
commitments, and off-balance sheet financial instruments. The
following tables summarize the Companys contractual
obligations, other commitments, contingencies, and off-balance
sheet financial instruments at December 31, 2009.
Table
25 Contractual Obligations, Commitments,
Contingencies, and
Off-Balance Sheet
Financial
Instruments by Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
After
|
|
Contractual Obligations, Commitments, and Contingencies
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
|
(Dollars in thousands)
|
|
|
FHLB advances(1)
|
|
$
|
362,936
|
|
|
$
|
110,003
|
|
|
$
|
88,731
|
|
|
$
|
105,333
|
|
|
$
|
58,869
|
|
Junior subordinated debentures(1)
|
|
|
61,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,857
|
|
Subordinated debt
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Lease obligations
|
|
|
60,598
|
|
|
|
6,359
|
|
|
|
11,483
|
|
|
|
10,817
|
|
|
|
31,939
|
|
Data processing and core systems
|
|
|
11,832
|
|
|
|
5,213
|
|
|
|
5,452
|
|
|
|
1,167
|
|
|
|
|
|
Other vendor contracts
|
|
|
4,896
|
|
|
|
2,189
|
|
|
|
2,582
|
|
|
|
125
|
|
|
|
|
|
Retirement benefit obligations(2)
|
|
|
33,891
|
|
|
|
334
|
|
|
|
693
|
|
|
|
749
|
|
|
|
32,115
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under repurchase agreements
|
|
|
50,000
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
Customer repurchase agreements
|
|
|
140,452
|
|
|
|
140,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other borrowings
|
|
|
2,152
|
|
|
|
2,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
758,614
|
|
|
$
|
266,702
|
|
|
$
|
158,941
|
|
|
$
|
118,191
|
|
|
$
|
214,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiring By Period
|
|
Off-Balance Sheet
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Four to
|
|
|
After
|
|
Financial Instruments
|
|
Total
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Lines of credit
|
|
$
|
502,186
|
|
|
$
|
106,161
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
396,025
|
|
Standby letters of credit
|
|
|
19,104
|
|
|
|
19,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loan commitments
|
|
|
429,449
|
|
|
|
340,822
|
|
|
|
56,789
|
|
|
|
9,762
|
|
|
|
22,076
|
|
Forward commitments to sell loans
|
|
|
54,982
|
|
|
|
54,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps notional value(1)(3)
|
|
|
235,000
|
|
|
|
35,000
|
|
|
|
|
|
|
|
125,000
|
|
|
|
75,000
|
|
Customer-related positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts(4)
|
|
|
8,424
|
|
|
|
8,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan level interest rate swaps(5)
|
|
|
122,125
|
|
|
|
|
|
|
|
|
|
|
|
91,424
|
|
|
|
30,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commitments
|
|
$
|
1,371,270
|
|
|
$
|
564,493
|
|
|
$
|
56,789
|
|
|
$
|
226,186
|
|
|
$
|
523,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has hedged certain short term borrowings and junior
subordinated debentures. |
|
(2) |
|
Retirement benefit obligations include expected contributions to
the Companys frozen pension plan, post retirement plan,
and supplemental executive retirement plans. Expected
contributions for the pension plan have been included only
through plan year July 1, 2009 June 30,
2010. Contributions beyond this plan year can not be quantified
as they will be determined based upon the return on the
investments in the plan. Expected contributions for the post
retirement plan and supplemental executive retirement plans
include obligations that are payable over the life of the
participants. |
|
(3) |
|
Interest rate swaps on borrowings and junior subordinated
debentures (Bank pays fixed, receives variable). |
66
|
|
|
(4) |
|
Offsetting positions to interest rate foreign exchange contracts
offered to commercial borrowers through the Companys
hedging program. |
|
(5) |
|
Offsetting positions to Interest rate swaps offered to
commercial borrowers through the Companys hedging program. |
Return on Equity and Assets The consolidated
returns on average equity and average assets for the year ended
December 31, 2009 were 4.29% and 0.40%, respectively,
compared to 8.20% and 0.73% reported for the same period last
year. The ratio of equity to assets was 9.2% at
December 31, 2009 and 8.4% at December 31, 2008.
Dividends The Company declared cash dividends
of $0.72 per common share in 2009 and in 2008. The 2009 and 2008
ratio of dividends paid to earnings was 82.79% and 48.95%,
respectively.
Since substantially all of the funds available for the payment
of dividends are derived from the Bank, future dividends of the
Company 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.
Impact of Inflation and Changing Prices The
consolidated financial statements and related notes thereto
presented elsewhere herein have been prepared in accordance with
accounting principles generally accepted in the United States of
America which require the measurement of financial position and
operating results in terms of historical dollars without
considering changes in the relative purchasing power of money
over time due to inflation.
The financial nature of the Companys consolidated
financial statements is more clearly affected by changes in
interest rates than by inflation. Interest rates do not
necessarily fluctuate in the same direction or in the same
magnitude as the prices of goods and services. However,
inflation does affect the Company because, as prices increase,
the money supply grows and interest rates are affected by
inflationary expectations. The impact on the Company is a noted
increase in the size of loan requests with resulting growth in
total assets. In addition, operating expenses may increase
without a corresponding increase in productivity. There is no
precise method, however, to measure the effects of inflation on
the Companys consolidated financial statements.
Accordingly, any examination or analysis of the financial
statements should take into consideration the possible effects
of inflation.
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. The Company believes that
the Companys most critical accounting policies upon which
the Companys financial condition depends, and which
involve the most complex or subjective decisions or assessments,
are as follows:
Allowance for Loan Losses The Companys
allowance for loan losses provides for probable losses based
upon evaluations of known and inherent risks in the loan
portfolio. Arriving at an appropriate amount of allowance for
loan losses involves a high degree of judgment.
The Company makes use of two types of allowances for loan
losses: specific and general. A specific allowance may be
assigned to a loan that is considered to be impaired. Certain
loans are evaluated individually for impairment and are judged
to be impaired when management believes it is probable that the
Bank will not collect all of the contractual interest and
principal payments as scheduled in the loan agreement. Judgment
is required with respect to designating a loan as impaired and
determining the amount of the required specific allowance.
Managements judgment is based upon its assessment of
probability of default, loss given default, and exposure at
default. Changes in these estimates could be due to a number of
circumstances which may have a direct impact on the provision
for loan losses and may result in changes to the amount of
allowance.
The general allowance is determined based upon the application
of the Companys methodology for assessing the adequacy of
the allowance for loan losses, which considers historical and
expected loss factors, loan portfolio composition and other
relevant indicators. This methodology involves managements
judgment regarding the application and use of such factors,
including the effects of changes to the prevailing economic
environment in its estimate of the required amounts of general
allowance.
67
The allowance is increased by provisions for loan losses and by
recoveries of loans previously charged-off and is reduced by
loans charged-off. For a full discussion of the Companys
methodology of assessing the adequacy of the allowance for loan
losses, see the Allowance for Loan Losses and
Provision for Loan Losses sections within this
section, Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Income Taxes The Company accounts for income
taxes using two components of income tax expense, current and
deferred. Taxes are discussed in more detail in Note 13,
Income Taxes within Notes to the Consolidated
Financial Statements included in Item 8 hereof. Accrued
taxes represent the net estimated amount due to or to be
received from taxing authorities in the current year. 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. Deferred
tax assets and liabilities represent differences between when a
tax benefit or expense is recognized for book purposes and on
the Companys tax return. Future tax assets are assessed
for recoverability. The Company would record a valuation
allowance if it believes based on available evidence that it is
more likely than not that the future tax assets recognized will
not be realized before their expiration. The amount of the
future income tax asset recognized and considered realizable
could be reduced if projected income is not achieved due to
various factors such as unfavorable business conditions. If
projected income is not expected to be achieved, the Company
would record a valuation allowance to reduce its future tax
assets to the amount that it believes can be realized in its
future tax returns. The Company had no recorded tax valuation
allowance as of December 31, 2009. Additionally, deferred
tax assets and liabilities are calculated based on tax rates
expected to be in effect in future periods. Previously recorded
tax assets and liabilities need to be adjusted when the expected
date of the future event is revised based upon current
information. The Company may record a liability for unrecognized
tax benefits related to uncertain tax positions taken by the
Company on its tax returns for which there is less than a 50%
likelihood of being recognized upon a tax examination. All
movements in unrecognized tax benefits are recognized through
the provision for income taxes.
Valuation of Goodwill/Intangible Assets and Analysis for
Impairment The Company has increased its market
share through the acquisition of entire financial institutions
accounted for under the acquisition method of accounting, as
well as from the acquisition of branches (not the entire
institution) and other non-banking entities. For all
acquisitions, 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. Goodwill is subject to ongoing periodic impairment
tests and is evaluated using a two step impairment approach.
Step one of the impairment testing compares book value to the
market value of the Companys stock, or to the fair value
of the reporting unit. If test one is failed, a more detailed
analysis is performed, which involves measuring the excess of
the fair value of the reporting unit, as determined in step one,
over the aggregate fair value of the individual assets,
liabilities, and identifiable intangibles by utilizing a
comparable analysis of relevant price multiples in recent market
transactions. The Companys intangible assets are also
subject to ongoing periodic impairment testing. The Company
tests each of the intangibles by comparing the carrying value of
the intangible to the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the
asset. The Company performs undiscounted cash flow analyses to
determine if impairment exists.
Valuation of Securities and Analysis for
Impairment Securities that the Company has the
ability and intent to hold until maturity are classified as
securities
held-to-maturity
and are accounted for using historical cost, adjusted for
amortization of premium and accretion of discount. Trading
securities are carried at fair value, with unrealized gains and
losses recorded in other non-interest income. All other
securities are classified as securities
available-for-sale
and are carried at fair market value. The fair values of
securities are based on either quoted market price, third party
pricing services, or third party valuations. Unrealized gains
and losses on securities
available-for-sale
are reported, on an after-tax basis, as a separate component of
stockholders equity in accumulated other comprehensive
income.
On a quarterly basis, the Company makes an assessment to
determine whether there have been any events or circumstances to
indicate that a security for which there is an unrealized loss
is impaired on an
other-than-temporary
basis. The Company considers many factors, including the
severity and duration of the impairment; the Companys
intent to sell the security, or whether it is more likely than
not that the Company will be required to sell the debt security
before its anticipated recovery, recent events specific to the
issuer or industry; and for debt securities, external credit
ratings and recent downgrades. The term
other-than-temporary
is not intended to indicate that the decline is permanent. It
indicates that the prospects for near-term recovery are not
necessarily favorable or that there
68
is a lack of evidence to support fair values greater than or
equal to the carrying value of the investment. Management
prepares an estimate of the expected cash flows for investment
securities that potentially may be deemed to have OTTI. This
estimate begins with the contractual cash flows of the security.
This amount is then reduced by an estimate of probable credit
losses associated with the security. When estimating the extent
of probable losses on the securities, management considers the
strength of the underlying issuers of the securities. Indicators
of diminished credit quality of the issuers includes defaults,
interest deferrals, or payments in kind. Management
also considers numerous factors when estimating the ultimate
realizability of the cash flow for each individual security. The
resulting estimate of cash flows after considering credit is
then subject to a present value computation using a discount
rate equal to the current yield used to accrete the beneficial
interest or, the effective interest rate implicit in the
security at the date of acquisition. If the present value of the
estimated cash flows is less than the current amortized cost
basis, an OTTI is considered to have occurred and the security
is written down to the fair value indicated by the cash flows
analysis. Any portion of decline in fair value considered to be
an OTTI charge that is not due to the reduction in cash flows
due to credit is considered a decline due to other factors such
as liquidity or interest rates and accordingly is recorded in
other comprehensive income. Any portion of the decline which is
related to credit is recorded in earnings.
RECENT
ACCOUNTING DEVELOPMENTS
See Note 1, Recent Accounting Developments
within Notes to Consolidated Financial Statements in
Item 8 hereof.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Assets and
Liability Management in Item 7 hereof.
69
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Independent Bank Corp.:
We have audited the accompanying consolidated balance sheet of
Independent Bank Corp. and subsidiaries (the
Company) as of December 31, 2009, and the
related consolidated statements of income, stockholders
equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Independent Bank Corp. and subsidiaries as
of December 31, 2009, and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with U.S. generally accepted accounting
principles.
During 2009, the Company changed its method of accounting for
impairment losses on investment securities (see Note 1 to
the financial statements) and business combinations (see
Note 2 to the financial statements).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated March 10, 2010 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 10, 2010
70
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Independent Bank Corp.:
We have audited the accompanying consolidated balance sheet of
Independent Bank Corp. and subsidiaries (the
Company) as of December 31, 2008 and the
related consolidated statements of income, stockholders
equity and comprehensive income, and cash flows for each of the
years in the two-year period ended December 31, 2008. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Independent Bank Corp. and subsidiaries as of
December 31, 2008, and the results of their operations and
their cash flows for each of the years in the two-year period
ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles.
/s/ KPMG LLP
Boston, Massachusetts
March 10, 2009
71
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
CASH AND DUE FROM BANKS
|
|
$
|
121,905
|
|
|
$
|
50,007
|
|
FEDERAL FUNDS SOLD AND ASSETS PURCHASED UNDER RESALE AGREEMENT
& SHORT TERM INVESTMENTS
|
|
|
|
|
|
|
100
|
|
SECURITIES
|
|
|
|
|
|
|
|
|
TRADING ASSETS
|
|
|
6,171
|
|
|
|
2,701
|
|
SECURITIES AVAILABLE FOR SALE
|
|
|
508,650
|
|
|
|
600,291
|
|
SECURITIES HELD TO MATURITY (fair value $93,438 and $30,390)
|
|
|
93,410
|
|
|
|
32,789
|
|
|
|
|
|
|
|
|
|
|
TOTAL SECURITIES
|
|
|
608,231
|
|
|
|
635,781
|
|
|
|
|
|
|
|
|
|
|
LOANS HELD FOR SALE
|
|
|
13,466
|
|
|
|
8,351
|
|
LOANS
|
|
|
|
|
|
|
|
|
COMMERCIAL AND INDUSTRIAL
|
|
|
373,531
|
|
|
|
270,832
|
|
COMMERCIAL REAL ESTATE
|
|
|
1,614,474
|
|
|
|
1,126,295
|
|
COMMERCIAL CONSTRUCTION
|
|
|
175,312
|
|
|
|
171,955
|
|
SMALL BUSINESS
|
|
|
82,569
|
|
|
|
86,670
|
|
RESIDENTIAL REAL ESTATE
|
|
|
555,306
|
|
|
|
413,024
|
|
RESIDENTIAL CONSTRUCTION
|
|
|
10,736
|
|
|
|
10,950
|
|
HOME EQUITY
|
|
|
471,862
|
|
|
|
406,240
|
|
CONSUMER AUTO
|
|
|
79,273
|
|
|
|
127,956
|
|
CONSUMER OTHER
|
|
|
32,452
|
|
|
|
38,614
|
|
|
|
|
|
|
|
|
|
|
TOTAL LOANS
|
|
|
3,395,515
|
|
|
|
2,652,536
|
|
LESS: ALLOWANCE FOR LOAN LOSSES
|
|
|
(42,361
|
)
|
|
|
(37,049
|
)
|
|
|
|
|
|
|
|
|
|
NET LOANS
|
|
|
3,353,154
|
|
|
|
2,615,487
|
|
|
|
|
|
|
|
|
|
|
FEDERAL HOME LOAN BANK STOCK
|
|
|
35,854
|
|
|
|
24,603
|
|
BANK PREMISES AND EQUIPMENT, NET
|
|
|
44,235
|
|
|
|
36,429
|
|
GOODWILL
|
|
|
129,348
|
|
|
|
116,437
|
|
IDENTIFIABLE INTANGIBLE ASSETS
|
|
|
14,382
|
|
|
|
9,273
|
|
MORTGAGE SERVICING RIGHTS
|
|
|
2,195
|
|
|
|
1,498
|
|
BANK OWNED LIFE INSURANCE
|
|
|
79,252
|
|
|
|
65,003
|
|
OTHER ASSETS
|
|
|
79,999
|
|
|
|
65,500
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
4,482,021
|
|
|
$
|
3,628,469
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
DEPOSITS
|
|
|
|
|
|
|
|
|
DEMAND DEPOSITS
|
|
$
|
721,792
|
|
|
$
|
519,326
|
|
SAVINGS AND INTEREST CHECKING ACCOUNTS
|
|
|
1,073,990
|
|
|
|
725,313
|
|
MONEY MARKET
|
|
|
661,731
|
|
|
|
488,345
|
|
TIME CERTIFICATES OF DEPOSIT OVER $100,000
|
|
|
304,621
|
|
|
|
285,410
|
|
OTHER TIME CERTIFICATES OF DEPOSIT
|
|
|
613,160
|
|
|
|
560,686
|
|
|
|
|
|
|
|
|
|
|
TOTAL DEPOSITS
|
|
|
3,375,294
|
|
|
|
2,579,080
|
|
|
|
|
|
|
|
|
|
|
FEDERAL HOME LOAN BANK BORROWINGS
|
|
|
362,936
|
|
|
|
429,634
|
|
FEDERAL FUNDS PURCHASED AND ASSETS SOLD UNDER REPURCHASE
AGREEMENTS
|
|
|
190,452
|
|
|
|
170,880
|
|
JUNIOR SUBORDINATED DEBENTURES
|
|
|
61,857
|
|
|
|
61,857
|
|
SUBORDINATED DEBENTURES
|
|
|
30,000
|
|
|
|
30,000
|
|
OTHER BORROWINGS
|
|
|
2,152
|
|
|
|
2,946
|
|
|
|
|
|
|
|
|
|
|
TOTAL BORROWINGS
|
|
|
647,397
|
|
|
|
695,317
|
|
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES
|
|
|
46,681
|
|
|
|
48,798
|
|
TOTAL LIABILITIES
|
|
|
4,069,372
|
|
|
|
3,323,195
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
PREFERRED STOCK, $.01 par value. Authorized:
1,000,000 Shares Outstanding: None
|
|
|
|
|
|
|
|
|
COMMON STOCK, $.01 par value. Authorized: 30,000,000
|
|
|
|
|
|
|
|
|
Issued and Outstanding : 20,935,421 Shares in 2009 and
16,285,455 Shares in 2008
|
|
|
209
|
|
|
|
163
|
|
SHARES HELD IN RABBI TRUST AT COST
176,507 Shares in 2009 and 171,489 Shares in 2008
|
|
|
(2,482
|
)
|
|
|
(2,267
|
)
|
DEFERRED COMPENSATION OBLIGATION
|
|
|
2,482
|
|
|
|
2,267
|
|
ADDITIONAL PAID IN CAPITAL
|
|
|
225,088
|
|
|
|
137,488
|
|
RETAINED EARNINGS
|
|
|
184,599
|
|
|
|
177,493
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) NET OF TAX
|
|
|
2,753
|
|
|
|
(9,870
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS EQUITY
|
|
|
412,649
|
|
|
|
305,274
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
4,482,021
|
|
|
$
|
3,628,469
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
72
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Loans
|
|
$
|
172,128
|
|
|
$
|
150,780
|
|
|
$
|
135,058
|
|
Taxable Interest and Dividends on Securities
|
|
|
28,695
|
|
|
|
23,447
|
|
|
|
20,742
|
|
Non-taxable Interest and Dividends on Securities
|
|
|
947
|
|
|
|
740
|
|
|
|
923
|
|
Interest on Loans Held for Sale
|
|
|
629
|
|
|
|
325
|
|
|
|
333
|
|
Interest on Federal Funds Sold and Short-Term Investments
|
|
|
290
|
|
|
|
148
|
|
|
|
1,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income
|
|
|
202,689
|
|
|
|
175,440
|
|
|
|
158,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Deposits
|
|
|
31,163
|
|
|
|
38,896
|
|
|
|
43,639
|
|
Interest on Borrowings
|
|
|
20,832
|
|
|
|
20,030
|
|
|
|
19,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense
|
|
|
51,995
|
|
|
|
58,926
|
|
|
|
63,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
150,694
|
|
|
|
116,514
|
|
|
|
94,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES
|
|
|
17,335
|
|
|
|
10,888
|
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision For Loan Losses
|
|
|
133,359
|
|
|
|
105,626
|
|
|
|
91,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Service Charges on Deposit Accounts
|
|
|
17,060
|
|
|
|
15,595
|
|
|
|
14,414
|
|
Wealth Management
|
|
|
10,047
|
|
|
|
11,133
|
|
|
|
8,110
|
|
Mortgage Banking Income
|
|
|
4,857
|
|
|
|
3,072
|
|
|
|
3,166
|
|
BOLI Income
|
|
|
2,939
|
|
|
|
2,555
|
|
|
|
2,004
|
|
Net Loss/Gain on Sales of Securities
|
|
|
1,354
|
|
|
|
(609
|
)
|
|
|
|
|
Gain Resulting From Early Termination of Hedging Relationship
|
|
|
3,778
|
|
|
|
|
|
|
|
|
|
Gross Loss on Write-Down of Certain Investments to Fair Value
|
|
|
(7,382
|
)
|
|
|
(7,211
|
)
|
|
|
|
|
Less: Non-Credit Related
Other-Than-Temporary
Impairment
|
|
|
(1,576
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss on Write-Down of Certain Investments to Fair Value
|
|
|
(8,958
|
)
|
|
|
(7,211
|
)
|
|
|
|
|
Other Non-Interest Income
|
|
|
7,115
|
|
|
|
4,497
|
|
|
|
5,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Income
|
|
|
38,192
|
|
|
|
29,032
|
|
|
|
33,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and Employee Benefits
|
|
|
68,257
|
|
|
|
58,275
|
|
|
|
52,520
|
|
Occupancy and Equipment Expenses
|
|
|
15,673
|
|
|
|
12,757
|
|
|
|
9,932
|
|
Merger and Acquisition Expense
|
|
|
12,423
|
|
|
|
1,120
|
|
|
|
|
|
FDIC Assessment
|
|
|
6,975
|
|
|
|
1,388
|
|
|
|
260
|
|
Data Processing & Facilities Management
|
|
|
5,779
|
|
|
|
5,574
|
|
|
|
4,584
|
|
Legal Fees
|
|
|
2,961
|
|
|
|
1,154
|
|
|
|
665
|
|
Telephone Expense
|
|
|
2,635
|
|
|
|
1,694
|
|
|
|
1,421
|
|
Other Intangibles Amortization
|
|
|
2,539
|
|
|
|
1,803
|
|
|
|
332
|
|
Advertising Expense
|
|
|
2,199
|
|
|
|
2,016
|
|
|
|
1,717
|
|
Consulting Expense
|
|
|
1,951
|
|
|
|
1,852
|
|
|
|
1,073
|
|
Software Maintenance
|
|
|
1,862
|
|
|
|
1,486
|
|
|
|
1,314
|
|
Other Losses and Charge-Offs
|
|
|
779
|
|
|
|
1,061
|
|
|
|
1,636
|
|
Recovery on WorldCom Bond Claim
|
|
|
|
|
|
|
(418
|
)
|
|
|
|
|
Other Non-Interest Expenses
|
|
|
17,782
|
|
|
|
14,381
|
|
|
|
12,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Expenses
|
|
|
141,815
|
|
|
|
104,143
|
|
|
|
87,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
29,736
|
|
|
|
30,515
|
|
|
|
37,172
|
|
PROVISION FOR INCOME TAXES
|
|
|
6,747
|
|
|
|
6,551
|
|
|
|
8,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
22,989
|
|
|
$
|
23,964
|
|
|
$
|
28,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK DIVIDEND
|
|
$
|
5,698
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
17,291
|
|
|
$
|
23,964
|
|
|
$
|
28,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$
|
0.88
|
|
|
$
|
1.53
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$
|
0.88
|
|
|
$
|
1.52
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (Basic)
|
|
|
19,642,965
|
|
|
|
15,694,555
|
|
|
|
14,033,257
|
|
Common stock equivalents
|
|
|
30,191
|
|
|
|
64,927
|
|
|
|
127,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (Diluted)
|
|
|
19,673,156
|
|
|
|
15,759,482
|
|
|
|
14,160,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
73
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Shares
|
|
|
Deferred
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Preferred
|
|
|
Shares
|
|
|
Common
|
|
|
Held in
|
|
|
Compensation
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Rabbi Trust
|
|
|
Obligation
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income/(loss)
|
|
|
Total
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
BALANCE DECEMBER 31, 2006
|
|
$
|
|
|
|
|
14,686,481
|
|
|
$
|
147
|
|
|
$
|
(1,786
|
)
|
|
$
|
1,786
|
|
|
$
|
60,181
|
|
|
$
|
175,146
|
|
|
$
|
(5,691
|
)
|
|
$
|
229,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,381
|
|
|
|
|
|
|
|
28,381
|
|
Cash Dividends Declared ($0.68 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,482
|
)
|
|
|
|
|
|
|
(9,482
|
)
|
Purchase of Common Stock
|
|
|
|
|
|
|
(1,000,000
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,686
|
)
|
|
|
|
|
|
|
(30,696
|
)
|
Proceeds From Exercise of Stock Options
|
|
|
|
|
|
|
56,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,029
|
|
|
|
|
|
|
|
1,029
|
|
Tax Benefit Related to Equity Award Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
Equity Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
391
|
|
Restricted Shares Issued
|
|
|
|
|
|
|
4,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Change in Fair Value of Cash Flow Hedges,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of Tax, and Realized Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,408
|
)
|
|
|
(2,408
|
)
|
Deferred Compensation Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226
|
)
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Effect of Accounting Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177
|
|
|
|
|
|
|
|
177
|
|
Amortization of Prior Service Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92
|
)
|
|
|
(92
|
)
|
Change in Unrealized Gain on Securities Available For
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale, Net of Tax and Realized Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,322
|
|
|
|
3,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2007
|
|
$
|
|
|
|
|
13,746,711
|
|
|
$
|
137
|
|
|
|
(2,012
|
)
|
|
$
|
2,012
|
|
|
$
|
60,632
|
|
|
$
|
164,565
|
|
|
$
|
(4,869
|
)
|
|
$
|
220,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,964
|
|
|
|
|
|
|
|
23,964
|
|
Cash Dividends Declared ($0.72 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,730
|
)
|
|
|
|
|
|
|
(11,730
|
)
|
Common Stock Issued for Acquisition
|
|
|
|
|
|
|
2,492,195
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
76,203
|
|
|
|
|
|
|
|
|
|
|
|
76,228
|
|
Proceeds From Exercise of Stock Options
|
|
|
|
|
|
|
44,934
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
694
|
|
|
|
|
|
|
|
695
|
|
Tax Benefit Related to Equity Award Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
Equity Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
Restricted Shares Issued
|
|
|
|
|
|
|
1,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Change in Fair Value of Cash Flow Hedges,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of Tax, and Realized Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,615
|
)
|
|
|
(6,615
|
)
|
Deferred Compensation Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(255
|
)
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Prior Service Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
(118
|
)
|
Change in Unrealized Gain on Securities Available For Sale, Net
of Tax and Realized Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,732
|
|
|
|
1,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2008
|
|
$
|
|
|
|
|
16,285,455
|
|
|
$
|
163
|
|
|
|
(2,267
|
)
|
|
$
|
2,267
|
|
|
$
|
137,488
|
|
|
$
|
177,493
|
|
|
$
|
(9,870
|
)
|
|
$
|
305,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect accounting adjustment, net of tax(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,823
|
|
|
|
(3,823
|
)
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,989
|
|
|
|
|
|
|
|
22,989
|
|
Dividends Declared:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Declared ($0.72 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,315
|
)
|
|
|
|
|
|
|
(14,315
|
)
|
Preferred Declared(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,698
|
)
|
|
|
|
|
|
|
(5,698
|
)
|
Common Stock Issued for Acquisition
|
|
|
|
|
|
|
4,624,948
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
84,452
|
|
|
|
|
|
|
|
|
|
|
|
84,498
|
|
Proceeds From Exercise of Stock Options
|
|
|
|
|
|
|
23,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307
|
|
|
|
|
|
|
|
307
|
|
Tax Benefit Related to Equity Award Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Equity Based Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
|
774
|
|
Restricted Shares Issued
|
|
|
|
|
|
|
1,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
Change in Fair Value of Cash Flow Hedges,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of Tax, and Realized Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,446
|
|
|
|
7,446
|
|
Deferred Compensation Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215
|
)
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of Prior Service Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(588
|
)
|
|
|
(588
|
)
|
Change in Unrealized Gain on Securities Available For
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale, Net of Tax and Realized Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,588
|
|
|
|
9,588
|
|
Issuance of Preferred Stock and Stock Warrants
|
|
|
73,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,580
|
|
|
|
|
|
|
|
|
|
|
|
78,158
|
|
Redemption of Preferred Stock and Stock Warrants
|
|
|
(73,578
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
|
|
(75,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE DECEMBER 31, 2009
|
|
$
|
|
|
|
|
20,935,421
|
|
|
$
|
209
|
|
|
$
|
(2,482
|
)
|
|
$
|
2,482
|
|
|
$
|
225,088
|
|
|
$
|
184,599
|
|
|
$
|
2,753
|
|
|
$
|
412,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents reclassification of the non-credit related component
of previously recorded
Other-Than-Temporary
impairment, pursuant to the provisions of the Investments-Debt
and Equity Securities Topic of FASB ASC. |
|
(2) |
|
Includes $196 discount of accretion on preferred stock and
$4,384 of deemed dividend associated with the Companys
exit from the U.S. Treasurys Capital Purchase Program. |
The accompanying notes are an integral part of these
consolidated financial statements.
74
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
22,989
|
|
|
$
|
23,964
|
|
|
$
|
28,381
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,744
|
|
|
|
4,636
|
|
|
|
5,230
|
|
Provision for loan losses
|
|
|
17,335
|
|
|
|
10,888
|
|
|
|
3,130
|
|
Deferred income tax benefit
|
|
|
(2,281
|
)
|
|
|
(7,871
|
)
|
|
|
(1,820
|
)
|
Net (gain) loss on sale of investments
|
|
|
(1,354
|
)
|
|
|
609
|
|
|
|
|
|
Loss on sale of fixed assets
|
|
|
85
|
|
|
|
2
|
|
|
|
55
|
|
Loss on write-down of investments in securities available for
sale
|
|
|
8,958
|
|
|
|
7,216
|
|
|
|
|
|
Loss on sale of other real estate owned
|
|
|
415
|
|
|
|
217
|
|
|
|
9
|
|
Realized gain on sale leaseback transaction
|
|
|
(1,034
|
)
|
|
|
(689
|
)
|
|
|
|
|
Stock based compensation
|
|
|
774
|
|
|
|
526
|
|
|
|
391
|
|
Increase in cash surrender value of bank-owned life insurance
|
|
|
(2,651
|
)
|
|
|
(2,556
|
)
|
|
|
(2,004
|
)
|
Net change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading assets
|
|
|
(3,470
|
)
|
|
|
686
|
|
|
|
71
|
|
Loans held for sale
|
|
|
(5,115
|
)
|
|
|
2,777
|
|
|
|
731
|
|
Other assets
|
|
|
12,141
|
|
|
|
(23,149
|
)
|
|
|
4,010
|
|
Other liabilities
|
|
|
(15,021
|
)
|
|
|
4,786
|
|
|
|
1,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ADJUSTMENTS
|
|
|
14,526
|
|
|
|
(1,922
|
)
|
|
|
11,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
37,515
|
|
|
|
22,042
|
|
|
|
39,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of Securities Available For Sale
|
|
|
168,556
|
|
|
|
109,689
|
|
|
|
20,000
|
|
Proceeds from maturities and principal repayments of Securities
Available For Sale
|
|
|
158,458
|
|
|
|
91,335
|
|
|
|
58,023
|
|
Proceeds from maturities and principal repayments of Securities
Held to Maturity
|
|
|
7,660
|
|
|
|
12,543
|
|
|
|
31,364
|
|
Purchase of Securities Available For Sale
|
|
|
(92,966
|
)
|
|
|
(267,101
|
)
|
|
|
(99,937
|
)
|
Purchase of Securities Held to Maturity
|
|
|
(68,381
|
)
|
|
|
|
|
|
|
(699
|
)
|
(Purchase) redemption of Federal Home Loan Bank stock
|
|
|
|
|
|
|
(642
|
)
|
|
|
5,450
|
|
Purchase of Bank Owned Life Insurance
|
|
|
(267
|
)
|
|
|
(267
|
)
|
|
|
(1,680
|
)
|
Net increase in Loans
|
|
|
(69,905
|
)
|
|
|
(156,137
|
)
|
|
|
(21,526
|
)
|
Cash Provided By (used in) Business Combinations
|
|
|
97,335
|
|
|
|
(13,670
|
)
|
|
|
(4,227
|
)
|
Purchase of Bank Premises and Equipment
|
|
|
(6,601
|
)
|
|
|
(8,220
|
)
|
|
|
(7,442
|
)
|
Proceeds from the sale of Bank Premises and Equipment
|
|
|
67
|
|
|
|
57
|
|
|
|
1,562
|
|
Proceeds from the sale of other real estate owned
|
|
|
5,124
|
|
|
|
718
|
|
|
|
486
|
|
Proceeds from Sale Leaseback Transaction
|
|
|
|
|
|
|
31,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
199,080
|
|
|
|
(200,262
|
)
|
|
|
(18,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in Time Deposits
|
|
|
(170,699
|
)
|
|
|
136,307
|
|
|
|
(34,948
|
)
|
Net increase (decrease) in Other Deposits
|
|
|
265,506
|
|
|
|
5,394
|
|
|
|
(28,786
|
)
|
Net increase in Federal Funds Purchased and Assets Sold Under
Repurchase Agreements
|
|
|
19,572
|
|
|
|
32,277
|
|
|
|
30,355
|
|
Net increase (decrease) in Short Term Federal Home Loan Bank
Advances
|
|
|
(81,000
|
)
|
|
|
65,000
|
|
|
|
6,000
|
|
Repayment of Long Term Federal Home Loan Bank Advances
|
|
|
(180,910
|
)
|
|
|
(97,631
|
)
|
|
|
|
|
Net increase (decrease) in Treasury Tax & Loan Notes
|
|
|
(794
|
)
|
|
|
(123
|
)
|
|
|
116
|
|
Redemption of Issuance of Subordinated Debentures
|
|
|
|
|
|
|
|
|
|
|
(25,773
|
)
|
Proceeds from Issuance of Subordinated Debentures
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
Payment for the purchase of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(30,696
|
)
|
Proceeds from issuance of Preferred Stock and Stock Warrants
|
|
|
78,158
|
|
|
|
|
|
|
|
|
|
Redemption of Preferred Stock
|
|
|
(78,158
|
)
|
|
|
|
|
|
|
|
|
Redemption of Warrants
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
307
|
|
|
|
695
|
|
|
|
1,029
|
|
Tax (expense) benefit from stock option exercises
|
|
|
(3
|
)
|
|
|
131
|
|
|
|
65
|
|
Restricted Shares Issued
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Dividends
|
|
|
(1,118
|
)
|
|
|
|
|
|
|
|
|
Common Dividends
|
|
|
(13,455
|
)
|
|
|
(11,135
|
)
|
|
|
(9,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
|
(164,797
|
)
|
|
|
160,911
|
|
|
|
(92,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
71,798
|
|
|
|
(17,309
|
)
|
|
|
(70,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
50,107
|
|
|
|
67,416
|
|
|
|
138,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
121,905
|
|
|
$
|
50,107
|
|
|
$
|
67,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowings
|
|
$
|
52,884
|
|
|
$
|
59,340
|
|
|
|
62,444
|
|
Income taxes
|
|
|
4,877
|
|
|
|
16,817
|
|
|
|
8,003
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to foreclosed assets
|
|
|
4,440
|
|
|
|
2,063
|
|
|
|
986
|
|
In conjunction with the purchase acquisition detailed in
Note 2 to the Consolidated Financial Statements, assets
were acquired and liabilities were assumed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Issued for acquisition
|
|
$
|
84,498
|
|
|
$
|
76,228
|
|
|
$
|
|
|
Fair value of assets acquired, net of cash acquired
|
|
|
908,359
|
|
|
|
676,115
|
|
|
|
4,227
|
|
Fair value of liabilities assumed
|
|
|
921,945
|
|
|
|
586,419
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
75
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
(1)
|
Summary
of Significant Accounting Policies
|
Independent Bank Corp. (the Company) is a bank
holding company whose principal subsidiary is Rockland
Trust Company (Rockland Trust or the
Bank). Rockland Trust is a state-chartered
commercial bank, which operates 68 full service and three
limited service retail branches, eleven commercial banking
centers, four investment management offices and four mortgage
lending centers, all of which are located in eastern
Massachusetts, including Cape Cod, with the exception of an
investment management group located in Lincoln, Rhode Island.
Rockland Trust deposits are insured by the Federal Deposit
Insurance Corporation, subject to regulatory limits. The
Companys primary source of income is from providing loans
to individuals and
small-to-medium
sized businesses in its market area.
Principles
of Consolidation
The consolidated financial statements include the accounts of
the Company, the Bank and other wholly-owned subsidiaries,
except three wholly owned subsidiaries that are not
consolidated. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company
consolidates subsidiaries in which it holds, directly or
indirectly, more than 50% of the voting rights or where it
exercises control. Entities where the Company holds 20% to 50%
of the voting rights, or has the ability to exercise significant
influence or both, are accounted for under the equity method.
The Company would consolidate entities deemed to be variable
interest entities (VIEs) when it is determined to be the primary
beneficiary. A legal entity is referred to as a VIE if any of
the following conditions exist: (1) the total equity
investment at risk is insufficient to permit the legal entity to
finance its activities without additional subordinated financial
support from other parties, or (2) the entity has equity
investors that cannot make significant decisions about the
entitys operations or that do not absorb their
proportionate share of the expected losses or receive the
expected returns of the entity.
A VIE must be consolidated by the Company if the Company is
deemed to be the primary beneficiary of the VIE, which is the
party involved with the VIE that will absorb a majority of the
expected losses, receive a majority of the expected residual
returns, or both. The Company has significant variable interests
in three VIEs formed to issue trust preferred securities. These
VIEs are not consolidated because the Company is not the primary
beneficiary.
Reclassification
Certain previously reported amounts have been reclassified to
conform to the current years presentation.
Accounting
Standards Codification
The Financial Accounting Standards Boards (FASB)
Accounting Standards Codification (ASC) became effective on
July 1, 2009. At that date, the ASC became FASBs
officially recognized source of authoritative
U.S. generally accepted accounting principles (GAAP)
applicable to all public and non-public non-governmental
entities, superseding existing FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force, and
related literature. Rules and interpretive releases of the SEC
under the authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. All other accounting
literature is considered nonauthoritative. The switch to the ASC
affects the way companies refer to U.S. GAAP in financial
statements and accounting policies. Citing particular content in
the ASC involves specifying the unique numeric path to the
content through the Topic, Subtopic, Section, and Paragraph
structure.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could
vary from these estimates. Material estimates that are
particularly susceptible to significant changes in the near-term
relate to the
76
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determination of the allowance for loan losses, income taxes,
valuation and potential impairment of investment securities fair
value and
other-than-temporary
impairment of certain investment securities, and valuation of
goodwill and other intangibles and their respective analysis of
impairment.
Significant
Concentrations of Credit Risk
The vast majority of the Banks lending activities are
conducted in the Commonwealth of Massachusetts. The Bank
originates commercial and residential real estate loans,
commercial and industrial loans, small business and consumer
home equity, auto, and other loans for its portfolio. The Bank
considers a concentration of credit to a particular industry to
exist when the aggregate credit exposure to a borrower, an
affiliated group of borrowers or a non-affiliated group of
borrowers engaged in one industry exceeds 10% of the Banks
loan portfolio which includes direct, indirect or contingent
obligations.
Loans originated by the Bank to lessors of non-residential
buildings represented 13.2% and 14.5% of the total loan
portfolio as of December 31, 2009 and 2008, respectively.
Within this concentration category the Company is well
diversified among collateral property types and tenant
industries.
Cash
and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, federal funds sold
and assets purchased under resale agreements. Generally, federal
funds are sold for up to two week periods. Included in cash and
due from banks are interest bearing reserves held at the Federal
Reserve Bank.
Trading
Assets
Securities that are held principally for resale in the near term
and assets used to fund certain non-qualified executive
retirement obligations, which are held in the form of Rabbi
Trusts, are recorded in the trading asset account at fair value
with changes in fair value recorded in earnings. Interest on
dividends are included in net interest income.
Securities
Debt securities that management has the positive intent and
ability to hold to maturity are classified as held to
maturity and recorded at amortized cost. Securities not
classified as held to maturity or trading, including equity
securities with readily determinable fair values, are classified
as available for sale and recorded at fair value,
with changes in fair value excluded from earnings and reported
in other comprehensive income, net of the related tax. Purchase
premiums and discounts are recognized in interest income, using
the interest method, to arrive at periodic interest income at a
constant effective yield, thereby reflecting the securities
market yield. Gains and losses on the sale of securities are
recorded on the trade date and are determined using the specific
identification method.
Declines in the fair value of held to maturity and available for
sale securities below their cost deemed to be
other-than-temporary
impairment (OTTI) are written down to the fair value
as indicated by a cash flow analysis. To the extent the
estimated cash flows do not support the amortized cost, that
amount is considered credit loss and recognized in earnings and
the remainder of the OTTI charge is considered due to other
factors, such as liquidity or interest rates, and thus is not
recognized in earnings, but rather through other comprehensive
income. The Company evaluates individual securities that have
fair values below cost for six months or longer or for a shorter
period of time if considered appropriate by management to
determine if the decline in fair value is other than temporary.
Consideration is given to the obligor of the security, whether
the security is guaranteed, whether there is a projected adverse
change in cash flows, the liquidity of the security, the type of
security, the capital position of security issuers, and payment
history of the security, amongst other factors when evaluating
these individual securities.
77
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Loans
Held for Sale
Loans originated and intended for sale in the secondary market
are carried at the lower of cost or fair value
(LOCOM). Gains and losses on loan sales (sales
proceeds minus carrying amount) are recorded in Mortgage Banking
Income, and direct loan origination costs and fees are deferred
at origination of the loan and recognized in Mortgage Banking
Income upon sale of the loan.
Loans
Loans are carried at the principal amounts outstanding, or
amortized acquired fair value, in the case of acquired loans,
adjusted by partial charge-offs and net deferred loan costs or
fees. Interest income for commercial, small business, real
estate, and consumer loans is accrued based upon the daily
principal amount outstanding except for loans on nonaccrual
status.
Loans are generally placed on nonaccrual status if the payment
of principal or interest is past due more than 90 days, or
sooner if management considers such action to be prudent. As
permitted by banking regulations, consumer loans past due
90 days or more may continue to accrue interest however,
such loans are usually charged off after 120 days of
delinquency. 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 interest (and in certain instances
remains current for up to six months), or when management no
longer has doubt about the collection of principal and interest
when the loan is liquidated, or when the loan is determined to
be uncollectible and is charged-off against the allowance for
loan losses. When doubt exists as to the collectability of the
remaining recorded investment in an asset in nonaccrual status,
any payments received are applied to reduce the recorded
investment in the asset to the extent necessary to eliminate
such doubt.
Loan fees and certain direct origination costs are deferred and
amortized into interest income over the expected term of the
loan using the level-yield method. When a loan is paid off, the
unamortized portion of the net origination fees are recognized
into interest income.
Loans purchased with evidence of credit deterioration since
origination and for which it is probable that all contractually
required payments will not be collected are considered to be
credit impaired. Evidence of credit quality deterioration as of
the purchase date may include information such as past due and
nonaccrual status, borrower credit scores and recent loan to
value percentages. Purchased credit-impaired loans are accounted
for under the accounting guidance topic receivables
quality loans and debt securities acquired with
deteriorated credit quality and initially measured at fair
value, which includes estimated future credit losses expected to
be incurred over the life of the loan. Accordingly, an allowance
for credit losses related to these loans is not carried over and
recorded at the acquisition date. Management estimated the cash
flows expected to be collected at acquisition using the
Companys internal risk models, which incorporate the
estimate of current key assumptions, such as default rates,
severity, and prepayment speeds.
Allowance
for Loan Losses
The allowance for loan losses is established based upon the
level of inherent risk estimated to exist in the current loan
portfolio. Loan losses are charged against the allowance when
management believes the collectability of a loan balance is
doubtful. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by
management. It is based upon managements systematic
periodic review of the collectability of the loans in light of
historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the
borrowers ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective, as it requires estimates
that are susceptible to significant revision as more information
becomes available. In addition, various
78
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
regulatory agencies, as an integral part of their examination
process, periodically review the Banks allowance for loan
losses. Such agencies may require the institution to recognize
additions to the allowance based on their judgments about
information available to them at the time of their examinations.
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 borrowers 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 loans effective
interest rate, the loans obtainable market price, or the
fair value of the collateral if the loan is collateral dependent.
Large groups of homogeneous loans are collectively evaluated for
impairment. As such, the Bank does not typically identify
individual loans within these groupings as impaired loans or for
impairment evaluation and disclosure. At December 31, 2009
impaired loans include all commercial real estate loans, and
commercial and industrial loans that are on nonaccrual status
and certain potential problem loans.
In cases where a borrower experiences financial difficulties and
the Company makes certain concessionary modifications to
contractual terms, the loan is classified as a restructured
loan. Modifications may include rate reductions, principal
forgiveness, forbearance and other actions intended to minimize
economic loss and avoid foreclosure or repossession of
collateral. The allowance for loan losses on restructured loans
is determined by discounting the restructured cash flows by the
original effective rate. Loans restructured at a rate equal to
or greater than that of a new loan with comparable risk at the
time the contract is modified may be excluded from restructured
loan disclosures in years subsequent to the restructuring if
they are in compliance with the modified terms.
Generally, a nonaccrual loan that is restructured remains on
nonaccrual for a period of six months to demonstrate the
borrower can meet the restructured terms. However, performance
prior to the restructuring, or significant events that coincide
with the restructuring, are considered in assessing whether the
borrower can meet the new terms and may result in the loan being
returned to accrual status at the time of the restructuring or
after a shorter performance period. If the borrowers
ability to meet the revised payment schedule is not reasonably
assured, the loan remains as a nonaccrual loan.
In the ordinary course of business, the Company enters into
commitments to extend credit, commercial letters of credit, and
standby letters of credit. Such financial instruments are
recorded in the financial statements when they become payable.
The credit risk associated with these commitments is evaluated
in a manner similar to the allowance for loan losses. The
reserve for unfunded lending commitments is included in other
liabilities in the balance sheet.
Loan
Servicing
Servicing assets are recognized as separate assets when rights
are acquired through purchase or through sale of financial
assets with servicing retained. Capitalized servicing rights are
reported as mortgage servicing rights and are amortized into
non-interest income in proportion to, and over the period of,
the estimated future servicing of the underlying financial
assets. Servicing assets are evaluated for impairment based upon
the fair value of the rights as compared to amortized cost.
Impairment is determined by stratifying rights by predominant
characteristics, such as interest rates and terms. Fair value is
determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash
flows using market-based assumptions. Impairment for an
individual stratum is recognized through earnings within
mortgage banking income, to the extent that fair value is less
than the capitalized amount for the stratum.
79
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreclosed
Assets
Assets acquired through, or in lieu of, loan foreclosure are
held for sale and are initially recorded at fair value less cost
to sell at the date of foreclosure, establishing a new cost
basis. Subsequent to foreclosure, valuations are periodically
performed by management and the assets are carried at the lower
of carrying amount or fair value, less cost to sell. Revenue and
expenses from operations and changes in the valuation allowance
(any direct write-downs) are included in net expenses from
foreclosed assets.
Federal
Home Loan Bank Stock
The Company, as a member of the FHLB Boston (FHLBB)
system, is required to maintain an investment in capital stock
of the FHLB. Based on redemption provisions of the FHLBB, the
stock has no quoted market value and is carried at cost. In
December 2008, the FHLBB declared a moratorium on the redemption
of its stock. Also, subsequent to year end 2008, the FHLBB
announced that it has indefinitely suspended its dividend
payment beginning in the first quarter of 2009, and will
continue the moratorium, put into effect during the fourth
quarter of 2008, on all excess stock repurchases in an effort to
help preserve capital. Although the FHLBB reported a net loss
for the years ended December 31, 2009 and December 31,
2008, the Company reviewed recent public filings and rating
agencys analysis which showed high ratings, a capital
position which exceeds all required capital levels, and other
factors, which were considered by the Companys management
when determining if an OTTI exists with respect to the
Companys investment in FHLBB. As a result of the
Companys review for OTTI, management deemed the investment
in the FHLBB stock not to be OTTI as of December 31, 2009
and it will continue to be monitored closely. There can be no
assurance as to the outcome of managements future
evaluation of the Companys investment in the FHLBB.
Bank
Premises and Equipment
Land is carried at cost. Bank premises and equipment are stated
at cost less accumulated depreciation. Depreciation is computed
using the straight-line half year convention method over the
estimated useful lives of the assets. Leasehold improvements are
amortized over the shorter of the lease terms or the estimated
useful lives of the improvements.
Goodwill
and Identifiable Intangible Assets
Goodwill is the price paid over the net fair value of the
acquired businesses and is not amortized. Goodwill is evaluated
for impairment at least annually, or more often in certain
circumstances, by comparing fair value to carrying amount.
Goodwill is subject to ongoing periodic impairment tests and is
evaluated using a two step impairment approach. Step one of the
impairment testing compares book value to the market value of
the Companys stock, or to the fair value of the reporting
unit. If test one is failed a more detailed analysis is
performed, which involves measuring the excess of the fair value
of the reporting unit, as determined in step one, over the
aggregate fair value of the individual assets, liabilities, and
identifiable intangibles as if the reporting unit was being
acquired in a business combination. During 2009 the Company
passed step one and no further analysis was required. As a
result of such impairment testing, the Company determined
goodwill was not impaired.
Identifiable intangible assets consist of core deposit
intangibles, non-compete agreements, brand name, and customer
lists and are amortized over their estimated lives on a method
that approximates the amount of economic benefits that are
realized by the Company. They are reviewed for impairment
whenever events or changes in
80
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
circumstances indicate that the carrying amount of the assets
may not be recoverable. The range of useful lives are as follows:
|
|
|
|
|
Core Deposit Intangibles
|
|
|
7 - 10 Years
|
|
Non-Compete Agreements
|
|
|
5 Years
|
|
Customer Lists
|
|
|
10 Years
|
|
Brand name
|
|
|
5 Years
|
|
The determination of which intangible assets have finite lives
is subjective, as is the determination of the amortization
period for such intangible assets.
Impairment
of Long-Lived Assets Other Than Goodwill
The Company reviews long-lived assets, including premises and
equipment, for impairment whenever events or changes in business
circumstances indicate that the remaining useful life may
warrant revision or that the carrying amount of the long-lived
asset may not be fully recoverable. The Company performs
undiscounted cash flow analyses to determine if impairment
exists. If impairment is determined to exist, any related
impairment loss is calculated based on fair value. Impairment
losses on assets to be disposed of, if any, are based on the
estimated proceeds to be received, less costs of disposal.
Bank
Owned Life Insurance
Increases in the cash surrender value (CSV) of bank
owned life insurance (BOLI) policies, as well as
death benefits received net of any CSV, are recorded in other
non-interest income, and are not subject to income taxes. The
CSV of the policies are recorded as assets of the Bank. Any
amounts owed to employees from policy benefits are recorded as
liabilities of the Bank. The Company reviews the financial
strength of the insurance carriers prior to the purchase of BOLI
and annually thereafter. BOLI with any individual carrier is
limited to 15% of tier one capital and BOLI in total is limited
to 25% of tier one capital.
Derivatives
The Company manages economic risks, including interest rate, and
liquidity, primarily by managing the amount, sources, and
duration of it debt, funding, and the use of derivative
financial instruments. The Companys derivative financial
instruments are used to manage differences in the amount,
timing, and duration of the Companys known or expected
cash receipts and it known or expected cash payments principally
to manage the Companys interest rate risk.
Derivative instruments are carried at fair value in the
Companys financial statements. The accounting for changes
in the fair value of a derivative instrument is determined by
whether it has been designated and qualifies as part of a
hedging relationship, and further, by the type of hedging
relationship. For those derivative instruments that are
designated and qualify as hedging instruments, the Company
designated the hedging instrument, based upon the exposure being
hedged, as either a fair value hedge or a cash flow hedge. For
derivative instruments that are designated and qualify as a cash
flow hedge (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular
risk), the effective portion of the gain or loss on the
derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same
period or periods during which the hedged transactions affects
earnings. The remaining gain or loss on the derivative
instrument in excess of the cumulative change in the present
value of future cash flows of the hedged item (i.e., the
ineffective portion), if any, is recognized in current earnings
during the period. For derivative instruments designated and
qualifying as a fair value hedge (i.e., hedging the exposure to
changes in the fair value of an asset or liability or an
identified portion thereof that is attributable to the hedged
risk), the gain or loss on the derivative instrument, as well as
the offsetting loss or gain on the hedged item attributable to
the hedged risk, are recognized in current earnings during the
period of the change in fair values. For derivative instruments
not designated at hedging instruments, the gain or loss is
recognized in current earnings during the period of change.
81
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Mortgage loan commitments that relate to the origination of a
mortgage that will be held for sale upon funding are considered
derivative instruments. Loan commitments that are derivatives
are recognized at fair value on the consolidated balance sheet
in other assets and other liabilities with changes in their fair
value recorded in Mortgage Banking Income. The value associated
with servicing these loans is included in the fair value
measurement of all written loan commitments.
The Company also enters into forward sales agreements for
certain funded loans and loan commitments. The Company records
unfunded commitments intended for sale and forward sales
agreements at fair value with changes in fair value recorded as
a component of Mortgage Banking Income.
Transfers
of Financial Assets
Transfers of financial assets, typically residential mortgages
for the Company, are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets
is deemed to be surrendered when (1) the assets have been
isolated from the Company, (2) the transferee obtains the
right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred
assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to
repurchase them before their maturity.
Retirement
Plans
At the measurement date, plan assets are determined based on
fair value, generally representing observable market prices. The
actuarial cost method used to compute the pension liabilities
and related expense is the projected unit credit method. The
projected benefit obligation is principally determined based on
the present value of the projected benefit distributions at an
assumed discount rate. The discount rate which is utilized is
based on the investment yield of high quality corporate bonds
available in the market place with maturities equal to projected
cash flows of future benefit payments as of the measurement
date. Periodic pension expense (or income) includes service
costs, interest costs based on the assumed discount rate, the
expected return on plan assets, if applicable, based on an
actuarially derived market-related value and amortization of
actuarial gains and losses. The overfunded or underfunded status
of the plans is recorded as an asset or liability on the balance
sheet, with changes in that status recognized through other
comprehensive income.
In the case of multiple employer plans, the pension expense is
equal to the contributions made by the Company during the plan
year.
Stock-Based
Compensation
The Company values share-based awards granted using the
Black-Scholes option-pricing model. The Company is recognizing
compensation expense for its awards on a straight-line basis
over the requisite service period for the entire award
(straight-line attribution method), ensuring that the amount of
compensation cost recognized at any date at least equals the
portion of the grant-date fair value of the award that is vested
at that time.
Income
Taxes
Deferred income tax assets and liabilities are determined using
the asset and liability (or balance sheet) method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax basis. If current available information raises
doubt as to the realization of the deferred tax assets, a
valuation allowance is established. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. Income taxes are allocated to each entity in the
consolidated group based on its share of taxable income.
Management exercises significant judgment in evaluating the
amount and timing of recognition of the resulting tax
liabilities and assets, including projections of future taxable
income.
82
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Additionally, a liability for unrecognized tax benefits is
recorded for uncertain tax positions taken by the Company on its
tax returns for which there is less than a 50% likelihood of
being recognized upon a tax examination.
Tax credits generated from the New Markets Tax Credit program
are reflected in earnings when realized for federal income tax
purposes.
Investment
Management Trust Assets
Assets held in a fiduciary or agency capacity for customers are
not included in the accompanying consolidated balance sheet, as
such assets are not assets of the Company. Revenue from
administrative and management activities associated with these
assets is recorded on an accrual basis.
Earnings
per Share
Basic earnings per share are calculated by dividing net income
available to the common shareholder by the weighted average
number of common shares outstanding before any dilution during
the period. Unvested restricted shares and stock options
outstanding are not included in common shares outstanding.
Diluted earnings per share have been calculated in a manner
similar to that of basic earnings per share except that the
weighted average number of common shares outstanding is
increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common
shares (such as those resulting from the exercise of stock
options) were issued during the period, computed using the
treasury stock method.
Comprehensive
Income
Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes
unrealized gains on securities available for sale, unrealized
losses related to factors other than credit on debt securities,
unrealized gains and losses on cash flow hedges, and changes in
the funded status of the pension plan which are also recognized
as separate components of equity.
Fair
Value of Financial Instruments
Fair values of financial instruments are estimated using
relevant market information and other assumptions, as more fully
disclosed in Note 16, Fair Value Disclosure
hereof. Fair value estimates involve uncertainties and
matters of significant judgment. Changes in assumptions or in
market conditions could significantly affect the estimates.
Recent
Accounting Developments
FASB ASC Topic No. 855, Subsequent Events
(Statement of Financial Accounting Standards (SFAS)
No. 165 Subsequent Events (as
Amended)) This statement was established to
set forth principles and requirements for subsequent events. In
particular this statement set forth the period after the balance
sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements. This
guidance was effective for interim or annual financial periods
ending after June 15, 2009, and was applied prospectively.
The adoption of this statement did not have a material impact on
the Companys consolidated financial position or results of
operations.
FASB ASC Topic No. 860, Transfers and
Servicing (SFAS No. 166
(SFAS 166), Accounting for Transfers of
Financial Assets an amendment of FASB Statement
No. 140) The objective of this
Statement is to improve the relevance, representational
faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a
transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a
transferors continuing involvement in transferred
financial assets. This Statement must be applied as of the
beginning of each reporting entitys first annual reporting
period that begins after November 15, 2009, for interim
periods within that first annual reporting period and for
interim and annual
83
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reporting periods thereafter. Earlier application is prohibited.
The Company does not anticipate the adoption of this standard to
have a material impact on the Companys consolidated
financial position or results of operations.
FASB ASC Topic No. 810, Consolidation
(SFAS No. 167 Amendments to FASB Interpretations
46(R) (as amended)) The purpose of the
statement is to improve financial reporting by enterprises
involved with variable interest entities. This guidance requires
an enterprise to perform an analysis to determine whether the
enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity by
determining whether the Company has the power to direct the
activities of the variable interest entity that most
significantly impact the entitys economic performance.
This Standard shall be effective for interim or annual financial
periods ending after November 15, 2009. Early adoption is
not permitted. The adoption of this standard did not have a
material impact on the Companys consolidated financial
position or results of operations.
FASB ASC Topic No. 320, Investments
Debt and Equity Securities (FASB Staff Position
(FSP)
SFAS 115-2
&124-2 Recognition and Presentation of
Other-Than-Temporary
Impairments) Issued on April 9, 2009,
this standard amends the
other-than-temporary
impairment (OTTI) guidance in U.S. GAAP for
debt securities to make guidance more operational and to improve
the presentation and disclosure of OTTI on debt and equity
securities in the financial statements, by providing greater
clarity to investors about the credit and non-credit components
of OTTI. This standard was effective for interim and annual
periods ending after June 15, 2009, with early adoption for
the interim and annual periods ending after March 15, 2009.
The Company elected to early adopt this standard and pursuant to
the adoption of this standard, which stated that previously
recorded impairment charges which did not relate to credit loss
should be reclassified from retained earnings to other
comprehensive income (OCI), the Company recorded a
cumulative effect accounting adjustment that increased retained
earnings and decreased OCI for the amount of previously recorded
OTTI that was not related to credit. See Note 3
Securities hereof for further discussion of the
adoption of this standard.
FASB ASC Topic No. 820, Fair Value Measurement and
Disclosures (FSP
SFAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That are Not
Orderly) Issued on April 9, 2009, this
standard provides additional guidance for estimating fair value
in accordance with FASB ASC Topic No. 820, Fair Value
Measurements, when the volume and level of activity for
the assets or liability have significantly decreased. This
standard was effective for interim and annual reporting periods
ending after June 15, 2009. Early adoption was permitted
for periods ending after March 15, 2009. The Company
elected to early adopt this standard for the period ending
March 31, 2009. The adoption of the standard did not have a
material impact on the Companys consolidated financial
position or results of operations.
FASB ASC Update
2009-12,Topic
No. 820 Fair Value Measurement and Disclosures
(Investments in Certain Entities that Calculate Net Asset
Value per Share) Issued on
December 15, 2009, this standard clarifies within the fair
value hierarchy of a fair value measurement what level an
investment that is measured at net asset value per share should
be classified as. If a reporting entity has the ability to
redeem its investment with the investee at net asset value per
share (or its equivalent) at the measurement date, the fair
value measurement of the investment shall be categorized as a
Level 2 fair value measurement. If a reporting entity will
never have the ability to redeem its investment with the
investee at net asset value per share (or its equivalent), the
fair value measurement of the investment shall be categorized as
a Level 3 fair value measurement. This statement shall be
effective for the first reporting period, including interim
periods, ending after December 15, 2009. The adoption of
this standard did not have a material impact on the
Companys consolidated financial position or results of
operations.
Benjamin
Franklin Bancorp. Inc.
On April 10, 2009 the Company completed its acquisition of
Benjamin Franklin Bancorp., Inc. (Ben Franklin), the
parent of Benjamin Franklin Bank. The transaction qualified as a
tax-free reorganization for federal income tax purposes, and
former Ben Franklin shareholders received 0.59 shares of
the Companys common stock for each share of Ben Franklin
common stock which they owned. Under the terms of the merger,
cash was issued in lieu of fractional
84
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shares. Based upon the Companys $18.27 per share closing
price on April 9, 2009, the transaction was valued at
$10.7793 per share of Ben Franklin common stock or approximately
$84.5 million in the aggregate. As a result of the
acquisition, the Companys outstanding shares increased by
4,624,948 shares.
The Company accounted for the acquisition using the acquisition
method pursuant to the Business Combinations Topic of the FASB
ASC. Accordingly, the Company recorded merger and acquisition
expenses of $12.4 million during the year ended
December 31, 2009. Additionally, the acquisition method
requires an acquirer to recognize the assets acquired and the
liabilities assumed at their fair values as of the acquisition
date. The following table summarizes the estimated fair value of
the assets acquired and liabilities assumed as of the date of
the acquisition.
|
|
|
|
|
|
|
Net Assets Acquired
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
98,089
|
|
Investments
|
|
|
147,548
|
|
Loans, net
|
|
|
687,444
|
|
Premises and Equipment
|
|
|
5,919
|
|
Goodwill
|
|
|
12,193
|
|
Core Deposit & Other Intangible
|
|
|
7,616
|
|
Other Assets
|
|
|
47,639
|
|
|
|
|
|
|
Total Assets Acquired
|
|
|
1,006,448
|
|
Liabilities:
|
|
|
|
|
Deposits
|
|
|
701,407
|
|
Borrowings
|
|
|
196,105
|
|
Other Liabilities
|
|
|
24,433
|
|
|
|
|
|
|
Total Liabilities Assumed
|
|
|
921,945
|
|
|
|
|
|
|
Purchase Price
|
|
$
|
84,503
|
|
|
|
|
|
|
As noted above, the Company acquired loans at fair value of
$687.4 million. Included in this amount was
$3.9 million of loans with evidence of deterioration of
credit quality since origination for which it was probable, at
the time of the acquisition, that the Company would be unable to
collect all contractually required payments receivable. The
Companys evaluation of loans with evidence of loan
deterioration as of the acquisition date resulted in a
nonaccretable difference of $806,000, which is defined as the
loans contractually required payments receivable in excess
of the amount of its cash flows expected to be collected. The
Company considered factors such as payment history, collateral
values, and accrual status when determining whether there was
evidence of deterioration of loans credit quality at the
acquisition date. As of December 31, 2009 the carrying
amount of these loans with evidence of loan deterioration was
$1.8 million, and the remaining nonaccretable difference
was $14,000. The majority of the decrease in the nonaccretable
difference during 2009 was due to loan charge-offs, with the
remainder of the decrease being amortized into interest income.
A core deposit intangible of $6.6 million was recorded with
an expected life of ten years. There was an additional $650,000
of other intangibles recorded related to non-compete agreements
with a life of one year, and other various intangibles of
$340,000.
The following summarizes the unaudited pro forma results of
operations as if the Company acquired Ben Franklin on
January 1, 2009 (2008 amounts represent combined results
for the Company and Ben Franklin).
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
Net Interest Income after Provision for Loan Losses
|
|
$
|
137,369
|
|
|
$
|
130,301
|
|
Net Income
|
|
|
33,953
|
|
|
|
27,633
|
|
Earnings Per Share- Basic
|
|
$
|
1.66
|
|
|
$
|
1.37
|
|
Earnings Per Share- Diluted
|
|
$
|
1.65
|
|
|
$
|
1.38
|
|
85
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Excluded from the pro forma results of operations for the year
ended December 31, 2009 are merger costs net of tax
$9.3 million, or $0.47 per diluted share, respectively,
primarily made up of the acceleration of certain compensation
and benefit costs arising due to the change in control and other
merger expenses.
Slades
Ferry Bancorp.
Effective March 1, 2008, the Company acquired Slades
Ferry Bancorp. (Slades), parent of Slades
Ferry Trust Company, doing business as Slades Bank. In
accordance with SFAS No. 141 Business
Combinations, the acquisition was accounted for under the
purchase method of accounting and, as such, was included in the
Companys results of operations from the date of
acquisition. The terms of the agreement called for 75% of the
outstanding common shares of Slades stock to be converted to
0.818 shares of Independent Bank Corp. and for the
remaining 25% to be purchased for $25.50 in cash. The Company
issued 2,492,195 shares of common stock valued at
$76.2 million, or $30.59 per share. The $30.59 was
determined based on the average of the closing prices of the
Companys shares over a five day trading period beginning
two trading days prior to the date of the announcement of the
acquisition and ending two trading days following the date of
the announcement of the acquisition. The cash payment totaled
$25.9 million equating to a total purchase price of
$102.2 million. The acquisition of Slades allowed the
Company to expand its geographical footprint. The following
table summarizes the estimated fair value of the assets acquired
and liabilities assumed at the date of acquisition.
|
|
|
|
|
|
|
Net Assets Acquired
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
Cash acquired
|
|
$
|
12,455
|
|
Investments
|
|
|
106,700
|
|
Loans, net
|
|
|
465,720
|
|
Premises and Equipment
|
|
|
11,502
|
|
Goodwill
|
|
|
58,123
|
|
Core Deposit & Other Intangible
|
|
|
8,961
|
|
Other Assets
|
|
|
25,109
|
|
|
|
|
|
|
Total Assets Acquired
|
|
$
|
688,570
|
|
Liabilities:
|
|
|
|
|
Deposits
|
|
$
|
410,769
|
|
Borrowings
|
|
|
161,974
|
|
Other Liabilities
|
|
|
13,676
|
|
|
|
|
|
|
Total Liabilities Assumed
|
|
$
|
586,419
|
|
|
|
|
|
|
Purchase Price
|
|
$
|
102,151
|
|
|
|
|
|
|
A core deposit intangible of $8.8 million was recorded with
an expected life of ten years. There was an additional $200,000
of other intangibles recorded related to non-compete agreements
with a life of one year.
The following summarizes the unaudited pro forma results of
operations as if the Company acquired Slades on January 1,
2008 (2007 amounts represent combined results for the Company
and Slades).
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2007
|
|
Net Interest Income after Provision for Loan Losses
|
|
$
|
120,507
|
|
|
$
|
113,730
|
|
Net Income
|
|
|
23,041
|
|
|
|
31,211
|
|
Earnings Per Share- Basic
|
|
$
|
1.42
|
|
|
$
|
1.80
|
|
Earnings Per Share- Diluted
|
|
$
|
1.41
|
|
|
$
|
1.78
|
|
86
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Excluded from the pro forma results of operations for the year
ended December 31, 2008 are merger costs net of tax
$641,000 or $0.04 per diluted share, respectively, primarily
made up of the acceleration of certain compensation and benefit
costs arising due to the change in control and other merger
expenses.
The amortized cost, gross unrealized holding gains and losses,
other-than-temporary
impairment recorded in other comprehensive income, and fair
value of securities held to maturity at December 31 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
|
|
|
Temporary
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
|
|
|
Temporary
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Other
|
|
|
Impairment
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Other
|
|
|
Impairment
|
|
|
Value
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Agency Mortgage-Backed Securities
|
|
$
|
54,064
|
|
|
$
|
503
|
|
|
$
|
(283
|
)
|
|
$
|
|
|
|
$
|
54,284
|
|
|
$
|
3,470
|
|
|
$
|
130
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,600
|
|
Agency Collateralized Mortgage Obligations
|
|
|
14,321
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
14,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, County, and Municipal Securities
|
|
|
15,252
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
15,636
|
|
|
|
19,516
|
|
|
|
324
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
19,787
|
|
Single Issuer Trust Preferred Securities Issued by Banks
|
|
|
9,773
|
|
|
|
|
|
|
|
(661
|
)
|
|
|
|
|
|
|
9,112
|
|
|
|
9,803
|
|
|
|
|
|
|
|
(2,800
|
)
|
|
|
|
|
|
|
7,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,410
|
|
|
$
|
972
|
|
|
$
|
(944
|
)
|
|
$
|
|
|
|
$
|
93,438
|
|
|
$
|
32,789
|
|
|
$
|
454
|
|
|
$
|
(2,853
|
)
|
|
$
|
|
|
|
$
|
30,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, gross unrealized holding gains and losses,
other-than-temporary
impairment recorded in other comprehensive income and fair value
of securities available for sale at December 31 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
|
|
|
Temporary
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
|
|
|
Temporary
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Other
|
|
|
Impairment
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Other
|
|
|
Impairment
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
U.S. Treasury Securities
|
|
$
|
744
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
744
|
|
|
$
|
705
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
710
|
|
Agency Mortgage-Backed Securities
|
|
|
435,929
|
|
|
|
16,450
|
|
|
|
(470
|
)
|
|
|
|
|
|
|
451,909
|
|
|
|
462,539
|
|
|
|
12,721
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
475,083
|
|
Agency Collateralized Mortgage Obligations
|
|
|
31,323
|
|
|
|
774
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
32,022
|
|
|
|
56,541
|
|
|
|
323
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
56,783
|
|
Private Mortgage-Backed Securities(1)
|
|
|
15,640
|
|
|
|
|
|
|
|
(681
|
)
|
|
|
(670
|
)
|
|
|
14,289
|
|
|
|
22,020
|
|
|
|
|
|
|
|
(6,506
|
)
|
|
|
|
|
|
|
15,514
|
|
State, County, and Municipal Securities
|
|
|
4,000
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
4,081
|
|
|
|
18,620
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
18,954
|
|
Corporate Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,925
|
|
|
|
927
|
|
|
|
|
|
|
|
|
|
|
|
25,852
|
|
Single Issuer Trust Preferred Securities Issued by Banks
|
|
|
5,000
|
|
|
|
|
|
|
|
(1,990
|
)
|
|
|
|
|
|
|
3,010
|
|
|
|
5,000
|
|
|
|
|
|
|
|
(2,798
|
)
|
|
|
|
|
|
|
2,202
|
|
Pooled Trust Preferred Securities Issued by Banks and
Insurers(1)(2)
|
|
|
8,705
|
|
|
|
|
|
|
|
(2,382
|
)
|
|
|
(3,728
|
)
|
|
|
2,595
|
|
|
|
17,437
|
|
|
|
|
|
|
|
(6,269
|
)
|
|
|
(5,975
|
)
|
|
|
5,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
501,341
|
|
|
$
|
17,305
|
|
|
$
|
(5,598
|
)
|
|
$
|
(4,398
|
)
|
|
$
|
508,650
|
|
|
$
|
607,787
|
|
|
$
|
14,310
|
|
|
$
|
(15,831
|
)
|
|
$
|
(5,975
|
)
|
|
$
|
600,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the year ended December 31, 2009, the Company
recorded OTTI of $9.0 million, included in the
$9.0 million of OTTI was $1.6 million which the
Company had previously reclassed from OCI to earnings as it was
considered to be non-credit related. |
|
(2) |
|
The Company recorded OTTI charges in this category of
$7.2 million for the year ended December 31, 2008. For
securities deemed to be
other-than-temporarily
impaired the amortized cost reflects previous OTTI recognized in
earnings. Subsequently, pursuant to the provisions of the
Investments Debt and Equity Securities Topic of the
FASB ASC, which stated that previously recorded impairment
charges which did not relate to credit loss should be
reclassified from retained earnings to OCI, the Company recorded
a cumulative |
87
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
effect adjustment that increased retained earnings and decreased
OCI by $6.0 million, or $3.8 million net of tax,
respectively. |
|
|
|
The table above reflects the reclass to OCI pursuant to the
provisions of the Investments Debt and Equity
Securities Topic of the FASB ASC for comparative illustrative
purposes only, as the FASB ASC was adopted effective
January 1, 2009. |
The Company recorded gross gains on the sale of securities of
$1.4 million and $756,000 for the year ended
December 31, 2009 and 2008, respectively, and there were no
gross gains recorded in 2007 on the sale of available for sale
securities. The Bank realized $25,000 gross losses on the
sale of securities in 2009, $1.4 million gross losses on
the sale of securities in 2008, and no gross losses on the sale
of securities in 2007. When securities are sold, the adjusted
cost of the specific security sold is used to compute the gain
or loss on the sale. In 2009 the majority of the acquired Ben
Franklin portfolio was sold resulting in a small gross loss of
$25,000. In 2008 the Company sold the majority of Slades
investment securities portfolio, which comprised the majority of
the $1.4 million gross losses in 2008.
A schedule of the contractual maturities of securities held to
maturity and securities available for sale as of
December 31, 2009 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity
|
|
|
Available for Sale
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
Due in one year or less
|
|
$
|
588
|
|
|
$
|
601
|
|
|
$
|
4,000
|
|
|
$
|
4,081
|
|
Due from one year to five years
|
|
|
7,350
|
|
|
|
7,569
|
|
|
|
35,732
|
|
|
|
36,647
|
|
Due from five to ten years
|
|
|
7,644
|
|
|
|
7,915
|
|
|
|
122,429
|
|
|
|
127,019
|
|
Due after ten years
|
|
|
77,828
|
|
|
|
77,353
|
|
|
|
339,180
|
|
|
|
340,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
93,410
|
|
|
$
|
93,438
|
|
|
$
|
501,341
|
|
|
$
|
508,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The actual maturities of agency mortgage-backed securities,
collateralized mortgage obligations, private mortgage-backed
securities, and corporate debt securities will differ from the
contractual maturities, due to the ability of the issuers to
prepay underlying obligations. At December 31, 2009 and
2008, the Bank has $31.7 million and $45.8 million,
respectively, of callable securities in its investment portfolio.
On December 31, 2009 and December 31, 2008 investment
securities carried at $297.2 million and
$254.6 million, respectively, were pledged to secure public
deposits, assets sold under repurchase agreements, treasury tax
and loan notes, letters of credit, and for other purposes as
required by law. During 2009 the Federal Home Loan Bank Boston
(FHLBB) changed the requirements for pledging
securities as collateral, by requiring that the securities be
held in a safekeeping account at the FHLBB. The Bank currently
is not safekeeping securities with the FHLBB and therefore the
securities are not eligible to be pledged as collateral at this
time. Management will continue to review the cost/benefit and
its liquidity needs as it relates to safekeeping and pledging
investment securities at the FHLBB. At December 31, 2009
there were no securities pledged to the FHLBB to secure advances
and at December 31, 2008, $310.6 million of
securities, at carrying value, were pledged to the FHLBB to
secure advances.
At year-end December 31, 2009 and 2008, the Company had no
investments in obligations of individual states, counties, or
municipalities, which exceed 10% of stockholders equity.
Other-Than-Temporary
Impairment
The Company continually reviews investment securities for the
existence of
other-than-temporary
impairment (OTTI), taking into consideration current
market conditions, the extent and nature of changes in fair
value, issuer rating changes and trends, the credit worthiness
of the obligor of the security, volatility of earnings, current
analysts evaluations, the Companys intent to sell
the security or whether it is more likely than not that the
Company will be
88
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
required to sell the debt security before its anticipated
recovery, as well as other qualitative factors. The term
other-than-temporary
is not intended to indicate that the decline is permanent, but
indicates that the prospects for a near-term recovery of value
is not necessarily favorable, or that there is a lack of
evidence to support a realizable value equal to or greater than
the carrying value of the investment.
Management prepares an estimate of the expected cash flows for
investment securities that potentially may be deemed to have
OTTI. This estimate begins with the contractual cash flows of
the security. This amount is then reduced by an estimate of
probable credit losses associated with the security. When
estimating the extent of probable losses on the securities,
management considers the strength of the underlying issuers.
Indicators of diminished credit quality of the issuers includes
defaults, interest deferrals, or payments in kind.
Management also considers those factors listed in the
Investments Debt and Equity Securities topic of the
FASB ASC when estimating the ultimate realizability of the cash
flows for each individual security. The resulting estimate of
cash flows after considering credit is then subject to a present
value computation using a discount rate equal to the current
yield used to accrete the beneficial interest or the effective
interest rate implicit in the security at the date of
acquisition. If the present value of the estimated cash flows is
less than the current amortized cost basis, an OTTI is
considered to have occurred and the security is written down to
the fair value indicated by the cash flows analysis. As part of
the analysis, management considers whether it intends to sell
the security or whether it is more than likely that it would be
required to sell the security before the recovery of its
amortized cost basis.
In determining which portion of the OTTI charge is related to
credit, and what portion is related to other factors, management
considers the reductions in the cash flows due to credit and
ascribes that portion of the OTTI charge to credit. Simply, to
the extent the estimated cash flows do not support the amortized
cost, that amount is considered credit loss and the remainder of
the unrealized loss is considered due to other factors, such as
liquidity or interest rates, and thus is not recognized in
earnings, but rather through other comprehensive income.
The following tables show the gross unrealized losses and fair
value of the Companys investments in an unrealized loss
position, which the Company has not deemed to be OTTI,
aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss
position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
# of
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
Description of Securities
|
|
Holdings
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Agency Mortgage-Backed Securities
|
|
|
8
|
|
|
$
|
62,716
|
|
|
$
|
(753
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
62,716
|
|
|
$
|
(753
|
)
|
Agency Collateralized Mortgage Obligations
|
|
|
5
|
|
|
|
3,557
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
3,557
|
|
|
|
(75
|
)
|
Private Mortgage-Backed Securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
8,653
|
|
|
|
(681
|
)
|
|
|
8,653
|
|
|
|
(681
|
)
|
City, State, and Local Municipal Bonds
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Issuer Trust Preferred Securities Issued by Banks
and Insurers
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
12,122
|
|
|
|
(2,651
|
)
|
|
|
12,122
|
|
|
|
(2,651
|
)
|
Pooled Trust Preferred Securities Issued by Banks and
Insurers
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2,334
|
|
|
|
(2,382
|
)
|
|
|
2,334
|
|
|
|
(2,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily Impaired Securities
|
|
|
20
|
|
|
$
|
66,273
|
|
|
$
|
(828
|
)
|
|
$
|
23,109
|
|
|
$
|
(5,714
|
)
|
|
$
|
89,382
|
|
|
$
|
(6,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Less Than 12 Months
|
|
|
12 Months or Longer
|
|
|
Total
|
|
|
|
# of
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
Description of Securities
|
|
Holdings
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Agency Mortgage-Backed Securities
|
|
|
10
|
|
|
$
|
4,326
|
|
|
$
|
(177
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,326
|
|
|
$
|
(177
|
)
|
Agency Collateralized Mortgage Obligations
|
|
|
4
|
|
|
|
16,730
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
16,730
|
|
|
|
(81
|
)
|
Private Mortgage-Backed Securities
|
|
|
2
|
|
|
|
15,514
|
|
|
|
(6,506
|
)
|
|
|
|
|
|
|
|
|
|
|
15,514
|
|
|
|
(6,506
|
)
|
City, State, and Local Municipal Bonds
|
|
|
4
|
|
|
|
1,613
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
1,613
|
|
|
|
(54
|
)
|
Single Issuer Trust Preferred Securities Issued by Banks
and Insurers
|
|
|
4
|
|
|
|
1,043
|
|
|
|
(496
|
)
|
|
|
8,163
|
|
|
|
(5,102
|
)
|
|
|
9,206
|
|
|
|
(5,598
|
)
|
Pooled Trust Preferred Securities Issued by Banks and
Insurers
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3,495
|
|
|
|
(6,268
|
)
|
|
|
3,495
|
|
|
|
(6,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Temporarily Impaired Securities
|
|
|
27
|
|
|
$
|
39,226
|
|
|
$
|
(7,314
|
)
|
|
$
|
11,658
|
|
|
$
|
(11,370
|
)
|
|
$
|
50,884
|
|
|
$
|
(18,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company does not intend to sell these investments and has
determined based upon available evidence that it is more likely
than not that the Company will not be required to sell the
security before the recovery of its amortized cost basis. As a
result, the Company does not consider these investments to be
OTTI. The Company was able to determine this by reviewing
various qualitative and quantitative factors regarding each
investment category information such as current market
conditions, extent and nature of changes in fair value, issuer
rating changes and trends, volatility of earnings, and current
analysts evaluations. As a result of the Companys
review of these qualitative and quantitative factors, the causes
of the impairments listed in the table above by category are as
follows:
Agency Mortgage-Backed Securities and Collateralized Mortgage
Obligation: The unrealized loss on the
Companys investment in these securities is attributable to
changes in interest rates and not due to credit deterioration,
as these securities are implicitly guaranteed by the
U.S. Government or one of its agencies.
Private Mortgage-Backed Securities: The
unrealized loss on this security, which is below investment
grade, is attributable to the credit rating downgrades received
during the past year and the general uncertainty surrounding the
housing market and its potential impact on securitized mortgage
loans. Management evaluates various factors, including current
and expected performance of underlying collateral, to determine
collectability of amounts due.
City, State, and Local Municipal Bonds: The
unrealized losses on the Companys investment in City,
State and Local Municipal Bonds are due to current disruptions
in the municipal insurance business, rather than credit concerns.
Single Issuer Trust Preferred
Securities: This portfolio consists of four
securities, one of which is investment grade, two of which are
below investment grade and one which is not rated. The
unrealized loss on these securities is attributable to the
illiquid nature of the trust preferred market in the current
economic environment. Management evaluates various financial
metrics for each of the issuers, including capitalization rates.
Pooled Trust Preferred Securities: This
portfolio consists of both investment grade and below investment
grade securities. The unrealized loss on these securities is
attributable to the illiquid nature of the trust preferred
market and the significant risk premiums required in the current
economic environment. Management evaluates collateral credit and
instrument structure, including current and expected deferral
and default rates and timing. In addition, discount rates are
determined by evaluating comparable spreads observed currently
in the market for similar instruments.
90
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Management monitors the following issuances closely for
impairment due to the history of OTTI losses recorded within
these classes of securities. Management has determined that the
securities possess characteristics which in this economic
environment could lead to further OTTI charges. The following
tables summarize pertinent information that was considered by
management in determining if OTTI existed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lowest Credit
|
|
Temporary
|
|
|
|
|
|
|
|
|
|
|
|
Other-
|
|
|
|
|
|
Ratings as of
|
|
Impairment Thru
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Than-Temporary
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
Security Name
|
|
Class
|
|
Amortized Cost*
|
|
|
Loss
|
|
|
Impairment
|
|
|
Fair Value
|
|
|
2009
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
Pooled Trust Preferred Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled Trust Preferred Security A
|
|
C1
|
|
$
|
1,283
|
|
|
$
|
|
|
|
$
|
(1,224
|
)
|
|
$
|
59
|
|
|
CC(Fitch); Ca(Moodys)
|
|
$
|
(4,900
|
)
|
Pooled Trust Preferred Security B
|
|
D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C (Fitch)
|
|
|
(3,481
|
)
|
Pooled Trust Preferred Security C
|
|
C1
|
|
|
539
|
|
|
|
|
|
|
|
(503
|
)
|
|
|
36
|
|
|
C (Fitch)
|
|
|
(952
|
)
|
Pooled Trust Preferred Security D
|
|
D
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C (Fitch)
|
|
|
(990
|
)
|
Pooled Trust Preferred Security E
|
|
C1
|
|
|
2,167
|
|
|
|
|
|
|
|
(2,001
|
)
|
|
|
166
|
|
|
CC(Fitch); Ca(Moodys)
|
|
|
(3,282
|
)
|
Pooled Trust Preferred Security F
|
|
B
|
|
|
1,887
|
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
659
|
|
|
B3 (Moodys)
|
|
|
|
|
Pooled Trust Preferred Security G
|
|
A1
|
|
|
2,829
|
|
|
|
(1,154
|
)
|
|
|
|
|
|
|
1,675
|
|
|
BBB-(S&P)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,705
|
|
|
$
|
(2,382
|
)
|
|
$
|
(3,728
|
)
|
|
$
|
2,595
|
|
|
|
|
$
|
(13,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Mortgage-Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Mortgage-Backed Securities One
|
|
2A1
|
|
$
|
6,306
|
|
|
$
|
|
|
|
$
|
(670
|
)
|
|
$
|
5,636
|
|
|
CC (Fitch)
|
|
$
|
(987
|
)
|
Private Mortgage-Backed Securities Two
|
|
A19
|
|
|
9,334
|
|
|
|
(681
|
)
|
|
|
|
|
|
|
8,653
|
|
|
B (Fitch)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,640
|
|
|
$
|
(681
|
)
|
|
$
|
(670
|
)
|
|
$
|
14,289
|
|
|
|
|
$
|
(987
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
For the securities deemed impaired the amortized cost reflects
previous OTTI recognized in earnings. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Performing Banks
|
|
Current
|
|
Total Projected
|
|
Excess Subordination (After
|
|
|
and Insurance Cos.
|
|
Deferrals/Defaults/Losses
|
|
Defaults/Losses (as
|
|
Taking Into Account Best
|
|
|
in Issuance
|
|
(As a % of Original
|
|
a % of Performing
|
|
Estimate of Future
|
Security Name
|
|
(Unique)
|
|
Collateral)
|
|
Collateral)
|
|
Deferrals/Defaults/Losses)*
|
|
Pooled Trust Preferred Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust Preferred Security A
|
|
|
68
|
|
|
|
29.44
|
%
|
|
|
25.42
|
%
|
|
|
0.00
|
%
|
Trust Preferred Security B
|
|
|
68
|
|
|
|
29.44
|
%
|
|
|
25.42
|
%
|
|
|
0.00
|
%
|
Trust Preferred Security C
|
|
|
53
|
|
|
|
30.96
|
%
|
|
|
24.55
|
%
|
|
|
0.00
|
%
|
Trust Preferred Security D
|
|
|
53
|
|
|
|
30.96
|
%
|
|
|
24.55
|
%
|
|
|
0.00
|
%
|
Trust Preferred Security E
|
|
|
55
|
|
|
|
24.99
|
%
|
|
|
20.31
|
%
|
|
|
0.00
|
%
|
Trust Preferred Security F
|
|
|
37
|
|
|
|
21.24
|
%
|
|
|
21.43
|
%
|
|
|
43.52
|
%
|
Trust Preferred Security G
|
|
|
37
|
|
|
|
21.24
|
%
|
|
|
21.43
|
%
|
|
|
22.36
|
%
|
Private Mortgage-Backed Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private Mortgage-Backed Securities One
|
|
|
N/A
|
|
|
|
0.57
|
%
|
|
|
6.12
|
%
|
|
|
0.00
|
%
|
Private Mortgage-Backed Securities Two
|
|
|
N/A
|
|
|
|
0.18
|
%
|
|
|
8.14
|
%
|
|
|
0.00
|
%
|
|
|
|
* |
|
Excess subordination represents the additional default/losses in
excess of both current and projected defaults/losses that the
security can absorb before the security experiences any credit
impairment. |
91
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Per review of the factors outlined above it was determined that
six of the securities shown in the table above were deemed to be
OTTI. The remaining securities were not deemed to be OTTI as the
Company does not intend to sell these investments and has
determined, based upon available evidence that it is more likely
than not that the Company will not be required to sell the
security before the recovery of its amortized cost basis.
The Company recorded OTTI of $9.0 million through earnings
for the year ended December 31, 2009, all of which was
determined to be credit related. Included in the
$9.0 million of OTTI was $1.6 million which the
Company reclassed from OCI to earnings for OTTI previously
considered to be non-credit related. For the year ended
December 31, 2008 the Company recorded OTTI on certain
investment grade pooled trust preferred securities, which
resulted in a charge to non-interest income of
$7.2 million. In connection with the adoption of new
authoritative guidance, previously recorded impairment charges
which did not relate to credit loss were reclassified from
retained earnings to OCI as of January 1, 2009.
Accordingly, the Company recorded a cumulative effect adjustment
that increased retained earnings and decreased OCI by
$6.0 million, or $3.8 million, net of tax. The
remaining $1.2 million of the previously recorded
$7.2 million OTTI charge was deemed to be credit related.
The following table shows the credit related component of
other-than-temporary
impairment.
Credit
Related Component of
Other-Than-Temporary
Impairment
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at January 1, 2009
|
|
$
|
(1,236
|
)
|
Add:
|
|
|
|
|
Incurred on Securities not Previously Impaired
|
|
|
(3,993
|
)
|
Incurred on Securities Previously Impaired
|
|
|
(4,965
|
)
|
Less:
|
|
|
|
|
Realized Gain/Loss on Sale of Securities
|
|
|
|
|
Reclassification Due to Changes in Companys Intent
|
|
|
|
|
Increases in Cash Flow Expected to be Collected
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
(10,194
|
)
|
|
|
|
|
|
Trading assets, at fair value, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Fair Value
|
|
|
|
(Dollars in thousands)
|
|
|
Cash Equivalents
|
|
$
|
71
|
|
|
$
|
60
|
|
Fixed Income Securities
|
|
|
1,229
|
|
|
|
569
|
|
Marketable Equity Securities
|
|
|
4,871
|
|
|
|
2,072
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,171
|
|
|
$
|
2,701
|
|
|
|
|
|
|
|
|
|
|
The Company realized a loss on trading activities of $215,000 in
2009, and gains of $1,000 and $134,000 in 2008 and 2007,
respectively, which is included in other income. The majority of
the trading assets are held for funding non-qualified executive
retirement obligations within a Rabbi Trust (see
Note 14, Employee Benefit Plans hereof). A
majority of the equity securities are comprised of a
$3.2 million equities portfolio, of which $1.2 million
was acquired as part of the Slades acquisition and
$2.0 million was acquired as part of the Ben Franklin
transaction. These portfolios are entirely comprised of funds
whose investment objective is to invest in geographically
specific private placement debt securities designed to support
underlying economic activities such as community development and
affordable housing.
92
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(4)
|
Loans and
Allowance For Loan Losses
|
A summary of the balances of loans follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
COMMERCIAL AND INDUSTRIAL
|
|
$
|
372,978
|
|
|
$
|
270,390
|
|
COMMERCIAL REAL ESTATE
|
|
|
1,614,557
|
|
|
|
1,126,774
|
|
COMMERCIAL CONSTRUCTION
|
|
|
175,636
|
|
|
|
172,314
|
|
SMALL BUSINESS
|
|
|
82,517
|
|
|
|
86,598
|
|
RESIDENTIAL REAL ESTATE
|
|
|
553,086
|
|
|
|
409,694
|
|
RESIDENTIAL CONSTRUCTION
|
|
|
10,736
|
|
|
|
10,950
|
|
HOME EQUITY
|
|
|
471,023
|
|
|
|
405,668
|
|
CONSUMER AUTO
|
|
|
79,273
|
|
|
|
127,956
|
|
CONSUMER OTHER
|
|
|
32,341
|
|
|
|
38,419
|
|
NET DEFERRED LOAN FEES
|
|
|
3,368
|
|
|
|
3,773
|
|
|
|
|
|
|
|
|
|
|
TOTAL LOANS
|
|
|
3,395,515
|
|
|
|
2,652,536
|
|
LESS: ALLOWANCE FOR LOAN LOSSES
|
|
|
(42,361
|
)
|
|
|
(37,049
|
)
|
|
|
|
|
|
|
|
|
|
NET LOANS
|
|
$
|
3,353,154
|
|
|
$
|
2,615,487
|
|
|
|
|
|
|
|
|
|
|
An analysis of the changes in allowance for loan losses for the
years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance for loan losses, beginning of year
|
|
$
|
37,049
|
|
|
$
|
26,831
|
|
|
$
|
26,815
|
|
Loans charged off
|
|
|
(13,255
|
)
|
|
|
(7,138
|
)
|
|
|
(3,868
|
)
|
Recoveries on loans previously charged off
|
|
|
1,232
|
|
|
|
944
|
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(12,023
|
)
|
|
|
(6,194
|
)
|
|
|
(3,114
|
)
|
Allowance related to business combinations
|
|
|
|
|
|
|
5,524
|
|
|
|
|
|
Provision charged to expense
|
|
|
17,335
|
|
|
|
10,888
|
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses, end of year
|
|
$
|
42,361
|
|
|
$
|
37,049
|
|
|
$
|
26,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
and Nonaccrual Loans
Impaired loans included all commercial real estate loans and
commercial and industrial loans on nonaccrual status, troubled
debt restructures, and other loans that have been categorized as
impaired. Total impaired loans at December 31, 2009 and
2008 were $39.2 million and $15.6 million,
respectively.
93
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Banks recorded investment in impaired loans and the
related valuation allowance was as follows:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Impaired loans:
|
|
|
|
|
|
|
|
|
Valuation allowance required
|
|
$
|
14,163
|
|
|
$
|
5,532
|
|
No valuation allowance required
|
|
|
25,068
|
|
|
|
10,109
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,231
|
|
|
$
|
15,641
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance related to impaired loans
|
|
$
|
1,772
|
|
|
$
|
2,121
|
|
Total loans accounted for on a nonaccrual basis
|
|
$
|
35,891
|
|
|
$
|
26,658
|
|
Total loans past-due ninety days or more and still accruing
|
|
$
|
292
|
|
|
$
|
275
|
|
See the table below for interest income that was recognized or
collected on the nonaccrual loans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Average investment in impaired loans
|
|
$
|
29,360
|
|
|
$
|
7,885
|
|
|
$
|
3,861
|
|
Interest income that would have been recognized if nonaccruing
loans at their respective dates had been performing
|
|
$
|
2,004
|
|
|
$
|
890
|
|
|
$
|
326
|
|
Interest income recognized on troubled debt restructured
accruing loans at their respective dates(1)
|
|
$
|
330
|
|
|
$
|
21
|
|
|
$
|
|
|
Interest collected on these nonaccrual and restructured loans
and included in interest income(1)
|
|
$
|
359
|
|
|
$
|
198
|
|
|
$
|
120
|
|
|
|
|
(1) |
|
There were no restructured loans at December 31, 2007. |
Included in certain loan categories in the impaired loans are
troubled debt restructurings that were classified as impaired.
At December 31, 2009, the Company had $5.0 million
residential mortgages, $1.4 million of consumer loans and
$690,000 of commercial loans that were modified in troubled debt
restructurings.
Loan
Servicing
At December 31, 2009 and 2008, the Company serviced
approximately $350.5 million and $250.5 million,
respectively, of loans sold to investors in the secondary
mortgage market and other financial institutions.
The following summarizes the activity pertaining to mortgage
servicing rights measured using the amortization method:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Balance as of January 1,
|
|
$
|
1,498
|
|
|
$
|
2,073
|
|
Additions
|
|
|
1,642
|
*
|
|
|
115
|
|
Amortization
|
|
|
(802
|
)
|
|
|
(348
|
)
|
Change in Valuation Allowance
|
|
|
(143
|
)
|
|
|
(342
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31,
|
|
$
|
2,195
|
|
|
$
|
1,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Included in this number is a mortgage servicing asset of $1.2M
acquired as part of the Ben Franklin acquisition. |
94
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Loans
to Insiders
The Bank has granted loans to principal officers, directors (and
their affiliates) and principal security holders. All such loans
were made in the ordinary course of business on substantially
the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with other
persons, and do not involve more than the normal risk of
collectability or present other unfavorable features. Annual
activity consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Net Principal Balance of Loans Outstanding as of
January 1,
|
|
$
|
35,143
|
|
|
$
|
28,461
|
|
Loan Advances
|
|
|
49,889
|
|
|
|
56,151
|
|
Loan Payments/Payoffs
|
|
|
(53,529
|
)
|
|
|
(49,469
|
)
|
|
|
|
|
|
|
|
|
|
Net Principal Balance of Loans Outstanding as of
December 31,
|
|
$
|
31,503
|
|
|
$
|
35,143
|
|
|
|
|
|
|
|
|
|
|
(5) Bank
Premises and Equipment
Bank premises and equipment at December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
2009
|
|
|
2008
|
|
|
Useful Life
|
|
|
|
(Dollars in thousands)
|
|
|
(In Years)
|
|
|
Cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
11,873
|
|
|
$
|
9,500
|
|
|
|
N/A
|
|
Bank Premises
|
|
|
20,058
|
|
|
|
15,721
|
|
|
|
5-39
|
|
Leasehold Improvements
|
|
|
15,374
|
|
|
|
13,352
|
|
|
|
5-15
|
|
Furniture and Equipment
|
|
|
42,732
|
|
|
|
39,371
|
|
|
|
3-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost
|
|
|
90,037
|
|
|
|
77,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation
|
|
|
(45,802
|
)
|
|
|
(41,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Bank Premises and Equipment
|
|
$
|
44,235
|
|
|
$
|
36,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense related to bank premises and equipment was
$4.6 million in 2009 and $4.1 million in 2008 and
2007, which is included in occupancy and equipment expense.
During 2008, the Bank completed a sale and leaseback transaction
consisting of 17 branch properties and various individual office
buildings. In total the Company sold and concurrently leased
back $27.6 million in land and buildings with associated
accumulated depreciation of $9.4 million. Proceeds were
$32.2 million, resulting in a gain of $13.2 million,
net of transaction costs of $753,000. The net gain was deferred
and is being amortized ratably over the lease terms of the
individual buildings, which terms are either 10 or
15 years, through rent expense as a component of occupancy
and equipment expense.
|
|
(6)
|
Goodwill
and Identifiable Intangible Assets
|
Goodwill and identifiable intangible assets as of
December 31, 2009 and December 31, 2008 were
$143.7 million and $125.7 million, respectively.
During the second quarter of 2009 the Company acquired Ben
Franklin resulting in additional goodwill of $12.2 million
and core deposit and other identifiable intangible assets of
$7.6 million. During 2008 the Company completed the
acquisition of Slades Ferry Bancorp., which resulted in
additional goodwill of $58.0 million and other identifiable
intangible assets of $9.0 million. Additionally, the
Company recorded additional goodwill of approximately $718,000
and $200,000 in 2009 and 2008, respectively relating to earn out
payments from prior acquisitions.
95
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has $129.3 million of goodwill recorded as of
December 31, 2009, of which approximately
$38.6 million is expected to be deductible for tax purposes.
The changes in goodwill and identifiable intangible assets for
the years ended December 31, 2009, 2008, and 2007 are shown
in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount of Goodwill and Intangibles
|
|
|
|
|
|
|
Core Deposit
|
|
|
Other Identifiable
|
|
|
|
|
|
|
Goodwill
|
|
|
Intangibles
|
|
|
Intangible Assets
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Balance at December 31, 2006
|
|
$
|
55,078
|
|
|
$
|
1,457
|
|
|
$
|
|
|
|
$
|
56,535
|
|
Recorded during the year
|
|
|
3,218
|
|
|
|
|
|
|
|
990
|
|
|
|
4,208
|
|
Amortization Expense
|
|
|
|
|
|
|
(323
|
)
|
|
|
(9
|
)
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
58,296
|
|
|
$
|
1,134
|
|
|
$
|
981
|
|
|
$
|
60,411
|
|
Recorded during the year
|
|
|
58,141
|
|
|
|
8,761
|
|
|
|
200
|
|
|
|
67,102
|
|
Amortization Expense
|
|
|
|
|
|
|
(1,528
|
)
|
|
|
(275
|
)
|
|
|
(1,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
116,437
|
|
|
$
|
8,367
|
|
|
$
|
906
|
|
|
$
|
125,710
|
|
Recorded during the year
|
|
|
12,911
|
|
|
|
6,626
|
|
|
|
990
|
|
|
|
20,527
|
|
Amortization Expense
|
|
|
|
|
|
|
(1,929
|
)
|
|
|
(578
|
)
|
|
|
(2,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
129,348
|
|
|
$
|
13,064
|
|
|
$
|
1,318
|
|
|
$
|
143,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the estimated annual amortization
expense of the identifiable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015-2038
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Core Deposit Intangibles
|
|
$
|
1,789
|
|
|
$
|
1,615
|
|
|
$
|
1,449
|
|
|
$
|
1,449
|
|
|
$
|
1,449
|
|
|
$
|
5,313
|
|
|
$
|
13,064
|
|
Other Intangible Assets
|
|
|
254
|
|
|
|
77
|
|
|
|
156
|
|
|
|
158
|
|
|
|
147
|
|
|
|
526
|
|
|
|
1,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Identifiable Intangible Assets
|
|
$
|
2,043
|
|
|
$
|
1,692
|
|
|
$
|
1,605
|
|
|
$
|
1,607
|
|
|
$
|
1,596
|
|
|
$
|
5,839
|
|
|
$
|
14,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7) Deposits
The following is a summary of the scheduled maturities of time
deposits as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
1 year or less
|
|
$
|
779,449
|
|
|
|
84.93
|
%
|
|
$
|
676,525
|
|
|
|
79.96
|
%
|
Over 1 year to 2 years
|
|
|
107,271
|
|
|
|
11.69
|
%
|
|
|
98,936
|
|
|
|
11.69
|
%
|
Over 2 years to 3 years
|
|
|
22,942
|
|
|
|
2.50
|
%
|
|
|
64,708
|
|
|
|
7.64
|
%
|
Over 3 years to 4 years
|
|
|
7,067
|
|
|
|
0.77
|
%
|
|
|
1,060
|
|
|
|
0.13
|
%
|
Over 4 years to 5 years
|
|
|
1,052
|
|
|
|
0.11
|
%
|
|
|
729
|
|
|
|
0.09
|
%
|
Over 5 years
|
|
|
|
|
|
|
0.00
|
%
|
|
|
4,138
|
|
|
|
0.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
917,781
|
|
|
|
100.00
|
%
|
|
$
|
846,096
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Short-term borrowings consist of federal funds purchased, assets
sold under repurchase agreements, FHLB borrowings, and treasury
tax and loan notes that are contractually due within a year from
the maturity date. Information on the amounts outstanding and
interest rates of short-term borrowings for each of the three
years in the period ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
|
(Dollars in thousands)
|
|
Balance outstanding at end of year
|
|
$
|
352,604
|
|
|
$
|
329,826
|
|
|
$
|
307,672
|
|
Average daily balance outstanding
|
|
|
329,712
|
|
|
|
207,614
|
|
|
|
284,601
|
|
Maximum balance outstanding at any month end
|
|
|
352,604
|
|
|
|
329,826
|
|
|
|
307,672
|
|
Weighted average interest rate for the year
|
|
|
0.83
|
%
|
|
|
2.49
|
%
|
|
|
3.89
|
%
|
Weighted average interest rate at end of year
|
|
|
1.17
|
%
|
|
|
0.93
|
%
|
|
|
3.68
|
%
|
At December 31, 2009 and 2008, the Bank had
$2.4 billion and $1.3 billion, respectively, of assets
pledged as collateral against borrowings. The assets are pledged
to the FHLBB and the Federal Reserve Bank of Boston. At
December 31, 2009, the Company had no outstanding
borrowings with the Federal Reserve Bank of Boston.
The Bank has repurchase agreements with major brokerage firms.
Borrowings under these agreements are classified as assets sold
under repurchase agreements. Both wholesale and retail
repurchase agreements are collateralized by securities issued or
guaranteed by Government Sponsored Enterprises. At
December 31, 2009 and 2008, the Company had
$50.0 million of securities repurchase agreements
outstanding with third party brokers. In addition to these
agreements, the Bank has entered into repurchase agreements with
certain customers. At December 31, 2009 and 2008, the Bank
had $140.5 million and $120.9 million, respectively,
of customer repurchase agreements outstanding. The related
securities are included in securities available for sale.
FHLB borrowings are collateralized by a blanket pledge agreement
on the Banks FHLB stock, certain qualified investment
securities, deposits at the Federal Home Loan Bank, residential
mortgages held in the Banks portfolio, and certain
commercial real estate loans. The Banks available
borrowing capacity at the Federal Home Loan Bank was
approximately $356.0 million at December 31, 2009. In
addition, the Bank has a $5.0 million line of credit with
the FHLB, none of which is outstanding at December 31, 2009.
A schedule of the maturity distribution of FHLB advances, based
on the maturity date of the interest rate swaps for all items
being hedged, with the weighted average interest rates at
December 31, 2009 and 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Due in one year or less
|
|
$
|
110,003
|
|
|
|
3.02
|
%
|
|
$
|
36,003
|
|
|
|
0.28
|
%
|
Due in greater than one year to five years
|
|
|
194,078
|
|
|
|
2.92
|
%
|
|
|
279,236
|
|
|
|
2.82
|
%
|
Due in greater than five years
|
|
|
58,855
|
|
|
|
3.47
|
%
|
|
|
114,395
|
|
|
|
1.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
362,936
|
|
|
|
3.04
|
%
|
|
$
|
429,634
|
|
|
|
2.32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the $362.9 million outstanding at year-end,
$135.0 million of these borrowings are hedged by interest
rate swaps to fix the rate of interest at an average rate of
2.49% through December 10, 2018.
Also included as long-term borrowings on the Companys
balance sheet are junior subordinated debentures payable to the
Companys unconsolidated VIEs, Trust V and Slade Ferry
Trust I, which issued trust preferred securities. At
December 31, 2009 the Company has $61.8 million of
junior subordinated debentures, of which $51.5 million were
issued to an unconsolidated subsidiary, Trust V, in
connection with the issuance of variable rate (LIBOR plus 1.48%)
capital securities due in 2037, which is callable March 2012.
The Company has locked in a fixed rate of interest of 6.52%, for
10 years, through an interest rate swap. The Company also
has $10.3 million of
97
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding junior subordinated debentures issued to an
unconsolidated subsidiary, Slades Ferry Trust I, in
connection with the issuance of variable rate (LIBOR plus 2.79%)
capital securities due in 2034 which is callable quarterly until
maturity. The Company unconditionally guarantees all
Trust V and Slades Ferry Statutory Trust obligations
under the trust preferred securities.
In August 2008 Rockland Trust Company, issued
$30.0 million of subordinated debt to USB Capital Resources
Inc., a wholly-owned subsidiary of U.S. Bank National
Association. The subordinated debt, which qualifies as
Tier 2 capital under Federal Deposit Insurance Corporation
rules and regulations, was issued and sold through a private
placement pursuant to a subordinated debt purchase agreement
which includes customary representations, warranties, covenants,
and events of default. The subordinated debt matures on
August 27, 2018. The Bank may, with regulatory approval,
redeem the subordinated debt without penalty at any time on or
after August 27, 2013. The interest rate for the
subordinated debt is fixed at 7.02% until August 27, 2013.
After that point the subordinated debt, if not redeemed, will
have a floating interest rate determined, at the option of the
Bank, at either the then current: LIBOR plus 3.00%; or, the
U.S. Bank base rate plus 1.25%.
Unamortized debt issuance costs are included in other assets.
Unamortized issuance costs were $490,000 and $498,000 at
December 31, 2009 and 2008, respectively.
Interest expense on the junior subordinated debentures and
subordinated debt, reported in interest on borrowings, which
includes the amortization of the issuance cost, was
$5.9 million in 2009, $4.6 million in 2008, and
$5.2 million in 2007. Included in interest expense was a
write-off of $907,000 of issuance costs in connection with the
redemption of trust preferred securities of one of the
Companys unconsolidated subsidiaries in April 2007.
The Company is participating in the TLGP. A component of this
program is the Debt Guarantee Program, by which the FDIC will
guarantee the payment of certain newly issued senior unsecured
debt, in a total amount up to 125% of the par or face value of
the senior unsecured debt outstanding, excluding debt extended
to affiliates. As of December 31, 2009, the Company had no
senior unsecured debt outstanding. If an insured depository
institution had no senior unsecured debt, or only had Federal
Funds purchased, the Companys limit for coverage under the
TLGP Debt Guarantee Program would be 2% of the Companys
consolidated total liabilities as of September 30, 2008.
Basic earnings per share (EPS) excludes dilution and
is computed by dividing net income available to common
shareholders by the weighted average number of common shares
outstanding for the period excluding any unvested restricted
shares. Diluted earnings per share have been calculated in a
manner similar to that of basic earnings per share except that
the weighted average number of common shares outstanding is
increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common
shares (such as those resulting from the exercise of stock
options) were issued during the period, computed using the
treasury stock method.
98
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings per share consisted of the following components for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Net Income
|
|
$
|
22,989
|
|
|
$
|
23,964
|
|
|
$
|
28,381
|
|
Less: Preferred Stock Dividends
|
|
|
5,698
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Shareholders
|
|
$
|
17,291
|
|
|
$
|
23,964
|
|
|
$
|
28,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares
|
|
|
|
(Shares in thousands)
|
|
|
Basic Shares
|
|
|
19,643
|
|
|
|
15,695
|
|
|
|
14,033
|
|
Effect of dilutive securities
|
|
|
30
|
|
|
|
64
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Shares
|
|
|
19,673
|
|
|
|
15,759
|
|
|
|
14,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Available to Common Shareholders per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.88
|
|
|
$
|
1.53
|
|
|
$
|
2.02
|
|
Effect of dilutive securities
|
|
|
(0.00
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.88
|
|
|
$
|
1.52
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table illustrates the options to purchase common
stock and the shares of restricted stock that were excluded from
the calculation of diluted earnings per share because they were
anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Stock Options
|
|
|
1,024,831
|
|
|
|
772,037
|
|
|
|
327,669
|
|
Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
Stock
Based Compensation
|
The Company has the following stock-based plans, all of which
have been approved by the Companys Board of Directors and
shareholders:
|
|
|
|
|
1996 Non-Employee Directors Stock Option Plan (the
1996 Plan)
|
|
|
|
1997 Employee Stock Option Plan (the 1997 Plan)
|
|
|
|
2005 Employee Stock Plan (the 2005 Plan)
|
|
|
|
2006 Non-Employee Director Stock Plan (the 2006 Plan)
|
|
|
|
In addition, the Company agreed in connection with the Ben
Franklin acquisition to convert, for a two-year period, the
options granted to certain Ben Franklin employees prior to the
acquisition to acquire Ben Franklin stock into options to
acquire the Companys stock (the Ben Franklin
Plan).
|
99
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the amount of cumulatively granted
stock options and restricted stock awards, net of forfeitures,
through December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Granted, Net of
|
|
|
Authorized
|
|
Authorized
|
|
|
|
Forfeitures
|
|
|
Stock
|
|
Restricted
|
|
|
|
Stock
|
|
Restricted
|
|
|
Option Awards
|
|
Stock Awards
|
|
Total
|
|
Option Awards
|
|
Stock Awards
|
|
1996 Plan
|
|
|
300,000
|
|
|
|
N/A
|
|
|
|
300,000
|
|
|
|
209,000
|
|
|
|
N/A
|
|
1997 Plan
|
|
|
1,100,000
|
|
|
|
N/A
|
|
|
|
1,100,000
|
|
|
|
1,020,896
|
|
|
|
N/A
|
|
2005 Plan
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
800,000
|
|
|
|
420,300
|
|
|
|
126,360
|
|
2006 Plan
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
50,000
|
|
|
|
15,000
|
|
|
|
20,400
|
|
The Ben Franklin Plan
|
|
|
(3
|
)
|
|
|
N/A
|
|
|
|
210,286
|
|
|
|
202,716
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
The Company may award up to a total of 800,000 shares as
stock options or restricted stock awards. |
|
(2) |
|
The Company may award up to a total of 50,000 shares as
stock options or restricted stock awards. |
|
(3) |
|
The Company may award up to a total of 210,286 shares as
stock options. |
At December 31, 2009, there were no shares available for
grant under the 1996 or 1997 Plans due to their expirations, and
no additional options under the Ben Franklin Plan would be
issued. Under all of the Companys stock based plans the
option exercise price equals the stocks trading value on the
date of grant. Options and restricted stock awards granted to
date under all plans expire through 2019. The following table
provides vesting period and contractual term information for
stock option awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting Period From
|
|
Contractual
|
Date of Grant
|
|
Plan
|
|
Date of Grant
|
|
Term
|
|
Prior to 12/15/2005
|
|
|
1997
|
|
|
|
Immediate to 25 months
|
|
|
|
10 years
|
|
On 12/15/2005
|
|
|
1997 and 2005
|
|
|
|
Immediate
|
|
|
|
7 years
|
|
During 2006
|
|
|
2005
|
|
|
|
6 to 28 months
|
|
|
|
7 years
|
|
During 2006
|
|
|
2006
|
|
|
|
Immediate to 21 months
|
|
|
|
7 years
|
|
During 2007
|
|
|
2005
|
|
|
|
1 to 5 years
|
|
|
|
10 years
|
|
During 2008
|
|
|
2005
|
|
|
|
1 to 5 years
|
|
|
|
10 years
|
|
During 2009
|
|
|
2005
|
|
|
|
1 to 5 years
|
|
|
|
10 years
|
|
During 2009
|
|
|
2006
|
|
|
|
Immediate to 21 months
|
|
|
|
7 years
|
|
During 2009
|
|
|
Ben Franklin
|
|
|
|
Immediate
|
|
|
|
2 years
|
|
The Company issues shares for stock option exercises and
restricted stock awards from its pool of authorized but unissued
shares.
On May 27, 2009 and April 22, 2008, the Company
granted 5,600 and 4,400 restricted stock awards, respectively,
to non-employee directors from the 2006 Plan. These awards vest
at the end of a five-year period, or earlier if the director
ceases to be a director for any reason other than cause, for
example, retirement. If a non-employee director is removed from
the Board for cause, the Company has ninety (90) days
within which to exercise a right to repurchase any unvested
portion of any restricted stock award from the non-employee
director for the aggregate price of One Dollar ($1.00). The
holders of these awards participate fully in the rewards of
stock ownership of the Company, including voting and dividend
rights. The directors are not required to pay any consideration
to the Company for the restricted stock awards. The Company
measured the fair value of the awards based on the average of
the high price and low price at which the Companys common
stock traded on the date of the grant.
100
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total stock-based compensation expense before tax recognized
in earnings by the Company is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stock Based
|
|
|
Stock
|
|
Restricted
|
|
Compensation
|
|
|
Options
|
|
Stock
|
|
Expense Before Tax
|
As of December 31,
|
|
Awards
|
|
Awards
|
|
Recognized in Earnings
|
|
|
(Dollars in thousands)
|
|
2009
|
|
$
|
405
|
|
|
$
|
369
|
|
|
$
|
774
|
|
2008
|
|
$
|
422
|
|
|
$
|
104
|
|
|
$
|
526
|
|
2007
|
|
$
|
257
|
|
|
$
|
134
|
|
|
$
|
391
|
|
Amounts recognized due to awards issued to directors is
recognized as directors fees within other non-interest
expense.
Cash received from stock option exercises for the years ended
December 31, 2009, 2008 and 2007 was approximately
$307,000, $695,000, and $1.0 million, respectively. The
actual tax benefit realized for the tax deductions from option
exercises under all plans totaled $20,000, $100,000, and
$110,000 for the years ending December 31, 2009, 2008, and
2007, respectively. No cash was used by the Company to settle
equity instruments granted under share-based compensation
arrangements during the years ended December 31, 2009,
2008, and 2007.
The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model with the
following assumptions used for grants under the identified plans:
|
|
|
|
|
Expected volatility is based on the standard deviation of the
historical volatility of the weekly adjusted closing price of
the Companys shares for a period equivalent to the
expected life of the option.
|
|
|
|
Expected life represents the period of time that the option is
expected to be outstanding, taking into account the contractual
term, historical exercise/forfeiture behavior, and the vesting
period, if any. For all options granted on December 15,
2005 and later, the Company takes into effect historical
experience when determining the expected life of the option.
|
|
|
|
Expected dividend yield is an annualized rate calculated using
the most recent dividend payment at time of grant and the
Companys average trailing twelve-month daily closing stock
price.
|
|
|
|
The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of grant for a period equivalent to
the expected life of the option.
|
|
|
|
The stock-based compensation expense recognized in earnings
should be based on the amount of awards ultimately expected to
vest, therefore a forfeiture assumption is estimated at the time
of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from those estimates. Stock-based
compensation expense recognized in 2009, 2008, and 2007 has been
reduced for annualized estimated forfeitures of 5% for both
restricted stock and stock option awards. Forfeitures were
estimated based on historical experience.
|
101
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 Plan
|
|
2005 Plan
|
|
Ben Franklin Plan
|
|
1997 Plan
|
|
1996 Plan
|
|
Expected Volatility
|
|
|
Fiscal Year 2009
|
|
|
|
N/A
|
|
|
|
38%(1)
|
|
|
|
34%
|
(3)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
33%(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
N/A
|
|
|
|
25%(4)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
Fiscal Year 2007
|
|
|
|
N/A
|
|
|
|
30%(5)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
28%(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Lives
|
|
|
Fiscal Year 2009
|
|
|
|
N/A
|
|
|
|
5 years(1)
|
|
|
|
2 years
|
(3)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
5 years(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
N/A
|
|
|
|
5 years(4)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
Fiscal Year 2007
|
|
|
|
N/A
|
|
|
|
6.5 years(5)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
6.5 years(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Dividend Yields
|
|
|
Fiscal Year 2009
|
|
|
|
N/A
|
|
|
|
2.99%(1)
|
|
|
|
2.96%
|
(3)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
2.78%(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
N/A
|
|
|
|
2.44%(4)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
Fiscal Year 2007
|
|
|
|
N/A
|
|
|
|
1.95%(5)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
2.09%(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Free Interest Rate
|
|
|
Fiscal Year 2009
|
|
|
|
N/A
|
|
|
|
1.80%(1)
|
|
|
|
0.95%
|
(3)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
1.82%(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
N/A
|
|
|
|
2.79%(4)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
Fiscal Year 2007
|
|
|
|
N/A
|
|
|
|
4.68%(5)
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
4.95%(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On April 20, 2009, 5,000 options were granted from the 2005
Plan to a certain officer of the Bank. The risk free rate,
expected dividend yield, expected life and expected volatility
for this grant were determined on April 20, 2009. |
|
(2) |
|
On March 2, 2009, 5,000 options were granted from the 2006
Plan to a member of the Companys Board of Directors. The
risk free rate, expected dividend yield, expected life and
expected volatility for this grant were determined on
March 2, 2009. |
|
(3) |
|
On April 10, 2009, 202,716 options were granted from the
Ben Franklin Plan to former employees and members of the Ben
Franklins Board of Directors. The risk free rate, expected
dividend yield, expected life and expected volatility for this
grant were determined on April 10, 2009. |
|
(4) |
|
On February 14, 2008, 201,000 options were granted from the
2005 Plan to certain officers of the Company and/or Bank. The
risk free rate, expected dividend yield, expected life and
expected volatility for this grant were determined on
February 14, 2008. |
|
(5) |
|
On February 15, 2007, 133,000 options were granted from the
2005 Plan to certain officers of the Company and/or Bank. The
risk free rate, expected dividend yield, expected life and
expected volatility for this grant were determined on
February 15, 2007. |
|
(6) |
|
On July 19, 2007, 10,000 options were granted from the 2005
Plan to an officer of the Bank. The risk free rate, expected
dividend yield, expected life and expected volatility for this
grant were determined on July 19, 2007. |
102
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the status of all the Companys Plans, and for
the Ben Franklin Plan, for the year ended December 31, 2009
is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary Status of All Plans
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
Restricted
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
Stock
|
|
|
Grant
|
|
|
|
Stock Options
|
|
|
Price ($)
|
|
|
Term (years)
|
|
|
($000)
|
|
|
Awards
|
|
|
Price ($)
|
|
|
Balance at January 1, 2009
|
|
|
983,025
|
|
|
$
|
28.21
|
|
|
|
|
|
|
|
|
|
|
|
15,950
|
|
|
$
|
30.53
|
|
Granted
|
|
|
212,716
|
|
|
|
22.66
|
|
|
|
|
|
|
|
|
|
|
|
122,600
|
|
|
|
18.56
|
|
Exercised
|
|
|
(23,400
|
)
|
|
|
13.10
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Released
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
(1,775
|
)
|
|
|
28.90
|
|
Forfeited
|
|
|
(2,600
|
)
|
|
|
29.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(9,234
|
)
|
|
|
31.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
1,160,507
|
|
|
$
|
27.47
|
|
|
|
4.23
|
|
|
$
|
332
|
|
|
|
136,775
|
|
|
$
|
19.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at December 31, 2009
|
|
|
935,594
|
|
|
$
|
27.05
|
|
|
|
3.4
|
|
|
$
|
301
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted average grant date fair value of options granted
($ per share)
|
|
$
|
4.28
|
|
|
$
|
5.63
|
|
|
$
|
10.40
|
|
Total intrinsic value of share awards exercised
|
|
$
|
85,000
|
|
|
$
|
280,000
|
|
|
$
|
366,000
|
|
The aggregate intrinsic value in the preceding tables represents
the total pre-tax intrinsic value, based on the average of the
high price and low price at which the Companys common
stock traded on December 31, 2009 of $21.11, which would
have been received by the option holders had they all exercised
their options as of that date.
A summary of the status of the Non-Employee Director Plans as of
December 31, 2009 and changes during the year then ended is
presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Employee Director Plans
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
1996 Plan
|
|
|
2006 Plan
|
|
|
|
|
|
|
Weighted
|
|
|
Stock
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Options
|
|
|
Average
|
|
|
|
Stock
|
|
|
Exercise
|
|
|
and
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Awards
|
|
|
Price
|
|
|
Balance at January 1, 2009
|
|
|
52,000
|
|
|
$
|
23.48
|
|
|
|
22,400
|
|
|
$
|
31.55
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
14.09
|
|
Restricted Stock Awards
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
5,600
|
|
|
|
20.08
|
|
Exercised
|
|
|
(8,000
|
)
|
|
|
14.42
|
|
|
|
|
|
|
|
|
|
Released
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
44,000
|
|
|
$
|
25.13
|
|
|
|
33,000
|
|
|
$
|
26.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercisable at December 31, 2009
|
|
|
44,000
|
|
|
$
|
25.13
|
|
|
|
11,667
|
|
|
$
|
29.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the status of the Companys nonvested awards
under all Plans
and/or the
Ben Franklin Plan as of December 31, 2009 and changes
during the year then ended, is presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested Awards Issued Under All Plans
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
Stock Options
|
|
|
|
|
|
Restricted Stock Awards
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
|
|
|
Nonvested at January 1, 2009
|
|
|
279,840
|
|
|
$
|
7.23
|
|
|
|
|
|
|
|
15,950
|
|
|
$
|
30.53
|
|
|
|
|
|
Granted
|
|
|
212,716
|
|
|
|
3.87
|
|
|
|
|
|
|
|
122,600
|
|
|
|
18.56
|
|
|
|
|
|
Vested/Released
|
|
|
(265,043
|
)
|
|
|
10.51
|
|
|
|
|
|
|
|
(1,775
|
)
|
|
|
28.90
|
|
|
|
|
|
Expired
|
|
|
(2,600
|
)
|
|
|
12.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
224,913
|
|
|
$
|
7.10
|
|
|
|
|
|
|
|
136,775
|
|
|
$
|
19.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation cost, including
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
forfeiture estimate
|
|
|
|
|
|
|
|
|
|
$
|
1,208,597
|
|
|
|
|
|
|
|
|
|
|
$
|
1,890,611
|
|
Weighted average remaining recognition period (years)
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
The total fair value of stock options that vested during the
years ended December 31, 2009, 2008, and 2007 was
$2.7 million, $253,063, and $116,000, respectively. The
total fair value of restricted stock awards that vested for both
the years ended December 31, 2009 and 2008 were $51,000 and
$133,000 for the year ended December 31, 2007.
The Company has created stock option agreements and restricted
stock award agreements for its Chief Executive Officer and for
all other officers who have been designated Executive Officers
of the Company
and/or the
Bank, the forms of which have been previously disclosed in
Securities Exchange Commission filings. The form agreements
include provisions that provide that: (1) any unvested
options or unvested restricted stock would vest upon a Change of
Control; and, that (2) any stock options which vest
pursuant to a Change of Control which is an event described in
Section 280G of the Internal Revenue Code of 1986 will be
cashed out at the difference between the acquisition price and
the exercise price of the stock option.
|
|
(11)
|
Capital
Purchase Program
|
On January 9, 2009, as part of the Capital Purchase Program
(CPP) established by the U.S. Department of
Treasury (Treasury) under the Emergency Economic
Stabilization Act of 2008, the Company entered into a Letter
Agreement with the Treasury pursuant to which the Company issued
and sold to the Treasury 78,158 shares of the
Companys Fixed Rate Cumulative Perpetual Preferred Stock,
Series C, par value $0.01 per share, having a liquidation
preference of $1,000 per share and a ten-year warrant to
purchase up to 481,664 shares of the Companys common
stock, par value $0.01 per share, at an initial exercise price
of $24.34 per share, for an aggregate purchase price of
$78,158,000 in cash. All of the proceeds for the sale of the
Series C Preferred Stock are treated as Tier 1 capital
for regulatory purposes.
The preferred stock and stock warrants were recorded using the
relative fair value method and were valued at $73.6 million
and $4.6 million, respectively. The carrying value of the
preferred stock, as determined by the relative fair value method
was lower than the face value of the preferred stock issued.
Accordingly, the Company recorded a discount using a discount
rate of 14.0%, which was accreted using the effective yield
method. The accretion of the discount is presented as imputed
preferred dividends and reduces the net income available to the
common shareholders.
104
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On April 22, 2009 the Company retired all
78,158 shares of its Preferred Stock, related to the CPP.
Additionally, the Company paid to the Treasury Department
accrued dividends of approximately $727,000. In connection with
the retirement of the preferred stock, the Company recorded
imputed dividends of $4.4 million. The preferred stock
dividend reduces net income available to common shareholders,
which is used in calculating earnings per share. The Company
also repurchased common stock warrants issued to the Treasury
for $2.2 million, the cost of which has been reflected as a
reduction in additional paid in capital.
|
|
(12)
|
Derivatives
and Hedging Activities
|
The Company manages economic risks, including interest rate
risk, and liquidity risk, primarily by managing the amount,
sources, and duration of its debt, funding, and the use of
derivative financial instruments. The Companys derivative
financial instruments are used to manage differences in the
amount, timing, and duration of the Companys known or
expected cash receipts and its known or expected cash payments
principally to manage the Companys interest rate risk.
Additionally, the Company enters into interest rate derivatives
and foreign exchange contracts to accommodate the business
requirements of its customers (customer-related
positions). The Company minimizes the market and liquidity
risks of customer-related positions by entering into similar
offsetting positions with broker-dealers.
Derivative instruments are carried at fair value in the
Companys financial statements. The accounting for changes
in the fair value of a derivative instrument is dependent upon
whether or not it has been designated and qualifies as part of a
hedging relationship, and further, by the type of hedging
relationship. As of December 31, 2009, the Company has
entered into interest rate swap contracts as part of the
Companys interest rate risk management program, which are
designated and qualify as cash flow hedges. In addition, the
Company may from time to time enter into interest rate swap
contracts and foreign exchange contracts with commercial
customers, which are not designated as hedging instruments.
Asset
Liability Management
The Bank currently utilizes interest rate swap agreements as
hedging instruments against interest rate risk associated with
the Companys borrowings. An interest rate swap is an
agreement whereby one party agrees to pay a floating rate of
interest on a notional principal amount in exchange for
receiving a fixed rate of interest on the same notional amount,
for a predetermined period of time, from a second party. The
amounts relating to the notional principal amount are not
actually exchanged. The maximum length of time over which the
Company is currently hedging its exposure to the variability in
future cash flows for forecasted transactions related to the
payment of variable interest on existing financial instruments
is ten years. The notional amounts for the Companys cash
flow hedges at both December 31, 2009 and December 31,
2008 amounted to $235.0 million.
105
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Derivatives
Designated as Hedging:
Cash Flow Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Positions
|
|
|
|
(Dollars In Thousands)
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Notional
|
|
|
Trade
|
|
|
Effective
|
|
|
Maturity
|
|
|
(Variable)
|
|
|
Current Rate
|
|
|
Pay Fixed
|
|
|
at December 31,
|
|
|
|
Amount
|
|
|
Date
|
|
|
Date
|
|
|
Date
|
|
|
Index
|
|
|
Received
|
|
|
Swap Rate
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Interest Rate Swaps
|
|
|
$
|
35,000
|
|
|
|
19-Mar-08
|
|
|
|
19-Mar-08
|
|
|
|
20-Jan-10
|
|
|
|
3 Month LIBOR
|
|
|
|
0.28
|
%
|
|
|
|
2.28
|
%
|
|
|
$
|
(37
|
)
|
|
|
|
25,000
|
|
|
|
16-Feb-06
|
|
|
|
28-Dec-06
|
|
|
|
28-Dec-16
|
|
|
|
3 Month LIBOR
|
|
|
|
0.26
|
%
|
|
|
|
5.04
|
%
|
|
|
|
(2,641
|
)
|
|
|
|
25,000
|
|
|
|
16-Feb-06
|
|
|
|
28-Dec-06
|
|
|
|
28-Dec-16
|
|
|
|
3 Month LIBOR
|
|
|
|
0.25
|
%
|
|
|
|
5.04
|
%
|
|
|
|
(2,588
|
)
|
|
|
|
25,000
|
|
|
|
8-Dec-08
|
|
|
|
10-Dec-08
|
|
|
|
10-Dec-13
|
|
|
|
3 Month LIBOR
|
|
|
|
0.26
|
%
|
|
|
|
2.65
|
%
|
|
|
|
(156
|
)
|
|
|
|
25,000
|
|
|
|
9-Dec-08
|
|
|
|
10-Dec-08
|
|
|
|
10-Dec-13
|
|
|
|
3 Month LIBOR
|
|
|
|
0.26
|
%
|
|
|
|
2.59
|
%
|
|
|
|
(101
|
)
|
|
|
|
25,000
|
|
|
|
9-Dec-08
|
|
|
|
10-Dec-08
|
|
|
|
10-Dec-18
|
|
|
|
3 Month LIBOR
|
|
|
|
0.26
|
%
|
|
|
|
2.94
|
%
|
|
|
|
1,400
|
|
|
|
|
25,000
|
|
|
|
16-Dec-08
|
|
|
|
18-Dec-08
|
|
|
|
18-Dec-13
|
|
|
|
3 Month LIBOR
|
|
|
|
0.25
|
%
|
|
|
|
2.09
|
%
|
|
|
|
354
|
|
|
|
|
50,000
|
|
|
|
17-Nov-09
|
|
|
|
20-Dec-10
|
|
|
|
20-Dec-14
|
|
|
|
3 Month LIBOR
|
|
|
|
0.00
|
%
|
|
|
|
3.04
|
%
|
|
|
|
766
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
235,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(3,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Notional
|
|
|
Trade
|
|
|
Effective
|
|
|
Maturity
|
|
|
(Variable)
|
|
|
Current Rate
|
|
|
Pay Fixed
|
|
|
at December 31,
|
|
|
|
Amount
|
|
|
Date
|
|
|
Date
|
|
|
Date
|
|
|
Index
|
|
|
Received
|
|
|
Swap Rate
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Interest Rate Swaps
|
|
|
$
|
35,000
|
|
|
|
19-Mar-08
|
|
|
|
19-Mar-08
|
|
|
|
20-Jan-10
|
|
|
|
3 Month LIBOR
|
|
|
|
4.50
|
%
|
|
|
|
2.28
|
%
|
|
|
$
|
(321
|
)
|
|
|
|
25,000
|
|
|
|
16-Feb-06
|
|
|
|
28-Dec-06
|
|
|
|
28-Dec-16
|
|
|
|
3 Month LIBOR
|
|
|
|
2.00
|
%
|
|
|
|
5.04
|
%
|
|
|
|
(4,890
|
)
|
|
|
|
25,000
|
|
|
|
16-Feb-06
|
|
|
|
28-Dec-06
|
|
|
|
28-Dec-16
|
|
|
|
3 Month LIBOR
|
|
|
|
2.00
|
%
|
|
|
|
5.04
|
%
|
|
|
|
(4,877
|
)
|
|
|
|
25,000
|
|
|
|
8-Dec-08
|
|
|
|
10-Dec-08
|
|
|
|
10-Dec-13
|
|
|
|
3 Month LIBOR
|
|
|
|
2.19
|
%
|
|
|
|
2.65
|
%
|
|
|
|
(616
|
)
|
|
|
|
25,000
|
|
|
|
9-Dec-08
|
|
|
|
10-Dec-08
|
|
|
|
10-Dec-13
|
|
|
|
3 Month LIBOR
|
|
|
|
2.19
|
%
|
|
|
|
2.59
|
%
|
|
|
|
(547
|
)
|
|
|
|
25,000
|
|
|
|
9-Dec-08
|
|
|
|
10-Dec-08
|
|
|
|
10-Dec-18
|
|
|
|
3 Month LIBOR
|
|
|
|
2.19
|
%
|
|
|
|
2.94
|
%
|
|
|
|
(987
|
)
|
|
|
|
25,000
|
|
|
|
9-Dec-08
|
|
|
|
10-Dec-08
|
|
|
|
10-Dec-18
|
|
|
|
3 Month LIBOR
|
|
|
|
2.19
|
%
|
|
|
|
2.94
|
%
|
|
|
|
(1,001
|
)
|
|
|
|
25,000
|
|
|
|
16-Dec-08
|
|
|
|
18-Dec-08
|
|
|
|
18-Dec-13
|
|
|
|
3 Month LIBOR
|
|
|
|
1.85
|
%
|
|
|
|
2.09
|
%
|
|
|
|
(22
|
)
|
|
|
|
25,000
|
|
|
|
17-Dec-08
|
|
|
|
19-Dec-08
|
|
|
|
19-Dec-18
|
|
|
|
3 Month LIBOR
|
|
|
|
1.58
|
%
|
|
|
|
2.24
|
%
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
235,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(12,816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In November 2009, the Company entered into a forward starting
swap with a notional amount of $50.0 million, with the
intention of hedging $50.0 million of a replacement of an
existing FHLB advance, set to mature in December 2010, with a
variable rate. |
For derivative instruments that are designated and qualify as
hedging instruments, the effective portion of the gains or
losses are reported as a component of OCI, and are subsequently
reclassified into earnings in the period that the hedged
forecasted transaction affects earnings. The Company expects
approximately $4.0 million to be reclassed to earnings from
OCI in the next twelve months, related to the Companys
cash flow hedges.
The ineffective portion of the cash flow hedge is recognized
directly in earnings. The Company recognized $61,000 and $54,000
during the years ended December 31, 2009 and 2008,
respectively, of hedge ineffectiveness in earnings. The
ineffective portions that were recognized during 2009 and 2008
were associated with the unwinding of certain borrowings and
their associated cash flow hedges.
106
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2009, the Company repaid certain borrowings and
consequently terminated the corresponding cash flow hedges. As a
result of the termination of the cash flow hedges, the Company
recognized a gain of $3.8 million, pre-tax in non-interest
income. Additionally, a gain of $1.4 million remained in
OCI, net of tax, and will be amortized through interest expense
on borrowings over the original maturity of the swap (until
December 2018), to the extent the hedged forecasted transaction
remains probable.
In March 2008, the Company terminated a $35.0 million
notional value LIBOR based interest rate swap hedging
3 month revolving FHLB advances and replaced it with a
$35.0 million notional value LIBOR based interest rate swap
hedging 3 month revolving FHLB advances. Upon exiting the
swap, a $1.2 million loss remained in OCI, net of tax,
which is being amortized into interest expense on borrowings
over the original maturity of the swap (until January 2010).
Associated net amortization on these swaps of $496,000 and
$485,000 was recognized in interest expense on borrowings at
December 31, 2009 and 2008.
Customer
Related Positions
Interest rate derivatives, primarily interest-rate swaps,
offered to commercial borrowers through the Banks
derivative program are not designated as hedging instruments.
However, the Bank believes that its exposure to commercial
customer derivatives is limited because these contracts are
simultaneously matched at inception with an offsetting dealer
transaction. The commercial customer derivative program allows
the Bank to retain variable-rate commercial loans while allowing
the customer to synthetically fix the loan rate by entering into
a
variable-to-fixed
interest rate swap. It is anticipated that over time customer
interest rate derivatives will reduce the interest rate risk
inherent in the longer-term, fixed-rate commercial business and
real estate loans. As of December 31, 2009 and 2008 the
Company has entered into twenty-seven and five customer-related
positions and offsetting dealer transactions, respectively. For
the year ended December 31, 2009 and 2008 the Bank had a
total notional amount of $122.1 million and
$20.4 million, respectively, of interest rate swap
agreements with commercial borrowers and an equal notional
amount of dealer transactions.
Foreign exchange contracts offered to commercial borrowers
through the Banks derivative program are not designated as
hedging instruments. The Company acts as a seller and buyer of
foreign exchange contracts to accommodate its customers. To
mitigate the market and liquidity risk associated with these
derivatives, the Company enters into similar offsetting
positions. As of December 31, 2009 the Company has entered
into four foreign exchange contracts and offsetting dealer
transactions. The Company had no foreign exchange contracts
during the year ended December 31, 2008. As of
December 31, 2009 the Bank had a total notional amount of
$8.4 million of foreign exchange contracts with commercial
borrowers and an equal notional amount of dealer transactions.
Derivatives
Not Designated as Hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Positions
|
|
|
|
|
|
|
(Dollars In Thousands)
|
|
|
|
|
|
|
Notional Amount Maturing
|
|
|
|
|
As of December 31, 2009
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
|
(Dollars in thousands)
|
|
Customer Related Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Level Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed, pay variable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
122,125
|
|
|
$
|
122,125
|
|
|
$
|
(1,273
|
)
|
Pay fixed, receive variable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
122,125
|
|
|
$
|
122,125
|
|
|
$
|
1,404
|
|
Foreign Exchange Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buys foreign exchange, sells US currency
|
|
|
|
|
|
$
|
8,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,424
|
|
|
$
|
(5
|
)
|
Buys US currency, sells foreign exchange,
|
|
|
|
|
|
$
|
8,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,424
|
|
|
$
|
12
|
|
107
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount Maturing
|
|
|
|
|
As of December 31, 2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
|
(Dollars in thousands)
|
|
Customer Related Positions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Level Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receive fixed, pay variable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,403
|
|
|
$
|
20,403
|
|
|
$
|
(1,048
|
)
|
Pay fixed, receive variable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,403
|
|
|
$
|
20,403
|
|
|
$
|
1,012
|
|
Changes in the fair value of customer related positions are
recorded directly in earnings as they are not afforded hedge
accounting treatment. The Company recorded an increase in fair
value of $173,000 and a net decrease in fair value of $36,000
for the years ended December 31, 2009 and 2008,
respectively.
The tables below present the fair value of the Companys
derivative financial instruments as well as their classification
on the Balance Sheet as of December 31, 2009 and
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative Instruments
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
Sheet
|
|
|
Fair
|
|
|
Sheet
|
|
|
|
|
|
Sheet
|
|
|
Fair
|
|
|
Sheet
|
|
|
|
|
|
|
Location
|
|
|
Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
Location
|
|
|
Value
|
|
|
Location
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Derivatives designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
Other Assets
|
|
|
$
|
2,519
|
|
|
|
Other Assets
|
|
|
$
|
445
|
|
|
|
Other Liabilities
|
|
|
$
|
5,522
|
|
|
|
Other Liabilities
|
|
|
$
|
13,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related positions
|
|
|
Other Assets
|
|
|
$
|
2,224
|
|
|
|
Other Assets
|
|
|
$
|
1,012
|
|
|
|
Other Liabilities
|
|
|
$
|
2,093
|
|
|
|
Other Liabilities
|
|
|
$
|
1,048
|
|
Foreign exchange contracts
|
|
|
Other Assets
|
|
|
|
15
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
Other Liabilities
|
|
|
|
8
|
|
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,239
|
|
|
|
|
|
|
$
|
1,012
|
|
|
|
|
|
|
$
|
2,101
|
|
|
|
|
|
|
$
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables below presents the earnings effect of the
Companys derivative financial instruments for the year
ended December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Derivative Gain/(Loss) Recognized/Reclassified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on Derivative (Ineffective
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portion and
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
Location of Gain/(Loss)
|
|
|
Amount
|
|
|
|
Gain/(Loss) in
|
|
|
|
|
|
Accumulated
|
|
|
Recognized in Income
|
|
|
Excluded
|
|
For the Year Ended
|
|
OCI on Derivative
|
|
|
Location of Gain/(Loss)
|
|
|
OCI Into Income
|
|
|
on Derivative (Ineffective
|
|
|
from
|
|
December 31, 2009
|
|
(Effective
|
|
|
Reclassified from
|
|
|
(Effective
|
|
|
Portion and Amount
|
|
|
Effectiveness
|
|
Derivatives Designated as
|
|
Portion)
|
|
|
Accumulated OCI into
|
|
|
Portion)
|
|
|
Excluded from
|
|
|
Testing
|
|
Hedges:
|
|
12/31/2009
|
|
|
12/31/2008
|
|
|
Income (Effective Portion)
|
|
|
12/31/2009
|
|
|
12/31/2008
|
|
|
Effectiveness Testing)
|
|
|
12/31/2009
|
|
|
12/31/2008
|
|
|
|
(Dollars in thousands)
|
|
|
Interest rate swaps
|
|
$
|
6,995
|
|
|
$
|
6,615
|
|
|
|
Interest income/(expense
|
)
|
|
$
|
(1,714
|
)
|
|
$
|
284
|
|
|
|
Interest income/(expense
|
)
|
|
$
|
(61
|
)
|
|
$
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(777
|
)
|
|
$
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts involve the risk of dealing with derivative
counterparties and their ability to meet contractual terms.
Institutional counterparties must have an investment grade
credit rating and be approved by the Companys Board of
Directors. The Companys credit exposure on interest rate
swaps is limited to the net favorable fair value and accrued
interest payments of all swaps by each counterparty. Credit
exposure may be reduced by the
108
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amount of collateral pledged by the counterparty. The
Companys credit exposure relating to interest rate swaps
with bank customers was approximately $2.2 million and
$1.0 million at December 31, 2009 and 2008. The credit
exposure is partly mitigated as transactions with customers are
secured by the collateral, if any, securing the underlying
transaction being hedged. Collateral levels for upstream
financial institution counterparties are monitored and adjusted
as necessary.
The Company currently holds derivative instruments that contain
credit-risk related contingent features that are in a net
liability position. The notional amount of these instruments as
of December 31, 2009 was $209.2 million. The aggregate
fair value of these instruments at December 31, 2009 was
$7.3 million. As of December 31, 2009, the Company has
collateral assigned to these derivative instruments amounting to
$17.1 million. Based upon a review completed by management
of these instruments at December 31, 2009, it was
determined that no additional collateral would have to be posted
to settle these instruments immediately. The Company does not
offset fair value amounts recognized for derivative instruments.
The Company does net the amount recognized for the right to
reclaim cash collateral against the obligation to return cash
collateral arising from derivative instruments executed with the
same counterparty under a master netting arrangement.
Certain derivative instruments, primarily forward sales of
mortgage loans, are utilized by the Company in its efforts to
manage risk of loss associated with its mortgage loan
commitments and mortgage loans held for sale. Prior to closing
and funding certain single-family residential mortgage loans, an
interest rate locked commitment is generally extended to the
borrower. During the period from commitment date to closing
date, the Company is subject to the risk that market rates of
interest may change. If market rates rise, investors generally
will pay less to purchase such loans resulting in a reduction in
the gain on sale of the loans or, possibly, a loss. In an effort
to mitigate such risk, forward delivery sales commitments are
executed, under which the Company agrees to deliver whole
mortgage loans to various investors.
The table below summarizes the fair value of residential
mortgage loans commitments and forward sales agreements:
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Residential Mortgage Loan Commitments
|
|
$
|
(523
|
)
|
|
$
|
338
|
|
Forward Sales Agreements
|
|
$
|
767
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
Change For
|
|
|
|
the Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Residential Mortgage Loan Commitments
|
|
$
|
(861
|
)
|
|
$
|
52
|
|
Forward Sales Agreements
|
|
|
738
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total Change in Fair Value*
|
|
$
|
(123
|
)
|
|
$
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Changes in these fair values are recorded as a component of
Mortgage Banking Income. |
109
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income taxes is comprised of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Current Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
6,422
|
|
|
$
|
10,133
|
|
|
$
|
7,477
|
|
State
|
|
|
2,606
|
|
|
|
4,289
|
|
|
|
3,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT EXPENSE
|
|
|
9,028
|
|
|
|
14,422
|
|
|
|
10,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,430
|
)
|
|
|
(6,568
|
)
|
|
|
(1,392
|
)
|
State
|
|
|
(851
|
)
|
|
|
(1,303
|
)
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL DEFERRED BENEFIT
|
|
|
(2,281
|
)
|
|
|
(7,871
|
)
|
|
|
(1,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EXPENSE
|
|
$
|
6,747
|
|
|
$
|
6,551
|
|
|
$
|
8,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective July 1, 2008 Massachusetts state legislation was
passed which enacted corporate tax reform. As a result of this
new legislation the state tax will be reduced 1.5%, with the
reduction being phased in over three years beginning on or after
January 1, 2010. As a result of the change in tax rate, the
Company recorded $109,000 of tax expense during the third
quarter of 2008 in order to correctly reflect deferred taxes at
the new rate.
The difference between the statutory federal income tax rate and
the effective federal income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Computed statutory federal income tax provision
|
|
$
|
10,408
|
|
|
$
|
10,679
|
|
|
$
|
13,010
|
|
State taxes, net of federal tax benefit
|
|
|
1,141
|
|
|
|
1,941
|
|
|
|
1,759
|
|
Nontaxable interest, net
|
|
|
(646
|
)
|
|
|
(889
|
)
|
|
|
(995
|
)
|
Tax Credits
|
|
|
(4,550
|
)
|
|
|
(4,050
|
)
|
|
|
(3,560
|
)
|
Bank Owned Life Insurance
|
|
|
(981
|
)
|
|
|
(894
|
)
|
|
|
(701
|
)
|
Merger and other related costs
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
Reduction in the tax allowance for uncertain tax positions, net
|
|
|
3
|
|
|
|
(49
|
)
|
|
|
(500
|
)
|
Other, net
|
|
|
(255
|
)
|
|
|
(187
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EXPENSE
|
|
$
|
6,747
|
|
|
$
|
6,551
|
|
|
$
|
8,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate for December 31, 2009, 2008, and
2007 was 22.69%, 21.47%, and 23.65%, respectively.
110
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax-effected components of the net deferred tax asset at
December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
17,460
|
|
|
$
|
15,122
|
|
Security impairment
|
|
|
4,167
|
|
|
|
2,525
|
|
Accrued expenses not deducted for tax purposes
|
|
|
5,308
|
|
|
|
2,788
|
|
Deferred gain on sale leaseback transaction
|
|
|
4,820
|
|
|
|
5,310
|
|
Derivatives fair value adjustment
|
|
|
1,303
|
|
|
|
5,595
|
|
Employee and director equity compensation
|
|
|
1,021
|
|
|
|
275
|
|
Amounts not yet recognized as a component of net periodic post
retirement cost
|
|
|
846
|
|
|
|
452
|
|
Federal Home Loan Bank Borrowings fair value adjustment
|
|
|
857
|
|
|
|
1,026
|
|
Limited partnerships
|
|
|
33
|
|
|
|
431
|
|
Net unrealized loss on securities available for sale
|
|
|
|
|
|
|
148
|
|
Other
|
|
|
233
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
36,048
|
|
|
$
|
33,757
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
(9,030
|
)
|
|
$
|
(7,828
|
)
|
Net unrealized gain on securities available for sale
|
|
|
(3,206
|
)
|
|
|
|
|
Core deposit and other intangibles
|
|
|
(4,932
|
)
|
|
|
(3,418
|
)
|
Fixed Assets
|
|
|
(4,426
|
)
|
|
|
(2,574
|
)
|
Loan basis difference fair value adjustment
|
|
|
(2,403
|
)
|
|
|
(1,465
|
)
|
Deferred loan fees, net
|
|
|
(2,087
|
)
|
|
|
(2,094
|
)
|
Mortgage servicing asset
|
|
|
(856
|
)
|
|
|
(546
|
)
|
Mark to market adjustment
|
|
|
(642
|
)
|
|
|
(896
|
)
|
Prepaid expenses
|
|
|
(234
|
)
|
|
|
(215
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
(27,816
|
)
|
|
$
|
(19,036
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL NET DEFERRED TAX ASSET
|
|
$
|
8,232
|
|
|
$
|
14,721
|
|
|
|
|
|
|
|
|
|
|
The change in the net deferred tax asset during 2009 and 2008
includes the recording of a $1.1 million net deferred tax
asset and a $780,000 net deferred tax liability,
respectively, including the tax effect of the purchase
accounting adjustments recorded at the date of the acquisitions
resulting from the Companys acquisitions of Ben Franklin
in 2009 and Slades in 2008.
The Company has determined that a valuation allowance is not
required for any of its deferred tax assets since it is more
likely than not that these assets will be realized principally
through carry back to taxable income on prior years and future
reversals of existing taxable temporary differences and by
offsetting other future taxable income.
111
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Uncertainty
in Income Taxes
The Company accounts for certain uncertainties in income taxes
by providing a tax reserve for certain positions. The following
is a reconciliation of the beginning and ending amount of
unrecognized tax benefits:
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
260,000
|
|
Reduction of tax positions for prior years
|
|
|
(156,000
|
)
|
Increase for current year tax positions
|
|
|
107,000
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
211,000
|
|
Reduction of tax positions for prior years
|
|
|
(105,000
|
)
|
Increase for current year tax positions
|
|
|
69,000
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
175,000
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the Company had unrecognized
tax benefits of approximately $175,000 and $211,000, related to
deductions of interest expense and treatment of acquisition
related cost, all of which, if recognized, would be recorded as
a component of income tax expense therefore affecting the
effective tax rate.
The Company and its subsidiaries file income tax returns in the
U.S. federal jurisdiction, and in the states of
Massachusetts and Rhode Island. The Company is subject to
U.S. federal, state and local income tax examinations by
tax authorities for the years 2006 through 2009 tax years
including any related income tax filings from its recent Bank
acquisitions.
|
|
(14)
|
Employee
Benefit Plans
|
Pension
The Company maintains a defined benefit pension plan (the
Pension Plan) administered by Pentegra Retirement
Services (the Fund), a multiple employer plan. The
Fund does not segregate the assets or liabilities of all
participating employers and, accordingly, disclosure of
accumulated vested and nonvested benefits is not possible.
Effective July 1, 2006, the Company froze the defined
benefit plan by eliminating all future benefit accruals.
Employees who were participants on July 1, 2006 will
continue to vest in the benefits, but there will be no future
accruals. All benefits accrued up to July 1, 2006 remain in
the pension plan and the participants frozen benefit was
determined as of July 1, 2006. Contributions to the plan
are based on each individual employers experience. The
pension plan year is July 1st through June 30th. The
Bank has made cash contributions to the Fund of
$1.2 million, $917,000, and $1.0 million during 2009,
2008, and 2007, respectively, of which $1.1 million relates
to the
2009-2010
plan year, $958,000 relates to the
2008-2009
plan year, and $1.0 million relates to the
2007-2008
plan year.
As a result of the acquisition of Slades, effective
March 1, 2008 (see Note 2, Acquisition
hereof), the Company supported a defined benefit pension plan
(Slades pension plan) that covered substantially all
of Slades previous employees that met certain eligibility
requirements and that were employed up to January 1, 1998
when the plan was frozen. No additional defined benefits were
earned for future service upon freezing the plan. During 2008,
the Company made lump-sum cash payments totaling $37,000 to plan
participants, who made such election, in exchange for their
rights to receive specified pension benefits. These payments
constituted the Companys entire obligation for the
elections. The decision was made to merge the Slades pension
plan into the plan administered by Pentegra subsequent to
year-end. During 2009, the Slades Pension Plan was merged into
the Companys existing Pension Plan. The total net periodic
benefit cost for the Slades Pension Plan was $49,000 for the
year ended December 31, 2008.
The Companys total defined benefit plan expense, inclusive
of the Slades Pension Plan acquired in 2008, was $988,000,
$1.0 million, and $1.2 million for 2009, 2008, and
2007, respectively.
112
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Post-Retirement
Benefits
Employees retiring from the Bank after attaining age 65 who
have rendered at least 10 years of continuous service to
the Bank are entitled to a fixed contribution toward the premium
for post-retirement health care benefits and a $5,000 death
benefit paid by the Bank. The health care benefits are subject
to deductibles, co-payment provisions and other limitations. The
Bank may amend or change these benefits periodically.
Upon accounting for the recognition of post-retirement benefits
over the service lives of the employees rather than on a cash
basis, the Company elected to recognize its accumulated benefit
obligation of approximately $678,000 at January 1, 1993
prospectively on a straight-line basis over the average service
life expectancy of the beneficiaries, which is anticipated to be
less than 20 years.
In addition to the aforementioned acquired Slades pension plan,
the Company assumed a post retirement benefit plan resulting
from the acquisition of Slades. The post-retirement benefit plan
entitles four former Slades employees to have 85% of their Medex
health insurance plan covered by the Company.
As a result of the Ben Franklin acquisition, the Company assumed
a post-retirement benefit plan. The
post-retirement
plan entitles former Ben Franklin employees to continue to
participate in the post-retirement medical plan of the Company.
The former employees are responsible for the cost of this
insurance and accordingly there is no related liability to the
Company.
Post-retirement benefit expense was $252,000 in 2009, $216,000
in 2008, and $209,000 in 2007. Contributions paid to the plan,
which were used only to pay the current year benefits were
$81,000, $82,000, and $51,000, for 2009, 2008, and 2007,
respectively. The Companys best estimate of contributions
expected to be paid in 2010 is $81,000. See the following table
for the benefits expected to be paid in each of the next five
years, in the aggregate for the next five fiscal years
thereafter, and in the aggregate after those 10 years:
|
|
|
|
|
|
|
Post-Retirement
|
|
|
|
Expected Benefit
|
|
|
|
Payments
|
|
Year
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
2010
|
|
$
|
81
|
|
2011
|
|
|
86
|
|
2012
|
|
|
100
|
|
2013
|
|
|
109
|
|
2014
|
|
|
134
|
|
2015-2019
|
|
|
729
|
|
2020 and later
|
|
$
|
8,912
|
|
113
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The measurement date used to determine the post-retirement plan
benefits is December 31st for each of the years
reported. The following table illustrates the status of the
post-retirement benefit plan at December 31 for the years
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Retirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in Thousands)
|
|
|
Change in accumulated benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
1,967
|
|
|
$
|
1,426
|
|
|
$
|
1,444
|
|
Benefit obligation acquired
|
|
|
|
|
|
|
530
|
|
|
|
|
|
Accumulated service cost
|
|
|
91
|
|
|
|
83
|
|
|
|
89
|
|
Interest cost
|
|
|
115
|
|
|
|
97
|
|
|
|
74
|
|
Actuarial loss (gain)
|
|
|
241
|
|
|
|
(87
|
)
|
|
|
(130
|
)
|
Benefits paid
|
|
|
(81
|
)
|
|
|
(82
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
2,333
|
|
|
$
|
1,967
|
|
|
$
|
1,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Employer contribution
|
|
|
81
|
|
|
|
82
|
|
|
|
51
|
|
Benefits paid
|
|
|
(81
|
)
|
|
|
(82
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status
|
|
$
|
(2,333
|
)
|
|
$
|
(1,967
|
)
|
|
$
|
(1,426
|
)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
(2,333
|
)
|
|
|
(1,967
|
)
|
|
|
(1,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(2,333
|
)
|
|
$
|
(1,967
|
)
|
|
$
|
(1,426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Accumulated Other Comprehensive Income
(AOCI), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
$
|
52
|
|
|
$
|
(89
|
)
|
|
$
|
(45
|
)
|
Prior service cost
|
|
|
4
|
|
|
|
10
|
|
|
|
18
|
|
Transition obligation
|
|
|
57
|
|
|
|
76
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in AOCI, net of tax
|
|
$
|
113
|
|
|
$
|
(3
|
)
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
91
|
|
|
$
|
83
|
|
|
$
|
89
|
|
Interest cost
|
|
|
115
|
|
|
|
97
|
|
|
|
74
|
|
Amortization of transition obligation
|
|
|
34
|
|
|
|
34
|
|
|
|
34
|
|
Amortization of prior service cost
|
|
|
12
|
|
|
|
12
|
|
|
|
12
|
|
Amortization of net gain
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
252
|
|
|
$
|
216
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive income expected to
be recognized in net periodic benefit cost over next fiscal
year
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
2
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
Net prior service cost
|
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
12
|
|
Net transition obligation
|
|
$
|
34
|
|
|
$
|
34
|
|
|
$
|
34
|
|
Discount rate used for benefit obligations
|
|
|
5.49
|
%
|
|
|
5.54
|
%
|
|
|
5.75
|
%
|
Discount rate used for net periodic benefit cost
|
|
|
5.54
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
114
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Supplemental
Executive Retirement Plans
The Bank maintains supplemental retirement plans
(SERP) for certain highly compensated employees
designed to offset the impact of regulatory limits on benefits
under qualified pension plans. There are supplemental retirement
plans in place for seven current and eight former employees.
Additionally, as a result of the Slades acquisition, the Company
assumed a SERP for three former Slades executive officers to
receive supplemental benefits commencing with their retirement.
The Bank has established and funded Rabbi Trusts to accumulate
funds in order to satisfy the contractual liability of the
supplemental retirement plan benefits for seven current
executives and eight former executives, including certain former
Slades executives. These agreements provide for the Bank to pay
all benefits from its general assets, and the establishment of
these trust funds does not reduce nor otherwise affect the
Banks continuing liability to pay benefits from such
assets except that the Banks liability shall be offset by
actual benefit payments made from the trusts. The related trust
assets totaled $3.0 million and $1.5 million at
December 31, 2009 and 2008, respectively.
Supplemental retirement expense, including expenses for the
Slades SERP in 2009 and 2008, amounted to $679,000, $479,000,
and $433,000 for fiscal years 2009, 2008, and 2007,
respectively. Contributions paid to the plan, which were used
only to pay the current year benefits, were $226,000 in 2009,
$152,000 in 2008 and $113,000 in 2007. The Companys best
estimate of contributions expected to be paid in 2010 is
$253,000. The following table shows the benefits expected to be
paid in each of the next five years, in the aggregate for the
next five fiscal years thereafter, and in the aggregate after
those 10 years:
|
|
|
|
|
|
|
Supplemental Executive
|
|
|
Retirement Plans
|
|
|
Expected Benefit
|
|
|
Payment
|
Year
|
|
Total
|
|
|
(Dollars in thousands)
|
|
2010
|
|
$
|
253
|
|
2011
|
|
|
253
|
|
2012
|
|
|
253
|
|
2013
|
|
|
253
|
|
2014
|
|
|
253
|
|
2015-2019
|
|
|
1,770
|
|
2020 and later
|
|
$
|
20,705
|
|
115
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The measurement date used to determine the supplemental
executive retirement plans benefits is
December 31st for each of the years reported. The
following table illustrates the status of the supplemental
executive retirement plans at December 31 for the years
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Executive
|
|
|
|
Retirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Change in accumulated benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
4,353
|
|
|
$
|
3,306
|
|
|
$
|
2,652
|
|
Benefit obligation acquired
|
|
|
|
|
|
|
548
|
|
|
|
|
|
Accumulated service cost
|
|
|
304
|
|
|
|
197
|
|
|
|
244
|
|
Interest cost
|
|
|
271
|
|
|
|
220
|
|
|
|
151
|
|
Plan amendment
|
|
|
618
|
|
|
|
|
|
|
|
347
|
|
Actuarial loss/(gain)
|
|
|
273
|
|
|
|
233
|
|
|
|
25
|
|
Benefits paid
|
|
|
(222
|
)
|
|
|
(151
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
5,597
|
|
|
$
|
4,353
|
|
|
$
|
3,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Employer contribution
|
|
|
222
|
|
|
|
152
|
|
|
|
113
|
|
Benefits paid
|
|
|
(222
|
)
|
|
|
(152
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
(5,597
|
)
|
|
$
|
(4,353
|
)
|
|
$
|
(3,306
|
)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
(5,597
|
)
|
|
|
(4,353
|
)
|
|
|
(3,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(5,597
|
)
|
|
$
|
(4,353
|
)
|
|
$
|
(3,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Accumulated Other Comprehensive Income
(AOCI), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
356
|
|
|
$
|
185
|
|
|
$
|
49
|
|
Prior service cost
|
|
|
656
|
|
|
|
351
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in AOCI, net of tax
|
|
$
|
1,012
|
|
|
$
|
536
|
|
|
$
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information for pension plans with an accumulated benefit
obligation in excess of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
5,597
|
|
|
$
|
4,353
|
|
|
$
|
3,306
|
|
Accumulated benefit obligation
|
|
$
|
5,597
|
|
|
$
|
4,353
|
|
|
$
|
3,306
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
304
|
|
|
$
|
197
|
|
|
$
|
244
|
|
Interest cost
|
|
|
271
|
|
|
|
220
|
|
|
|
151
|
|
Amortization of prior service cost
|
|
|
112
|
|
|
|
64
|
|
|
|
42
|
|
Recognized net actuarial gain
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
679
|
|
|
$
|
478
|
|
|
$
|
433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive income expected to
be recognized in net periodic benefit cost over next fiscal
year
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
$
|
5
|
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
Net prior service cost
|
|
$
|
113
|
|
|
$
|
64
|
|
|
$
|
64
|
|
Discount rate used for benefit obligation
|
|
|
5.49
|
%
|
|
|
5.54
|
%
|
|
|
5.75
|
%
|
Discount rate used for net periodic benefit cost
|
|
|
5.54
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
Rate of compensation increase
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
116
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Employee Benefits
The Bank sometimes creates an incentive compensation plan for
senior management and other officers to participate in at
varying levels. In addition, the Bank sometimes also pays a
discretionary bonus to senior management, officers,
and/or
non-officers of the Bank. The expense for the incentive plans
and the discretionary bonus amounted to $5.5 million,
$3.3 million, and $3.0 million in 2009, 2008, and
2007, respectively.
The Bank amended its Profit Sharing Plan by converting it to an
Employee Savings Plan that qualifies as a deferred salary
arrangement under Section 401(k) of the Internal Revenue
Code. Under the Employee Savings Plan, participating employees
may defer a portion of their pre-tax earnings, not to exceed the
Internal Revenue Service annual contribution limits. The Bank
matches 25% of each employees contributions up to 6% of
the employees earnings. During 2005, the 401K Plan was
amended to incorporate an Employee Stock Ownership Plan for
contributions invested in the Companys common stock. In
2006 the Company amended the Plan to provide non discretionary
contributions in which employees, with one year of service,
receive a 5% cash contribution of eligible pay up to the social
security limit and a 10% cash contribution of eligible pay over
the social security limit up to the maximum amount permitted by
law. Benefits contributed to employees under the new defined
contribution plan vest immediately. The defined contribution
plan expense was $3.0 million in 2009, $2.5 million in
2008, and $2.3 million in 2007.
The Company also maintains a deferred compensation plan for the
Companys Board of Directors. The Board of Directors is
entitled to elect to defer their directors fees until
retirement. If the Director elects to do so, their compensation
is invested in the Companys stock and maintained within
the Companys Investment Management Group. The amount of
compensation deferred in 2009, 2008, and 2007 was $118,000,
$156,000, and $134,000, respectively. At December 31, 2009
the Company has 176,507 shares provided for the plan with a
related liability of $2.5 million established within
shareholders equity.
As a result of the acquisition of Ben Franklin, during 2009 the
Company acquired an Employee Stock Ownership Program
(ESOP). The Company is in the process of terminating
the plan, pending approval from the Internal Revenue Service.
All vested participants benefits will be distributed upon
termination. The Company has no liability relating to this plan.
In March 2008 as part of the Slades acquisition the Company
acquired approximately $13.0 million in BOLI policies.
These BOLI policies provide death benefits for the covered
employees. All prior Slades employees whom had reached the
vesting guidelines set forth within the policies are entitled to
a one time payout at three times their final salary. All other
prior Slades employees covered by the BOLI policies are entitled
to a one-time $5,000 payout. The Company has recorded a
liability of $1.6 million on its balance sheet for the
portion of the death benefits that is due to the employees
beneficiary. The total value of BOLI was $79.3 million and
$65.0 million at December 31, 2009 and 2008,
respectively. The increase in BOLI is primarily due to the Ben
Franklin acquisition. The Bank recorded BOLI income of
$2.9 million in 2009, $2.6 million in 2008, and
$2.0 million in 2007.
117
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(15)
|
Other
Non-Interest Expenses
|
Included in other non-interest expenses for each of the three
years in the period ended December 31, were the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Postage expense
|
|
$
|
1,277
|
|
|
$
|
1,140
|
|
|
$
|
1,110
|
|
Exams and audits
|
|
|
1,233
|
|
|
|
1,084
|
|
|
|
893
|
|
Internet banking
|
|
|
866
|
|
|
|
640
|
|
|
|
555
|
|
Foreclosure expenses
|
|
|
823
|
|
|
|
224
|
|
|
|
16
|
|
Recovery and collection
|
|
|
741
|
|
|
|
313
|
|
|
|
187
|
|
Printing
|
|
|
737
|
|
|
|
546
|
|
|
|
569
|
|
Insurance other
|
|
|
622
|
|
|
|
468
|
|
|
|
478
|
|
Directors fees
|
|
|
617
|
|
|
|
536
|
|
|
|
586
|
|
OREO valuation write-off
|
|
|
604
|
|
|
|
154
|
|
|
|
|
|
Travel expense
|
|
|
571
|
|
|
|
503
|
|
|
|
354
|
|
Debit card & ATM processing
|
|
|
545
|
|
|
|
734
|
|
|
|
1,035
|
|
Service charges on correspondent banks
|
|
|
490
|
|
|
|
261
|
|
|
|
177
|
|
Shareholder relations
|
|
|
483
|
|
|
|
353
|
|
|
|
386
|
|
Contract labor
|
|
|
468
|
|
|
|
298
|
|
|
|
341
|
|
Armored car expense
|
|
|
442
|
|
|
|
357
|
|
|
|
306
|
|
Recruitment
|
|
|
374
|
|
|
|
415
|
|
|
|
405
|
|
Other non-interest expenses
|
|
|
6,889
|
|
|
|
6,355
|
|
|
|
5,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
17,782
|
|
|
$
|
14,381
|
|
|
$
|
12,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16)
|
Fair
Value Measurements
|
Fair value is a market-based measure considered from the
perspective of a market participant rather than an
entity-specific measure. Therefore, even when market assumptions
are not readily available, the Companys own assumptions
are set to reflect those that market participants would use in
pricing the asset or liability at the measurement date. If there
has been a significant decrease in the volume and level of
activity for the asset or liability, regardless of the valuation
technique(s) used, the objective of a fair value measurement
remains the same. Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed
sale) between market participants at the measurement date under
current market conditions. The Company uses prices and inputs
that are current as of the measurement date, including during
periods of market dislocation. In periods of market dislocation,
the observability of prices and inputs may be reduced for many
instruments. This condition could cause an instrument to be
reclassified from one level to another.
The Fair Value Measurements and Disclosures Topic of the FASB
ASC defines fair value and establishes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurements) and the lowest
priority to unobservable inputs (level 3 measurements). The
three levels of the fair value hierarchy under the Fair Value
Measurements and Disclosures Topic of the FASB ASC are described
below:
Level 1 Inputs are quoted prices (unadjusted)
in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement
date.
Level 2 Valuations based on quoted prices in
markets that are not active or for which all significant inputs
are observable, either directly or indirectly.
118
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Level 3 Prices or valuations that require
inputs that are both significant to the fair value measurement
and unobservable.
To the extent that valuation is based on models or inputs that
are less observable or unobservable in the market, the
determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised by the Company in determining
fair value is greatest for instruments categorized in
Level 3. A financial instruments level within the
fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement.
Valuation
Techniques
There have been no changes in the valuation techniques used
during the current period.
Trading
Securities
These equity and fixed income securities are valued based on
market quoted prices. These securities are categorized in
Level 1 as they are actively traded and no valuation
adjustments have been applied.
U.S.
Treasury and Government Sponsored Enterprises
Fair value is estimated using either multi-dimensional spread
tables or benchmarks. The inputs used include benchmark yields,
reported trades, and broker/dealer quotes. These securities are
classified as Level 2 within the fair value hierarchy.
Agency
Mortgage-Backed Securities
Fair value is estimated using either a matrix or benchmarks. The
inputs used include benchmark yields, reported trades,
broker/dealer quotes, and issuer spreads. These securities are
categorized as Level 2.
Agency
Collateralized Mortgage Obligations and Private Mortgage-Backed
Securities
The valuation model for these securities is volatility-driven
and ratings based, and uses multi-dimensional spread tables. The
inputs used include benchmark yields, recent reported trades,
new issue data, broker and dealer quotes, and collateral
performance. If there is at least one significant model
assumption or input that is not observable, these securities are
categorized as Level 3 within the fair value hierarchy;
otherwise, they are classified as Level 2.
State,
County, and Municipal Securities
The fair value is estimated using a valuation matrix with inputs
including bond interest rate tables, recent transactions, and
yield relationships. These securities are categorized as
Level 2 within the fair value hierarchy.
Corporate
Debt Securities
The fair value is estimated using market prices (to the extent
they are available and observable), recently executed
transactions, and bond spreads. Corporate bonds are categorized
as Level 2.
Single/Pooled
Issuer Trust Preferred Securities
The fair value of trust preferred securities, including pooled
and single issued preferred securities, is estimated using
external pricing models, discounted cash flow methodologies or
similar techniques. The inputs used in these valuations include
benchmark yields, recent reported trades, new issue data, broker
and dealer quotes and collateral performance. Accordingly, these
trust preferred securities are categorized as Level 3
within the fair value hierarchy.
119
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Derivative
Instruments
Derivatives
The valuation of these instruments is determined using widely
accepted valuation techniques including discounted cash flow
analysis on the expected cash flows of each derivative. This
analysis reflects the contractual terms of the derivatives,
including the period to maturity, and uses observable
market-based inputs, including interest rate curves and implied
volatilities. The Company incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance
risk and the respective counterpartys nonperformance risk
in the fair value measurements. In adjusting the fair value of
its derivative contracts for the effect of nonperformance risk,
the Company has considered the impact of netting and any
applicable credit enhancements, such as collateral postings.
Although the Company has determined that the majority of the
inputs used to value its interest rate derivatives fall within
Level 2 of the fair value hierarchy, the credit valuation
adjustments associated with its derivatives utilize Level 3
inputs, such as estimates of current credit spreads to evaluate
the likelihood of default by the Company and its counterparties.
However, as of December 31, 2009, the Company has assessed
the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions
and has determined that the credit valuation adjustments are not
significant to the overall valuation of its derivatives. As a
result, the Company has determined that its derivative
valuations in their entirety are classified in Level 2 of
the fair value hierarchy.
Residential
Mortgage Loan Commitments and Forward Sales
Agreements
The fair value of the commitments and agreements are estimated
using the anticipated market price based on pricing indications
provided from syndicate banks. These commitments and agreements
are categorized as Level 2.
Impaired
Loans
Loans that are deemed to be impaired are valued based upon the
lower of cost or fair value of the underlying collateral or
discounted cash flow analyses. The inputs used in the appraisals
of the collateral are not always observable, and therefore the
loans may be categorized as Level 3 within the fair value
hierarchy; otherwise, they are classified as Level 2. The
inputs used in performing discounted cash flow analyses are not
observable and therefore such loans are classified as
Level 3.
Loans
Held for Sale
Loans held for sale are carried at the lower of cost or market
value. Fair value is measured on a non-recurring basis using
quoted market prices when available. If quoted market prices are
not available, comparable market values or discounted cash flow
analysis may be utilized. These assets are typically categorized
as Level 2.
Other
Real Estate Owned
The fair values are estimated based upon recent appraisal values
of the property less costs to sell the property. Certain inputs
used in appraisals are not always observable, and therefore
Other Real Estate Owned may be categorized as Level 3
within the fair value hierarchy. When inputs in appraisals are
observable, they are classified as Level 2 within the fair
value hierarchy.
Mortgage
Servicing Asset
The mortgage servicing asset is subject to impairment testing. A
valuation model, which utilizes a discounted cash flow analysis
using interest rates and prepayment speed assumptions currently
quoted for comparable instruments and a discount rate determined
by management, is used for impairment testing. If the valuation
model reflects a value less than the carrying value, loan
servicing rights are adjusted to fair value through a valuation
allowance as determined by the model. As such, the Company
classifies the mortgage servicing asset as Level 3.
120
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Other Intangible Assets
Goodwill and identified intangible assets are subject to
impairment testing. The Company conducts an annual impairment
test of goodwill in the third quarter of each year and more
frequently if necessary. To estimate the fair value of goodwill
and other intangible assets the Company utilizes both a
comparable analysis of relevant price multiples in recent market
transactions and discounted cash flow analysis. Both valuation
models require a significant degree of management judgment. In
the event the fair value as determined by the valuation model is
less than the carrying value, the intangibles may be impaired.
If the impairment testing resulted in impairment, the Company
would classify goodwill and other intangible assets subjected to
non-recurring fair value adjustments as Level 3.
121
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets and Liabilities Measured at Fair Value on a Recurring
Basis at December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Balance
|
|
|
(level 1)
|
|
|
(level 2)
|
|
|
(level 3)
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities
|
|
$
|
6,171
|
|
|
$
|
6,171
|
|
|
$
|
|
|
|
$
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Government Sponsored Enterprise
|
|
|
744
|
|
|
|
|
|
|
|
744
|
|
|
|
|
|
Agency Mortgage-Backed Securities
|
|
|
451,909
|
|
|
|
|
|
|
|
451,909
|
|
|
|
|
|
Agency Collateralized Mortgage Obligations
|
|
|
32,022
|
|
|
|
|
|
|
|
32,022
|
|
|
|
|
|
Private Mortgage-Backed Securities
|
|
|
14,289
|
|
|
|
|
|
|
|
|
|
|
|
14,289
|
|
State, County, and Municipal Securities
|
|
|
4,081
|
|
|
|
|
|
|
|
4,081
|
|
|
|
|
|
Single Issuer Trust Preferred Securities Issued by Banks
and Insurers
|
|
|
3,010
|
|
|
|
|
|
|
|
|
|
|
|
3,010
|
|
Pooled Trust Preferred Securities Issued by Banks and
Insurers
|
|
|
2,595
|
|
|
|
|
|
|
|
|
|
|
|
2,595
|
|
Derivative Instruments
|
|
|
5,525
|
|
|
|
|
|
|
|
5,525
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments
|
|
|
8,146
|
|
|
|
|
|
|
|
8,146
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading Securities
|
|
$
|
2,701
|
|
|
$
|
2,701
|
|
|
$
|
|
|
|
$
|
|
|
Securities Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Government Sponsored Enterprise
|
|
|
710
|
|
|
|
|
|
|
|
710
|
|
|
|
|
|
Agency Mortgage-Backed Securities
|
|
|
475,083
|
|
|
|
|
|
|
|
475,083
|
|
|
|
|
|
Agency Collateralized Mortgage Obligations
|
|
|
56,783
|
|
|
|
|
|
|
|
56,783
|
|
|
|
|
|
Private Mortgage-Backed Securities
|
|
|
15,514
|
|
|
|
|
|
|
|
15,514
|
|
|
|
|
|
State, County, and Municipal Securities
|
|
|
18,954
|
|
|
|
|
|
|
|
18,954
|
|
|
|
|
|
Corporate Debt Securities
|
|
|
25,852
|
|
|
|
|
|
|
|
25,852
|
|
|
|
|
|
Single Issuer Trust Preferred Securities Issued by Banks
and Insurers
|
|
|
2,202
|
|
|
|
|
|
|
|
2,202
|
|
|
|
|
|
Pooled Trust Preferred Securities Issued by Banks and
Insurers
|
|
|
5,193
|
|
|
|
|
|
|
|
|
|
|
|
5,193
|
|
Derivative Instruments
|
|
|
1,824
|
|
|
|
|
|
|
|
1,824
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments
|
|
|
14,309
|
|
|
|
|
|
|
|
14,309
|
|
|
|
|
|
122
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below presents a reconciliation for all assets and
liabilities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3). These
instruments were valued using pricing models and discounted cash
flow methodologies.
Reconciliation
for All Assets and Liabilities Measured at Fair Value on
a Recurring Basis Using Significant Unobservable Inputs (Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
Private
|
|
|
|
|
|
|
Pooled Trust
|
|
|
Single Trust
|
|
|
Mortgage-
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Backed
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
Securities
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Year-to-Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gains and Losses (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(7,211
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,211
|
)
|
Included in Other Comprehensive Income
|
|
|
(2,983
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,983
|
)
|
Purchases, issuances and settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers in to Level 3
|
|
|
15,387
|
|
|
|
|
|
|
|
|
|
|
|
15,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2009
|
|
$
|
5,193
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(8,641
|
)
|
|
|
|
|
|
|
(317
|
)
|
|
|
(8,958
|
)
|
Included in Other Comprehensive Income
|
|
|
6,138
|
|
|
|
808
|
|
|
|
5,170
|
|
|
|
12,116
|
|
Purchases, issuances and settlements
|
|
|
(95
|
)
|
|
|
|
|
|
|
(6,078
|
)
|
|
|
(6,173
|
)
|
Transfers in to Level 3
|
|
|
|
|
|
|
2,202
|
|
|
|
15,514
|
|
|
|
17,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
2,595
|
|
|
$
|
3,010
|
|
|
$
|
14,289
|
|
|
$
|
19,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and liabilities measured at fair value on a non-recurring
basis at December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Gains
|
|
|
|
Balance
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
|
(Dollars in thousands)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
16,680
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,680
|
|
|
$
|
(449
|
)
|
Loans Held For Sale
|
|
|
13,527
|
|
|
|
|
|
|
|
13,527
|
|
|
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
|
3,994
|
|
|
|
|
|
|
|
1,134
|
|
|
|
2,860
|
|
|
|
|
|
Mortgage Servicing Asset
|
|
|
2,195
|
|
|
|
|
|
|
|
|
|
|
|
2,195
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans
|
|
$
|
2,754
|
|
|
$
|
|
|
|
$
|
2,754
|
|
|
$
|
|
|
|
$
|
(1,453
|
)
|
123
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated fair values and related carrying amounts of the
Companys financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
December
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Book
|
|
|
Fair
|
|
|
Book
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(Dollars in thousands)
|
|
|
(Dollars in thousands)
|
|
|
FINANCIAL ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Held To Maturity(a)
|
|
$
|
93,410
|
|
|
$
|
93,438
|
|
|
$
|
32,789
|
|
|
$
|
30,390
|
|
Loans, Net of Allowance for Loan Losses(b)(e)
|
|
|
3,353,154
|
|
|
|
3,316,117
|
|
|
|
2,615,487
|
|
|
|
2,621,550
|
|
FINANCIAL LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Certificates of Deposits(c)
|
|
$
|
917,781
|
|
|
$
|
907,499
|
|
|
$
|
846,096
|
|
|
$
|
855,585
|
|
Federal Home Loan Bank Advances(c)
|
|
|
362,936
|
|
|
|
350,503
|
|
|
|
429,634
|
|
|
|
435,431
|
|
Federal Funds Purchased and Assets Sold Under Repurchase
Agreements(c)
|
|
|
190,452
|
|
|
|
193,943
|
|
|
|
170,880
|
|
|
|
166,600
|
|
Junior Subordinated Debentures(d)
|
|
|
61,857
|
|
|
|
52,888
|
|
|
|
61,857
|
|
|
|
10,894
|
|
Subordinated Debentures(c)
|
|
|
30,000
|
|
|
|
27,529
|
|
|
|
30,000
|
|
|
|
31,188
|
|
|
|
|
(a) |
|
The fair value values presented are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments and/or discounted cash flow analyses. |
|
(b) |
|
Fair value is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities or cash flows. |
|
(c) |
|
Fair value was determined by discounting anticipated future cash
payments using rates currently available for instruments with
similar remaining maturities. |
|
(d) |
|
Fair value was determined based upon market prices of securities
with similar terms and maturities. |
|
(e) |
|
The book value of net loans excludes loans held for sale. |
This summary excludes financial assets and liabilities for which
the carrying value approximates fair value. For financial
assets, these include cash and due from banks, federal funds
sold, short-term investments, Federal Home Loan Bank stock, and
Bank Owned Life Insurance. For financial liabilities, these
include demand, savings, money market deposits, and federal
funds purchased and assets sold under repurchase agreements. The
estimated fair value of demand, savings and money market
deposits is the amount payable at the reporting date. Also
excluded from the summary are financial instruments measured at
fair value on a recurring and non-recurring basis, as previously
described.
124
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(17)
|
Other
Comprehensive Income/(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
Pre Tax
|
|
|
Tax (Expense)
|
|
|
After Tax
|
|
|
|
Amount
|
|
|
Benefit
|
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
Cumulative Effect Accounting Adjustment
|
|
$
|
(5,974
|
)(a)
|
|
$
|
(2,151
|
)
|
|
$
|
(3,823
|
)
|
Change in Fair Value of Securities Available for Sale
|
|
|
7,124
|
|
|
|
2,335
|
|
|
|
4,789
|
|
Net Security Losses Reclassified into Earnings
|
|
|
7,604
|
(b)
|
|
|
2,805
|
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Fair Value of Securities Available for Sale
|
|
|
14,728
|
|
|
|
5,140
|
|
|
|
9,588
|
|
Change in Fair Value of Cash Flow Hedges
|
|
|
14,549
|
(c)
|
|
|
5,965
|
|
|
|
8,584
|
|
Net Cash Flow Hedge Gains Reclassified into Earnings
|
|
|
(1,932
|
)
|
|
|
(794
|
)
|
|
|
(1,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Fair Value of Cash Flow Hedges
|
|
|
12,617
|
|
|
|
5,171
|
|
|
|
7,446
|
|
Amortization of Certain Costs Included in Net Periodic
Retirement Costs
|
|
|
(982
|
)
|
|
|
(394
|
)
|
|
|
(588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income
|
|
$
|
20,389
|
|
|
$
|
7,766
|
|
|
$
|
12,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
Pre Tax
|
|
|
Tax (Expense)
|
|
|
After Tax
|
|
|
|
Amount
|
|
|
Benefit
|
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
Change in Fair Value of Securities Available for Sale
|
|
$
|
(4,311
|
)
|
|
$
|
(1,039
|
)
|
|
$
|
(3,272
|
)
|
Net Security Losses Reclassified into Earnings
|
|
|
7,820
|
(b)
|
|
|
2,816
|
|
|
|
5,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Fair Value of Securities Available for Sale
|
|
|
3,509
|
|
|
|
1,777
|
|
|
|
1,732
|
|
Change in Fair Value of Cash Flow Hedges
|
|
|
(11,803
|
)(d)
|
|
|
(4,900
|
)
|
|
|
(6,903
|
)
|
Net Cash Flow Hedge Losses Reclassified into Earnings
|
|
|
495
|
|
|
|
207
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Fair Value of Cash Flow Hedges
|
|
|
(11,308
|
)
|
|
|
(4,693
|
)
|
|
|
(6,615
|
)
|
Amortization of Certain Costs Included in Net Periodic
Retirement Costs
|
|
|
(204
|
)
|
|
|
(86
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income
|
|
$
|
(8,003
|
)
|
|
$
|
(3,002
|
)
|
|
$
|
(5,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Pre Tax
|
|
|
Tax (Expense)
|
|
|
After Tax
|
|
|
|
Amount
|
|
|
Benefit
|
|
|
Amount
|
|
|
|
(Dollars in thousands)
|
|
|
Change in Fair Value of Securities Available for Sale
|
|
$
|
5,325
|
|
|
$
|
2,003
|
|
|
$
|
3,322
|
|
Net Security Losses(Gains) Reclassified into Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Fair Value of Securities Available for Sale
|
|
|
5,325
|
|
|
|
2,003
|
|
|
|
3,322
|
|
Change in Fair Value of Cash Flow Hedges
|
|
|
(4,151
|
)
|
|
|
(1,743
|
)
|
|
|
(2,408
|
)
|
Net Cash Flow Hedge Losses(Gains) Reclassified into Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Fair Value of Cash Flow Hedges
|
|
|
(4,151
|
)
|
|
|
(1,743
|
)
|
|
|
(2,408
|
)
|
Amortization of Certain Costs Included in Net Periodic
Retirement Costs
|
|
|
(159
|
)
|
|
|
(67
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Comprehensive Income
|
|
$
|
1,015
|
|
|
$
|
193
|
|
|
$
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents reclassifications of non credit related components of
previously recorded OTTI pursuant to the adoption of the
Investments Debt and Equity Securities topic of the
FASB ASC. |
|
(b) |
|
Net Security losses include pre-tax OTTI credit related losses
of $9.0 million and $7.2 million for the years ended
December 31, 2009 and 2008, respectively. |
125
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(c) |
|
Includes the remaining balance of $1.3 million at
December 31, 2009 of realized but unrecognized gain, net of
tax, from the termination of interest rate swaps in June 2009.
The gain will be recognized in earnings through December 2018,
the original maturity date of the swap. |
|
|
|
Also, includes the remaining balance of $9,000 at
December 31, 2009 of realized but unrecognized loss, net of
tax, from the termination of an interest rate swap in March
2008. The loss will be recognized in earnings through January
2010, the original maturity date of the interest rate swap. |
|
(d) |
|
Includes the remaining balance of $387,000 at December 31,
2008 of realized but unrecognized loss, net of tax, from the
termination of an interest rate swap in March 2008. The loss
will be recognized in earnings through January 2010, the
original maturity date of the interest rate swap. |
Accumulated Other Comprehensive Income, net of tax, is comprised
of the following components:
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Unrealized gain(loss) on available for sale securities
|
|
$
|
4,393
|
|
|
$
|
(1,372
|
)
|
Net actuarial loss and prior service cost for pension and other
post retirement benefit plans
|
|
|
(1,212
|
)
|
|
|
(624
|
)
|
Unrealized loss on cash flow hedge
|
|
|
(2,578
|
)
|
|
|
(7,209
|
)
|
Deferred gain on hedge accounting transactions
|
|
|
2,150
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,753
|
|
|
$
|
(9,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(18)
|
Commitments
and Contingencies
|
Financial
Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the
financing needs of its customers and to reduce its own exposure
to fluctuations in interest rates. These financial instruments
involve, to varying degrees, elements of credit and interest
rate risk in excess of amounts recognized in the consolidated
balance sheets. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance sheet instruments.
Off-balance sheet financial instruments whose contractual
amounts present credit risk include the following at
December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Commitments to extend credit:
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
18,293
|
|
|
$
|
12,053
|
|
Adjustable rate
|
|
|
3,233
|
|
|
|
2,848
|
|
Unused portion of existing credit lines and loan commitments
|
|
|
823,312
|
|
|
|
681,761
|
|
Unadvanced construction loans
|
|
|
54,254
|
|
|
|
86,245
|
|
Standby letters of credit
|
|
|
19,104
|
|
|
|
18,913
|
|
The Companys exposure to credit loss in the event of
nonperformance by the counterparty for commitments to extend
credit and standby letters of credit is represented by the
contractual amounts of those instruments. Commitments to extend
credit are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. The
Bank evaluates each customers creditworthiness on an
individual basis. The amount of collateral obtained upon
extension of the credit is based upon managements credit
evaluation of the customer. Collateral varies but may include
accounts receivable, inventory, property, plant and equipment
and income-producing commercial real estate. Commitments
generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the
commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.
126
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Standby letters of credit are conditional commitments issued by
the Bank to guarantee performance of a customer to a third
party. These guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loans to customers. The collateral
supporting those commitments is essentially the same as for
other commitments. Most guarantees extend for one year.
Guarantees are recorded on the Companys consolidated
balance sheet at fair value at inception. The Company considers
standby letters of credit to be guarantees and the amount of the
recorded liability related to such guarantees at
December 31, 2009 and 2008 was approximately $98,000 and
$142,000, respectively.
Leases
The Company leased office space, space for ATM locations, and
certain branch locations under non-cancelable operating leases.
The following is a schedule of minimum future lease commitments
under such leases as of December 31, 2009:
|
|
|
|
|
|
|
Lease
|
|
Years
|
|
Commitments
|
|
|
|
(Dollars in thousands)
|
|
|
2010
|
|
$
|
6,359
|
|
2011
|
|
|
5,848
|
|
2012
|
|
|
5,635
|
|
2013
|
|
|
5,538
|
|
2014
|
|
|
5,279
|
|
Thereafter
|
|
|
31,939
|
|
|
|
|
|
|
Total future minimum rentals
|
|
$
|
60,598
|
|
|
|
|
|
|
Rent expense incurred under operating leases was approximately
$7.0 million in 2009, $5.0 million in 2008 and
$3.1 million in 2007. Renewal options ranging from
3 20 years exist for several of these leases.
The Company has entered into lease agreements with related third
parties on substantially the same terms as those prevailing at
the time for comparable transactions with unrelated parties.
Rent expense incurred under related third party leases was
approximately $755,000, $909,000, and $765,000 in 2009, 2008,
and 2007.
Other
Contingencies
At December 31, 2009, Rockland Trust was involved in
pending lawsuits that arose in the ordinary course of business.
Management has reviewed these pending lawsuits with legal
counsel and has taken into consideration the view of counsel as
to their outcome. In the opinion of management, the final
disposition of pending lawsuits is not expected to have a
material adverse effect on the Companys financial position
or results of operations.
The Bank is required to maintain certain reserve requirements of
vault cash
and/or
deposits with the Federal Reserve Bank of Boston. The amount of
this reserve requirement was $4.2 million and
$12.4 million at December 31, 2009 and 2008,
respectively.
|
|
(19)
|
Regulatory
Capital Requirements
|
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional
discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Companys financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative
measures of the Companys and the Banks assets,
liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by
127
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the regulators about components, risk weightings and other
factors. Prompt corrective action provisions are not applicable
to bank holding companies.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table below) of
Total and Tier 1 Capital (as defined) to average assets (as
defined) and Tier 1 Capital to risk weighted assets (as
defined). Management believes, as of December 31, 2009 and
2008 that the Company and the Bank met all capital adequacy
requirements to which they are subject.
At December 31, 2009, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as
well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an
institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the
following tables. There are no conditions or events since the
notification that management believes have changed the
Banks category. The Companys and the Banks
actual capital amounts and ratios as of December 31, 2009
and 2008 are also presented in the table that follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well Capitalized
|
|
|
|
|
|
|
|
|
|
Under Prompt
|
|
|
|
|
|
|
For Capital
|
|
|
Corrective Action
|
|
|
|
Actual
|
|
|
Adequacy Purposes
|
|
|
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
|
|
|
Ratio
|
|
|
Amount
|
|
|
|
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company: (Consolidated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
412,674
|
|
|
|
11.92
|
%
|
|
$
|
277,029
|
|
|
|
³
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
Tier 1 capital (to risk weighted assets)
|
|
|
340,313
|
|
|
|
9.83
|
|
|
|
138,515
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
Tier 1 capital (to average assets)
|
|
|
340,313
|
|
|
|
7.87
|
|
|
|
172,897
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
398,890
|
|
|
|
11.49
|
%
|
|
$
|
277,699
|
|
|
|
³
|
|
|
|
8.0
|
%
|
|
$
|
347,124
|
|
|
|
³
|
|
|
|
10.0
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
326,529
|
|
|
|
9.41
|
|
|
|
138,850
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
208,275
|
|
|
|
³
|
|
|
|
6.0
|
|
Tier 1 capital (to average assets)
|
|
|
326,529
|
|
|
|
7.55
|
|
|
|
173,022
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
216,278
|
|
|
|
³
|
|
|
|
5.0
|
|
As of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company: (Consolidated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
324,469
|
|
|
|
11.85
|
%
|
|
$
|
219,110
|
|
|
|
³
|
|
|
|
8.0
|
%
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
Tier 1 capital (to risk weighted assets)
|
|
|
260,198
|
|
|
|
9.50
|
|
|
|
109,555
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
Tier 1 capital (to average assets)
|
|
|
260,198
|
|
|
|
7.55
|
|
|
|
109,555
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
$
|
324,891
|
|
|
|
11.83
|
%
|
|
$
|
219,679
|
|
|
|
³
|
|
|
|
8.0
|
%
|
|
$
|
274,599
|
|
|
|
³
|
|
|
|
10.0
|
%
|
Tier 1 capital (to risk weighted assets)
|
|
|
260,533
|
|
|
|
9.49
|
|
|
|
109,840
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
164,759
|
|
|
|
³
|
|
|
|
6.0
|
|
Tier 1 capital (to average assets)
|
|
|
260,533
|
|
|
|
7.56
|
|
|
|
137,902
|
|
|
|
³
|
|
|
|
4.0
|
|
|
|
172,378
|
|
|
|
³
|
|
|
|
5.0
|
|
128
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(20)
|
Parent
Company Financial Statements
|
Condensed financial information relative to the Parent
Companys balance sheets at December 31, 2009 and 2008
and the related statements of income and cash flows for the
years ended December 31, 2009, 2008, and 2007 are presented
below. The statement of stockholders equity is not
presented below as the parent companys stockholders
equity is that of the consolidated Company.
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cash*
|
|
$
|
18,678
|
|
|
$
|
3,430
|
|
Investments in subsidiaries*
|
|
|
463,728
|
|
|
|
373,157
|
|
Deferred tax asset
|
|
|
2,668
|
|
|
|
4,522
|
|
Deferred stock issuance costs
|
|
|
184
|
|
|
|
191
|
|
Other assets
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
485,258
|
|
|
$
|
381,301
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity:
|
|
|
|
|
|
|
|
|
Dividends payable
|
|
$
|
3,793
|
|
|
$
|
2,934
|
|
Junior subordinated debentures
|
|
|
61,857
|
|
|
|
61,857
|
|
Accrued income taxes
|
|
|
1,675
|
|
|
|
1,365
|
|
Derivative Instruments
|
|
|
5,229
|
|
|
|
9,766
|
|
Other liabilities
|
|
|
55
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
72,609
|
|
|
|
76,027
|
|
Stockholders equity
|
|
|
412,649
|
|
|
|
305,274
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
485,258
|
|
|
$
|
381,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Eliminated in consolidation |
129
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENTS
OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received from subsidiaries
|
|
$
|
23,610
|
|
|
$
|
36,463
|
|
|
$
|
30,117
|
|
Interest income
|
|
|
222
|
|
|
|
30
|
|
|
|
227
|
|
Gain on sale of securities
|
|
|
|
|
|
|
74
|
|
|
|
|
|
Income from hedging relationship
|
|
|
115
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
23,947
|
|
|
|
36,572
|
|
|
|
30,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
3,700
|
|
|
|
3,700
|
|
|
|
5,362
|
|
Other expenses
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,703
|
|
|
|
3,700
|
|
|
|
5,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and equity in undistributed income of
subsidiaries
|
|
|
20,244
|
|
|
|
32,872
|
|
|
|
24,982
|
|
Equity in undistributed income of subsidiaries/(accumulated
deficit)
|
|
|
1,959
|
|
|
|
(9,585
|
)
|
|
|
1,539
|
|
Income tax benefit
|
|
|
786
|
|
|
|
677
|
|
|
|
1,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,989
|
|
|
$
|
23,964
|
|
|
$
|
28,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
STATEMENTS
OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,989
|
|
|
$
|
23,964
|
|
|
$
|
28,381
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH PROVIDED FROM
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
7
|
|
|
|
6
|
|
|
|
2
|
|
Gain on sale of assets
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
Increase in other assets
|
|
|
1
|
|
|
|
49
|
|
|
|
(470
|
)
|
Increase in other liabilities
|
|
|
260
|
|
|
|
226
|
|
|
|
750
|
|
(Equity in undistributed income of subsidiaries)/accumulated
deficit
|
|
|
(1,959
|
)
|
|
|
9,585
|
|
|
|
(1,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
21,298
|
|
|
|
33,756
|
|
|
|
27,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of Common Stock In Independent Capital Trust III
|
|
|
|
|
|
|
|
|
|
|
773
|
|
Redemption of Common Stock In Independent Capital Trust IV
|
|
|
|
|
|
|
|
|
|
|
773
|
|
Proceeds from sales of securities available for sale
|
|
|
|
|
|
|
6,554
|
|
|
|
|
|
Payments for investments in subsidiaries
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
Cash acquired (paid) for acquisition
|
|
|
10,416
|
|
|
|
(25,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
10,416
|
|
|
|
(23,349
|
)
|
|
|
1,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock issued and stock options exercised
|
|
|
307
|
|
|
|
695
|
|
|
|
1,029
|
|
Issuance of preferred stock and stock warrants
|
|
|
78,158
|
|
|
|
|
|
|
|
|
|
Redemption of preferred stock
|
|
|
(78,158
|
)
|
|
|
|
|
|
|
|
|
Redemption of warrants
|
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
Redemption of junior subordinated debentures
|
|
|
|
|
|
|
|
|
|
|
(25,773
|
)
|
Amortization/write-off of issuance costs
|
|
|
|
|
|
|
|
|
|
|
924
|
|
Payments for purchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(30,696
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
(1,118
|
)
|
|
|
|
|
|
|
|
|
Common
|
|
|
(13,455
|
)
|
|
|
(11,135
|
)
|
|
|
(9,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(16,466
|
)
|
|
|
(10,440
|
)
|
|
|
(64,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
15,248
|
|
|
|
(33
|
)
|
|
|
(35,341
|
)
|
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
|
|
|
3,430
|
|
|
|
3,463
|
|
|
|
38,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
|
|
$
|
18,678
|
|
|
$
|
3,430
|
|
|
$
|
3,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(21)
|
Selected
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
INTEREST INCOME
|
|
$
|
43,411
|
|
|
$
|
41,079
|
|
|
$
|
52,806
|
|
|
$
|
44,311
|
|
|
$
|
53,590
|
|
|
$
|
45,085
|
|
|
$
|
52,883
|
|
|
$
|
45,327
|
|
INTEREST EXPENSE
|
|
|
13,422
|
|
|
|
15,314
|
|
|
|
13,706
|
|
|
|
14,468
|
|
|
|
12,682
|
|
|
|
14,157
|
|
|
|
12,185
|
|
|
|
14,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME
|
|
$
|
29,989
|
|
|
$
|
25,765
|
|
|
$
|
39,100
|
|
|
$
|
29,843
|
|
|
$
|
40,908
|
|
|
$
|
30,928
|
|
|
$
|
40,698
|
|
|
$
|
30,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR LOAN LOSSES
|
|
|
4,000
|
|
|
|
1,342
|
|
|
|
4,468
|
|
|
|
1,902
|
|
|
|
4,443
|
|
|
|
2,068
|
|
|
|
4,424
|
|
|
|
5,575
|
|
NON-INTEREST INCOME
|
|
|
9,094
|
|
|
|
8,847
|
|
|
|
11,123
|
|
|
|
9,756
|
|
|
|
9,607
|
|
|
|
9,439
|
|
|
|
12,194
|
|
|
|
8,453
|
|
GROSS LOSS ON WRITE-DOWN OF CERTAIN INVESTMENTS TO FAIR VALUE
|
|
|
(102
|
)
|
|
|
|
|
|
|
(2,174
|
)
|
|
|
(1,850
|
)
|
|
|
(5,108
|
)
|
|
|
(720
|
)
|
|
|
2
|
|
|
|
(4,646
|
)
|
LESS: NON-CREDIT RELATED
OTHER-THAN-TEMPORARY
IMPAIRMENT
|
|
|
102
|
|
|
|
|
|
|
|
521
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
(2,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ON WRITE-DOWN OF CERTAIN INVESTMENTS TO FAIR VALUE
|
|
|
|
|
|
|
|
|
|
|
(1,653
|
)
|
|
|
(1,850
|
)
|
|
|
(5,141
|
)
|
|
|
(720
|
)
|
|
|
(2,165
|
)
|
|
|
(4,646
|
)
|
GAIN RESULTING FROM EARLY TERMINATION OF HEDGING RELATIONSHIP
|
|
|
|
|
|
|
|
|
|
|
3,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS)/GAIN ON SECURITIES
|
|
|
1,379
|
|
|
|
(609
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-INTEREST EXPENSES
|
|
|
26,233
|
|
|
|
23,648
|
|
|
|
31,860
|
|
|
|
27,633
|
|
|
|
30,996
|
|
|
|
24,740
|
|
|
|
33,328
|
|
|
|
26,031
|
|
MERGER & ACQUISITION EXPENSES
|
|
|
1,538
|
|
|
|
744
|
|
|
|
10,844
|
|
|
|
376
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FDIC ASSESSMENT
|
|
|
536
|
|
|
|
58
|
|
|
|
3,852
|
|
|
|
53
|
|
|
|
1,267
|
|
|
|
719
|
|
|
|
1,320
|
|
|
|
559
|
|
RECOVERY ON WORLDCOM BOND CLAIM
|
|
|
|
|
|
|
(418
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
1,767
|
|
|
|
2,321
|
|
|
|
639
|
|
|
|
1,965
|
|
|
|
1,786
|
|
|
|
3,305
|
|
|
|
2,555
|
|
|
|
(1,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
6,388
|
|
|
$
|
6,308
|
|
|
$
|
660
|
|
|
$
|
5,820
|
|
|
$
|
6,841
|
|
|
$
|
8,815
|
|
|
$
|
9,100
|
|
|
$
|
3,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED STOCK DIVIDEND
|
|
$
|
1,173
|
|
|
$
|
|
|
|
$
|
4,525
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
|
$
|
5,215
|
|
|
$
|
6,308
|
|
|
$
|
(3,865
|
)
|
|
$
|
5,820
|
|
|
$
|
6,841
|
|
|
$
|
8,815
|
|
|
$
|
9,100
|
|
|
$
|
3,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.36
|
|
|
$
|
0.33
|
|
|
$
|
0.54
|
|
|
$
|
0.43
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE
|
|
$
|
0.32
|
|
|
$
|
0.44
|
|
|
$
|
(0.19
|
)
|
|
$
|
0.36
|
|
|
$
|
0.33
|
|
|
$
|
0.54
|
|
|
$
|
0.43
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares (Basic)
|
|
|
16,285,955
|
|
|
|
14,386,845
|
|
|
|
20,360,046
|
|
|
|
16,268,009
|
|
|
|
20,921,635
|
|
|
|
16,275,442
|
|
|
|
20,931,154
|
|
|
|
16,280,552
|
|
Common stock equivalents
|
|
|
17,881
|
|
|
|
73,133
|
|
|
|
25,563
|
|
|
|
78,740
|
|
|
|
48,254
|
|
|
|
62,738
|
|
|
|
44,653
|
|
|
|
50,566
|
|
Weighted average common shares (Diluted)
|
|
|
16,303,836
|
|
|
|
14,459,978
|
|
|
|
20,385,609
|
|
|
|
16,346,749
|
|
|
|
20,969,889
|
|
|
|
16,338,180
|
|
|
|
20,975,807
|
|
|
|
16,331,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusion Regarding the Effectiveness of Disclosure Controls
and Procedures The Company carried out an
evaluation, under the supervision and with the participation of
the Companys management, including the Companys
Chief Executive Officer along with the Companys Chief
Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and
procedures, as such term is defined under
Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act). Based upon that
evaluation, the Companys Chief Executive Officer along
with the Companys Chief Financial Officer concluded that
the Companys disclosure controls and procedures are
effective as of the end of the period covered by this annual
report.
Changes in Internal Controls over Financial
Reporting There were no changes in our internal
control over financial reporting that occurred during the fourth
quarter that have materially affected, or are, reasonably likely
to materially affect, the Companys internal controls over
financial reporting.
Managements Report on Internal Control Over Financial
Reporting Management of Independent Bank Corp. is
responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over
financial reporting is defined in
Rule 13a-15(f)
under the Exchange Act as a process designed by, or under the
supervision of, the Companys principal executive and
principal financial officers and effected by the Companys
Board of Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. Independent Bank Corp.s internal
control over financial reporting includes those policies and
procedures that:
(i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflects the
transactions and disposition of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of
management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Companys assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based on our assessment and those criteria, management believes
that the Company maintained effective internal control over
financial reporting as of December 31, 2009.
Independent Bank Corp.s independent registered public
accounting firm has issued a report on the Companys
internal control over financial reporting. That report appears
below.
133
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Independent Bank Corp.:
We have audited Independent Bank Corp. and subsidiaries
(the Company) internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO Criteria). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management
Report on Internal Control. Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition use or disposition of the
Companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Independent Bank Corp. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of Independent Bank Corp. and
subsidiaries as of December 31, 2009, and the related
consolidated statements of income, shareholders equity,
and cash flows for the year then ended, and our report dated
March 10, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 10, 2010
134
|
|
Item 9A(T).
|
Controls
and Procedures
|
N/A
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required herein is incorporated by reference
from the Companys proxy statement (the Definitive
Proxy Statement) relating to its May 20, 2010 Annual
Meeting of Stockholders that will be filed with the Commission
within 120 days following the fiscal year end
December 31, 2009.
|
|
Item 11.
|
Executive
Compensation
|
The information required herein is incorporated by reference
from the Companys proxy statement (the Definitive
Proxy Statement) relating to its May 20, 2010 Annual
Meeting of Stockholders that will be filed with the Commission
within 120 days following the fiscal year end
December 31, 2009.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table sets forth information as of
December 31, 2009 about the securities authorized for
issuance under our equity compensation plans, consisting of our
1996 Director Stock Plan, our 1997 Employee Stock Option
Plan, our 2005 Employee Stock Plan, our 2006 Non-Employee
Director Stock Plan (the 2006 Plan), and the Ben
Franklin Plan. Our shareholders previously approved each of
these plans and all amendments that were subject to shareholder
approval. The Company has no other equity compensation plans
that have not been approved by shareholders.
Equity
Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Available
|
|
|
|
Number of
|
|
|
Weighted-
|
|
|
for Future Issuance
|
|
|
|
Securities to be
|
|
|
Average
|
|
|
Under Equity
|
|
|
|
Issued upon
|
|
|
Exercise Price of
|
|
|
Compensation
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Plans
|
|
|
|
Outstanding
|
|
|
Options
|
|
|
(Excluding
|
|
|
|
Options, Warrants
|
|
|
Warrants and
|
|
|
Securities Reflected
|
|
Equity Compensation Plan Category
|
|
and Rights
|
|
|
Rights
|
|
|
in Column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Plans approved by security holders
|
|
|
1,161,507
|
|
|
$
|
27.47
|
|
|
|
275,510
|
(1)
|
Plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,161,507
|
|
|
$
|
27.47
|
|
|
|
275,510
|
|
|
|
|
(1) |
|
There are no shares available for future issuance under the
1996 Director Stock Plan or the 1997 Employee Stock Option
Plan, 260,910 shares available for future issuance under
the 2005 Employee Stock Plan, and 2009 BFBC Stock Plan.
14,600 shares are available for future issuance under the
2006 Non-Employee Director Stock Plan. Shares under the 2005 and
2006 Plans may be issued as non-qualified stock options or
restricted stock awards. |
135
The information required herein by Item 403 of
Regulation S-K
regarding the security ownership of management and certain
beneficial owners is incorporated by reference from the
Definitive Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required herein is incorporated by reference
from the Definitive Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required herein is incorporated by reference
from the Definitive Proxy Statement.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) Documents Filed as Part of this Report
(1) The following financial statements are incorporated
herein by reference from Item 8 hereto:
Managements Report on Internal Control over Financial
Reporting
Reports of Independent Registered Public Accounting Firm.
Consolidated balance sheets as of December 31, 2009 and
2008.
Consolidated statements of income for each of the years in the
three-year period ended December 31, 2009.
Consolidated statements of stockholders equity for each of
the years in the three-year period ended December 31, 2009.
Consolidated statements of cash flows for each of the years in
the three-year period ended December 31, 2009.
Notes to Consolidated Financial Statements.
(2) All schedules for which provision is made in the
applicable accounting regulations of the SEC are omitted because
of the absence of conditions under which they are required or
because the required information is included in the consolidated
financial statements and related notes thereto.
(3) The following exhibits are filed as part of this
Form 10-K,
and this list includes the Exhibit Index.
(b) See (a)(3) above for all exhibits filed herewith and
the Exhibit Index.
(c) All schedules are omitted as the required information
is not applicable or the information is presented in the
Consolidated Financial Statements or related notes.
136
EXHIBITS INDEX
|
|
|
No.
|
|
Exhibit
|
|
3.(i)
|
|
Restated Articles of Organization, as amended as of
February 10, 2005, incorporated by reference to
Form 8-K
filed on May 18, 2005.
|
3.(ii)
|
|
Amended and Restated Bylaws of the Company, as amended as of
February 10, 2005, incorporated by reference to
Form 8-K
filed on May 18, 2005.
|
4.1
|
|
Specimen Common Stock Certificate, incorporated by reference to
Form 10-K
for the year ended December 31, 1992.
|
4.2
|
|
Specimen preferred Stock Purchase Rights Certificate,
incorporated by reference to
Form 8-A
Registration Statement filed on November 5, 2001.
|
4.3
|
|
Indenture of Registrant relating the Junior Subordinated Debt
Securities issued to Independent Capital Trust V is
incorporated by reference to
Form 10-K
for the year ended December 31, 2006 filed on
February 28, 2007.
|
4.4
|
|
Form of Certificate of Junior Subordinated Debt Security for
Independent Capital Trust V (included as Exhibit A to
Exhibit 4.9)
|
4.5
|
|
Amended and Restated Declaration of Trust for Independent
Capital Trust V is incorporated by reference to
Form 10-K
for the year ended December 31, 2006 filed on
February 28, 2007.
|
4.6
|
|
Form of Capital Security Certificate for Independent Capital
Trust V (included as
Exhibit A-1
to Exhibit 4.9).
|
4.7
|
|
Guarantee Agreement relating to Independent Capital Trust V
is incorporated by reference to
Form 10-K
for the year ended December 31, 2006 filed on
February 28, 2007.
|
4.8
|
|
Forms of Capital Securities Purchase Agreements for Independent
Capital Trust V is incorporated by reference to
Form 10-K
for the year ended December 31, 2006 filed on
February 28, 2007.
|
4.9
|
|
Subordinated Debt Purchase Agreement between USB Capital
Resources and Rockland Trust Company dated as of
August 27, 2008 is incorporated by reference to
Form 8-K
filed on September 2, 2008.
|
10.1
|
|
Independent Bank Corp. 1996 Non-Employee Directors Stock
Option Plan incorporated by reference to Definitive Proxy
Statement for the 1996 Annual Meeting of Stockholders filed on
March 19, 1996.
|
10.2
|
|
Independent Bank Corp. 1997 Employee Stock Option Plan
incorporated by reference to the Definitive Proxy Statement for
the 1997 Annual Meeting of Stockholders filed on March 20,
1997.
|
10.3
|
|
Independent Bank Corp. 2005 Employee Stock Plan incorporated by
reference to
Form S-8
filed on July 28, 2005.
|
10.4
|
|
Renewal Rights Agreement dated as of September 14, 2000 by
and between the Company and Rockland Trust, as Rights Agent, is
incorporated by reference to
Form 8-K
filed on October 23, 2000.
|
10.5
|
|
Independent Bank Corp. Deferred Compensation Program for
Directors (restated as amended as of December 1,
2000) is incorporated by reference to
Form 10-K
for the year ended December 31, 2000.
|
10.6
|
|
Master Securities Repurchase Agreement, incorporated by
reference to
Form S-1
Registration Statement filed on September 18, 1992.
|
10.7
|
|
Revised employment agreements between Christopher Oddleifson,
Raymond G. Fuerschbach, Edward F. Jankowski, Jane L. Lundquist,
Gerard F. Nadeau, Edward H. Seksay, and Denis K. Sheahan and the
Company and/or Rockland Trust and a Rockland Trust Company
amended and restated Supplemental Executive Retirement Plan
dated November 20, 2008 are incorporated by reference to
Form 8-K
filed on November 21, 2008.
|
10.8
|
|
Specimen forms of stock option agreements for the Companys
Chief Executive and other executive officers are incorporated by
reference to
Form 8-K
filed on December 20, 2005.
|
10.9
|
|
On-Site
Outsourcing Agreement by and between Fidelity Information
Services, Inc. and Independent Bank Corp., effective as of
November 1, 2004 is incorporated by reference to
Form 10-K
for the year ended December 31, 2004 filed on March 4,
2005. Amendment to
On-Site
Outsourcing Agreement incorporated by reference to
Form 8-K
filed on May 7, 2008.
|
137
|
|
|
No.
|
|
Exhibit
|
|
10.10
|
|
New Markets Tax Credit program Allocation Agreement between the
Community Development Financial Institutions Fund of the United
States Department of the Treasury and Rockland Community
Development with an Allocation Effective Date of
September 22, 2004 is incorporated by reference to
Form 8-K
filed on October 14, 2004.
|
10.11
|
|
Independent Bank Corp. 2006 Non-Employee Director Stock Plan
incorporated by reference to
Form S-8
filed on April 17, 2006.
|
10.12
|
|
Independent Bank Corp. Stock Option Agreement for Non-Employee
Director is incorporated by reference to
Form 10-Q
filed on May 9, 2006.
|
10.13
|
|
Independent Bank Corp. Restricted Stock Agreement for
Non-Employee Director is incorporated by reference to
Form 10-Q
filed on May 9, 2006.
|
10.14
|
|
New Markets Tax Credit program Allocation Agreement between the
Community Development Financial Institutions Fund of the United
States Department of the Treasury and Rockland Community
Development with an Allocation Effective Date of January 9,
2007 is incorporated by reference to
Form 10-K
for the year ended December 31, 2006 filed on
February 28, 2007.
|
10.15
|
|
Agreement and Plan of Merger dated November 8, 2008 with
Benjamin Franklin Bancorp, Inc. is incorporated by reference to
Form 8-K
filed on November 10, 2008.
|
10.16
|
|
New Markets Tax Credit program Allocation Agreement between the
Community Development Financial Institutions Fund of the United
States Department of the Treasury and Rockland Community
Development with an Allocation Effective Date of June 18,
2009 is incorporated by reference to the third quarter 2009
Form 10-Q.
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.*
|
23.2
|
|
Consent of Independent Registered Public Accounting Firm.*
|
31.1
|
|
Section 302 Certification of Sarbanes-Oxley Act of 2002 is
attached hereto.*
|
31.2
|
|
Section 302 Certification of Sarbanes-Oxley Act of 2002 is
attached hereto.*
|
32.1
|
|
Section 906 Certification of Sarbanes-Oxley Act of 2002 is
attached hereto.+
|
32.2
|
|
Section 906 Certification of Sarbanes-Oxley Act of 2002 is
attached hereto.+
|
|
|
|
* |
|
Filed herewith |
|
+ |
|
Furnished herewith |
138
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Independent Bank Corp.
|
|
|
|
|
/s/ Christopher
Oddleifson
|
Christopher Oddleifson,
Chief Executive Officer and President
Date: March 10, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints Christopher Oddleifson
and Denis K. Sheahan and each of them acting individually, his
true and lawful attorneys, with full power to sign for such
person and in such persons name and capacity indicated
below any and all amendments to this
Form 10-K,
hereby ratifying and confirming such persons signature as
it may be signed by said attorneys to any and all amendments.
|
|
|
|
|
|
|
/s/ Donna
L. Abelli
Donna
L. Abelli
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Richard
S. Anderson
Richard
S. Anderson
|
|
Director
|
|
Date: March 10, 2010
|
/s/ William
P. Bissonnette
William
P. Bissonnette
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Benjamin
A. Gilmore, II
Benjamin
A. Gilmore, II
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Kevin
J. Jones
Kevin
J. Jones
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Eileen
C. Miskell
Eileen
C. Miskell
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Daniel
F. OBrien
Daniel
F. OBrien
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Christopher
Oddleifson
Christopher
Oddleifson
|
|
Director
CEO/President
|
|
Date: March 10, 2010
|
/s/ Carl
Ribeiro
Carl
Ribeiro
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Richard
H. Sgarzi
Richard
H. Sgarzi
|
|
Director
|
|
Date: March 10, 2010
|
/s/ John
H. Spurr, Jr.
John
H. Spurr, Jr.
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Robert
D. Sullivan
Robert
D. Sullivan
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Brian
S. Tedeschi
Brian
S. Tedeschi
|
|
Director
|
|
Date: March 10, 2010
|
139
|
|
|
|
|
|
|
/s/ Thomas
J. Teuten
Thomas
J. Teuten
|
|
Director and Chairman of the Board
|
|
Date: March 10, 2010
|
/s/ Thomas
R. Venables
Thomas
R. Venables
|
|
Director
|
|
Date: March 10, 2010
|
/s/ Denis
K. Sheahan
Denis
K. Sheahan
|
|
Principal Financial Officer
|
|
Date: March 10, 2010
|
/s/ Barry
H. Jensen
Barry
H. Jensen
|
|
Principal Accounting Officer
|
|
Date: March 10, 2010
|
140