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 June 30, 2007

Independent Bank Corp.

(Exact name of registrant as specified in its charter)

Massachusetts		04-2870273
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) (check one).

Large Accelerated Filer o      Accelerated Filer þ      Non-accelerated Filer 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 August 1, 2007, there were 13,800,543 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) - June 30, 2007 and December 31, 2006			3
Consolidated Statements of Income (unaudited) - Three and six months ended June 30, 2007 and 2006			4
Consolidated Statements of Stockholders’ Equity (unaudited) - Six months ended June 30, 2007 and for the year ended December 31, 2006			5
Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2007 and 2006			6
Condensed Notes to Unaudited Consolidated Financial Statements - June 30, 2007
Note 1 - Basis of Presentation			7
Note 2 - Stock Based Compensation			8
Note 3 - Recent Accounting Developments			8
Note 4 - Earnings Per Share			10
Note 5 - Common Stock Repurchase Program			12
Note 6 - Employee Benefits			13
Note 7 - Repurchase Agreements			14
Note 8 - Comprehensive Income			14
Note 9 - Uncertainty in Income Taxes			15
Note 10 - Subsequent Event			15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Table 1 - Summary of Delinquency Information			26
Table 2 - Nonperforming Assets / Loans			27
Table 3 - Summary of Changes in the Allowance for Loan Losses			30
Table 4 - Summary of Allocation of the Allowance for Loan Losses			31
Table 5 - Average Balance, Interest Earned/Paid & Average Yields - Three Months Ended June 30, 2007 and 2006			36
Table 6 - Average Balance, Interest Earned/Paid & Average Yields - Six Months Ended June 30, 2007 and 2006			37
Table 7 - Volume Rate Analysis			38
Table 8 - New Markets Tax Credit Recognition Schedule			41
Table 9 - Interest Rate Derivatives			42
Table 10 - Fair Value of Residential Mortgage Loan Commitments and Forward Sales Agreements			43
Table 11 - Interest Rate Sensitivity			44
Table 12 - Contractual Obligations, Commitments and Off-Balance Sheet Financial Instruments by Maturity			46
Item 3. Quantitative and Qualitative Disclosures About Market Risk			47
Item 4. Controls and Procedures			47
Item 4T. Controls and Procedures			47
PART II. OTHER INFORMATION			47
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			48
Item 3. Defaults Upon Senior Securities			48
Item 4. Submission of Matters to a Vote of Security Holders			48
Item 5. Other Information			49
Item 6. Exhibits			49
Signatures			53
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO
Ex-32.2 Section 906 Certification of the CFO

PART 1. FINANCIAL INFORMATION

INDEPENDENT BANK CORP.

		June 30,				December 31,
		2007				2006
ASSETS
CASH AND DUE FROM BANKS		$	62,208			$	62,773
FEDERAL FUNDS SOLD AND SHORT TERM INVESTMENTS			1,000				75,518
SECURITIES
TRADING ASSETS			1,703				1,758
SECURITIES AVAILABLE FOR SALE			394,915				417,088
SECURITIES HELD TO MATURITY (fair value $48,045 and $78,038)			47,568				76,747
FEDERAL HOME LOAN BANK STOCK			16,260				21,710
TOTAL SECURITIES			460,446				517,303
LOANS
COMMERCIAL AND INDUSTRIAL			172,383				174,356
COMMERCIAL REAL ESTATE			751,142				740,517
COMMERCIAL CONSTRUCTION			116,029				119,685
BUSINESS BANKING			66,109				59,910
RESIDENTIAL REAL ESTATE			343,416				378,368
RESIDENTIAL CONSTRUCTION			5,675				7,277
RESIDENTIAL LOANS HELD FOR SALE			10,841				11,859
CONSUMER — HOME EQUITY			288,271				277,015
CONSUMER — AUTO			178,895				206,845
CONSUMER — OTHER			48,209				49,077
TOTAL LOANS			1,980,970				2,024,909
LESS: ALLOWANCE FOR LOAN LOSSES			(26,650	)			(26,815	)
NET LOANS			1,954,320				1,998,094
BANK PREMISES AND EQUIPMENT, NET			38,020				37,316
GOODWILL			57,156				55,078
CORE DEPOSIT INTANGIBLES			1,296				1,457
MORTGAGE SERVICING RIGHTS			2,261				2,439
BANK OWNED LIFE INSURANCE			48,188				45,759
OTHER ASSETS			33,603				33,182
TOTAL ASSETS		$	2,658,498			$	2,828,919
LIABILITIES AND STOCKHOLDERS’ EQUITY
DEPOSITS
DEMAND DEPOSITS		$	500,924			$	490,036
SAVINGS AND INTEREST CHECKING ACCOUNTS			580,897				577,443
MONEY MARKET			444,787				455,737
TIME CERTIFICATES OF DEPOSIT OVER $100,000			169,038				179,154
OTHER TIME CERTIFICATES OF DEPOSIT			356,441				387,974
TOTAL DEPOSITS			2,052,087				2,090,344
FEDERAL HOME LOAN BANK BORROWINGS			231,215				305,128
FEDERAL FUNDS PURCHASED AND ASSETS SOLD UNDER REPURCHASE AGREEMENTS			94,199				108,248
JUNIOR SUBORDINATED DEBENTURES			51,547				77,320
TREASURY TAX AND LOAN NOTES			1,070				2,953
TOTAL BORROWINGS			378,031				493,649
OTHER LIABILITIES			16,318				15,143
TOTAL LIABILITIES		$	2,446,436			$	2,599,136
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 Issued and Outstanding: 13,907,543 Shares at June 30, 2007 and 14,686,481 Shares at December 31, 2006			139				147
SHARES HELD IN RABBI TRUST AT COST 166,447 Shares at June 30, 2007 and 168,961 Shares at December 31, 2006			(1,866	)			(1,786	)
DEFERRED COMPENSATION OBLIGATION			1,866				1,786
ADDITIONAL PAID IN CAPITAL			60,411				60,181
RETAINED EARNINGS			157,983				175,146
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF TAX			(6,471	)			(5,691	)
TOTAL STOCKHOLDERS’ EQUITY			212,062				229,783
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,658,498			$	2,828,919

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

INDEPENDENT BANK CORP.

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

		THREE MONTHS ENDED								SIX MONTHS ENDED
		June 30,								June 30,
		2007				2006				2007				2006
INTEREST INCOME
Interest on Loans		$	33,788			$	34,082			$	67,487			$	66,786
Taxable Interest and Dividends on Securities			4,984				6,411				10,400				13,639
Non-taxable Interest and Dividends on Securities			542				662				1,106				1,332
Interest on Federal Funds Sold and Short-Term Investments			289				52				733				152
Total Interest and Dividend Income			39,603				41,207				79,726				81,909
INTEREST EXPENSE
Interest on Deposits			10,816				9,404				21,910				17,864
Interest on Borrowings			5,354				5,994				10,395				11,929
Total Interest Expense			16,170				15,398				32,305				29,793
Net Interest Income			23,433				25,809				47,421				52,116
PROVISION FOR LOAN LOSSES			584				350				1,475				1,100
Net Interest Income After Provision For Loan Losses			22,849				25,459				45,946				51,016
NON-INTEREST INCOME
Service Charges on Deposit Accounts			3,531				3,565				6,941				6,983
Wealth Management			2,180				1,704				3,994				3,059
Mortgage Banking Income, Net			820				650				1,594				1,468
Bank Owned Life Insurance Income			427				506				915				2,250
Net (Loss) on Sales of Securities Available for Sale			—				—				—				(1,769	)
Other Non-Interest Income			1,081				797				2,388				1,651
Total Non-Interest Income			8,039				7,222				15,832				13,642
NON-INTEREST EXPENSE
Salaries and Employee Benefits			13,013				12,072				26,166				23,937
Occupancy and Equipment Expenses			2,607				2,526				5,161				5,239
Data Processing and Facilities Management			1,202				1,036				2,290				2,096
Other Non-Interest Expense			6,444				5,012				11,102				9,846
Total Non-Interest Expense			23,266				20,646				44,719				41,118
INCOME BEFORE INCOME TAXES			7,622				12,035				17,059				23,540
PROVISION FOR INCOME TAXES			1,908				3,745				4,720				7,346
NET INCOME		$	5,714			$	8,290			$	12,339			$	16,194
BASIC EARNINGS PER SHARE		$	0.41			$	0.55			$	0.86			$	1.07
DILUTED EARNINGS PER SHARE		$	0.40			$	0.55			$	0.86			$	1.06
Weighted average common shares (Basic)			14,101,468				14,999,127				14,282,226				15,159,252
Common share equivalents			129,796				162,747				146,097				159,472
Weighted average common shares (Diluted)			14,231,264				15,161,874				14,428,323				15,318,724

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited - Dollars in Thousands, Except Share and 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, 2005			15,402,391			$	154				($1,577	)		$	1,577			$	59,700			$	175,284				($6,986	)		$	228,152
Net Income																							32,851								32,851
Cash Dividends Declared ($0.64 per share)																							(9,514	)							(9,514	)
Purchases and Retirements of Common Stock			(800,000	)			(8	)															(24,818	)							(24,826	)
Proceeds From Exercise of Stock Options			82,118				1																1,343								1,344
Excess Tax Benefit Related to Equity Award Activity																			326												326
Equity Based Compensation																			159												159
Restricted Shares Issued			1,972																(4	)											(4	)
Change in Fair Value of Derivatives During Period, Net of Tax, and Realized Gains																											(909	)			(909	)
Deferred Compensation Obligation											(209	)			209																—
Adjustments or reduction of amortization amounts recognized as a component of net periodic post retirement cost , net of tax																											(413	)			(413	)
Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains																											2,617				2,617
BALANCE DECEMBER 31, 2006			14,686,481			$	147				($1,786	)		$	1,786			$	60,181			$	175,146				($5,691	)		$	229,783
Net Income																							12,339								12,339
Cash Dividends Declared ($0.34 per share)																							(4,824	)							(4,824	)
Purchases and Retirements of Common Stock			(805,747	)			(8	)															(25,284	)							(25,292	)
Proceeds From Exercise of Stock Options			25,209				—																429								429
Excess Tax Benefit Related to Equity Award Activity																			43												43
Equity Based Compensation																			187												187
Restricted Shares Issued			1,600				—												—												—
Change in Fair Value of Derivatives During Period, Net of Tax, and Realized Gains																											718				718
Deferred Compensation Obligation											(80	)			80																—
Cumulative Effect of Accounting Change (Adoption of FIN No. 48)																							177								177
Amortization of Certain Costs Included in Net Periodic Pension Costs, net of tax																											55				55
Change in Unrealized Gain on Securities Available For Sale, Net of Tax and Realized Gains																											(1,553	)			(1,553	)
BALANCE JUNE 30, 2007			13,907,543			$	139				($1,866	)		$	1,866			$	60,411			$	157,983				($6,471	)		$	212,062

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

INDEPENDENT BANK CORP.

		SIX MONTHS ENDED
		JUNE 30,
		2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	12,339			$	16,194
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED FROM OPERATING ACTIVITIES:
Depreciation and Amortization			3,221				2,865
Provision for Loan Losses			1,475				1,100
Deferred income tax benefit			(506	)			(1,415	)
Mortgage loans originated for resale			(100,983	)			(79,470	)
Proceeds from Mortgage loan sales			102,360				76,446
Gain on sale of Mortgages			(359	)			(645	)
Proceeds from Bank Owned Life Insurance			—				(1,316	)
Loss on sale of Securities			—				1,769
Other Real Estate Owned			(305	)			—
Gain on sale of Other Real Estate Owned			(43	)			—
Gain recorded from Mortgage Servicing Rights, net of amortization			178				186
Stock Based Compensation expense			187				81
Changes in Assets and Liabilities:
(Increase) decrease in Other Assets			(1,342	)			3,745
Increase (decrease) in Other Liabilities			1,150				(1,046	)
TOTAL ADJUSTMENTS			5,033				2,300
NET CASH PROVIDED FROM OPERATING ACTIVITIES			17,372				18,494
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal repayments of Securities Held to Maturity			28,374				4,227
Proceeds from maturities and principal repayments and sales of Securities Available For Sale			30,270				69,109
Purchase of Securities Available For Sale			(10,502	)			—
Net change in Federal Funds Sold and Short Term Investments			74,518				48,617
Redemption of Federal Home Loan Bank Stock			5,450				6,653
Net decrease (increase) in Loans			41,282				(3,651	)
Cash paid for acquisition of CEA LLC			(2,097	)			—
Investment in Bank Premises and Equipment			(2,893	)			(2,029	)
Proceeds from sale of OREO			233				—
NET CASH PROVIDED FROM INVESTING ACTIVITIES			164,635				122,926
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease)/ increase in Time Certificates of Deposits			(41,649	)			40,030
Net increase/ (decrease) in Other Deposits			3,392				(68,163	)
Net decrease/ (increase) in Federal Funds Purchased and Assets Sold Under Repurchase Agreements			(14,049	)			1,432
Net decrease in Federal Home Loan Bank Borrowings			(73,913	)			(77,058	)
Net decrease in Treasury Tax and Loan Notes			(1,883	)			(3,108	)
Redemption of Junior Subordinated Debentures			(25,773	)			—
Amortization/ write-off of issuance costs			922				44
Proceeds from exercise of stock options			429				1,019
Excess tax benefit related to equity award activity			43				223
Payments for purchases and retirements of Common Stock			(25,292	)			(22,024	)
Dividends paid			(4,799	)			(4,767	)
NET CASH USED IN FINANCING ACTIVITIES			(182,572	)			(132,372	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(565	)			9,048
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD			62,773				66,289
CASH AND CASH EQUIVALENTS AS OF JUNE 30,		$	62,208			$	75,337
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the six months for:
Interest on deposits and borrowings		$	31,893			$	29,701
Income taxes			6,709				7,377
Noncash investing and financing activities:
Change in fair value of derivatives, net of tax and realized gains			718				1,668
Change in fair value of securities available for sale, net of tax and realized gains			(1,553	)			(4,239	)
Adjustments or reduction of amortization amounts recognized as a component of net periodic post retirement cost , net of tax			55				—
Cumulative Effect of Accounting Change (Adoption of FIN No. 48)			177				—

The accompanying condensed 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” or the “Bank”), a Massachusetts trust company chartered in 1907. The Company was the sponsor of Delaware statutory trusts named Independent Capital Trust III (“Trust III”), Independent Capital Trust IV (“Trust IV”), and is currently the sponsor of Independent Capital Trust V (“Trust V”), each of which were formed to issue trust preferred securities.

     The proceeds which the Company derived from Trust V were used on December 31, 2006 and April 30, 2007 to redeem all of the outstanding trust preferred securities of Trust III and Trust IV respectively. Trust III and IV have been dissolved. Trust V is not included in the Company’s consolidated financial statements.

     As of June 30, 2007 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 two wholly-owned corporate subsidiaries named Rockland Trust Community Development LLC (“RTC CDE I”) and Rockland Trust Community Development Corporation II (“RTC CDE II”). The Parent CDE, CDE I, and CDE II were all formed to qualify as community development entities under federal New Markets Tax Credit Program criteria; and,
	•		Compass Exchange Advisors 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 period’s 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 June 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007 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, 2006 filed with the Securities and Exchange Commission.

NOTE 2- STOCK BASED COMPENSATION

     On April 17, 2007 the Company granted 5,200 restricted stock awards from the 2006 Non-Employee Director Stock Plan to certain directors of the Company and/or the Bank. The restricted stock awards have been determined to have a fair value of $31.57 per share. The Company measured the fair market 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 15, 2007 the Company awarded 133,000 options 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 15, 2007 and were 30%, 6.5 years, 1.95%, and 4.68%, respectively. The options have been determined to have a fair value of $10.51 per share.

     On April 18, 2006 the Company granted 10,000 options and 5,200 restricted stock awards from the 2006 Non-Employee Director Stock Plan to certain directors of the Company and/or the Bank. The expected volatility, expected life, expected dividend yield, and expected risk free interest rate for this grant of options used to determine their fair value were determined on April 18, 2006 and were 27%, 4 years, 2.36%, and 4.86%, respectively. The options have been determined to have a fair value of $7.30 per share. The restricted stock awards have been determined to have a fair value of $32.23 per share. The Company measured the fair value of the restricted 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.

NOTE 3 - RECENT ACCOUNTING DEVELOPMENTS

Accounting Pronouncements Adopted in the First Six Months of 2007

     FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes” In June 2006, the FASB issued FIN 48, an interpretation of SFAS No. 109, “Accounting for Income Taxes,” in order to add clarity to the accounting for uncertainty in income taxes recognized in a Company’s financial statements. The interpretation requires that only tax positions that are more likely than not to be sustained upon a tax examination are to be recognized in a Company’s financial statements to the extent that the benefit has a greater than 50% likelihood of being recognized. The differences that arise between the amounts recognized in the financial statements and the amounts recognized in the tax return will lead to an increase or decrease in current taxes, an increase or decrease to the deferred tax asset or deferred tax liability, respectively, or both. FIN 48 is effective for fiscal years beginning after December 15, 2006 with early application encouraged if interim financial statements have not

yet been issued. Upon the adoption of FIN 48 the Company recognized a $177,000 decrease in the liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007 balance of retained earnings.

New Accounting Pronouncements Not Yet Adopted

     SFAS 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. The effective date is for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating if the adoption of SFAS 157 will have a material impact on the Company’s financial position or results of operations.

     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 is as of the beginning of the first fiscal year beginning after November, 15, 2007. Early adoption is permissible as of the beginning of the fiscal year that begins before November 17, 2007 provided that SFAS No. 157, Fair Value Measurements, is adopted as well. The Company plans to adopt SFAS 159 as of January 1, 2008. The Company has not yet determined the impact of the adoption of SFAS 159 to the Company’s statement of financial position or results of operations.

     Emerging Issues Task Force (“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 will require 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), then the employer should recognize the value of the loan (including accrued interest, if applicable). EITF 06-10 is 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 has not yet determined the impact of EITF 06-10 to the Company’s consolidated financial statements or results of operations.

NOTE 4 - 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 six months ended June 30, 2007 and 2006:

For the Three Months Ended June 30,		Net Income
		2007				2006
		(Dollars in Thousands)
Net Income		$	5,714			$	8,290

		Weighted Average
		Shares
		2007				2006
Basic EPS			14,101,468				14,999,127
Effect of dilutive securities			129,796				162,747
Diluted EPS			14,231,264				15,161,874

		Net Income
		Per Share
		2007				2006
Basic EPS		$	0.41			$	0.55
Effect of dilutive securities		$	0.01			$	0.00
Diluted EPS		$	0.40			$	0.55

For the Six Months Ended June 30,		Net Income
		2007				2006
		(Dollars in Thousands)
Net Income		$	12,339			$	16,194

		Weighted Average
		Shares
		2007				2006
Basic EPS			14,282,226				15,159,252
Effect of dilutive securities			146,097				159,472
Diluted EPS			14,428,323				15,318,724

		Net Income
		Per Share
		2007				2006
Basic EPS		$	0.86			$	1.07
Effect of dilutive securities		$	0.00			$	0.01
Diluted EPS		$	0.86			$	1.06

     For the three months ended June 30, 2007, there were 342,592 options to purchase common stock and 3,626 shares of restricted stock excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the six months ended June 30, 2007, there were 274,907 options to purchase common stock and no shares of restricted stock excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the three and six months ended June 30, 2006, there were 168,732 and 208,442, respectively, options to purchase common stock excluded from the calculation of diluted earnings per share because they were anti-dilutive. For the three and six months ended June 30, 2006, there were 325 and 1,635 shares of restricted stock excluded from the calculation of diluted earnings per share because they were anti-dilutive.

NOTE 5- COMMON STOCK REPURCHASE PROGRAM

     On January 19, 2006, the Company’s Board of Directors approved a common stock repurchase program. Under the program, the Company was authorized to repurchase up to 800,000 shares, or approximately 5% of the Company’s outstanding common stock. During the quarter ended September 30, 2006, the Company completed its repurchase plan with a total of 800,000 shares of common stock repurchased at a weighted average share price of $31.04.

     On December 14, 2006, the Company’s Board of Directors approved another common stock repurchase program. Under the program, which was effective immediately, the Company is authorized to repurchase up to 1,000,000 shares, or approximately 7%, of the Company’s outstanding common stock. The Company placed no deadline on the repurchase program, but expects to make open market or privately negotiated purchases from time to time. The timing and amount of stock repurchases will depend upon market conditions, securities law limitations, and other corporate considerations. The repurchase program may be modified, suspended, or terminated by the Board of Directors at any time. During the quarter ended June 30, 2007, the Company repurchased 393,900 shares of common stock at a weighted average share price of $30.32. For the year to date period ending June 30, 2007 the Company repurchased 805,747 shares of common stock with at a weighted average price of $31.39.

NOTE 6- EMPLOYEE BENEFITS

POST RETIREMENT BENEFITS AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS

     The following table illustrates the status of the post-retirement benefit plan and supplemental executive retirement plans (“SERPs”) as of June 30, for the periods presented:

Components of Net Periodic Benefit Cost

		Post Retirement Benefits								SERPs
		Three months ended June 30,
		2007				2006				2007				2006
		(Unaudited - Dollars in Thousands)
Service cost		$	22			$	23			$	50			$	50
Interest cost			18				18				37				34
Amortization of transition obligation			9				8				—				—
Amortization of prior service cost			3				3				10				10
Recognized net actuarial (gain)/loss			—				—				(1	)			(1	)
Net periodic benefit cost		$	52			$	52			$	96			$	93

		Post Retirement Benefits								SERPs
		Six months ended June 30,
		2007				2006				2007				2006
		(Unaudited - Dollars in Thousands)
Service cost		$	45			$	46			$	154			$	99
Interest cost			36				36				80				68
Amortization of transition obligation			17				17				—				—
Amortization of prior service cost			6				6				20				21
Recognized net actuarial (gain)/loss			—				—				(2	)			(2	)
Net periodic benefit cost		$	104			$	105			$	252			$	186

     Included in the SERP net periodic benefit cost above is an additional $60,000 accrued during the first quarter of 2007 associated with the early retirement of an executive.

     The Company previously disclosed in its financial statements for the fiscal year ended December 31, 2006 that it expected to contribute $59,000 to its post retirement benefit plan and $113,000 to its SERPs in 2007 and presently anticipates making these contributions. For the three months ended June 30, 2007, $10,000 and $28,000 of contributions have been made to the post retirement benefit plan and the SERPs, respectively. For the six months ended June 30, 2007, $21,000 and $60,000 of contributions have been made to the post retirement benefit plan and the SERPs, respectively.

     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”). 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 2006-2007 plan year were all paid in 2006. It has not yet been determined what pension expense is expected to be related to the

2007-2008 plan year. $355,000 and $709,000 of pension expense has been recognized during the three and six months ended June 30, 2007 for the 2006-2007 plan year.

NOTE 7 - REPURCHASE AGREEMENTS

     Both wholesale and retail repurchase agreements are collateralized by mortgage-backed securities and U.S. Government enterprises. At June 30, 2007, the Company had no securities of repurchase agreements outstanding with third party brokers and $94.2 million of customer repurchase agreements outstanding. The related securities are included in the securities available for sale portfolio.

NOTE 8 - COMPREHENSIVE INCOME

     Information on the Company’s comprehensive income, presented net of taxes, is set forth below for the three and six months ended June 30, 2007 and 2006 .

Comprehensive income (loss) is reported net of taxes, as follows:
(Unaudited - Dollars in Thousands)

		FOR THE THREE								FOR THE SIX
		MONTHS ENDED								MONTHS ENDED
		JUNE 30,								JUNE 30,
		2007				2006				2007				2006
Net Income		$	5,714			$	8,290			$	12,339			$	16,194
Other Comprehensive Income/(Loss), Net of Tax:
Decrease in fair value of securities available for sale, net of tax of $1,242 and $980 for the three months ended June 30, 2007 and 2006, respectively, and $769 and $3,260 for the six months ended June 30, 2007 and 2006, respectively.			(2,296	)			(1,593	)			(1,553	)			(5,371	)
Less: reclassification adjustment for realized losses included in net income, net of tax of $637 for the six months ended June 30, 2006.			—				—				—				1,132
Net change in fair value of securities available for sale, net of tax of $1,242 and $980 for the three months ended June 30, 2007 and 2006, respectively, and $769 and $2,623 for the six months ended June 30, 2007 and 2006, respectively.			(2,296	)			(1,593	)			(1,553	)			(4,239	)
Increase in fair value of derivatives, net of tax of $936 and $678 for the three months ended June 30, 2007 and 2006, respectively, and $623 and $1,462 for the six months ended June 30, 2007 and 2006, respectively.			1,293				937				860				2,019
Less: reclassification of realized gains on derivatives, net of tax of $26 and $77 for the three months ended June 30, 2007 and 2006, respectively, and $103 and $254 for the six months ended June 30, 2007 and 2006, respectively			(36	)			(107	)			(142	)			(351	)
Net change in fair value of derivatives, net of tax of $910 and $601 for the three months ended June 30, 2007 and 2006, respectively, and $520 and $1,208, for the six months ended June 30, 2007 and 2006, respectively.			1,257				830				718				1,668
Adjustments or reduction of amounts not yet recognized as a component of net periodic post retirement cost, net of tax of $20 for the three months ended June 30, 2007 and $40 for the six months ended June 30, 2007.			27				—				55				—
Other Comprehensive Loss, Net of Tax:			(1,012	)			(763	)			(780	)			(2,571	)
Comprehensive Income		$	4,702			$	7,527			$	11,559			$	13,623

NOTE 9 - UNCERTAINTY IN INCOME TAXES

     The Company adopted FASB Interpretation No. 48 (“FIN No. 48), “Accounting for Uncertainty in Income Taxes” on January 1, 2007. As a result of the implementation of FIN No. 48, the Company recognized a $177,000 decrease in the liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007, balance of retained earnings.

     At January 1, 2007, after implementation of FIN No. 48, the Company had unrecognized tax benefits of approximately $760,000 largely related to certain deductions of interest expense, all of which if recognized would be recorded as a component of income tax expense therefore affecting the effective tax rate.

     The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in the state of Massachusetts and various other states as required. The Company is subject to U.S. federal, state and local income tax examinations by tax authorities for the years 2003 to the present.

     Upon filing the 2006 returns in September of 2007 the income tax returns for 2003 will no longer be subject to income tax examinations and therefore the related uncertainties in income taxes will be realized.

     The Company recognizes interest accrued and penalties related to unrecognized tax benefits as income taxes. As of January 1, 2007 the Company had approximately $79,000 accrued for the payment of interest and penalties.

NOTE 10 - SUBSEQUENT EVENT

     As previously disclosed, Rockland Trust is the plaintiff in the pending federal court case commonly known as Rockland Trust Company v. Computer Associates International, Inc., United States District Court for the District of Massachusetts Civil Action No. 95-11683-DPW (the “CA Case”). At trial Computer Associates International, Inc. (“CA”) asserted that Rockland Trust owes CA at least approximately $1.1 Million.

     On July 24, 2007 the judge who is presiding over the CA Case informed the parties that he is “going to enter judgment for Computer Associates.” The judge, however, has not yet rendered a Final Judgment or any written opinion to describe the basis for his decision or the amount of any damages to be awarded.

     On August 1, 2007 the Company established a $1.4 Million reserve for the CA Case, effective as of June 30, 2007. While the final outcome of the CA Case may differ from the $1.4 Million charge that the Company has recorded, the Company does not believe that the final outcome will have either an impact on its operations or any significant effect on its financial position.

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, 2006, 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 in the strength of the United States economy in general and the strength of the regional and local economies within the New England region and Massachusetts which could result in a deterioration of credit quality, a change in the allowance for loan losses, or a reduced demand for the 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;
	•		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;
	•		the potential to adapt to 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; and
	•		future 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 interest paid on deposits and borrowings. The results of operations are also affected by the level of income/fees from loans, deposits, mortgage banking, and wealth management activities, as well as operating expenses, the provision for loan losses, the impact of federal and state income taxes, and the relative levels of interest rates and economic activity.

     During the second quarter of 2007 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. While net income of $5.7 million and earnings per share on a diluted basis of $0.40 for the second quarter of 2007 were down from $8.3 million, or 31.1%, and $0.15, or 27.3%, respectively, as compared to the same period in 2006, the net interest margin

remains strong. The net interest margin for the second quarter of 2007 was 3.85% (which includes a write-off of debt issuance costs as interest expense of $907,000, contributing to a decrease in the margin of 15 basis points), as compared to a net interest margin of 3.84% for the first quarter of 2007 and 3.89% for the second quarter of 2006.

     The following graph shows the trend in the net interest margin versus the Federal Funds Rate for each quarter end beginning March 31, 2005 through June 30, 2007:

     While changes in the prevailing interest rate environment (see Historical U.S. Treasury Yield Curve graph above) 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 8 – “Interest Rate Derivatives”, and Market Risk section, Table 10 – “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 the period ending June 30. As the graph illustrates, the shape of the yield curve has changed dramatically over the past four years from a normal sloping yield curve into a relatively flat yield curve.

     “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

     The Company’s return on average assets and return on average equity were 0.85% and 10.44%, respectively, for the three month period ending June 30, 2007. The Company’s return on average assets and return on average equity were 1.14% and 14.90%, respectively, for the three month period ending June 30, 2006.

     A table describing the impact of certain items on the statements of income for the quarters and six months ending on June 30, 2007 and 2006 is set forth below:

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

Table of Impact of Non-core Items

		Quarter Ending June 30,
																		Impact on Diluted
		Pretax Impact								Impact on Net Income								Earnings Per Share
		2007				2006				2007				2006				2007				2006
		(Dollars in Thousands, except per share amounts)
Net Interest Income Components
Write-Off of Debt Issuance Cost		$	907			$	—			$	590			$	—			$	0.04			$	—
Non-Interest Expense Components
Litigation Reserve			1,361				—				885				—				0.06				—
Total		$	2,268			$	—			$	1,475			$	—			$	0.10			$	—

		Year to Date Ending June 30,
																		Impact on Diluted
		Pretax Impact								Impact on Net Income								Earnings Per Share
		2007				2006				2007				2006				2007				2006
						(Dollars in Thousands, except per share amounts)
Net Interest Income Components
Write-Off of Debt Issuance Cost		$	907			$	—			$	590			$	—			$	0.04			$	—
Non-Interest Income Components
Loss on Sale of Securities			—				1,769				—				1,150				—				0.08
BOLI Benefit Proceeds			—				(1,316	)			—				(1,316	)			—				(0.09	)
Non-Interest Expense Components
Executive Early Retirement Costs			406				—				264				—				0.02				—
Litigation Reserve			1,361				—				885				—				0.06
Total		$	2,674			$	453			$	1,739			$	(166	)		$	0.12			$	(0.01	)

     Certain non-core items are included in the computation of earnings in accordance with generally accepted accounting principles (“GAAP”) in both 2007 and 2006 as indicated by the table above. In an effort to provide investors information regarding the Company’s results, the Company has disclosed in the tables 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.

     Non interest income grew by 11.3% and 16.1%, respectively, for this quarter and year to date as compared to the same periods in 2006. Leading the growth in non interest income is the Company’s Wealth Management product set, the aggregate revenues of which have grown by 27.9% and 30.6%, respectively, for the three and six month periods ending June 30, 2007 as compared to the same periods in 2006.

     Non interest expense has grown by 12.7% and 8.8% for the three and six month periods ending June 30, 2007 compared to the same periods in the prior year. The increase in expenses is partially attributable to early retirement costs of $406,000 recorded in the first quarter of 2007 as well as a charge of $1.4 million recorded in the second quarter of 2007 associated with the Computer Associates litigation reserve. See Item 1, Note 10-Subsequent Event, above. The remaining increase in expenses is driven by the investments made in the Company’s growth initiatives such as adding commercial lenders to its commercial business, costs associated with acquiring the 1031 like-kind exchange business, commissions connected with retail wealth management, and adding originators to the mortgage lending business.

     Management continues to focus on earning asset growth in the commercial and home equity lending segments, while de-emphasizing indirect auto, portfolio residential lending, and the securities portfolio. Loan growth during the second quarter of 2007 remained a challenge

for the Company. The commercial loan growth has slowed due to a reduction of the development of real estate in the Company’s market area. However, the commercial pipeline remains strong and the Company continues to implement its New Market Tax Credit Lending program. Overall, year to date total business lending is up 1.0%.

     Consumer home equity loans have increased by $11.3 million, or 4.1%, since the year ended December 31, 2006. Residential real estate and consumer auto lending loan categories have decreased by $35.0 million, or 9.2%, and $28.0 million, or 13.5%, respectively from year end 2006. Overall growth in the loan portfolio is expected to be down by 3.0% by year-end.

     As the current interest rate environment is not conducive to maintaining or increasing the securities portfolio, the Company is permitting the securities portfolio to run-off and thereby decrease on both a relative basis (as a percent of earning assets) and an actual basis.

     The following pie charts depict the continuing shift in the composition of earning assets into the commercial, home equity, and small business banking lending as of June 30, 2007, 2006, and 2005.

     The following graph shows the decline in the Company’s securities portfolio on both an actual and relative basis from March 2006 into June 2007:

     Management is also focused on other initiatives and opportunities, some of which are described below:

	•		For the second year in a row, the Company is engaged in a stock buyback program to return excess capital to the Company’s shareholders;
	•		Adding new commercial bankers to facilitate commercial loan growth;
	•		Increasing utilization of the second New Markets Tax Credit award to offer preferential rates and terms to businesses operating in economically distressed areas;
	•		Increasing the number of net new household banking relationships;
	•		Expanding fee income through organic growth of the wealth management business and offering new fee income services such as the 1031 like-kind exchange services offered by the Company’s new Compass Exchange Advisors (“CEA”) subsidiary;
	•		Closely managing expenses, while we plan to open two new branches in 2007, we closed a location in the first half of 2007; and
	•		Targeting expansion through opening new branches in selected markets and evaluating potential acquisition opportunities in the wealth management industry.

     Total deposits of $2.1 billion at June 30, 2007 decreased $38.3 million, or 1.8%, compared to December 31, 2006, due in part to the competitive pricing environment. 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 and does not feel a need to aggressively grow non-core deposits to fund balance sheet growth.

     While net loan charge-offs were somewhat higher in the second quarter of 2007 than in the same period in 2006, they were still relatively low at an annualized rate of 16 basis points of average loans. Net charge-offs were 9 basis points of average loans on annualized basis at June 30, 2006. The allowance for loan losses increased to 1.35% of loans as compared to 1.32% at December 31, 2006. Nonperforming assets were $6.2 million at June 30, 2007, a decrease of $1.0 million from December 31, 2006. See Table 2- Nonperforming Assets/ Loans for detail on nonperforming assets.

     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 first six months of 2007 included:

o		Acquired Compass Exchange Advisors LLC on January 2, 2007.
o		Projecting a $25 million capital contribution, in the aggregate, during 2007 into RTC CDE II to continue implementation of the $45 million in tax credit allocation authority recently awarded under the New Markets Tax Credit Program.
o		Continued disciplined capital management, as reflected by the following:

	§		During the quarter ending June 30, 2007 the Company repurchased 393,900 shares of common stock with a weighted average price of $30.32. For the year to date period ending June 30, 2007 the Company repurchased 805,747 shares of common stock with a weighted average price of $31.39.
	§		The Bank redeemed all of its outstanding 8.375% Cumulative Trust Preferred Securities on April 30, 2007 which completed the refinancing plan of its Trust

			Preferred Securities. The Company will benefit from the redemption with a savings of approximately $1.0 million in interest expense, on an annualized basis (the Company also wrote-off unamortized issuance costs associated with the debt of approximately $907,000 in April of 2007 upon redemption of these Trust Preferred Securities); and, by
	§		The quarterly dividend increased 6.3% to $0.17 per share, compared to second quarter 2006.

FINANCIAL POSITION

     Loan Portfolio Total loans decreased by $43.9 million, or 2.2%, during the six months ended June 30, 2007. The decreases were mainly in residential real estate which decreased in total by $37.6 million, or 9.5%, and the consumer-auto portfolio, which decreased by $28.0 million, or 13.5%. Partially offsetting these decreases were increases in the total commercial portfolio, which increased by $5.0 million, or 0.5%, the consumer-home equity portfolio of $11.3 million, or 4.1%, and in small business banking loans of $6.2 million, or 10.4%.

     The Bank’s commercial real estate portfolio, the Bank’s largest portfolio, is well-diversified with loans secured by a variety of property types, such as owner-occupied and non-owner-occupied commercial, retail, office, industrial, warehouse and other special purpose properties, such as hotels, motels, restaurants, and golf courses. Commercial real estate also includes loans secured by certain residential-related property types including multi-family apartment buildings, residential development tracts and, to a lesser extent, condominiums. The following pie chart shows the diversification of the commercial real estate portfolio as of June 30, 2007.

Commercial Real Estate Portfolio by Property Type

     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 June 30, 2007, loans made by the Company to the industry concentration of lessors of non-residential buildings constituted 10.9% of the Company’s total loan portfolio. All of these loans were performing at June 30, 2007.

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

     Delinquency The Bank’s philosophy toward managing its loan portfolios is predicated upon careful monitoring which stresses early detection and response to delinquent and default situations. The Bank seeks to make arrangements to resolve any delinquent or default situation over the shortest possible time. 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 contact 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 1 - Summary of Delinquency Information
		At June 30, 2007																At December 31, 2006
		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)
Commercial and Industrial			2			$	323				5			$	304				6			$	1,173				6			$	528
Commercial Real Estate			1				357				7				1,585				1				104				3				538
Commercial Construction			—				—				—				—				—				—				—				—
Business Banking			4				25				13				222				3				86				6				74
Residential Real Estate			2				101				2				1,142				4				621				3				1,409
Residential Construction			—				—				—				—				—				—				—				—
Consumer - Home Equity			3				145				7				373				1				16				7				345
Consumer - Auto			50				575				73				554				68				553				62				676
Consumer - Other			38				155				30				116				11				67				23				199
Total			100			$	1,681				137			$	4,296				94			$	2,620				110			$	3,769

     The Company’s total loan delinquency was 0.85% of total loans outstanding at June 30, 2007, as compared to 0.72% at December 31, 2006. Increases shown above in the 90 day category are contained primarily in the commercial real estate category. Management believes these loans are adequately collateralized.

     Nonaccrual Loans As permitted by banking regulations, consumer loans past due 90 days or more may continue to accrue interest. In addition, certain commercial, business banking, 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, business banking, 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 it becomes current with respect to principal and interest (and in certain instances remains current for up to three months), when the loan is liquidated, or when 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. As of June 30, 2007, nonperforming assets totaled $6.2 million, a decrease of $1.0 million, or 14.0%, compared to December 31, 2006. The overall decrease in nonperforming assets is attributable mainly to decreases in nonperforming loans shown in the commercial and residential mortgage loan categories and in the commercial and industrial category. Nonperforming assets represented 0.23% of total assets at June 30, 2007 and 0.25% at December 31, 2006. The Bank had one property held as OREO totaling $305,000 and no nonperforming securities for the period ending June 30, 2007.

     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 $567,000 $451,000 and $392,000 as of June 30, 2007, December 31, 2006, and June 30, 2006, respectively.

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

Table 2 - Nonperforming Assets / Loans
(Unaudited - Dollars in Thousands)

		As of				As of				As of
		June 30,				December 31,				June 30,
		2007				2006				2006
Loans past due 90 days or more but still accruing
Consumer - Home Equity		$	—			$	—			$	16
Consumer - Auto			243				252				298
Consumer - Other			67				137				69
Total		$	310			$	389			$	383
Loans accounted for on a nonaccrual basis (1)
Commercial and Industrial		$	301			$	872			$	322
Business Banking			343				74				80
Commercial Real Estate			2,014				2,346				2,801
Residential Real Estate			1,927				2,318				918
Consumer - Home Equity			373				358				—
Consumer - Auto			567				451				392
Consumer - Other			23				171				31
Total		$	5,548			$	6,590			$	4,544
Total nonperforming loans		$	5,858			$	6,979			$	4,927
Other real estate owned		$	305			$	190			$	—
Total nonperforming assets		$	6,163			$	7,169			$	4,927
Restructured loans		$	—			$	—			$	—
Nonperforming loans as a percent of gross loans			0.30	%			0.34	%			0.24	%
Nonperforming assets as a percent of total assets			0.23	%			0.25	%			0.17	%

     In the course of resolving nonperforming loans, the Bank may choose to restructure the contractual terms of certain commercial and real estate loans. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status. It is the Bank’s policy to maintain restructured loans on nonaccrual status for approximately six months before management considers a restructured loan’s return to accrual status. At June 30, 2007, December 31, 2006 and June 30, 2006 the Bank had no restructured loans.

     Potential problem loans are any loans, which are not categorized as nonaccrual or non-performing loans and which are not considered troubled debt restructures, where known information about possible credit problems of the borrowers causes management to have concerns as to the ability of such borrowers to comply with present loan repayment terms. At

June 30, 2007 the Bank had fourteen potential problem loan relationships and at December 31, 2006 the Bank had fifteen potential problem loan relationships, which are not included in nonperforming loans. Outstanding balances on these loans totaled $23.7 million and $21.8 million at June 30, 2007 and December 31, 2006, respectively. At June 30, 2007, these problem loans continued to perform and 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 both the three months ended June 30, 2007, and June 30, 2006, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $34,000 and $52,000, respectively. Interest income that would have been recognized for both the six months ended June 30, 2007, and June 30, 2006, if nonperforming loans at the respective dates had been performing in accordance with their original terms, approximated $122,000 and $118,000, respectively. The actual amount of interest that was collected on these nonaccrual and restructured loans during the three months ended June 30, 2007 and June 30, 2006 and included in interest income was approximately $28,000 and $8,000, respectively. The actual amount of interest that was collected on these nonaccrual and restructured loans during the six months ended June 30, 2007 and June 30, 2006, including interest income, was approximately $94,000 and $47,000, 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, and selectively, for certain consumer, residential or home equity loans, by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of homogeneous loans are collectively evaluated for impairment. As such, the Bank does not typically identify individual loans within these groupings for impairment evaluation and disclosure.

     At June 30, 2007, impaired loans include all commercial real estate loans and commercial and industrial loans on nonaccrual status and other loans that have been categorized as impaired. Total impaired loans at June 30, 2007 and December 31, 2006 were $2.7 million and $3.6 million, respectively.

     Allowance For Loan Losses While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on increases in nonperforming loans, changes in economic conditions, or for other reasons. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses.

     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.

     As of June 30, 2007, the allowance for loan losses totaled $26.7 million, or 1.35%, of total loans as compared to $26.8 million, or 1.32%, of total loans at December 31, 2006. Based on management’s analysis, management believes that the level of the allowance for loan losses at June 30, 2007 is adequate.

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

Table 3 - Summary of Changes in the Allowance for Loan Losses

		Quarter to Date
		June 30,				March 31,				December 31,				September 30,				June 30,
		2007				2007				2006				2006				2006
		(Unaudited - Dollars in Thousands)
Average loans		$	1,987,156			$	2,003,218			$	2,032,331			$	2,038,194			$	2,051,032
Allowance for loan losses, beginning of period		$	26,815			$	26,815			$	26,814			$	26,811			$	26,746
Charged-off loans:
Commercial and Industrial			133				334				45				—				—
Business Banking			178				93				234				69				49
Commercial Real Estate			—				—				—				—				—
Residential Real Estate			—				—				—				—				—
Commercial Construction			—				—				—				—				—
Residential Construction			—				—				—				—				—
Consumer - Home Equity			80				—				—				—				—
Consumer - Auto			324				420				498				469				292
Consumer - Other			189				276				211				262				158
Total charged-off loans			904				1,123				988				800				499
Recoveries on loans previously charged-off:
Commercial and Industrial			4				39				41				99				29
Business Banking			1				3				80				1				11
Commercial Real Estate			—				—				—				—				—
Residential Real Estate			—				—				—				—				—
Commercial Construction			—				—				—				—				—
Residential Construction			—				—				—				—				—
Consumer - Home Equity			—				—				—				—				—
Consumer - Auto			86				126				125				111				129
Consumer - Other			64				64				38				62				45
Total recoveries			155				232				284				273				214
Net loans charged-off			749				891				704				527				285
Provision for loan losses			584				891				705				530				350
Total allowance for loan losses, end of period		$	26,650			$	26,815			$	26,815			$	26,814			$	26,811
Net loans charged-off as a percent of average total loans (annualized)			0.15	%			0.18	%			0.14	%			0.10	%			0.06	%
Total allowance for loan losses as a percent of total loans			1.35	%			1.34	%			1.32	%			1.31	%			1.31	%
Total allowance for loan losses as a percent of nonperforming loans			454.93	%			364.65	%			384.22	%			390.99	%			544.16	%
Net loans charged-off as a percent of allowance for loan losses (annualized)			11.24	%			13.29	%			10.50	%			7.86	%			4.25	%
Recoveries as a percent of charge-offs (annualized)			17.15	%			20.66	%			28.74	%			34.13	%			42.89	%