EX-13 4 a2071739zex-13.txt EXHIBIT 13 Exhibit 13 A Management Perspective INDEPENDENT BANK CORP. HAD A BANNER YEAR IN 2001. The Company's 2001 financial performance was outstanding, with net income increasing by 45% and diluted earnings per share increasing 44%. For a variety of reasons, including our own strong performance as well as favorable investor opinion of the industry segment to which Independent Bank Corp. belongs, there was a dramatic increase in the value of the Company's common stock during the year. On December 31, 2001, the Company's stock closed at $21.49 per share, a 72% increase from the $12.50 per share closing price on December 29, 2000 (that year's last trading day). The Company's strong performance in 2001 can be attributed to the following factors: o The continuing, seamless integration of the sixteen branches (acquired from FleetBoston Financial in August 2000) solidified our expansion on to Cape Cod and deepened our already strong presence in Brockton; o Significant growth in our core deposits contributed to our lower cost of funds; o We managed our sources of funds in such a manner as to decrease our over-all cost of funds somewhat faster than the market-driven yield on our earning assets; o Our loan portfolio grew in spite of a slowing economy; o Prudent management of our loan portfolio (coupled with conservative underwriting of new loans) helped the Company maintain asset quality and avoid serious non-performing loan problems, a condition which plagued many other institutions; o The structure of the Company's balance sheet was well-positioned to take advantage of the Federal Reserve Board's eleven interest rate cuts during 2001; and o The high degree of personalized service, which is consistently delivered by the employees of Rockland Trust Company (the Company's sole banking subsidiary), strengthened relationships with existing customers while simultaneously attracting new customers. Now I'd like to touch upon the highlights of our success in 2001 and what I anticipate to be some of the opportunities and challenges that lay ahead: SUPERLATIVE OPERATING PERFORMANCE Excluding after-tax securities gains of $0.9 million, net operating earnings were $21.1 million and diluted earnings per share on an operating basis were $1.46 in 2001. Compared to the prior year (which also excludes one-time special charges mostly related to the acquisition), the year-over-year growth in net operating earnings and diluted earnings per share amounts to +21.2% and +19.7%, respectively. Total assets increased by $249.2 million (+12.8%) from year-end 2000 to a total of $2.2 billion as of December 31, 2001. The loan portfolio increased by $114.2 million (+9.6%) to $1.3 billion and the investment portfolio increased by $119.2 million (+19.9%) to $719.1 million. The Company's net interest margin also increased to 4.84% for the year ended December 31, 2001 from 4.60% the previous year. Cape Cod: A Year of Success and Great Opportunity Ahead It has been almost eighteen months since our acquisition of sixteen former FleetBoston Financial branches (including four branches in a simultaneous transaction through Sovereign Bank) as well as associated deposits and loans. Fourteen of the acquired branches were on Cape Cod. While that acquisition is by now old news, the process of taking full advantage of our entry to Cape Cod continues to this day and will be one of our key areas of focus in the future. At December 31, 2001, the acquired deposits in the branches on the Cape totaled $294.2 million, an 11.5% increase over December 31, 2000. We believe that Cape Cod has significant potential for additional growth in part because the deposit balances in the acquired branches experienced a high rate of decay while under Fleet's management, falling by $108 million between June 1995 and June 2000. Also, the permanent and seasonal residents of Cape Cod provide an exceptional opportunity for our investment management services. The small business community on the Cape represents another potential source of customers for the Bank's suite of commercial services. STRONG CUSTOMER RELATIONSHIPS AND CORE DEPOSIT GROWTH: THE FOUNDATIONS OF OUR SUCCESS The strength of our customer relationships derives from the dedicated, well trained staff that is prudently empowered to make decisions. As a result of this "high touch" approach towards banking, we benefit from tremendous loyalty and support in the communities where we do business. To reach new customers, we successfully launched several aggressive marketing campaigns that contributed to our core deposit growth of 16.5% in 2001. As a result of our success in terms of increased core deposits, time deposits were intentionally managed downward by $54.7 million (-9.2%) to $540.4 million at year-end. Overall, total deposits increased by $92.4 million (+6.2%) from year-end 2000. Sustained Loan Growth without Compromising Asset Quality The Company experienced strong loan growth during 2001, particularly in the residential and commercial real estate mortgage categories. While the Company sells the majority of its residential real estate loan production, some adjustable rate and 15-year "jumbo" fixed residential mortgages were added to the Company's loan portfolio. However, there were a number of payoffs in the seasoned commercial real estate loan portfolio that had been acquired in 2000 from BankBoston. While the credit quality of that portfolio has been excellent, the out-of-market locations of many of those borrowers made refinancing their loans difficult in a declining rate environment. This factor served to dampen overall commercial real estate loan growth. Credit quality remains a high priority. We have continued to apply strong underwriting standards and conservative lending practices. As a consequence, during 2001 we had historically low levels of delinquency and non-performing loans. The Company's ongoing attention to asset quality and diligent credit management is made evident by the decrease in non-performing assets which totaled $3.0 million at December 31, 2001, $1.4 million (31.7%), lower than the $4.4 million reported a year earlier. In this uncertain environment, we intend to continue to repeat our historical emphasis on credit quality and will proceed with care to ensure that we do not deviate from our customary credit discipline. However, we will not be forever immune from the serious deterioration of the national economy and, therefore, decided to substantially increase the provision for loan loss, to $4.6 million in 2001, up $2.4 million from the prior year. THE ROCKLAND TRUST INVESTMENT MANAGEMENT GROUP: SIGNIFICANT PROGRESS DESPITE UNCERTAIN MARKET CONDITIONS The Rockland Trust Investment Management Group, formerly known as our Asset Management & Trust Services Division, continued to make progress in 2001 despite the most challenging market environment in 27 years. While many major "stand-alone" investment firms experienced negative revenue growth in 2001 of 15% or worse, our fee revenue declined only 2% due to competitive investment performance and an aggressive new business effort. We added $87 million in new assets under management in 2001, a 14.5% increase over the prior year, and our account retention rate increased for the third year in a row. Most importantly, our outstanding long-term track record of superior investment performance was maintained in 2001. Over the last five years, the combined equity portfolios managed by our Investment Management Group have grown at a compound annual rate of 12.5%, a level which exceeds the Standard & Poor's 500 benchmark that has returned 10.7% annually over the same time period. THE ENIGMA OF OUR ECONOMY, IN A WORLD FOREVER CHANGED The Federal Reserve Board cut the Federal Funds and Discount rates eleven times in 2001; seven times before the tragic events of September 11th and four times afterward. It was clear at the beginning of 2001 that the country was headed toward a recession, if indeed it was not already in one. There is no doubt that the deteriorating situation was significantly amplified by the events of that terrible day. A little over one year ago, we as a nation were celebrating the fact that we had enjoyed the longest period of sustained economic growth since World War II. Today, we are suddenly experiencing the lowest short-term interest rate environment since 1961, over 40 years ago! There is not a single leader, in government or business, that has any experience in governing or managing in this rate environment, to say nothing about the additional uncertainties posed by trained terrorists awaiting opportunities to magnify the events of September 11th. One thing, however, remains certain. At some point, there will be an economic recovery. Our country has managed to overcome adversity for over 200 years. Each crisis has seemed worse than the one before; yet the citizens of this nation have prospered like no other. Economic recovery will undoubtedly be accompanied by higher interest rates, at least, higher short term rates. It is unclear when this transition will occur but, when it does, the financial services industry will be challenged to maintain earnings. Those institutions that are successful in doing so will have figured out how to keep revenue growing in the face of increasing funding costs. Obviously, in today's low interest rate environment, everyone wants to borrow long term. This Company has long had in place a sophisticated asset and liability management process that has served us well to date. I expect that this process will serve us well in the future. No institution, however, is immune from the impact of a changing interest rate environment. SOUTHEASTERN MASSACHUSETTS AND CAPE COD Rockland Trust has enjoyed steady growth by taking advantage of being in some of the fastest growing and stable Massachusetts communities. U.S. Census Bureau Information
(Cape Cod) Plymouth Barnstable Massachusetts County County Population, percent change, 1990 to 2000 5.5% 8.6% 19.1% Homeownership rate, 2000 61.7% 75.6% 77.8% Median household money income, 1997 model-based estimate $43,015 $49,165 $40,791
The largest population center in Plymouth County, the City of Brockton, continues to undergo a transformation that is truly remarkable. I have said many times that financial institutions are mirrors of their local economies. Although Rockland Trust is by no means immune to national trends, we continue to believe that Southeastern Massachusetts and Cape Cod should fare better in this economic downturn and in the coming recovery. Southeastern Massachusetts features small and mid-size firms in a diverse mix of industries that is not heavily weighted toward any single industry. Therefore, our region is insulated from being confronted with huge layoffs like those that have been all too common in other regions of the U.S. The Kingston/Plymouth and Middleborough lines of the renovated former Old Colony Railroad resumed operations in late 1997, opening our region to commuters from, as well as to, Boston. Businesses and prospective residents will continue to take advantage of the open space in Southeastern Massachusetts and relocate out of the crowded and expensive metropolitan Boston area. The Scituate Branch of the former Old Colony Railroad is finally due to begin construction in 2003 and start operating in 2005. Once again, this will facilitate the expansion of a sizable portion of our market. STAYING UP-TO-DATE: IMPROVING OUR FACILITIES During the second quarter of 2001, our Pembroke Branch was relocated from a tired, nondescript building to a nearby location. We incorporated a historic building, which had been a community landmark, into the design of our new facility. During the third quarter of 2001, Rockland Trust announced that it had signed a lease for construction of a building at 100 Belmont Street in downtown Brockton that will accommodate a bank branch, a commercial lending center, a residential mortgage origination office and an investment management office. At the same time an old, oversized, high-maintenance building acquired from FleetBoston Financial was sold to a new owner and it will now become part of the revitalization of downtown Brockton. Rockland Trust, furthermore, will continue to maintain a small branch in that building, located directly across from Brockton City Hall. In the fourth quarter of 2001, our North Plymouth Branch was relocated from a dated structure to a newly constructed building about one mile north of the original location, close to the Plymouth/Kingston line. GIVING BACK TO THE COMMUNITIES WE SERVE Throughout its long history in Southeastern Massachusetts, Rockland Trust has strived to understand and address the needs of its customers. Over the years, we have not lost sight of our founding principle of making a positive difference in the communities we serve. In 2001, my colleagues pledged more than $100,000 to the Old Colony United Way as well as the United Way of Cape Cod and the Islands, an increase of 21% over a year ago. When terrorism struck our nation, my colleagues once again felt the need to help; they initiated a branch-wide fundraising effort for the Red Cross 9/11 Relief Fund. Throughout our 51 locations, employees and customers contributed nearly $40,000. One of our enduring initiatives, The Rockland Trust Company Charitable Foundation, continues to invest in our common future through a scholarship program serving students in every community where we operate a branch. We are proud to expand this program into the towns where we have recently added branches. STRATEGY FOR GROWTH Over a year ago, we established a three-year strategic plan for 2001-2003 and are now engaged in the process of updating the plan that will now include 2004. We will continue to be opportunistic and take advantage of unforeseen events that coincide with our established strategy. At the same time, we intend to maintain the controlled risk profile that has served us well for ten years. Our ultimate goal remains the same; to meet the financial expectations of our shareholders while offering the best banking and financial services to the communities we serve. Our industry clearly continues to evolve, and we have proven that our organization can effectively adapt to these changing market conditions. Douglas H. Philipsen Chairman of the Board, President, And Chief Executive Officer Directors and Officers Directors of Independent Bank Corp. and Rockland Trust Company Richard S. Anderson President and Treasurer Anderson-Cushing Insurance Agency, Inc. W. Paul Clark President and General Manager Paul Clark, Inc. Robert L. Cushing* President Hannah B.G. Shaw Home for the Aged, Inc. Alfred L. Donovan Independent Consultant Benjamin A. Gilmore, II Owner and President Gilmore Cranberry Co., Inc. E. Winthrop Hall Chairman and President F. L. & J. C. Codman Company Kevin J. Jones Treasurer Plumbers' Supply Company Lawrence M. Levinson* Partner Burns and Levinson LLP Douglas H. Philipsen Chairman of the Board, President and Chief Executive Officer Richard H. Sgarzi President and Treasurer Black Cat Cranberry Corp. William J. Spence President Massachusetts Bay Lines, Inc. John H. Spurr, Jr. Executive Vice President and Treasurer A. W. Perry, Inc. Robert D. Sullivan President Sullivan Tire Co., Inc. Brian S. Tedeschi Chairman Tedeschi Realty Corp. Thomas J. Teuten President A. W. Perry, Inc. o IBC Director Only Honorary Directors of Rockland Trust Company John B. Arnold Retired, Former President and Treasurer H.H. Arnold Co., Inc. Donald K. Atkins Retired, Former President and Chief Executive Officer Winthrop-Atkins Co., Inc. Theresa J. Bailey Retired, Former Senior Vice President and Clerk Rockland Trust Company Robert L. Cushing President Hannah B.G. Shaw Home for the Aged, Inc. Ann M. Fitzgibbons Volunteer Donald A. Greenlaw Retired, Former President Rockland Trust Company Lawrence M. Levinson Partner Burns and Levinson LLP Nathan Shulman Retired, Former President Best Chevrolet, Inc. John F. Spence, Jr. Retired, Former Chairman of the Board Rockland Trust Company Robert J. Spence President Albert Culver Company Officers of Independent Bank Corp. Douglas H. Philipsen Chairman of the Board, President and Chief Executive Officer Denis K. Sheahan Chief Financial Officer and Treasurer Edward H. Seksay General Counsel Edward F. Jankowski Chief Internal Auditor Linda M. Campion Clerk Tara M. Villanova Assistant Clerk Officers of Rockland Trust Company Douglas H. Philipsen Chairman of the Board, President and Chief Executive Officer Denis K. Sheahan Chief Financial Officer and Treasurer Richard F. Driscoll Executive Vice President Retail and Operations Ferdinand T. Kelley Executive Vice President Commercial Lending and Investment Management Edward H. Seksay General Counsel Raymond G. Fuerschbach Senior Vice President Human Resources Edward F. Jankowski Chief Internal Auditor Linda M. Campion Clerk Tara M. Villanova Assistant Clerk Stockholder Information Annual Meeting The Annual Meeting of Stockholders will be held at 3:30 P. M. on Thursday, April 11, 2002 at Plimoth Plantation, Plymouth, Massachusetts. Common Stock Independent Bank Corp. common stock trades on the Nasdaq Stock Market under the symbol INDB. Stockholders Relations Inquiries should be directed to: Denis K. Sheahan, Chief Financial Officer and Treasurer, or Michelle Newcomb, Shareholder Relations Independent Bank Corp. 288 Union Street Rockland, MA 02370 (781) 878-6100 Form 10-K Additional information about the Company may be obtained from the Annual Report on Form 10-K filed with the Securities and Exchange Commission for fiscal year 2001. A copy of the Company's Form 10-K for 2001, without its attached exhibits, has been provided herein. A complete copy of the Company's Form 10-K for 2001, with its attached exhibits, may be obtained without charge upon written request submitted to: Michelle Newcomb, Shareholder Relations Independent Bank Corp. 288 Union Street Rockland, MA 02370 Transfer Agent and Registrar Transfer Agent and Registrar for the Company is: EquiServe Trust Company, N.A. P.O. Box 43011 Providence, RI 02940-3011 1-800-426-5523 ROCKLAND TRUST COMPANY OFFICES Attleboro 21 North Main Street Braintree 400 Washington Street Bridgewater Route 18, Broad Street Brockton 1670 S. Main Street 100 Belmont Street (Anticipated opening 4/02) 485 Belmont Street 34 School Street 836 N. Main Street Carver Carver Square, Rte. 58 Centerville 1195 Falmouth Road Chatham 655 Main Street Cohasset Shaw's Cushing Plaza, Rte. 3A Duxbury Hall's Corner, 27 Bay Road The Village at Duxbury* Falmouth 763 Main Street Halifax Plymouth Street, Rte. 106 Hanover 272 Columbia Road, Rte. 53 Hanson Hanson Shopping Center, Liberty Street Harwichport 336 Rte. 28 Hingham Lincoln Plaza, Rte. 3A Hull 264 Nantasket Avenue Hyannis 442 Main Street 375 Lyanough Road Kingston Kingsbury Square, Rts. 3A & 53 Manomet 728 State Road Marshfield Webster Square Mashpee Mashpee Rotary Middleboro 8B Station Street Middleboro Plaza 135 So. Main Street North Eastham 75 Brackett Road North Plymouth 438 Court Street Norwell Queen Anne's Plaza, Rts. 228 & 53 Orleans 70 Main Street & Rte. 28 Osterville 22 Wianno Avenue Pembroke 147 Center Street Plymouth 1 Pilgrim Hill Road, Rte. 44 / Samoset Street 32 Long Pond Road South High School* Pocasset 301 Barlows Landing Road Randolph 84 North Main Street Rockland Main Office, 288 Union Street Rockland Plaza Market Street Sandwich 95 Rte. 6A Scituate Front Street South Yarmouth 1123 Main Street 428 Station Avenue Stoughton 608 Washington Street Wareham Cranberry Plaza, Rts. 6 & 28 West Dennis 932 Rte. 28 Weymouth 104 Main Street, Rte. 18 Whitman 692 Bedford Street Whitman/Hanson High School* *Limited Service COMMERCIAL LENDING CENTERS Attleboro 8 North Main Street Braintree 400 Washington Street Brockton 942 West Chestnut Street (Relocating 4/02) 34 School Street Hyannis 442 Main Street Middleboro 8A Station Street Plymouth One Pilgrim Hill Road Randolph 84 North Main Street Rockland 288 Union Street INVESTMENT MANAGEMENT GROUP OFFICES Attleboro 8 North Main Street Hanover 2036 Washington Street Hyannis 442 Main Street MORTGAGE BANKING CENTERS Braintree 400 Washington Street Hyannis 442 Main Street Middleboro 8A Station Street