INDB » Topics » Commercial Real Estate Portfolio by Property Type

These excerpts taken from the INDB 10-K filed Mar 10, 2009.
Commercial Real Estate Portfolio by Property Type as of 12/31/08
 
(PIE CHART)
 
Although terms vary, commercial real estate loans generally have maturities of five years or less, or rate resets every five years for longer duration loans, amortization periods of 20 to 25 years, and have interest rates that float in accordance with a designated index or that are fixed during the origination process. It is the Bank’s policy to obtain personal guarantees from the principals of the borrower on commercial real estate loans and to obtain financial statements at least annually from all actively managed commercial and multi-family borrowers.
 
Commercial real estate lending entails additional risks, as compared to residential real estate lending. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Development of commercial real estate projects also may be subject to numerous land use and environmental issues. The payment experience on such loans is typically dependent on the successful operation of the real estate project, which can be significantly impacted by supply and demand conditions within the markets for commercial, retail, office, industrial/warehouse and multi-family tenancy.
 
Construction loans are intended to finance the construction of residential and commercial properties, including loans for the acquisition and development of land or rehabilitation of existing properties. Non-permanent construction loans generally have terms of at least six months, but not more than two years. They usually do not provide for amortization of the loan balance during the term. The majority of the Bank’s commercial construction loans have floating rates of interest based upon the Rockland base rate or the Prime or LIBOR rates published daily in the Wall Street Journal.
 
A significant portion of the Bank’s construction lending is related to residential development within the Bank’s market area. The Bank typically has focused its construction lending on relatively small projects and has developed and maintains relationships with developers and operative homebuilders in the Plymouth, Norfolk, Barnstable and Bristol Counties of southeastern Massachusetts and Cape Cod and, to a lesser extent, in the state of Rhode Island.
 
Construction loans are generally considered to present a higher degree of risk than permanent real estate loans and may be affected by a variety of factors, such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules. Other construction-related risks may include market risk, that is, the risk that “for-sale” or “for-lease” units may or may not be absorbed by the market within a developer’s anticipated time-


9


Table of Contents

frame or at a developer’s anticipated price. Certain construction borrowers within the portfolio may maintain an interest reserve account for specific projects. Management actively tracks and monitors these accounts.
 
Rockland originates both fixed-rate and adjustable-rate residential real estate loans. The Bank will lend up to 100% of the lesser of the appraised value of the residential property securing the loan or the purchase price, and generally requires borrowers to obtain private mortgage insurance when the amount of the loan exceeds 80% of the value of the property. The rates of these loans are typically competitive with market rates. The Bank’s residential real estate loans are generally originated only under terms, conditions and documentation which permit sale in the secondary market.
 
The Bank generally requires title insurance protecting the priority of its mortgage lien, as well as fire, extended coverage casualty and flood insurance, when necessary, in order to protect the properties securing its residential and other real estate loans. Independent appraisers appraise properties securing all of the Bank’s first mortgage real estate loans, as required by regulatory standards.
 
Consumer Loans  The Bank makes loans for a wide variety of personal needs. Consumer loans primarily consist of installment loans, home equity loans and lines, and overdraft protection. As of December 31, 2008, $572.8 million, or 21.5%, of the Bank’s gross loan portfolio consisted of consumer loans. Consumer loans generated 18.1%, 22.5% and 22.2% of total interest income for the fiscal years ending December 31, 2008, 2007, and 2006, respectively.
 
The Bank’s consumer loans also include home equity, unsecured loans, loans secured by deposit accounts, loans to purchase motorcycles, recreational vehicles, or boats. During 2008 the lending policy was modified from lending 100% to up to 80% of the purchase price of vehicles other than automobiles with terms of up to three years for motorcycles and up to fifteen years for recreational vehicles.
 
Home equity loans and lines may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or second mortgage on the borrower’s residence or second home. At December 31, 2008, $121.9 million, or 30.0%, of the home equity portfolio was term loans and $284.3 million, or 70.0%, of the home equity portfolio was comprised of revolving lines of credit. The Bank will originate home equity loans and lines in an amount up to 89.9% of the appraised value or on-line valuation, reduced for any loans outstanding which are secured by such collateral. Home equity loans and lines are underwritten in accordance with the Bank’s loan policy which includes a combination of credit score, loan-to-value ratio, employment history and debt-to-income ratio. Home equity lines of credit at December 31, 2008, had a weighted average FICO1 score of 758 and a weighted average combined loan-to-value2 ratio of 62.0%. The average FICO scores are based upon re-scores available from November 2008 and actual score data for loans booked between December 1 and December 31, 2008 and the loan-to-value ratios are based on updated automated valuation as of November 30, 2008 where available. Use of re-score data enables the Bank to better understand the current credit risk associated with these loans.
 
Cash reserve loans are made pursuant to previously approved unsecured cash reserve lines of credit. The rate on these loans is tied to the prime rate.
 
The Bank’s installment loans consist primarily of automobile loans, which totaled $128.0 million, at December 31, 2008, or 4.8% of loans, a decrease from 7.6% of loans at year-end 2007. A substantial portion of the Bank’s automobile loans are originated indirectly by a network of approximately 134 active new and used automobile dealers located within the Bank’s market area. Although employees of the dealer take applications for such loans, the loans are made pursuant to Rockland’s underwriting standards using Rockland’s documentation. A Rockland consumer lender must approve all indirect loans. In addition to indirect automobile lending, the Bank also originates automobile loans directly.
 
 
1 FICO — represents a credit score determined by the Fair Isaac Corporation, with data provided by the three major credit repositories (Trans Union, Experian, and Equifax). This score predicts the likelihood of loan default. The lower the score, the more likely an individual is to default. The actual FICO scores range from 300 to 850 (fairissaac.com).
2 Loan-to-Value — is the ratio of the total potential exposure on a loan to the fair market value of the collateral. The higher the Loan-to-Value, the higher the loss risk in the event of default.


10


Table of Contents

The maximum term for the Bank’s automobile loans is 72 months. Loans on new and used automobiles are generally made without recourse to the dealer. The Bank requires all borrowers to maintain automobile insurance, including full collision, fire and theft, with a maximum allowable deductible and with the Bank listed as loss payee. In addition, in order to mitigate the adverse effect on interest income caused by prepayments, dealers are required to maintain a reserve of up to 3% of the outstanding balance of the indirect loans originated by them under Reserve option “A”. Reserve option “A” allows the Bank to be rebated the prepaid dealer reserve on a pro-rata basis in the event of prepayment prior to maturity. Reserve option “B” allows the dealer to share the reserve with the Bank, split 75/25, however for the Bank’s receipt of 25%, no rebates are applied to the account after 90 days from date of first payment. Indirect automobile loans at December 31, 2008, had a weighted average FICO score of 694 and a weighted average combined loan-to-value ratio of 96.4%. The average FICO scores are based upon re-scores available from November 2008 and actual score data for loans booked between December 1 and December 31, 2008. Use of re-score data enables the Bank to better understand the current credit risk associated with these loans.
 
Commercial Real Estate Portfolio by Property Type as of 12/31/08
 
(PIE CHART)
 
Although terms vary, commercial real estate loans generally have maturities of five years or less, or rate resets every five years for longer duration loans, amortization periods of 20 to 25 years, and have interest rates that float in accordance with a designated index or that are fixed during the origination process. It is the Bank’s policy to obtain personal guarantees from the principals of the borrower on commercial real estate loans and to obtain financial statements at least annually from all actively managed commercial and multi-family borrowers.
 
Commercial real estate lending entails additional risks, as compared to residential real estate lending. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Development of commercial real estate projects also may be subject to numerous land use and environmental issues. The payment experience on such loans is typically dependent on the successful operation of the real estate project, which can be significantly impacted by supply and demand conditions within the markets for commercial, retail, office, industrial/warehouse and multi-family tenancy.
 
Construction loans are intended to finance the construction of residential and commercial properties, including loans for the acquisition and development of land or rehabilitation of existing properties. Non-permanent construction loans generally have terms of at least six months, but not more than two years. They usually do not provide for amortization of the loan balance during the term. The majority of the Bank’s commercial construction loans have floating rates of interest based upon the Rockland base rate or the Prime or LIBOR rates published daily in the Wall Street Journal.
 
A significant portion of the Bank’s construction lending is related to residential development within the Bank’s market area. The Bank typically has focused its construction lending on relatively small projects and has developed and maintains relationships with developers and operative homebuilders in the Plymouth, Norfolk, Barnstable and Bristol Counties of southeastern Massachusetts and Cape Cod and, to a lesser extent, in the state of Rhode Island.
 
Construction loans are generally considered to present a higher degree of risk than permanent real estate loans and may be affected by a variety of factors, such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules. Other construction-related risks may include market risk, that is, the risk that “for-sale” or “for-lease” units may or may not be absorbed by the market within a developer’s anticipated time-


9


Table of Contents

frame or at a developer’s anticipated price. Certain construction borrowers within the portfolio may maintain an interest reserve account for specific projects. Management actively tracks and monitors these accounts.
 
Rockland originates both fixed-rate and adjustable-rate residential real estate loans. The Bank will lend up to 100% of the lesser of the appraised value of the residential property securing the loan or the purchase price, and generally requires borrowers to obtain private mortgage insurance when the amount of the loan exceeds 80% of the value of the property. The rates of these loans are typically competitive with market rates. The Bank’s residential real estate loans are generally originated only under terms, conditions and documentation which permit sale in the secondary market.
 
The Bank generally requires title insurance protecting the priority of its mortgage lien, as well as fire, extended coverage casualty and flood insurance, when necessary, in order to protect the properties securing its residential and other real estate loans. Independent appraisers appraise properties securing all of the Bank’s first mortgage real estate loans, as required by regulatory standards.
 
Consumer Loans  The Bank makes loans for a wide variety of personal needs. Consumer loans primarily consist of installment loans, home equity loans and lines, and overdraft protection. As of December 31, 2008, $572.8 million, or 21.5%, of the Bank’s gross loan portfolio consisted of consumer loans. Consumer loans generated 18.1%, 22.5% and 22.2% of total interest income for the fiscal years ending December 31, 2008, 2007, and 2006, respectively.
 
The Bank’s consumer loans also include home equity, unsecured loans, loans secured by deposit accounts, loans to purchase motorcycles, recreational vehicles, or boats. During 2008 the lending policy was modified from lending 100% to up to 80% of the purchase price of vehicles other than automobiles with terms of up to three years for motorcycles and up to fifteen years for recreational vehicles.
 
Home equity loans and lines may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or second mortgage on the borrower’s residence or second home. At December 31, 2008, $121.9 million, or 30.0%, of the home equity portfolio was term loans and $284.3 million, or 70.0%, of the home equity portfolio was comprised of revolving lines of credit. The Bank will originate home equity loans and lines in an amount up to 89.9% of the appraised value or on-line valuation, reduced for any loans outstanding which are secured by such collateral. Home equity loans and lines are underwritten in accordance with the Bank’s loan policy which includes a combination of credit score, loan-to-value ratio, employment history and debt-to-income ratio. Home equity lines of credit at December 31, 2008, had a weighted average FICO1 score of 758 and a weighted average combined loan-to-value2 ratio of 62.0%. The average FICO scores are based upon re-scores available from November 2008 and actual score data for loans booked between December 1 and December 31, 2008 and the loan-to-value ratios are based on updated automated valuation as of November 30, 2008 where available. Use of re-score data enables the Bank to better understand the current credit risk associated with these loans.
 
Cash reserve loans are made pursuant to previously approved unsecured cash reserve lines of credit. The rate on these loans is tied to the prime rate.
 
The Bank’s installment loans consist primarily of automobile loans, which totaled $128.0 million, at December 31, 2008, or 4.8% of loans, a decrease from 7.6% of loans at year-end 2007. A substantial portion of the Bank’s automobile loans are originated indirectly by a network of approximately 134 active new and used automobile dealers located within the Bank’s market area. Although employees of the dealer take applications for such loans, the loans are made pursuant to Rockland’s underwriting standards using Rockland’s documentation. A Rockland consumer lender must approve all indirect loans. In addition to indirect automobile lending, the Bank also originates automobile loans directly.
 
 
1 FICO — represents a credit score determined by the Fair Isaac Corporation, with data provided by the three major credit repositories (Trans Union, Experian, and Equifax). This score predicts the likelihood of loan default. The lower the score, the more likely an individual is to default. The actual FICO scores range from 300 to 850 (fairissaac.com).
2 Loan-to-Value — is the ratio of the total potential exposure on a loan to the fair market value of the collateral. The higher the Loan-to-Value, the higher the loss risk in the event of default.


10


Table of Contents

The maximum term for the Bank’s automobile loans is 72 months. Loans on new and used automobiles are generally made without recourse to the dealer. The Bank requires all borrowers to maintain automobile insurance, including full collision, fire and theft, with a maximum allowable deductible and with the Bank listed as loss payee. In addition, in order to mitigate the adverse effect on interest income caused by prepayments, dealers are required to maintain a reserve of up to 3% of the outstanding balance of the indirect loans originated by them under Reserve option “A”. Reserve option “A” allows the Bank to be rebated the prepaid dealer reserve on a pro-rata basis in the event of prepayment prior to maturity. Reserve option “B” allows the dealer to share the reserve with the Bank, split 75/25, however for the Bank’s receipt of 25%, no rebates are applied to the account after 90 days from date of first payment. Indirect automobile loans at December 31, 2008, had a weighted average FICO score of 694 and a weighted average combined loan-to-value ratio of 96.4%. The average FICO scores are based upon re-scores available from November 2008 and actual score data for loans booked between December 1 and December 31, 2008. Use of re-score data enables the Bank to better understand the current credit risk associated with these loans.
 
Commercial
Real Estate Portfolio by Property Type as of 12/31/08



 



(PIE CHART)


 



Although terms vary, commercial real estate loans generally have
maturities of five years or less, or rate resets every five
years for longer duration loans, amortization periods of 20 to
25 years, and have interest rates that float in accordance
with a designated index or that are fixed during the origination
process. It is the Bank’s policy to obtain personal
guarantees from the principals of the borrower on commercial
real estate loans and to obtain financial statements at least
annually from all actively managed commercial and multi-family
borrowers.


 



Commercial real estate lending entails additional risks, as
compared to residential real estate lending. Commercial real
estate loans typically involve larger loan balances to single
borrowers or groups of related borrowers. Development of
commercial real estate projects also may be subject to numerous
land use and environmental issues. The payment experience on
such loans is typically dependent on the successful operation of
the real estate project, which can be significantly impacted by
supply and demand conditions within the markets for commercial,
retail, office, industrial/warehouse and multi-family tenancy.


 



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


 



A significant portion of the Bank’s construction lending is
related to residential development within the Bank’s market
area. The Bank typically has focused its construction lending on
relatively small projects and has developed and maintains
relationships with developers and operative homebuilders in the
Plymouth, Norfolk, Barnstable and Bristol Counties of
southeastern Massachusetts and Cape Cod and, to a lesser extent,
in the state of Rhode Island.


 



Construction loans are generally considered to present a higher
degree of risk than permanent real estate loans and may be
affected by a variety of factors, such as adverse changes in
interest rates and the borrower’s ability to control costs
and adhere to time schedules. Other construction-related risks
may include market risk, that is, the risk that
“for-sale” or “for-lease” units may or may
not be absorbed by the market within a developer’s
anticipated time-





9





Table of Contents






frame or at a developer’s anticipated price. Certain
construction borrowers within the portfolio may maintain an
interest reserve account for specific projects. Management
actively tracks and monitors these accounts.


 



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


 



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


 



Consumer Loans  The Bank makes loans for a wide
variety of personal needs. Consumer loans primarily consist of
installment loans, home equity loans and lines, and overdraft
protection. As of December 31, 2008, $572.8 million,
or 21.5%, of the Bank’s gross loan portfolio consisted of
consumer loans. Consumer loans generated 18.1%, 22.5% and 22.2%
of total interest income for the fiscal years ending
December 31, 2008, 2007, and 2006, respectively.


 



The Bank’s consumer loans also include home equity,
unsecured loans, loans secured by deposit accounts, loans to
purchase motorcycles, recreational vehicles, or boats. During
2008 the lending policy was modified from lending 100% to up to
80% of the purchase price of vehicles other than automobiles
with terms of up to three years for motorcycles and up to
fifteen years for recreational vehicles.


 



Home equity loans and lines may be made as a fixed rate term
loan or under a variable rate revolving line of credit secured
by a first or second mortgage on the borrower’s residence
or second home. At December 31, 2008, $121.9 million,
or 30.0%, of the home equity portfolio was term loans and
$284.3 million, or 70.0%, of the home equity portfolio was
comprised of revolving lines of credit. The Bank will originate
home equity loans and lines in an amount up to 89.9% of the
appraised value or on-line valuation, reduced for any loans
outstanding which are secured by such collateral. Home equity
loans and lines are underwritten in accordance with the
Bank’s loan policy which includes a combination of credit
score, loan-to-value ratio, employment history and
debt-to-income ratio. Home equity lines of credit at
December 31, 2008, had a weighted average
FICO1

score of 758 and a weighted average combined
loan-to-value2

ratio of 62.0%. The average FICO scores are based upon re-scores
available from November 2008 and actual score data for loans
booked between December 1 and December 31, 2008 and the
loan-to-value ratios are based on updated automated valuation as
of November 30, 2008 where available. Use of re-score data
enables the Bank to better understand the current credit risk
associated with these loans.


 



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


 



The Bank’s installment loans consist primarily of
automobile loans, which totaled $128.0 million, at
December 31, 2008, or 4.8% of loans, a decrease from 7.6%
of loans at year-end 2007. A substantial portion of the
Bank’s automobile loans are originated indirectly by a
network of approximately 134 active new and used automobile
dealers located within the Bank’s market area. Although
employees of the dealer take applications for such loans, the
loans are made pursuant to Rockland’s underwriting
standards using Rockland’s documentation. A Rockland
consumer lender must approve all indirect loans. In addition to
indirect automobile lending, the Bank also originates automobile
loans directly.

 
 


1 FICO —

represents a credit score determined by the Fair Isaac
Corporation, with data provided by the three major credit
repositories (Trans Union, Experian, and Equifax). This score
predicts the likelihood of loan default. The lower the score,
the more likely an individual is to default. The actual FICO
scores range from 300 to 850 (fairissaac.com).



2 Loan-to-Value —

is the ratio of the total potential exposure on a loan to the
fair market value of the collateral. The higher the
Loan-to-Value, the higher the loss risk in the event of default.





10





Table of Contents






The maximum term for the Bank’s automobile loans is
72 months. Loans on new and used automobiles are generally
made without recourse to the dealer. The Bank requires all
borrowers to maintain automobile insurance, including full
collision, fire and theft, with a maximum allowable deductible
and with the Bank listed as loss payee. In addition, in order to
mitigate the adverse effect on interest income caused by
prepayments, dealers are required to maintain a reserve of up to
3% of the outstanding balance of the indirect loans originated
by them under Reserve option “A”. Reserve option
“A” allows the Bank to be rebated the prepaid dealer
reserve on a pro-rata basis in the event of prepayment prior to
maturity. Reserve option “B” allows the dealer to
share the reserve with the Bank, split 75/25, however for the
Bank’s receipt of 25%, no rebates are applied to the
account after 90 days from date of first payment. Indirect
automobile loans at December 31, 2008, had a weighted
average FICO score of 694 and a weighted average combined
loan-to-value ratio of 96.4%. The average FICO scores are based
upon re-scores available from November 2008 and actual score
data for loans booked between December 1 and December 31,
2008. Use of re-score data enables the Bank to better understand
the current credit risk associated with these loans.


 




Commercial
Real Estate Portfolio by Property Type as of 12/31/08



 



(PIE CHART)


 



Although terms vary, commercial real estate loans generally have
maturities of five years or less, or rate resets every five
years for longer duration loans, amortization periods of 20 to
25 years, and have interest rates that float in accordance
with a designated index or that are fixed during the origination
process. It is the Bank’s policy to obtain personal
guarantees from the principals of the borrower on commercial
real estate loans and to obtain financial statements at least
annually from all actively managed commercial and multi-family
borrowers.


 



Commercial real estate lending entails additional risks, as
compared to residential real estate lending. Commercial real
estate loans typically involve larger loan balances to single
borrowers or groups of related borrowers. Development of
commercial real estate projects also may be subject to numerous
land use and environmental issues. The payment experience on
such loans is typically dependent on the successful operation of
the real estate project, which can be significantly impacted by
supply and demand conditions within the markets for commercial,
retail, office, industrial/warehouse and multi-family tenancy.


 



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


 



A significant portion of the Bank’s construction lending is
related to residential development within the Bank’s market
area. The Bank typically has focused its construction lending on
relatively small projects and has developed and maintains
relationships with developers and operative homebuilders in the
Plymouth, Norfolk, Barnstable and Bristol Counties of
southeastern Massachusetts and Cape Cod and, to a lesser extent,
in the state of Rhode Island.


 



Construction loans are generally considered to present a higher
degree of risk than permanent real estate loans and may be
affected by a variety of factors, such as adverse changes in
interest rates and the borrower’s ability to control costs
and adhere to time schedules. Other construction-related risks
may include market risk, that is, the risk that
“for-sale” or “for-lease” units may or may
not be absorbed by the market within a developer’s
anticipated time-





9





Table of Contents






frame or at a developer’s anticipated price. Certain
construction borrowers within the portfolio may maintain an
interest reserve account for specific projects. Management
actively tracks and monitors these accounts.


 



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


 



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


 



Consumer Loans  The Bank makes loans for a wide
variety of personal needs. Consumer loans primarily consist of
installment loans, home equity loans and lines, and overdraft
protection. As of December 31, 2008, $572.8 million,
or 21.5%, of the Bank’s gross loan portfolio consisted of
consumer loans. Consumer loans generated 18.1%, 22.5% and 22.2%
of total interest income for the fiscal years ending
December 31, 2008, 2007, and 2006, respectively.


 



The Bank’s consumer loans also include home equity,
unsecured loans, loans secured by deposit accounts, loans to
purchase motorcycles, recreational vehicles, or boats. During
2008 the lending policy was modified from lending 100% to up to
80% of the purchase price of vehicles other than automobiles
with terms of up to three years for motorcycles and up to
fifteen years for recreational vehicles.


 



Home equity loans and lines may be made as a fixed rate term
loan or under a variable rate revolving line of credit secured
by a first or second mortgage on the borrower’s residence
or second home. At December 31, 2008, $121.9 million,
or 30.0%, of the home equity portfolio was term loans and
$284.3 million, or 70.0%, of the home equity portfolio was
comprised of revolving lines of credit. The Bank will originate
home equity loans and lines in an amount up to 89.9% of the
appraised value or on-line valuation, reduced for any loans
outstanding which are secured by such collateral. Home equity
loans and lines are underwritten in accordance with the
Bank’s loan policy which includes a combination of credit
score, loan-to-value ratio, employment history and
debt-to-income ratio. Home equity lines of credit at
December 31, 2008, had a weighted average
FICO1

score of 758 and a weighted average combined
loan-to-value2

ratio of 62.0%. The average FICO scores are based upon re-scores
available from November 2008 and actual score data for loans
booked between December 1 and December 31, 2008 and the
loan-to-value ratios are based on updated automated valuation as
of November 30, 2008 where available. Use of re-score data
enables the Bank to better understand the current credit risk
associated with these loans.


 



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


 



The Bank’s installment loans consist primarily of
automobile loans, which totaled $128.0 million, at
December 31, 2008, or 4.8% of loans, a decrease from 7.6%
of loans at year-end 2007. A substantial portion of the
Bank’s automobile loans are originated indirectly by a
network of approximately 134 active new and used automobile
dealers located within the Bank’s market area. Although
employees of the dealer take applications for such loans, the
loans are made pursuant to Rockland’s underwriting
standards using Rockland’s documentation. A Rockland
consumer lender must approve all indirect loans. In addition to
indirect automobile lending, the Bank also originates automobile
loans directly.

 
 


1 FICO —

represents a credit score determined by the Fair Isaac
Corporation, with data provided by the three major credit
repositories (Trans Union, Experian, and Equifax). This score
predicts the likelihood of loan default. The lower the score,
the more likely an individual is to default. The actual FICO
scores range from 300 to 850 (fairissaac.com).



2 Loan-to-Value —

is the ratio of the total potential exposure on a loan to the
fair market value of the collateral. The higher the
Loan-to-Value, the higher the loss risk in the event of default.





10





Table of Contents






The maximum term for the Bank’s automobile loans is
72 months. Loans on new and used automobiles are generally
made without recourse to the dealer. The Bank requires all
borrowers to maintain automobile insurance, including full
collision, fire and theft, with a maximum allowable deductible
and with the Bank listed as loss payee. In addition, in order to
mitigate the adverse effect on interest income caused by
prepayments, dealers are required to maintain a reserve of up to
3% of the outstanding balance of the indirect loans originated
by them under Reserve option “A”. Reserve option
“A” allows the Bank to be rebated the prepaid dealer
reserve on a pro-rata basis in the event of prepayment prior to
maturity. Reserve option “B” allows the dealer to
share the reserve with the Bank, split 75/25, however for the
Bank’s receipt of 25%, no rebates are applied to the
account after 90 days from date of first payment. Indirect
automobile loans at December 31, 2008, had a weighted
average FICO score of 694 and a weighted average combined
loan-to-value ratio of 96.4%. The average FICO scores are based
upon re-scores available from November 2008 and actual score
data for loans booked between December 1 and December 31,
2008. Use of re-score data enables the Bank to better understand
the current credit risk associated with these loans.


 




Commercial Real Estate Portfolio by Property Type
 
(PIE CHART)
 
Although terms vary, commercial real estate loans generally have maturities of five years or less, amortization periods of 20 to 25 years, and have interest rates that float in accordance with a designated index or that are fixed during the origination process. It is the Bank’s policy to obtain personal guarantees from the principals of the borrower on commercial real estate loans and to obtain financial statements at least annually from all actively managed commercial and multi-family borrowers.
 
Commercial real estate lending entails additional risks, as compared to residential real estate lending. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Development of commercial real estate projects also may be subject to numerous land use and environmental issues. The payment experience on such loans is typically dependent on the successful operation of the real estate project, which can be significantly impacted by supply and demand conditions within the markets for commercial, retail, office, industrial/warehouse and multi-family tenancy.
 
Construction loans are intended to finance the construction of residential and commercial properties, including loans for the acquisition and development of land or rehabilitation of existing properties. Construction loans generally have terms of at least six months, but not more than two years. They usually do not provide for amortization of the loan balance during the term. The majority of the Bank’s commercial construction loans have floating rates of interest based upon the Rockland base rate or the Prime or LIBOR rates published daily in the Wall Street Journal.
 
A significant portion of the Bank’s construction lending is related to residential development within the Bank’s market area. The Bank typically has focused its construction lending on relatively small projects and has developed and maintains relationships with developers and operative homebuilders in the Plymouth, Norfolk, Barnstable and Bristol Counties of southeastern Massachusetts and Cape Cod and, to a lesser extent, in the state of Rhode Island.


8


Table of Contents

Construction loans are generally considered to present a higher degree of risk than permanent real estate loans and may be affected by a variety of factors, such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules. Other construction-related risk may include market risk, that is, the risk that “for-sale” or “for-lease” units may or may not be absorbed by the market within a developer’s anticipated time-frame or at a developer’s anticipated price.
 
Rockland originates both fixed-rate and adjustable-rate residential real estate loans. The Bank will lend up to 100% of the lesser of the appraised value of the residential property securing the loan or the purchase price, and generally requires borrowers to obtain private mortgage insurance when the amount of the loan exceeds 80% of the value of the property. The rates of these loans are typically competitive with market rates. The Bank’s residential real estate loans are generally originated only under terms, conditions and documentation, which permit sale in the secondary market.
 
The Bank generally requires title insurance protecting the priority of its mortgage lien, as well as fire, extended coverage casualty and flood insurance, when necessary, in order to protect the properties securing its residential and other real estate loans. Independent appraisers appraise properties securing all of the Bank’s first mortgage real estate loans, as required by regulatory standards.
 
Consumer Loans  The Bank makes loans for a wide variety of personal needs. Consumer loans primarily consist of installment loans, home equity loans, and overdraft protection. As of December 31, 2007, $510.6 million, or 25.0%, of the Bank’s gross loan portfolio consisted of consumer loans. Consumer loans generated 22.5%, 22.2% and 20.8% of total interest income for the fiscal years ending December 31, 2007, 2006, and 2005, respectively.
 
The Bank’s installment loans consist primarily of automobile loans, which totaled $156.0 million, at December 31, 2007, or 7.6% of loans, a decrease from 10.2% and 12.9% of loans at year-end 2006 and 2005, respectively. A substantial portion of the Bank’s automobile loans are originated indirectly by a network of approximately 135 active new and used automobile dealers located within the Bank’s market area. Although employees of the dealer take applications for such loans, the loans are made pursuant to Rockland’s underwriting standards using Rockland’s documentation. A Rockland consumer lender must approve all indirect loans. In addition to indirect automobile lending, the Bank also originates automobile loans directly.
 
The maximum term for the Bank’s automobile loans is 84 months for a new car loan and 72 months with respect to a used car loan. Loans on new and used automobiles are generally made without recourse to the dealer. The Bank requires all borrowers to maintain automobile insurance, including full collision, fire and theft, with a maximum allowable deductible and with the Bank listed as loss payee. In addition, in order to mitigate the adverse effect on interest income caused by prepayments, dealers are required to maintain a reserve of up to 3% of the outstanding balance of the indirect loans originated by them under Reserve option “A”. Reserve option “A” allows the Bank to be rebated the prepaid dealer reserve on a pro-rata basis in the event of prepayment prior to maturity. Reserve option “B” allows the dealer to share the reserve with the Bank, split 75/25, however for the Bank’s receipt of 25%, no rebates are applied to the account after 90 days from date of first payment. Indirect automobile loans at December 31, 2007, had a weighted average FICO1 score of 703 and a weighted average combined loan-to-value ratio2 of 98.8%. The average FICO scores are based upon re-scores available from September 2007 and actual score data for loans booked between October 1 and December 31, 2007. Use of re-score data enables the Bank to better understand the current credit risk associated with these loans.
 
The Bank’s consumer loans also include home equity, unsecured loans, loans secured by deposit accounts, loans to purchase motorcycles, recreational vehicles, or boats. The Bank generally will lend up to 100% of the purchase price of vehicles other than automobiles with terms of up to three years for motorcycles and up to fifteen years for recreational vehicles.
 
 
1 FICO — represents a credit score determined by the Fair Isaac Corporation, with data provided by the three major credit repositories (Trans Union, Experian, and Equifax). This score predicts the likelihood of loan default. The lower the score, the more likely an individual is to default. The actual FICO scores range from 300 to 850 (fairissaac.com).
2 Loan-to-Value — is the ratio of the total potential exposure on a loan to the fair market value of the collateral. The higher the Loan-to-Value, the higher the loss risk in the event of default.


9


Table of Contents

Home equity loans and lines may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or second mortgage on the borrower’s residence or second home. At December 31, 2007, $108.7 million, or 35.2%, of the home equity portfolio were term loans and $200.0 million, or 64.8%, of the home equity portfolio were revolving lines of credit. The Bank will originate home equity loans and lines in an amount up to 89.9% of the appraised value or on-line valuation, reduced for any loans outstanding secured by such collateral. Home equity loans and lines are underwritten in accordance with the Bank’s loan policy which includes a combination of credit score, loan-to-value ratio, employment history and debt-to-income ratio. Home equity lines of credit at December 31, 2007, had a weighted average FICO score of 753 and a weighted average combined loan-to-value ratio of 56.0%. The average FICO scores are based upon re-scores available from September 2007 and actual score data for loans booked between October 1 and December 31, 2007. Use of re-score data enables the Bank to better understand the current credit risk associated with these loans.
 
Cash reserve loans are made pursuant to previously approved unsecured cash reserve lines of credit. The rate on these loans is tied to the prime rate.
 
Commercial
Real Estate Portfolio by Property Type



 



(PIE CHART)


 



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


 



Commercial real estate lending entails additional risks, as
compared to residential real estate lending. Commercial real
estate loans typically involve larger loan balances to single
borrowers or groups of related borrowers. Development of
commercial real estate projects also may be subject to numerous
land use and environmental issues. The payment experience on
such loans is typically dependent on the successful operation of
the real estate project, which can be significantly impacted by
supply and demand conditions within the markets for commercial,
retail, office, industrial/warehouse and multi-family tenancy.


 



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


 



A significant portion of the Bank’s construction lending is
related to residential development within the Bank’s market
area. The Bank typically has focused its construction lending on
relatively small projects and has developed and maintains
relationships with developers and operative homebuilders in the
Plymouth, Norfolk, Barnstable and Bristol Counties of
southeastern Massachusetts and Cape Cod and, to a lesser extent,
in the state of Rhode Island.





8





Table of Contents






Construction loans are generally considered to present a higher
degree of risk than permanent real estate loans and may be
affected by a variety of factors, such as adverse changes in
interest rates and the borrower’s ability to control costs
and adhere to time schedules. Other construction-related risk
may include market risk, that is, the risk that
“for-sale” or “for-lease” units may or may
not be absorbed by the market within a developer’s
anticipated time-frame or at a developer’s anticipated
price.


 



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


 



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


 



Consumer Loans  The Bank makes loans for a wide
variety of personal needs. Consumer loans primarily consist of
installment loans, home equity loans, and overdraft protection.
As of December 31, 2007, $510.6 million, or 25.0%, of
the Bank’s gross loan portfolio consisted of consumer
loans. Consumer loans generated 22.5%, 22.2% and 20.8% of total
interest income for the fiscal years ending December 31,
2007, 2006, and 2005, respectively.


 



The Bank’s installment loans consist primarily of
automobile loans, which totaled $156.0 million, at
December 31, 2007, or 7.6% of loans, a decrease from 10.2%
and 12.9% of loans at year-end 2006 and 2005, respectively. A
substantial portion of the Bank’s automobile loans are
originated indirectly by a network of approximately 135 active
new and used automobile dealers located within the Bank’s
market area. Although employees of the dealer take applications
for such loans, the loans are made pursuant to Rockland’s
underwriting standards using Rockland’s documentation. A
Rockland consumer lender must approve all indirect loans. In
addition to indirect automobile lending, the Bank also
originates automobile loans directly.


 



The maximum term for the Bank’s automobile loans is
84 months for a new car loan and 72 months with
respect to a used car loan. Loans on new and used automobiles
are generally made without recourse to the dealer. The Bank
requires all borrowers to maintain automobile insurance,
including full collision, fire and theft, with a maximum
allowable deductible and with the Bank listed as loss payee. In
addition, in order to mitigate the adverse effect on interest
income caused by prepayments, dealers are required to maintain a
reserve of up to 3% of the outstanding balance of the indirect
loans originated by them under Reserve option “A”.
Reserve option “A” allows the Bank to be rebated the
prepaid dealer reserve on a pro-rata basis in the event of
prepayment prior to maturity. Reserve option “B”
allows the dealer to share the reserve with the Bank, split
75/25, however for the Bank’s receipt of 25%, no rebates
are applied to the account after 90 days from date of first
payment. Indirect automobile loans at December 31, 2007,
had a weighted average
FICO1
score of 703 and a weighted average combined loan-to-value
ratio2
of 98.8%. The average FICO scores are based upon re-scores
available from September 2007 and actual score data for loans
booked between October 1 and December 31, 2007. Use of
re-score data enables the Bank to better understand the current
credit risk associated with these loans.


 



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

 
 


1 FICO —
represents a credit score determined by the Fair Isaac
Corporation, with data provided by the three major credit
repositories (Trans Union, Experian, and Equifax). This score
predicts the likelihood of loan default. The lower the score,
the more likely an individual is to default. The actual FICO
scores range from 300 to 850 (fairissaac.com).



2 Loan-to-Value —
is the ratio of the total potential exposure on a loan to the
fair market value of the collateral. The higher the
Loan-to-Value, the higher the loss risk in the event of default.





9





Table of Contents






Home equity loans and lines may be made as a fixed rate term
loan or under a variable rate revolving line of credit secured
by a first or second mortgage on the borrower’s residence
or second home. At December 31, 2007, $108.7 million,
or 35.2%, of the home equity portfolio were term loans and
$200.0 million, or 64.8%, of the home equity portfolio were
revolving lines of credit. The Bank will originate home equity
loans and lines in an amount up to 89.9% of the appraised value
or on-line valuation, reduced for any loans outstanding secured
by such collateral. Home equity loans and lines are underwritten
in accordance with the Bank’s loan policy which includes a
combination of credit score, loan-to-value ratio, employment
history and debt-to-income ratio. Home equity lines of credit at
December 31, 2007, had a weighted average FICO score of 753
and a weighted average combined loan-to-value ratio of 56.0%.
The average FICO scores are based upon re-scores available from
September 2007 and actual score data for loans booked between
October 1 and December 31, 2007. Use of re-score data
enables the Bank to better understand the current credit risk
associated with these loans.


 



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


 




Commercial Real Estate Portfolio by Property Type
 
(PIE CHART)
 
Although terms vary, commercial real estate loans generally have maturities of five years or less, amortization periods of 20 years, and interest rates that either float in accordance with a designated index or have fixed rates of interest. It is also the Bank’s policy to obtain personal guarantees from the principals of the borrower on commercial real estate loans and to obtain financial statements at least annually from all commercial and multi-family borrowers.
 
Commercial real estate lending entails additional risks as compared to residential real estate lending. Commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Development of commercial real estate projects also may be subject to numerous land use and environmental issues. The payment experience on such loans is typically dependent on the successful operation of the real estate project, which can be significantly impacted by supply and demand conditions in the market for commercial and retail space.
 
Rockland originates both fixed-rate and adjustable-rate residential real estate loans. The Bank will lend up to 100% of the lesser of the appraised value of the residential property securing the loan or the purchase price, and generally requires borrowers to obtain private mortgage insurance when the amount of the loan exceeds 80% of the value of the property. The rates of these loans are typically competitive with market rates. The Bank’s residential real estate loans are generally originated only under terms, conditions and documentation, which permit sale in the secondary market.
 
The Bank generally requires title insurance protecting the priority of its mortgage lien, as well as fire, extended coverage casualty and flood insurance when necessary in order to protect the properties securing its residential and other real estate loans. Independent appraisers appraise properties securing all of the Bank’s first mortgage real estate loans.
 
Construction loans are intended to finance the construction of residential and commercial properties, including loans for the acquisition and development of land or rehabilitation of existing homes. Construction loans generally have terms of six months, but not more than two years. They usually do not provide for amortization of the loan balance during the term. The majority of the Bank’s commercial construction loans have floating rates of interest based upon the Rockland base rate or the prime rate published daily in the Wall Street Journal.
 
A significant portion of the Bank’s construction lending is related to one-to-four family residential development within the Bank’s market area. The Bank typically has focused its construction lending on relatively small


8


Table of Contents

projects and has developed and maintains a relationship with a significant number of homebuilders in the Plymouth, Norfolk, Barnstable and Bristol Counties of southeastern Massachusetts and Cape Cod.
 
Construction loans are generally considered to present a higher degree of risk than permanent real estate loans. A borrower’s ability to complete construction may be affected by a variety of factors such as adverse changes in interest rates and the borrower’s ability to control costs and adhere to time schedules.
 
Consumer Loans  The Bank makes loans for a wide variety of personal needs. Consumer loans primarily consist of installment loans, home equity loans, overdraft protection, and personal lines of credit. As of December 31, 2006, $532.9 million, or 26.3%, of the Bank’s gross loan portfolio consisted of consumer loans. Consumer loans generated 22.2%, 20.8% and 20.1% of total interest income for the fiscal years ending December 31, 2006, 2005, and 2004, respectively.
 
The Bank’s installment loans consist primarily of automobile loans, which totaled $206.8 million, at December 31, 2006, or 10.2% of loans, a decrease from 12.9% of loans at year-end 2005, and a decrease from 14.8% of loans at year-end 2004. A substantial portion of the Bank’s automobile loans are originated indirectly by a network of approximately 185 new and used automobile dealers located within the Bank’s market area. Although employees of the dealer take applications for such loans, the loans are made pursuant to Rockland’s underwriting standards using Rockland’s documentation. A Rockland loan officer must approve all indirect loans. In addition to indirect automobile lending, the Bank also originates automobile loans directly.
 
The maximum term for the Bank’s automobile loans is 84 months for a new car loan and 72 months with respect to a used car loan. Loans on new and used automobiles are generally made without recourse to the dealer. The Bank requires all borrowers to maintain automobile insurance, including full collision, fire and theft, with a maximum allowable deductible and with the Bank listed as loss payee. In addition, in order to mitigate the adverse effect on interest income caused by prepayments, dealers are required to maintain a reserve, of up to 3% of the outstanding balance of the indirect loans originated by them under Reserve option “A”. Reserve option “A” allows the Bank to be rebated the prepaid dealer reserve on a pro-rata basis in the event of prepayment prior to maturity. Reserve option “B” allows the dealer to share the reserve with the Bank, split 75/25, however for the Bank’s receipt of 25%, no rebates are applied to the account after 90 days from date of first payment. Indirect automobile loans at December 31, 2006, had a weighted average FICO1 score of 721 and a weighted average combined loan to value ratio of 98.9%.
 
The Bank’s consumer loans also include home equity, unsecured loans and loans secured by deposit accounts, loans to purchase motorcycles, recreational vehicles, motor homes, boats, or mobile homes. The Bank generally will lend up to 100% of the purchase price of vehicles other than automobiles with terms of up to three years for motorcycles and up to fifteen years for recreational vehicles.
 
Home equity loans and lines may be made as a fixed rate term loan or under a variable rate revolving line of credit secured by a first or second mortgage on the borrower’s residence or second home. At December 31, 2006, $80.2 million, or 28.9%, of the home equity portfolio were term loans and $196.8 million, or 71.1%, of the home equity portfolio were revolving lines of credit. The Bank will originate home equity loans and lines in an amount up to 89.9% of the appraised value or on-line valuation, reduced for any loans outstanding secured by such collateral. Home equity loans and lines are underwritten in accordance with the Bank’s loan policy which includes a combination of credit score, loan to value ratio2, employment history and debt to income ratio. Home equity lines of credit at December 31, 2006, had a weighted average FICO1 score of 749 and a weighted average combined loan to value ratio of 58.0%.
 
 
1 FICO — represents a credit score determined by the Fair Isaac Corporation, with data provided by the three major credit repositories (Trans Union, Experian, and Equifax). This score predicts the likelihood of loan default. The lower the score, the more likely an individual is to default. The actual FICO scores range from 300 to 850 (fairissaac.com).
2 Loan to Value — is the ratio of the total potential exposure on a loan to the fair market value of the collateral. The higher the Loan to Value, the higher the loss risk in the event of default.


9


Table of Contents

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