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

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.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: 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

%

Contacts

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

Mark J. Ruggiero

Chief Financial Officer and
Chief Accounting Officer
(781) 982-6281

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