Independent Bank Corp. Reports Second Quarter Net Income of $31.1 Million

Performance Marked by Strong Profitability and Returns

ROCKLAND, Mass.--()--Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2018 second quarter net income of $31.1 million, or $1.13 per diluted share, compared to net income of $27.6 million, or $1.00 per diluted share, reported in the prior quarter of 2018. Excluding merger and acquisition expenses incurred in the second quarter related to the pending MNB Bancorp ("MNB") merger announced on May 29, 2018, operating net income for the second quarter was $31.4 million, or $1.14 per diluted share. There were no items during the first quarter of 2018 that were considered to be noncore.

“Loans, deposits, and interest and fee income all increased during the second quarter of 2018 due to our focus on disciplined growth,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “Rockland Trust also announced the signing of a merger agreement with The Milford National Bank and Trust Company during the second quarter, a transaction which is anticipated to close later this year and will help expand our Worcester County presence. Our consistency and strong financial performance is a direct result of the tireless efforts of my talented colleagues to serve our customers and strengthen the communities in which we work and live.”

BALANCE SHEET

Total assets of $8.4 billion at June 30, 2018 increased by $290.6 million, or 3.6%, from the prior quarter and by $363.7 million, or 4.5%, as compared to the year ago period.

Total loan growth of 1.8% (7.4% annualized) was broad based, with commercial and industrial loans leading the way with an increase of $73.1 million, or 8.1%. Residential real estate (+2.4%), home equity (+1.7%) and business banking (+10.1%), also experienced strong growth during the quarter. The only category with a decline in balances was commercial construction due to many projects reaching completion during the quarter.

Deposit balances in the second quarter of 2018 rose by $262.0 million, or 3.9% (15.6% annualized), from the prior quarter to over $7.0 billion. The Company experienced healthy growth in all core deposit categories which combined represented 90.4% of total deposits at June 30, 2018. Also contributing to the increase in deposits was an unanticipated, single customer inflow of approximately $95.2 million in the second quarter. The total cost of deposits increased by three basis points in the second quarter to 0.27%.

The securities portfolio remained relatively constant, increasing by $6.6 million, or 0.7%, compared to the prior quarter due to purchases of $46.2 million, offset by paydowns on existing securities.

The Company's total borrowings of $300.8 million remained relatively consistent with the prior quarter, reflecting an increase in customer repurchase agreements, offset by the maturity of a small Federal Home Loan Bank borrowing.

Stockholders' equity at June 30, 2018 rose to $977.1 million, an increase of 2.2% from March 31, 2018, due primarily to strong earnings, partially offset by a decrease in other comprehensive income related primarily to unrealized losses on available for sale securities. In addition, stockholders' equity increased by 6.8% compared to the year ago period, notwithstanding approximately $10.1 million, after tax, in net other comprehensive losses over that time period. Book value per share increased $0.74, or 2.1%, during the second quarter compared to the prior quarter, and the Company's ratio of common equity to assets of 11.66% decreased by 16 basis points from the prior quarter and increased by 25 basis points from the same period a year ago. The Company's tangible book value per share rose by $0.76, or 2.9%, to $26.78 in the second quarter compared to the first quarter of 2018, and is now 9.4% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.06% at June 30, 2018 is 6 basis points lower than the prior quarter and 42 basis points higher than the same period a year ago.

NET INTEREST INCOME

Net interest income for the second quarter increased 6.9% to $73.2 million compared to $68.5 million in the prior quarter, due primarily to strong earning asset growth and a higher net interest margin. The net interest margin for the second quarter was 3.89%, compared to 3.77% in the prior quarter, as the Company continues to benefit from its sustained asset sensitive position. The second quarter also included increased income associated with loan payoffs and prepayment penalties which increased the net interest margin by approximately 3 basis points.

NONINTEREST INCOME

Noninterest income of $21.9 million in the second quarter was $2.0 million, or 10.2%, higher than the prior quarter. Significant changes in noninterest income in the second quarter compared to the prior quarter included the following:

  • Interchange and ATM fees increased by $596,000, or 14.3%, driven mainly by seasonal debit card activity.
  • Investment management income rose by $680,000, or 11.1%, reflecting a higher level of assets under administration, along with seasonal tax preparation fees during the second quarter. Total assets under administration increased to $3.6 billion as of June 30, 2018.
  • Mortgage banking income grew by $168,000, or 19.3%, due primarily to an overall increase in new loan originations.
  • Loan level derivative income increased by $261,000, or 58.4%, as a result of increased customer demand in the quarter.
  • Other noninterest income increased by $146,000, or 5.1%, primarily due to a gain on sale of loans partially offset by reduced loan fees.

NONINTEREST EXPENSE

Noninterest expense of $52.7 million in the second quarter was $763,000, or 1.4%, lower than the prior quarter. Significant changes in noninterest expense in the second quarter compared to the prior quarter included the following:

  • Salaries and employee benefits expense decreased by $812,000, or 2.6%, due primarily to seasonal decreases in payroll taxes, medical insurance, and retirement plan expenses partially offset by increases in incentive compensation and commissions.
  • Occupancy and equipment expense was lower by $911,000, or 12.3%, mainly due to decreases in snow removal and utility costs.
  • Merger and acquisition costs of $434,000 for the second quarter primarily reflect legal and professional fees associated with the pending acquisition of MNB which is anticipated to close in the fourth quarter of 2018. There were no such costs during the first quarter of 2018.
  • Other noninterest expense increased by $655,000, or 5.1%, driven by increases in equity compensation for directors due to a change in the vesting requirements for the 2018 annual director equity grant, consultant fees and legal fees, offset by decreases in unrealized losses on equity securities and provision for unfunded commitments.

The Company generated a return on average assets and a return on average common equity of 1.52% and 12.85%, respectively, in the second quarter of 2018, as compared to 1.39% and 11.73%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.53% and 12.98% during the second quarter of 2018, respectively. During the first quarter of 2018, there were no items that the Company considered to be noncore.

The Company’s effective tax rate increased to 22.9% for the second quarter as compared to 19.9% in the prior quarter. The current quarter results included the reduced effect of excess tax benefits associated with stock compensation transactions and other discrete items which totaled $170,000 as compared to $1.2 million of excess tax benefit in the prior quarter.

ASSET QUALITY

During the second quarter, the Company recorded total net charge-offs of $305,000, or 0.02% of average loans on an annualized basis, essentially consistent with net charge-offs of $281,000 in the prior quarter. The provision for loan losses increased to $2.0 million for the second quarter of 2018 compared to $500,000 in the first quarter of 2018 due mainly to the strong loan growth during the quarter. Nonperforming loans decreased by 1.3% to $47.1 million, or 0.73% of loans, at June 30, 2018 from $47.7 million, or 0.75% of loans, at March 31, 2018. Total nonperforming assets decreased slightly to $47.4 million at the end of the second quarter, as compared to $48.1 million at the end of the prior quarter. Nonperforming asset levels declined by 13.6% as compared to the year ago period. At June 30, 2018 delinquency as a percentage of loans was 0.89%, representing an increase of ten basis points from the prior quarter.

The allowance for loan losses was $62.6 million at June 30, 2018, as compared to $60.9 million at March 31, 2018. The Company’s allowance for loan losses as a percentage of loans was 0.97% and 0.96% at June 30, 2018 and March 31, 2018, respectively.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer, will host a conference call to discuss second quarter earnings at 10:00 a.m. Eastern Time on Friday, July 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: 10120785 and will be available through August 3, 2018. Additionally, a webcast replay will be available until July 20, 2019.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.4 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;
  • failure to consummate or a delay in consummating the acquisition of MNB Bancorp, which is subject to certain standard conditions, including regulatory approvals and approval by MNB Bancorp shareholders;
  • 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 earnings per share ("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 noncore 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
June 30
2018
March 31
2018
June 30
2017
Jun 2018 vs. Jun 2018 vs.
Mar 2018 Jun 2017
Assets
Cash and due from banks $ 113,930 $ 102,623 $ 110,249 11.02 % 3.34 %
Interest-earning deposits with banks 209,176 62,925 126,073 232.42 % 65.92 %
Securities
Trading 1,598 1,601 1,293 (0.19 )% 23.59 %
Equities 20,133 20,075 0.29 % 100.00 %
Available for sale 442,929 445,750 415,943 (0.63 )% 6.49 %
Held to maturity 538,261   528,861   498,392   1.78 % 8.00 %
Total securities 1,002,921 996,287 915,628 0.67 % 9.53 %
Loans held for sale (at fair value) 9,614 3,937 9,381 144.20 % 2.48 %
Loans
Commercial and industrial 976,264 903,214 910,936 8.09 % 7.17 %
Commercial real estate 3,131,337 3,102,271 3,083,020 0.94 % 1.57 %
Commercial construction 364,225 400,934 340,757 (9.16 )% 6.89 %
Small business 147,137   133,666   131,663   10.08 % 11.75 %
Total commercial 4,618,963   4,540,085   4,466,376   1.74 % 3.42 %
Residential real estate 779,421 761,331 749,392 2.38 % 4.01 %
Home equity - first position 646,626 617,164 612,428 4.77 % 5.58 %
Home equity - subordinate positions 422,671   434,288   431,031   (2.67 )% (1.94 )%
Total consumer real estate 1,848,718   1,812,783   1,792,851   1.98 % 3.12 %
Other consumer 11,590   9,188   10,469   26.14 % 10.71 %
Total loans 6,479,271   6,362,056   6,269,696   1.84 % 3.34 %
Less: allowance for loan losses (62,557 ) (60,862 ) (59,479 ) 2.78 % 5.17 %
Net loans 6,416,714   6,301,194   6,210,217   1.83 % 3.33 %
Federal Home Loan Bank stock 13,107 13,027 14,421 0.61 % (9.11 )%
Bank premises and equipment, net 95,838 95,214 92,664 0.66 % 3.43 %
Goodwill 231,806 231,806 231,806 % %
Other intangible assets 7,918 8,462 11,199 (6.43 )% (29.30 )%
Cash surrender value of life insurance policies 153,574 152,568 149,319 0.66 % 2.85 %
Other real estate owned and other foreclosed assets 245 358 3,029 (31.56 )% (91.91 )%
Other assets 126,159   122,009   143,307   3.40 % (11.97 )%
Total assets $ 8,381,002   $ 8,090,410   $ 8,017,293   3.59 % 4.54 %
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 2,262,871 $ 2,167,361 $ 2,118,506 4.41 % 6.81 %
Savings and interest checking accounts 2,739,228 2,606,257 2,676,389 5.10 % 2.35 %
Money market 1,351,623 1,323,138 1,292,311 2.15 % 4.59 %
Time certificates of deposit 659,768   654,755   608,174   0.77 % 8.48 %
Total deposits 7,013,490   6,751,511   6,695,380   3.88 % 4.75 %
Borrowings
Federal Home Loan Bank borrowings 50,775 53,257 53,279 (4.66 )% (4.70 )%
Customer repurchase agreements 142,235 137,914 159,371 3.13 % (10.75 )%
Junior subordinated debentures, net 73,077 73,075 73,069 % 0.01 %
Subordinated debentures, net 34,705   34,693   34,659   0.03 % 0.13 %
Total borrowings 300,792   298,939   320,378   0.62 % (6.11 )%
Total deposits and borrowings 7,314,282   7,050,450   7,015,758   3.74 % 4.26 %
Other liabilities 89,655   83,901   86,951   6.86 % 3.11 %
Total liabilities 7,403,937   7,134,351   7,102,709   3.78 % 4.24 %
Stockholders' equity
Common stock 274 273 272 0.37 % 0.74 %
Additional paid in capital 481,979 479,715 476,684 0.47 % 1.11 %
Retained earnings 504,926 484,266 437,587 4.27 % 15.39 %
Accumulated other comprehensive income (loss), net of tax (10,114 ) (8,195 ) 41   23.42 % nm  
Total stockholders' equity 977,065   956,059   914,584   2.20 % 6.83 %
Total liabilities and stockholders' equity $ 8,381,002   $ 8,090,410   $ 8,017,293   3.59 % 4.54 %

(nm - the percentage is not meaningful)

 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)
  Three Months Ended    
    % Change % Change
June 30
2018
March 31
2018
June 30
2017

Jun 2018 vs.

Jun 2018 vs.
Mar 2018 Jun 2017
Interest income
Interest on federal funds sold and short-term investments $ 541 $ 311 $ 190 74.0 % 184.74 %
Interest and dividends on securities 6,514 6,235 5,635 4.47 % 15.60 %
Interest and fees on loans 72,082 67,184 62,287 7.29 % 15.73 %
Interest on loans held for sale 30   19   21   57.89 % 42.86 %
Total interest income 79,167 73,749 68,133 7.35 % 16.19 %
Interest expense
Interest on deposits 4,587 3,935 2,912 16.57 % 57.52 %
Interest on borrowings 1,412   1,343   1,466   5.14 % (3.68 )%
Total interest expense 5,999   5,278   4,378   13.66 % 37.03 %
Net interest income 73,168 68,471 63,755 6.86 % 14.76 %
Provision for loan losses 2,000   500   1,050   300.00 % 90.48 %
Net interest income after provision for loan losses 71,168 67,971 62,705 4.70 % 13.50 %
Noninterest income
Deposit account fees 4,551 4,431 4,392 2.71 % 3.62 %
Interchange and ATM fees 4,769 4,173 4,434 14.28 % 7.56 %
Investment management 6,822 6,142 5,995 11.07 % 13.79 %
Mortgage banking income 1,038 870 1,314 19.31 % (21.00 )%
Increase in cash surrender value of life insurance policies 998 947 1,017 5.39 % (1.87 )%
Gain on sale of equity securities 2 3 nm (33.33 )%
Loan level derivative income 708 447 1,337 58.39 % (47.05 )%
Other noninterest income 2,999   2,853   2,906   5.12 % 3.20 %
Total noninterest income 21,887 19,863 21,398 10.19 % 2.29 %
Noninterest expenses
Salaries and employee benefits 30,288 31,100 28,654 (2.61 )% 5.70 %
Occupancy and equipment expenses 6,497 7,408 6,059 (12.30 )% 7.23 %
Data processing and facilities management 1,264 1,286 1,188 (1.71 )% 6.40 %
FDIC assessment 691 798 778 (13.41 )% (11.18 )%
Merger and acquisition expense 434 2,909 nm (85.08 )%
Loss on sale of equity securities 2 n/a nm
Other noninterest expenses 13,514   12,859   13,219   5.09 % 2.23 %
Total noninterest expenses 52,688 53,451 52,809 (1.43 )% (0.23 )%
Income before income taxes 40,367 34,383 31,294 17.40 % 28.99 %
Provision for income taxes 9,249   6,828   10,731   35.46 % (13.81 )%
Net Income $ 31,118   $ 27,555   $ 20,563   12.93 % 51.33 %
(nm - the percentage is not meaningful)
 
Weighted average common shares (basic) 27,526,653 27,486,573 27,257,799
Common share equivalents 54,525   67,381   74,497  
Weighted average common shares (diluted) 27,581,178   27,553,954   27,332,296  
 
Basic earnings per share $ 1.13 $ 1.00 $ 0.75 13.00 % 50.67 %
Diluted earnings per share $ 1.13 $ 1.00 $ 0.75 13.00 % 50.67 %
 

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

Net income $ 31,118 $ 27,555 $ 20,563
Noninterest expense components
Add - merger and acquisition expenses 434     2,909  
Noncore items, gross 434 2,909
Less - net tax benefit associated with noncore items (1) (122 )   (1,088 )
Operating net income $ 31,430   $ 27,555   $ 22,384   14.06 % 40.41 %
 
Diluted earnings per share, on an operating basis $ 1.14 $ 1.00 $ 0.82 14.00 % 39.02 %
 

(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) 3.89 % 3.77 % 3.60 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.52 % 1.39 % 1.06 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.53 % 1.39 % 1.15 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 12.85 % 11.73 % 9.15 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 12.98 % 11.73 % 9.96 %
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)
  Six Months Ended  
  % Change
June 30
2018
June 30
2017
Jun 2018 vs.
Jun 2017
 
Interest income
Interest on federal funds sold and short-term investments $ 852 $ 397 114.61 %
Interest and dividends on securities 12,749 11,028 15.61 %
Interest and fees on loans 139,266 121,080 15.02 %
Interest on loans held for sale 49   35   40.00 %
Total interest income 152,916 132,540 15.37 %
Interest expense
Interest on deposits 8,522 5,679 50.06 %
Interest on borrowings 2,755   2,906   (5.20 )%
Total interest expense 11,277   8,585   31.36 %
Net interest income 141,639 123,955 14.27 %
Provision for loan losses 2,500   1,650   51.52 %
Net interest income after provision for loan losses 139,139 122,305 13.76 %
Noninterest income
Deposit account fees 8,982 8,936 0.51 %
Interchange and ATM fees 8,942 8,356 7.01 %
Investment management 12,964 11,609 11.67 %
Mortgage banking income 1,908 2,271 (15.98 )%
Increase in cash surrender value of life insurance policies 1,945 1,981 (1.82 )%
Gain on sale of equity securities 2 7 (71.43 )%
Loan level derivative income 1,155 1,943 (40.56 )%
Other noninterest income 5,852   5,207   12.39 %
Total noninterest income 41,750 40,310 3.57 %
Noninterest expenses
Salaries and employee benefits 61,388 56,978 7.74 %
Occupancy and equipment expenses 13,905 12,217 13.82 %
Data processing and facilities management 2,550 2,460 3.66 %
FDIC assessment 1,489 1,561 (4.61 )%
Merger and acquisition expense 434 3,393 (87.21 )%
Loss on sale of equity securities 5 nm
Other noninterest expenses 26,373   24,968   5.63 %
Total noninterest expenses 106,139 101,582 4.49 %
Income before income taxes 74,750 61,033 22.47 %
Provision for income taxes 16,077   19,745   (18.58 )%
Net Income $ 58,673   $ 41,288   42.11 %
(nm - the percentage is not meaningful)
 
Weighted average common shares (basic) 27,506,724 27,144,350
Common share equivalents 61,480   78,757  
Weighted average common shares (diluted) 27,568,204   27,223,107  
 
Basic earnings per share $ 2.13 $ 1.52 40.13 %
Diluted earnings per share $ 2.13 $ 1.52 40.13 %
 

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

Net Income $ 58,673 $ 41,288
Noninterest expense components
Add - merger and acquisition expenses 434   3,393  
Noncore items, gross 434 3,393
Less - net tax benefit associated with noncore items (1) (122 ) (1,241 )
Operating net income $ 58,985   $ 43,440   35.78 %
 
Diluted earnings per share, on an operating basis $ 2.14 $ 1.60 33.75 %
 

(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) 3.83 % 3.56 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.46 % 1.08 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.46 % 1.13 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 12.30 % 9.36 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 12.36 % 9.85 %
 

ASSET QUALITY

(Unaudited, dollars in thousands)   Nonperforming Assets At
June 30
2018
  March 31
2018
  June 30
2017
Nonperforming loans
Commercial & industrial loans $ 30,095 $ 30,751 $ 33,630
Commercial real estate loans 3,110 2,997 4,679
Small business loans 384 412 453
Residential real estate loans 7,612 7,646 7,683
Home equity 5,861 5,858 5,240
Other consumer 50   49   98  
Total nonperforming loans 47,112   47,713   51,783  
Other real estate owned 245   358   3,029  
Total nonperforming assets $ 47,357   $ 48,071   $ 54,812  
 
Nonperforming loans/gross loans 0.73 % 0.75 % 0.83 %
Nonperforming assets/total assets 0.57 % 0.59 % 0.68 %
Allowance for loan losses/nonperforming loans

132.78

%

127.56 % 114.86 %
Allowance for loan losses/total loans 0.97 % 0.96 % 0.95 %
Delinquent loans/total loans 0.89 % 0.79 % 0.82 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
June 30
2018
March 31
2018
June 30
2017
 
Nonperforming assets beginning balance $ 48,071 $ 50,250 $ 58,456
New to nonperforming 3,642 2,001 3,619
Loans charged-off (568 ) (594 ) (4,198 )
Loans paid-off (2,209 ) (2,692 ) (1,124 )
Loans restored to performing status (1,490 ) (690 ) (1,642 )
Valuation write down (95 )
Sale of other real estate owned (254 ) (279 )
Other (89 ) 50   75  
Nonperforming assets ending balance $ 47,357   $ 48,071   $ 54,812  
 
  Net Charge-Offs (Recoveries)
Three Months Ended   Six Months Ended
June 30
2018
  March 31
2018
  June 30
2017
June 30
2018
  June 30
2017
Net charge-offs (recoveries)
Commercial and industrial loans $ (55 ) $ 121 $ 3,578 $ 66 $ 3,391
Commercial real estate loans (18 ) (20 ) (26 ) (38 ) (57 )
Small business loans 92 15 11 107 15
Residential real estate loans 108 37 114 145 125
Home equity 72 45 96 117 34
Other consumer 106   83   116   189   229  
Total net charge-offs $ 305   $ 281   $ 3,889   $ 586   $ 3,737  
 
Net charge-offs to average loans (annualized) 0.02 % 0.02 % 0.25 % 0.02 % 0.12 %
  Troubled Debt Restructurings At
June 30
2018
  March 31
2018
  June 30
2017
Troubled debt restructurings on accrual status $ 25,528 $ 25,617 $ 26,908
Troubled debt restructurings on nonaccrual status 4,095   5,637   5,728  
Total troubled debt restructurings $ 29,623   $ 31,254   $ 32,636  
 
BALANCE SHEET AND CAPITAL RATIOS
June 30
2018
March 31
2018
June 30
2017
Gross loans/total deposits 92.38 % 94.23 % 93.64 %
Common equity tier 1 capital ratio (1) 11.61 % 11.47 % 10.95 %
Tier one leverage capital ratio (1) 10.39 % 10.32 % 10.07 %
Common equity to assets ratio GAAP 11.66 % 11.82 % 11.41 %
Tangible common equity to tangible assets ratio (2) 9.06 % 9.12 % 8.64 %
Book value per share GAAP $ 35.49 $ 34.75 $ 33.34
Tangible book value per share (2) $ 26.78 $ 26.02 $ 24.48

(1) Estimated number for June 30, 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
June 30, 2018 March 31, 2018 June 30, 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 $ 122,116 $ 541 1.78 % $ 81,934 $ 311 1.54 % $ 72,676 $ 190 1.05 %
Securities
Securities - trading 1,599 % 1,433 % 1,292 %
Securities - taxable investments 993,222 6,498 2.62 % 967,221 6,219 2.61 % 900,086 5,609 2.50 %
Securities - nontaxable investments (1) 2,204   20   3.64 % 2,262   20   3.59 % 3,787   40   4.24 %
Total securities $ 997,025 $ 6,518 2.62 % $ 970,916 $ 6,239 2.61 % $ 905,165 $ 5,649 2.50 %
Loans held for sale 4,719 30 2.55 % 2,753 19 2.80 % 3,733 21 2.26 %
Loans
Commercial and industrial 943,110 11,116 4.73 % 879,336 9,615 4.43 % 895,173 9,098 4.08 %
Commercial real estate (1) 3,092,771 35,175 4.56 % 3,107,437 33,289 4.34 % 3,028,745 30,968 4.10 %
Commercial construction 416,830 5,256 5.06 % 397,720 4,671 4.76 % 362,603 4,105 4.54 %
Small business 138,758   2,008   5.80 % 132,125   1,862   5.72 % 129,100   1,776   5.52 %
Total commercial 4,591,469 53,555 4.68 % 4,516,618 49,437 4.44 % 4,415,621 45,947 4.17 %
Residential real estate 769,441 7,661 3.99 % 755,996 7,501 4.02 % 704,726 7,024 4.00 %
Home equity 1,061,082   10,830   4.09 % 1,051,022   10,205   3.94 % 1,028,109   9,444   3.68 %
Total consumer real estate 1,830,523 18,491 4.05 % 1,807,018 17,706 3.97 % 1,732,835 16,468 3.81 %
Other consumer 10,295   211   8.22 % 10,659   214   8.14 % 10,541   240   9.13 %
Total loans $ 6,432,287   $ 72,257   4.51 % $ 6,334,295   $ 67,357   4.31 % $ 6,158,997   $ 62,655   4.08 %
Total interest-earning assets 7,556,147   $ 79,346   4.21 % $ 7,389,898   $ 73,926   4.06 % $ 7,140,571   $ 68,515   3.85 %
Cash and due from banks 100,952 97,605 97,129
Federal Home Loan Bank stock 13,399 13,016 13,700
Other assets 545,994   545,516   551,388  
Total assets $ 8,216,492   $ 8,046,035   $ 7,802,788  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,664,148 $ 1,293 0.19 % $ 2,563,186 $ 1,093 0.17 % $ 2,568,020 $ 849 0.13 %
Money market 1,360,216 1,667 0.49 % 1,338,265 1,364 0.41 % 1,287,991 935 0.29 %
Time deposits 653,373   1,627   1.00 % 646,529   1,478   0.93 % 609,787   1,128   0.74 %
Total interest-bearing deposits $ 4,677,737 $ 4,587 0.39 % $ 4,547,980 $ 3,935 0.35 % $ 4,465,798 $ 2,912 0.26 %
Borrowings
Federal Home Loan Bank borrowings 62,600 295 1.89 % 73,040 260 1.44 % 63,275 418 2.65 %
Customer repurchase agreements 143,259 64 0.18 % 155,768 66 0.17 % 155,692 55 0.14 %
Junior subordinated debentures 73,076 625 3.43 % 73,074 590 3.27 % 73,068 565 3.10 %
Subordinated debentures 34,699   428   4.95 % 34,687   427   4.99 % 34,652   428   4.95 %
Total borrowings $ 313,634   $ 1,412   1.81 % $ 336,569   $ 1,343   1.62 % $ 326,687   $ 1,466   1.80 %
Total interest-bearing liabilities $ 4,991,371   $ 5,999   0.48 % $ 4,884,549   $ 5,278   0.44 % $ 4,792,485   $ 4,378   0.37 %
Demand deposits 2,174,571 2,129,517 2,026,770
Other liabilities 79,266   79,125   81,725  
Total liabilities $ 7,245,208   $ 7,093,191   $ 6,900,980  
Stockholders' equity 971,284   952,844   901,808  
Total liabilities and stockholders' equity $ 8,216,492   $ 8,046,035   $ 7,802,788  
 
Net interest income $ 73,347   $ 68,648   $ 64,137  
 
Interest rate spread (2) 3.73 % 3.62 % 3.48 %
 
Net interest margin (3) 3.89 % 3.77 % 3.60 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,852,308 $ 4,587 $ 6,677,497 $ 3,935 $ 6,492,568 $ 2,912
Cost of total deposits 0.27 % 0.24 % 0.18 %
Total funding liabilities, including demand deposits $ 7,165,942 $ 5,999 $ 7,014,066 $ 5,278 $ 6,819,255 $ 4,378
Cost of total funding liabilities 0.34 % 0.31 % 0.26 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $179,000, $177,000, and $382,000 for the three months ended June 30, 2018, March 31, 2018, and June 30, 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.

 
Six Months Ended
June 30, 2018   June 30, 2017
  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 $ 102,136 $ 852 1.68 % $ 88,752 $ 397 0.90 %
Securities
Securities - trading 1,517 % 1,146 %
Securities - taxable investments 980,293 12,717 2.62 % 887,820 10,976 2.49 %
Securities - nontaxable investments (1) 2,233   40   3.61 % 3,790   80   4.26 %
Total securities $ 984,043 $ 12,757 2.61 % $ 892,756 $ 11,056 2.50 %
Loans held for sale 3,741 49 2.64 % 3,232 35 2.18 %
Loans
Commercial and industrial 911,399 20,731 4.59 % 888,009 17,740 4.03 %
Commercial real estate (1) 3,100,063 68,464 4.45 % 3,029,043 61,182 4.07 %
Commercial construction 407,328 9,927 4.91 % 347,031 7,682 4.46 %
Small business 135,460   3,870   5.76 % 126,750   3,456   5.50 %
Total commercial 4,554,250 102,992 4.56 % 4,390,833 90,060 4.14 %
Residential real estate 762,755 15,162 4.01 % 674,368 13,123 3.92 %
Home equity 1,056,080   21,035   4.02 % 1,012,610   18,152   3.61 %
Total consumer real estate 1,818,835 36,197 4.01 % 1,686,978 31,275 3.74 %
Other consumer 10,476   425   8.18 % 10,934   481   8.87 %
Total loans $ 6,383,561   $ 139,614   4.41 % $ 6,088,745   $ 121,816   4.03 %
Total interest-earning assets $ 7,473,481   $ 153,272   4.14 % $ 7,073,485   $ 133,304   3.80 %
Cash and due from banks 99,288 96,048
Federal Home Loan Bank stock 13,209 13,406
Other assets 545,756   545,929  
Total assets $ 8,131,734   $ 7,728,868  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,613,945 $ 2,386 0.18 % $ 2,523,941 $ 1,612 0.13 %
Money market 1,349,301 3,031 0.45 % 1,273,310 1,792 0.28 %
Time deposits 649,970   3,105   0.96 % 622,298   2,275   0.74 %
Total interest-bearing deposits $ 4,613,216 $ 8,522 0.37 % $ 4,419,549 $ 5,679 0.26 %
Borrowings
Federal Home Loan Bank borrowings 67,792 555 1.65 % 64,905 821 2.55 %
Customer repurchase agreements 149,479 130 0.18 % 156,494 111 0.14 %
Junior subordinated debentures 73,075 1,215 3.35 % 73,077 1,119 3.09 %
Subordinated debentures 34,693   855   4.97 % 34,647   855   4.98 %
Total borrowings $ 325,039   $ 2,755   1.71 % $ 329,123   $ 2,906   1.78 %
Total interest-bearing liabilities $ 4,938,255   $ 11,277   0.46 % $ 4,748,672   $ 8,585   0.36 %
Demand deposits 2,152,168 2,007,282
Other liabilities 79,196   83,697  
Total liabilities $ 7,169,619 $ 6,839,651
Stockholders' equity 962,115   889,217  
Total liabilities and stockholders' equity $ 8,131,734   $ 7,728,868  
 
Net interest income $ 141,995   $ 124,719  
 
Interest rate spread (2) 3.68 % 3.44 %
 
Net interest margin (3) 3.83 % 3.56 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,765,384 $ 8,522 $ 6,426,831 $ 5,679
Cost of total deposits 0.25 % 0.18 %
Total funding liabilities, including demand deposits $ 7,090,423 $ 11,277 $ 6,755,954 $ 8,585
Cost of total funding liabilities 0.32 % 0.26 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $356,000 and $764,000 for the six months ended June 30, 2018 and 2017, 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.

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:

       
June 30
2018
March 31
2018
June 30
2017
Tangible common equity
Stockholders' equity (GAAP) $ 977,065 $ 956,059 $ 914,584 (a)
Less: Goodwill and other intangibles 239,724   240,268   243,005  
Tangible common equity $ 737,341   $ 715,791   $ 671,579   (b)
Tangible assets
Assets (GAAP) $ 8,381,002 $ 8,090,410 $ 8,017,293 (c)
Less: Goodwill and other intangibles 239,724   240,268   243,005  
Tangible assets $ 8,141,278   $ 7,850,142   $ 7,774,288   (d)
     
Common Shares 27,532,524   27,512,328   27,431,171   (e)
 
Common equity to assets ratio (GAAP) 11.66 % 11.82 % 11.41 % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 9.06 % 9.12 % 8.64 % (b/d)
Book value per share (GAAP) $ 35.49 $ 34.75 $ 33.34 (a/e)
Tangible book value per share (Non-GAAP) $ 26.78 $ 26.02 $ 24.48 (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   Six Months Ended  
June 30
2018
  March 31
2018
  June 30
2017
June 30, 2018   June 30, 2017
Net interest income (GAAP) $ 73,168 $ 68,471 $ 63,755 $ 141,639 $ 123,955 (a)
 
Noninterest income (GAAP) $ 21,887   $ 19,863   $ 21,398   $ 41,750   $ 40,310   (b)
Noninterest income on an operating basis (Non-GAAP) $ 21,887 $ 19,863 $ 21,398 $ 41,750 $ 40,310 (c)
 
Noninterest expense (GAAP) $ 52,688 $ 53,451 $ 52,809 $ 106,139 $ 101,582 (d)
Less:
Merger and acquisition expense 434     2,909   434   3,393  
Noninterest expense on an operating basis (Non-GAAP) $ 52,254 $ 53,451 $ 49,900 $ 105,705 $ 98,189 (e)
 
Total revenue (GAAP) $ 95,055 $ 88,334 $ 85,153 $ 183,389 $ 164,265 (a+b)
Total operating revenue (Non-GAAP) $ 95,055 $ 88,334 $ 85,153 $ 183,389 $ 164,265 (a+c)
 
Ratios
Noninterest income as a % of total revenue (GAAP based) 23.03 % 22.49 % 25.13 % 22.77 % 24.54 % (b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP) 23.03 % 22.49 % 25.13 % 22.77 % 24.54 % (c/(a+c))
Efficiency ratio (GAAP based) 55.43 % 60.51 % 62.02 % 57.88 % 61.84 % (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) 54.97 % 60.51 % 58.60 % 57.64 % 59.77 % (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