Independent Bank Corp. Reports Third Quarter Net Income of $20.5 Million

Strong Loan and Core Deposit Generation Drive Solid Results

ROCKLAND, Mass.--()--Independent Bank Corp. (NASDAQ: INDB), parent of Rockland Trust Company, today announced 2016 third quarter net income of $20.5 million, or $0.78 per diluted share, slightly above the $20.4 million, or $0.77 per diluted share, reported in the prior quarter. The third and second quarter net income contained merger and acquisition expenses, which the Company considers non-core. On an operating basis, net income for the third quarter was $20.6 million, or $0.78 on a diluted earnings per share basis, versus $20.5 million, or $0.78 per diluted share in the prior quarter.

“Rockland Trust maintained its consistently strong performance during the third quarter of 2016”

In a separate news release today the Company announced an agreement to acquire Island Bancorp, Inc., and its subsidiary The Edgartown National Bank, the oldest bank on Martha's Vineyard with $152.8 million in loans and $171.1 million in deposits as of September 30, 2016.

“Rockland Trust maintained its consistently strong performance during the third quarter of 2016,” said Christopher Oddleifson, the President and Chief Executive Officer of Independent Bank Corp. and Rockland Trust. “Due to the outstanding efforts of my colleagues we continue to grow both loans and deposits in a responsible manner. With the Bank of Cape Cod transaction that is expected to close in November and the Edgartown National merger agreement announced today, we also continue to augment organic growth with opportunistic acquisitions.”

BALANCE SHEET

Total assets of $7.5 billion at September 30, 2016 increased by $83.1 million, or 1.1%, from the prior quarter and by $367.1 million, or 5.2%, as compared to the year ago period.

The commercial loan portfolio rose by $55.8 million, or 1.4% (5.4% annualized), over the prior quarter, with solid growth in the commercial real estate sector leading the way. In addition, the home equity loan portfolio continued to benefit from sustained marketing campaigns and a growing customer base, increasing 1.7% (6.9% annualized) over the prior quarter and is now 6.3% above the prior year level. These factors combined to generate growth in total loans at September 30, 2016 of $71.9 million, or 1.3% (5.0% annualized), compared to the balance at June 30, 2016. Compared to the prior year period, total loans increased by $248.0 million, or 4.5%, to $5.7 billion.

Total deposit levels increased by $71.6 million, or 1.2%, compared to the prior quarter, driven by strong growth in the demand deposit and money market categories. Core deposits rose by $86.6 million, or 6.4% on an annualized basis, from the prior quarter and represented 90.0% of total deposits at September 30, 2016. Robust core deposit generation resulted in a further decline in the total cost of deposits to 17 basis points during the third quarter as compared to 18 basis points in the linked quarter. Compared to the prior year period, total deposits increased by $354.6 million, or 6.0%, to $6.3 billion.

The securities portfolio decreased by $10.7 million from the prior quarter due to paydowns partially offset by $24.8 million in purchases. Total securities of $818.6 million at September 30, 2016 comprised 10.9% of total assets of the Company at September 30, 2016.

Stockholders' equity at September 30, 2016 rose to $818.2 million, an increase of 1.8% from June 30, 2016 and 7.8% from the year ago period. The strong growth in capital led to an increase in book value per share of $0.54, or 1.8%, and a $0.56 increase, or 2.5%, in the Company’s tangible book value per share during the third quarter compared to the second quarter of 2016. The Company's ratio of common equity to assets of 10.91% represents an increase of 7 basis points from the prior quarter end and 27 basis points from the same period a year ago. The tangible common equity to tangible assets ratio of 8.33% represents an increase of 11 basis points from the prior quarter and 45 basis points from the same period a year ago.

NET INTEREST INCOME

Net interest income for the third quarter was $57.7 million, representing a $1.1 million, or 2.0%, increase over the prior quarter. The increase was mainly attributable to higher prepayment penalties and earning asset levels. During the third quarter, the Company’s net interest margin decreased by seven basis points from the prior quarter to 3.40% as a result of considerably higher levels of liquid assets during the third quarter.

NONINTEREST INCOME

Noninterest income totaled $20.4 million in the third quarter, which represents a $679,000, or 3.2%, decrease from the prior quarter. Significant changes in noninterest income in the third quarter compared to the prior quarter included the following:

  • Deposit account fees and interchange and ATM fees increased by $205,000, or 2.4%, driven mainly by ongoing increases in total active accounts.
  • Investment management income decreased by $288,000, or 5.0%, primarily due to seasonal tax preparation fees received during the second quarter, partially offset by a 1.8% increase in assets under administration to $2.9 billion as of September 30, 2016.
  • Mortgage banking income increased by $600,000, or 44.0%, attributable to higher origination volumes combined with a decrease in the amount of impairment recognized on the Company's mortgage servicing asset.
  • Loan level derivative income decreased by $1.3 million, or 61.3%, due to lower customer demand in the third quarter.
  • Other noninterest income increased $92,000, or 4.0%, mainly due to an increase in checkbook fees and partially offset by a decrease in commercial loan fees.

NONINTEREST EXPENSE

The Company recorded noninterest expense of $46.9 million during the third quarter, which represents a $289,000, or 0.6%, decrease from the prior quarter. Significant changes in noninterest expense in the third quarter compared to the prior quarter included the following:

  • Salaries and employee benefits increased by $418,000, or 1.6%, due primarily to increases in commissions, payroll taxes and medical insurance, partially offset by decreases in other incentive compensation.
  • Occupancy and equipment expenses decreased by $234,000, or 4.1%, due to snow removal costs that were incurred in the prior quarter and lower repair and maintenance expense.
  • Data processing expense increased by $139,000, or 14.3%, due to one-time costs associated with implementation of new software.
  • The FDIC assessment decreased by $195,000, or 21.2%, due to a reduction in assessment rates effective July 1, 2016.
  • Merger and acquisition costs amounted to $151,000 for the quarter as compared to $206,000 in the prior quarter, related to the pending acquisition of New England Bancorp, Inc., which is expected to close in November 2016.
  • Other noninterest expense decreased by $395,000, or 3.3%, driven primarily by lower provisions for unfunded commitments, loan workout costs, and card issuance fees, offset by higher advertising, recruitment, and mortgage operation expenses.

The Company generated a return on average assets and a return on average common equity of 1.09% and 9.98%, respectively, in the third quarter, as compared to 1.13% and 10.24%, respectively, for the prior quarter.

ASSET QUALITY

Asset quality metrics remained strong during the third quarter with total net charge-offs of $472,000 or 0.03% of average loans on an annualized basis, compared to net recoveries of $695,000 in the prior quarter. The provision for loan losses increased to $950,000 for the third quarter versus $600,000 in the second quarter of 2016. Nonperforming loan levels in the third quarter decreased slightly to $24.8 million, and represent 0.43% of total loans at September 30, 2016, as compared to 0.45% at June 30, 2016. Total nonperforming assets decreased modestly to $26.6 million at the end of the third quarter, from $27.5 million at the end of the prior quarter. Delinquency as a percentage of loans was 0.44% at September 30, 2016, a decrease of three basis points from the prior quarter.

The allowance for loan losses was $58.2 million at September 30, 2016, as compared to $57.7 million at June 30, 2016. The Company’s allowance for loan losses as a percentage of loans was 1.01% and 1.02% as of September 30, 2016 and June 30, 2016, respectively.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer will host a conference call to discuss third quarter earnings at 11:00 a.m. Eastern Time on Friday, October 21, 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: 10094021 and will be available through November 4, 2016. Additionally, a webcast replay will be available until October 21, 2017.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $7.5 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 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, or "tangible common equity", 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 and other financial measures determined in accordance with GAAP. An item which management deems to be non-core and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating earnings, operating EPS, tangible book value per share 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
2016

June 30
2016

September 30
2015

Sept 2016 vs.

Sept 2016 vs.
June 2016 Sept 2015
Assets
Cash and due from banks $ 92,185 $ 102,397 $ 160,721 (9.97 )% (42.64 )%
Interest-earning deposits with banks 265,618 229,740 89,607 15.62 % 196.43 %
Securities
Securities - trading 809 799 454 1.25 % 78.19 %
Securities - available for sale 387,008 389,824 365,792 (0.72 )% 5.80 %
Securities - held to maturity 430,763   438,656   448,139   (1.80 )% (3.88 )%
Total securities 818,580 829,279 814,385 (1.29 )% 0.52 %
Loans held for sale (at fair value) 13,334 12,927 11,476 3.15 % 16.19 %
Loans
Commercial and industrial 857,713 875,164 862,512 (1.99 )% (0.56 )%
Commercial real estate 2,787,660 2,727,143 2,659,342 2.22 % 4.83 %
Commercial construction 376,245 367,559 308,214 2.36 % 22.07 %
Small business 115,054   111,035   92,278   3.62 % 24.68 %
Total commercial 4,136,672   4,080,901   3,922,346   1.37 % 5.46 %
Residential real estate 632,685 628,348 651,937 0.69 % (2.95 )%
Home equity - first position 559,867 554,624 531,364 0.95 % 5.36 %
Home equity - subordinate positions 405,245   393,952   376,530   2.87 % 7.63 %
Total consumer real estate 1,597,797   1,576,924   1,559,831   1.32 % 2.43 %
Other consumer 11,664   16,428   15,944   (29.00 )% (26.84 )%
Total loans 5,746,133   5,674,253   5,498,121   1.27 % 4.51 %
Less: allowance for loan losses (58,205 ) (57,727 ) (55,205 ) 0.83 % 5.43 %
Net loans 5,687,928   5,616,526   5,442,916   1.27 % 4.50 %
Federal Home Loan Bank stock 11,304 11,304 37,485 % (69.84 )%
Bank premises and equipment, net 76,429 76,173 73,738 0.34 % 3.65 %
Goodwill and other intangibles 210,834 211,526 213,612 (0.33 )% (1.30 )%
Other assets 325,797   328,994   290,963   (0.97 )% 11.97 %
Total assets $ 7,502,009   $ 7,418,866   $ 7,134,903   1.12 % 5.15 %
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 2,024,235 $ 1,908,986 $ 1,778,051 6.04 % 13.85 %
Savings and interest checking accounts 2,417,195 2,469,162 2,305,636 (2.10 )% 4.84 %
Money market 1,198,959 1,175,669 1,119,913 1.98 % 7.06 %
Time certificates of deposit 629,071   644,075   711,263   (2.33 )% (11.56 )%
Total deposits 6,269,460   6,197,892   5,914,863   1.15 % 6.00 %
Borrowings
Federal Home Loan Bank borrowings 50,826 50,833 104,133 (0.01 )% (51.19 )%
Customer repurchase agreements and other short-term borrowings 140,914 139,716 138,449 0.86 % 1.78 %
Junior subordinated debentures 73,157 73,207 73,357 (0.07 )% (0.27 )%
Subordinated debentures 34,624   34,612   34,577   0.03 % 0.14 %
Total borrowings 299,521   298,368   350,516   0.39 % (14.55 )%
Total deposits and borrowings 6,568,981   6,496,260   6,265,379   1.12 % 4.85 %
Other liabilities 114,786 118,709 110,321 (3.30 )% 4.05 %
Stockholders' equity
Common stock 261 261 260 % 0.38 %
Additional paid in capital 409,731 408,155 404,089 0.39 % 1.40 %
Retained earnings 404,750 391,898 355,537 3.28 % 13.84 %
Accumulated other comprehensive income (loss), net of tax 3,500   3,583   (683 ) (2.32 )% (612.45 )%
Total stockholders' equity 818,242   803,897   759,203   1.78 % 7.78 %
Total liabilities and stockholders' equity $ 7,502,009   $ 7,418,866   $ 7,134,903   1.12 % 5.15 %
           
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited dollars in thousands, except per share data)

Three Months Ended

        % Change % Change

September 30
2016

June 30
2016

September 30
2015

Sept 2016
vs.

Sept 2016
vs.

June 2016 Sept 2015
Interest income
Interest on federal funds sold and short-term investments $ 387 $ 169 $ 121 129.0 % 219.83 %
Interest and dividends on securities 5,062 5,298 5,486 (4.45 )% (7.73 )%
Interest and fees on loans 56,778 55,636 54,557 2.05 % 4.07 %
Interest on loans held for sale 81   57   64   42.11 % 26.56 %
Total interest income 62,308 61,160 60,228 1.88 % 3.45 %
Interest expense
Interest on deposits 2,733 2,738 2,951 (0.18 )% (7.39 )%
Interest on borrowings 1,907   1,889   2,232   0.95 % (14.56 )%
Total interest expense 4,640   4,627   5,183   0.28 % (10.48 )%
Net interest income 57,668 56,533 55,045 2.01 % 4.77 %
Provision for loan losses 950   600   800   58.33 % 18.75 %
Net interest income after provision for loan losses 56,718 55,933 54,245 1.40 % 4.56 %
Noninterest income
Deposit account fees 4,622 4,471 4,754 3.38 % (2.78 )%
Interchange and ATM fees 4,190 4,136 3,949 1.31 % 6.10 %
Investment management 5,446 5,734 4,981 (5.02 )% 9.34 %
Mortgage banking income 1,963 1,363 1,480 44.02 % 32.64 %
Increase in cash surrender value of life insurance policies 984 982 958 0.20 % 2.71 %
Gain on sale of equity securities 5 (100.00 )% n/a
Loan level derivative income 810 2,095 968 (61.34 )% (16.32 )%
Other noninterest income 2,401   2,309   2,157   3.98 % 11.31 %
Total noninterest income 20,416 21,095 19,247 (3.22 )% 6.07 %
Noninterest expenses
Salaries and employee benefits 27,395 26,977 26,685 1.55 % 2.66 %
Occupancy and equipment expenses 5,433 5,667 5,443 (4.13 )% (0.18 )%
Data processing and facilities management 1,400 1,225 1,112 14.29 % 25.90 %
FDIC assessment 725 920 1,020 (21.20 )% (28.92 )%
Merger and acquisition expense 151 206 (26.70 )%

100.00

%

Loss on sale of equity securities 3 (100.00 )% n/a
Other noninterest expenses 11,753   12,148   12,771   (3.25 )% (7.97 )%
Total noninterest expenses 46,857 47,146 47,031 (0.61 )% (0.37 )%
Income before income taxes 30,277 29,882 26,461 1.32 % 14.42 %
Provision for income taxes 9,793   9,508   7,867   3.00 % 24.48 %
Net Income $ 20,484   $ 20,374   $ 18,594   0.54 % 10.16 %
 
Weighted average common shares (basic) 26,324,316 26,304,129 26,200,621
Common share equivalents 53,072   47,885   63,493  
Weighted average common shares (diluted) 26,377,388   26,352,014   26,264,114  
 
Basic earnings per share $ 0.78 $ 0.77 $ 0.71 1.30 % 9.86 %
Diluted earnings per share $ 0.78 $ 0.77 $ 0.71 1.30 % 9.86 %
 

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

Net income 20,484 20,374 18,594
Noninterest expense components
Add - merger and acquisition expenses 151   206    
Noncore items, gross $ 151 $ 206 $
Less - net tax benefit associated with noncore items (1) $ (61 ) $ (84 ) $  
Noncore items, net of tax $ 90   $ 122   $  
Net operating earnings $ 20,574   $ 20,496   $ 18,594   0.38 % 10.65 %
 
Diluted earnings per share, on an operating basis $ 0.78 $ 0.78 $ 0.71 % 9.86 %
(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) 3.40 % 3.47 % 3.39 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.09 % 1.13 % 1.03 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.10 % 1.14 % 1.03 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 9.98 % 10.24 % 9.75 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 10.03 % 10.31 % 9.75 %
       
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited dollars in thousands, except per share data)
 

Nine Months Ended

% Change
September 30
2016
September 30
2015
Sept 2016 vs.
Sept 2015
Interest income
Interest on federal funds sold and short-term investments $ 767 $ 212 261.79 %
Interest and dividends on securities 15,589 15,029 3.73 %
Interest and fees on loans 166,683 160,261 4.01 %
Interest on loans held for sale 170   173   (1.73 )%
Total interest income 183,209 175,675 4.29 %
Interest expense
Interest on deposits 8,339 8,636 (3.44 )%
Interest on borrowings 5,778   6,997   (17.42 )%
Total interest expense 14,117   15,633   (9.70 )%
Net interest income 169,092 160,042 5.65 %
Provision for loan losses 2,075   1,000   107.50 %
Net interest income after provision for loan losses 167,017 159,042 5.01 %
Noninterest income
Deposit account fees 13,563 13,385 1.33 %
Interchange and ATM fees 12,050 10,817 11.40 %
Investment management 16,183 15,616 3.63 %
Mortgage banking income 4,458 3,832 16.34 %
Increase in cash surrender value of life insurance policies 2,980 2,685 10.99 %
Gain on sale of fixed income securities 798 (100.00 )%
Gain on sale of equity securities 5 19 (73.68 )%
Loan level derivative income 4,627 2,816 64.31 %
Other noninterest income 6,800   6,096   11.55 %
Total noninterest income 60,666 56,064 8.21 %
Noninterest expenses
Salaries and employee benefits 81,561 78,291 4.18 %
Occupancy and equipment expenses 16,927 17,509 (3.32 )%
Data processing and facilities management 3,831 3,462 10.66 %
FDIC assessment 2,655 2,993 (11.29 )%
Merger and acquisition expense 691 10,501 (93.42 )%
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 34,351   36,642   (6.25 )%
Total noninterest expenses 140,485 150,652 (6.75 )%
Income before income taxes 87,198 64,454 35.29 %
Provision for income taxes 27,729   18,949   46.33 %
Net Income $ 59,469   $ 45,505   30.69 %
 
Weighted average common shares (basic) 26,301,340 25,774,571
Common share equivalents 48,354   72,921  
Weighted average common shares (diluted) 26,349,694   25,847,492  
 
Basic earnings per share $ 2.26 $ 1.77 27.68 %
Diluted earnings per share $ 2.26 $ 1.76 28.41 %
 

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

Net Income 59,469 45,505
Noninterest income components
Less - gain on sale of fixed income securities (798 )
Noninterest expense components
Add - impairment on acquired facilities 109
Add - loss on extinguishment of debt 437 122
Add - loss on sale of fixed income securities 1,124
Add - merger and acquisition expenses 691   10,501  
Noncore items, gross $ 1,128 $ 11,058
Less - net tax benefit associated with noncore items (1) $ (461 ) $ (4,285 )
Noncore items, net of tax $ 667   $ 6,773  
Net operating earnings $ 60,136   $ 52,278   15.03 %
 
Diluted earnings per share, on an operating basis $ 2.28 $ 2.02 12.87 %
(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) 3.42 % 3.44 % (0.58 )%
Return on average assets GAAP (calculated by dividing net income by average assets) 1.09 % 0.88 % 23.86 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.10 % 1.01 % 8.91 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 9.92 % 8.35 % 18.80 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 10.03 % 9.59 % 4.59 %

ASSET QUALITY

   
Nonperforming Assets At

September 30
2016

    June 30
2016
    September 30
2015
Nonperforming loans
Commercial & industrial loans $ 3,065 $ 3,177 $ 4,114
Commercial real estate loans 7,399 8,220 9,006
Small business loans 288 349 159
Residential real estate loans 7,684 7,116 9,106
Home equity 6,311 6,684 7,142
Other consumer 46   82   40  
Total nonperforming loans $ 24,793   $ 25,628   $ 29,567  
Other real estate owned 1,798   1,845   2,532  
Total nonperforming assets $ 26,591   $ 27,473   $ 32,099  
 
Nonperforming loans/gross loans 0.43 % 0.45 % 0.54 %
Nonperforming assets/total assets 0.35 % 0.37 % 0.45 %
Allowance for loan losses/nonperforming loans 234.76 % 225.25 % 187.71 %
Gross loans/total deposits 91.65 % 91.55 % 92.95 %
Allowance for loan losses/total loans 1.01 % 1.02 % 1.00 %
Delinquent loans/total loans 0.44 % 0.47 % 0.43 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
September 30
2016
June 30
2016
September 30
2015
 
Nonperforming assets beginning balance $ 27,473 $ 27,219 $ 31,274
New to nonperforming 2,630 3,943 8,348
Loans charged-off (1,143 ) (576 ) (1,165 )
Loans paid-off (2,049 ) (1,955 ) (1,799 )
Loans transferred to other real estate owned/other assets (291 ) (539 )
Loans restored to performing status (288 ) (1,058 ) (1,409 )
New to other real estate owned 291 1,151
Valuation write down (5 ) (480 )
Sale of other real estate owned (42 ) (45 ) (3,460 )
Net capital improvements to other real estate owned 31 196
Other 15   (86 ) (18 )
Nonperforming assets ending balance $ 26,591   $ 27,473   $ 32,099  
   
Net Charge-Offs (Recoveries)
Three Months Ended     Nine Months Ended
September 30
2016
    June 30
2016
    September 30
2015
September 30
2016
    September 30
2015
Net charge-offs (recoveries)
Commercial and industrial loans $ (36 ) $ (647 ) $ 475 $ (819 ) $ 628
Commercial real estate loans 217 (198 ) (124 ) (170 ) (770 )
Small business loans 70 (43 ) (55 ) 69 9
Residential real estate loans (130 ) (43 ) 34 (155 ) 190
Home equity 130 164 119 414 425
Other consumer 221   72   141   356   413  
Total net charge-offs (recoveries) $ 472   $ (695 ) $ 590   $ (305 ) $ 895  
 
Net charge-offs (recoveries) to average loans (annualized) 0.03 % (0.05 )% 0.04 % (0.01 )% 0.02 %
        Troubled Debt Restructurings At
September 30
2016
        June 30
2016
        September 30
2015
Troubled debt restructurings on accrual status $ 27,644 $ 28,319 $ 37,477
Troubled debt restructurings on nonaccrual status 5,910   5,121   5,201  
Total troubled debt restructurings $ 33,554   $ 33,440   $ 42,678  
 
CAPITAL ADEQUACY
September 30
2016
June 30
2016
September 30
2015
Common equity tier 1 capital ratio (1) 10.78 % 10.64 % 10.31 %
Tier one leverage capital ratio (1) 9.59 % 9.66 % 9.21 %
Common equity to assets ratio GAAP 10.91 % 10.84 % 10.64 %
Tangible common equity to tangible assets ratio (2) 8.33 % 8.22 % 7.88 %
Book value per share GAAP $ 31.09 $ 30.55 $ 28.96
Tangible book value per share (2) $ 23.08 $ 22.52 $ 20.81
(1) Estimated number for September 30, 2016.
(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, 2016 June 30, 2016 September 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 $ 305,728 $ 387 0.50 % $ 135,766 $ 169 0.50 % $ 192,205 $ 121 0.25 %
Securities
Securities - trading 805

 

% 775 % 479 %
Securities - taxable investments 815,889

 

5,034

2.45 % 826,382 5,269 2.56 % 802,146 5,455 2.70 %
Securities - nontaxable investments (1) 4,382  

 

43

  3.90 % 4,397   44   4.02 % 4,895   48   3.89 %
Total securities 821,076

 

5,077

2.46 % 831,554 5,313 2.57 % 807,520 5,503 2.70 %
Loans held for sale 11,652

 

81

2.77 % 8,077 57 2.84 % 10,196 64 2.49 %
Loans
Commercial and industrial 851,497

 

8,420

3.93 % 853,783 8,367 3.94 % 871,976 8,608 3.92 %
Commercial real estate (1) 2,723,832

 

28,466

4.16 % 2,726,249 27,847 4.11 % 2,649,676 27,449 4.11 %
Commercial construction 370,085

 

3,881

4.17 % 358,256 3,676 4.13 % 290,052 3,057 4.18 %
Small business 111,932  

 

1,502

  5.34 % 106,272   1,432   5.42 % 91,331   1,237   5.37 %
Total commercial 4,057,346

 

42,269

4.14 % 4,044,560 41,322 4.11 % 3,903,035 40,351 4.10 %
Residential real estate 631,582

 

6,334

3.99 % 628,855 6,224 3.98 % 650,039 6,490 3.96 %
Home equity 958,317  

 

8,243

  3.42 % 942,515   8,178   3.49 % 896,257   7,690   3.40 %
Total consumer real estate 1,589,899

 

14,577

3.65 % 1,571,370 14,402 3.69 % 1,546,296 14,180 3.64 %
Other consumer 13,026  

 

291

  8.89 % 13,815   297   8.65 % 17,033   383   8.92 %
Total loans 5,660,271  

 

57,137

  4.02 % 5,629,745   56,021   4.00 % 5,466,364   54,914   3.99 %
Total interest-earning assets $ 6,798,727   $ 62,682   3.67 % $ 6,605,142   $ 61,560   3.75 % $ 6,476,285   $ 60,602   3.71 %
Cash and due from banks 94,547 91,198 116,975
Federal Home Loan Bank stock 11,304 13,935 37,485
Other assets 552,247   539,511   512,326  
Total assets $ 7,456,825   $ 7,249,786   $ 7,143,071  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,408,498 $ 756 0.12 % $ 2,395,837 $ 777 0.13 % $ 2,274,861 $ 897 0.16 %
Money market 1,197,382

 

758

0.25 % 1,146,928 712 0.25 % 1,120,290 742 0.26 %
Time deposits 635,635  

 

1,219

  0.76 % 647,274   1,249   0.78 % 717,225   1,312   0.73 %
Total interest-bearing deposits 4,241,515

 

2,733

0.26 % 4,190,039 2,738 0.26 % 4,112,376 2,951 0.28 %
Borrowings
Federal Home Loan Bank borrowings 51,100

 

391

3.04 % 59,657 394 2.66 % 107,489 571 2.11 %
Customer repurchase agreements and other short-term borrowings 151,982

 

52

0.14 % 140,252 48 0.14 % 142,704 48 0.13 %
Wholesale repurchase agreements

 

% % 29,348 162 2.19 %
Junior subordinated debentures 73,184

 

1,037

5.64 % 73,231 1,019 5.60 % 73,383 1,014 5.48 %
Subordinated debentures 34,617  

 

427

  4.91 % 34,607   428   4.97 % 34,571   437   5.02 %
Total borrowings 310,883  

 

1,907

  2.44 % 307,747   1,889   2.47 % 387,495   2,232   2.29 %
Total interest-bearing liabilities $ 4,552,398   $ 4,640   0.41 % $ 4,497,786   $ 4,627   0.41 % $ 4,499,871   $ 5,183   0.46 %
Demand deposits 1,976,177 1,846,550 1,789,288
Other liabilities 112,018   105,607   97,475  
Total liabilities $ 6,640,593   $ 6,449,943   $ 6,386,634  
Stockholders' equity 816,232 799,843 756,437
Total liabilities and stockholders' equity $ 7,456,825   $ 7,249,786   $ 7,143,071  
 
Net interest income $ 58,042   $ 56,933   $ 55,419  
 
Interest rate spread (2) 3.26 % 3.34 % 3.25 %
 
Net interest margin (3) 3.40 % 3.47 % 3.39 %
 
Supplemental Information
Total deposits, including demand deposits $ 6,217,692

$

2,733

$ 6,036,589 $ 2,738 $ 5,901,664 $ 2,951
Cost of total deposits

 

 

0.17 % 0.18 % 0.20 %
Total funding liabilities, including demand deposits $ 6,528,575

 

4,640

$ 6,344,336 $ 4,627 $ 6,289,159 $ 5,183
Cost of total funding liabilities

 

0.28 % 0.29 % 0.33 %

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $374,000, $400,000, and $374,000 for the three months ended September 30, 2016, June 30, 2016, and September 30, 2015, respectively.

(2) Interest rate spread represents the difference between weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(3) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

    Nine Months Ended
September 30, 2016     September 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 $ 202,397 $ 767 0.51 % $ 113,251 $ 212 0.25 %
Securities
Securities - trading 667 % 387 %
Securities - taxable investments 824,449 15,500 2.51 % 778,346 14,934 2.57 %
Securities - nontaxable investments (1) 4,557   137   4.02 % 5,172   146   3.77 %
Total securities 829,673 15,637 2.52 % 783,905 15,080 2.57 %
Loans held for sale 8,005 170 2.84 % 9,185 173 2.52 %
Loans
Commercial and industrial 845,565 24,759 3.91 % 862,620 25,315 3.92 %
Commercial real estate (1) 2,703,300 83,082 4.11 % 2,573,265 79,933 4.15 %
Commercial construction 369,403 11,376 4.11 % 287,290 9,162 4.26 %
Small business 105,761   4,266   5.39 % 88,922   3,628   5.45 %
Total commercial 4,024,029 123,483 4.10 % 3,812,097 118,038 4.14 %
Residential real estate 631,343 18,939 4.01 % 639,792 19,452 4.06 %
Home equity 943,857   24,452   3.46 % 883,952   22,650   3.43 %
Total consumer real estate 1,575,200 43,391 3.68 % 1,523,744 42,102 3.69 %
Other consumer 13,743   924   8.98 % 17,645   1,194   9.05 %
Total loans 5,612,972   167,798   3.99 % 5,353,486   161,334   4.03 %
Total interest-earning assets $ 6,653,047   $ 184,372   3.70 % $ 6,259,827   $ 176,799   3.78 %
Cash and due from banks 90,527 107,816
Federal Home Loan Bank stock 12,940 36,691
Other assets 542,271   510,212  
Total assets $ 7,298,785   $ 6,914,546  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,386,520 $ 2,416 0.14 % $ 2,214,414 $ 2,640 0.16 %
Money market 1,157,731 2,171 0.25 % 1,094,764 2,161 0.26 %
Time deposits 651,044   3,752   0.77 % 712,628   3,835   0.72 %
Total interest-bearing deposits 4,195,295 8,339 0.27 % 4,021,806 8,636 0.29 %
Borrowings
Federal Home Loan Bank borrowings 63,869 1,275 2.67 % 107,584 1,638 2.04 %
Customer repurchase agreements and other short-term borrowings 144,393 149 0.14 % 135,692 161 0.16 %
Wholesale repurchase agreements % 43,040 746 2.32 %
Junior subordinated debentures 73,233 3,072 5.60 % 73,433 3,010 5.48 %
Subordinated debentures 34,606   1,282   4.95 % 40,076   1,442   4.81 %
Total borrowings 316,101   5,778   2.44 % 399,825   6,997   2.34 %
Total interest-bearing liabilities $ 4,511,396   $ 14,117   0.42 % $ 4,421,631   $ 15,633   0.47 %
Demand deposits 1,878,558 1,660,821
Other liabilities 107,983   103,035  
Total liabilities $ 6,497,937 $ 6,185,487
Stockholders' equity 800,848   729,059  
Total liabilities and stockholders' equity $ 7,298,785   $ 6,914,546  
 
Net interest income $ 170,255   $ 161,166  
 
Interest rate spread (2) 3.28 % 3.31 %
 
Net interest margin (3) 3.42 % 3.44 %
 
Supplemental Information
Total deposits, including demand deposits $ 6,073,853 $ 8,339 $ 5,682,627 $ 8,636
Cost of total deposits 0.18 % 0.20 %
Total funding liabilities, including demand deposits $ 6,389,954 $ 14,117 $ 6,082,452 $ 15,633

Cost of total funding liabilities

0.30 % 0.34 %

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1.2 million and $1.1 million for the nine months ended September 30, 2016 and 2015, 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.

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

APPENDIX A

(Dollars in thousands, except share and per share data)

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

           
September 30
2016
June 30
2016
September 30
2015
Tangible common equity
Stockholders' equity (GAAP) $ 818,242 $ 803,897 $ 759,203 (a)
Less: Goodwill and other intangibles 210,834   211,526   213,612  
Tangible common equity 607,408   592,371   545,591   (b)
Tangible assets
Assets (GAAP) 7,502,009 7,418,866 7,134,903 (c)
Less: Goodwill and other intangibles 210,834   211,526   213,612  
Tangible assets $ 7,291,175   $ 7,207,340   $ 6,921,291   (d)
     
Common Shares 26,320,467   26,309,887   26,212,238   (e)
 
Common equity to assets ratio (GAAP) 10.91 % 10.84 % 10.64 % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 8.33 % 8.22 % 7.88 % (b/d)
Book value per share (GAAP) $ 31.09 $ 30.55 $ 28.96 (a/e)
Tangible book value per share (Non-GAAP) $ 23.08 $ 22.52 $ 20.81 (b/e)

APPENDIX B

(Dollars in thousands)

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

       
Three Months Ended Nine Months Ended

September 30,
2016

    June 30, 2016    

September 30,
2015

September 30,
2016

   

September 30,
2015

Net interest income (GAAP)

$

57,668

$

56,533

$

55,045

$

169,092

$

160,042

(a)
 
Noninterest income (GAAP)

$

20,416

$

21,095

$

19,247

$

60,666

$

56,064

(b)
Less:
Gain on sale of fixed income securities                   798  
Noninterest income on an operating basis (Non-GAAP)

$

20,416

$

21,095

$

19,247

$

60,666

$

55,266 (c)
 
Noninterest expense (GAAP)

$

46,857

$

47,146

$

47,031

$

140,485

$

150,652 (d)
Less:
Impairment on acquired facilities 109
Loss on extinguishment of debt 437 122
Loss on sale of fixed income securities 1,124
Merger and acquisition expense   151     206         691     10,501  
Noninterest expense on an operating basis (Non-GAAP)

$

46,706

$

46,940

$

47,031

$

139,357

$

138,796 (e)
 
Total revenue (GAAP)

$

78,084

$

77,628

$

74,292

$

229,758

$

216,106 (a+b)
Total operating revenue (Non-GAAP)

$

78,084

$

77,628

$

74,292

$

229,758

$

215,308 (a+c)
 
Ratios
Noninterest income as a % of total revenue (GAAP based) 26.15 % 27.17 % 25.91 % 26.40 % 25.94 % (b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP) 26.15 % 27.17 % 25.91 % 26.40 % 25.67 % (c/(a+c))
Efficiency ratio (GAAP based) 60.01 % 60.73 % 63.31 % 61.14 % 69.71 % (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) 59.82 % 60.47 % 63.31 % 60.65 % 64.46 % (e/(a+c))

Contacts

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

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