Strong Loan and Core Deposit Generation Drive Solid Results

ROCKLAND, Mass.--(BUSINESS WIRE)-- 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.

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.