Independent Bank Corp. Reports First Quarter Net Income of $27.6 Million

Solid Earnings Growth and Healthy Returns

ROCKLAND, Mass.--()--Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2018 first quarter net income of $27.6 million, or $1.00 per diluted share, compared to net income of $22.1 million, or $0.80 per diluted share, reported in the fourth quarter of 2017. During the fourth quarter of 2017, the Tax Cuts and Jobs Act ("the Tax Act") was signed into law, requiring the Company to revalue its deferred tax assets and liabilities and reassess the value of its low-income housing project investments, resulting in additional tax expense which was considered to be noncore. Excluding these items, operating net income for the fourth quarter was $24.4 million, or $0.89 per diluted share. There were no adjustments to net income during the first quarter of 2018 which the Company considers to be noncore.

“During the first quarter of 2018 Rockland Trust Company set another quarterly earnings per share record and delivered a strong return on both assets and equity for our shareholders,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “Our increasing net interest margin is a direct result of loan and deposit pricing strategies implemented to prepare for a rising interest rate environment, and asset quality remains pristine as we continue our disciplined approach to loan origination, underwriting, and approval. Our strong financial performance is the outcome created by the Rockland Trust Cycle Of Engagement, in which my engaged colleagues forge enduring relationships with an increasing number of engaged, loyal customers.”

BALANCE SHEET

Total assets of $8.1 billion at March 31, 2018 increased by $8.4 million, or 0.1%, from the prior quarter and by $352.3 million, or 4.6%, as compared to the year ago period, inclusive of the 2017 second quarter Island Bancorp, Inc. ("Island Bancorp") acquisition.

Total loans remained relatively flat with the prior quarter, reflective of the rebuilding of the loan pipeline during the quarter along with the intense competitive environment. Growth in the commercial and industrial (increased by $14.7 million, or 6.7% on an annualized basis), small business, and residential real estate loan categories during the first quarter were offset by declines in the commercial real estate, commercial construction, and home equity portfolios. Exclusive of the Island Bancorp acquisition, total loans increased by $142.1 million, or 2.3%, when compared to the year ago period.

Deposit balances in the first quarter of 2018 increased by $22.3 million, or 0.3% from the prior quarter. The Company experienced modest growth in the demand and savings and interest checking categories and the Company's ratio of core deposit balances to total deposits remained over 90% at March 31, 2018. In addition, continued increases in short term rates have driven higher demand for time deposits, which were up 1.6% during the quarter. Exclusive of the Island Bancorp acquisition, total deposits increased by $121.3 million, or 1.9%, when compared to the year ago period. The total cost of deposits increased by two basis points in the first quarter to 0.24%.

The securities portfolio increased by $49.8 million, or 5.3%, compared to the prior quarter due to purchases of $91.2 million, partially offset by paydowns on existing securities, and increased approximately $91.0 million from the year ago period. Effective January 1, 2018, the Company reclassified $20.6 million of securities out of the available for sale category to the equities category to align with newly effective accounting guidance.

The Company's total borrowings of $298.9 million decreased $24.8 million during the first quarter, mainly due to a decline in customer repurchase agreements.

Stockholders' equity at March 31, 2018 rose to $956.1 million, representing an increase of 1.3% from December 31, 2017, due primarily to strong earnings retention, partially offset by a decrease in other comprehensive income, primarily attributable to unrealized losses on available for sale securities. Stockholders' equity increased by 9.0% when compared to the year ago period, driven primarily by the Island Bancorp acquisition, as well as ongoing earnings retention. Book value per share increased $0.37, or 1.1%, during the first quarter compared to the prior quarter, and the Company's ratio of common equity to assets of 11.82% increased by 14 basis points from the prior quarter and by 48 basis points from the same period a year ago. The Company's tangible book value per share rose by $0.42, or 1.6%, to $26.02 in the first quarter compared to the fourth quarter of 2017, and is now 8.8% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.12% at March 31, 2018 is 16 basis points higher than the prior quarter and 50 basis points higher than the same period a year ago.

NET INTEREST INCOME

Net interest income for the first quarter increased 0.9% to $68.5 million compared to $67.8 million in the prior quarter, due primarily to a higher net interest margin. The net interest margin benefited from the Company's sustained asset sensitive position along with the reinvestment of excess liquidity and increased by 13 basis points compared with the prior quarter to 3.77%.

NONINTEREST INCOME

Noninterest income of $19.9 million in the first quarter was $2.1 million, or 9.4% lower than the prior quarter. Significant changes in noninterest income in the first quarter compared to the prior quarter included the following:

  • Interchange and ATM fees decreased by $237,000, or 5.4%, driven mainly by higher seasonal debit card activity in the prior quarter.
  • Investment management income remained relatively consistent with the prior quarter despite the volatility experienced in the stock market during the first quarter of 2018. Total assets under administration remained at $3.5 billion as of March 31, 2018.
  • Mortgage banking income decreased by $481,000, or 35.6%, due primarily to an overall decrease in loan closings reflective of the rising rate environment combined with a greater percentage of loans being retained in the Company's portfolio.
  • The lower increase in cash surrender value of life insurance policies of $180,000, or 16.0%, was due primarily to the annual dividend income that was received in the fourth quarter of 2017.
  • Loan level derivative income decreased by $662,000, or 59.7%, as a result of decreased customer demand in the quarter.
  • Other noninterest income decreased by $353,000, or 11.0%, primarily due to decreases in capital gain distributions received on equity securities and reduced IRS Code Section1031 exchange fees.

NONINTEREST EXPENSE

Noninterest expense of $53.5 million in the first quarter was $2.0 million, or 3.9% higher than the prior quarter. Significant changes in noninterest expense in the first quarter compared to the prior quarter included the following:

  • Salaries and employee benefits expense increased by $767,000, or 2.5%, due primarily to seasonal increases in payroll taxes and medical insurance, partially offset by decreases in incentive compensation and certain retirement plan expenses. A portion of the latter decrease reflects a 2018 accounting change requiring the classification of certain expenses associated with retirement plans to be recognized in other noninterest expense, when in prior years they were included in salaries and employee benefits.
  • Occupancy and equipment expense increased by $1.0 million, or 15.9%, mainly due to increases in snow removal costs and accelerated rent expenses associated with a branch closure.
  • Other noninterest expense increased by $216,000, or 1.7%, driven by a higher provision for unfunded commitments, unrealized losses on equity securities (governed by new accounting guidance which requires income statement recognition of unrealized gains and losses on equity securities), and the aforementioned reclassification of certain retirement plan expenses. These increases were partially offset by a decrease in consultant fees, mortgage origination costs and director fees.

The Company generated a return on average assets and a return on average common equity of 1.39% and 11.73%, respectively, in the first quarter of 2018, as compared to 1.08% and 9.28%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.20% and 10.28% during the fourth quarter of 2017, respectively. During the first quarter of 2018, there were no adjustments to net income that the Company considers to be non-core.

The Company's effective tax rate was 19.9% for the first quarter, reflecting the decreased corporate federal tax rate associated with the 2017 Tax Act. In addition, the effective tax rate includes the impact of excess tax benefits associated with stock compensation transactions and other discrete items, totaling $1.2 million. Without these items, the effective tax rate for the quarter would have been 23.3%.

ASSET QUALITY

During the first quarter, the Company recorded total net charge-offs of $281,000, or 0.02% of average loans on an annualized basis, compared to net charge-offs of $367,000 in the prior quarter. Provision for loan losses was $500,000 for the first quarter of 2018 as compared to $1.3 million in the fourth quarter of 2017. The lower provision reflected both a continued improvement in credit quality as well as lower loan growth. Nonperforming loans decreased by 3.9% to $47.7 million, or 0.75% of loans, at March 31, 2018 from $49.6 million, or 0.78% of loans, at December 31, 2017. Total nonperforming assets decreased to $48.1 million at the end of the first quarter, as compared to $50.3 million at the end of the prior quarter. In the past year, nonperforming asset levels declined by 18.4%. At March 31, 2018 delinquency as a percentage of loans was 0.79%, representing an increase of two basis points from the prior quarter.

The allowance for loan losses was $60.9 million at March 31, 2018, as compared to $60.6 million at December 31, 2017. The Company’s allowance for loan losses as a percentage of loans was 0.96% and 0.95% at March 31, 2018 and December 31, 2017, respectively.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer, will host a conference call to discuss first quarter earnings at 10:00 a.m. Eastern Time on Friday, April 20, 2018. 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: 10116694 and will be available through May 4, 2018. Additionally, a webcast replay will be available until April 20, 2019.

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. Named in 2017 to The Boston Globe’s “Top Places to Work” list for the ninth consecutive year, Rockland Trust offers a wide range of banking, investment, and insurance services. The Bank serves businesses and individuals through approximately 100 retail branches, commercial and residential lending centers, and investment management offices in eastern Massachusetts, including Greater Boston, the South Shore, the Cape and Islands, and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. The Company 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 net income 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 net income and operating EPS exclude items that management believes are unrelated to its core banking business such as merger and acquisition expenses, and other items, such as one-time adjustments as a result of changes in laws and regulations. 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 items.

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
March 31
2018
December 31
2017
March 31
2017
Mar 2018 vs. Mar 2018 vs.
Dec 2017 Mar 2017
Assets
Cash and due from banks $ 102,623 $ 103,485 $ 94,662 (0.83 )% 8.41 %
Interest-earning deposits with banks 62,925 109,631 125,411 (42.60 )% (49.82 )%
Securities
Trading 1,601 1,324 1,289 20.92 % 24.20 %
Equities 20,075

100.00

%

n/a
Available for sale 445,750 447,498 401,837 (0.39 )% 10.93 %
Held to maturity 528,861   497,688   502,123   6.26 % 5.32 %
Total securities 996,287 946,510 905,249 5.26 % 10.06 %
Loans held for sale (at fair value) 3,937 4,768 3,398 (17.43 )% 15.86 %
Loans
Commercial and industrial 903,214 888,528 881,329 1.65 % 2.48 %
Commercial real estate 3,102,271 3,116,561 3,027,305 (0.46 )% 2.48 %
Commercial construction 400,934 401,797 356,173 (0.21 )% 12.57 %
Small business 133,666   132,370   126,374   0.98 % 5.77 %
Total commercial 4,540,085   4,539,256   4,391,181   0.02 % 3.39 %
Residential real estate 761,331 754,329 653,999 0.93 % 16.41 %
Home equity - first position 617,164 612,990 595,828 0.68 % 3.58 %
Home equity - subordinate positions 434,288   439,098   412,943   (1.10 )% 5.17 %
Total consumer real estate 1,812,783   1,806,417   1,662,770   0.35 % 9.02 %
Other consumer 9,188   9,880   10,415   (7.00 )% (11.78 )%
Total loans 6,362,056   6,355,553   6,064,366   0.10 % 4.91 %
Less: allowance for loan losses (60,862 ) (60,643 ) (62,318 ) 0.36 % (2.34 )%
Net loans 6,301,194   6,294,910   6,002,048   0.10 % 4.98 %
Federal Home Loan Bank stock 13,027 11,597 11,497 12.33 % 13.31 %
Bank premises and equipment, net 95,214 94,722 82,027 0.52 % 16.08 %
Goodwill 231,806 231,806 221,526 % 4.64 %
Other intangible assets 8,462 9,341 9,087 (9.41 )% (6.88 )%
Cash surrender value of life insurance policies 152,568 151,528 145,560 0.69 % 4.81 %
Other real estate owned and other foreclosed assets 358 612 3,404 (41.50 )% (89.48 )%
Other assets 122,009   123,119   134,245   (0.90 )% (9.11 )%
Total assets $ 8,090,410   $ 8,082,029   $ 7,738,114   0.10 % 4.55 %
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 2,167,361 $ 2,159,396 $ 2,043,359 0.37 % 6.07 %
Savings and interest checking accounts 2,606,257 2,599,922 2,542,667 0.24 % 2.50 %
Money market 1,323,138 1,325,634 1,268,796 (0.19 )% 4.28 %
Time certificates of deposit 654,755   644,301   615,852   1.62 % 6.32 %
Total deposits 6,751,511   6,729,253   6,470,674   0.33 % 4.34 %
Borrowings
Federal Home Loan Bank borrowings 53,257 53,264 50,811 (0.01 )% 4.81 %
Customer repurchase agreements 137,914 162,679 145,772 (15.22 )% (5.39 )%
Junior subordinated debentures, net 73,075 73,073 73,067 % 0.01 %
Subordinated debentures, net 34,693   34,682   34,647   0.03 % 0.13 %
Total borrowings 298,939   323,698   304,297   (7.65 )% (1.76 )%
Total deposits and borrowings 7,050,450   7,052,951   6,774,971   (0.04 )% 4.07 %
Other liabilities 83,901   85,269   85,663   (1.60 )% (2.06 )%
Total liabilities 7,134,351   7,138,220   6,860,634   (0.05 )% 3.99 %
Stockholders' equity
Common stock 273 273 269 % 1.49 %
Additional paid in capital 479,715 479,430 452,048 0.06 % 6.12 %
Retained earnings 484,266 465,937 425,802 3.93 % 13.73 %
Accumulated other comprehensive loss, net of tax (8,195 ) (1,831 ) (639 ) 347.57 % 1,182.47 %
Total stockholders' equity 956,059   943,809   877,480   1.30 % 8.96 %
Total liabilities and stockholders' equity $ 8,090,410   $ 8,082,029   $ 7,738,114   0.10 % 4.55 %
 
CONSOLIDATED STATEMENTS OF INCOME            
(Unaudited, dollars in thousands, except per share data)
Three Months Ended
        % Change % Change
March 31
2018
December 31
2017
March 31
2017
Mar 2018 vs. Mar 2018 vs.
Dec 2017 Mar 2017
Interest income
Interest on federal funds sold and short-term investments $ 311 $ 604 $ 207 (48.5 )% 50.24 %
Interest and dividends on securities 6,235 5,864 5,393 6.33 % 15.61 %
Interest and fees on loans 67,184 66,384 58,793 1.21 % 14.27 %
Interest on loans held for sale 19   24   14   (20.83 )% 35.71 %
Total interest income 73,749 72,876 64,407 1.20 % 14.50 %
Interest expense
Interest on deposits 3,935 3,692 2,767 6.58 % 42.21 %
Interest on borrowings 1,343   1,352   1,440   (0.67 )% (6.74 )%
Total interest expense 5,278   5,044   4,207   4.64 % 25.46 %
Net interest income 68,471 67,832 60,200 0.94 % 13.74 %
Provision for loan losses 500   1,300   600   (61.54 )% (16.67 )%
Net interest income after provision for loan losses 67,971 66,532 59,600 2.16 % 14.05 %
Noninterest income
Deposit account fees 4,431 4,485 4,544 (1.20 )% (2.49 )%
Interchange and ATM fees 4,173 4,410 3,922 (5.37 )% 6.40 %
Investment management 6,142 6,226 5,614 (1.35 )% 9.41 %
Mortgage banking income 870 1,351 957 (35.60 )% (9.09 )%
Increase in cash surrender value of life insurance policies 947 1,127 964 (15.97 )% (1.76 )%
Gain on sale of equity securities 4 n/a nm
Loan level derivative income 447 1,109 606 (59.69 )% (26.24 )%
Other noninterest income 2,853   3,206   2,301   (11.01 )% 23.99 %
Total noninterest income 19,863 21,914 18,912 (9.36 )% 5.03 %
Noninterest expenses
Salaries and employee benefits 31,100 30,333 28,324 2.53 % 9.80 %
Occupancy and equipment expenses 7,408 6,391 6,158 15.91 % 20.30 %
Data processing and facilities management 1,286 1,256 1,272 2.39 % 1.10 %
FDIC assessment 798 834 783 (4.32 )% 1.92 %
Merger and acquisition expense 484 n/a nm
Loss on sale of equity securities 10 3 nm nm
Other noninterest expenses 12,859   12,643   11,749   1.71 % 9.45 %
Total noninterest expenses 53,451 51,467 48,773 3.85 % 9.59 %
Income before income taxes 34,383 36,979 29,739 (7.02 )% 15.62 %
Provision for income taxes 6,828   14,915   9,014   (54.22 )% (24.25 )%
Net Income $ 27,555   $ 22,064   $ 20,725   24.89 % 32.96 %
(nm - the percentage is not meaningful)
 
Weighted average common shares (basic) 27,486,573 27,445,739 27,029,640
Common share equivalents 67,381   77,615   81,283  
Weighted average common shares (diluted) 27,553,954   27,523,354   27,110,923  
 
Basic earnings per share $ 1.00 $ 0.80 $ 0.77 25.00 % 29.87 %
Diluted earnings per share $ 1.00 $ 0.80 $ 0.76 25.00 % 31.58 %
 

Reconciliation of Net Income (GAAP) to Operating Net Income (Non-GAAP):

Net income $ 27,555 $ 22,064 $ 20,725
Noninterest expense components
Add - merger and acquisition expenses     484  
Noncore items, gross 484
Less - net tax benefit associated with noncore items (1) (153 )
2017 Tax Act: revaluation of net deferred tax assets 1,895
2017 Tax Act: revaluation of LIHTC investments   466    
Total tax impact   2,361   (153 )
Noncore items, net of tax   2,361   331  
Operating net income $ 27,555   $ 24,425   $ 21,056   12.81 % 30.87 %
 
Diluted earnings per share, on an operating basis $ 1.00 $ 0.89 $ 0.78 12.36 % 28.21 %
(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) 3.77 % 3.64 % 3.51 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.39 % 1.08 % 1.10 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.39 % 1.20 % 1.12 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 11.73 % 9.28 % 9.59 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 11.73 % 10.28 % 9.74 %
 

ASSET QUALITY

   
(Unaudited, dollars in thousands) Nonperforming Assets At
March 31
2018
    December 31
2017
    March 31
2017
Nonperforming loans
Commercial & industrial loans $ 30,751 $ 32,055 $ 36,877
Commercial real estate loans 2,997 3,123 4,792
Small business loans 412 230 207
Residential real estate loans 7,646 8,129 7,139
Home equity 5,858 6,022 5,987
Other consumer 49   79   50  
Total nonperforming loans 47,713   49,638   55,052  
Other real estate owned 358   612   3,404  
Total nonperforming assets $ 48,071   $ 50,250   $ 58,456  
 
Nonperforming loans/gross loans 0.75 % 0.78 % 0.91 %
Nonperforming assets/total assets 0.59 % 0.62 % 0.76 %
Allowance for loan losses/nonperforming loans 127.56 % 122.17 % 113.20 %
Allowance for loan losses/total loans 0.96 % 0.95 % 1.03 %
Delinquent loans/total loans 0.79 % 0.77 % 0.58 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
March 31
2018
December 31
2017
March 31
2017
 
Nonperforming assets beginning balance $ 50,250 $ 53,175 $ 61,580
New to nonperforming 2,001 2,363 3,948
Loans charged-off (594 ) (686 ) (508 )
Loans paid-off (2,692 ) (1,892 ) (4,745 )
Loans transferred to other real estate owned/other assets (457 )
Loans restored to performing status (690 ) (369 ) (629 )
New to other real estate owned 457
Valuation write down (39 )
Sale of other real estate owned (254 ) (2,195 ) (1,226 )
Other 50   (107 ) 36  
Nonperforming assets ending balance $ 48,071   $ 50,250   $ 58,456  
 
    Net Charge-Offs (Recoveries)
Three Months Ended
March 31
2018
    December 31
2017
    March 31
2017
Net charge-offs (recoveries)
Commercial and industrial loans $ 121 $ 165 $ (187 )
Commercial real estate loans (20 ) (3 ) (31 )
Small business loans 15 26 4
Residential real estate loans 37 23 11
Home equity 45 28 (62 )
Other consumer 83   128   113  
Total net charge-offs (recoveries) $ 281   $ 367   $ (152 )
 
Net charge-offs (recoveries) to average loans (annualized) 0.02 % 0.02 % (0.01 )%
 
  Troubled Debt Restructurings At
March 31
2018
  December 31
2017
  March 31
2017
Troubled debt restructurings on accrual status $ 25,617 $ 25,852 $ 25,575
Troubled debt restructurings on nonaccrual status 5,637   6,067   5,439  
Total troubled debt restructurings $ 31,254   $ 31,919   $ 31,014  
 
BALANCE SHEET AND CAPITAL RATIOS
March 31
2018
December 31
2017
March 31
2017
Gross loans/total deposits 94.23 % 94.45 % 93.72 %
Common equity tier 1 capital ratio (1) 11.43 % 11.20 % 10.89 %
Tier one leverage capital ratio (1) 10.32 % 10.04 % 9.92 %
Common equity to assets ratio GAAP 11.82 % 11.68 % 11.34 %
Tangible common equity to tangible assets ratio (2) 9.12 % 8.96 % 8.62 %
Book value per share GAAP $ 34.75 $ 34.38 $ 32.44
Tangible book value per share (2) $ 26.02 $ 25.60 $ 23.92

(1) Estimated number for March 31, 2018.
(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
March 31, 2018 December 31, 2017 March 31, 2017
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 $ 81,934 $ 311 1.54 % $ 185,073 $ 604 1.29 % $ 105,007 $ 207 0.80 %
Securities
Securities - trading 1,433 % 1,297 % 999 %
Securities - taxable investments 967,221 6,219 2.61 % 922,904 5,847 2.51 % 875,417 5,367 2.49 %
Securities - nontaxable investments (1) 2,262   20   3.59 % 2,365   25   4.19 % 3,793   40   4.28 %
Total securities 970,916 6,239 2.61 % 926,566 5,872 2.51 % 880,209 5,407 2.49 %
Loans held for sale 2,753 19 2.80 % 6,763 24 1.41 % 2,725 14 2.08 %
Loans
Commercial and industrial 879,336 9,615 4.43 % 856,272 9,135 4.23 % 880,765 8,642 3.98 %
Commercial real estate (1) 3,107,437 33,289 4.34 % 3,104,885 33,455 4.27 % 3,029,344 30,215 4.05 %
Commercial construction 397,720 4,671 4.76 % 401,309 4,528 4.48 % 331,285 3,577 4.38 %
Small business 132,125   1,862   5.72 % 130,403   1,861   5.66 % 124,374   1,680   5.48 %
Total commercial 4,516,618 49,437 4.44 % 4,492,869 48,979 4.33 % 4,365,768 44,114 4.10 %
Residential real estate 755,996 7,501 4.02 % 754,605 7,400 3.89 % 643,672 6,099 3.84 %
Home equity 1,051,022   10,205   3.94 % 1,050,815   10,155   3.83 % 996,940   8,708   3.54 %
Total consumer real estate 1,807,018 17,706 3.97 % 1,805,420 17,555 3.86 % 1,640,612 14,807 3.66 %
Other consumer 10,659   214   8.14 % 10,085   222   8.73 % 11,333   241   8.62 %
Total loans 6,334,295   67,357   4.31 % 6,308,374   66,756   4.20 % 6,017,713   59,162   3.99 %
Total interest-earning assets 7,389,898   $ 73,926   4.06 % 7,426,776   $ 73,256   3.91 % 7,005,654   $ 64,790   3.75 %
Cash and due from banks 97,605 98,397 94,955
Federal Home Loan Bank stock 13,016 11,597 13,108
Other assets 545,516   557,044   540,411  
Total assets $ 8,046,035   $ 8,093,814   $ 7,654,128  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,563,186 $ 1,093 0.17 % $ 2,556,355 $ 1,052 0.16 % $ 2,479,373 $ 763 0.12 %
Money market 1,338,265 1,364 0.41 % 1,337,491 1,261 0.37 % 1,258,466 857 0.28 %
Time deposits 646,529   1,478   0.93 % 635,941   1,379   0.86 % 634,947   1,147   0.73 %
Total interest-bearing deposits 4,547,980 3,935 0.35 % 4,529,787 3,692 0.32 % 4,372,786 2,767 0.26 %
Borrowings
Federal Home Loan Bank borrowings 73,040 260 1.44 % 53,267 262 1.95 % 66,556 403 2.46 %
Customer repurchase agreements 155,768 66 0.17 % 178,917 79 0.18 % 157,305 56 0.14 %
Junior subordinated debentures 73,074 590 3.27 % 73,072 584 3.17 % 73,085 554 3.07 %
Subordinated debentures 34,687   427   4.99 % 34,675   427   4.89 % 34,641   427   5.00 %
Total borrowings 336,569   1,343   1.62 % 339,931   1,352   1.58 % 331,587   1,440   1.76 %
Total interest-bearing liabilities 4,884,549   $ 5,278   0.44 % 4,869,718   $ 5,044   0.41 % 4,704,373   $ 4,207   0.36 %
Demand deposits 2,129,517 2,201,866 1,987,579
Other liabilities 79,125   79,208   85,691  
Total liabilities $ 7,093,191   $ 7,150,792   $ 6,777,643  
Stockholders' equity 952,844   943,022   876,485  
Total liabilities and stockholders' equity $ 8,046,035   $ 8,093,814   $ 7,654,128  
 
Net interest income $ 68,648   $ 68,212   $ 60,583  
 
Interest rate spread (2) 3.62 % 3.50 % 3.39 %
 
Net interest margin (3) 3.77 % 3.64 % 3.51 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,677,497 $ 3,935 $ 6,731,653 $ 3,692 $ 6,360,365 $ 2,767
Cost of total deposits 0.24 % 0.22 % 0.18 %
Total funding liabilities, including demand deposits $ 7,014,066 $ 5,278 $ 7,071,584 $ 5,044 $ 6,691,952 $ 4,207
Cost of total funding liabilities 0.31 % 0.28 % 0.25 %

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $177,000, $380,000, and $383,000 for the three months ended March 31, 2018, December 31, 2017, and March 31, 2017, respectively, determined by applying the Company's marginal tax rates in effect during each respective quarter.
(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
March 31
2018
March 31
2017
Island Bancorp Balances Acquired Organic Growth/(Decline) Organic Growth/(Decline) %
Loans
Commercial and industrial $ 903,214 $ 881,329 $ 4,271 $ 17,614 2.00 %
Commercial real estate 3,102,271 3,027,305 44,510 30,456 1.01 %
Commercial construction 400,934 356,173 106 44,655 12.54 %
Small business 133,666   126,374   57   7,235   5.73 %
Total commercial 4,540,085 4,391,181 48,944 99,960 2.28 %
Residential real estate 761,331 653,999 87,450 19,882 3.04 %
Home equity 1,051,452   1,008,771   18,921   23,760   2.36 %
Total consumer real estate 1,812,783 1,662,770 106,371 43,642 2.62 %
Total other consumer 9,188   10,415   236   (1,463 ) (14.05 )%
Total loans $ 6,362,056   $ 6,064,366   $ 155,551   $ 142,139   2.34 %
 
Deposits
Demand deposits $ 2,167,361 $ 2,043,359 $ 33,599 $ 90,403 4.42 %
Savings and interest checking accounts 2,606,257 2,542,667 47,095 16,495 0.65 %
Money market 1,323,138 1,268,796 63,915 (9,573 ) (0.75 )%
Time certificates of deposit 654,755   615,852   14,971   23,932   3.89 %
Total deposits $ 6,751,511   $ 6,470,674   $ 159,580   $ 121,257   1.87 %

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 at the dates indicated:

    March 31
2018
    December 31
2017
    March 31
2017
Tangible common equity
Stockholders' equity (GAAP) $ 956,059 $ 943,809 $ 877,480 (a)
Less: Goodwill and other intangibles 240,268   241,147   230,613  
Tangible common equity $ 715,791   $ 702,662   $ 646,867   (b)
Tangible assets
Assets (GAAP) $ 8,090,410 $ 8,082,029 $ 7,738,114 (c)
Less: Goodwill and other intangibles 240,268   241,147   230,613  
Tangible assets $ 7,850,142   $ 7,840,882   $ 7,507,501   (d)
     
Common Shares 27,512,328   27,450,190   27,046,768   (e)
 
Common equity to assets ratio (GAAP) 11.82 % 11.68 % 11.34 % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 9.12 % 8.96 % 8.62 % (b/d)
Book value per share (GAAP) $ 34.75 $ 34.38 $ 32.44 (a/e)
Tangible book value per share (Non-GAAP) $ 26.02 $ 25.60 $ 23.92 (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
March 31
2018
    December 31
2017
    March 31
2017
Net interest income (GAAP) $ 68,471 $ 67,832 $ 60,200 (a)
 
Noninterest income (GAAP) $ 19,863   $ 21,914   $ 18,912   (b)
Noninterest income on an operating basis (Non-GAAP) $ 19,863 $ 21,914 $ 18,912 (c)
 
Noninterest expense (GAAP) $ 53,451 $ 51,467 $ 48,773 (d)
Less:
Merger and acquisition expense     484  
Noninterest expense on an operating basis (Non-GAAP) $ 53,451 $ 51,467 $ 48,289 (e)
 
Total revenue (GAAP) $ 88,334 $ 89,746 $ 79,112 (a+b)
Total operating revenue (Non-GAAP) $ 88,334 $ 89,746 $ 79,112 (a+c)
 
Ratios
Noninterest income as a % of total revenue (GAAP based) 22.49 % 24.42 % 23.91 % (b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP) 22.49 % 24.42 % 23.91 % (c/(a+c))
Efficiency ratio (GAAP based) 60.51 % 57.35 % 61.65 % (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) 60.51 % 57.35 % 61.04 % (e/(a+c))

Contacts

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

Contacts

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