Independent Bank Corp. Reports Third Quarter Net Income of $23.9 Million

Higher Revenues and Returns Drive Solid Earnings Growth

ROCKLAND, Mass.--()--Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2017 third quarter net income of $23.9 million, or $0.87 per diluted share, compared to $20.6 million, or $0.75 per diluted share, reported in the prior quarter. There were no adjustments to net income during the third quarter which the Company considers to be non-core, whereas the second quarter 2017 net income included merger and acquisition expenses, which the Company does consider to be non-core. Excluding these items and their related tax impact, adjusted net income for the second quarter of 2017 was $22.4 million, or $0.82 per diluted share. Third quarter 2017 results compared to the adjusted second quarter 2017 results reflect an increase in adjusted net income of $1.5 million, or 6.6%, and an increase in adjusted diluted earnings per share of $0.05, or 6.1%.

“Rockland Trust’s strong performance continued in the third quarter of 2017, a period in which we achieved a new quarterly earnings per share record,” said Christopher Oddleifson, the Chief Executive Officer and President of Independent Bank Corp. and Chief Executive Officer of Rockland Trust Company. "We are well positioned to take advantage of a rising interest rate environment, and the increases in both our net interest margin and earnings during this quarter demonstrate that we are harvesting the benefits of our loan and deposit pricing strategies. My colleagues are devoted to the customers and communities we serve, and those tireless efforts will help us to continue to execute our plans for future growth.”

BALANCE SHEET

Total assets of $8.1 billion at September 30, 2017 increased by $35.6 million, or 0.4%, from the prior quarter and by $550.9 million, or 7.3%, as compared to the year ago period, inclusive of the 2017 second quarter Island Bancorp, Inc. ("Island Bancorp") acquisition and 2016 fourth quarter New England Bancorp, Inc. ("NEB") acquisition.

Total loans grew modestly in the third quarter by $20.2 million, or 0.3%, from the prior quarter. Within the overall commercial portfolio, strong growth in commercial construction (increase of $54.5 million, or 16.0% ) was offset by a decline in commercial and industrial (decrease of $52.4 million, or 5.8% ), related to lower utilization rates reflective of weaker customer demand conditions. The combined consumer real estate loan portfolio increased during the third quarter by $15.6 million, or 0.9%. Exclusive of the recent acquisitions, total loans increased by $162.5 million, or 2.8%, when compared to the year ago period.

Deposit balances in the third quarter remained relatively consistent with the prior quarter. The Company continued to experience strong growth in demand deposits (increase of $65.3 million, or 3.1%) along with higher time deposit levels arising from the increase in short term rates. These increases were offset by seasonal declines in government banking accounts. Exclusive of the recent acquisitions, total deposits increased by $78.2 million, or 1.2%, when compared to the year ago period. The Company's core deposits as a percentage of total deposits remained over 90% at September 30, 2017. The total cost of deposits increased by two basis points in the third quarter to 0.20%.

The securities portfolio also remained relatively flat to the prior quarter and is up approximately $90.6 million from the year ago period. None of this increase was attributable to the recent acquisitions. Total securities of $909.2 million comprised 11.3% of total assets at September 30, 2017.

The Company's total borrowings of $340.7 million increased $20.3 million during the third quarter, mainly due to an increase in customer repurchase agreements. Also during the third quarter, a $25.0 million Federal Home Loan Bank ("FHLB") advance matured and was replaced with a new $25.0 million FHLB advance in conjunction with an interest-rate-swap agreement, effectively lowering the borrowing rate. As a result, the total cost of borrowings declined 17 basis points to 1.63% for the third quarter, versus 1.80% in the linked quarter.

Stockholders' equity at September 30, 2017 rose to $931.2 million, representing increases of 1.8% from June 30, 2017, due primarily to strong earnings retention. Stockholders' equity increased by 13.8% when compared to the year ago period, driven by the Island Bancorp and NEB acquisitions. Book value per share increased $0.60, or 1.8%, during the third quarter compared to the prior quarter, and the Company's ratio of common equity to assets of 11.56% increased by 15 basis points from the prior quarter and by 65 basis points from the same period a year ago. The Company's tangible book value per share rose by $0.64, or 2.6%, to $25.12 in the third quarter compared to the second quarter of 2017, reflecting an 8.8% increase from the year ago period. The Company's ratio of tangible common equity to tangible assets of 8.82% at September 30, 2017 represents increases of 18 basis points from the prior quarter and 49 basis points from the same period a year ago.

NET INTEREST INCOME

Net interest income for the third quarter increased 5.2% to $67.1 million compared to $63.8 million in the prior quarter, which was attributable to both higher levels of interest-earning assets and a higher net interest margin. The Company’s net interest margin increased by 5 basis points from the prior quarter to 3.65%, reflecting the Company's asset sensitive position. In the past year the net interest margin has risen by 25 basis points.

NONINTEREST INCOME

Noninterest income decreased $628,000, to $20.8 million in the third quarter. Significant changes in noninterest income in the third quarter compared to the prior quarter included the following:

  • Deposit account fees and interchange and ATM fees increased by $100,000, or 1.1%, driven mainly by seasonal debit card usage.
  • Investment management income was consistent, reflecting a higher level of assets under administration, which grew 2.5% to $3.3 billion as of September 30, 2017, due to strong new business results as well as market appreciation, offset by a decrease in seasonal tax preparation fees.
  • Loan level derivative income decreased by $553,000, or 41.4%, as a result of reduced customer demand in the quarter.
  • Other noninterest income decreased by $182,000, or 6.3%, primarily due to a decrease in income from Community Reinvestment Act investments and a lower gain on sale of fixed assets.

NONINTEREST EXPENSE

Noninterest expense of $51.3 million in the third quarter was $1.5 million, or 2.8%, lower than the prior quarter. Significant changes in noninterest expense in the third quarter compared to the prior quarter included the following:

  • Salaries and employee benefits expense increased by $635,000, or 2.2%, due primarily to an increased workforce, a portion of which relates to the inclusion of the acquired Island Bancorp personnel for the full third quarter, as well as additional seasonal help and new hires.
  • There were no merger and acquisition costs for the third quarter of 2017 as compared to $2.9 million in the prior quarter. The majority of the expenses in the prior quarter related to compensation and severance agreements, as well as contract termination costs associated with the closing of the Island Bancorp acquisition.
  • Other noninterest expense increased by $771,000, or 5.8%, driven primarily by higher loan work out costs associated with the bankruptcy of a large commercial customer previously placed on nonaccrual status and reserved for, partially offset by a decrease in consulting fees.

The Company generated a return on average assets and a return on average common equity of 1.18% and 10.18%, respectively, in the third quarter, as compared to 1.06% and 9.15%, respectively, for the prior quarter. On an operating basis during the second quarter, the Company generated a return on average assets and return on average equity of 1.15% and 9.96%, respectively. There were no adjustments to net income during the third quarter which the Company considers to be non-core.

ASSET QUALITY

During the third quarter, the Company recorded total net recoveries of $231,000 compared to net charge-offs of $3.9 million in the prior quarter which were largely attributable to the aforementioned large commercial relationship which was specifically reserved for in the fourth quarter of 2016. As such, there was zero provision for loan losses for the third quarter of 2017 versus $1.1 million in the second quarter of 2017. Nonperforming loans decreased to $50.3 million, or 0.80% of loans, at September 30, 2017 from $51.8 million, or 0.83% of loans, at June 30, 2017. Total nonperforming assets decreased to $53.2 million at the end of the third quarter, as compared to $54.8 million at the end of the prior quarter. Delinquency as a percentage of loans was 0.82% as of September 30, 2017 and June 30, 2017.

The allowance for loan losses was $59.7 million at September 30, 2017, as compared to $59.5 million at June 30, 2017. The Company’s allowance for loan losses as a percentage of loans was 0.95% at both September 30, 2017 and June 30, 2017, respectively.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer, will host a conference call to discuss third quarter earnings at 10:00 a.m. Eastern Time on Friday, October 20, 2017. Internet access to the call is available on the Company’s website at www.rocklandtrust.com or via telephonic access by dial-in at 1-888-336-7153 reference: INDB. A replay of the call will be available by calling 1-877-344-7529, Replay Conference Number: 10112786 and will be available through November 3, 2017. Additionally, a webcast replay will be available until October 20, 2018.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.1 billion in assets and is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Rockland Trust offers a wide range of banking, investment, and insurance services to businesses and individuals through retail branches, commercial lending offices, investment management offices, and residential lending centers located in Eastern Massachusetts and Rhode Island, as well as through telephone banking, mobile banking, and the Internet. Rockland Trust is an FDIC Member and an Equal Housing Lender. To find out why Rockland Trust is the bank “Where Each Relationship Matters®”, please visit www.rocklandtrust.com.

This press release contains certain “forward-looking statements” with respect to the financial condition, results of operations and business of the Company. These statements may be identified by such forward-looking terminology as “expect,” “achieve,” “plan,” “believe,” “future,” “positioned,” “continued,” “will,” “would,” “potential,” or similar statements or variations of such terms. Actual results may differ from those contemplated by these forward-looking statements.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:

  • a weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area;
  • adverse changes or volatility in the local real estate market;
  • adverse changes in asset quality including an unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;
  • acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
  • changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
  • higher than expected tax expense, resulting from failure to comply with general tax laws, changes in tax laws, or failure to comply with requirements of the federal New Markets Tax Credit program;
  • unexpected changes in market interest rates for interest earning assets and/or interest bearing liabilities;
  • unexpected increased competition in the Company’s market area;
  • unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;
  • a deterioration in the conditions of the securities markets;
  • a deterioration of the credit rating for U.S. long-term sovereign debt;
  • our inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
  • electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
  • adverse changes in consumer spending and savings habits;
  • the inability to realize expected synergies from merger transactions in the amounts or in the timeframe anticipated;
  • inability to retain customers and employees, including those acquired in previous acquisitions;
  • the effect of laws and regulations regarding the financial services industry including, but not limited to, the Dodd-Frank Wall Street Reform and the Consumer Protection Act and regulatory uncertainty surrounding these laws and regulations;
  • changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;
  • changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;
  • cyber security attacks or intrusions that could adversely impact our businesses; and
  • other unexpected material adverse changes in our operations or earnings.

The Company wishes to caution readers not to place undue reliance on any forward-looking statements as the Company’s business and its forward-looking statements involve substantial known and unknown risks and uncertainties described in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q (“Risk Factors”). Except as required by law, the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise. Any public statements or disclosures by the Company following this release which modify or impact any of the forward-looking statements contained in this release will be deemed to modify or supersede such statements in this release. In addition to the information set forth in this press release, you should carefully consider the Risk Factors.

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This information includes operating earnings and operating EPS, tangible book value per share and the tangible common equity ratio, and return on average assets and return on average equity on an operating basis.

Operating earnings and operating EPS exclude items that management believes are unrelated to its core banking business such as losses on extinguishment of debt, merger and acquisition expenses, and other items. The Company’s management uses operating earnings and operating EPS to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such excluded gains or losses.

Management also supplements its evaluation of financial performance with analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or "tangible common equity", by common shares outstanding), the tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets, defined as total assets less goodwill and other intangibles)and with analysis of return on average assets and return on average common equity on an operating basis. The Company has included information on tangible book value per share, the tangible common equity ratio, and return on average assets and return on average common equity on an operating basis because management believes that investors may find it useful to have access to the same analytical tool used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be non-core and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating earnings, operating EPS, tangible book value per share, the tangible common equity ratio, and return on average assets and return on average equity on an operating basis are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

     

INDEPENDENT BANK CORP. FINANCIAL SUMMARY

CONSOLIDATED BALANCE SHEETS
(Unaudited, dollars in thousands)       % Change % Change
September 30
2017
June 30
2017
September 30
2016
Sept 2017 vs. Sept 2017 vs.
June 2017 Sept 2016
Assets
Cash and due from banks $ 100,404 $ 110,249 $ 92,185 (8.93 )% 8.92 %
Interest-earning deposits with banks 158,861 126,073 265,618 26.01 % (40.19 )%
Securities
Securities - trading 1,298 1,293 809 0.39 % 60.44 %
Securities - available for sale 429,125 415,943 387,008 3.17 % 10.88 %
Securities - held to maturity   478,798     498,392     430,763   (3.93 )% 11.15 %
Total securities 909,221 915,628 818,580 (0.70 )% 11.07 %
Loans held for sale (at fair value) 5,459 9,381 13,334 (41.81 )% (59.06 )%
Loans
Commercial and industrial 858,522 910,936 857,713 (5.75 )% 0.09 %
Commercial real estate 3,087,160 3,083,020 2,787,660 0.13 % 10.74 %
Commercial construction 395,267 340,757 376,245 16.00 % 5.06 %
Small business   130,656     131,663     115,054   (0.76 )% 13.56 %
Total commercial   4,471,605     4,466,376     4,136,672   0.12 % 8.10 %
Residential real estate 756,130 749,392 632,685 0.90 % 19.51 %
Home equity - first position 615,132 612,428 559,867 0.44 % 9.87 %
Home equity - subordinate positions   437,163     431,031     405,245   1.42 % 7.88 %
Total consumer real estate   1,808,425     1,792,851     1,597,797   0.87 % 13.18 %
Other consumer   9,872     10,469     11,664   (5.70 )% (15.36 )%
Total loans   6,289,902     6,269,696     5,746,133   0.32 % 9.46 %
Less: allowance for loan losses   (59,710 )   (59,479 )   (58,205 ) 0.39 % 2.59 %
Net loans   6,230,192     6,210,217     5,687,928   0.32 % 9.53 %
Federal Home Loan Bank stock 11,597 14,421 11,304 (19.58 )% 2.59 %
Bank premises and equipment, net 94,906 92,664 76,429 2.42 % 24.18 %
Goodwill 231,806 231,806 201,083 % 15.28 %
Other intangible assets 10,299 11,199 9,751 (8.04 )% 5.62 %
Cash surrender value of life insurance policies 150,352 149,319 137,723 0.69 % 9.17 %
Other real estate owned and other foreclosed assets 2,898 3,029 1,798 (4.32 )% 61.18 %
Other assets   146,924     143,307     186,276   2.52 % (21.13 )%
Total assets $ 8,052,919   $ 8,017,293   $ 7,502,009   0.44 % 7.34 %
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 2,183,760 $ 2,118,506 $ 2,024,235 3.08 % 7.88 %
Savings and interest checking accounts 2,568,620 2,676,389 2,417,195 (4.03 )% 6.26 %
Money market 1,302,662 1,292,311 1,198,959 0.80 % 8.65 %
Time certificates of deposit   627,900     608,174     629,071   3.24 % (0.19 )%
Total deposits   6,682,942     6,695,380     6,269,460   (0.19 )% 6.60 %
Borrowings
Federal Home Loan Bank borrowings 53,272 53,279 50,826 (0.01 )% 4.81 %
Customer repurchase agreements 179,670 159,371 140,914 12.74 % 27.50 %
Junior subordinated debentures, net 73,071 73,069 73,157 % (0.12 )%
Subordinated debentures, net   34,670     34,659     34,624   0.03 % 0.13 %
Total borrowings   340,683     320,378     299,521   6.34 % 13.74 %
Total deposits and borrowings   7,023,625     7,015,758     6,568,981   0.11 % 6.92 %
Other liabilities   98,070     86,951     114,786   12.79 % (14.56 )%
Total liabilities   7,121,695     7,102,709     6,683,767   0.27 % 6.55 %
Stockholders' equity
Common stock 273 272 261 0.37 % 4.60 %
Additional paid in capital 477,877 476,684 409,731 0.25 % 16.63 %
Retained earnings 452,658 437,587 404,750 3.44 % 11.84 %
Accumulated other comprehensive income, net of tax   416     41     3,500   914.63 % (88.11 )%
Total stockholders' equity   931,224     914,584     818,242   1.82 % 13.81 %
Total liabilities and stockholders' equity $ 8,052,919   $ 8,017,293   $ 7,502,009   0.44 % 7.34 %
 
       
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)
 
Three Months Ended
    % Change % Change
September 30
2017
June 30
2017
September 30
2016
Sept 2017 vs. Sept 2017 vs.
June 2017 Sept 2016
Interest income
Interest on federal funds sold and short-term investments $ 417 $ 190 $ 387 119.5 % 7.75 %
Interest and dividends on securities 5,661 5,635 5,062 0.46 % 11.83 %
Interest and fees on loans 65,667 62,287 56,778 5.43 % 15.66 %
Interest on loans held for sale   33     21     81   57.14 % (59.26 )%
Total interest income 71,778 68,133 62,308 5.35 % 15.20 %
Interest expense
Interest on deposits 3,331 2,912 2,733 14.39 % 21.88 %
Interest on borrowings   1,374     1,466     1,907   (6.28 )% (27.95 )%
Total interest expense   4,705     4,378     4,640   7.47 % 1.40 %
Net interest income 67,073 63,755 57,668 5.20 % 16.31 %
Provision for loan losses       1,050     950   nm nm
Net interest income after provision for loan losses 67,073 62,705 56,718 6.97 % 18.26 %
Noninterest income
Deposit account fees 4,401 4,392 4,766 0.20 % (7.66 )%
Interchange and ATM fees 4,525 4,434 4,190 2.05 % 8.00 %
Investment management 5,967 5,995 5,446 (0.47 )% 9.57 %
Mortgage banking income 1,338 1,314 1,963 1.83 % (31.84 )%
Increase in cash surrender value of life insurance policies 1,019 1,017 984 0.20 % 3.56 %
Gain on sale of equity securities 12 3 300.00 % nm
Loan level derivative income 784 1,337 810 (41.36 )% (3.21 )%
Other noninterest income   2,724     2,906     2,257   (6.26 )% 20.69 %
Total noninterest income 20,770 21,398 20,416 (2.93 )% 1.73 %
Noninterest expenses
Salaries and employee benefits 29,289 28,654 27,395 2.22 % 6.91 %
Occupancy and equipment expenses 6,085 6,059 5,433 0.43 % 12.00 %
Data processing and facilities management 1,272 1,188 1,400 7.07 % (9.14 )%
FDIC assessment 673 778 725 (13.50 )% (7.17 )%
Merger and acquisition expense 2,909 151 nm nm
Loss on sale of equity securities 1 2 (50.00 )% nm
Other noninterest expenses   13,990     13,219     11,753   5.83 % 19.03 %
Total noninterest expenses 51,310 52,809 46,857 (2.84 )% 9.50 %
Income before income taxes 36,533 31,294 30,277 16.74 % 20.66 %
Provision for income taxes   12,681     10,731     9,793   18.17 % 29.49 %
Net Income $ 23,852   $ 20,563   $ 20,484   15.99 % 16.44 %
 
nm - the percentage is not meaningful
Weighted average common shares (basic) 27,436,792 27,257,799 26,324,316
Common share equivalents   76,307     74,497     53,072  
Weighted average common shares (diluted)   27,513,099     27,332,296     26,377,388  
 
Basic earnings per share $ 0.87 $ 0.75 $ 0.78 16.00 % 11.54 %
Diluted earnings per share $ 0.87 $ 0.75 $ 0.78 16.00 % 11.54 %
 
Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP):  
Net income $ 23,852 $ 20,563 $ 20,484
Noninterest expense components
Add - merger and acquisition expenses       2,909     151  
Noncore items, gross 2,909 151
Less - net tax benefit associated with noncore items (1)       (1,088 )   (61 )

Noncore items, net of tax

      1,821     90  
Net operating earnings $ 23,852   $ 22,384   $ 20,574   6.56 % 15.93 %
 
Diluted earnings per share, on an operating basis $ 0.87 $ 0.82 $ 0.78 6.10 % 11.54 %

(1) The net tax benefit associated with noncore items is determined by assessing whether each
noncore item is included or excluded from net taxable income and applying the Company's combined
marginal tax rate to only those items included in net taxable income.

 
Performance ratios
Net interest margin (FTE) 3.65 % 3.60 % 3.40 %

Return on average assets GAAP
(calculated by dividing net income by average assets)

1.18 % 1.06 % 1.09 %

Return on average assets on an operating basis
(calculated by dividing net operating earnings by average assets)

1.18 % 1.15 % 1.10 %

Return on average common equity GAAP
(calculated by dividing net income by average common equity)

10.18 % 9.15 % 9.98 %

Return on average common equity on an operating basis
(calculated by dividing net operating earnings by average common equity)

10.18 % 9.96 % 10.03 %
 
CONSOLIDATED STATEMENTS OF INCOME    
(Unaudited, dollars in thousands, except per share data)  
Nine Months Ended
% Change
September 30
2017
September 30
2016
Sept 2017 vs.
Sept 2016
 
Interest income
Interest on federal funds sold and short-term investments $ 814 $ 767 6.13 %
Interest and dividends on securities 16,689 15,589 7.06 %
Interest and fees on loans 186,747 166,683 12.04 %
Interest on loans held for sale   68     170   (60.00 )%
Total interest income 204,318 183,209 11.52 %
Interest expense
Interest on deposits 9,010 8,339 8.05 %
Interest on borrowings   4,280     5,778   (25.93 )%
Total interest expense   13,290     14,117   (5.86 )%

Net interest income

191,028 169,092 12.97 %
Provision for loan losses   1,650     2,075   (20.48 )%
Net interest income after provision for loan losses 189,378 167,017 13.39 %
Noninterest income
Deposit account fees 13,337 13,979 (4.59 )%
Interchange and ATM fees 12,881 12,050 6.90 %
Investment management 17,576 16,183 8.61 %
Mortgage banking income 3,609 4,458 (19.04 )%
Increase in cash surrender value of life insurance policies 3,000 2,980 0.67 %
Gain on sale of equity securities 19 5 280.00 %
Loan level derivative income 2,727 4,627 (41.06 )%
Other noninterest income   7,931     6,384   24.23 %
Total noninterest income 61,080 60,666 0.68 %
Noninterest expenses
Salaries and employee benefits 86,267 81,561 5.77 %
Occupancy and equipment expenses 18,302 16,927 8.12 %
Data processing and facilities management 3,732 3,831 (2.58 )%
FDIC assessment 2,234 2,655 (15.86 )%
Merger and acquisition expense 3,393 691 391.03 %
Loss on extinguishment of debt 437 nm
Loss on sale of equity securities 6 32 (81.25 )%
Other noninterest expenses   38,958     34,351   13.41 %
Total noninterest expenses 152,892 140,485 8.83 %
Income before income taxes 97,566 87,198 11.89 %
Provision for income taxes   32,426     27,729   16.94 %
Net Income $ 65,140   $ 59,469   9.54 %

nm-the percentage is not meaningful

 
Weighted average common shares (basic) 27,242,902 26,301,340
Common share equivalents   78,043     48,354  
Weighted average common shares (diluted)   27,320,945     26,349,694  
 
Basic earnings per share $ 2.39 $ 2.26 5.75 %
Diluted earnings per share $ 2.38 $ 2.26 5.31 %
 
Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP):

Net Income

$ 65,140 $ 59,469
Noninterest expense components
Add - loss on extinguishment of debt 437
Add - merger and acquisition expenses   3,393     691  
Noncore items, gross 3,393 1,128
Less - net tax benefit associated with noncore items (1)   (1,241 )   (461 )
Noncore items, net of tax   2,152     667  
Net operating earnings $ 67,292   $ 60,136   11.90 %
 
Diluted earnings per share, on an operating basis $ 2.46 $ 2.28 7.89 %

(1) The net tax benefit associated with noncore items is determined by assessing whether each
noncore item is included or excluded from net taxable income and applying the Company's combined
marginal tax rate to only those items included in net taxable income.

 
Performance ratios
Net interest margin (FTE) 3.59 % 3.42 %

Return on average assets GAAP
(calculated by dividing net income by average assets)

1.11 % 1.09 %

Return on average assets on an operating basis
(calculated by dividing net operating earnings by average assets)

1.15 % 1.10 %

Return on average common equity GAAP
(calculated by dividing net income by average common equity)

9.65 % 9.92 %

Return on average common equity on an operating basis
(calculated by dividing net operating earnings by average common equity)

9.96 % 10.03 %
   

ASSET QUALITY

(Unaudited, dollars in thousands) Nonperforming Assets At
September 30
2017
  June 30
2017
  September 30
2016
Nonperforming loans
Commercial & industrial loans $ 32,556 $ 33,630 $ 3,065
Commercial real estate loans 3,052 4,679 7,399
Small business loans 403 453 288
Residential real estate loans 8,297 7,683 7,684
Home equity 5,903 5,240 6,311
Other consumer   66     98     46  
Total nonperforming loans $ 50,277   $ 51,783   $ 24,793  
Other real estate owned   2,898     3,029     1,798  
Total nonperforming assets $ 53,175   $ 54,812   $ 26,591  
 
Nonperforming loans/gross loans 0.80 % 0.83 % 0.43 %
Nonperforming assets/total assets 0.66 % 0.68 % 0.35 %
Allowance for loan losses/nonperforming loans 118.76 % 114.86 % 234.76 %
Allowance for loan losses/total loans 0.95 % 0.95 % 1.01 %
Delinquent loans/total loans 0.82 % 0.82 % 0.44 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
September 30
2017
June 30
2017
September 30
2016
 
Nonperforming assets beginning balance $ 54,812 $ 58,456 $ 27,473
New to nonperforming 3,573 3,619 2,630
Loans charged-off (817 ) (4,198 ) (1,143 )
Loans paid-off (3,679 ) (1,124 ) (2,049 )
Loans transferred to other real estate owned/other assets (107 )
Loans restored to performing status (557 ) (1,642 ) (288 )
New to other real estate owned 107
Valuation write down (238 ) (95 ) (5 )
Sale of other real estate owned (279 ) (42 )
Other   81     75     15  
Nonperforming assets ending balance $ 53,175   $ 54,812   $ 26,591  
 
   
Net Charge-Offs (Recoveries)
Three Months Ended   Nine Months Ended
September 30
2017
  June 30
2017
  September 30
2016
September 30
2017
  September 30
2016
Net charge-offs (recoveries)
Commercial and industrial loans $ (280 ) $ 3,578 $ (36 ) $ 3,111 $ (819 )
Commercial real estate loans (286 ) (26 ) 217 (343 ) (170 )
Small business loans 147 11 70 162 69
Residential real estate loans 28 114 (130 ) 153 (155 )
Home equity 16 96 130 50 414
Other consumer   144     116     221     373     356  

Total net charge-offs (recoveries)

$ (231 ) $ 3,889   $ 472   $ 3,506   $ (305 )
 
Net charge-offs (recoveries) to average loans (annualized) (0.01 )% 0.25 % 0.03 % 0.08 % (0.01 )%
 
   
Troubled Debt Restructurings At
September 30
2017
  June 30
2017
  September 30
2016
Troubled debt restructurings on accrual status $ 26,731 $ 26,908 $ 27,644
Troubled debt restructurings on nonaccrual status   5,776     5,728     5,910  
Total troubled debt restructurings $ 32,507   $ 32,636   $ 33,554  
 
BALANCE SHEET AND CAPITAL RATIOS
September 30
2017
June 30
2017
September 30
2016
Gross loans/total deposits 94.12 % 93.64 % 91.65 %
Common equity tier 1 capital ratio (1) 11.12 % 10.95 % 10.78 %
Tier one leverage capital ratio (1) 10.03 % 10.07 % 9.59 %
Common equity to assets ratio GAAP 11.56 % 11.41 % 10.91 %
Tangible common equity to tangible assets ratio (2) 8.82 % 8.64 % 8.33 %
Book value per share GAAP $ 33.94 $ 33.34 $ 31.09
Tangible book value per share (2) $ 25.12 $ 24.48 $ 23.08

(1) Estimated number for September 30, 2017.
(2) See Appendix A for detailed reconciliation from GAAP to Non-GAAP ratios.

 
INDEPENDENT BANK CORP. SUPPLEMENTAL FINANCIAL INFORMATION
               
(Unaudited, dollars in thousands) Three Months Ended
September 30, 2017 June 30, 2017 September 30, 2016
Interest Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance   Paid (1)   Rate Balance   Paid (1)   Rate Balance   Paid (1)   Rate
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments $ 132,327 $ 417 1.25 % $ 72,676 $ 190 1.05 % $ 305,728 $ 387 0.50 %
Securities
Securities - trading 1,299 % 1,292 % 805 %
Securities - taxable investments 908,560 5,642 2.46 % 900,086 5,609 2.50 % 815,889 5,034 2.45 %
Securities - nontaxable investments (1)   2,817   29 4.08 %   3,787   40 4.24 %   4,382   43 3.90 %
Total securities 912,676 5,671 2.47 % 905,165 5,649 2.50 % 821,076 5,077 2.46 %
Loans held for sale 5,766 33 2.27 % 3,733 21 2.26 % 11,652 81 2.77 %
Loans
Commercial and industrial 868,358 9,173 4.19 % 895,173 9,098 4.08 % 851,497 8,420 3.93 %
Commercial real estate (1) 3,104,098 32,875 4.20 % 3,028,745 30,968 4.10 % 2,723,832 28,466 4.16 %
Commercial construction 365,143 4,177 4.54 % 362,603 4,105 4.54 % 370,085 3,881 4.17 %
Small business   130,275   1,828 5.57 %   129,100   1,776 5.52 %   111,932   1,502 5.34 %
Total commercial 4,467,874 48,053 4.27 % 4,415,621 45,947 4.17 % 4,057,346 42,269 4.14 %
Residential real estate 749,813 7,656 4.05 % 704,726 7,024 4.00 % 631,582 6,334 3.99 %
Home equity   1,046,894   10,081 3.82 %   1,028,109   9,444 3.68 %   958,317   8,243 3.42 %
Total consumer real estate 1,796,707 17,737 3.92 % 1,732,835 16,468 3.81 % 1,589,899 14,577 3.65 %
Other consumer   10,619   241 9.00 %   10,541   240 9.13 %   13,026   291 8.89 %
Total loans   6,275,200   66,031 4.17 %   6,158,997   62,655 4.08 %   5,660,271   57,137 4.02 %
Total interest-earning assets $ 7,325,969 $ 72,152 3.91 % $ 7,140,571 $ 68,515 3.85 % $ 6,798,727 $ 62,682 3.67 %
Cash and due from banks 100,228 97,129 94,547
Federal Home Loan Bank stock 12,734 13,700 11,304
Other assets   567,297   551,388   552,247
Total assets $ 8,006,228 $ 7,802,788 $ 7,456,825
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,562,557 $ 992 0.15 % $ 2,568,020 $ 849 0.13 % $ 2,408,498 $ 756 0.12 %
Money market 1,309,457 1,171 0.35 % 1,287,991 935 0.29 % 1,197,382 758 0.25 %
Time deposits   611,080   1,168 0.76 %   609,787   1,128 0.74 %   635,635   1,219 0.76 %
Total interest-bearing deposits 4,483,094 3,331 0.29 % 4,465,798 2,912 0.26 % 4,241,515 2,733 0.26 %
Borrowings
Federal Home Loan Bank borrowings 53,926 302 2.22 % 63,275 418 2.65 % 51,100 391 3.04 %
Customer repurchase agreements 172,387 67 0.15 % 155,692 55 0.14 % 151,982 52 0.14 %
Junior subordinated debentures 73,070 578 3.14 % 73,068 565 3.10 % 73,184 1,037 5.64 %
Subordinated debentures   34,664   427 4.89 %   34,652   428 4.95 %   34,617   427 4.91 %
Total borrowings   334,047   1,374 1.63 %   326,687   1,466 1.80 %   310,883   1,907 2.44 %
Total interest-bearing liabilities $ 4,817,141 $ 4,705 0.39 % $ 4,792,485 $ 4,378 0.37 % $ 4,552,398 $ 4,640 0.41 %
Demand deposits 2,174,600 2,026,770 1,976,177
Other liabilities   84,782   81,725   112,018
Total liabilities $ 7,076,523 $ 6,900,980 $ 6,640,593
Stockholders' equity   929,705   901,808   816,232
Total liabilities and stockholders' equity $ 8,006,228 $ 7,802,788 $ 7,456,825
 
Net interest income $ 67,447 $ 64,137 $ 58,042
 
Interest rate spread (2) 3.52 % 3.48 % 3.26 %
 
Net interest margin (3) 3.65 % 3.60 % 3.40 %
 
Supplemental Information
Total deposits, including demand deposits $ 6,657,694 $ 3,331 $ 6,492,568 $ 2,912 $ 6,217,692 $ 2,733
Cost of total deposits 0.20 % 0.18 % 0.17 %
Total funding liabilities, including demand deposits $ 6,991,741 $ 4,705 $ 6,819,255 $ 4,378 $ 6,528,575 $ 4,640
Cost of total funding liabilities 0.27 % 0.26 % 0.28 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $374,000, $382,000, and $374,000 for the three months ended September 30, 2017, June 30, 2017, and September 30, 2016, respectively.
(2) Interest rate spread represents the difference between weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

    Nine Months Ended
September 30, 2017   September 30, 2016
  Interest     Interest  
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
Interest-earning assets
Interest earning deposits with banks, federal funds sold, and short term investments $ 103,437 $ 814 1.05 % $ 202,397 $ 767 0.51 %
Securities
Securities - trading 1,198 % 667 %
Securities - taxable investments 894,809 16,618 2.48 % 824,449 15,500 2.51 %
Securities - nontaxable investments (1)   3,462   109 4.21 %   4,557   137 4.02 %

Total securities

899,469 16,727 2.49 % 829,673 15,637 2.52 %
Loans held for sale 4,086 68 2.23 % 8,005 170 2.84 %
Loans
Commercial and industrial 881,387 26,913 4.08 % 845,565 24,759 3.91 %
Commercial real estate (1) 3,054,336 94,057 4.12 % 2,703,300 83,082 4.11 %
Commercial construction 353,134 11,859 4.49 % 369,403 11,376 4.11 %
Small business   127,938   5,284 5.52 %   105,761   4,266 5.39 %
Total commercial 4,416,795 138,113 4.18 % 4,024,029 123,483 4.10 %
Residential real estate 699,793 20,779 3.97 % 631,343 18,939 4.01 %
Home equity   1,024,164   28,233 3.69 %   943,857   24,452 3.46 %
Total consumer real estate 1,723,957 49,012 3.80 % 1,575,200 43,391 3.68 %
Other consumer   10,828   722 8.91 %   13,743   924 8.98 %
Total loans   6,151,580   187,847 4.08 %   5,612,972   167,798 3.99 %
Total interest-earning assets $ 7,158,572 $ 205,456 3.84 % $ 6,653,047 $ 184,372 3.70 %
Cash and due from banks 97,457 90,527
Federal Home Loan Bank stock 13,180 12,940
Other assets   553,129   542,271
Total assets $ 7,822,338 $ 7,298,785
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,536,954 $ 2,604 0.14 % $ 2,386,520 $ 2,416 0.14 %
Money market 1,285,492 2,963 0.31 % 1,157,731 2,171 0.25 %
Time deposits   618,518   3,443 0.74 %   651,044   3,752 0.77 %

Total interest-bearing deposits

4,440,964 9,010 0.27 % 4,195,295 8,339 0.27 %
Borrowings
Federal Home Loan Bank borrowings 61,206 1,123 2.45 % 63,869 1,275 2.67 %
Customer repurchase agreements 161,850 178 0.15 % 144,393 149 0.14 %
Junior subordinated debentures 73,074 1,697 3.10 % 73,233 3,072 5.60 %
Subordinated debentures   34,652   1,282 4.95 %   34,606   1,282 4.95 %
Total borrowings   330,782   4,280 1.73 %   316,101   5,778 2.44 %
Total interest-bearing liabilities $ 4,771,746 $ 13,290 0.37 % $ 4,511,396 $ 14,117 0.42 %
Demand deposits 2,063,668 1,878,558
Other liabilities   84,063   107,983
Total liabilities $ 6,919,477 $ 6,497,937
Stockholders' equity   902,861   800,848
Total liabilities and stockholders' equity $ 7,822,338 $ 7,298,785
 
Net interest income $ 192,166 $ 170,255
 
Interest rate spread (2) 3.47 % 3.28 %
 
Net interest margin (3) 3.59 % 3.42 %
 
Supplemental Information
Total deposits, including demand deposits $ 6,504,632 $ 9,010 $ 6,073,853 $ 8,339
Cost of total deposits 0.19 % 0.18 %
Total funding liabilities, including demand deposits $ 6,835,414 $ 13,290 $ 6,389,954 $ 14,117
Cost of total funding liabilities 0.26 % 0.30 %

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1.1 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively.
(2) Interest rate spread represents the difference between weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

           

Organic Loan and Deposit Growth

(Unaudited, dollars in thousands)                  
Year-over-Year
September 30
2017
September 30
2016

Balance
Acquired (1)

Organic
Growth/(Decline)

Organic
Growth/(Decline) %

Loans
Commercial and industrial $ 858,522 $ 857,713 $ 40,038 $ (39,229 ) (4.57 )%
Commercial real estate 3,087,160 2,787,660 192,526 106,974 3.84 %
Commercial construction 395,267 376,245 4,739 14,283 3.80 %
Small business   130,656   115,054   110   15,492   13.46 %
Total commercial 4,471,605 4,136,672 237,413 97,520 2.36 %
Residential real estate 756,130 632,685 118,120 5,325 0.84 %
Home equity   1,052,295   965,112   25,360   61,823   6.41 %
Total consumer real estate 1,808,425 1,597,797 143,480 67,148 4.20 %
Total other consumer   9,872   11,664   389   (2,181 ) (18.70 )%
Total loans $ 6,289,902 $ 5,746,133 $ 381,282 $ 162,487   2.83 %
 
Deposits
Demand deposits $ 2,183,760 $ 2,024,235 $ 66,488 $ 93,037 4.60 %
Savings and interest checking accounts 2,568,620 2,417,195 79,246 72,179 2.99 %
Money market 1,302,662 1,198,959 105,364 (1,661 ) (0.14 )%
Time certificates of deposit   627,900   629,071   84,168   (85,339 ) (13.57 )%
Total deposits $ 6,682,942 $ 6,269,460 $ 335,266 $ 78,216   1.25 %
 

1. Balances are reflective of both the Island Bancorp acquisition that took place in the second quarter of 2017 and the NEB acquisition that took place in the fourth quarter of 2016.

Certain amounts in prior year financial statements have been reclassified to conform to the current year's presentation.

APPENDIX A

(Unaudited, dollars in thousands, except per share data)

The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share for the periods indicated:

    September 30
2017
  June 30
2017
  September 30
2016
Tangible common equity
Stockholders' equity (GAAP) $ 931,224 $ 914,584 $ 818,242 (a)
Less: Goodwill and other intangibles   242,105     243,005     210,834  
Tangible common equity $ 689,119   $ 671,579   $ 607,408   (b)
Tangible assets
Assets (GAAP) $ 8,052,919 $ 8,017,293 $ 7,502,009 (c)
Less: Goodwill and other intangibles   242,105     243,005     210,834  
Tangible assets $ 7,810,814   $ 7,774,288   $ 7,291,175   (d)
     
Common Shares   27,437,791     27,431,171     26,320,467   (e)
 
Common equity to assets ratio (GAAP) 11.56 % 11.41 % 10.91 % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 8.82 % 8.64 % 8.33 % (b/d)
Book value per share (GAAP) $ 33.94 $ 33.34 $ 31.09 (a/e)
Tangible book value per share (Non-GAAP) $ 25.12 $ 24.48 $ 23.08 (b/e)
 

APPENDIX B

(Unaudited, dollars in thousands)

The following table summarizes the impact of noncore items on of the Company's calculation of noninterest income and noninterest expense, as well as the impact of noncore items on noninterest income as a percentage of total revenue and the efficiency ratio for the periods indicated:

    Three Months Ended   Nine Months Ended

September 30,
2017

 

June 30,
2017

 

September 30,
2016

September 30,
2017

 

September 30,
2016

Net interest income (GAAP) $ 67,073 $ 63,755 $ 57,668 $ 191,028 $ 169,092 (a)
 
Noninterest income (GAAP) $ 20,770   $ 21,398   $ 20,416   $ 61,080   $ 60,666   (b)
Noninterest income on an operating basis (Non-GAAP) $ 20,770 $ 21,398 $ 20,416 $ 61,080 $ 60,666 (c)
 
Noninterest expense (GAAP) $ 51,310 $ 52,809 $ 46,857 $ 152,892 $ 140,485 (d)
Less:
Loss on extinguishment of debt 437
Merger and acquisition expense       2,909     151     3,393     691  

Noninterest expense on an operating basis (Non-GAAP)

$ 51,310 $ 49,900 $ 46,706 $ 149,499 $ 139,357 (e)
 
Total revenue (GAAP) $ 87,843 $ 85,153 $ 78,084 $ 252,108 $ 229,758 (a+b)
Total operating revenue (Non-GAAP) $ 87,843 $ 85,153 $ 78,084 $ 252,108 $ 229,758 (a+c)
 
Ratios
Noninterest income as a % of total revenue (GAAP based) 23.64 % 25.13 % 26.15 % 24.23 % 26.40 % (b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP) 23.64 % 25.13 % 26.15 % 24.23 % 26.40 % (c/(a+c))
Efficiency ratio (GAAP based) 58.41 % 62.02 % 60.01 % 60.65 % 61.14 % (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) 58.41 % 58.60 % 59.82 % 59.30 % 60.65 % (e/(a+c))
 

Contacts

Independent Bank Corp.
Chris Oddleifson,
781-982-6660
President and Chief Executive Officer
or
Robert Cozzone, 781-982-6723
Chief Financial Officer and Treasurer

Contacts

Independent Bank Corp.
Chris Oddleifson,
781-982-6660
President and Chief Executive Officer
or
Robert Cozzone, 781-982-6723
Chief Financial Officer and Treasurer