Independent Bank Corp. Reports Second Quarter Net Income of $20.4 Million

Robust Loan Volumes and Higher Revenues Drive Strong Earnings Growth

ROCKLAND, Mass.--()--Independent Bank Corp. (NASDAQ: INDB), parent of Rockland Trust Company, today announced 2016 second quarter net income of $20.4 million, or $0.77 per diluted share, as compared to $18.6 million, or $0.71 per diluted share, in the prior quarter. The first and second quarter net income contained items which the Company considers non-core, such as merger and acquisition expenses and loss on the extinguishment of debt. On an operating basis, net income for the second quarter was $20.5 million, or $0.78 on a diluted earnings per share basis, versus $19.1 million, or $0.72 per diluted share in the prior quarter, representing an increase of 7.5% and 8.3%, respectively.

“Our strong growth in loans and core deposits, as well as noninterest income, led to increases in revenue and earnings. Rockland Trust's success is directly attributable to the efforts of my colleagues, who are steadfastly devoted to serving the needs of our customers and the communities we serve.”

“Rockland Trust had outstanding performance, by any measure, during the second quarter of 2016,” said Christopher Oddleifson, the President and Chief Executive Officer of Independent Bank Corp. and Rockland Trust. “Our strong growth in loans and core deposits, as well as noninterest income, led to increases in revenue and earnings. Rockland Trust's success is directly attributable to the efforts of my colleagues, who are steadfastly devoted to serving the needs of our customers and the communities we serve."

BALANCE SHEET

Total assets of $7.4 billion at June 30, 2016 increased by $229.6 million, or 3.2%, from the prior quarter and by $223.5 million, or 3.1%, as compared to the year ago period.

The commercial loan portfolio rose by $72.5 million, or 1.8% (7.3% annualized), over the prior quarter, driven by solid growth across all commercial sectors, including a 4.8% (19.2% annualized) increase in the commercial and industrial loan portfolio. This growth reflected strong origination volumes along with typical second quarter increases in line utilization. The small business loan portfolio continued its steady rise and is now 21.5% above the prior year level. In addition, the home equity loan portfolio continued to benefit from sustained marketing campaigns and a growing customer base, increasing by 1.4% (5.7% annualized) over the prior quarter. These factors combined to generate growth in total loans at June 30, 2016 of $85.0 million, or 1.5% (6.1% annualized), compared to the balance at March 31, 2016. Compared to the prior year period, total loans increased by $239.5 million, or 4.4%, to $5.7 billion.

Total deposit levels increased by $202.6 million, or 3.4%, compared to the prior quarter, driven by strong growth in all major core deposit categories. Core deposits rose by $215.8 million, or 16.3% on an annualized basis, from the prior quarter and represented 89.6% of total deposits at June 30, 2016. Total cost of deposits declined further to 18 basis points during the second quarter, further reflecting the Company’s success in growing its core deposit customer base. Compared to the prior year period, total deposits increased by $227.4 million, or 3.8%, to $6.2 billion.

The securities portfolio decreased by $7.4 million from the prior quarter to $829.3 million at June 30, 2016, due to paydowns and maturities, partially offset by $29.9 million in purchases, and comprised 11.2% of total assets of the Company at June 30, 2016.

Stockholders' equity at June 30, 2016 rose to $803.9 million, an increase of 2.0% from March 31, 2016 and 8.1% from the year ago period. The strong growth in capital led to a $0.62 increase, or 2.8%, in the Company’s tangible book value per share during the second quarter compared to the first quarter of 2016. The June 30, 2016 tangible book value per share of $22.52 represents a 11.4% increase above the prior year amount. The Company’s ratio of tangible common equity to tangible assets of 8.22% represents a decrease of 3 basis points from the prior quarter and an increase of 64 basis points from the same period a year ago.

NET INTEREST INCOME

Net interest income for the second quarter was $56.5 million, representing a $1.6 million, or 3.0%, increase over the prior quarter. The increase was attributable to higher earning asset levels and a higher net interest margin. During the second quarter, the Company’s net interest margin increased by eight basis points from the prior quarter to 3.47% and benefited from a five basis point increase from customer loan and security prepayment penalties and a two basis point increase from purchase accounting adjustments.

NONINTEREST INCOME

The Company recorded noninterest income of $21.1 million during the second quarter, which represents a $1.9 million, or 10.1%, increase from the prior quarter. Significant changes in noninterest income in the second quarter compared to the prior quarter included the following:

  • Deposit account fees and interchange and ATM fees increased by $413,000, or 5.0%, mainly due to seasonal debit card usage.
  • Investment management income increased by $731,000, or 14.6%, reflecting growth in assets under administration along with seasonal tax preparation fees during the second quarter. Assets under administration increased by 3.2% to $2.8 billion as of June 30, 2016.
  • Mortgage banking income increased by $231,000, or 20.4%, due primarily to higher volume, partially offset by impairment on the Company's mortgage servicing asset.
  • Loan level derivative income increased by $373,000, or 21.7%, due to strong customer demand in the quarter in light of the continued uncertain rate environment.
  • Other noninterest income increased $219,000, or 10.5%, mainly due to an increase in commercial loan fees, largely from loans that have been paid off.

NONINTEREST EXPENSE

The Company recorded noninterest expense of $47.1 million during the second quarter, which represents a $664,000, or 1.4%, increase from the prior quarter. Significant changes in noninterest expense in the second quarter compared to the prior quarter included the following:

  • Salaries and employee benefits decreased by $212,000, or 0.8%, due primarily to lower payroll taxes and stock compensation.
  • Occupancy and equipment expenses decreased by $160,000, or 2.7%, mainly due to lower snow removal costs.
  • Merger and acquisition costs of $206,000 for the quarter related to the pending acquisition of New England Bancorp, Inc., which is expected to close in the fourth quarter of 2016. This compared to $334,000 in the prior quarter.
  • During the first quarter, the Company recognized a $437,000 loss in conjunction with its payoff of approximately $49.0 million in Federal Home Loan Bank borrowings during the first quarter of 2016. There was no such expense in the second quarter of 2016.
  • Other noninterest expenses increased by $1.7 million, or 16.2%, driven primarily by higher provision for unfunded commitments, loan workout costs, consultant fees, mortgage operation expenses, other losses and charge-offs and card issuance fees.

The Company generated a return on average assets and a return on average common equity of 1.13% and 10.24%, respectively, in the second quarter, as compared to 1.04% and 9.52%, respectively, for the prior quarter.

ASSET QUALITY

Asset quality metrics remained strong during the second quarter with total net recoveries of $695,000, compared to net recoveries of $82,000 in the prior quarter. The provision for loan losses increased to $600,000 for the second quarter versus $525,000 in the first quarter of 2016 in conjunction with growth in the loan portfolio. Nonperforming loan levels in the second quarter were essentially flat at $25.6 million, and represent 0.45% of total loans at June 30, 2016, as compared to 0.46% at March 31, 2016. Total nonperforming assets increased modestly to $27.5 million at the end of the second quarter, from $27.2 million at the end of the prior quarter. Delinquency as a percentage of loans was 0.47% at June 30, 2016, a decrease of seven basis points from the prior quarter.

The allowance for loan losses was $57.7 million at June 30, 2016, as compared to $56.4 million at March 31, 2016. The Company’s allowance for loan losses as a percentage of loans was 1.02% and 1.01% as of June 30, 2016 and March 31, 2016, 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 22, 2016. 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: 10088412 and will available through August 5, 2016. Additionally, a webcast replay will be available until July 22, 2017.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $7.4 billion in assets and is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Rockland Trust offers a wide range of banking, investment, and insurance services to businesses and individuals through retail branches, commercial lending offices, investment management offices, and residential lending centers located in Eastern Massachusetts and Rhode Island, as well as through telephone banking, mobile banking, and the Internet. Rockland Trust is an FDIC Member and an Equal Housing Lender. To find out why Rockland Trust is the bank “Where Each Relationship Matters ®”, please visit www.rocklandtrust.com.

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

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

  • a weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area;
  • adverse changes in the local real estate market;
  • adverse changes in asset quality including an unanticipated credit deterioration in our loan portfolio;
  • 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;
  • 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 revenue synergies from merger transactions in the amounts or in the timeframe anticipated;
  • inability to retain customers and employees, including those of previous mergers;
  • the effect of laws and regulations regarding the financial services industry including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act;
  • changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;
  • changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;
  • cyber security attacks or intrusions that could adversely impact our businesses; and
  • other unexpected material adverse changes in our operations or earnings.

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

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This information includes operating earnings and operating EPS, tangible book value per share and the tangible common equity ratio. Operating earnings and operating EPS exclude items that management believes are unrelated to its core banking business and will not have a material financial impact on operating results in future periods, such as gains or losses on the sales of securities, loss on extinguishment of debt, merger and acquisition expenses, and other items. The Company’s management uses operating earnings and operating EPS to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such excluded gains or losses.

Management also supplements its evaluation of financial performance with analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets by common shares outstanding) and with the tangible common equity ratio (which is computed by dividing tangible common equity by tangible assets). 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 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 determined in accordance with GAAP. An item which management deems to be non-core and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating earnings, operating EPS, tangible book value per share 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

Jun 2016 vs.

Jun 2016 vs.

June 30
2016
March 31
2016
June 30
2015

Mar 2016

 

Jun 2015

 

Assets
Cash and due from banks $ 102,397 $ 83,345 $ 100,054 22.86 % 2.34 %
Interest-earning deposits with banks 229,740 113,387 295,722 102.62 % (22.31 )%
Securities
Securities - trading 799 763 489 4.72 % 63.39 %
Securities - available for sale 389,824 378,227 375,001 3.07 % 3.95 %

Securities - held to maturity

  438,656     457,641     428,339   (4.15 )% 2.41 %
Total securities 829,279 836,631 803,829 (0.88 )% 3.17 %
Loans held for sale (at fair value) 12,927 7,588 10,728 70.36 % 20.50 %
Loans
Commercial and industrial 875,164 835,336 873,105 4.77 % 0.24 %
Commercial real estate 2,727,143 2,711,857 2,630,062 0.56 % 3.69 %
Commercial construction 367,559 357,867 278,692 2.71 % 31.89 %
Small business   111,035     103,323     91,367   7.46 % 21.53 %
Total commercial   4,080,901     4,008,383     3,873,226   1.81 % 5.36 %
Residential real estate 628,348 631,888 653,370 (0.56 )% (3.83 )%
Home equity - first position 554,624 547,056 526,370 1.38 % 5.37 %
Home equity - subordinate positions   393,952     388,255     364,523   1.47 % 8.07 %
Total consumer real estate   1,576,924     1,567,199     1,544,263   0.62 % 2.11 %
Other consumer   16,428     13,649     17,293   20.36 % (5.00 )%
Total loans   5,674,253     5,589,231     5,434,782   1.52 % 4.41 %
Less: allowance for loan losses   (57,727 )   (56,432 )   (54,995 ) 2.29 % 4.97 %
Net loans   5,616,526     5,532,799     5,379,787   1.51 % 4.40 %
Federal Home Loan Bank stock 11,304 11,807 37,485 (4.26 )% (69.84 )%
Bank premises and equipment, net 76,173 76,692 74,143 (0.68 )% 2.74 %

Goodwill and other intangibles

211,526 212,218 214,331 (0.33 )% (1.31 )%
Other assets   328,994     314,801     279,239   4.51 % 17.82 %
Total assets $ 7,418,866   $ 7,189,268   $ 7,195,318   3.19 % 3.11 %
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 1,908,986 $ 1,840,186 $ 1,832,971 3.74 % 4.15 %
Savings and interest checking accounts 2,469,162 2,374,264 2,285,968 4.00 % 8.01 %
Money market 1,175,669 1,123,600 1,125,888 4.63 % 4.42 %
Time certificates of deposit   644,075     657,197     725,703   (2.00 )% (11.25 )%
Total deposits   6,197,892     5,995,247     5,970,530   3.38 % 3.81 %
Borrowings
Federal Home Loan Bank borrowings 50,833 50,840 108,190 (0.01 )% (53.02 )%
Customer repurchase agreements and other short-term borrowings 139,716 134,568 119,439 3.83 % 16.98 %
Wholesale repurchase agreements 50,000 n/a (100.00 )%
Junior subordinated debentures 73,207 73,257 73,408 (0.07 )% (0.27 )%
Subordinated debentures   34,612     34,600     34,565   0.03 % 0.14 %
Total borrowings   298,368     293,265     385,602   1.74 % (22.62 )%
Total deposits and borrowings   6,496,260     6,288,512     6,356,132   3.30 % 2.20 %
Other liabilities 118,709 112,609 95,869 5.42 % 23.82 %
Stockholders' equity
Common stock 261 261 259 % 0.77 %
Additional paid in capital 408,155 406,921 401,437 0.30 % 1.67 %
Retained earnings 391,898 379,153 343,757 3.36 % 14.00 %
Accumulated other comprehensive income (loss), net of tax   3,583     1,812     (2,136 ) (97.74 )% 267.74 %
Total stockholders' equity   803,897     788,147     743,317   2.00 % 8.15 %
Total liabilities and stockholders' equity $ 7,418,866   $ 7,189,268   $ 7,195,318   3.19 % 3.11 %
 
           
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited dollars in thousands, except per share data)
Three Months Ended
        % Change % Change
June 30
2016
March 31
2016
June 30
2015
Jun 2016 vs. Jun 2016 vs.
Mar 2016 Jun 2015
Interest income
Interest on federal funds sold and short-term investments $ 169 $ 211 $ 60 (19.91 )% 181.67 %
Interest and dividends on securities 5,298 5,229 4,882 1.32 % 8.52 %
Interest and fees on loans 55,636 54,269 54,016 2.52 % 3.00 %
Interest on loans held for sale   57     32     58   78.13 % (1.72 )%
Total interest income 61,160 59,741 59,016 2.38 % 3.63 %
Interest expense
Interest on deposits 2,738 2,868 2,922 (4.53 )% (6.30 )%
Interest on borrowings   1,889     1,982     2,347   (4.69 )% (19.51 )%
Total interest expense   4,627     4,850     5,269   (4.60 )% (12.18 )%
Net interest income 56,533 54,891 53,747 2.99 % 5.18 %
Provision for loan losses   600     525     700   14.29 % (14.29 )%
Net interest income after provision for loan losses 55,933 54,366 53,047 2.88 % 5.44 %
Noninterest income
Deposit account fees 4,471 4,470 4,465 0.02 % 0.13 %
Interchange and ATM fees 4,136 3,724 3,767 11.06 % 9.80 %
Investment management 5,734 5,003 5,528 14.61 % 3.73 %
Mortgage banking income 1,363 1,132 1,226 20.41 % 11.17 %
Increase in cash surrender value of life insurance policies 982 1,014 949 (3.16 )% 3.48 %
Gain on sale of fixed income securities 798 n/a (100.00 )%
Gain on sale of equity securities 5 19 100.00 % (73.68 )%
Loan level derivative income 2,095 1,722 1,430 21.66 % 46.50 %
Other noninterest income   2,309     2,090     2,079   10.48 % 11.06 %
Total noninterest income 21,095 19,155 20,261 10.13 % 4.12 %
Noninterest expenses
Salaries and employee benefits 26,977 27,189 26,318 (0.78 )% 2.50 %
Occupancy and equipment expenses 5,667 5,827 5,672 (2.75 )% (0.09 )%
Data processing and facilities management 1,225 1,206 1,228 1.58 % (0.24 )%
FDIC assessment 920 1,010 1,017 (8.91 )% (9.54 )%
Merger and acquisition expense 206 334 271 (38.32 )% (23.99 )%
Loss on extinguishment of debt 437 (100.00 )% n/a
Loss on sale of fixed income securities 1,124 n/a (100.00 )%
Loss on sale of equity securities 3 29 8 (89.66 )% (62.50 )%
Other noninterest expenses   12,148     10,450     13,006   16.25 % (6.60 )%
Total noninterest expenses 47,146 46,482 48,644 1.43 % (3.08 )%
Income before income taxes 29,882 27,039 24,664 10.51 % 21.16 %
Provision for income taxes   9,508     8,428     7,213   12.81 % 31.82 %
Net Income $ 20,374   $ 18,611   $ 17,451   9.47 % 16.75 %
 
Basic earnings per share $ 0.77 $ 0.71 $ 0.67 8.45 % 14.93 %
Diluted earnings per share $ 0.77 $ 0.71 $ 0.67 8.45 % 14.93 %
Weighted average common shares (basic) 26,304,129 26,275,323 26,149,593
Weighted average common shares (diluted) 26,352,014 26,318,732 26,221,412
 

Performance ratios

Net interest margin (FTE) 3.47 % 3.39 % 3.43 %
Return on average assets 1.13 % 1.04 % 1.00 %
Return on average common equity 10.24 % 9.52 % 9.43 %
 

Reconciliation table - non-GAAP financial information

Net income $ 20,374 $ 18,611 $ 17,451 9.47 % 16.75 %
Noninterest income components
Less - gain on sale of fixed income securities (798 )
Noninterest expense components
Add - loss on extinguishment of debt 437
Add - loss on sale of fixed income securities 1,124
Add - merger and acquisition expenses 206 334 271
Add - impairment on acquired facilities           109  
Total impact of noncore items $ 206 $ 771 $ 706
Less - tax benefit associated with noncore items $ (84 ) $ (315 ) $ (292 )
Net operating earnings $ 20,496   $ 19,067   $ 17,865   7.49 % 14.73 %
Diluted earnings per share, on an operating basis $ 0.78   $ 0.72   $ 0.68   8.33 % 14.71 %
 
         
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited dollars in thousands)
Six Months Ended
% Change
June 30
2016
June 30
2015
Jun 2016 vs.
Jun 2015
 
Interest income
Interest on federal funds sold and short-term investments $ 380 $ 91 317.58 %
Interest and dividends on securities 10,527 9,543 10.31 %
Interest and fees on loans 109,905 105,704 3.97 %
Interest on loans held for sale   89     109   (18.35 )%

Total interest income

120,901 115,447 4.72 %
Interest expense
Interest on deposits 5,606 5,685 (1.39 )%
Interest on borrowings   3,871     4,765   (18.76 )%
Total interest expense   9,477     10,450   (9.31 )%
Net interest income 111,424 104,997 6.12 %
Provision for loan losses   1,125     200   462.50 %
Net interest income after provision for loan losses 110,299 104,797 5.25 %
Noninterest income
Deposit account fees 8,941 8,631 3.59 %
Interchange and ATM fees 7,860 6,868 14.44 %
Investment management 10,737 10,635 0.96 %
Mortgage banking income 2,495 2,352 6.08 %
Increase in cash surrender value of life insurance policies 1,996 1,727 15.58 %
Gain on sale of fixed income securities 798 (100.00 )%
Gain on sale of equity securities 5 19 (73.68 )%
Loan level derivative income 3,817 1,848 106.55 %
Other noninterest income   4,399     3,939   11.68 %
Total noninterest income 40,250 36,817 9.32 %
Noninterest expenses
Salaries and employee benefits 54,166 51,606 4.96 %
Occupancy and equipment expenses 11,494 12,066 (4.74 )%
Data processing and facilities management 2,431 2,350 3.45 %
FDIC assessment 1,930 1,973 (2.18 )%
Merger and acquisition expense 540 10,501 (94.86 )%
Loss on extinguishment of debt 437 122 258.20 %
Loss on sale of fixed income securities 1,124 (100.00 )%
Loss on sale of equity securities 32 8 300.00 %
Other noninterest expenses   22,598     23,872   (5.34 )%
Total noninterest expenses 93,628 103,622 (9.64 )%
Income before income taxes   56,921     37,992   49.82 %
Provision for income taxes   17,936     11,082   61.85 %
Net Income $ 38,985   $ 26,910   44.87 %
 
Basic earnings per share $ 1.48 $ 1.05 40.95 %
Diluted earnings per share $ 1.48 $ 1.05 40.95 %
Basic average shares 26,289,726 25,558,016
Diluted average shares 26,335,405 25,634,642
 

Performance ratios

Net interest margin (FTE) 3.43 % 3.47 %
Return on average assets 1.09 % 0.80 %
Return on average common equity 9.89 % 7.59 %
 

Reconciliation table - non-GAAP financial information

Net income $ 38,985 $ 26,910 44.87 %
Noninterest income components
Less - gain on sale of fixed income securities, net of tax (798 )
Noninterest expense components
Add - loss on extinguishment of debt, net of tax 437 122
Add - loss on sale of fixed income securities, net of tax 1,124
Add - merger and acquisition expenses, net of tax 540 10,501
Add - impairment on acquired facilities, net of tax       109    
Total impact of noncore items $ 977 $ 11,058
Less - tax benefit associated with noncore items $ (400 ) $ (4,285 )  
Net operating earnings $ 39,562   $ 33,683   17.45 %
Diluted earnings per share, on an operating basis $ 1.50   $ 1.30   15.38 %
 
           
RECONCILIATION TABLE - NON-GAAP FINANCIAL INFORMATION
(Unaudited dollars in thousands)
                   
Three Months Ended Six Months Ended
            % Change % Change
June 30
2016
March 31
2016
June 30
2015
Jun 2016 vs.     Jun 2016 vs. June 30
2016
June 30
2015
Jun 2016 vs.
Mar 2016 Jun 2015 Jun 2015
 
Noninterest income GAAP $ 21,095 $ 19,155 $ 20,261 10.13 % 4.12 % $ 40,250 $ 36,817 9.32 %
Less - gain on sale of fixed income securities           798   n/a   (100.00 )%       798   (100.00 )%
Total noninterest income as adjusted $ 21,095   $ 19,155   $ 19,463   10.13 % 8.39 % $ 40,250   $ 36,019   11.75 %
 
Noninterest expense GAAP $ 47,146 $ 46,482 $ 48,644 1.43 % (3.08 )% $ 93,628 $ 103,622 (9.64 )%
Less - loss on extinguishment of debt 437 (100.00 )% n/a 437 122 258.20 %
Less - loss on sale of fixed income securities 1,124 n/a (100.00 )% 1,124 (100.00 )%
Less - merger and acquisition expenses 206 334 271 (38.32 )% (23.99 )% 540 10,501 (94.86 )%
Less - impairment on acquired facilities           109   n/a   (100.00 )%       109   (100.00 )%
Total noninterest expense as adjusted $ 46,940   $ 45,711   $ 47,140   2.69 % (0.42 )% $ 92,651   $ 91,766   0.96 %
 
   

ASSET QUALITY

Nonperforming Assets At
June 30
2016
    March 31
2016
    June 30
2015
 
Nonperforming loans
Commercial & industrial loans $ 3,177 $ 3,195 $ 3,767
Commercial real estate loans 8,220 8,027 6,824
Small business loans 349 189 198
Residential real estate loans 7,116 7,510 8,086
Home equity 6,684 6,508 7,238
Other consumer   82     70     37  
Total nonperforming loans $ 25,628   $ 25,499   $ 26,150  
Other real estate owned   1,845     1,720     5,124  
Total nonperforming assets $ 27,473   $ 27,219   $ 31,274  
 
Nonperforming loans/gross loans 0.45 % 0.46 % 0.48 %
Nonperforming assets/total assets 0.37 % 0.38 % 0.43 %
Allowance for loan losses/nonperforming loans 225.25 % 221.31 % 210.31 %
Gross loans/total deposits 91.55 % 93.23 % 91.03 %
Allowance for loan losses/total loans 1.02 % 1.01 % 1.01 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
June 30
2016
March 31
2016
June 30
2015
 
Nonperforming assets beginning balance $ 27,219 $ 29,849 $ 40,348
New to nonperforming 3,943 3,159 4,326
Loans charged-off (576 ) (537 ) (1,099 )
Loans paid-off (1,955 ) (3,694 ) (4,264 )
Loans transferred to other real estate owned/other assets (291 ) (86 ) (629 )
Loans restored to performing status (1,058 ) (1,104 ) (2,566 )
New to other real estate owned 291 86 941
Sale of other real estate owned (45 ) (638 ) (2,153 )
Net capital improvements to other real estate owned 31 113 100
Net change in nonaccrual securities (3,723 )
Other   (86 )   71     (7 )
Nonperforming assets ending balance $ 27,473   $ 27,219   $ 31,274  
 
   
Net Charge-Offs (Recoveries)
For the Three Months Ended     For the Six Months Ended
June 30
2016
    March 31
2016
    June 30
2015
June 30
2016
    June 30
2015
 
Net charge-offs (recoveries)
Commercial and industrial loans $ (647 ) $ (136 ) $ (29 ) $ (783 ) $ 153
Commercial real estate loans (198 ) (189 ) (102 ) (387 ) (646 )
Small business loans (43 ) 42 (19 ) (1 ) 64
Residential real estate loans (43 ) 19 16 (24 ) 156
Home equity 164 120 217 284 306
Other consumer   72     62     137     134     272  
Total net charge-offs (recoveries) $ (695 ) $ (82 ) $ 220   $ (777 ) $ 305  
 
Net charge-offs (recoveries) to average loans (annualized) (0.05 )% (0.01 )% 0.02 % (0.03 )% 0.01 %
 
           
Troubled Debt Restructurings At
June 30
2016
March 31
2016
June 30
2015
Troubled debt restructurings on accrual status $ 28,319 $ 32,182 $ 36,750
Troubled debt restructurings on nonaccrual status   5,121     4,368     5,623  
Total troubled debt restructurings $ 33,440   $ 36,550   $ 42,373  
 
FINANCIAL RATIOS & CAPITAL ADEQUACY
June 30
2016
March 31
2016
June 30
2015
Book value per common share $ 30.55 $ 29.97 $ 28.42
Tangible book value per share $ 22.52 $ 21.90 $ 20.22
Tangible common capital/tangible assets 8.22 % 8.25 % 7.58 %
 
Common equity tier 1 capital ratio (1) 10.63 % 10.64 % 10.20 %
Tier one leverage capital ratio (1) 9.65 % 9.53 % 9.21 %

(1) Estimated number for June 30, 2016.

 
 
A reconciliation of Independent Bank Corp's. total stockholders' equity to tangible book value per share is as follows:
           
June 30
2016
March 31
2016
June 30
2015
Tangible common equity

Stockholders' equity GAAP

$ 803,897 $ 788,147 $ 743,317
Less: Goodwill and other intangibles   211,526     212,218     214,331  
Tangible common equity   592,371     575,929     528,986  
Tangible assets

Assets GAAP

7,418,866 7,189,268 7,195,318
Less: Goodwill and other intangibles   211,526     212,218     214,331  
Tangible assets $ 7,207,340   $ 6,977,050   $ 6,980,987  
Common Shares   26,309,887     26,293,565     26,158,826  
Tangible common equity ratio (tangible common equity/ tangible assets) 8.22 % 8.25 % 7.58 %
Tangible book value per share (tangible common equity/common shares) $ 22.52 $ 21.90 $ 20.22
 

INDEPENDENT BANK CORP. SUPPLEMENTAL FINANCIAL INFORMATION

                               
(Unaudited - dollars in thousands) Three Months Ended
June 30, 2016 March 31, 2016 June 30, 2015
Interest Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance     Paid     Rate Balance     Paid     Rate Balance     Paid     Rate
Interest-earning assets

Interest-earning deposits with banks,
federal funds sold, and short term
investments

$ 135,766 $ 169 0.50 % $ 164,563 $ 211 0.52 % $ 97,274 $ 60 0.25 %
Securities
Securities - trading 775 % 420 % 500 %
Securities - taxable investments 826,382 5,269 2.56 % 831,170 5,197 2.51 % 787,023 4,852 2.47 %
Securities - nontaxable investments (1)   4,397   44 4.02 %   4,894   49 4.03 %   5,044   47 3.74 %
Total securities 831,554 5,313 2.57 % 836,484 5,246 2.52 % 792,567 4,899 2.48 %
Loans held for sale 8,077 57 2.84 % 4,246 32 3.03 % 9,726 58 2.39 %
Loans
Commercial and industrial 853,783 8,367 3.94 % 831,349 7,972 3.86 % 860,242 8,499 3.96 %
Commercial real estate (1) 2,726,249 27,847 4.11 % 2,659,591 26,770 4.05 % 2,613,347 26,762 4.11 %
Commercial construction 358,256 3,676 4.13 % 379,860 3,819 4.04 % 291,658 3,204 4.41 %
Small business   106,272   1,432 5.42 %   99,012   1,332 5.41 %   88,884   1,219 5.50 %
Total commercial 4,044,560 41,322 4.11 % 3,969,812 39,893 4.04 % 3,854,131 39,684 4.13 %
Residential real estate 628,855 6,224 3.98 % 633,590 6,381 4.05 % 666,325 6,750 4.06 %
Home equity   942,515   8,178 3.49 %   930,579   8,031 3.47 %   885,618   7,541 3.42 %
Total consumer real estate 1,571,370 14,402 3.69 % 1,564,169 14,412 3.71 % 1,551,943 14,291 3.69 %
Other consumer   13,815   297 8.65 %   14,396   336 9.39 %   18,016   399 8.88 %
Total loans   5,629,745   56,021 4.00 %   5,548,377   54,641 3.96 %   5,424,090   54,374 4.02 %
Total interest-earning assets $ 6,605,142 $ 61,560 3.75 % $ 6,553,670 $ 60,130 3.69 % $ 6,323,657 $ 59,391 3.77 %
Cash and due from banks 91,198 85,792 91,479
Federal Home Loan Bank stock 13,935 13,599 37,485
Other assets   539,511   534,946   524,645
Total assets $ 7,249,786 $ 7,188,007 $ 6,977,266
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,395,837 $ 777 0.13 % $ 2,354,982 $ 883 0.15 % $ 2,232,790 $ 883 0.16 %
Money market 1,146,928 712 0.25 % 1,128,446 701 0.25 % 1,113,748 742 0.27 %
Time deposits   647,274   1,249 0.78 %   670,393   1,284 0.77 %   730,825   1,297 0.71 %
Total interest-bearing deposits 4,190,039 2,738 0.26 % 4,153,821 2,868 0.28 % 4,077,363 2,922 0.29 %
Borrowings
Federal Home Loan Bank borrowings 59,657 394 2.66 % 80,991 490 2.43 % 117,557 565 1.93 %

Customer repurchase agreements
and other short-term borrowings

140,252 48 0.14 % 140,863 49 0.14 % 125,495 50 0.16 %
Wholesale repurchase agreements % % 50,000 298 2.39 %
Junior subordinated debentures 73,231 1,019 5.60 % 73,283 1,016 5.58 % 73,433 1,003 5.48 %
Subordinated debentures   34,607   428 4.97 %   34,594   427 4.96 %   34,577   431 5.00 %
Total borrowings   307,747   1,889 2.47 %   329,731   1,982 2.42 %   401,062   2,347 2.34 %
Total interest-bearing liabilities $ 4,497,786 $ 4,627 0.41 % $ 4,483,552 $ 4,850 0.44 % $ 4,478,425 $ 5,269 0.47 %
Demand deposits 1,846,550 1,811,873 1,653,485
Other liabilities   105,607   106,281   102,901
Total liabilities $ 6,449,943 $ 6,401,706 $ 6,234,811
Stockholders' equity 799,843 786,301 742,455
Total liabilities and stockholders' equity $ 7,249,786 $ 7,188,007 $ 6,977,266
 
Net interest income $ 56,933 $ 55,280 $ 54,122
 
Interest rate spread (2) 3.34 % 3.25 % 3.30 %
 

Net interest margin (3)

3.47 % 3.39 % 3.43 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,036,589 $ 5,965,694 $ 2,868 $ 5,730,848 $ 2,922
Cost of total deposits $ 2,738 0.18 % 0.19 % 0.20 %
Total funding liabilities, including demand deposits $ 6,344,336 $ 6,295,425 $ 4,850 $ 6,131,910 $ 5,269
Cost of total funding liabilities 4,627 0.29 % 0.31 % 0.34 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $400,000, $389,000, and $375,000 for the three months ended June 30, 2016, March 31, 2016, and June 30, 2015, respectively.

(2) Interest rate spread represents the difference between the 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, 2016     June 30, 2015
    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

$ 150,165 $ 380 0.51 % $ 73,120 $ 91 0.25 %
Securities
Securities - trading 597 % 340 %
Securities - taxable investments 828,776 10,466 2.54 % 766,248 9,479 2.49 %
Securities - nontaxable investments (1)   4,646   93 4.03 %   5,313   99 3.76 %
Total securities 834,019 10,559 2.55 % 771,901 9,578 2.50 %
Loans held for sale 6,161 89 2.91 % 8,670 109 2.54 %
Loans
Commercial and industrial 842,566 16,339 3.90 % 857,865 16,707 3.93 %
Commercial real estate (1) 2,692,921 54,617 4.08 % 2,534,427 52,481 4.18 %
Commercial construction 369,058 7,495 4.08 % 285,886 6,104 4.31 %
Small business   102,642   2,764 5.42 %   87,698   2,391 5.50 %
Total commercial 4,007,187 81,215 4.08 % 3,765,876 77,683 4.16 %
Residential real estate 631,222 12,605 4.02 % 634,583 12,962 4.12 %
Home equity   936,547   16,209 3.48 %   877,697   14,960 3.44 %
Total consumer real estate 1,567,769 28,814 3.70 % 1,512,280 27,922 3.72 %
Other consumer   14,105   633 9.02 %   17,955   811 9.11 %
Total loans   5,589,061   110,662 3.98 %   5,296,111   106,416 4.05 %
Total interest-earning assets $ 6,579,406 $ 121,690 3.72 % $ 6,149,802 $ 116,194 3.81 %
Cash and due from banks 88,495 103,161
Federal Home Loan Bank stock 13,767 36,287
Other assets   537,229   509,141
Total assets $ 7,218,897 $ 6,798,391
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,375,409 $ 1,660 0.14 % $ 2,183,690 $ 1,744 0.16 %
Money market 1,137,687 1,413 0.25 % 1,081,788 1,418 0.26 %
Time deposits   658,834   2,533 0.77 %   710,292   2,523 0.72 %
Total interest-bearing deposits 4,171,930 5,606 0.27 % 3,975,770 5,685 0.29 %
Borrowings
Federal Home Loan Bank borrowings 70,325 884 2.53 % 107,632 1,066 2.00 %

Customer repurchase agreements and other
short-term borrowings

140,557 97 0.14 % 132,129 113 0.17 %
Wholesale repurchase agreements % 50,000 584 2.36 %
Junior subordinated debentures 73,257 2,035 5.59 % 73,458 1,996 5.48 %
Subordinated debentures   34,600   855 4.97 %   42,874   1,006 4.73 %
Total borrowings   318,739   3,871 2.44 %   406,093   4,765 2.37 %
Total interest-bearing liabilities $ 4,490,669 $ 9,477 0.42 % $ 4,381,863 $ 10,450 0.48 %
Demand deposits 1,829,212 1,595,523
Other liabilities   105,944   105,862
Total liabilities $ 6,425,825 $ 6,083,248
Stockholders' equity   793,072   715,143
Total liabilities and stockholders' equity $ 7,218,897 $ 6,798,391
 
Net interest income $ 112,213 $ 105,744
 
Interest rate spread (2) 3.30 % 3.33 %
 
Net interest margin (3) 3.43 % 3.47 %
 
Supplemental Information
Total deposits, including demand deposits $ 6,001,142 $ 5,606 $ 5,571,293 $ 5,685
Cost of total deposits 0.19 % 0.21 %
Total funding liabilities, including demand deposits $ 6,319,881 $ 9,477 $ 5,977,386 $ 10,450
Cost of total funding liabilities 0.30 % 0.35 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $789,000 and $747,000 for the six months ended June 30, 2016 and 2015, respectively.

(2) Interest rate spread represents the difference between the 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.

 

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

Contacts

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

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