Strong Fundamentals Drive Record Earnings in 2017

ROCKLAND, Mass.--(BUSINESS WIRE)-- Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2017 fourth quarter net income of $22.1 million, or $0.80 per diluted share, compared to $23.9 million, or $0.87 per diluted share, reported in the prior quarter. Net income for the full year was $87.2 million, or $3.19 on a diluted earnings per share basis, as compared to $76.6 million, or $2.90 per diluted share in the prior year. During the fourth quarter of 2017 the Tax Cuts and Jobs Act ("the Tax Act") was signed into law, requiring the Company to revalue its deferred tax assets and liabilities and reassess the value of its low-income housing project investments ("LIHTC investments"). As such, the Company recorded in the fourth quarter additional tax expense of $1.9 million and $466,000 related to the write-down of its net deferred tax assets and LIHTC investments, respectively, both of which were considered to be noncore. There were no adjustments to net income during the third quarter which the Company considers to be noncore. Excluding these items, operating net income for the fourth quarter was $24.4 million, or $0.89 per diluted share, and represented an increase in operating net income of $573,000, or 2.4%, and an increase in operating diluted earnings per share of $0.02, or 2.3%, as compared to the third quarter in 2017. In addition, on an operating basis, full year net income was $91.7 million, or $3.35 on a diluted earnings per share basis, an increase of $11.3 million, or 14.1% in operating net income and an increase in operating diluted earnings per share of $0.31, or 10.2% as compared to the prior year.

“Rockland Trust set a new earnings per share record in 2017,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust. “Due to the strong relationships my colleagues establish with our customers, as reflected by J.D. Power’s recognition in 2017 of Rockland Trust as having the highest ranking for customer satisfaction with retail banking in New England, we enjoyed organic loan and deposit growth and delivered a strong return on equity to our shareholders. Rockland Trust augmented its organic growth with the mid-2017 acquisition of The Edgartown National Bank, which expanded our territory to include Martha’s Vineyard. Rockland Trust’s consistently strong performance has us well-positioned for continued growth and expansion in 2018.”

BALANCE SHEET

Total assets of $8.1 billion at December 31, 2017 increased by $29.1 million, or 0.4%, from the prior quarter and by $372.7 million, or 4.8%, as compared to the year ago period, inclusive of the 2017 second quarter Island Bancorp, Inc. ("Island Bancorp") acquisition.

Total loans rose in the fourth quarter by $65.7 million, or 1.0%, from the prior quarter. The overall growth in the fourth quarter was driven by solid volumes in all commercial loan categories, including strong growth in commercial and industrial (increased by $30.0 million, or 13.9% on an annualized basis) and moderate growth within commercial real estate (increased by $29.4 million or 3.8% on an annualized basis). Exclusive of the Island Bancorp acquisition, total loans increased by $200.4 million, or 3.3%, when compared to the year ago period.

Deposit balances in the fourth quarter increased by $46.3 million, or 0.7% from the prior quarter. The Company continued to experience strong growth in money market accounts and interest checking accounts along with higher time deposit levels driven by increased customer demand arising from the increase in short term rates. Exclusive of the Island Bancorp acquisition, total deposits increased by $157.4 million, or 2.5%, when compared to the year ago period. The Company's core deposits as a percentage of total deposits remained over 90% at December 31, 2017. The total cost of deposits increased by two basis points in the fourth quarter to 0.22%.

The securities portfolio also increased by $37.3 million, or 4.1% compared to the prior quarter due to purchases of $74.9 million, partially offset by paydowns on existing securities, and is up approximately $95.0 million from the year ago period, none of which is attributable to the Island Bancorp acquisition.

The Company's total borrowings of $323.7 million decreased $17.0 million during the fourth quarter, mainly due to a decline in customer repurchase agreements. The total cost of borrowings was lowered to 1.58% for the fourth quarter, versus 1.63% in the linked quarter, as the Company realized the full benefit of an interest-rate hedge entered into during the third quarter of 2017.

Stockholders' equity at December 31, 2017 rose to $943.8 million, representing an increase of 1.4% from September 30, 2017, due primarily to strong earnings retention. Stockholders' equity increased by 9.2% when compared to the year ago period, driven primarily by the Island Bancorp acquisition. Book value per share increased $0.44, or 1.3%, during the fourth quarter compared to the prior quarter, and the Company's ratio of common equity to assets of 11.68% increased by 12 basis points from the prior quarter and by 46 basis points from the same period a year ago. The Company's tangible book value per share rose by $0.48, or 1.9%, to $25.60 in the fourth quarter compared to the third quarter of 2017, and is now 9.2% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 8.96% at December 31, 2017 represents increases of 14 basis points from the prior quarter and 49 basis points from the same period a year ago.

NET INTEREST INCOME

Net interest income for the fourth quarter increased 1.1% to $67.8 million compared to $67.1 million in the prior quarter, mainly attributable to higher levels of interest-earning assets. The Company’s net interest margin remained relatively consistent with the prior quarter at 3.64%, reflecting the slight rise in deposit costs. The benefit of the December Federal Reserve rate increase will not be realized until 2018 due to the timing of asset repricing. The net interest margin for the full year rose by 20 basis points to 3.60%.

NONINTEREST INCOME

Noninterest income of $21.9 million increased $1.1 million, or 5.5%, in the fourth quarter compared to the prior quarter. Significant changes in noninterest income in the fourth quarter compared to the prior quarter included the following:

• Investment management income increased by $259,000, or 4.3%, reflecting a higher level of assets under administration, which grew 6.4% to $3.5 billion as of December 31, 2017, due to strong new business generation as well as market appreciation.
• The increase in cash surrender value of life insurance policies of $108,000, or 10.6%, was due to the annual dividend income received in the fourth quarter.
• Loan level derivative income increased by $325,000, or 41.5%, as a result of increased customer demand in the quarter.
• Other noninterest income increased by $482,000, or 17.7%, primarily due to increases in the Company's 1031 exchange fees, asset based lending fees and capital gain distributions received on equity securities.

NONINTEREST EXPENSE

Noninterest expense of $51.5 million in the fourth quarter was $157,000, or 0.3% 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 $1.0 million, or 3.6%, due primarily to an increase in incentive programs and severance costs.
• Occupancy and equipment expense increased by $306,000, or 5.0%, due to the write-off of an intangible asset associated with an exited acquired branch along with snow removal costs.
• The FDIC assessment increased by $161,000, or 23.9%, due to increases in both the assessment base and the applicable rate.
• Other noninterest expense decreased by $1.3 million, or 9.6%, driven primarily by lower loan work-out costs and decreased advertising expenses.

The Company generated a return on average assets and a return on average common equity of 1.08% and 9.28%, respectively, in the fourth quarter, as compared to 1.18% and 10.18%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.20% and 10.28% during the fourth quarter, respectively. During the third quarter, there were no adjustments to net income that the Company considers to be non-core.

The Company's tax expense for the fourth quarter was $14.9 million, reflecting an effective rate of 40.3%. This amount includes the previously mentioned expense associated with the revaluation of the Company's net deferred tax assets of $1.9 million and the revaluation of the Company's LIHTC investments of $466,000 due to the Tax Act. In the absence of these changes from the Tax Act, tax expense for the quarter would have been $12.6 million, or an effective rate of 33.9%. In addition, as a result of the reduction in the corporate federal tax rate included in the Tax Act, the Company expects an overall tax rate for 2018 of approximately 23%.

ASSET QUALITY

During the fourth quarter, the Company recorded total net charge-offs of $367,000, or 0.02% of average loans on an annualized basis, compared to net recoveries of $231,000 in the prior quarter. Provision for loan losses was $1.3 million for the fourth quarter of 2017 as compared to no provision in the third quarter of 2017, reflecting both the increase in net charge-offs as well as loan growth. Nonperforming loans decreased to $49.6 million, or 0.78% of loans, at December 31, 2017 from $50.3 million, or 0.80% of loans, at September 30, 2017. Total nonperforming assets decreased to $50.3 million at the end of the fourth quarter, as compared to $53.2 million at the end of the prior quarter, driven by a sale of other real estate owned during the quarter. In the past year, nonperforming asset levels have declined by 18.4%. At December 31, 2017 delinquency as a percentage of loans was 0.77%, representing a decrease of 5 basis points from the prior quarter.

The allowance for loan losses was $60.6 million at December 31, 2017, as compared to $59.7 million at September 30, 2017. The Company’s allowance for loan losses as a percentage of loans was 0.95% at both December 31, 2017 and September 30, 2017.

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 19, 2018. 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: 10115190 and will be available through February 2, 2018. Additionally, a webcast replay will be available until January 19, 2019.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.1 billion in assets and is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Named in 2017 to The Boston Globe’s “Top Places to Work” list for the ninth 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, 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;
• 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, 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 timeframe anticipated;
• inability to retain customers and employees, including those acquired in previous 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 earnings and operating EPS, adjusted effective tax rate, tangible book value per share and the tangible common equity ratio, andreturn on average assets and return on average equity on an operating basis.

Operating earnings, operating EPS and the adjusted effective tax rate exclude items that management believes are unrelated to its core banking business such as losses on extinguishment of debt, merger and acquisition expenses, and other items, such as one-time adjustments as a result of changes in laws and regulations.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), 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)and with analysis of return on average assets and return on average common equity on an operating basis. The Company has included information on tangible book value per share, the tangible common equity ratio, and return on average assets and return on average common equity on an operating basis 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, the tangible common equity ratio, and return on average assets and return on average equity on an operating basis are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

(1) Estimated number for December 31, 2017.
(2) See Appendix A for detailed reconciliation from GAAP to Non-GAAP ratios.

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $380,000, $374,000, and $369,000 for the three months ended December 31, 2017, September 30, 2017, and December 31, 2016, 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.