Edgar Filing: INDEPENDENT BANK CORP

e10vq

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2008
Commission File Number: 1-9047

Independent Bank Corp.

(Exact name of registrant as specified in its charter)


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

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

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

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

Yes þ No o

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):


Large Accelerated Filer o		Accelerated Filer þ		Non-accelerated Filer o (Do not check if a smaller reporting company)		Smaller reporting company o

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

As of November 1, 2008, there were 16,278,392 shares of the issuer’s common stock outstanding, par value $0.01 per share.

INDEX


	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) — September 30, 2008 and December 31, 2007		4
Consolidated Statements of Income (unaudited) — Three and nine months ended September 30, 2008 and 2007		5
Consolidated Statements of Stockholders’ Equity (unaudited) — Nine months ended September 30, 2008 and for the year ended December 31, 2007		6
Consolidated Statements of Cash Flows (unaudited) — Nine months ended September 30, 2008 and 2007		7
Condensed Notes to Unaudited Consolidated Financial Statements — September 30, 2008
Note 1 — Basis of Presentation		8
Note 2 — Stock Based Compensation		9
Note 3 — Recent Accounting Developments		9
Note 4 — Investment Securities		13
Note 5 — Fair Value Disclosure		14
Note 6 — Earnings Per Share		17
Note 7 — Employee Benefits		18
Note 8 — Comprehensive Income		21
Note 9 — Acquisition		22
Note 10 — Goodwill and Identifiable Intangible Assets		23
Note 11 — Sale and Lease Back Transaction		24
Note 12 — Subordinated Debt Issuance		24

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Table 1 — Effect of Slade’s Ferry Bancorp. Acquisition on Loans		36
Table 2 — Summary of Delinquency Information		38
Table 3 — Nonperforming Assets / Loans		39
Table 4 — Summary of Changes in the Allowance for Loan Losses		42
Table 5 — Summary of Allocation of the Allowance for Loan Losses		43
Table 6 — Trust Preferred Security Detail		45
Table 7 — Effect of Slade’s Ferry Bancorp. Acquisition on Deposits		46
Table 8 — Average Balance, Interest Earned/Paid & Average Yields — Three Months Ended September 30, 2008 and 2007		49
Table 9 — Average Balance, Interest Earned/Paid & Average Yields — Nine Months Ended September 30, 2008 and 2007		50
Table 10 — Volume Rate Analysis		51
Table 11 — New Markets Tax Credit Recognition Schedule		53
Table 12 — Derivative Positions		56
Table 13 — Fair Value of Residential Mortgage Loan Commitments and Forward Sales Agreements		57
Table 14 — Interest Rate Sensitivity		58

Item 3. Quantitative and Qualitative Disclosures About Market Risk		61
Item 4. Controls and Procedures		62
Item 4T. Controls and Procedures		62

PART II. OTHER INFORMATION		62
Item 1. Legal Proceedings		62
Item 1A. Risk Factors		62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 3. Defaults Upon Senior Securities		63
Item 4. Submission of Matters to a Vote of Security Holders		63


	PAGE
Item 5. Other Information		63
Item 6. Exhibits		64

Signatures		67
Ex-31.1 Certification of CEO
Ex-31.2 Certification of CFO
Ex-32.1 Certification of CEO
Ex-32.2 Certification of CFO

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEPENDENT BANK CORP.

CONSOLIDATED BALANCE SHEETS

(Unaudited- Dollars in Thousands, Except Share and Per Share Amounts)


	September 30,			December 31,
	2008			2007

ASSETS
CASH AND DUE FROM BANKS	$	92,752		$	67,416
FED FUNDS SOLD AND SHORT TERM INVESTMENTS		100			—
SECURITIES
TRADING ASSETS		3,048			1,687
SECURITIES AVAILABLE FOR SALE		499,879			444,258
SECURITIES HELD TO MATURITY (fair value $30,107 and $45,663)		33,354			45,265
FEDERAL HOME LOAN BANK STOCK		24,603			16,260

TOTAL SECURITIES		560,884			507,470

LOANS
COMMERCIAL AND INDUSTRIAL		250,469			190,522
COMMERCIAL REAL ESTATE		1,092,811			797,416
COMMERCIAL CONSTRUCTION		150,615			133,372
SMALL BUSINESS		85,120			69,977
RESIDENTIAL REAL ESTATE		420,809			323,847
RESIDENTIAL CONSTRUCTION		12,868			6,115
RESIDENTIAL LOANS HELD FOR SALE		5,511			11,128
CONSUMER — HOME EQUITY		391,416			308,744
CONSUMER — AUTO		134,866			156,006
CONSUMER — OTHER		41,073			45,825

TOTAL LOANS		2,585,558			2,042,952
LESS: ALLOWANCE FOR LOAN LOSSES		(33,287	)		(26,831	)

NET LOANS		2,552,271			2,016,121

BANK PREMISES AND EQUIPMENT, NET		35,246			39,085
GOODWILL		116,622			58,296
IDENTIFIABLE INTANGIBLE ASSETS		9,790			2,115
MORTGAGE SERVICING RIGHTS		1,887			2,073
BANK OWNED LIFE INSURANCE		64,216			49,443
OTHER REAL ESTATE OWNED		1,239			681
OTHER ASSETS		42,228			25,713

TOTAL ASSETS	$	3,477,235		$	2,768,413


LIABILITIES AND STOCKHOLDERS’ EQUITY
DEPOSITS
DEMAND DEPOSITS	$	573,904		$	471,164
SAVINGS AND INTEREST CHECKING ACCOUNTS		711,862			587,474
MONEY MARKET		464,983			435,792
TIME CERTIFICATES OF DEPOSIT OVER $100,000		293,911			187,446
OTHER TIME CERTIFICATES OF DEPOSIT		493,371			344,734

TOTAL DEPOSITS		2,538,031			2,026,610

FEDERAL HOME LOAN BANK BORROWINGS		336,792			311,125
FEDERAL FUNDS PURCHASED AND ASSETS SOLD UNDER REPURCHASE AGREEMENTS		166,417			138,603
SUBORDINATED DEBENTURES		30,000			—
JUNIOR SUBORDINATED DEBENTURES		61,857			51,547
OTHER BORROWINGS		2,103			3,069

TOTAL BORROWINGS		597,169			504,344

OTHER LIABILITIES		37,295			16,994

TOTAL LIABILITIES	$	3,172,495		$	2,547,948

COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
PREFERRED STOCK, $0.01 par value. Authorized: 1,000,000 Shares Outstanding: None	$	—		$	—
COMMON STOCK, $0.01 par value. Authorized: 30,000,000 Shares Issued and Outstanding: 16,278,392 Shares at September 30, 2008 and 13,746,711 Shares at December 31, 2007		163			137
SHARES HELD IN RABBI TRUST AT COST 170,505 Shares at September 30, 2008 and 168,734 Shares at December 31, 2007		(2,173	)		(2,012	)
DEFERRED COMPENSATION OBLIGATION		2,173			2,012
ADDITIONAL PAID IN CAPITAL		137,347			60,632
RETAINED EARNINGS		177,338			164,565
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX		(10,108	)		(4,869	)

TOTAL STOCKHOLDERS’ EQUITY		304,740			220,465

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,477,235		$	2,768,413

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited — Dollars in Thousands, Except Share and Per Share Data)


	THREE MONTHS ENDED					NINE MONTHS ENDED
	September 30,					September 30,
	2008			2007		2008			2007

INTEREST INCOME
Interest on Loans	$	39,201		$	33,871	$	113,025		$	101,358
Taxable Interest and Dividends on Securities		5,643			4,775		16,464			15,176
Non-taxable Interest and Dividends on Securities		366			527		1,319			1,632
Interest on Federal Funds Sold and Short-Term Investments		62			679		96			1,412

Total Interest and Dividend Income		45,272			39,852		130,904			119,578

INTEREST EXPENSE
Interest on Deposits		9,078			11,119		28,933			33,029
Interest on Borrowings		5,079			4,463		15,006			14,857

Total Interest Expense		14,157			15,582		43,939			47,886

Net Interest Income		31,115			24,270		86,965			71,692

PROVISION FOR LOAN LOSSES		2,068			300		5,312			1,775

Net Interest Income After Provision For Loan Losses		29,047			23,970		81,653			69,917

NON-INTEREST INCOME
Service Charges on Deposit Accounts		4,083			3,754		11,681			10,695
Wealth Management		2,764			1,876		8,554			5,870
Mortgage Banking Income, Net		501			623		2,574			2,217
Bank Owned Life Insurance Income		659			498		1,816			1,413
Net Loss on Sales of Securities Available for Sale		—			—		(609	)		—
Loss on Write-Down of Certain Investments to Fair Value		(720	)		—		(2,570	)		—
Other Non-Interest Income		1,245			969		2,986			3,357

Total Non-Interest Income		8,532			7,720		24,432			23,552

NON-INTEREST EXPENSE
Salaries and Employee Benefits		14,719			13,103		43,806			39,269
Occupancy and Equipment Expenses		3,200			2,395		9,338			7,556
Data Processing and Facilities Management		1,465			1,078		4,170			3,368
Advertising Expense		366			578		1,506			1,361
Consulting Expense		411			150		1,311			831
Telephone		389			362		1,201			1,026
Merger & Acquisition Expenses		—			—		1,120			—
WorldCom Bond Loss Recovery		—			—		(418	)		—
Other Non-Interest Expense		4,909			3,540		15,518			12,514

Total Non-Interest Expense		25,459			21,206		77,552			65,925

INCOME BEFORE INCOME TAXES		12,120			10,484		28,533			27,544
PROVISION FOR INCOME TAXES		3,305			2,172		7,590			6,893

NET INCOME	$	8,815		$	8,312	$	20,943		$	20,651

BASIC EARNINGS PER SHARE	$	0.54		$	0.60	$	1.35		$	1.46

DILUTED EARNINGS PER SHARE	$	0.54		$	0.60	$	1.34		$	1.45


Weighted average common shares (Basic)		16,275,442			13,787,598		15,518,540			14,121,843
Common share equivalents		62,738			112,455		72,627			134,715

Weighted average common shares (Diluted)		16,338,180			13,900,053		15,591,167			14,256,558

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited — Dollars in Thousands, Except Per Share Data)


																		ACCUMULATED
	COMMON						SHARES			DEFERRED		ADDITIONAL						OTHER
	SHARES			COMMON			HELD IN			COMPENSATION		PAID-IN			RETAINED			COMPREHENSIVE
	OUTSTANDING			STOCK			RABBI TRUST			OBLIGATION		CAPITAL			EARNINGS			(LOSS)			TOTAL

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 Derivatives During Period, Net of Tax and Realized Gains/(Losses)																			(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/(Losses)																			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																20,943						20,943
Cash Dividends Declared ($0.54 per share)																(8,796	)					(8,796	)
Common Stock Issued for Acquisition		2,492,195			25								76,203									76,228
Proceeds From Exercise of Stock Options		39,486			1											626						627
Tax Benefit Related to Equity Award Activity													123									123
Equity Based Compensation													389									389
Change in Fair Value of Derivatives During Period, Net of Tax and Realized Gains/(Losses)																			(655	)		(655	)
Deferred Compensation Obligation								(161	)		161											—
Amortization of Prior Service Cost																			126			126
Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains/(Losses)																			(4,710	)		(4,710	)

BALANCE SEPTEMBER 30, 2008		16,278,392		$	163			($2,173	)	$	2,173	$	137,347		$	177,338			($10,108	)	$	304,740

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

INDEPENDENT BANK CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited — Dollars In Thousands)


	NINE MONTHS ENDED
	SEPTEMBER 30,
	2008			2007

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	20,943		$	20,651
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Depreciation and amortization		4,566			4,332
Provision for loan losses		5,312			1,775
Deferred income tax benefit		(10,352	)		101
Loans originated for resale		(186,929	)		(151,024	)
Proceeds from mortgage loan sales		193,109			156,510
Net gain on sale of mortgages		(564	)		(565	)
Net loss on sale of investments		609			—
Loss on write-down of investments in securities available for sale		2,570			—
Loss on sale of other real estate owned		35			10
Realized gain on sale leaseback transaction		(431	)		—
Amortization of mortgage servicing asset, net of gain		185			259
Equity based compensation		388			286
Changes in assets and liabilities:
Decrease in other assets		8,759			382
Decrease (increase) in other liabilities		(6,770	)		1,248

NET CASH PROVIDED FROM OPERATING ACTIVITIES		31,430			33,965

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal repayments of Securities Held to Maturity		11,973			30,082
Proceeds from maturities, principal repayments and sales of Securities Available For Sale		183,524			44,114
Purchase of Securities Available For Sale		(155,555	)		(40,179	)
(Purchase) redemption sale of Federal Home Loan Bank stock		(642	)		5,450
Net (increase) decrease in Loans		(81,360	)		29,400
Cash used for Merger and Acquisition, net of cash acquired		(13,671	)		(2,097	)
Investment in Bank Premises and Equipment		(5,957	)		(3,909	)
Proceeds from the sale of other real estate owned		206			485
Proceeds from the sale leaseback transaction		31,433			—

NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES		(30,049	)		63,346

CASH FLOWS USED IN FINANCING ACTIVITIES:
Net increase (decrease) in Time Deposits		77,493			(47,385	)
Net increase (decrease) in Other Deposits		23,159			(28,814	)
Net increase (decrease) in Federal Funds Purchased and Assets Sold Under Repurchase Agreements		27,814			(16,555	)
Net decrease in Federal Home Loan Bank Borrowings		(125,997	)		(22,502	)
Net (decrease) increase in Treasury Tax & Loan Notes		(966	)		2,090
Issuance of Subordinated Debentures		30,000			—
Redemption of Junior Subordinated Debentures		—			(25,773	)
Amortization/write-off of issuance costs		—			923
Proceeds from exercise of stock options		628			614
Tax benefit related to equity award activity		123			66
Payments for purchase of common stock		—			(30,696	)
Dividends paid		(8,201	)		(7,159	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		24,053			(175,191	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		25,434			(77,880	)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD		67,416			138,291

CASH AND CASH EQUIVALENTS AT SEPTEMBER 30,	$	92,850		$	60,411

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest on deposits and borrowings	$	44,578		$	47,076
Income taxes		12,499			7,567
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Change in fair value of derivatives, net of tax and realized gain		($655	)		($774	)
Change in fair value of securities available for sale, net of tax and realized gain/(losses)		(4,710	)		1,146
Amortization of prior service cost, net of tax		126			83
Cumulative effect of accounting change (Adoption of FIN No. 48)		—			177
Transfer of loans to other real estate owned		799			550
In conjunction with the purchase acquisition detailed in Note 9 to the Unaudited Consolidated Interim Financial Statements, assets were acquired and liabilities were assumed as follows:
Fair value of assets acquired	$	662,647			—
Fair value of liabilities assumed		586,419			—

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

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

Independent Bank Corp. (the “Company”) is a state chartered, federally registered bank holding company headquartered in Rockland, Massachusetts, incorporated in 1985. The Company is the sole stockholder of Rockland Trust Company (“Rockland Trust” or the “Bank”), a Massachusetts trust company chartered in 1907.

The Company is currently the sponsor of Independent Capital Trust V (“Trust V”) and Slade’s Ferry Statutory Trust I (“Slade’s Ferry Trust I”) a Connecticut statutory trust, each of which were formed to issue trust preferred securities.

Slade’s Ferry Trust I was an existing statutory trust of Slade’s Ferry Bancorp. (“Slades”), which was acquired by the Company effective March 1, 2008 (see Note 9, “Acquisition” hereof). Trust V and Slade’s Ferry Trust I are not included in the Company’s consolidated financial statements in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46R (“FIN 46”).

During the quarter ended September 30, 2008, the Company merged subsidiaries which were acquired as part of the Slades acquisition, namely Slade’s Ferry Securities Corporation, Slade’s Ferry Security Corporation II, and Slade’s Ferry Realty Trust, with and into Rockland Trust, with Rockland Trust as the surviving entity. As of September 30, 2008 the Bank had the following corporate subsidiaries, all of which were wholly-owned by the Bank and were included in the Company’s consolidated financial statements:

	•		Four Massachusetts security corporations, namely Rockland Borrowing Collateral Securities Corp., Rockland IMG Collateral Securities Corp., Rockland Deposit Collateral Securities Corp., and Taunton Avenue Securities Corp., which hold securities, industrial development bonds, and other qualifying assets;

	•		Rockland Trust Community Development Corporation (the “Parent CDE”) which, in turn, has three wholly-owned corporate subsidiaries named Rockland Trust Community Development LLC (“RTC CDE I”), Rockland Trust Community Development Corporation II (“RTC CDE II”), and Rockland Trust Community Development Corporation III (“RTC CDE III”), which was formed during the third quarter of 2008. The Parent CDE, CDE I, CDE II, and CDE III were all formed to qualify as community development entities under federal New Markets Tax Credit Program criteria; and

	•		Compass Exchange Advisors LLC (“CEA LLC”) which provides like-kind exchange services pursuant to section 1031 of the Internal Revenue Code.

All material intercompany balances and transactions have been eliminated in consolidation. When necessary, certain amounts in prior periods’ financial statements have been reclassified to conform to the current period presentation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements, primarily consisting of normal recurring adjustments, have been included. Operating results for the quarter ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008 or any other interim period.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed with the Securities and Exchange Commission.

NOTE 2 — STOCK BASED COMPENSATION

On April 22, 2008 the Company granted restricted stock awards to acquire 4,400 shares of the Company’s common stock from the 2006 Non-Employee Director Stock Plan to certain directors of the Company and/or Bank. The restricted stock awards have been determined to have a fair value of $29.35 per share. The Company measured the fair value of the awards based on the average of the high price and low price at which the Company’s common stock traded on the date of grant. The restricted stock awards vest at the end of a five year period.

On February 14, 2008 the Company awarded options to purchase 201,000 shares of common stock from the 2005 Employee Stock Plan to certain officers of the Company and/or the Bank. The expected volatility, expected life, expected dividend yield, and expected risk free interest rate for this grant used to determine their fair value were determined on February 14, 2008 and were 25%, 5 years, 2.44%, and 2.79%, respectively. The options have been determined to have a fair value of $5.63 per share. The options vest over a five year period and have a contractual life of ten years from date of grant.

NOTE 3 — RECENT ACCOUNTING DEVELOPMENTS

Accounting Pronouncements Adopted in 2008

Statement of Financial Accounting Standards No. 157 (“SFAS 157”), “Fair Value Measurements” In September 2006, the FASB issued SFAS 157. SFAS 157 was issued to provide consistency and comparability in determining fair value measurements and to provide for expanded disclosures about fair value measurements. The definition of fair value maintains the exchange price notion in earlier definitions of fair value but focuses on the exit price of the asset or liability. The exit price is the price that would be received to sell the asset or paid to transfer the liability adjusted for certain inherent risks and restrictions. Expanded disclosures are also required about the use of fair value to measure assets and liabilities. In February 2008, the FASB issued Staff Position (“FSP”) 157-2, “Effective Date of FASB Statement No. 157.” The FSP delays the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually). The effective date was for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted SFAS 157 as of January 1, 2008. In October 2008, the FASB issued a Staff Position 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active,” the FSP provided guidance in applying 157 in an inactive market, when the fair value presentation is required. The FSP was effective immediately upon issuance. The Company has

determined that the impact of the adoption of SFAS 157 on the Company’s consolidated financial position was not material. See Note 5 for the Company’s expanded disclosures on its fair value measurement policies and fair value measurements as of September 30, 2008.

SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities” In February 2007, the FASB issued SFAS 159. SFAS 159 allows entities to choose to measure financial instruments and certain other items at fair value. By doing so, companies can mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting. The fair value option can be applied on an instrument by instrument basis (with some exceptions), is irrevocable unless a new election date occurs, and is applied only to entire instruments and not to portions of instruments. The effective date was as of the beginning of the first fiscal year beginning after November 15, 2007. The provisions of SFAS 159 were effective as of January 1, 2008. The Company has not elected the fair value option under SFAS 159 for any instrument, but may elect to do so in future periods.

Emerging Issues Task Force (“EITF”) 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” In September 2006, the FASB ratified the consensus reached by the EITF on EITF 06-4. The EITF addresses accounting for split-dollar life insurance arrangements whereby the employer purchases a policy to insure the life of an employee or a director, and separately enters into an agreement to split the policy benefits between the employer and the employee/director. The EITF states that an obligation arises as a result of a substantive agreement with an employee or director to provide future postretirement benefits. Under EITF 06-4, the obligation is not settled upon entering into an insurance arrangement. Since the obligation is not settled, a liability should be recognized in accordance with applicable authoritative guidance. EITF 06-4 was effective for fiscal years beginning after December 15, 2007. Upon acquiring Slades (see Note 9, “Acquisition,” hereof) effective March 1, 2008, the Company assumed such split dollar life insurance arrangements categorized as Bank Owned Life Insurance on its balance sheet and has a related liability of $1.3 million at September 30, 2008.

EITF 06-10, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements” In March 2007, the FASB ratified the consensus reached by the EITF on EITF 06-10. EITF 06-10 requires employers to recognize a liability for the postretirement benefit related to a collateral assignment split-dollar life insurance arrangement if the employer remains subject to the risks or rewards associated with the underlying insurance contract (in the postretirement period) that collateralizes the employer’s asset. Additionally, an employer should recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement by assessing what future cash flows the employer is entitled to, if any, as well as the employee’s obligation and ability to repay the employer. The employer’s asset should be limited to the amount of the cash surrender value of the insurance policy, unless the arrangement requires the employee (or retiree) to repay the employer irrespective of the amount of the cash surrender value of the insurance policy (and assuming the employee (or retiree) is an adequate credit risk), in which case the employer should recognize the value of the loan including accrued interest, if applicable. EITF 06-10 was effective for fiscal years beginning after December 15, 2007, with earlier application permitted. Entities should recognize the effects of applying EITF 06-10 through either a change in accounting principle through a cumulative-effect adjustment to retained earnings in the statement of financial position as of the beginning of the year of adoption or through a change in accounting principle through retrospective application to all prior periods. The Company adopted EITF 06-10 as of January 1, 2008. The Company has

determined there was no impact upon the adoption of EITF 06-10 on the Company’s consolidated financial position.

EITF 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” In June 2007, the FASB ratified the consensus reached by the EITF on EITF 06-11. EITF 06-11 requires that realized income tax benefits from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. The Company adopted EITF 06-11 as of January 1, 2008. The impact of the adoption of EITF 06-11 on the Company’s consolidated financial position was not material. It is possible that additional restricted stock awards, or other share based payment awards addressed by this EITF, would be granted in future periods and that the amount of dividends paid per share could change the impact of EITF 06-11 on the Company’s consolidated statements of financial position.

Staff Accounting Bulletin No. 109 (“SAB 109”), “Written Loan Commitments Recorded at Fair Value Through Earnings.” In November 2007, the SEC issued SAB No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings.” SAB 109 supersedes SAB No. 105, “Application of Accounting Principles to Loan Commitments,” and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The guidance in SAB 109 is applied on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The adoption of SAB 109 on January 1, 2008 did not have a material impact on the Company’s consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations” In December 2007, the FASB issued SFAS 141R. SFAS 141R replaces FASB Statement No. 141 (“SFAS 141”), “Business Combinations,” but retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. It also retains the guidance in SFAS 141 for identifying and recognizing intangible assets separately from goodwill. However, SFAS 141R’s scope is broader than that of SFAS 141. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. For any business combinations entered into by the Company subsequent to January 1, 2009, the Company will be required to apply the guidance in SFAS 141R.

SFAS No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51” In December 2007, the FASB issued SFAS 160. SFAS 160 amends ARB 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the

deconsolidation of a subsidiary. SFAS 160 changes the way the consolidated income statement is presented. It requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. It establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation, and requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. The effective date is for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. Earlier adoption is prohibited. This Statement shall be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The Company has not yet determined the impact of the adoption of SFAS 160 to the Company’s statement of financial position or results of operations.

SFAS No. 161 (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging Activities” In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” This Statement amends SFAS No. 133, “Derivative Instruments and Hedging Activities” to require enhanced disclosures about an entity’s derivative and hedging activities, thereby improving the transparency of financial reporting. This Statement is effective for fiscal years beginning on or after November 15, 2008. Earlier adoption is encouraged. The Company has not yet determined the impact of the adoption of SFAS 161 to the Company’s statement of financial position or results of operations.

SFAS No. 162 (“SFAS 162”), “The Hierarchy of Generally Accepted Accounting Principles” In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement shall be effective 60 days following the Security and Exchange Commission’s approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company has not yet determined the impact of the adoption of SFAS 162 to the Company’s statement of financial position or results of operations.

FASB Staff Position FAS 142-3 (“FSP FAS 142-3”), “Determination of the Useful Life of Intangible Assets” In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations,” and other U.S. generally accepted accounting principles (GAAP). This Statement is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. Early application is not permitted. The Company has not yet determined the impact of the adoption of FSP FAS 142-3 to the Company’s statement of financial position or results of operations.

FSP EITF 03-6-01, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”) under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128 (“SFAS 128”), “Earnings per Share.” The guidance in this FSP applies to the calculation of EPS under SFAS 128 for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that contain no forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This Statement is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform to the provisions of this FSP. Early application is not permitted. The Company has not yet determined the impact of the adoption of FSP EITF 03-6-1 to the Company’s statement of financial position or results of operations.

NOTE 4 — INVESTMENT SECURITIES

As a result of the Company’s valuation review of the investment securities portfolio, the Company recorded a loss on the write-down of investments to fair value in the second and third quarters of 2008 for certain available-for-sale securities deemed to have other-than-temporary impairment, in accordance with EITF 99-20 “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to Be Held by a Transferor in Securitized Assets” (“EITF 99-20”). 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. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced to establish a new cost basis and a corresponding charge to earnings is recognized. The loss on the write-down of investments to fair value was taken on two investments in pooled trust preferred securities issued by banks and insurers which were rated investment grade (BBB) at inception, currently remain rated investment grade (BBB), and are classified as available for sale. The Company has not realized any loss on either security, and the Company has the ability and intention to continue to hold these investments until a recovery of fair value, which may be until maturity. The Company recognized a non-cash loss on the write-down of investments to fair value of $720,000 and $2.6 million for the three month and nine months ended September 30, 2008, respectively. The other-than-temporary-impairment was comprised of a $1.9 million year-to-date impairment for one security with a par value of $3.5 million and a $670,000 year-to-date impairment for another security with a par value of $1 million.

NOTE 5 — FAIR VALUE DISCLOSURE

SFAS No. 157, “Fair Value Measurements,” 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 SFAS No. 157 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.

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 instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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 Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. 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 Level 1 to Level 2 or Level 2 to Level 3.

Pursuant to FSP 157-2, the Company did not adopt SFAS 157 for nonfinancial assets or nonfinancial liabilities that are recorded or disclosed at fair value on a non-recurring basis. These include other real estate owned, goodwill, and other identifiable intangible assets. The Company is currently evaluating the impact of SFAS 157 on nonfinancial assets and liabilities.

Valuation Techniques

There have been no changes in the valuation techniques used during the current period.

Cash and Due from Banks

The Company’s cash instruments are classified within Level 1 of the hierarchy because they are valued using quoted market prices or broker or dealer quotations.

Short-Term Investments

The Company’s short-term investments are classified within Level 1 of the hierarchy because they are valued using quoted market prices or broker or dealer quotations.

Trading Income Securities

These equity and fixed income securities are valued based on quoted prices from the market. These securities are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.

Collateralized Mortgage Obligations

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. These securities are categorized as Level 2.

Corporate Bonds

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.

Trust Preferred Collateralized Debt Obligations (“CDOs”)

The fair value of Trust Preferred Collateralized Debt Obligations, 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. If there is at least one significant model assumption or input that is not observable, these Trust Preferred CDOs are categorized as Level 3 within the fair value hierarchy; otherwise, they are classified as Level 2.

Mortgage-backed Securities

The 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.

Municipal Bonds

The fair value is estimated using a valuation matrix with inputs including bond interest rate tables, recent transactions, and yield relationships. Municipal bonds are categorized as Level 2 within the fair value hierarchy.

Derivatives

Derivative Financial Instruments

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 derivative financial instruments are categorized as 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.

Collateral Dependent Loans – Impaired under SFAS 114

Loans that are deemed to be impaired in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” are valued based upon the lower of cost or fair value of the underlying collateral. The inputs used in the appraisals of the collateral are observable, and therefore the loans are categorized in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2008 are as follows:


			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
	Balance as of		Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs
Description	2008		(Level 1)		(Level 2)		(Level 3)
			(Dollars in Thousands)
Assets
Cash and Due from Banks	$	92,752	$	92,752	$	—	$	—
Short-Term Investments		100		100		—		—
Trading Securities		3,048		3,048		—		—
Securities Available for Sale		499,879		—		490,068		9,811
Derivatives
Derivative Financial Instruments		2,512		—		2,512		—
Residential Mortgage Loan Commitments & Forward Sales Agreements		157		—		157		—

Total Assets	$	598,448	$	95,900	$	492,737	$	9,811

Assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2008 are as follows:

Fair Value Measurements at Reporting Date Using

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Balance as of

Identical

Observable

Unobservable

Total

September 30,

Assets

Inputs

Gains

Description

2008

(Level 1)

(Level 2)

(Level 3)

(Losses)

(Dollars in Thousands)

Collateral Dependent Loans, net — Impaired under SFAS 114

813

—

813

—

(128

)

(128

)

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) during the quarter ended September 30, 2008. During the quarter ended June 30, 2008, certain pooled performing Trust Preferred CDOs were transferred from Level 2 to Level 3 due to the lack of current observable market activity. These instruments were valued using pricing models and discounted cash flow methodologies.


	Available for Sale			Total

Balance at June 30, 2008	$	12,764		$	12,764
Gains and Losses (realized/unrealized)
Included in earnings		(720	)		(720	)(1)
Included in Other Comprehensive Income		(2,233	)		(2,233	)
Purchases, issuances and settlements		—			—
Transfers in to/(out) of Level 3		—			—

Balance at September 30, 2008	$	9,811		$	9,811


	Securities
	Available for Sale			Total

Balance at January 1, 2008	$	—		$	—
Gains and Losses (realized/unrealized)
Included in earnings		(2,570	)		(2,570	)
Included in Other Comprehensive Income		(3,012	)		(3,012	)
Purchases, issuances and settlements		—			—
Transfers in to/(out) of Level 3		15,393			15,393

Balance at September 30, 2008	$	9,811		$	9,811

The amount of gains and losses due to change in fair value, including both realized and unrealized gains and losses, included in earnings for Level 3 assets and liabilities during the quarter, and year to date periods, ended September 30, 2008 were classified as follows:


For the three months ending					For the nine months ending
September 30, 2008					September 30, 2008
Trading Income		Non-Interest Income			Trading Income		Non-Interest Income

$	—		($720	)(1)	$	—		($2,570	)

(1)

Represents write-down on certain securities that were deemed to be other-than-temporarily impaired during the quarter ended September 30, 2008.

The amount of total gains and losses included in earnings attributable to the changes in unrealized gains and losses during the quarter, and year to date periods, for Level 3 assets and liabilities that are still held at September 30, 2008 were classified as follows:


For the three months ending					For the nine months ending
September 30, 2008					September 30, 2008
Trading Income		Non-Interest Income			Trading Income		Non-Interest Income

$	—		($720	)	$	—		($2,570	)

NOTE 6 — EARNINGS PER SHARE

Basic earnings per share (“EPS”) are calculated by dividing net income by the weighted average number of common shares (excluding shares of unvested restricted stock) outstanding before any dilution during the period. 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 and unvested restricted stock awards) were issued during the period, computed using the treasury stock method.

Earnings per share consisted of the following components for the three and nine months ended September 30, 2008 and 2007:

For the Three Months Ended

For the Nine Months Ended

September 30,

Net Income

2008

2007

2008

2007

(Dollars in Thousands)

Net Income

8,815

8,312

20,943

20,651


	Weighted Average				Weighted Average
	Shares				Shares
	2008		2007		2008		2007
Basic EPS		16,275,442		13,787,598		15,518,540		14,121,843
Effect of dilutive securities		62,738		112,455		72,627		134,715

Diluted EPS		16,338,180		13,900,053		15,591,167		14,256,558


	Net Income				Net Income
	Per Share				Per Share
	2008		2007		2008		2007
Basic EPS	$	0.54	$	0.60	$	1.35	$	1.46
Effect of dilutive securities	$	0.00	$	0.00	$	0.01	$	0.01

Diluted EPS	$	0.54	$	0.60	$	1.34	$	1.45

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:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Stock Options		784,599		445,817		738,254		323,143

Restricted Stock		—		—		—		—

NOTE 7 — EMPLOYEE BENEFITS

POST RETIREMENT BENEFITS, SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS & DEFINED BENEFIT PENSION PLAN

As a result of the acquisition of Slades, effective March 1, 2008 (see Note 9 hereof), the Company currently supports a defined benefit pension plan (“Slades pension plan”) that covers 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. The benefits paid are based on 1.5% of total salary plus 0.5% of compensation in excess of the integration level per year of service. The integration level was the first $750 of monthly compensation.

During the second quarter of 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 Company’s entire obligation for these elections.

In addition to the aforementioned acquired Slades pension plan, the Company inherited a post retirement benefit plan and a supplemental executive retirement plan (“SERP”) 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. The SERP entitles certain former Slades executive officers and directors to receive supplemental benefits commencing with their retirement.

The following table illustrates the status of the post-retirement benefit plans, SERPs, and pension plans:

Components of Net Periodic Benefit Cost


	Post Retirement Benefits					SERPs					Pension*
	Three months ended September 30,
	2008			2007		2008		2007			2008
	(Unaudited - Dollars in Thousands)
Service cost	$	21		$	22	$	49	$	50		$	7
Interest cost		24			19		55		37			4
Expected return on assets		—			—		—		—			(7	)
Amortization of transition obligation		8			9		—		—			—
Amortization of prior service cost		3			3		15		11			—
Recognized net actuarial (gain)/loss		(2	)		—		—		(1	)		—

Net periodic benefit cost	$	54		$	53	$	119	$	97		$	4


	Post Retirement Benefits					SERPs						Pension*
	Nine months ended September 30,
	2008			2007		2008			2007			2008
	(Unaudited - Dollars in Thousands)
Service cost	$	63		$	67	$	147		$	204		$	16
Interest cost		72			55		165			117			12
Expected return on assets		—			—		—			—			(20	)
Amortization of transition obligation		25			26		—			—			—
Amortization of prior service cost		9			9		47			31			—
Recognized net actuarial (gain)/loss		(7	)		—		(2	)		(3	)		—
Loss due to settlement		—			—		—			—			37

Net periodic benefit cost	$	162		$	157	$	357		$	349		$	45


* Does not include the noncontributory defined benefit pension plan administered by Pentegra (as discussed below).

Included in the SERP net periodic benefit cost above is an additional $60,000, which was accrued during the first quarter of 2007 associated with the early retirement of an executive. The above table includes post retirement benefits, SERPs, and the pension net periodic benefit cost relating to the Slades benefit plan, for only seven months of activity for the nine month period, ending September 30, 2008, as the Company became responsible for those benefit plans on March 1, 2008.

The Company previously disclosed in its financial statements for the fiscal year ended December 31, 2007 that it expected to contribute $59,000 to its post retirement benefit plan and $131,000 to its SERPs in 2008 and presently anticipates making these contributions, plus additional contributions of $23,000 and $30,000 for the acquired Slades post retirement benefit plan and SERP, respectively. For the three months ended September 30, 2008, $17,000 and $26,000 of contributions have been made to the post retirement benefit plans and the SERPs, respectively. For the nine months ended September 30, 2008, $56,000 and $85,000 of contributions have been made to the post retirement benefit plans and the SERPs,

respectively. The Company does not plan to make a contribution to the acquired Slades defined benefit pension plan, as it is fully funded.

Not included in the above summary are the components of net periodic benefit cost for the noncontributory defined benefit pension plan administered by Pentegra (the “Fund”). Effective July 1, 2006, the Company froze the defined benefit plan by eliminating all future benefit accruals, with the exception of the employees that were participants on July 1, 2006, but that were not yet fully vested. The Fund does not segregate the assets or liabilities of all participating employers and, accordingly, disclosure of accumulated vested and non-vested benefits is not possible. The pension plan year is July 1st through June 30th. Contributions for the 2007-2008 plan year were all paid in 2007. Pension expense is expected to be approximately $900,000 related to the 2008-2009 plan year. During the three and nine months ended September 30, 2008, $318,000 and $837,000, respectively, of pension expense for both pension plans has been recognized for the 2007-2008 plan year.

Also in connection with the acquisition of Slades, the Company acquired life insurance policies pertaining to certain of Slades’ former executives. Slades had entered into agreements with these executives whereby the Company will pay to the executives’ estates or beneficiaries a portion of the death benefit that the Company will receive as beneficiary of such policies. In accordance with EITF 06-4 “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” the Company has established a liability of $1.3 million for future death benefits.

NOTE 8 — COMPREHENSIVE INCOME

Information on the Company’s comprehensive income, presented net of taxes, is set forth below for the three and nine months ended September 30, 2008 and 2007.

Comprehensive income (loss) is reported net of taxes, as follows:

(Dollars in Thousands)


	FOR THE THREE						FOR THE NINE
	MONTHS ENDED						MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2008			2007			2008			2007

Net Income	$	8,815		$	8,312		$	20,943		$	20,651

Other Comprehensive Income/(Loss), Net of Tax:

(Decrease) Increase in fair value of securities available for sale, net of tax of $444 and $1,563 for the three months ended September 30, 2008 and 2007, respectively, and $2,532 and $794 for the nine months ended September 30, 2008 and 2007, respectively.		(995	)		2,699			(4,633	)		1,146

Less: reclassification adjustment for realized gains included in net income, net of tax of $56 for the nine months ended September 30, 2008.		—			—			(77	)		—


Net change in fair value of securities available for sale, net of tax of $444 and $1,563 for the three months ended September 30, 2008 and 2007, respectively, and $2,588 and $794 for the nine months ended September 30, 2008 and 2007, respectively.		(995	)		2,699			(4,710	)		1,146

Decrease in fair value of derivatives, net of tax of $402 and $1,080 for the three months ended September 30, 2008 and 2007, respectively, and $608 and $458 for the nine months ended September 30, 2008 and 2007, respectively.		(555	)		(1,492	)		(857	)		(a)	(632)

Less: reclassification of realized loss (gain) on derivatives, net of tax of $71 and $0 for the three months ended September 30, 2008 and 2007, respectively, and $145 and $103 for the nine months ended September 30, 2008 and 2007, respectively.		98			—			202			(142	)


Net change in fair value of derivatives, net of tax of $331 and $1,080 for the three months ended September 30, 2008 and 2007, respectively, and $471 and $561, for the nine months ended September 30, 2008 and 2007, respectively.		(457	)		(1,492	)		(655	)		(774	)


Amortization of certain costs included in net periodic post retirement costs, net of tax of $30 and $20 for the three months ended September 30, 2008 and 2007, respectively, and $91 and $59 for the nine months ended September 30, 2008 and 2007, respectively.		42			27			126			83


Other Comprehensive (Loss) Gain, Net of Tax:		(1,410	)		1,234			(5,239	)		455

Comprehensive Income	$	7,405		$	9,546		$	15,704		$	21,106


(a)		Included in the nine months ended September 30, 2008 is $663,000 of realized but unrecognized loss from the sale of an interest rate swap in January 2008.

The loss will be recognized in earnings through January 2010, the original maturity date of the interest rate swap.

NOTE 9 — ACQUISITION

Effective March 1, 2008, the Company acquired Slades, parent of Slade’s 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 Company’s results of operations from the date of acquisition. The terms of the agreement called for 75% of the outstanding shares of Slades to be converted to 0.818 shares of Independent Bank Corp. for each share of Slades common stock and for 25% of the outstanding Slades shares to be purchased for $25.50 in cash for each share of Slades common stock. 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 Company’s 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 approximately $102 million. The acquisition of Slades allows 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.

(Dollars in Thousands)


Assets:
Cash acquired, net of cash paid	$	(13,484	)
Investments		106,700
Loans, net		465,720
Premises and Equipment		11,502
Goodwill		58,139
Core Deposit & Other Intangible		8,961
Other Assets		25,109


Total Assets Acquired	$	662,647

Liabilities:
Deposits	$	410,769
Borrowings		161,974
Other Liabilities		13,676


Total Liabilities Assumed	$	586,419


Net Assets Acquired	$	76,228

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 intangible recorded related to non-compete agreements with a life of one year.

The following summarizes the unaudited proforma results of operations as if the Company acquired Slades on January 1, 2008 (2007 amounts represent combined results for the Company and Slades).


	Three months ended
	September 30,
	2008		2007
Net Interest Income	$	31,115	$	28,715
Net Income		8,815		9,144
Earnings Per Share — Basic	$	0.54	$	0.54
Earnings Per Share — Diluted	$	0.54	$	0.53


	Nine months ended
	September 30,
	2008		2007
Net Interest Income	$	90,012	$	85,600
Net Income		20,020		25,787
Earnings Per Share — Basic	$	1.26	$	1.48
Earnings Per Share — Diluted	$	1.25	$	1.47

Excluded from the pro forma results of operations for the nine months ended September 30, 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.

NOTE 10 — GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Goodwill and identifiable intangible assets as of September 30, 2008 and December 31, 2007 were $126.4 million and $60.4 million, respectively. During the first quarter of 2008 the Company acquired Slades, resulting in goodwill of $58.1 million and core deposit and other identifiable intangible assets of $9.0 million. Additional goodwill of $0.2 million was recorded in the first quarter of 2008 related to acquisitions made in 2007. During the second and third quarters of 2008, the Company made adjustments to the goodwill relating to the acquisition of Slades, but the amount of these adjustments was not material to the financial statements.

The changes in goodwill and identifiable intangible assets for the period ended September 30, 2008 are shown in the table below.


Carrying Amount of Goodwill and Intangibles
(Dollars in Thousands)
			Core Deposit			Other Identifiable
	Goodwill		Intangibles			Intangible Assets			Total
Balance at December 31, 2007	$	58,296	$	1,134		$	981		$	60,411

Recorded during the year		58,326		8,760			200			67,286
Amortization Expense		—		(1,085	)		(200	)		(1,285	)


Balance at September 30, 2008	$	116,622	$	8,809		$	981		$	126,412

The following table sets forth the remaining estimated annual amortization expense of the identifiable assets.


	Remaining Estimated Annual Amortization Expense
	(Dollars in Thousands)
	Q4 2008		2009		2010		2011		2012		2013 -2018		Total
Core Deposit Intangibles	$	442	$	1,403	$	1,120	$	954	$	793	$	4,097	$	8,809
Other Intangible Assets		76		134		101		101		100		469		981

Total Identifiable Intangible Assets	$	518	$	1,537	$	1,221	$	1,055	$	893	$	4,566	$	9,790

NOTE 11 — SALE AND LEASE BACK TRANSACTION

During the second quarter of 2008, Rockland Trust 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 gain will be deferred and amortized ratably over the lease terms of the individual buildings, which terms are either 10 or 15 years, through rent expense as a part of occupancy and equipment expense.

NOTE 12 — SUBORDINATED DEBT ISSUANCE

On August 27, 2008 Rockland Trust Company issued $30 million of subordinated debt to USB Capital Resources Inc., a wholly-owned subsidiary of U.S. Bank National Association. Rockland Trust has received the $30 million derived from the sale of the subordinated debenture and intends to use the proceeds to support growth, as well as for other corporate purposes.

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. 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 Rockland Trust, at either the then current: London Inter-Bank Offered Rate (“LIBOR”) plus 3.00%; or,

the U.S. Bank base rate plus 1.25%. Costs associated with the issuance of the subordinated debt are being amortized ratably over the term of the debt as an adjustment to the associated interest expense.

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

The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission.

Cautionary Statement Regarding Forward-Looking Statements

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

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

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

•

a weakening of United States economy in general and in the regional and local economies within the New England region and Massachusetts could result in a deterioration of credit quality, a change in the allowance for loan losses, or a reduced demand for the Company’s credit or fee-based products and services;

•

adverse changes in the local real estate market, as most of the Company’s loans are concentrated in southeastern Massachusetts and Cape Cod and a substantial portion of these loans have real estate as collateral, could result in a deterioration of credit quality and an increase in the allowance for loan losses;

•

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 Company’s business environment or affect the Company’s operations;

•

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 Company’s tax provision and its financial results;

•

inflation, interest rate, market and monetary fluctuations could reduce net interest income and could increase credit losses;

•

adverse changes in asset quality could result in increasing credit risk-related losses and expenses;

•

competitive pressures, including those pressures resulting from continued industry consolidation and the increase in non-banks providing financial services, could intensify and affect the Company’s profitability;

•

adverse conditions in the securities markets could lead to impairment in the value of securities in the Company’s investment portfolios and consequently have an adverse effect on the Company’s earnings;

•

a deterioration in the conditions of the securities markets could adversely affect the value or credit quality of the Company’s assets, the availability and terms of funding necessary to meet the Company’s liquidity needs, and the Company’s ability to originate loans;

•

rapid changes in information technology could adversely impact the Company’s operations and require increased capital spending;

•

changes in consumer spending and savings habits could negatively impact the Company’s financial results;

•

completed acquisitions may not result in cost savings revenue enhancements that were anticipated; and

•

acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues.

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

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

EXECUTIVE LEVEL OVERVIEW

The Company’s results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and 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.

Effective March 1, 2008, the Company completed its acquisition of Slades, parent of Slades Bank. This acquisition may have a significant impact on comparative period results and will be discussed throughout the document as it applies (see Note 9 in the Consolidated Notes to Unaudited Consolidated Financial Statements above).

During the third quarter of 2008 management continued to implement its strategy to alter the overall composition of the Company’s earning assets in order to focus resources in higher return segments. The Company reported diluted earnings per share of $0.54 for the third quarter ending September 30, 2008, representing a decrease of 10.0% from the same period in the prior year.

During the three and nine months ended September 30, 2008, the Company recorded a loss of $720,000 and $2.6 million, respectively, on the write-down of investments to fair value on certain available-for-sale investments. The write-downs were taken for performing pooled trust preferred securities issued by banks and issuers, which were rated investment grade (BBB) at inception, currently remain rated investment grade (BBB), and are classified as available for sale. The Company routinely reviews its investment securities for other-than-temporary-impairment, and during its review noted that certain issuers had — as contractually permitted — deferred interest payments on lower level tranches, although the Company’s tranche remained current with respect to principal and interest. Upon consideration of the deferred interest payments in lower level tranches and other factors, including the severity and duration of the impairments, the Company recorded losses in the second and third quarters of 2008 in accordance with EITF 99-20.

The Company reported net income of $8.8 million and $20.9 million for the three and nine months ending September 30, 2008, an increase of 6.1% and 1.4%, respectively, as compared to the same periods in 2007. Excluding certain non-core items mentioned below, net operating earnings were $8.3 million and $22.3 million for the quarter and year to date period ending September 30, 2008, up 0.2% and down 0.5%, respectively, from the same periods in the prior year.

The following tables summarize the impact of non-core items recorded for the time periods indicated below:


	RECONCILIATION TABLE - NON-GAAP FINANCIAL INFORMATION
	Quarter to Date Ending September 30,
											Diluted
	Pretax Earnings					Net Income					Earnings Per Share
	2008			2007		2008			2007		2008			2007

	(Dollars in Thousands, except per share amounts)
AS REPORTED (GAAP)	$	12,120		$	10,484	$	8,815		$	8,312	$	0.54		$	0.60
	IMPACT OF NON-CORE ITEMS
Net Interest Income Components
Write-Off of Debt Issuance Cost, net of tax		—			—		—			—		—			—
Non-Interest Expense Components
Executive Early Retirement Costs		—			—		—			—		—			—
Litigation Recovery		(750	)		—		(488	)		—		(0.03	)		—
WorldCom Bond Loss Recovery		—			—		—			—		—			—
Merger & Acquisition Expenses		—			—		—			—		—			—

TOTAL IMPACT OF NON-CORE ITEMS		(750	)		—		(488	)		—		(0.03	)		—

AS ADJUSTED (NON-GAAP)	$	11,370		$	10,484	$	8,327		$	8,312	$	0.51		$	0.60


	RECONCILIATION TABLE - NON-GAAP FINANCIAL INFORMATION
	Year to Date Ending September 30,
											Diluted
	Pretax Earnings					Net Income					Earnings Per Share
	2008			2007		2008			2007		2008			2007

	(Dollars in Thousands, except per share amounts)
AS REPORTED (GAAP)	$	28,533		$	27,544	$	20,943		$	20,651	$	1.34		$	1.45
	IMPACT OF NON-CORE ITEMS
Net Interest Income Components
Write-Off of Debt Issuance Cost, net of tax		—			907		—			590		—			0.04
Non-Interest Income Components
Net Loss on Sale of Securities		609			—		396			—		0.03			—
Non-Interest Expense Components
Executive Early Retirement Costs		—			406		—			264		—			0.02
Litigation Reserve/Recovery		750			1,361		488			885		0.03			0.06
WorldCom Bond Loss Recovery		(418	)		—		(272	)		—		(0.02	)		—
Merger & Acquisition Expenses		1,120			—		728			—		0.05			—

TOTAL IMPACT OF NON-CORE ITEMS		2,061			2,674		1,340			1,739		0.09			0.12

AS ADJUSTED (NON-GAAP)	$	30,594		$	30,218	$	22,283		$	22,390	$	1.43		$	1.57

Certain non-core items are included in the computation of earnings in accordance with generally accepted accounting principles (“GAAP”) in the United States of America in both 2008 and 2007 as indicated by the table above. In an effort to provide investors information regarding the Company’s results, the Company has disclosed in the table above certain non-GAAP information, which management believes provides useful information to the investor. This information should not be viewed as a substitute for operating results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP information which may be presented by other companies.

Net interest margin strength and stability continued during the three and nine months ending September 30, 2008, as the net interest margin for the periods were 4.09% and 4.00% as compared to a net interest margin of 3.98% and 3.89% for the three and nine months ended September 30, 2007.

The following graph shows the trend in the Company’s net interest margin versus the Federal Funds Rate for nine quarters beginning with the quarter ended September 30, 2006 and ending with the quarter ended September 30, 2008:


*		The Q4 2006 Net Interest Margin is normalized for the impact of the write-off of $995,000 of issuance costs in interest expense associated with the refinancing of higher rate trust preferred securities during the fourth quarter of 2006.

**		The Q2 2007 Net Interest Margin is normalized for the impact of the write-off of $907,000 of issuance costs in interest expense associated with the refinancing of higher rate trust preferred securities during the second quarter of 2007.

While changes in the prevailing interest rate environment (see Historical U.S. Treasury Yield Curve graph below) have and will continue to have an impact on the Company’s earnings, management strives to mitigate volatility in net interest income resulting from changes in benchmark interest rates through adjustable rate asset generation, effective liability management, and utilization of off-balance sheet interest rate derivatives. (For a discussion of interest rate derivatives and interest rate sensitivity see the Asset/Liability Management section, Table 11 — “Derivatives Positions”, and Market Risk section, Table 13 — “Interest Rate Sensitivity” within the Management’s Discussion and Analysis of Financial Condition and Results of Operations hereof.)

Below is a graph showing the historical U.S. Treasury yield curve for the past four years for periods ending September 30.

“A yield curve is a graphic line chart that shows interest rates at a specific point for all securities having equal risk, but different maturity dates.” ¹ “A flat yield curve is one in which there is little difference between short-term and long-term rates for bonds of the same credit quality. When short- and long-term bonds are offering equivalent yields, there is usually little benefit in holding the longer-term instruments — that is, the investor does not gain any excess compensation for the risks associated with holding longer-term securities. For example, a flat yield curve on U.S. Treasury Securities would be one in which the yield on a two-year bond is 5% and the yield on a 30-year bond is 5.1%.” ²


1		The Free Dictionary.com

2		Investopedia.com

The Company’s return on average assets and return on average equity were 1.04% and 11.57%, respectively, for the three month period ending September 30, 2008. The Company’s return on average assets and return on average equity were 1.24% and 15.57%, respectively, for the three month period ending September 30, 2007.

Non-interest income increased by 10.5% and 3.7%, for the three and nine month periods ending September 30, 2008 and September 30, 2007, respectively. Excluding the losses on the sale of securities and the loss on the write-down of investments to fair value recognized during the three and nine months ended 2008, non-interest income grew by $1.5 million, or 19.8%, and $4.1 million, or 17.2%, when compared to 2007. See the table below for a reconciliation of non-interest income as adjusted.


	Three Months Ended
	September 30,
	2008		2007		$ Variance		% Variance
	(Dollars in Thousands)
Non-Interest Income GAAP	$	8,532	$	7,720	$	812		10.5	%
Add — Loss on Write-Down of Investments to Fair Value		720		—		720		n/a

Non-Interest Income as Adjusted	$	9,252	$	7,720	$	1,532		19.8	%


	Nine Months Ended
	September 30,
	2008		2007		$ Variance		% Variance
	(Dollars in Thousands)
Non-Interest Income GAAP	$	24,432	$	23,552	$	880		3.7	%
Add — Net Loss on Sale of Securities		609		—		609		n/a
Add — Loss on Write-Down of Investments to Fair Value		2,570		—		2,570		n/a

Non-Interest Income as Adjusted	$	27,611	$	23,552	$	4,059		17.2	%

Leading the growth in non-interest income is the Company’s Wealth Management product set, the aggregate revenues of which have grown by 45.7% for the nine month period ending September 30, 2008 as compared to the same period in 2007. Assets under management amounted to $1.3 billion, an increase of $155.6 million, or 14.07%, as compared to the assets under management at September 30, 2007.

Non-interest expense has grown by 20.1% and 17.6% for the three and nine month periods ended September 30, 2008, respectively, as compared to the same periods in the prior year. When adjusting the reported level of non-interest expense for merger and acquisition expenses, a litigation reserve, and a recovery on WorldCom bonds, in 2008, non-interest expense increased $5.0 million, or 23.6%, and $11.9 million, or 18.6%, for the three and nine months ending September 30, 2008, respectively, as compared to the same periods in 2007, which excluded expenses associated with a litigation reserve and costs associated with the early retirement of executives. See the table below for a reconciliation of non-interest expense as adjusted.


	Three Months Ended
	September 30,
	2008		2007		$ Variance		% Variance
	(Dollars in Thousands)
Non-Interest Expense GAAP	$	25,459	$	21,206	$	4,253		20.1	%
Add — Litigation Reserve Recovery		750		—		750		n/a

Non-Interest Expense as Adjusted	$	26,209	$	21,206	$	5,003		23.6	%


	Nine Months Ended
	September 30,
	2008			2007			$ Variance			% Variance
	(Dollars in Thousands)
Non-Interest Expense GAAP	$	77,552		$	65,925		$	11,627			17.6	%
Less — Executive Early Retirement Costs		—			(406	)		406			n/a
Less — Merger & Acquisition Expenses		(1,120	)		—			(1,120	)		n/a
Less — Litigation Reserve		(750	)		(1,361	)		611			-44.9	%
Add — WorldCom Bond Loss Recovery		418			—			418			n/a

Non-Interest Expense as Adjusted	$	76,100		$	64,158		$	11,942			18.6	%

The increase in expenses is primarily attributable to the Slades acquisition which closed in the first quarter of 2008 and the O’Connell acquisition in the fourth quarter of 2007.

Management now feels that the Company is nearing the completion of the balance sheet repositioning that it has been focusing on since 2005. Emphasis has been placed on growing the commercial and home equity lending segments of the loan portfolio while de-emphasizing the securities portfolio, indirect automobile lending, and residential real estate loan portfolio.

As the interest rate environment has not been conducive to maintaining or increasing the securities portfolio, the Company has permitted the securities portfolio to run-off causing it to decrease on both a relative basis (as a percent of earning assets) and an actual basis. During the first quarter there was a decrease in the securities portfolio as the Company sold $50.0 million in agency securities resulting in a gain on sale of $133,000 during January 2008. In addition, associated with the Slades acquisition, the Company sold the majority of Slades’ investment securities portfolio incurring a loss of $742,000. In the third quarter of 2008 the securities portfolio was increased to offset the cost of subordinated debt issued in the quarter.

The following graph shows the level of the Company’s securities portfolio from September 2005 through September 2008:

Total deposits of $2.5 billion at September 30, 2008 increased $511.4 million, or 25.2%, compared to December 31, 2007. Of the increases, $410.8 million is a result of the Slades acquisition. The Company remains committed to deposit generation, with careful management of deposit pricing and selective deposit promotion, in an effort to control the Company’s cost of funds. In the current interest rate environment the Company is focused on pricing deposits for customer retention as well as core deposit growth.

While net loan charge-offs were higher in the third quarter of 2008 than in the same period in 2007, they amounted to an annualized rate of 23 basis points of average loans. The allowance for loan losses as a percentage of total loans was 1.29% at September 30, 2008 compared to 1.29% at June 30, 2008 and March 31, 2008, and 1.31% at December 31, 2007,

maintaining the allowance for loan losses 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. Nonperforming assets were 0.51% of assets at September 30, 2008, and 0.30% of assets at December 31, 2007. (See Table 3 of Nonperforming Assets/ Loans for detail on nonperforming assets.) Provision for loan losses were $2.1 million and $5.3 million for the quarter and year to date periods, respectively, an increase of $1.8 million and $3.5 million from the respective year ago periods. The increase in provision is mainly driven by growth in the loan portfolio and some softening of credit quality brought about by general economic conditions.

The following graph depicts the Company’s non-performing assets to total assets at the periods indicated:

Some of the Company’s other highlights for the nine months ended September 30, 2008 included:

o		Effective March 1, 2008, the Company completed the acquisition of Slades, parent of Slade’s Ferry Trust Company doing business as Slades Bank. Slades Bank had 9 branches located in the south coast of Massachusetts and along the Rhode Island border and $663 million in total assets of which $466 million are attributable to the loan portfolio and $67 million is attributable to goodwill and other intangibles. The transaction was valued at approximately $102 million. The transaction was immediately accretive, before one time acquisition charges.

o		The Company made a $6.8 million capital contribution during the first quarter of 2008 into Rockland Trust Community Development Corporation II (“RTC CDE II”) to complete the implementation of the $45 million in tax credit allocation authority awarded under the New Markets Tax Credit Program.

o		The quarterly dividend increased 5.9% to $0.18 per share, compared to third quarter 2007.

o		During the second quarter of 2008, Rockland Trust 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. Net proceeds were $32.2 million, resulting in a gain of $13.2 million, net of transaction costs of $753,000. The 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 part of occupancy and equipment.

o		Rockland Trust Company issued $30 million of subordinated debt to USB Capital Resources Inc., a wholly-owned subsidiary of U.S. Bank National Association. Rockland Trust has received the $30 million derived from the sale of the subordinated debt and intends to use the proceeds to support growth and for other corporate purposes. 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. The subordinated debt is priced at a fixed rate of 7.02% for the first five year period.

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 Company’s most critical accounting policies upon which the Company’s financial condition depends, and which involve the most complex or subjective decisions or assessments are as follows:

Allowance for Loan Losses: The Company’s 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 to determining the amount of the required specific allowance. Management’s 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 Company’s 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 management’s 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.

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

Company’s methodology of assessing the adequacy of the allowance for loan losses, see the “Allowance for Loan Losses” and “Provision for Loan Losses” sections within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Income Taxes: The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” as interpreted by FIN 48, “Accounting for Uncertainty in Income Taxes,” resulting in two components of income tax expense current and deferred. Taxes are discussed in more detail in Note 11, “Income Taxes” within Notes to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2007. 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/liabilities represent differences between when a tax benefit or expense is recognized for book purposes and on the Company’s 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, 2007. Additionally, deferred tax assets/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. At December 31, 2007, the Company had a $260,000 liability for uncertain tax benefits.

Valuation of Goodwill/Intangible Assets and Analysis for Impairment: Independent Bank Corp. has increased its market share through the acquisition of entire financial institutions accounted for under the purchase method of accounting, as well as from the acquisition of branches (not the entire institution) and other non-banking entities. For acquisitions accounted for under the purchase method and the acquisition of branches, the Company is required to record assets acquired and liabilities assumed at their fair value which is an estimate determined by the use of internal or other valuation techniques. These valuation estimates result in goodwill and other intangible assets. Goodwill is subject to ongoing periodic impairment tests and is evaluated using various fair value techniques including multiples of price/equity and price/earnings ratios. As a result of such impairment testing conducted in 2007, the Company determined goodwill was not impaired.

Valuation of Securities 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 prices or third party pricing services. 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. Interest income is reported net of amortization of premium and accretion of discount.

Realized security gains or losses are reported in security gains (losses), net in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. 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 intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; 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 is a lack of evidence to support fair values greater than or equal to the carrying value of the investment. Securities for which there are unrealized losses that are deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss and included in non-interest income in the Consolidated Financial Statements.

FINANCIAL POSITION

Loan Portfolio Total loans grew by $542.6 million, or 26.6%, for the period ended September 30, 2008 as compared to the year ended December 31, 2007. The acquisition of Slades added $471.2 million in growth, as shown in the table below.

Table 1 — Effect of Slade’s Ferry Bancorp. Acquisition on Loans


	September 30,		December 31,		Slades		Organic
	2008		2007		Acquisition		Growth/Loss
	(Unaudited Dollars in Thousands)
Loans
Commercial & Commercial Real Estate Loans	$	1,493,895	$	1,121,310	$	306,824	$	65,761
Small Business		85,120		69,977		9,257		5,886
Residential Real Estate		439,188		341,090		114,432		(16,334	)
Consumer — Home Equity		391,416		308,744		38,723		43,949
Consumer — Other		175,939		201,831		2,009		(27,901	)

Total Loans	$	2,585,558	$	2,042,952	$	471,245	$	71,361

Excluding the Slades acquisition, organic loan growth achieved in the nine months of 2008 amounted to $71.4 million, or 4.7% on an annualized basis and was concentrated in the commercial and home equity lending, categories while the consumer (primarily automobile lending) categories were reduced. Total commercial loans (including small business loans) following the Slades acquisition now represent 61.1% of the total loan portfolio.

The Bank’s commercial real estate portfolio, the Bank’s largest portfolio, is 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, restaurants, golf courses, and healthcare-related properties. Commercial real estate also includes loans secured by certain residential-related property types including multi-family apartment buildings, residential development tracts and, to a lesser

extent, condominiums. The following pie chart shows the diversification of the commercial real estate portfolio as of September 30, 2008.

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 Bank’s loan portfolio which includes direct, indirect or contingent obligations. As of September 30, 2008, loans made by the Company to the industry concentration of lessors of non-residential buildings constituted 13.7% of the Company’s total loan portfolio. Two of these loans totaling approximately $45,000 were non-performing at September 30, 2008.

The Bank does not originate sub-prime real-estate loans as a line of business.

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

Delinquency The Bank’s philosophy toward managing its loan portfolios is predicated upon careful monitoring which stresses early detection and response to delinquent and default situations. The Bank seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time. 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 following the mailing of a delinquency notice, the Bank personnel charged with managing its loan portfolios contacts the borrower to determine the reasons for delinquency and the prospects for payment. Any subsequent actions taken to resolve the delinquency will depend upon the nature of the loan and the length of time that the loan has been delinquent. The borrower’s needs are considered as much as reasonably possible without jeopardizing the

Bank’s position. A late charge is usually assessed on loans upon expiration of the grace period.

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

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

Table 2 — Summary of Delinquency Information


	At September 30, 2008								At December 31, 2007
	60-89 days				90 days or more				60-89 days				90 days or more
	Number		Principal		Number		Principal		Number		Principal		Number		Principal
	of Loans		Balance		of Loans		Balance		of Loans		Balance		of Loans		Balance
	*(Unaudited - Dollars in Thousands)*								*(Dollars in Thousands)*
Commercial and Industrial		9	$	570		9	$	1,453		5	$	191		5	$	280
Commercial Real Estate		8		5,010		9		3,562		5		1,218		9		1,761
Commercial Construction		3		789		3		1,849		—		—		—		—
Small Business		15		471		18		396		9		212		15		332
Residential Real Estate		8		1,555		19		4,664		3		574		5		1,199
Residential Construction		—		—		—		—		—		—		—		—
Consumer — Home Equity		9		814		10		1,026		7		379		9		786
Consumer — Auto		71		647		73		602		55		530		78		676
Consumer — Other		42		183		58		317		51		272		31		126

Total		165	$	10,039		199	$	13,869		135	$	3,376		152	$	5,160

The Company’s total loan delinquency was 1.52% of total loans outstanding at September 30, 2008 and 0.93% at December 31, 2007. Increases shown above in the 90 day category are contained primarily in the commercial real estate and residential real estate categories.

Nonaccrual Loans As permitted by banking regulations, consumer loans past due 90 days or more may continue to accrue interest. In addition, certain commercial, small business loans, or real estate loans, including consumer home equity loans, that are generally 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, commercial, small business loans, or real estate loans, including consumer home equity loans, more than 90 days past due with respect to principal or interest are classified as nonaccrual loans. Income accruals are suspended on all nonaccrual loans and all previously accrued and uncollected interest is reversed against current income. Generally, a loan remains on nonaccrual status until (1) the loan becomes current with respect to principal and interest (and in certain instances remains current for up to three months), (2) the loan is liquidated, or (3) the loan is determined to be uncollectible and it is charged-off against the allowance for loan losses.

Nonperforming Assets Nonperforming assets are comprised of nonperforming loans, nonperforming securities and Other Real Estate Owned (“OREO”). Nonperforming loans consist of loans that are more than 90 days past due, but still accruing interest, and nonaccrual loans. OREO includes properties held by the Bank as a result of foreclosure or by acceptance of a deed in lieu of foreclosure. The overall increase in nonperforming assets is attributable

mainly to increases in nonperforming loans shown in the residential mortgage loan category and in the commercial real estate category, in addition to the overall increase in the size of the loan portfolio due to the Slades acquisition. Nonperforming assets represented 0.51% of total assets at September 30, 2008 compared to 0.36% of total assets at June 30, 2008 and March 31, 2008 and 0.30% of total assets at December 31, 2007. The Bank had six properties held as OREO totaling $1.2 million at September 30, 2008. There were no nonperforming securities for the period ending September 30, 2008.

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 payment in full at any time prior to the property’s disposal by the Bank. Repossessed automobile loan balances amounted to $524,000 as of September 30, 2008, $455,000 at December 31, 2007 and $340,000 at September 30, 2007.

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

Table 3 — Nonperforming Assets / Loans
(Unaudited — Dollars in Thousands)


	As of			As of			As of
	September 30,			December 31,			September 30,
	2008			2007			2007
Loans past due 90 days or more but still accruing
Consumer — Auto	$	247		$	378		$	311
Consumer — Other		137			122			118

Total	$	384		$	500		$	429


Loans accounted for on a nonaccrual basis (1)
Commercial and Industrial	$	1,481		$	306		$	562
Small Business		773			439			342
Commercial Real Estate		5,478			2,568			2,677
Residential Real Estate		6,725			2,380			1,224
Consumer — Home Equity		1,107			872			747
Consumer — Auto		524			455			340
Consumer — Other		172			124			30

Total	$	16,260		$	7,144		$	5,922


Total nonperforming loans	$	16,644		$	7,644		$	6,351


Other real estate owned	$	1,239		$	681		$	245

Total nonperforming assets	$	17,883		$	8,325		$	6,596


Restructured Loans	$	666		$	—		$	—


Nonperforming loans as a percent of gross loans		0.64	%		0.37	%		0.32	%

Nonperforming assets as a percent of total assets		0.51	%		0.30	%		0.25	%


(1)		There were no restructured nonaccruing loans at September 30, 2008, and December 31, 2007. There were $38,000 restructured nonaccruing loans at September 30, 2007.

In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain consumer, 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 which is

referred to as “a troubled debt restructuring”. It is the Bank’s policy to maintain restructured loans on nonaccrual status for approximately six months before management considers a restructured loan’s return to accrual status. The Bank had $666,000 in troubled debt restructured loans at September 30, 2008, none at December 31, 2007, and $38,000 in trouble debt restructured loans at September 30, 2007, all of which were on non-accrual.

Potential problem loans are any loans, which are not categorized as nonaccrual or non-performing loans and which are not considered troubled debt restructures, but known information about possible credit problems of the borrower(s) causes management to have concerns as to the ability of such borrower(s) to comply with present loan repayment terms. At September 30, 2008, the Bank had 30 potential problem loan relationships, at June 30, 2008 the Bank had 28 potential problem loan relationships, and at December 31, 2007 the Bank had fifteen potential problem loan relationships, which are not included in nonperforming loans. Outstanding balances on these loans totaled $55.0 million, $49.7 million, and $21.9 million at September 30, 2008, June 30, 2008, and December 31, 2007, respectively. At September 30, 2008, these potential problem loans continued to perform with respect to payments. The Company’s management actively monitors these loans and strives to minimize any possible adverse impact to the Bank.

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

Interest income that would have been recognized for the three months ended September 30, 2008, and September 30, 2007, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $171,000 and $53,000, respectively. Interest income that would have been recognized for the nine months ended September 30, 2008, and September 30, 2007, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $532,000 and $246,000, respectively. The actual amounts of interest that were collected on these nonaccrual loans during the three months ended September 30, 2008 and September 30, 2007 and were included in interest income were approximately $44,000 and $15,000, respectively. The actual amounts of interest that were collected on these nonaccrual loans during the nine months ended September 30, 2008 and September 30, 2007 and were included in interest income were approximately $175,000 and $109,000, respectively.

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

Impairment is measured on a loan by loan basis for commercial, commercial real estate, and construction by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

At September 30, 2008, impaired loans include 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 September 30, 2008, June 30, 2008, and December 31, 2007 were $8.7 million, $4.2 million, and $3.9 million, respectively.

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. 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 Bank’s examination process, periodically review the allowance for loan losses for adequacy.

As of September 30, 2008, the allowance for loan losses totaled $33.3 million, or 1.29%, of total loans as compared to $26.8 million, or 1.31%, of total loans at December 31, 2007. The increase in allowance was due to a combination of factors including changes in asset quality, the acquisition of the former Slades portfolios and organic loan growth. Based on management’s analysis, management believes that the level of the allowance for loan losses at September 30, 2008 is adequate.

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

Table 4 — Summary of Changes in the Allowance for Loan Losses


	Quarter to Date
	September 30,			June 30,			March 31,			December 31,			September 30,
	2008			2008			2008			2007			2007
	*(Unaudited - Dollars in Thousands)*
Average loans	$	2,578,373		$	2,550,066		$	2,207,337		$	2,015,811		$	1,971,023

Allowance for loan losses, beginning of period	$	33,231		$	32,609		$	26,831		$	26,192		$	26,650
Charged-off loans:
Commercial and Industrial		21			163			346			31			—
Small Business		527			384			146			301			217
Commercial Real Estate		—			—			—			—			—
Residential Real Estate		—			—			—			—			—
Commercial Construction		—			—			—			—			—
Residential Construction		—			—			—			—			—
Consumer — Home Equity		819			124			37			42			—
Consumer — Auto		507			474			444			261			452
Consumer — Other		423			294			315			296			240

Total charged-off loans		2,297			1,439			1,288			931			909

Recoveries on loans previously charged-off:
Commercial and Industrial		26			3			21			19			1
Small Business		91			3			63			17			5
Commercial Real Estate		—			—			—			—			—
Residential Real Estate		—			—			—			—			—
Commercial Construction		—			—			—			—			—
Residential Construction		—			—			—			—			—
Consumer — Home Equity		3			—			—			—			—
Consumer — Auto		115			103			80			108			105
Consumer — Other		50			50			35			71			40

Total recoveries		285			159			199			215			151

Net loans charged-off		2,012			1,280			1,089			716			758
Provision for loan losses		2,068			1,902			1,342			1,355			300
Allowance related to business combinations		—			—			5,525			—			—

Total allowance for loan losses, end of period	$	33,287		$	33,231		$	32,609		$	26,831		$	26,192


Net loans charged-off as a percent of average total loans (annualized)		0.31	%		0.19	%		0.20	%		0.14	%		0.15	%
Total allowance for loan losses as a percent of total loans		1.29	%		1.29	%		1.29	%		1.31	%		1.32	%
Total allowance for loan losses as a percent of nonperforming loans		199.99	%		311.59	%		299.22	%		351.01	%		412.41	%
Net loans charged-off as a percent of allowance for loan losses (annualized)		24.18	%		15.41	%		13.36	%		10.67	%		11.58	%
Recoveries as a percent of charge-offs (annualized)		12.41	%		11.05	%		15.45	%		23.09	%		16.61	%

The allowance for loan losses is allocated to various loan categories as part of the Bank’s process of evaluating the adequacy of the allowance for loan losses. The allowance amounts increased by approximately $6.5 million, since December 31, 2007, to $33.3 million at September 30, 2008, primarily due to the Slades acquisition, which added approximately $5.5 million.

The following table sets forth the allocation of the allowance for loan losses by loan category at the dates indicated. The allocation is made to each loan category for analytical purposes. While these amounts represent an estimate of the distribution of expected losses, they are not necessarily indicative of the categories in which actual losses may occur. The total allowance is available to absorb losses from any segment of the loan portfolio.

Table 5 — Summary of Allocation of the Allowance for Loan Losses
(Unaudited — Dollars In Thousands)


	AT SEPTEMBER 30,					AT DECEMBER 31,
	2008					2007
			Percent of					Percent of
			Loans					Loans
	Allowance		In Category			Allowance		In Category
	Amount		To Total Loans			Amount		To Total Loans
Allocated Allowances:
Commercial and Industrial	$	5,171		9.7	%	$	3,850		9.3	%
Small Business		2,215		3.3	%		1,265		3.4	%
Commercial Real Estate		14,703		42.3	%		13,939		39.0	%
Real Estate Construction		2,383		6.3	%		3,408		6.8	%
Real Estate Residential		2,374		16.5	%		741		16.5	%
Consumer — Home Equity		3,038		15.1	%		1,326		15.1	%
Consumer — Auto		2,010		5.2	%		1,609		7.6	%
Consumer — Other		1,393		1.6	%		693		2.3	%


Total Allowance for Loan Losses	$	33,287		100.0	%	$	26,831		100.0	%

Beginning at June 30, 2008, the Company implemented changes to its allowance for loan loss methodology to better align its methodology with recent regulatory guidance. Following its revised methodology, allocated amounts of allowance for loan losses continue to be determined using both a formula-based approach applied to groups of loans and an analysis of certain individual loans for impairment. However, the formula-based approach has been updated, with greater emphasis on historical portfolio loss rates as the statistical basis for allocating allowance amounts to the various loan categories.

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 is supplemented with qualitative adjustments based upon management’s assessment of various market and portfolio specific risk factors. Differences in the categorical distribution of allowance at September 30, 2008 are attributable to the revised methodology as well as the changes in the level of outstanding balances and qualitative factors in each of the categories.

As noted above, portions of the allowance for loan loss are maintained as an addition to the amount of allowance determined to be required using the quantitative estimation techniques described herein. These amounts are maintained for two primary reasons: (a) there exists an inherent subjectivity and imprecision to the analytical processes employed, and (b) the prevailing business environment, as it is affected by changing economic conditions and various external factors, may impact the portfolio in ways currently unforeseen. Moreover, management has identified certain qualitative risk factors which could impact the degree of loss sustained within the portfolio. These include: (a) market risk factors, such as the effects of economic variability on the entire portfolio, and (b) unique portfolio risk factors that are inherent characteristics of the Bank’s loan portfolio. Market risk factors may consist of changes to

general economic and business conditions that may impact the Bank’s loan portfolio customer base in terms of ability to repay and that may result in changes in value of underlying collateral. Unique portfolio risk factors may include industry concentration or covariant industry concentrations, geographic concentrations or trends that may exacerbate losses resulting from economic events which the Bank may not be able to fully diversify out of its portfolios.

Due to the imprecise nature of the loan loss estimation process and ever changing conditions, these qualitative risk attributes may not be adequately captured in data related to the statistically driven loan loss components used to determine allocations in the Bank’s quantitative analysis of the adequacy of the allowance for loan losses. Management, therefore, has established and maintains amounts of the allowance which reflect, among other things, the effects of changing economic conditions within the Bank’s market area.

Regional and local general economic conditions, as measured in terms of employment levels, economic activity, and local real estate market fundamentals, continued to weaken in the third quarter of 2008. The most recent quarterly data indicates that local economic growth, while positive, was outpaced by the national economy. Growth in knowledge-based industries including technology, science, and the health sector continued to expand, but were offset by declines in housing and certain consumer-related sectors. Market fundamentals in residential real estate markets throughout the region remain weak. This observation, when combined with financial market factors and a volatile inflationary environment, indicates that a further slowing of the economy is possible for the remainder of the year.

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 or non-accrual 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 loan’s 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 $8.7 million and $128,000, respectively, at September 30, 2008 and $3.9 million and $14,000, respectively, at December 31, 2007.

At September 30, 2008 and December 31, 2007, the allowance for loan losses totaled $33.3 million and $26.8 million, respectively. Based on the analyses described above, management believes that the level of the allowance for loan losses at September 30, 2008 is adequate.

Goodwill and Core Deposit Intangibles Goodwill and Core Deposit Intangibles (“CDI”) increased $66.0 million, or 109.3%, to $126.4 million at September 30, 2008 from December 31, 2007. The amount of goodwill and core deposit and other intangible assets that were due to the Slades acquisition was $58.1 million and $9.0 million, respectively.

Securities Securities increased by $53.4 million, or 10.5%, during the nine months ended September 30, 2008. The increase was primarily attributable to the deployment of the proceeds associated with issuance of the subordinated debt and the replacement of runoff in the portfolio experienced throughout 2008. The ratio of securities to total assets as of September 30, 2008 was 16.1%, compared to 18.3% at December 31, 2007. The Company

does not own any equity or debt issued by either the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

The Company reviews investment securities for the presence of other-than-temporary impairment, taking into consideration current market conditions, extent and nature of change in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, the Company’s ability and intent to hold investments until a recovery of fair value, which may be maturity, as well as other factors. During the three and nine months ended September 30, 2008 the Company recognized a loss on the write-down of investments to fair value of approximately $720,000 and $2.6 million, respectively, for certain available-for-sale securities, which the Company believes to be other-than-temporarily impaired, which is in accordance with EITF 99-20. 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. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. The two investments for which the impairment charge has been recognized are performing pooled trust preferred securities issued by banks and insurers which were rated investment grade (BBB) at inception, currently remain rated investment grade (BBB), and are classified as available for sale. The Company has not incurred any other loss on the security, and the Company has the ability and the intention to continue to hold them until recovery of fair value, which may be until maturity. The decision to deem these securities other-than-temporarily impaired was based on near term financial prospects for each pooled trust preferred security, a specific analysis of the structure of each security, and an evaluation of the underlying information and industry knowledge available to the Company. Future reviews for other-than-temporary impairment will consider the particular facts and circumstances during the reporting period under review.

The table below shows the details of the trust preferred securities:

Table 6 — Trust Preferred Security Detail
(Dollars in Thousands)


AFS	Fair		Amortized					Cumulative
Pooled Trust Preferred	Value		Cost		% of Cost			OTTI
AAA	$	2,017	$	2,891		69.77	%	$	—
AA		1,198		1,905		62.89	%		—
A		4,688		9,448		49.62	%		—
BBB		1,908		1,908		100.00	%		(2,570	)

Total	$	9,811	$	16,152		60.74	%		($2,570	)


Single Issuer
Baa1	$	3,300	$	5,002		65.97	%	$	—

Total	$	3,300	$	5,002		65.97	%	$	—


HTM
Single Issuer
Aa3	$	3,850	$	5,281	72.90	%	$	—
BBB-	$	848	$	1,551	54.67	%		—
n/a		1,650		3,240	50.93	%		—

Total	$	4,698	$	6,832	68.76	%	$	—

All other losses on the preferred trust securities are not considered to be “other-than-temporary”, and the Company has the intent and the ability to continue to hold these investments until recovery of fair value, which may be until maturity.

Deposits Total deposits of $2.5 billion increased 25.2% at September 30, 2008 compared to $2.0 billion at December 31, 2007. Of the increase $410.8 million is a result of the Slades acquisition. Excluding the impact of the acquisition, deposits grew at an annualized rate of 6.6%. See the table below regarding deposits growth.

Table 7 — Effect of Slade’s Ferry Bancorp. Acquisition on Deposits


	September 30,		December 31,		Slades		Organic
	2008		2007		Acquisition		Growth/Loss
	(Unaudited Dollars in Thousands)
Deposits
Demand Deposits	$	573,904	$	471,164	$	74,584	$	28,156
Savings and Interest Checking Accounts		711,862		587,474		119,908		4,480
Money Market		464,983		435,792		38,668		(9,477	)
Time Certificates of Deposit		787,282		532,180		177,609		77,493

Total Deposits	$	2,538,031	$	2,026,610	$	410,769	$	100,652

Borrowings Total borrowings increased $92.8 million, or 18.4%, from December 31, 2007 to $597.2 million at September 30, 2008, attributable to the Slades acquisition and organic loan growth. Additionally, the Company issued $30.0 million of subordinated debt during the quarter ended September 30, 2008, which will be used to support additional loan growth, particularly 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.

Stockholders’ Equity Stockholders’ equity as of September 30, 2008 totaled $304.7 million, as compared to $220.5 million at December 31, 2007. Equity increased mainly due to common stock issued for the acquisition of $76.2 million, and net income of $20.9 million, offset by dividends declared of $8.8 million and the change in the unrealized gain on securities available for sale, net of tax and realized gains, of $4.7 million.

Equity to Assets Ratio The ratio of equity to assets was 8.8% and 8.0% at September 30, 2008 and at December 31, 2007, respectively.

RESULTS OF OPERATIONS

Summary of Results of Operations The Company’s results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and 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.

The Company reported net income of $8.8 million, a $503,000, or a 6.1% increase, for the third quarter of 2008 as compared to the third quarter of 2007. Diluted earnings per share

were $0.54 for the three months ended September 30, 2008, compared to $0.60 for the three months ended September 30, 2007. The Company reported net income of $20.9 million, and $292,000, or a 1.4% increase, for the nine months ended September 30, 2008 as compared to the same period in 2007. Diluted earnings per share were $1.34 and $1.45 for the nine months ended September 30, 2008, and September 30, 2007, respectively.

On August 4, 2008 the Company established a $1.5 million litigation reserve for the liability associated with the August 1, 2008 Computer Associate decision, effective as of June 30, 2008. Subsequently, $750,000 of the reserve was recovered during the third quarter of 2008. The recovery of the reserve was based upon the final settlement of the litigation.

During the third quarter the Company recorded an additional loss on the write-down of investments to fair value which were deemed to be other-than-temporarily impaired. The Company recognized the loss in non-interest income amounting to approximately $720,000 and $2.6 million for the three and nine month periods ended September 30, 2008. There were no such impairments recorded in the comparable periods in 2007.

Effective March 1, 2008 the Company completed the acquisition of Slades. This acquisition may have a significant impact on comparative period results and will be discussed throughout the document as it applies.

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

On a fully tax equivalent basis, net interest income for the third quarter of 2008 increased $6.8 million, or 27.4%, to $31.4 million, as compared to the third quarter of 2007. The Company’s net interest margin was 4.09% for the quarter ended September 30, 2008 as compared to 3.98% for the quarter ended September 30, 2007. The Company’s interest rate spread (the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities) was 3.65% for the third quarter of 2008, a 33 basis point increase when compared to the same period in the prior year.

The yield on earning assets was 5.93% for the quarter ending September 30, 2008, compared with 6.49% in the same quarter ending in 2007. The average balance of securities has increased by $37.9 million, or 8.3%, as compared with the prior year. The average balance of loans increased by $607.4 million, or 30.8%, and the yield on loans decreased by 80 basis points to 6.10% for the third quarter of 2008 compared to 6.90% for the third quarter in 2007. This decrease in the yield on earning assets is largely attributable to variable rate loans re-pricing lower with decreases in the underlying rate index (e.g. LIBOR, Prime) with the increase in outstanding loans driven largely by the Slades acquisition (see Note 9 above).

For the three months ending September 30, 2008 the cost of funds decreased 67 basis points to 1.86% as compared to the same period in 2007 and the average balance of interest-bearing liabilities increased by $515.4 million, or 26.2%, driven largely by the Slades acquisition (see Note 9 above). The average cost of these interest bearing liabilities decreased to 2.28% for the quarter ending September 30, 2008 as compared to 3.17% in the same period in 2007. For the nine months ending September 30, 2008 the cost of funds decreased 56 basis points to 2.02% as compared to the same period in 2007 and the average balance of interest bearing liabilities increased by $380.6 million.

The following tables present the Company’s daily average balances, net interest income, interest rate spread, and net interest margin for the three and nine months ending September 30, 2008 and September 30, 2007. For purposes of the table and the following discussion, income from interest-earning assets and net interest income are presented on a fully-taxable equivalent basis by adjusting income and yields earned on tax-exempt interest received on loans to qualifying borrowers and on certain of the Company’s securities, to make them equivalent to income and yields on fully-taxable investments. The fully-taxable equivalent was calculated assuming a federal income tax rate of 35%.

Table 8 — Average Balance, Interest Earned/Paid & Average Yields
(Unaudited — Dollars in Thousands)


			INTEREST							INTEREST
	AVERAGE		EARNED/		AVERAGE			AVERAGE		EARNED/		AVERAGE
	BALANCE		PAID		YIELD/RATE			BALANCE		PAID		YIELD/RATE
FOR THE THREE MONTHS ENDED SEPTEMBER 30,	2008		2008		2008			2007		2007		2007
Interest-Earning Assets:
Federal Funds Sold and Short Term Investments	$	2,162	$	62		11.47	%	$	50,936	$	679		5.33	%
Securities:
Trading Assets		3,179		30		3.77	%		1,704		10		2.35	%
Taxable Investment Securities (1)		454,945		5,613		4.94	%		407,429		4,765		4.68	%
Non-taxable Investment Securities (1)(2)		38,854		563		5.80	%		49,882		811		6.50	%

Total Securities:		496,978		6,206		4.99	%		459,015		5,586		4.87	%
Loans (2)		2,578,373		39,320		6.10	%		1,971,023		33,993		6.90	%

Total Interest-Earning Assets	$	3,077,513	$	45,588		5.93	%	$	2,480,974	$	40,258		6.49	%

Cash and Due from Banks		69,587							58,484
Other Assets		233,978							148,915

Total Assets	$	3,381,078						$	2,688,373


Interest-Bearing Liabilities:
Deposits:
Savings and Interest Checking Accounts	$	711,818	$	1,578		0.89	%	$	574,239	$	2,072		1.44	%
Money Market		473,685		2,203		1.86	%		465,302		3,585		3.08	%
Time Deposits		754,969		5,297		2.81	%		521,884		5,462		4.19	%

Total Interest-Bearing Deposits:		1,940,472		9,078		1.87	%		1,561,425		11,119		2.85	%
Borrowings:
Federal Home Loan Bank Borrowings	$	299,631	$	2,781		3.71	%	$	249,698	$	2,806		4.50	%
Federal Funds Purchased and Assets Sold Under Repurchase Agreement		165,852		1,249		3.01	%		96,145		703		2.92	%
Junior Subordinated Debentures		61,857		842		5.44	%		51,547		862		6.69	%
Subordinated Debentures		11,413		204		7.15	%		—		—		—
Other Borrowings		834		3		1.44	%		5,839		92		6.30	%

Total Borrowings:		539,587		5,079		3.77	%		403,229		4,463		4.43	%

Total Interest-Bearing Liabilities	$	2,480,059	$	14,157		2.28	%	$	1,964,654	$	15,582		3.17	%

Demand Deposits		561,542							496,253

Other Liabilities		34,754							13,978

Total Liabilities		3,076,355							2,474,885
Stockholders’ Equity		304,723							213,488

Total Liabilities and Stockholders’ Equity	$	3,381,078						$	2,688,373


Net Interest Income			$	31,431						$	24,676


Interest Rate Spread (3)						3.65	%						3.32	%


Net Interest Margin (3)						4.09	%						3.98	%


Supplemental Information:
Total Deposits, including Demand Deposits	$	2,502,014	$	9,078				$	2,057,678	$	11,119
Cost of Total Deposits						1.45	%						2.16	%
Total Funding Liabilities, including Demand Deposits	$	3,041,601	$	14,157				$	2,460,907	$	15,582
Cost of Total Funding Liabilities						1.86	%						2.53	%


(1)		Investment Securities are at average fair value.

(2)		The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $316 and $406 for the three months ended September 30, 2008 and 2007, respectively. Also, non-accrual loans have been included in the average loan category; however, unpaid interest on non-accrual loans has not been included for purposes of determining interest income.

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

Table 9 — Average Balance, Interest Earned/Paid & Average Yields
(Unaudited — Dollars in Thousands)


			INTEREST							INTEREST
	AVERAGE		EARNED/		AVERAGE			AVERAGE		EARNED/		AVERAGE
	BALANCE		PAID		YIELD/RATE			BALANCE		PAID		YIELD/RATE
FOR THE NINE MONTHS ENDED SEPTEMBER 30,	2008		2008		2008			2007		2007		2007
Interest-Earning Assets:
Federal Funds Sold and Short Term Investments	$	1,184	$	96		10.81	%	$	35,242	$	1,412		5.34	%
Securities:
Trading Assets		3,068		95		4.13	%		1,681		33		2.62	%
Taxable Investment Securities (1)		441,228		16,369		4.95	%		424,797		15,143		4.75	%
Non-taxable Investment Securities (1)(2)		42,124		2,029		6.42	%		51,765		2,511		6.47	%

Total Securities:		486,420		18,493		5.07	%		478,243		17,687		4.93	%
Loans (2)		2,445,745		113,371		6.18	%		1,987,015		101,720		6.83	%

Total Interest-Earning Assets	$	2,933,349	$	131,960		6.00	%	$	2,500,500	$	120,819		6.44	%

Cash and Due from Banks		66,066							59,583
Other Assets		211,037							148,683

Total Assets	$	3,210,452						$	2,708,766


Interest-Bearing Liabilities:
Deposits:
Savings and Interest Checking Accounts	$	677,470	$	4,740		0.93	%	$	575,451	$	5,866		1.36	%
Money Market		463,074		6,827		1.97	%		467,490		10,635		3.03	%
Time Deposits		700,784		17,366		3.30	%		534,087		16,528		4.13	%

Total Interest-Bearing Deposits:		1,841,328		28,933		2.10	%		1,577,028		33,029		2.79	%
Borrowings:
Federal Home Loan Bank Borrowings	$	313,390	$	8,743		3.72	%	$	246,896	$	8,266		4.46	%
Federal Funds Purchased and Assets Sold Under Repurchase Agreement		149,772		3,519		3.13	%		100,347		2,288		3.04	%
Junior Subordinated Debentures		59,599		2,483		5.55	%		62,781		4,187		8.89	%
Subordinated Debentures		3,832		204		7.10	%		—		—		—
Other Borrowings		2,262		57		3.36	%		2,493		116		6.20	%

Total borrowings:		528,855		15,006		3.78	%		412,517		14,857		4.80	%

Total Interest-Bearing Liabilities	$	2,370,183	$	43,939		2.47	%	$	1,989,545	$	47,886		3.21	%

Demand Deposits		527,993							485,922

Other Liabilities		25,480							13,881

Total Liabilities		2,923,656							2,489,348
Stockholders’ Equity		286,796							219,418

Total Liabilities and Stockholders’ Equity	$	3,210,452						$	2,708,766


Net Interest Income			$	88,021						$	72,933


Interest Rate Spread (3)						3.53	%						3.23	%


Net Interest Margin (3)						4.00	%						3.89	%


Supplemental Information:
Total Deposits, including Demand Deposits	$	2,369,321	$	28,933				$	2,062,950	$	33,029
Cost of Total Deposits						1.63	%						2.13	%
Total Funding Liabilities, including Demand Deposits	$	2,898,176	$	43,939				$	2,475,467	$	47,886
Cost of Total Funding Liabilities						2.02	%						2.58	%


(1)		Investment Securities are at average fair value.

(2)		The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1,056 and $1,241 for the nine months ended September 30, 2008 and 2007, respectively. Also, non-accrual loans have been included in the average loan category; however, unpaid interest on non-accrual loans has not been included for purposes of determining interest income.

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

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

Table 10 — Volume Rate Analysis


	Three Months Ended September 30,												Nine Months Ended September 30,
	2008 Compared to 2007												2008 Compared to 2007
							Change												Change
	Change			Change			Due to						Change			Change			Due to
	Due to			Due to			Volume/			Total			Due to			Due to			Volume/			Total
	Rate			Volume			Rate			Change			Rate			Volume			Rate			Change
	*(Unaudited - Dollars in Thousands)*												*(Unaudited - Dollars in Thousands)*
Income on Interest-Earning Assets:
Federal Funds Sold	$	782		$	(650	)	$	(749	)	$	(617	)	$	1,445		$	(1,365	)	$	(1,396	)	$	(1,316	)
Securities:
Taxable Securities		262			556			30			848			616			586			24			1,226
Non-Taxable Securities (1)		(88	)		(179	)		19			(248	)		(18	)		(468	)		4			(482	)
Trading Assets		6			9			5			20			19			27			16			62

Total Securities:		180			386			54			620			617			145			44			806
Loans (1) (2)		(3,935	)		10,475			(1,213	)		5,327			(9,613	)		23,483			(2,219	)		11,651

Total	$	(2,973	)	$	10,211		$	(1,908	)	$	5,330		$	(7,551	)	$	22,263		$	(3,571	)	$	11,141


Expense of Interest-Bearing Liabilities:
Deposits:
Savings and Interest Checking Accounts	$	(799	)	$	496		$	(191	)	$	(494	)	$	(1,840	)	$	1,040		$	(326	)	$	(1,126	)
Money Market		(1,421	)		65			(26	)		(1,382	)		(3,743	)		(100	)		35			(3,808	)
Time Deposits		(1,800	)		2,439			(804	)		(165	)		(3,293	)		5,159			(1,028	)		838

Total Interest-Bearing Deposits:		(4,020	)		3,000			(1,021	)		(2,041	)		(8,876	)		6,099			(1,319	)		(4,096	)
Borrowings:
Federal Home Loan Bank Borrowings	$	(488	)	$	561		$	(98	)	$	(25	)	$	(1,378	)	$	2,226		$	(371	)	$	477
Federal Funds Purchased and Assets Sold Under Repurchase Agreements		21			510			15			546			70			1,127			34			1,231
Junior Subordinated Debentures		(160	)		172			(32	)		(20	)		(1,571	)		(212	)		79			(1,704	)
Subordinated Debentures		—			—			204			204			—			—			204			204
Other Borrowings		(71	)		(79	)		61			(89	)		(53	)		(11	)		5			(59	)

Total Borrowings:		(698	)		1,164			150			616			(2,932	)		3,130			(49	)		149

Total	$	(4,718	)	$	4,164		$	(871	)	$	(1,425	)	$	(11,808	)	$	9,229		$	(1,368	)	$	(3,947	)

Change in Net Interest Income	$	1,745		$	6,047		$	(1,037	)	$	6,755		$	4,257		$	13,034		$	(2,203	)	$	15,088


(1)		The total amount of adjustment to present income and yield on a fully tax-equivalent basis is $316 and $406 for the three months ended September 30, 2008 and 2007, respectively, and is $1,056 and $1,241 for the nine months ended September 30, 2008 and 2007, respectively.

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

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

The provision for loan losses increased to $2.1 million and $5.3 million for the three and nine months ended September 30, 2008, compared with the $300,000 and $1.8 million reported in the comparable year-ago periods, respectively. The increase in provision is mainly driven by growth in the loan portfolio and some softening of credit quality brought about by general economic conditions.

The ratio of the allowance for loan losses to total loans was 1.29%, at September 30, 2008 compared to 1.29%, 1.31%, and 1.32% at June 30, 2008, December 31, 2007, and September 30, 2007, respectively. The allowance for loan losses at September 30, 2008 was

199.99% of nonperforming loans, as compared to 351.01% at December 31, 2007 and 412.41% at September 30, 2007.

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

Non-Interest Income Non-interest income increased by $812,000, or 10.5%, and $880,000 million, or 3.7%, during the three and nine months ended September 30, 2008, respectively, as compared to the same periods in the prior year.

Service charges on deposit accounts increased by $329,000, or 8.8%, and $986,000, or 9.2%, for the three and nine month periods ended September 30, 2008, as compared to the same periods in 2007, primarily due to the Slades acquisition.

Wealth management revenue increased by $888,000, or 47.3%, and $2.7 million, or 45.7%, for the three and nine months ended September 30, 2008, respectively, as compared to the same periods in 2007. Assets under management at September 30, 2008 were $1.3 billion, an increase of $155.6 million, or 14.1%, as compared to September 30, 2007.

Mortgage banking income decreased by $122,000, or 19.6%, and increased by $357,000, or 16.1% for the three and nine months ended September 30, 2008, as compared to the same periods in 2007. The balance of the mortgage servicing asset was $1.9 million and loans serviced amounted to $254.5 million as of September 30, 2008, as compared to a mortgage servicing asset balance of $2.2 million and loans serviced amounting to $263.7 million at September 30, 2007.

There were no gains or losses on the sale of securities during the third quarter of 2008. There was a net loss on the sale of securities of $609,000 during the first quarter of 2008. Of this loss, $742,000 is associated with the sale of the majority of the Slades’ securities portfolio, which was partially offset by gains on the sale of agency securities recorded in the first quarter. There were no gains or losses on the sale of securities during the third quarter or nine months ending September 30, 2007.

During the third quarter the Company recorded an additional other-than-temporary-impairment of certain performing pooled trust preferred securities rated (BBB), resulting in a negative charge to non-interest income of approximately $720,000 and $2.6 million for the three and nine month periods ended September 30, 2008. There were no such impairments recorded in the comparable periods in 2007.

Other non-interest income increased by $276,000, or 28.5%, and decreased by $371,000, or 11.1% and for the three and nine months ended September 30, 2008, as compared to the same periods in 2007. The decrease year-to-date is primarily attributable to trading asset losses and declines in 1031 exchange income, as a result of the slowdown in national commercial real estate markets.

Non-Interest Expense Non-interest expense increased by $4.3 million, or 20.1%, and $11.6 million, or 17.6%, for the three and nine months ended September 30, 2008, respectively, as compared to the same period in 2007.

Salaries and employee benefits increased by $1.6 million, or 12.3%, and $4.5 million, or 11.6% for the three and nine months ended September 30, 2008, as compared to the same periods in 2007. The increase in salaries and benefits is attributable to the Slades acquisition in the first quarter of 2008, annual merit increases, incentive programs, and the O’Connell Investment Services, Inc. acquisition in the fourth quarter of 2007.

Occupancy and equipment expense increased by $805,000, or 33.6%, and $1.8 million, or 23.6%, for the three and nine month periods ending September 30, 2008, as compared to the same periods in 2007. The increase is mainly due to an increase in rent expense due to new locations, increased utility costs for the period, and the effects of the Slades acquisition.

Data processing and facilities management expense increased by $387,000, or 35.9%, and $802,000, or 23.8%, for the three and nine month periods ending September 30, 2008, as compared to the same periods in 2007. The increase is partially a result of new functionality as well as an increase in volume due, in part, to the Slades acquisition during the first quarter of 2008.

Merger and acquisition related expenditures totaled $1.1 million, for the nine month period ending September 30, 2008, associated with the Slades acquisition in March 2008. There were no merger and acquisition expenses for the comparable 2007 periods.

During the three months ending March 31, 2008 the Company recognized a $418,000 recovery on a 2002 WorldCom bond loss.

Other non-interest expense increased by $1.4 million, or 31.2%, and by $3.8 million, or 24.2%, for the three and nine month periods ending September 30, 2008, as compared to the same periods in 2007. The increase in the nine-month period is primarily attributable to the increases in amortization of intangible assets of $1.0 million, litigation reserve of $750,000 (net of recovery), FDIC assessment of $630,000, consulting fees of $480,000, legal loan collection fees of $441,000, and a write-down on other real estate owned of $154,000.

Income Taxes For the quarters ending September 30, 2008 and September 30, 2007, the Company recorded combined federal and state income tax provisions of $3.3 million and $2.2 million, respectively. These provisions reflect effective income tax rates of 27% and 21% for the quarters ending September 30, 2008 and September 30, 2007, respectively. The increase in the tax rate from 2007 to 2008 is primarily due to timing, with respect to the recognition of federal tax credits received pursuant to the New Markets Tax Credit program.

The tax effects of all income and expense transactions are recognized by the Company in each year’s consolidated statements of income regardless of the year in which the transactions are reported for income tax purposes. Effective July 1, 2008 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 the next three years. As a result of the change in tax rate, the Company recorded a $109,000 tax expense during the third quarter of 2008, in order to correctly reflect deferred tax assets at the new rate. The Company does not anticipate future charges from this rate change to have a material effect on the financial statements.

During the second quarter of 2004, the Company announced that one of its subsidiaries (a Community Development Entity, or “CDE,” described above as Rockland Trust Community Development LLC (“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 above as Rockland Trust Community Development Corporation II (“RTC CDE II”), was awarded an additional $45.0 million in tax credit allocation authority under the New Markets Tax Credit program.

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. During 2008 the Bank invested $6.8 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. Based upon the Bank’s total $75.0 million investment in RTC CDE I and RTC CDE II, it is eligible to receive tax credits over a seven year period totaling 39.0% of its investment, or $29.3 million. The Company recognized a $1.0 million and $3.0 million benefit from these tax credits for the three and nine months ending September 30, 2008. A $1.2 million and $2.7 million tax credit benefit was recognized for the three and nine months ending September 30, 2007. The following table details the expected tax credit recognition by year based upon the two $15.0 million investments made in 2004 and 2005, the investment of $38.2 million in 2007, and the remaining $6.8 million made during 2008.

Table 11 — New Markets Tax Credit Recognition Schedule
(Unaudited Dollars in Thousands)


																			Total
Investment			2004 - 2007		2008		2009		2010		2011		2012		2013		2014		Credits
2004	$	15M	$	3,150	$	900	$	900	$	900	$	—	$	—	$	—	$	—	$	5,850
2005		15M		2,250		900		900		900		900		—		—		—		5,850
2007		38.2M		1,910		1,910		1,910		2,292		2,292		2,292		2,292		—		14,898
2008		6.8M		—		340		340		340		408		408		408		408		2,652

Total	$	75M	$	7,310	$	4,050	$	4,050	$	4,432	$	3,600	$	2,700	$	2,700	$	408	$	29,250

Return on Average Assets and Equity The annualized consolidated returns on average equity and average assets for the three months ended September 30, 2008 were 11.57% and 1.04%, respectively, compared to 15.57% and 1.24% reported for the same period last year. The annualized consolidated returns on average equity and average assets for the nine months ended September 30, 2008 were 9.74% and 0.87%, respectively, compared to 12.55% and 1.02% reported for the same period in 2007.

Asset/Liability Management

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

The Asset/Liability Management Committee (“ALCO”), whose members are comprised of the Bank’s senior management, develops procedures consistent with policies established by the Board of Directors, which monitor and coordinate the Bank’s interest rate sensitivity and the sources, uses, and pricing of funds. Interest rate sensitivity refers to the Bank’s exposure to fluctuations in interest rates and its effect on earnings. If assets and liabilities do not re-price simultaneously and in equal volume, the potential for interest rate exposure exists. It is management’s objective to maintain stability in the growth of net interest income through the maintenance of an appropriate mix of interest-earning assets and interest-bearing liabilities

and, when necessary, within prudent limits, through the use of off-balance sheet hedging instruments such as interest rate swaps, floors and caps. The Committee employs simulation analyses in an attempt to quantify, evaluate, and manage the impact of changes in interest rates on the Bank’s net interest income. In addition, the Bank engages an independent consultant to render advice with respect to asset and liability management strategy.

The Bank is careful to increase deposits without adversely impacting the weighted average cost of those funds. Accordingly, management has implemented funding strategies that include Federal Home Loan Bank (“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.

From time to time, the Bank has utilized interest rate swap agreements and interest rates caps and floors as hedging instruments against interest rate risk. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount for a predetermined period of time from a second party. 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.

At September 30, 2008 and December 31, 2007 the Company had interest rate swaps and at December 31, 2007 the Company had interest rate caps designated as “cash flow” hedges. The interest rate cap matured during the first quarter of 2008. The purpose of these swaps is to hedge the variability in the cash outflows of LIBOR-based borrowings attributable to changes in interest rates. The table below shows interest rate derivatives the Company held as of September 30, 2008 and December 31, 2007:

Table 12 — Derivative Positions

Asset-Liability Management Positions

As of September 30, 2008


						Receive				Pay Fixed
	Notional		Trade	Effective	Maturity	(Variable)	Current Rate			Swap Rate/			Market Value
	Amount		Date	Date	Date	Index	Received			Cap Strike Rate			at September 30, 2008
	(Unaudited Dollars in Thousands)
Interest Rate Swaps
	$	35,000	19-Mar-08	19-Mar-08	20-Jan-10	3 Month LIBOR		2.79	%		2.28	%	$	433
		25,000	16-Feb-06	28-Dec-06	28-Dec-16	3 Month LIBOR		2.82	%		5.04	%		(1,360	)
		25,000	16-Feb-06	28-Dec-06	28-Dec-16	3 Month LIBOR		2.82	%		5.04	%		(1,362	)

Total	$	85,000								Total			$	(2,289	)

As of December 31, 2007


						Receive				Pay Fixed
	Notional		Trade	Effective	Maturity	(Variable)	Current Rate			Swap Rate/			Market Value
	Amount		Date	Date	Date	Index	Received			Cap Strike Rate			at December 31, 2007
	(Unaudited Dollars in Thousands)
Interest Rate Swaps
	$	35,000	18-Jan-05	20-Jan-05	20-Jan-10	3 Month LIBOR		5.18	%		4.06	%	$	(208	)
		25,000	16-Feb-06	28-Dec-06	28-Dec-16	3 Month LIBOR		4.99	%		5.04	%		(987	)
		25,000	16-Feb-06	28-Dec-06	28-Dec-16	3 Month LIBOR		4.99	%		5.04	%		(994	)

Total	$	85,000								Total			$	(2,189	)

Interest Rate Caps

	$	100,000	27-Jan-05	31-Jan-05	31-Jan-08	3 Month LIBOR		4.96	%		4.00	%	$	79


Grand Total	$	185,000								Grand Total			$	(2,110	)

Customer-Related Positions


	Notional Amount Maturing
As of September 30, 2008	2008		2009		2010		2011		Thereafter		Total		Market Value
	(Unaudited Dollars in Thousands)
Interest Rate Contracts
Receive fixed, pay variable		—		—		—		—	$	15,403	$	15,403	$	(157	)

Pay fixed, receive variable		—		—		—		—	$	15,403	$	15,403	$	157

There were no Customer-Related positions at December 31, 2007.

In March 2008 the Company exited a $35.0 million notional value LIBOR based interest rate swap hedging 3 month revolving FHLB advances with Bear Stearns and replaced it with a $35.0 million notional value LIBOR based interest rate swap hedging 3 month revolving FHLB advances with Citigroup Financial. Upon exiting the swap, a $1.2 million loss remained in other comprehensive income, net of tax, and which is amortized into interest expense on borrowings over the original maturity of the swap (until January 2010.) Associated amortization of $169,000 and $347,000 was recognized in interest expense on borrowings in the three and nine month periods ended September 30, 2008.

Customer-Related Positions Interest rate derivatives, primarily interest-rate swaps, offered to commercial borrowers through the Company’s hedging program are designated as speculative under SFAS No. 133. However, the Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an identical dealer transaction. The commercial customer hedging program allows the Company 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.

For the quarter ended September 30, 2008, the Company recorded a total notional amount of $15.4 million of interest rate swap agreements with commercial borrowers and an equal notional amount of dealer transactions. 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. The customer-related positions summarized in Table 11 include the three customer and offsetting dealer transactions.

Additionally, the Company enters into commitments to fund residential mortgage loans with the intention of selling them in the secondary markets. The Company also enters into forward sales agreements for certain funded loans and loan commitments to protect against changes in interest rates. The Company records unfunded commitments and forward sales agreements at fair value with changes in fair value as a component of Mortgage Banking Income.

The following table set forth the fair value of residential mortgage loan commitments and forward sales agreements at the periods indicated:

Table 13 — Fair Value of Residential Mortgage Loan Commitments and Forward Sales Agreements


	Fair Value At
	September 30,			December 31,		September 30,
	2008			2007		2007
	(Dollars in Thousands)
Residential Mortgage Loan Commitments	$	160		$	286	$	147
Forward Sales Agreements	$	(3	)	$	5	$	(10	)


	Change for the Nine Months
	Ended September 30,
	2008			2007
Residential Mortgage Loan Commitments	$	(126	)	$	53
Forward Sales Agreements		(8	)		(70	)

Total Change in Fair Value	$	(134	)	$	(17	)

Changes in these fair values are recorded as a component of mortgage banking income.

Market Risk Market risk is the sensitivity of income to changes in interest rates, foreign exchange rates, commodity prices and other market-driven rates or prices. The Company has no trading operations, with the exception of funds managed by the Company’s investment management group and funds that are held within a trust to fund non-qualified executive retirement obligations. Additionally, the Company has a $1.2 million equities portfolio at September 30, 2008, which was acquired as part of the acquisition (see Note 9). The remaining equity is a closed-end management investment company whose objective is to invest in geographically specific private placement debt securities designed to support underlying economic activities such as community development and affordable housing.

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

the timing of cash flows on loans and 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. These limits reflect the Company’s tolerance for interest-rate risk over both short-term and long-term horizons. The Company attempts to control interest-rate risk by identifying, quantifying and, where appropriate, hedging its exposure. The Company manages its interest-rate exposure using a combination of on and off-balance sheet instruments, 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 analysis. Key assumptions in these simulation analyses relate to behavior of interest rates and behavior of the Company’s deposit and loan customers. The most material assumptions relate to the prepayment of mortgage assets (including mortgage loans and mortgage-backed securities) and the life and sensitivity of nonmaturity deposits (e.g. DDA, NOW, savings and money market). The risk of prepayment tends to increase when interest rates fall. Since future prepayment behavior of loan customers is uncertain, the resulting 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 Company’s policy on interest-rate risk simulation specifies that if interest rates were to shift gradually up or down 200 basis points, estimated net interest income for the subsequent 12 months should decline by less than 6.0%.

The following table sets forth the estimated effects on the Company’s 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 14 — Interest Rate Sensitivity


	200 Basis Point			100 Basis Point
	Rate Increase			Rate Decrease
September 30, 2008		(2.3	%)		0.1	%
September 30, 2007		(2.8	%)		0.8	%

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 200 basis points or down 100 basis points in market rates 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 Company’s net interest income during the third quarter of 2008 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 Company’s earnings are not directly and materially impacted by movements in foreign currency rates or commodity prices. Movements in equity prices may have an indirect but modest impact on earnings by affecting the volume of activity or the amount of fees from investment-related business lines, and directly by affecting the value at the Company’s trading portfolio. Also, declines in the value of certain debt securities may have an impact on earnings if the decline is determined to be other-than-temporary and the security is considered “impaired”. In the second and third quarters of 2008, decreases in the value of certain Trust Preferred securities held in the Company’s investment portfolio, were determined to be other-than-temporary. The resulting securities impairment reduced the Company’s earnings by $720,000 and $2.6 million for the three and nine months ended September 30, 2008, respectively.

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

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 September 30, 2008, the Company had $50.0 million outstanding in repurchase agreements. In addition to agreements with brokers, the Bank also had customer repurchase agreements outstanding amounting to $116.4 million at September 30, 2008. As a member of the FHLB, the Bank has access to approximately $359.7 million of borrowing capacity. On September 30, 2008, the Bank had $336.8 million outstanding in FHLB borrowings.

The Company, as a separately incorporated bank holding company, has no significant operations other than serving as the sole stockholder of the Bank. Its commitments and debt service requirement at September 30, 2008 consist of $61.8 million junior subordinated debentures, including accrued interest, of which $51.5 million was 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, for which the Company has locked in a fixed rate of interest of 6.52% for 10 years through an interest rate swap. $10.3 million is issued to Slade’s Ferry Statutory Trust I an unconsolidated subsidiary acquired as part of the Slades acquisition. These debentures are due in 2034, are callable in March 2009 and have a

floating rate of interest of LIBOR plus 2.79% at September 30, 2008. The Company called the junior subordinated debentures issued to Independent Capital Trust IV in April 2007. The Company’s only obligations relate to its reporting obligations under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and related expenses as a publicly traded company. The Company funds virtually all expenses through dividends paid by the Bank.

On August 27, 2008 Rockland Trust Company, 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. Rockland Trust has received the $30 million derived from the sale of the subordinated debenture and intends to use the proceeds to support growth and for other corporate purposes.

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. 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 Rockland Trust, at either the then current: LIBOR plus 3.00%; or, the U.S. Bank base rate plus 1.25%.

The Company actively manages its liquidity position under the direction of the Asset/Liability Management Committee. Periodic review under prescribed policies and procedures is intended to ensure that the Company will maintain adequate levels of available funds. At September 30, 2008, the Company’s liquidity position was above policy guidelines. Management believes that the Bank has adequate liquidity available to respond to current and anticipated liquidity demands.

As of September 30, 2008, the Company has certain financial assets and liabilities recorded at fair value. The Company adopted the provisions of Statement of Financial Accounting Standards No. 157, Fair Value Measurement, (“SFAS 157”), as of January 1, 2008. In accordance with SFAS 157, the Company has classified its financial assets and liabilities within the appropriate level of the fair value hierarchy based upon the significance of the inputs to the valuation techniques. Fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values determined by Level 2 inputs utilize data points that are observable, directly or indirectly, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.

As noted in Note 5, Fair Value Disclosure, a majority of the Company’s financial assets and liabilities have been classified as Level 2. These assets and liabilities have been initially valued at the transaction price and subsequently valued using market data including reportable trades, benchmark yields, broker/dealer quotes, bids, offers, and other industry and economic events. When necessary, the Company validates its valuation techniques by understanding the models used by pricing sources, obtaining market values from other pricing sources and challenging pricing data received from others. There have been no changes in the valuation techniques used during the current period.

Excluding cash equivalents, the Company’s financial instruments may be sensitive to changes in economic factors such as interest rates or credit spreads. These risks are further described in Part II, Item 1A, “Risk Factors” of this Form 10-Q.

Capital Resources and Dividends The Federal Reserve Board, the Federal Deposit Insurance Corporation, and other regulatory agencies have established capital guidelines for banks and bank holding companies. Risk-based capital guidelines issued by the federal regulatory agencies require banks to meet a minimum Tier 1 risk-based capital ratio of 4.0% and a total risk-based capital ratio of 8.0%. At September 30, 2008, the Company had a Tier 1 risk-based capital ratio of 9.66% and a total risk-based capital ratio of 12.06%. The Bank had a Tier 1 risk-based capital ratio of 9.61% and a total risk-based capital ratio of 12.00% as of the same date.

A minimum requirement of 4.0% Tier 1 leverage capital is also mandated. On September 30, 2008, the Company and the Bank had Tier 1 leverage capital ratios of 7.69% and 7.67%, respectively.

On September 18, 2008 the Company’s Board of Directors declared a cash dividend of $0.18 per share, a 5.9% increase from December 2007, to stockholders of record as of the close of business on September 29, 2008. This dividend was paid on October 10, 2008. On an annualized basis, the dividend payout ratio amounted to 40.92% of the trailing four quarters’ earnings.

Off-Balance Sheet Arrangements There have been no material changes in off-balance sheet financial instruments during the third quarter of 2008. Please refer to the 2007 Form 10-K for a complete table of contractual obligations, commitments, contingencies and off-balance sheet financial instruments.

Contractual Obligations, Commitments, and Contingencies There have been no material changes in commitments, or contingencies during the third quarter of 2008. There have been no material changes in contractual obligations other than as described in Note 11, “Sale and Leaseback Transaction” in the Consolidated Notes to Unaudited Consolidated Financial Statements above. Please refer to the 2007 Form 10-K for a complete table of contractual obligations, commitments, contingencies, and off-balance sheet financial instruments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. 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 Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

Changes in Internal Controls over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the third quarter of 2008 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

Item 4T. Controls and Procedures — N/A

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As previously disclosed, Rockland Trust is the plaintiff in the federal court case commonly known as Rockland Trust Company v. Computer Associates International, Inc. n/k/a CA, Inc., United States District Court for the District of Massachusetts Civil Action No. 95-11683-DPW (the “CA Case”). The CA Case, which was filed in 1995, arose from disputes over a contract signed in 1991 for software that CA sold to Rockland Trust.

On August 31, 2007 the judge in the CA Case issued a decision which directed the Clerk to enter judgment for CA “in the amount of $1,089,113.73 together with prejudgment interest in the amount of $272,278 for a total of $1,361,392.” On September 5, 2007 Rockland Trust paid that judgment from an accrual established on June 30, 2007.

On August 1, 2008 the judge in the CA Case issued a decision which stated that CA has “a right to recover attorney’s fees and expenses in this litigation.” On August 4, 2008 the Company established a $1.5 Million reserve for potential liability associated with the August 1, 2008 decision, effective as of June 30, 2008. On September 26, 2008 Rockland Trust and CA signed a Settlement Agreement that finally resolved all matters pertaining to the CA Case including, but not limited to, CA’s claim for attorney fees and costs. On September 26, 2008 Rockland Trust made a $750,000 payment to CA pursuant to the Settlement Agreement from the $1.5 Million reserve established on August 4, 2008. The Company has reversed the $750,000 remaining from the $1.5 Million reserve, and the benefit is reflected in the Company’s pre-tax earnings for the quarter ending September 30, 2008.

Rockland Trust is not otherwise 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 Company’s financial condition and results of operations.

Item 1A. Risk Factors

As of the date of this report, there have been no material changes with regard to the Risk Factors disclosed in Item 1A of our 2007 Annual Report on Form 10-K, which are incorporated herein by reference, except for the following:

•

Under Generally Accepted Accounting Principles, the Company is required to review the Company’s 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 Company’s 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 reduction in the value recognized as a charge to the Company’s earnings. Recent market volatility has made it extremely difficult to value certain of the Company’s 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 Company’s securities portfolio, which may have an adverse effect on the Company results of operations in future periods.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) — (c) Not applicable.

Item 3. Defaults Upon Senior Securities — None

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

Item 5. Other Information — None

Item 6. Exhibits

Exhibits Index


No.		Exhibit

3.(i)		Restated Articles of Organization, as amended as of February 10, 2005, incorporated by reference to the Company’s 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 the Company’s Form 8-K filed on May 18, 2005.

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

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

4.3		Indenture of Registrant relating the Junior Subordinated Debt Securities issued to Independent Capital Trust V is incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2006, filed by the Company 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 4.8)

4.5		Amended and Restated Declaration of Trust for Independent Capital Trust V is incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2006, filed by the Company on February 28, 2007.

4.6		Form of Capital Security Certificate for Independent Capital Trust V (included as Exhibit A-1 to Exhibit 4.10).

4.7		Guarantee Agreement relating to Independent Capital Trust V is incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2006, filed by the Company on February 28, 2007.

4.8		Forms of Capital Securities Purchase Agreements for Independent Capital Trust V is incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2006, filed by the Company on February 28, 2007.

4.9		Rockland Trust issued $30 million of subordinated debt to USB Capital Resources on August 27, 2008, see Purchase Agreement incorporated by reference to Form 8-K filed on September 2, 2008.

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


No.		Exhibit

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

10.3		Independent Bank Corp. 2005 Employee Stock Plan incorporated by reference to Form S-8 filed by the Company on July 28, 2005.

10.4		Renewal Rights Agreement noted as of September 14, 2000 by and between the Company and Rockland, as Rights Agent (Exhibit to Form 8-K filed on October 23, 2000).

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

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

10.7		First Amended and Restated Employment Agreement between Christopher Oddleifson and the Company and Rockland Trust dated April 14, 2005 is filed as an exhibit under the Form 8-K filed on April 14, 2005.

10.8		Revised employment agreements between Raymond G. Fuerschbach, Edward F. Jankowski, Jane L. Lundquist, Edward H. Seksay and Denis K. Sheahan and the Company and Rockland Trust (Management Contracts under Item 601 (10)(iii)(A)) dated December 6, 2004 are filed as an exhibit under the Form 8-K filed on December 9, 2004.

10.9		Employment Agreement with Gerald Nadeau filed as an exhibit under the 8-K filed on December 14, 2007.

10.10		Options to acquire shares of the Company’s Common Stock pursuant to the Independent Bank Corp. 1997 Employee Stock Option Plan were awarded to Christopher Oddleifson, Raymond G. Fuerschbach, Edward F. Jankowski, Ferdinand T. Kelley, Jane L. Lundquist, Edward H. Seksay and Denis K. Sheahan pursuant to option agreements dated December 9, 2004. The form of these option agreements were filed as exhibits under the Form 8-K filed on December 15, 2004.

10.11		On-Site Outsourcing Agreement by and between Fidelity Information Services, Inc. and Independent Bank Corp., effective as of November 1, 2004. Incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2004 filed on March 4, 2005. (PLEASE NOTE: Portions of this contract, and its exhibits and attachments, have been omitted pursuant to a request for confidential treatment sent on March 4, 2005 to the Securities and Exchange Commission. The locations where material has been omitted are indicated by the following notation: “{****}”. The entire contract, in unredacted form, has been filed separately with the Commission with the request for confidential treatment.)

10.12		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 filed as an exhibit under the Form 8-K filed on October 14, 2004.


No.		Exhibit

10.13		Options to acquire shares of the Company’s Common Stock pursuant to the Independent Bank Corp. 2005 Employee Stock Plan were awarded to Christopher Oddleifson, Raymond G. Fuerschbach, Edward F. Jankowski, Ferdinand T. Kelley, Jane L. Lundquist, Edward H. Seksay, and Denis K. Sheahan pursuant to option agreements dated December 15, 2005. The form of option agreements used for these awards were filed as exhibits under the Form 8-K filed on December 20, 2005.

10.14		Independent Bank Corp. 2006 Non-Employee Director Stock Plan incorporated by reference to Form S-8 filed by the Company on April 17, 2006.

10.15		Independent Bank Corp. Stock Option Agreement for Non-Employee Director is filed as an exhibit under the Form 10-Q filed on May 9, 2006.

10.16		Independent Bank Corp. Restricted Stock Agreement for Non-Employee Director is filed as an exhibit under the Form 10-Q filed on May 9, 2006.

10.17		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 the Company’s annual report on Form 10-K for the year ended December 31, 2006, filed by the Company on February 28, 2007.

10.18		Independent Bank Corp. and Rockland Trust Company 2008 Executive Officer Performance Incentive Plan is incorporated by reference to the Form 8-K filed on February 21, 2008.

10.19		Agreement and Plan of Merger to acquire Slade’s Ferry Bancorp. is incorporated by reference to the Form 8-K filed on October 12, 2007.

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

SIGNATURES

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

INDEPENDENT BANK CORP.
(registrant)



Date: November 6, 2008	/s/ Christopher Oddleifson
	Christopher Oddleifson
	President and Chief Executive Officer


Date: November 6, 2008	/s/ Denis K. Sheahan
	Denis K. Sheahan
	Chief Financial Officer

INDEPENDENT BANK CORP.
(registrant)