Independent Bank Corp. Reports Fourth Quarter Net Income of $29.9 Million

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Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2018 fourth quarter net income of $29.9 million, or $1.07 per diluted share, compared to net income of $33.0 million, or $1.20 per diluted share, reported in the prior quarter of 2018. Excluding merger and acquisition expenses incurred in the fourth and third quarters of 2018 related to the MNB Bancorp (“MNB”) merger which closed in November 2018 and the Blue Hills Bancorp (“BHB”) merger announced on September 20, 2018, operating net income was $35.9 million, or $1.29 per diluted share during the fourth quarter of 2018 compared to $34.9 million, or $1.27 per diluted share during the third quarter of 2018. Full year net income was $121.6 million, or $4.40 on a diluted earnings per share basis, an increase of $34.4 million, or 39.5%, as compared to the prior year. In addition, full year operating net income was $129.8 million, or $4.69 on a diluted earnings per share basis, an increase of $38.1 million, or 41.5% compared to 2017. Operating diluted earnings per share of $1.34 in the fourth quarter of 2018 increased 40.0% as compared to the prior year.

Rockland Trusts record-setting 2018 financial performance derived from organic loan and deposit growth, augmented by our fourth quarter acquisition of The Milford National Bank and Trust Company, continued net interest margin expansion, pristine asset quality, and disciplined expense control, said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. My colleagues, and their outstanding commitment to our customers, the communities we serve, and to each other, are responsible for our success. We look forward in 2019 to our anticipated acquisition of Blue Hills Bank and to welcoming Blue Hills customers and colleagues to Rockland Trust.

MNB BANCORP ACQUISITION

On November 16, 2018, the Company completed the acquisition of MNB. The acquisition resulted in the addition of three branch locations in Worcester County, Massachusetts. The transaction included the acquisition of $293.5 million in loans and the assumption of $278.2 million in deposits, each at fair value. Total consideration of $56.1 million consisted of 528,353 shares of Independent Bank Corp. common stock issued to MNB shareholders, as well as $13.6 million in cash. The following table provides the purchase price allocation of net assets acquired for this transaction:

Net Assets Acquired at Fair Value
(Dollars in thousands)
Assets
Cash$6,743
Investments25,358
Loans293,498
Bank premises and equipment1,904
Goodwill24,299
Core deposit and other intangibles8,588
Other assets8,639
Total assets acquired$369,029
Liabilities
Deposits$278,204
Borrowings33,093
Other liabilities1,609
Total liabilities assumed$312,906
Purchase price$56,123

For further details on the loans and deposits acquired, see the Organic Loan and Deposit Growth table provided near the end of the financial schedules accompanying this release.

BALANCE SHEET

Total assets of $8.9 billion at December 31, 2018 increased by $476.1 million, or 5.7% from the prior quarter, and by $769.6 million, or 9.5%, as compared to the year ago period, inclusive of the 2018 fourth quarter MNB acquisition.

Excluding the MNB acquisition, total loans grew by $85.3 million, or 1.3% (5.2% annualized) over the prior quarter and by $257.1 million, or 4.05%, when compared to the year ago period. The fourth quarter organic increase was led by an increase of $44.9 million, or 17.8% on an annualized basis, in commercial and industrial loans, with the primary driver being growth in asset-based lending. In addition, there was a $25.8 million, or 12.8% on an annualized basis, increase in residential real estate loans as the portfolio continues to benefit from strong jumbo loan demand. Business banking also experienced organic growth, increasing by $2.9 million, or 7.7% on an annualized basis.

Exclusive of the MNB acquisition, total deposits rose by $172.7 million, or 2.5% (9.8% annualized) from the prior quarter and by $419.7 million, or 6.2%, when compared to the prior year. A portion of the increase reflects the discontinuance and transition of $141.2 million in customer repurchase agreements, which were classified as borrowings in the prior quarter. Excluding this transition, total organic deposit growth for the fourth quarter was 1.8% on an annualized basis and was marked by continued growth in demand deposits and declines in money market and time deposits. Inclusive of the acquired MNB deposits, the total cost of deposits increased by four basis points in the fourth quarter to 0.34%.

The securities portfolio increased by $63.6 million, or 6.3%, compared to the prior quarter, due in part to the MNB acquisition combined with purchases of $93.9 million, offset by paydowns on existing securities.

The Company’s total borrowings decreased by $41.0 million, or 13.7%, compared to the prior quarter due primarily to the aforementioned transition of customer repurchase agreement balances. Partially offsetting this decrease was an increase in Federal Home Loan Bank borrowings of $97.0 million, which reflects a $122.0 million overnight borrowing position offset by a $25.0 million maturity during the quarter.

Stockholders’ equity at December 31, 2018 rose to $1.1 billion, an increase of 7.5% from September 30, 2018 and 13.7% compared to the year ago period, due primarily to stock issuance associated with the fourth quarter 2018 MNB acquisition combined with strong earnings retention. In addition, the Company recorded a net gain of $11.5 million, after tax, within other comprehensive income during the fourth quarter, due to increased values associated with available for sale securities and certain derivative positions. Book value per share increased $1.98, or 5.5%, during the fourth quarter. The Company’s ratio of common equity to assets of 12.13% increased by 21 basis points from the prior quarter and by 45 basis points from the same period a year ago. Inclusive of the added goodwill from the MNB acquisition, the Company’s tangible book value per share rose by $1.01, or 3.7%, to $28.57 from the prior quarter and is now 11.6% higher than the year ago period. The Company’s ratio of tangible common equity to tangible assets of 9.35% at December 31, 2018 is two basis points higher than the prior quarter and 39 basis points above the year ago period.

NET INTEREST INCOME

Net interest income for the fourth quarter increased 5.3% to $80.3 million compared to $76.2 million in the prior quarter, due to solid average earning asset growth, including the MNB acquisition, and a higher net interest margin. The net interest margin rose to 4.05%, compared to 3.94% in the prior quarter, as the Company continues to benefit from its asset sensitive position.

NONINTEREST INCOME

Noninterest income of $23.5 million in the fourth quarter of 2018 was $227,000, or 1.0%, higher than the prior quarter. Significant changes in noninterest income in the fourth quarter compared to the prior quarter included the following:

  • Investment management income rose by $63,000, or 1.0%. The additional income associated with $160.9 million of assets under administration included in the MNB acquisition along with increased retail commissions helped offset the impact of weak equity markets that prevailed during the fourth quarter. Total assets under administration, inclusive of the acquired MNB portfolio, were $3.6 billion as of December 31, 2018.
  • Mortgage banking income decreased by $281,000, or 23.0%, due to a seasonal decrease in volume.
  • In the prior quarter, the Company received proceeds on life insurance policies, resulting in a gain of $1.5 million. There were no such gains during the fourth quarter.
  • Loan level derivative income increased by $434,000, or 110.7%, as a result of increased customer demand in the quarter.
  • Other noninterest income increased $1.2 million, or 40.1%, primarily due to a gain of $1.1 million on the sale of a previously closed branch facility.

NONINTEREST EXPENSE

Noninterest expense of $64.4 million in the fourth quarter of 2018 was $9.0 million, or 16.1%, higher than the prior quarter. Significant changes in noninterest expense in the fourth quarter compared to the prior quarter included the following:

  • Salaries and employee benefits expense increased by $750,000, or 2.4%, reflecting increases associated with the MNB acquisition and related personnel, along with increased incentive and performance-based equity award expense, partially offset by decreases in pension and medical insurance expenses.
  • Occupancy and equipment expense increased by $573,000, or 9.1%, due to the MNB acquisition, increased repairs and maintenance and various one-time rent adjustment items.
  • Merger and acquisition costs of $8.0 million for the fourth quarter included $7.8 million attributable to the MNB acquisition and $283,000 attributable to the BHB acquisition, which is anticipated to close in the first half of 2019. The majority of these costs include contract terminations, severance, and legal fees.
  • Other noninterest expense increased by $2.4 million, or 18.3%, due to a $1.1 million loss on equity securities, plus increased loan workout costs, debit card expense and core deposit and intangible amortization. The increases were partially offset by decreases in consulting expenses and lower FDIC assessment fees.

The Company generated a return on average assets and a return on average common equity of 1.38% and 11.49%, respectively, in the fourth quarter of 2018, as compared to 1.57% and 13.19%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.66% and 13.78%, respectively, during the fourth quarter of 2018, as compared to 1.66% and 13.96%, respectively, for the prior quarter.

The Companys effective tax rate decreased to 21.6% for the fourth quarter as compared to 23.2% in the prior quarter.

ASSET QUALITY

During the fourth quarter of 2018, the Company recorded total net charge-offs of $142,000, or 0.01% of average loans on an annualized basis, representing a decrease from net charge-offs of $397,000 in the prior quarter. The provision for loan losses increased to $1.2 million for the fourth quarter of 2018 compared to $1.1 million in the third quarter of 2018, both of which were primarily attributable to loan growth. Nonperforming loans of $45.4 million, or 0.66% of loans at December 31, 2018 were consistent with prior quarter balances of $45.4 million, or 0.70% of loans. Other real estate owned was reduced to zero in the fourth quarter. Total nonperforming assets remained relatively consistent at $45.4 million at the end of the fourth quarter, as compared to $45.6 million at the end of the prior quarter and represent a decline of 9.6% as compared to the year ago period. At December 31, 2018, delinquency as a percentage of loans was 0.67%, representing a decrease of four basis points from the prior quarter.

During the fourth quarter of 2018 nonaccrual loans associated with a large commercial loan customer that had previously declared bankruptcy were modified when a court confirmed the customers bankruptcy reorganization plan. That revision to loan terms required the Company to deem loans associated with the customer a troubled debt restructure as of December 31, 2018. Loans associated with the customer remain on nonaccrual status and are included in the nonperforming loan totals reported above.

The allowance for loan losses was $64.3 million at December 31, 2018, as compared to $63.2 million at September 30, 2018. The Companys allowance for loan losses as a percentage of loans was 0.93% at December 31, 2018 and 0.97% at September 30, 2018. The decrease in this percentage is attributable to the treatment of loans acquired in connection with the MNB acquisition. These acquired loans are recorded at fair value, which includes consideration for estimated credit losses, and without carryover of the respective portfolio’s historical allowance for loan losses.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer, will host a conference call to discuss fourth quarter earnings at 10:00 a.m. Eastern Time on Friday, January 18, 2019. Internet access to the call is available on the Companys 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: 10127265 and will be available through February 1, 2019. Additionally, a webcast replay will be available until January 18, 2020.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.9 billion in assets and is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Named in 2018 to The Boston Globes 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 approximately 100 retail branches, commercial and residential lending centers, and investment management offices in eastern Massachusetts, including Greater Boston, the South Shore, the Cape and Islands, 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 Companys 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 anticipated 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;
  • unexpected changes in market interest rates for interest earning assets and/or interest bearing liabilities;
  • unexpected increased competition in the Companys market area;
  • unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;
  • a deterioration in the conditions of the securities markets;
  • a deterioration of the credit rating for U.S. long-term sovereign debt;
  • our inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
  • electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
  • adverse changes in consumer spending and savings habits;
  • failure to consummate or a delay in consummating the acquisition of Blue Hills Bancorp, which is subject to certain standard conditions, including regulatory approval and shareholder approval;
  • the inability to realize expected synergies from merger transactions in the amounts or in the timeframe anticipated;
  • inability to retain customers and employees, including those acquired in 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 Companys business;
  • the impact of the U.S. Government shutdown;
  • 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 Companys business and its forward-looking statements involve substantial known and unknown risks and uncertainties described in the Companys 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 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 Companys management uses operating earnings and related ratios and operating EPS to measure the strength of the Companys 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 tool used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Companys results for any particular quarter or year. The Companys 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
December 31 2018September 30 2018December 31 2017Dec 2018 vs.Dec 2018 vs.
Sept 2018Dec 2017
Assets
Cash and due from banks$127,503$102,540$103,48524.34%23.21%
Interest-earning deposits with banks122,952148,307109,631(17.10)%12.15%
Securities
Trading1,5041,5811,324(4.87)%13.60%
Equities19,47720,430(4.66)%100.00%
Available for sale442,752435,861447,4981.58%(1.06)%
Held to maturity611,490553,705497,68810.44%22.87%
Total securities1,075,2231,011,577946,5106.29%13.60%
Loans held for sale (at fair value)6,43110,4314,768(38.35)%34.88%
Loans
Commercial and industrial1,093,6291,003,780888,5288.95%23.08%
Commercial real estate3,251,2483,132,4913,116,5613.79%4.32%
Commercial construction365,165352,491401,7973.60%(9.12)%
Small business164,676149,200132,37010.37%24.41%
Total commercial4,874,7184,637,9624,539,2565.10%7.39%
Residential real estate923,294801,810754,32915.15%22.40%
Home equity – first position654,083647,132612,9901.07%6.70%
Home equity – subordinate positions438,001426,829439,0982.62%(0.25)%
Total consumer real estate2,015,3781,875,7711,806,4177.44%11.57%
Other consumer16,09813,6699,88017.77%62.94%
Total loans6,906,1946,527,4026,355,5535.80%8.66%
Less: allowance for loan losses(64,293)(63,235)(60,643)1.67%6.02%
Net loans6,841,9016,464,1676,294,9105.84%8.69%
Federal Home Loan Bank stock15,68313,10711,59719.65%35.23%
Bank premises and equipment, net97,58195,94194,7221.71%3.02%
Goodwill256,105231,806231,80610.48%10.48%
Other intangible assets15,2507,3799,341106.67%63.26%
Cash surrender value of life insurance policies160,456153,186151,5284.75%5.89%
Other real estate owned and other foreclosed assets190612(100.00)%(100.00)%
Other assets132,507136,866123,119(3.18)%7.63%
Total assets$8,851,592$8,375,497$8,082,0295.68%9.52%
Liabilities and Stockholders’ Equity
Deposits
Demand deposits$2,450,907$2,337,221$2,159,3964.86%13.50%
Savings and interest checking accounts2,865,3492,621,9262,599,9229.28%10.21%
Money market1,399,7611,353,6411,325,6343.41%5.59%
Time certificates of deposit711,103663,451644,3017.18%10.37%
Total deposits7,427,1206,976,2396,729,2536.46%10.37%
Borrowings
Federal Home Loan Bank borrowings147,80650,76753,264191.15%177.50%
Customer repurchase agreements141,176162,679(100.00)%(100.00)%
Junior subordinated debentures, net76,17373,07873,0734.24%4.24%
Subordinated debentures, net34,72834,71734,6820.03%0.13%
Total borrowings258,707299,738323,698(13.69)%(20.08)%
Total deposits and borrowings7,685,8277,275,9777,052,9515.63%8.97%
Other liabilities92,275101,21585,269(8.83)%8.22%
Total liabilities7,778,1027,377,1927,138,2205.43%8.96%
Stockholders’ equity
Common stock2792742731.82%2.20%
Additional paid in capital527,648483,222479,4309.19%10.06%
Retained earnings546,736527,473465,9373.65%17.34%
Accumulated other comprehensive loss, net of tax(1,173)(12,664)(1,831)(90.74)%(35.94)%
Total stockholders’ equity1,073,490998,305943,8097.53%13.74%
Total liabilities and stockholders’ equity$8,851,592$8,375,497$8,082,0295.68%9.52%

(nm – the percentage is not meaningful)

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)
Three Months Ended
% Change% Change
December 31 2018September 30 2018December 31 2017Dec 2018 vs.Dec 2018 vs.
Sept 2018Dec 2017
Interest income
Interest on federal funds sold and short-term investments$908$916$604(0.87)%50.33%
Interest and dividends on securities7,1466,6785,8647.01%21.86%
Interest and fees on loans79,80775,22066,3846.10%20.22%
Interest on loans held for sale496124(19.67)%104.17%
Total interest income87,91082,87572,8766.08%20.63%
Interest expense
Interest on deposits6,2225,2513,69218.49%68.53%
Interest on borrowings1,3961,3901,3520.43%3.25%
Total interest expense7,6186,6415,04414.71%51.03%
Net interest income80,29276,23467,8325.32%18.37%
Provision for loan losses1,2001,0751,30011.63%(7.69)%
Net interest income after provision for loan losses79,09275,15966,5325.23%18.88%
Noninterest income
Deposit account fees4,6874,6584,4850.62%4.50%
Interchange and ATM fees5,0274,9474,4101.62%13.99%
Investment management6,6276,5646,2260.96%6.44%
Mortgage banking income9411,2221,351(23.00)%(30.35)%
Increase in cash surrender value of life insurance policies1,1319841,12714.94%0.35%
Gain on life insurance benefits1,463(100.00)%n/a
Loan level derivative income8263921,109110.71%(25.52)%
Other noninterest income4,2523,0343,20640.15%32.63%
Total noninterest income23,49123,26421,9140.98%7.20%
Noninterest expenses
Salaries and employee benefits31,84531,09530,3332.41%4.98%
Occupancy and equipment expenses6,8836,3106,3919.08%7.70%
Data processing and facilities management1,2881,2871,2560.08%2.55%
FDIC assessment560725834(22.76)%(32.85)%
Merger and acquisition expense8,0462,688199.33%100.00%
Other noninterest expenses15,76913,33412,65318.26%24.63%
Total noninterest expenses64,39155,43951,46716.15%25.11%
Income before income taxes38,19242,98436,979(11.15)%3.28%
Provision for income taxes8,2589,96914,915(17.16)%(44.63)%
Net Income$29,934$33,015$22,064(9.33)%35.67%
(nm – the percentage is not meaningful)
Weighted average common shares (basic)27,815,43727,537,84127,445,739
Common share equivalents58,57663,49977,615
Weighted average common shares (diluted)27,874,01327,601,34027,523,354
Basic earnings per share

$

1.08$1.20$0.80(10.00)%35.00%
Diluted earnings per share$1.07$1.20$0.80(10.83)%33.75%

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

Net income$29,934$33,015$22,064
Noninterest expense components
Add – merger and acquisition expenses8,0462,688
Noncore items, gross8,0462,688
Less – net tax benefit associated with noncore items (1)(2,089)(756)
2017 Tax Act: revaluation of net deferred tax assets1,895
2017 Tax Act: revaluation of LIHTC investments466
Total tax impact(2,089)(756)2,361
Noncore items, net of tax5,9571,9322,361
Operating net income$35,891$34,947$24,4252.70%46.94%
Diluted earnings per share, on an operating basis$1.29$1.27$0.891.57%44.94%
(1) The net tax benefit associated with noncore items is determined by assessing whether each noncore item is included or excluded from net taxable income and applying the Company’s combined marginal tax rate to only those items included in net taxable income.

Performance ratios

Net interest margin (FTE)4.05%3.94%3.64%
Return on average assets GAAP (calculated by dividing net income by average assets)1.38%1.57%1.08%
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets)1.66%1.66%1.20%
Return on average common equity GAAP (calculated by dividing net income by average common equity)11.49%13.19%9.28%
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity)13.78%13.96%10.28%

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, dollars in thousands, except per share data)
Years Ended
% Change

December 31 2018

December 31 2017

Dec 2018 vs.
Dec 2017
Interest income
Interest on federal funds sold and short-term investments$2,676$1,41888.72%
Interest and dividends on securities26,57322,55317.82%
Interest and fees on loans294,293253,13116.26%
Interest on loans held for sale1599272.83%
Total interest income323,701277,19416.78%
Interest expense
Interest on deposits19,99512,70257.42%
Interest on borrowings5,5415,632(1.62)%
Total interest expense25,53618,33439.28%
Net interest income298,165258,86015.18%
Provision for loan losses4,7752,95061.86%
Net interest income after provision for loan losses293,390255,91014.65%
Noninterest income
Deposit account fees18,32717,8222.83%
Interchange and ATM fees18,91617,2919.40%
Investment management26,15523,8029.89%
Mortgage banking income4,0714,960(17.92)%
Increase in cash surrender value of life insurance policies4,0604,127(1.62)%
Gain on life insurance benefits1,463100.00%
Loan level derivative income2,3733,836(38.14)%
Other noninterest income13,14011,15617.78%

Total noninterest income

88,50582,9946.64%
Noninterest expenses
Salaries and employee benefits124,328116,6006.63%
Occupancy and equipment expenses27,09824,6939.74%
Data processing and facilities management5,1254,9882.75%
FDIC assessment2,7743,068(9.58)%
Merger and acquisition expense11,1683,393229.15%
Other noninterest expenses55,47651,6177.48%
Total noninterest expenses225,969204,35910.57%
Income before income taxes155,926134,54515.89%
Provision for income taxes34,30447,341(27.54)%
Net Income$121,622$87,20439.47%
Weighted average common shares (basic)27,592,38027,294,028
Common share equivalents61,42878,076
Weighted average common shares (diluted)27,653,80827,372,104
Basic earnings per share$4.41$3.1938.24%
Diluted earnings per share$4.40$3.1937.93%

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

Net Income$121,622$87,204
Noninterest expense components
Add – merger and acquisition expenses11,1683,393
Noncore items, gross11,1683,393
Less – net tax benefit associated with noncore items (1)(2,967)(1,241)
2017 Tax Act: revaluation of net deferred tax assets1,895
2017 Tax Act: revaluation of LIHTC investments466
Total tax impact(2,967)1,120
Noncore items, net of tax$8,201$4,513
Operating net income$129,823$91,71741.55%
Diluted earnings per share, on an operating basis$4.69$3.3540.00%
(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)3.91%3.60%
Return on average assets GAAP (calculated by dividing net income by average assets)1.46%1.11%
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets)1.56%1.16%
Return on average common equity GAAP (calculated by dividing net income by average common equity)12.31%9.55%
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity)13.14%10.05%

ASSET QUALITY

(Unaudited, dollars in thousands)Nonperforming Assets At
December 31 2018September 30 2018December 31 2017
Nonperforming loans
Commercial & industrial loans$26,310$28,742$32,055
Commercial real estate loans3,3261,9603,123
Small business loans235191230
Residential real estate loans8,2518,0768,129
Home equity7,2786,3676,022
Other consumer185879
Total nonperforming loans45,41845,39449,638
Other real estate owned190612
Total nonperforming assets$45,418$45,584$50,250
Nonperforming loans/gross loans0.66%0.70%0.78%
Nonperforming assets/total assets0.51%0.54%0.62%
Allowance for loan losses/nonperforming loans141.56%139.30%122.17%
Allowance for loan losses/total loans0.93%0.97%0.95%
Delinquent loans/total loans0.67%0.71%0.77%
Nonperforming Assets Reconciliation for the Three Months Ended
December 31 2018September 30 2018December 31 2017
Nonperforming assets beginning balance$45,584$47,357$53,175
New to nonperforming5,7594,9842,363
Loans charged-off(588)(847)(686)
Loans paid-off(4,453)(4,932)(1,892)
Loans restored to performing status(630)(921)(369)
Valuation write down(190)(39)
Sale of other real estate owned(2,195)
Other(64)(57)(107)
Nonperforming assets ending balance$45,418$45,584$50,250
Net Charge-Offs (Recoveries)
Three Months EndedYears Ended

December 31 2018

September 30 2018December 31 2017December 31 2018December 31 2017
Net charge-offs (recoveries)
Commercial and industrial loans$(3)$110$165$173$3,276
Commercial real estate loans(121)53(3)(106)(346)
Small business loans11810126326188
Residential real estate loans(9)23136176
Home equity4162813778
Other consumer144126128459501
Total net charge-offs$142$397$367$1,125$3,873
Net charge-offs to average loans (annualized)0.01%0.02%0.02%0.02%0.06%
Troubled Debt Restructurings At
December 31 2018September 30 2018December 31 2017
Troubled debt restructurings on accrual status$23,849$24,554$25,852
Troubled debt restructurings on nonaccrual status29,3483,3706,067
Total troubled debt restructurings$53,197$27,924$31,919
BALANCE SHEET AND CAPITAL RATIOS
December 31 2018September 30 2018December 31 2017
Gross loans/total deposits92.99%93.57%94.45%
Common equity tier 1 capital ratio (1)11.86%11.98%11.20%
Tier one leverage capital ratio (1)10.69%10.49%10.04%
Common equity to assets ratio GAAP12.13%11.92%11.68%
Tangible common equity to tangible assets ratio (2)9.35%9.33%8.96%
Book value per share GAAP$38.23$36.25$34.38
Tangible book value per share (2)$28.57$27.56$25.60
(1) Estimated number for December 31, 2018.
(2) See Appendix A for detailed reconciliation from GAAP to Non-GAAP ratios.

INDEPENDENT BANK CORP. SUPPLEMENTAL FINANCIAL INFORMATION

(Unaudited, dollars in thousands)Three Months Ended
December 31, 2018September 30, 2018December 31, 2017
InterestInterestInterest
AverageEarned/Yield/AverageEarned/Yield/AverageEarned/Yield/
BalancePaid (1)RateBalancePaid (1)RateBalancePaid (1)Rate
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments$158,376$9082.27%$180,802$9162.01%$185,073$6041.29%
Securities
Securities – trading1,554%1,608%1,297%
Securities – taxable investments1,031,9697,1322.74%1,005,7876,6642.63%922,9045,8472.51%
Securities – nontaxable investments (1)1,939183.68%1,992183.58%2,365254.19%
Total securities$1,035,462$7,1502.74%$1,009,387$6,6822.63%$926,566$5,8722.51%
Loans held for sale5,708493.41%8,340612.90%6,763241.41%
Loans
Commercial and industrial1,033,34513,0875.02%975,98011,9364.85%856,2729,1354.23%
Commercial real estate (1)3,168,96238,5334.82%3,144,61337,0484.67%3,104,88533,4554.27%
Commercial construction373,0425,1165.44%356,0914,5725.09%401,3094,5284.48%
Small business152,7222,3096.00%147,5182,1835.87%130,4031,8615.66%
Total commercial4,728,07159,0454.95%4,624,20255,7394.78%4,492,86948,9794.33%
Residential real estate860,2348,6473.99%792,1547,9593.99%754,6057,4003.89%
Home equity1,085,42112,0134.39%1,071,51111,4574.24%1,050,81510,1553.83%
Total consumer real estate1,945,65520,6604.21%1,863,66519,4164.13%1,805,42017,5553.86%
Other consumer14,4152837.79%13,0402447.42%10,0852228.73%
Total loans$6,688,141$79,9884.74%$6,500,907$75,3994.60%$6,308,374$66,7564.20%
Total interest-earning assets$7,887,687$88,0954.43%$7,699,436$83,0584.28%$7,426,776$73,2563.91%
Cash and due from banks110,643106,27398,397
Federal Home Loan Bank stock13,27413,10711,597
Other assets573,854547,296557,044
Total assets$8,585,458$8,366,112$8,093,814
Interest-bearing liabilities
Deposits
Savings and interest checking accounts$2,737,399$1,7630.26%$2,654,157$1,4330.21%$2,556,355$1,0520.16%
Money market1,398,1752,3780.67%1,373,5942,0560.59%1,337,4911,2610.37%
Time deposits685,4402,0811.20%652,6381,7621.07%635,9411,3790.86%
Total interest-bearing deposits$4,821,014$6,2220.51%$4,680,389$5,2510.45%$4,529,787$3,6920.32%
Borrowings
Federal Home Loan Bank borrowings53,6312802.07%50,7702481.94%53,2672621.95%
Customer repurchase agreements72,668430.23%148,575750.20%178,917790.18%
Junior subordinated debentures74,5926463.44%73,0776403.47%73,0725843.17%
Subordinated debentures34,7234274.88%34,7114274.88%34,6754274.89%
Total borrowings$235,614$1,3962.35%$307,133$1,3901.80%$339,931$1,3521.58%
Total interest-bearing liabilities$5,056,628$7,6180.60%$4,987,522$6,6410.53%$4,869,718$5,0440.41%
Demand deposits2,399,4882,300,9432,201,866
Other liabilities95,67084,44279,208
Total liabilities$7,551,786$7,372,907$7,150,792
Stockholders’ equity1,033,673993,205943,022
Total liabilities and stockholders’ equity$8,585,459$8,366,112$8,093,814
Net interest income$80,477$76,417$68,212
Interest rate spread (2)3.83%3.75%3.50%
Net interest margin (3)4.05%3.94%3.64%

Supplemental Information

Total deposits, including demand deposits$7,220,502$6,222$6,981,332$5,251$6,731,653$3,692
Cost of total deposits0.34%0.30%0.22%
Total funding liabilities, including demand deposits$7,456,116$7,618$7,288,465$6,641$7,071,584$5,044
Cost of total funding liabilities0.41%0.36%0.28%
(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $185,000, $183,000, and $380,000 for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively, determined by applying the Company’s marginal tax rates in effect during each respective quarter.
(2) Interest rate spread represents the difference between weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
Years Ended
December 31, 2018December 31, 2017
InterestInterest
AverageEarned/Yield/AverageEarned/Yield/
BalancePaidRateBalancePaidRate
Interest-earning assets
Interest earning deposits with banks, federal funds sold, and short term investments$136,140$2,6761.97%$124,014$1,4181.14%
Securities
Securities – trading1,549%1,223%
Securities – taxable investments999,74426,5132.65%901,89122,4652.49%
Securities – nontaxable investments (1)2,098763.62%3,1861354.24%
Total securities$1,003,391$26,5892.65%$906,300$22,6002.49%
Loans held for sale5,3961592.95%4,760921.93%
Loans
Commercial and industrial958,41445,7544.77%875,05636,0484.12%
Commercial real estate (1)3,128,659144,0454.60%3,067,077127,5124.16%
Commercial construction385,77119,6155.08%365,27716,3874.49%
Small business142,8508,3625.85%128,5597,1455.56%
Total commercial4,615,694217,7764.72%4,435,969187,0924.22%
Residential real estate794,73531,7684.00%713,60828,1793.95%
Home equity1,067,36544,5054.17%1,030,88138,3883.72%
Total consumer real estate1,862,10076,2734.10%1,744,48966,5673.82%
Other consumer12,1169527.86%10,6419448.87%
Total loans$6,489,910$295,0014.55%$6,191,099$254,6034.11%
Total interest-earning assets$7,634,837$324,4254.25%$7,226,173$278,7133.86%
Cash and due from banks103,91197,694
Federal Home Loan Bank stock13,20012,781
Other assets553,226554,117
Total assets$8,305,174$7,890,765
Interest-bearing liabilities
Deposits
Savings and interest checking accounts$2,658,798$5,5820.21%$2,541,845$3,6560.14%
Money market1,367,7437,4650.55%1,298,5984,2240.33%
Time deposits655,9836,9481.06%622,9094,8220.77%
Total interest-bearing deposits$4,682,524$19,9950.43%$4,463,352$12,7020.28%
Borrowings
Federal Home Loan Bank borrowings59,9321,0831.81%59,2041,3852.34%
Customer repurchase agreements129,8902480.19%166,1522570.15%
Junior subordinated debentures73,4582,5013.40%73,0742,2813.12%
Subordinated debentures34,7051,7094.92%34,6581,7094.93%
Total borrowings$297,985$5,5411.86%$333,088$5,6321.69%
Total interest-bearing liabilities$4,980,509$25,5360.51%$4,796,440$18,3340.38%
Demand deposits2,252,0062,098,501
Other liabilities84,67182,840
Total liabilities$7,317,186$6,977,781
Stockholders’ equity987,988912,984
Total liabilities and stockholders’ equity$8,305,174$7,890,765
Net interest income$298,889$260,379
Interest rate spread (2)3.74%3.48%
Net interest margin (3)3.91%3.60%

Supplemental Information

Total deposits, including demand deposits$6,934,530$19,995$6,561,853$12,702
Cost of total deposits0.29%0.19%
Total funding liabilities, including demand deposits$7,232,515$25,536$6,894,941$18,334
Cost of total funding liabilities0.35%0.27%
(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $724,000 and $1.5 million for the twelve months ended December 31, 2018 and 2017, respectively.
(2) Interest rate spread represents the difference between weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

Organic Loan and Deposit Growth

(Unaudited, dollars in thousands)
Linked quarter

December 31 2018

September 30 2018

Balance Acquired

Organic Growth/(Decline)

Organic Growth/(Decline) %

Loans
Commercial and industrial$1,093,629$1,003,780$44,929$44,9204.48%
Commercial real estate3,251,2483,132,491112,9225,8350.19%
Commercial construction365,165352,49116,497(3,823)(1.08)%
Small business164,676149,20012,5892,8871.93%
Total commercial4,874,7184,637,962186,93749,8191.07%
Residential real estate923,294801,81095,70525,7793.22%
Home equity1,092,0841,073,9617,69210,4310.97%
Total consumer real estate2,015,3781,875,771103,39736,2101.93%
Total other consumer16,09813,6693,164(735)(5.38)%
Total loans$6,906,194$6,527,402$293,498$85,2941.31%
Deposits
Demand deposits$2,450,907$2,337,221$77,786$35,9001.54%
Savings and interest checking accounts2,865,3492,621,92658,441184,9827.06%
Money market1,399,7611,353,64173,645(27,525)(2.03)%
Time certificates of deposit711,103663,45168,332(20,680)(3.12)%
Total deposits$7,427,120$6,976,239$278,204$172,6772.48%
Year-over-Year

December 31 2018

December 31 2017

Balances Acquired

Organic Growth/(Decline)

Organic Growth/(Decline) %

Loans
Commercial and industrial$1,093,629$888,528$44,929$160,17218.03%
Commercial real estate3,251,2483,116,561112,92221,7650.70%
Commercial construction365,165401,79716,497(53,129)(13.22)%
Small business164,676132,37012,58919,71714.90%
Total commercial4,874,7184,539,256186,937148,5253.27%
Residential real estate923,294754,32995,70573,2609.71%
Home equity1,092,0841,052,0887,69232,3043.07%
Total consumer real estate2,015,3781,806,417103,397105,5645.84%
Total other consumer16,0989,8803,1643,05430.91%
Total loans$6,906,194$6,355,553$293,498$257,1434.05%
Deposits
Demand deposits$2,450,907$2,159,396$77,786$213,7259.90%
Savings and interest checking accounts2,865,3492,599,92258,441206,9867.96%
Money market1,399,7611,325,63473,6454820.04%
Time certificates of deposit711,103644,30168,332(1,530)(0.24)%
Total deposits$7,427,120$6,729,253$278,204$419,6636.24%

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

APPENDIX A

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

The following table summarizes the calculation of the Company’s tangible common equity ratio and tangible book value per share at the dates indicated:

December 31 2018

September 30 2018December 31 2017
Tangible common equity
Stockholders’ equity (GAAP)$1,073,490$998,305$943,809(a)
Less: Goodwill and other intangibles271,355239,185241,147
Tangible common equity$802,135$759,120$702,662(b)
Tangible assets
Assets (GAAP)$8,851,592$8,375,498$8,082,029(c)
Less: Goodwill and other intangibles271,355239,185241,147
Tangible assets$8,580,237$8,136,313$7,840,882(d)
Common Shares28,080,40827,540,84327,450,190(e)
Common equity to assets ratio (GAAP)12.13%11.92%11.68%(a/c)
Tangible common equity to tangible assets ratio (Non-GAAP)9.35%9.33%8.96%(b/d)
Book value per share (GAAP)$38.23$36.25$34.38(a/e)
Tangible book value per share (Non-GAAP)$28.57$27.56$25.60(b/e)

APPENDIX B

(Unaudited, dollars in thousands)

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

Three Months EndedYears Ended
December 31 2018September 30 2018December 31 2017

December 31, 2018

December 31, 2017

Net interest income (GAAP)$80,292$76,234$67,832$298,165$258,860(a)
Noninterest income (GAAP)$23,491$23,264$21,914$88,505$82,994(b)
Noninterest income on an operating basis (Non-GAAP)$23,491$23,264$21,914$88,505$82,994(c)
Noninterest expense (GAAP)$64,391$55,439$51,467$225,969$204,359(d)
Less:
Merger and acquisition expense8,0462,68811,1683,393
Noninterest expense on an operating basis (Non-GAAP)$56,345$52,751$51,467$214,801$200,966(e)
Total revenue (GAAP)$103,783$99,498$89,746$386,670$341,854(a+b)
Total operating revenue (Non-GAAP)$103,783$99,498$89,746$386,670$341,854(a+c)
Ratios
Noninterest income as a % of total revenue (GAAP based)22.63%23.38%24.42%22.89%24.28%(b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP)22.63%23.38%24.42%22.89%24.28%(c/(a+c))
Efficiency ratio (GAAP based)62.04%55.72%57.35%58.44%59.78%(d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP)54.29%53.02%57.35%55.55%58.79%(e/(a+c))

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

Robert D. Cozzone
Chief Financial Officer
(781)
982-6723