Strong Earnings Growth Marked by Higher Revenues and Returns

ROCKLAND, Mass.--(BUSINESS WIRE)-- Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2018 third quarter net income of $33.0 million, or $1.20 per diluted share, compared to net income of $31.1 million, or $1.13 per diluted share, reported in the prior quarter of 2018. Excluding merger and acquisition expenses incurred in the third and second quarters of 2018 related to the pending MNB Bancorp ("MNB") merger announced on May 29, 2018 and the Blue Hills Bancorp ("BHB") merger announced on September 20, 2018, operating net income was $34.9 million, or $1.27 per diluted share during the third quarter compared to $31.4 million, or $1.14 per diluted share during the second quarter.

“Rockland Trust continued to grow during the third quarter, as loans increased and our net interest margin continued to expand,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “We also recently announced the signing of an agreement to acquire Blue Hills Bank, a transaction which will improve Rockland Trust’s presence in overlapping and adjacent markets and permit us to expand onto Nantucket Island upon its anticipated closing in the first half of 2019. Our ongoing success is a testament to the hard work of my talented colleagues and the enduring relationships they forge with each other and with the customers and communities that Rockland Trust serves.”

BALANCE SHEET

Total assets of $8.4 billion at September 30, 2018 remained consistent with the prior quarter, and increased by $322.6 million, or 4.0%, as compared to the year ago period.

Total loans grew by 0.7% (2.9% annualized) over the prior quarter. This growth was led by an increase of $27.5 million, or 11.2% on an annualized basis, in commercial and industrial loans with the primary driver being growth in asset-based lending. In addition, there was a $22.4 million, or 11.4% on an annualized basis, increase in residential real estate loans as the portfolio continues to benefit from seasonal demand. Business banking and home equity loans also experienced modest growth during the quarter. The decline in the commercial construction portfolio reflected projects reaching completion during the quarter.

Deposit balances of $7.0 billion in the third quarter of 2018 decreased by $37.3 million, or 0.5%, from the prior quarter. The overall decrease was driven primarily by seasonal declines in the municipal category, offset by strong growth (13.0% on an annualized basis) in demand deposit balances which now comprise 33.5% of total deposits. The total cost of deposits increased by three basis points in the third quarter to 0.30%.

The securities portfolio was up modestly, increasing by $8.7 million, or 0.9%, compared to the prior quarter, due to purchases of $47.2 million, offset by paydowns on existing securities.

The Company's total borrowings of $299.7 million remained relatively consistent with the prior quarter.

Stockholders' equity at September 30, 2018 rose to $998.3 million, an increase of 2.2% from June 30, 2018, due primarily to strong earnings, partially offset by decreases in other comprehensive income largely attributable to unrealized losses on available for sale securities. In addition, stockholders' equity increased by 7.2% compared to the year ago period. Book value per share increased $0.76, or 2.1%, during the third quarter, and the Company's ratio of common equity to assets of 11.92% increased by 26 basis points from the prior quarter and by 36 basis points from the same period a year ago. The Company's tangible book value per share rose by $0.78, or 2.9%, to $27.56 in the third quarter of 2018 from the second quarter and is now 9.7% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.33% at September 30, 2018 is 27 basis points higher than the prior quarter and 51 basis points above the same period a year ago.

NET INTEREST INCOME

Net interest income for the third quarter increased 4.2% to $76.2 million compared to $73.2 million in the prior quarter, due to solid average earning asset growth and a higher net interest margin. The net interest margin rose to 3.94%, compared to 3.89% in the prior quarter, as the Company continues to benefit from its sustained asset sensitive position.

NONINTEREST INCOME

Noninterest income of $23.3 million in the third quarter of 2018 was $1.4 million, or 6.3%, higher than the prior quarter. Significant changes in noninterest income in the third quarter compared to the prior quarter included the following:

• Interchange and ATM fees increased by $178,000, or 3.7%, driven mainly by seasonality.
• Investment management income decreased by $258,000, or 3.8%, due to decreased revenue associated with seasonal tax preparation that occurred in the prior quarter along with lower retail commissions. Total assets under administration were $3.6 billion as of September 30, 2018, representing an increase of $78.3 million from the prior quarter.
• Mortgage banking income grew by $184,000, or 17.7%, due primarily to an overall increase in new loan originations.
• The Company received proceeds on life insurance policies during the third quarter, resulting in a gain of $1.5 million.
• Loan level derivative income decreased by $316,000, or 44.6%, as a result of reduced customer demand in the quarter.

NONINTEREST EXPENSE

Noninterest expense of $55.4 million in the third quarter of 2018 was $2.8 million, or 5.2%, higher 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 $807,000, or 2.7%, reflecting increases in base salaries, incentive compensation and medical insurance, partially offset by a decrease in payroll taxes.
• Occupancy and equipment expense was lower by $187,000, or 2.9%, mainly due to decreases in cleaning costs, equipment maintenance and repairs and utility costs.
• Merger and acquisition costs of $2.7 million for the third quarter included $2.1 million attributable to the pending BHB acquisition, which is anticipated to close in the first half of 2019, and $557,000 attributable to the pending MNB acquisition, which is anticipated to close in the fourth quarter of 2018. The majority of these costs include investment banker fees, professional fees, and legal fees.
• Other noninterest expense decreased by $180,000, or 1.3%, driven by decreases in equity compensation for directors due to a change in the vesting requirements for the 2018 annual director equity grant that was implemented in the second quarter of 2018, partially offset by increases in advertising expense.

The Company generated a return on average assets and a return on average common equity of 1.57% and 13.19%, respectively, in the third quarter of 2018, as compared to 1.52% and 12.85%, 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 13.96%, respectively, during the third quarter of 2018, as compared to 1.53% and 12.98%, respectively, for the prior quarter.

The Company’s effective tax rate increased slightly to 23.2% for the third quarter as compared to 22.9% in the prior quarter.

ASSET QUALITY

During the third quarter of 2018, the Company recorded total net charge-offs of $397,000, or 0.02% of average loans on an annualized basis, representing a slight increase from net charge-offs of $305,000 in the prior quarter. The provision for loan losses decreased to $1.1 million for the third quarter of 2018 compared to $2.0 million in the second quarter of 2018 due mainly to decreased loan growth experienced during the current quarter as compared to the prior quarter. Nonperforming loans decreased by 3.6% to $45.4 million, or 0.70% of loans, at September 30, 2018 from $47.1 million, or 0.73% of loans, at June 30, 2018. Total nonperforming assets decreased to $45.6 million at the end of the third quarter, as compared to $47.4 million at the end of the prior quarter. Nonperforming asset levels declined by 14.3% as compared to the year ago period. At September 30, 2018 delinquency as a percentage of loans was 0.71%, representing a decrease of eighteen basis points from the prior quarter.

The allowance for loan losses was $63.2 million at September 30, 2018, as compared to $62.6 million at June 30, 2018. The Company’s allowance for loan losses as a percentage of loans was 0.97% at both September 30, 2018 and June 30, 2018.

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 10:00 a.m. Eastern Time on Friday, October 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: 10122971 and will be available through November 2, 2018. Additionally, a webcast replay will be available until October 19, 2019.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.4 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;
• 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 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;
• failure to consummate or a delay in consummating the acquisitions of MNB Bancorp and Blue Hills Bancorp, which are subject to certain standard conditions, including regulatory approvals and shareholder approval for the Blue Hills Bancorp transaction;
• 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 Bancorp and Blue Hills Bancorp 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"), 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 net income and operating EPS 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 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) 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 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, 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) 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.

(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.

(1) Estimated number for September 30, 2018.
(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 $183,000, $179,000, and $374,000 for the three months ended September 30, 2018, June 30, 2018, and September 30, 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.