Independent Bank Corp.

10/17/2019 | Press release | Distributed by Public on 10/17/2019 14:35

Independent Bank Corp. Reports Third Quarter Net Income of $51.8 Million

Independent Bank Corp. Reports Third Quarter Net Income of $51.8 Million

Company Release - 10/17/20194:10 PMET

Continued record quarterly operating results

ROCKLAND, Mass.--(BUSINESS WIRE)-- Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2019 third quarter net income of $51.8 million, or $1.51 per diluted share, compared to net income of $30.6 million, or $0.89 per diluted share, reported in the second quarter of 2019. Excluding a gain on sale of residential loans in the third quarter of 2019 and merger and acquisition expenses incurred in both quarters, operating net income was $51.7 million, or $1.50 per diluted share, during the third quarter of 2019 compared to $48.8 million, or $1.42 per diluted share, during the prior quarter.

'Rockland Trust's third quarter performance was strong,' said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. 'Our underlying fundamentals remain strong, our integration of Blue Hills Bank has progressed as planned, and we are hard at work pursuing the opportunities presented by our market expansion. Our ongoing success is a testament to the hard work of my talented colleagues and their commitment to forge enduring relationships with each other and with the customers and communities that Rockland Trust serves.'

BALANCE SHEET

Total assets of $11.5 billion at September 30, 2019 decreased by $64.6 million, or 0.6%, from the prior quarter, and increased by $3.2 billion, or 37.8%, as compared to the year ago period, inclusive of the 2019 second quarter acquisition of Blue Hills Bancorp, Inc. ('BHB') and the 2018 fourth quarter acquisition of MNB Bancorp ('MNB').

Strong loan closing volumes in the third quarter were offset by continued elevated payoff activity, a portion of which is attributable to certain newly acquired BHB loan segments, resulting in a minor decrease of $37.3 million, or 0.4% in total loans, to $8.9 billion. Strong growth compared to the linked quarter in the commercial construction portfolio (23.4% annualized) and to a lesser degree the commercial and industrial portfolio, was outpaced by a net reduction in commercial real estate balances, triggered by accelerated exit events for borrowers. On the consumer side, mortgage origination volumes were very robust in the third quarter while the decrease in the residential real estate portfolio was largely attributable to a majority of the Company's production being sold. The home equity portfolio was stable as the low rate environment generated an increase in home equity and refinance demand to more attractive mortgage refinance opportunities. Inclusive of the acquisitions, total loans increased by $2.4 billion, or 36.6%, when compared to the year ago period.

Deposit balances of $9.3 billion at September 30, 2019 increased by $18.2 million, or 0.2%, compared to the second quarter of 2019. Increases in time deposits and demand deposits were offset by a decrease in money market balances. As with loans, overall deposit levels were impacted by runoff in the acquired BHB deposit base. The cost of deposits increased modestly by one basis point to 0.50% in the third quarter as compared to the prior quarter. Inclusive of the BHB and MNB acquisitions, total deposits increased by $2.3 billion, or 33.7%, when compared to the year ago period.

The securities portfolio decreased by $21.0 million, or 1.7%, compared to the prior quarter, mainly due to paydowns during the quarter, partially offset by purchases of $21.8 million.

Total borrowings decreased by $206.9 million, or 41.4%, compared to the prior quarter, primarily due to the full paydown of the Federal Home Loan Bank overnight borrowing position in effect at the end of the second quarter.

Stockholders' equity at September 30, 2019 rose to $1.7 billion, an increase of 2.8% as compared to June 30, 2019, driven by continued strong earnings retention, as well as an increase in other comprehensive income of $5.2 million. In addition, stockholders' equity increased by 68.5% when compared to the year ago period, due primarily to the stock issuance associated with the BHB and MNB acquisitions. Book value per share increased by $1.28, or 2.7%, during the third quarter as compared to the linked quarter. The Company's ratio of common equity to assets of 14.58% increased by 48 basis points from the prior quarter and by 266 basis points from the same period a year ago. The Company's tangible book value per share was $33.36, representing an increase from the prior quarter of $1.36, or 4.3%, and is now 21.0% higher than the year ago period inclusive of the two acquisitions discussed above. The Company's ratio of tangible common equity to tangible assets of 10.42% at September 30, 2019 is 50 basis points higher than the prior quarter and 109 basis points above the year ago period.

In consideration of the Company's strong current capital position, combined with the prevailing depression of industry stock valuations, Independent Bank Corp.'s Board of Directors approved a stock buyback plan on October 17, 2019 which authorizes repurchases of up to 1.5 million shares. The plan will be in effect through October 31, 2020.

NET INTEREST INCOME

Net interest income for the third quarter decreased 1.3% to $104.6 million compared to $106.0 million in the prior quarter, due to decreased average earning assets along with the impact of lower interest rates. The 2019 third quarter net interest margin of 4.03% reflects a reduction of 6 basis points from the prior quarter, driven primarily by lower asset yields linked to the July and September Federal Reserve rate cuts. The pressure on the margin was partly mitigated by elevated purchase accounting loan accretion of $3.9 million, driven primarily by the aforementioned increased levels of loan payoffs during the quarter.

NONINTEREST INCOME

Noninterest income of $31.8 million in the third quarter of 2019 was $3.2 million, or 11.1% higher than the prior quarter. Significant changes in noninterest income in the third quarter compared to the prior quarter included the following:

  • Deposit account and interchange and ATM fees increased by $562,000, or 5.2%, due primarily to increased debit card usage and annual debit card branding incentives.
  • Investment management income stayed relatively flat with the prior quarter, as strong new asset generation helped offset the absence of seasonal tax preparation that occurred in the second quarter. Assets under administration at September 30, 2019 rose by 7.3% over the prior quarter to $4.5 billion.
  • Mortgage banking income grew by $558,000, or 16.4%, as the enhanced post-BHB acquisition mortgage capabilities continue to capitalize on a strong refinance demand environment, combined with robust purchase volumes.
  • The Company received proceeds on life insurance policies during the third quarter, resulting in a gain of $434,000.
  • Loan level derivative income increased by $1.8 million, or 193.9%, as a result of increased customer demand in the quarter.
  • Other noninterest income decreased $236,000, or 4.7%. The decrease is primarily attributable to reduced unrealized gains on equity securities, as well as the prior quarter including gains associated with the sale of a small business credit card portfolio. Offsetting these factors was a $951,000 gain recognized in the third quarter on the sale of residential loans in conjunction with the Company's balance sheet deleverage strategy following the BHB acquisition.

NONINTEREST EXPENSE

Noninterest expense of $67.5 million in the third quarter of 2019 was $25.5 million, or 27.4% 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 $580,000, or 1.5%, due primarily to increases in base salaries, incentive programs, and pension costs, offset by decreases in payroll taxes and commissions.
  • Occupancy and equipment expense increased slightly by $131,000, or 1.6%, mainly due to increases in office equipment, software expenses, and depreciation.
  • Data processing expense decreased by $527,000, or 25.8%, as the prior quarter included increased costs associated with the BHB system conversion.
  • The Federal Deposit Insurance Corporation ('FDIC') assessment was zero in the third quarter, as the Company benefited from the small bank assessment credits allocated in conjunction with the Deposit Insurance Fund's attainment of a 1.38 percent reserve ratio. Approximately $2.0 million of additional credits are available to offset future assessments on a quarterly basis, conditional on the reserve ratio exceeding 1.38 percent.
  • Merger and acquisition costs were $705,000 for the third quarter compared to $24.7 million in the prior quarter and encompassed final BHB acquisition integration costs. The prior quarter expense was primarily attributable to the BHB acquisition severance and contract termination costs.
  • Other noninterest expense decreased by $914,000, or 5.0%, as the prior quarter included a $1.5 million loss on the sale of securities. In addition, the third quarter expenses reflected reductions in director fees and provision for unfunded commitments, offset by a third quarter write-down on other real estate owned, as well as increased debit card expense, charitable contributions and advertising expenses.

The Company generated a return on average assets and a return on average common equity of 1.78% and 12.33%, respectively, in the third quarter of 2019, as compared to 1.06% and 7.59%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.77% and 12.29%, respectively, during the third quarter of 2019, as compared to 1.69% and 12.09%, respectively, for the prior quarter.

ASSET QUALITY

During the third quarter of 2019, the Company recorded total net recoveries of $982,000, due to a $1.0 million recovery from the settlement of a previous charge-off. As such, there was no provision for loan losses in the third quarter of 2019. Nonperforming loans increased slightly to $45.7 million at September 30, 2019 compared to prior quarter balances of $45.3 million, and remain at 0.51% of loans. Total nonperforming assets remained consistent at September 30, 2019 at $48.2 million when compared to the prior period and increased by 5.7% when compared to the year ago period, primarily due to the addition of an other real estate owned property. At September 30, 2019, delinquency as a percentage of loans was 0.26%, representing an increase of two basis points from the prior quarter.

The allowance for loan losses was $66.9 million at September 30, 2019, as compared to $66.0 million at June 30, 2019. The Company's allowance for loan losses as a percentage of loans was 0.75% and 0.74% at September 30, 2019 and June 30, 2019, respectively.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer, Robert Cozzone, Chief Operating Officer, and Mark Ruggiero, Chief Financial Officer, will host a conference call to discuss third quarter earnings at 10:00 a.m. Eastern Time on Friday, October 18, 2019. Internet access to the call is available on the Company's website at www.rocklandtrust.comor 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: 10134543 and will be available through November 1, 2019. Additionally, a webcast replay will be available until October 18, 2020.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Named in 2018 to The Boston Globe's 'Top Places to Work' list for the 10th consecutive year, Rockland Trust offers a wide range of banking, investment, and insurance services. The Bank serves businesses and individuals through over 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, as well as in Worcester County 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;
  • inability to raise capital on terms that are favorable;
  • additional regulatory oversight and additional costs associated with the Company's increase in assets to over $10 billion;
  • 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;
  • changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR;
  • 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;
  • 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 timeframes anticipated;
  • inability to retain customers and employees, including those acquired in the MNB and BHB 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'), operating return on average assets, operating return on average common equity, tangible book value per share and the tangible common equity ratio.

Operating net income, operating EPS, operating return on average assets and operating return on average common equity exclude items that management believes are unrelated to its core banking business such as merger and acquisition expenses, and other items, if applicable. The Company's management uses operating earnings and related ratios 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). The Company has included information on tangible book value per share and the tangible common equity ratio because management believes that investors may find it useful to have access to the same analytical tools 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, operating return on average assets, operating return on average equity, tangible book value per share and the tangible common equity ratio, 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
2019

June 30
2019

September 30
2018

Sept 2019 vs.

Sept 2019 vs.

Jun 2019

Sept 2018

Assets

Cash and due from banks

$

153,000

$

121,001

$

102,540

26.45

%

49.21

%

Interest-earning deposits with banks

66,272

73,013

148,307

(9.23

)%

(55.31

)%

Securities

Trading

1,963

1,939

1,581

1.24

%

24.16

%

Equities

21,021

20,807

20,430

1.03

%

2.89

%

Available for sale

391,975

393,148

435,861

(0.30

)%

(10.07

)%

Held to maturity

777,270

797,359

553,705

(2.52

)%

40.38

%

Total securities

1,192,229

1,213,253

1,011,577

(1.73

)%

17.86

%

Loans held for sale

55,937

123,557

10,431

(54.73

)%

436.26

%

Loans

Commercial and industrial

1,411,516

1,400,924

1,003,780

0.76

%

40.62

%

Commercial real estate

4,000,487

4,058,066

3,132,491

(1.42

)%

27.71

%

Commercial construction

520,585

491,598

352,491

5.90

%

47.69

%

Small business

172,038

173,927

149,200

(1.09

)%

15.31

%

Total commercial

6,104,626

6,124,515

4,637,962

(0.32

)%

31.62

%

Residential real estate

1,644,758

1,655,182

801,810

(0.63

)%

105.13

%

Home equity - first position

644,675

656,515

647,132

(1.80

)%

(0.38

)%

Home equity - subordinate positions

492,434

487,984

426,829

0.91

%

15.37

%

Total consumer real estate

2,781,867

2,799,681

1,875,771

(0.64

)%

48.31

%

Other consumer

27,008

26,591

13,669

1.57

%

97.59

%

Total loans

8,913,501

8,950,787

6,527,402

(0.42

)%

36.56

%

Less: allowance for loan losses

(66,942

)

(65,960

)

(63,235

)

1.49

%

5.86

%

Net loans

8,846,559

8,884,827

6,464,167

(0.43

)%

36.86

%

Federal Home Loan Bank stock

14,976

26,085

13,107

(42.59

)%

14.26

%

Bank premises and equipment, net

125,026

123,374

95,941

1.34

%

30.32

%

Goodwill

504,562

504,562

231,806

-

%

117.67

%

Other intangible assets

31,307

33,334

7,379

(6.08

)%

324.27

%

Cash surrender value of life insurance policies

195,883

197,292

153,186

(0.71

)%

27.87

%

Other assets

352,888

302,901

137,056

16.50

%

157.48

%

Total assets

$

11,538,639

$

11,603,199

$

8,375,497

(0.56

)%

37.77

%

Liabilities and Stockholders' Equity

Deposits

Noninterest-bearing demand deposits

$

2,752,150

$

2,738,420

$

2,337,221

0.50

%

17.75

%

Savings and interest checking accounts

3,199,182

3,196,639

2,621,926

0.08

%

22.02

%

Money market

1,904,643

1,927,797

1,353,641

(1.20

)%

40.71

%

Time certificates of deposit

1,470,116

1,445,059

663,451

1.73

%

121.59

%

Total deposits

9,326,091

9,307,915

6,976,239

0.20

%

33.68

%

Borrowings

Federal Home Loan Bank borrowings

70,708

277,671

50,767

(74.54

)%

39.28

%

Customer repurchase agreements

-

-

141,176

n/a

(100.00

)%

Long-term borrowings, net

74,894

74,879

-

0.02

%

100.00

%

Junior subordinated debentures, net

62,848

62,847

73,078

-

%

(14.00

)%

Subordinated debentures, net

84,341

84,305

34,717

0.04

%

142.94

%

Total borrowings

292,791

499,702

299,738

(41.41

)%

(2.32

)%

Total deposits and borrowings

9,618,882

9,807,617

7,275,977

(1.92

)%

32.20

%

Other liabilities

237,433

159,579

101,215

48.79

%

134.58

%

Total liabilities

9,856,315

9,967,196

7,377,192

(1.11

)%

33.61

%

Stockholders' equity

Common stock

342

342

274

-

%

24.82

%

Additional paid in capital

1,033,949

1,029,594

483,222

0.42

%

113.97

%

Retained earnings

621,831

585,111

527,473

6.28

%

17.89

%

Accumulated other comprehensive income (loss), net of tax

26,202

20,956

(12,664

)

25.03

%

306.90

%

Total stockholders' equity

1,682,324

1,636,003

998,305

2.83

%

68.52

%

Total liabilities and stockholders' equity

$

11,538,639

$

11,603,199

$

8,375,497

(0.56

)%

37.77

%

CONSOLIDATED STATEMENTS OF INCOME

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

Three Months Ended

% Change

% Change

September 30
2019

June 30
2019

September 30
2018

Sept 2019 vs.

Sept 2019 vs.

Jun 2019

Sept 2018

Interest income

Interest on federal funds sold and short-term investments

$

680

$

647

$

916

5.10

%

(25.76

)%

Interest and dividends on securities

8,283

8,534

6,678

(2.94

)%

24.03

%

Interest and fees on loans

110,205

112,923

75,220

(2.41

)%

46.51

%

Interest on loans held for sale

456

40

61

1,040.00

%

647.54

%

Total interest income

119,624

122,144

82,875

(2.06

)%

44.34

%

Interest expense

Interest on deposits

11,846

11,178

5,251

5.98

%

125.60

%

Interest on borrowings

3,180

4,947

1,390

(35.72

)%

128.78

%

Total interest expense

15,026

16,125

6,641

(6.82

)%

126.26

%

Net interest income

104,598

106,019

76,234

(1.34

)%

37.21

%

Provision for loan losses

-

1,000

1,075

(100.00

)%

(100.00

)%

Net interest income after provision for loan losses

104,598

105,019

75,159

(0.40

)%

39.17

%

Noninterest income

Deposit account fees

5,299

5,080

4,658

4.31

%

13.76

%

Interchange and ATM fees

6,137

5,794

4,947

5.92

%

24.05

%

Investment management

7,188

7,153

6,564

0.49

%

9.51

%

Mortgage banking income

3,968

3,410

1,222

16.36

%

224.71

%

Increase in cash surrender value of life insurance policies

1,304

1,296

984

0.62

%

32.52

%

Gain on life insurance benefits

434

-

1,463

100.00

%

(70.33

)%

Loan level derivative income

2,739

932

392

193.88

%

598.72

%

Other noninterest income

4,747

4,983

3,034

(4.74

)%

56.46

%

Total noninterest income

31,816

28,648

23,264

11.06

%

36.76

%

Noninterest expenses

Salaries and employee benefits

39,432

38,852

31,095

1.49

%

26.81

%

Occupancy and equipment expenses

8,555

8,424

6,310

1.56

%

35.58

%

Data processing and facilities management

1,515

2,042

1,287

(25.81

)%

17.72

%

FDIC assessment

-

778

725

(100.00

)%

(100.00

)%

Merger and acquisition expense

705

24,696

2,688

(97.15

)%

(73.77

)%

Other noninterest expenses

17,326

18,240

13,334

(5.01

)%

29.94

%

Total noninterest expenses

67,533

93,032

55,439

(27.41

)%

21.81

%

Income before income taxes

68,881

40,635

42,984

69.51

%

60.25

%

Provision for income taxes

17,036

10,007

9,969

70.24

%

70.89

%

Net Income

$

51,845

$

30,628

$

33,015

69.27

%

57.03

%

Weighted average common shares (basic)

34,361,176

34,313,492

27,537,841

Common share equivalents

39,390

41,878

63,499

Weighted average common shares (diluted)

34,400,566

34,355,370

27,601,340

Basic earnings per share

$

1.51

$

0.89

$

1.20

69.66

%

25.83

%

Diluted earnings per share

$

1.51

$

0.89

$

1.20

69.66

%

25.83

%

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

Net income

$

51,845

$

30,628

$

33,015

Noninterest income components

Less - gain on sale of loans

951

-

-

Noninterest expense components

Add - merger and acquisition expenses

705

24,696

2,688

Noncore increases (decreases) to income before taxes

(246

)

24,696

2,688

Net tax expense (benefit) associated with noncore items (1)

72

(6,560

)

(756

)

Noncore increases (decreases) to net income

(174

)

18,136

1,932

Operating net income

$

51,671

$

48,764

$

34,947

5.96

%

47.86

%

Diluted earnings per share, on an operating basis

$

1.50

$

1.42

$

1.27

5.63

%

18.11

%

(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)

4.03

%

4.09

%

3.94

%

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

1.78

%

1.06

%

1.57

%

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

1.77

%

1.69

%

1.66

%

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

12.33

%

7.59

%

13.19

%

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

12.29

%

12.09

%

13.96

%

CONSOLIDATED STATEMENTS OF INCOME

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

Nine Months Ended

% Change

September 30
2019

September 30
2018

Sept 2019 vs.

Sept 2018

Interest income

Interest on federal funds sold and short-term investments

$

1,753

$

1,768

(0.85

)%

Interest and dividends on securities

24,295

19,427

25.06

%

Interest and fees on loans

306,736

214,486

43.01

%

Interest on loans held for sale

527

110

379.09

%

Total interest income

333,311

235,791

41.36

%

Interest expense

Interest on deposits

30,052

13,773

118.20

%

Interest on borrowings

10,117

4,145

144.08

%

Total interest expense

40,169

17,918

124.18

%

Net interest income

293,142

217,873

34.55

%

Provision for loan losses

2,000

3,575

(44.06

)%

Net interest income after provision for loan losses

291,142

214,298

35.86

%

Noninterest income

Deposit account fees

14,785

13,640

8.39

%

Interchange and ATM fees

16,447

13,889

18.42

%

Investment management

21,089

19,528

7.99

%

Mortgage banking income

8,184

3,130

161.47

%

Increase in cash surrender value of life insurance policies

3,572

2,929

21.95

%

Gain on life insurance benefits

434

1,463

(70.33

)%

Loan level derivative income

4,312

1,547

178.73

%

Other noninterest income

13,174

8,888

48.22

%

Total noninterest income

81,997

65,014

26.12

%

Noninterest expenses

Salaries and employee benefits

111,401

92,483

20.46

%

Occupancy and equipment expenses

24,109

20,215

19.26

%

Data processing and facilities management

4,883

3,837

27.26

%

FDIC assessment

1,394

2,214

(37.04

)%

Merger and acquisition expense

26,433

3,122

746.67

%

Other noninterest expenses

48,656

39,707

22.54

%

Total noninterest expenses

216,876

161,578

34.22

%

Income before income taxes

156,263

117,734

32.73

%

Provision for income taxes

38,565

26,046

48.06

%

Net Income

$

117,698

$

91,688

28.37

%

Weighted average common shares (basic)

32,283,196

27,517,210

Common share equivalents

45,416

62,596

Weighted average common shares (diluted)

32,328,612

27,579,806

Basic earnings per share

$

3.65

$

3.33

9.61

%

Diluted earnings per share

$

3.64

$

3.32

9.64

%

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

Net Income

$

117,698

$

91,688

Noninterest income components

Less - gain on sale of loans

951

-

Noninterest expense components

Add - merger and acquisition expenses

26,433

3,122

Noncore increases (decreases) to income before taxes

25,482

3,122

Net tax expense (benefit) associated with noncore items (1)

(6,686

)

(878

)

Add - adjustment for tax effect of previously incurred merger and acquisition expenses

650

-

Total tax impact

(6,036

)

(878

)

Noncore increases (decreases) to net income

$

19,446

$

2,244

Operating net income

$

137,144

$

93,932

46.00

%

Diluted earnings per share, on an operating basis

$

4.24

$

3.41

24.34

%

(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)

4.08

%

3.87

%

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

1.47

%

1.49

%

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

1.72

%

1.53

%

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

10.77

%

12.60

%

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

12.55

%

12.91

%

ASSET QUALITY

(Unaudited, dollars in thousands)

Nonperforming Assets At

September 30
2019

June 30
2019

September 30
2018

Nonperforming loans

Commercial & industrial loans

$

23,507

$

24,895

$

28,742

Commercial real estate loans

1,666

833

1,960

Small business loans

112

168

191

Residential real estate loans

13,088

11,762

8,076

Home equity

7,231

7,514

6,367

Other consumer

98

122

58

Total nonperforming loans

45,702

45,294

45,394

Other real estate owned

2,500

2,889

190

Total nonperforming assets

$

48,202

$

48,183

$

45,584

Nonperforming loans/gross loans

0.51

%

0.51

%

0.70

%

Nonperforming assets/total assets

0.42

%

0.42

%

0.54

%

Allowance for loan losses/nonperforming loans

146.47

%

145.63

%

139.30

%

Allowance for loan losses/total loans

0.75

%

0.74

%

0.97

%

Delinquent loans/total loans

0.26

%

0.24

%

0.71

%

Nonperforming Assets Reconciliation for the Three Months Ended

September 30
2019

June 30
2019

September 30
2018

Nonperforming assets beginning balance

$

48,183

$

43,331

$

47,357

New to nonperforming

4,946

4,801

4,984

Acquired loans

-

2,317

-

Loans charged-off

(707

)

(472

)

(847

)

Loans paid-off

(3,041

)

(3,289

)

(4,932

)

Loans restored to performing status

(714

)

(1,266

)

(921

)

Acquired other real estate owned

-

2,818

-

Valuation write down

(389

)

-

-

Other

(76

)

(57

)

(57

)

Nonperforming assets ending balance

$

48,202

$

48,183

$

45,584

Net Charge-Offs (Recoveries)

Three Months Ended

Nine Months Ended

September 30
2019

June 30
2019

September 30
2018

September 30
2019

September 30
2018

Net charge-offs (recoveries)

Commercial and industrial loans

$

(1,003

)

$

-

$

110

$

(1,127

)

$

176

Commercial real estate loans

(24

)

(13

)

53

(70

)

15

Small business loans

64

29

101

211

208

Residential real estate loans

(140

)

-

(9

)

(141

)

136

Home equity

(166

)

53

16

(66

)

133

Other consumer

287

111

126

544

315

Total net charge-offs (recoveries)

$

(982

)

$

180

$

397

$

(649

)

$

983

Net charge-offs (recoveries) to average loans (annualized)

(0.04

)%

0.01

%

0.02

%

(0.01

)%

0.02

%

Troubled Debt Restructurings At

September 30
2019

June 30
2019

September 30
2018

Troubled debt restructurings on accrual status

$

20,182

$

22,423

$

24,554

Troubled debt restructurings on nonaccrual status

26,232

27,841

3,370

Total troubled debt restructurings

$

46,414

$

50,264

$

27,924

BALANCE SHEET AND CAPITAL RATIOS

September 30
2019

June 30
2019

September 30
2018

Gross loans/total deposits

95.58

%

96.16

%

93.57

%

Common equity tier 1 capital ratio (1)

12.51

%

12.08

%

11.98

%

Tier one leverage capital ratio (1)

10.86

%

10.45

%

10.49

%

Common equity to assets ratio GAAP

14.58

%

14.10

%

11.92

%

Tangible common equity to tangible assets ratio (2)

10.42

%

9.92

%

9.33

%

Book value per share GAAP

$

48.95

$

47.67

$

36.25

Tangible book value per share (2)

$

33.36

$

32.00

$

27.56

(1) Estimated number for September 30, 2019.

(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, 2019

June 30, 2019

September 30, 2018

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

$

115,255

$

680

2.34

%

$

104,157

$

647

2.49

%

$

180,802

$

916

2.01

%

Securities

Securities - trading

1,947

-

-

%

1,894

-

-

%

1,608

-

-

%

Securities - taxable investments

1,204,314

8,269

2.72

%

1,240,509

8,521

2.76

%

1,005,787

6,664

2.63

%

Securities - nontaxable investments (1)

1,739

18

4.11

%

1,739

17

3.92

%

1,992

18

3.58

%

Total securities

$

1,208,000

$

8,287

2.72

%

$

1,244,142

$

8,538

2.75

%

$

1,009,387

$

6,682

2.63

%

Loans held for sale

102,065

456

1.77

%

15,710

40

1.02

%

8,340

61

2.90

%

Loans

Commercial and industrial (1)

1,380,007

20,274

5.83

%

1,405,693

20,960

5.98

%

975,980

11,936

4.85

%

Commercial real estate (1)

4,017,670

49,139

4.85

%

4,091,335

50,860

4.99

%

3,144,613

37,048

4.67

%

Commercial construction

510,277

7,155

5.56

%

460,921

7,265

6.32

%

356,091

4,572

5.09

%

Small business

172,942

2,626

6.02

%

166,440

2,610

6.29

%

147,518

2,183

5.87

%

Total commercial

6,080,896

79,194

5.17

%

6,124,389

81,695

5.35

%

4,624,202

55,739

4.78

%

Residential real estate

1,644,467

17,329

4.18

%

1,746,723

17,475

4.01

%

792,154

7,959

3.99

%

Home equity

1,142,137

13,309

4.62

%

1,146,066

13,313

4.66

%

1,071,511

11,457

4.24

%

Total consumer real estate

2,786,604

30,638

4.36

%

2,892,789

30,788

4.27

%

1,863,665

19,416

4.13

%

Other consumer

30,294

627

8.21

%

29,413

683

9.31

%

13,040

244

7.42

%

Total loans

$

8,897,794

$

110,459

4.93

%

$

9,046,591

$

113,166

5.02

%

$

6,500,907

$

75,399

4.60

%

Total interest-earning assets

$

10,323,114

$

119,882

4.61

%

$

10,410,600

$

122,391

4.72

%

$

7,699,436

$

83,058

4.28

%

Cash and due from banks

121,515

125,507

106,273

Federal Home Loan Bank stock

15,781

22,161

13,107

Other assets

1,119,388

1,041,346

547,296

Total assets

$

11,579,798

$

11,599,614

$

8,366,112

Interest-bearing liabilities

Deposits

Savings and interest checking accounts

$

3,157,870

$

2,120

0.27

%

$

3,205,512

$

2,175

0.27

%

$

2,654,157

$

1,433

0.21

%

Money market

1,942,932

4,220

0.86

%

1,975,900

4,440

0.90

%

1,373,594

2,056

0.59

%

Time deposits

1,471,749

5,506

1.48

%

1,375,726

4,563

1.33

%

652,638

1,762

1.07

%

Total interest-bearing deposits

$

6,572,551

$

11,846

0.72

%

$

6,557,138

$

11,178

0.68

%

$

4,680,389

$

5,251

0.45

%

Borrowings

Federal Home Loan Bank borrowings

156,054

945

2.40

%

372,260

2,373

2.56

%

50,770

248

1.94

%

Customer repurchase agreements

-

-

-

%

-

-

-

%

148,575

75

0.20

%

Line of Credit

-

-

-

%

8,636

83

3.85

%

-

-

-

%

Long-term borrowings

74,885

684

3.62

%

74,932

745

3.99

%

-

-

-

%

Junior subordinated debentures

62,848

506

3.19

%

71,508

701

3.93

%

73,077

640

3.47

%

Subordinated debentures

84,319

1,045

4.92

%

84,294

1,045

4.97

%

34,711

427

4.88

%

Total borrowings

$

378,106

$

3,180

3.34

%

$

611,630

$

4,947

3.24

%

$

307,133

$

1,390

1.80

%

Total interest-bearing liabilities

$

6,950,657

$

15,026

0.86

%

$

7,168,768

$

16,125

0.90

%

$

4,987,522

$

6,641

0.53

%

Noninterest-bearing demand deposits

2,753,596

2,641,470

2,300,943

Other liabilities

207,924

171,703

84,442

Total liabilities

$

9,912,177

$

9,981,941

$

7,372,907

Stockholders' equity

1,667,621

1,617,673

993,205

Total liabilities and stockholders' equity

$

11,579,798

$

11,599,614

$

8,366,112

Net interest income

$

104,856

$

106,266

$

76,417

Interest rate spread (2)

3.75

%

3.82

%

3.75

%

Net interest margin (3)

4.03

%

4.09

%

3.94

%

Supplemental Information

Total deposits, including demand deposits

$

9,326,147

$

11,846

$

9,198,608

$

11,178

$

6,981,332

$

5,251

Cost of total deposits

0.50

%

0.49

%

0.30

%

Total funding liabilities, including demand deposits

$

9,704,253

$

15,026

$

9,810,238

$

16,125

$

7,288,465

$

6,641

Cost of total funding liabilities

0.61

%

0.66

%

0.36

%

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $258,000, $247,000, and $183,000 for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, 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.

Nine Months Ended

September 30, 2019

September 30, 2018

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

$

96,305

$

1,753

2.43

%

$

128,646

$

1,768

1.84

%

Securities

Securities - trading

1,820

-

-

%

1,547

-

-

%

Securities - taxable investments

1,176,961

24,255

2.76

%

988,885

19,381

2.62

%

Securities - nontaxable investments (1)

1,739

52

4.00

%

2,152

58

3.60

%

Total securities

$

1,180,520

$

24,307

2.75

%

$

992,584

$

19,439

2.62

%

Loans held for sale

40,768

527

1.73

%

5,291

110

2.78

%

Loans

Commercial and industrial (1)

1,300,815

55,674

5.72

%

933,163

32,667

4.68

%

Commercial real estate (1)

3,785,964

139,229

4.92

%

3,115,076

105,511

4.53

%

Commercial construction

453,097

20,037

5.91

%

390,061

14,499

4.97

%

Small business

168,280

7,720

6.13

%

139,523

6,053

5.80

%

Total commercial

5,708,156

222,660

5.22

%

4,577,823

158,730

4.64

%

Residential real estate

1,442,007

44,351

4.11

%

772,663

23,121

4.00

%

Home equity

1,125,144

38,797

4.61

%

1,061,280

32,492

4.09

%

Total consumer real estate

2,567,151

83,148

4.33

%

1,833,943

55,613

4.05

%

Other consumer

25,317

1,623

8.57

%

11,340

669

7.89

%

Total loans

$

8,300,624

$

307,431

4.95

%

$

6,423,106

$

215,012

4.48

%

Total interest-earning assets

$

9,618,217

$

334,018

4.64

%

$

7,549,627

$

236,329

4.19

%

Cash and due from banks

117,465

101,642

Federal Home Loan Bank stock

16,561

13,174

Other assets

927,837

546,276

Total assets

$

10,680,080

$

8,210,719

Interest-bearing liabilities

Deposits

Savings and interest checking accounts

$

3,085,974

$

6,249

0.27

%

$

2,632,311

$

3,819

0.19

%

Money market

1,796,081

11,379

0.85

%

1,357,488

5,087

0.50

%

Time deposits

1,190,950

12,424

1.39

%

646,055

4,867

1.01

%

Total interest-bearing deposits

$

6,073,005

$

30,052

0.66

%

$

4,635,854

$

13,773

0.40

%

Borrowings

Federal Home Loan Bank borrowings

213,896

4,028

2.52

%

62,055

803

1.73

%

Customer repurchase agreements

-

-

-

%

149,174

205

0.18

%

Line of Credit

3,595

104

3.87

%

-

-

-

%

Long-term borrowings

51,327

1,461

3.81

%

-

-

-

%

Junior subordinated debentures

69,176

1,891

3.65

%

73,076

1,855

3.39

%

Subordinated debentures

71,242

2,633

4.94

%

34,699

1,282

4.94

%

Total borrowings

$

409,236

$

10,117

3.31

%

$

319,004

$

4,145

1.74

%

Total interest-bearing liabilities

$

6,482,241

$

40,169

0.83

%

$

4,954,858

$

17,918

0.48

%

Noninterest-bearing demand deposits

2,572,357

2,202,305

Other liabilities

164,783

80,964

Total liabilities

$

9,219,381

$

7,238,127

Stockholders' equity

1,460,699

972,592

Total liabilities and stockholders' equity

$

10,680,080

$

8,210,719

Net interest income

$

293,849

$

218,411

Interest rate spread (2)

3.81

%

3.71

%

Net interest margin (3)

4.08

%

3.87

%

Supplemental Information

Total deposits, including demand deposits

$

8,645,362

$

30,052

$

6,838,159

$

13,773

Cost of total deposits

0.46

%

0.27

%

Total funding liabilities, including demand deposits

$

9,054,598

$

40,169

$

7,157,163

$

17,918

Cost of total funding liabilities

0.59

%

0.33

%

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $707,000 and $538,000 for the nine months ended September 30, 2019 and 2018, 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
2019

September 30
2018

MNB
Balances
Acquired

BHB
Balances
Acquired

Loans Sold
(1)

Organic
Growth/(Decline)

Organic
Growth/(Decline)%

Loans

Commercial and industrial

$

1,411,516

$

1,003,780

$

44,929

$

259,592

$

-

$

103,215

10.28

%

Commercial real estate

4,000,487

3,132,491

112,922

838,018

-

(82,944

)

(2.65

)%

Commercial construction

520,585

352,491

16,497

78,609

-

72,988

20.71

%

Small business

172,038

149,200

12,589

13,851

-

(3,602

)

(2.41

)%

Total commercial

6,104,626

4,637,962

186,937

1,190,070

-

89,657

1.93

%

Residential real estate

1,644,758

801,810

95,705

807,154

67,170

7,259

0.91

%

Home equity

1,137,109

1,073,961

7,692

64,299

-

(8,843

)

(0.82

)%

Total consumer real estate

2,781,867

1,875,771

103,397

871,453

67,170

(1,584

)

(0.08

)%

Total other consumer

27,008

13,669

3,164

12,191

-

(2,016

)

(14.75

)%

Total loans

$

8,913,501

$

6,527,402

$

293,498

$

2,073,714

$

67,170

$

86,057

1.32

%

Deposits

Demand deposits

$

2,752,150

$

2,337,221

$

77,786

$

301,276

$

-

$

35,867

1.53

%

Savings and interest checking accounts

3,199,182

2,621,926

58,441

351,554

-

167,261

6.38

%

Money market

1,904,643

1,353,641

73,645

543,842

-

(66,485

)

(4.91

)%

Time certificates of deposit

1,470,116

663,451

68,332

733,764

-

4,569

0.69

%

Total deposits

$

9,326,091

$

6,976,239

$

278,204

$

1,930,436

$

-

$

141,212

2.02

%

(1) During the third quarter of 2019, the Company sold $67.2 million of residential mortgage loans, primarily comprised of acquired BHB loans. The table above adjusts for the amounts sold to arrive at the organic growth/(decline) prior to the sale.

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:

September 30
2019

June 30
2019

September 30
2018

Tangible common equity

(Dollars in thousands, except per share data)

Stockholders' equity (GAAP)

$

1,682,324

$

1,636,003

$

998,305

(a)

Less: Goodwill and other intangibles

535,869

537,896

239,185

Tangible common equity

$

1,146,455

$

1,098,107

$

759,120

(b)

Tangible assets

Assets (GAAP)

$

11,538,639

$

11,603,199

$

8,375,498

(c)

Less: Goodwill and other intangibles

535,869

537,896

239,185

Tangible assets

$

11,002,770

$

11,065,303

$

8,136,313

(d)

Common Shares

34,366,781

34,321,061

27,540,843

(e)

Common equity to assets ratio (GAAP)

14.58

%

14.10

%

11.92

%

(a/c)

Tangible common equity to tangible assets ratio (Non-GAAP)

10.42

%

9.92

%

9.33

%

(b/d)

Book value per share (GAAP)

$

48.95

$

47.67

$

36.25

(a/e)

Tangible book value per share (Non-GAAP)

$

33.36

$

32.00

$

27.56

(b/e)

APPENDIX B

(Unaudited, dollars in thousands)

The following table summarizes the impact of noncore items on 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
2019

June 30
2019

September 30
2018

September 30
2019

September 30
2018

Net interest income (GAAP)

$

104,598

$

106,019

$

76,234

$

293,142

$

217,873

(a)

Noninterest income (GAAP)

$

31,816

$

28,648

$

23,264

$

81,997

$

65,014

(b)

Less:

Gain on sale of loans

951

-

-

951

-

Noninterest income on an operating basis (Non-GAAP)

$

30,865

$

28,648

$

23,264

$

81,046

$

65,014

(c)

Noninterest expense (GAAP)

$

67,533

$

93,032

$

55,439

$

216,876

$

161,578

(d)

Less:

Merger and acquisition expense

705

24,696

2,688

26,433

3,122

Noninterest expense on an operating basis (Non-GAAP)

$

66,828

$

68,336

$

52,751

$

190,443

$

158,456

(e)

Total revenue (GAAP)

$

136,414

$

134,667

$

99,498

$

375,139

$

282,887

(a+b)

Total operating revenue (Non-GAAP)

$

135,463

$

134,667

$

99,498

$

374,188

$

282,887

(a+c)

Ratios

Noninterest income as a % of total revenue (GAAP based)

23.32

%

21.27

%

23.38

%

21.86

%

22.98

%

(b/(a+b))

Noninterest income as a % of total revenue on an operating basis (Non-GAAP)

22.78

%

21.27

%

23.38

%

21.66

%

22.98

%

(c/(a+c))

Efficiency ratio (GAAP based)

49.51

%

69.08

%

55.72

%

57.81

%

57.12

%

(d/(a+b))

Efficiency ratio on an operating basis (Non-GAAP)

49.33

%

50.74

%

53.02

%

50.90

%

56.01

%

(e/(a+c))

View source version on businesswire.com: https://www.businesswire.com/news/home/20191017005910/en/

Chris Oddleifson
President and Chief Executive Officer
(781) 982-6660

Mark J. Ruggiero
Chief Financial Officer and
Chief Accounting Officer
(781) 982-6281

Source: Independent Bank Corp.