Independent Bank Corp. Reports Fourth Quarter Net Income of $47.5 Million

Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2019 fourth quarter net income of $47.5 million, or $1.38 per diluted share, compared to net income of $51.8 million, or $1.51 per diluted share, reported in the third quarter of 2019. On an operating basis, 2019 third quarter net income was $51.7 million, or $1.50 per diluted share, which excluded a gain on sale of residential loans and merger and acquisition expenses. There were no non-operating items included in the fourth quarter of 2019. Full year net income was $165.2 million, or $5.03 on a diluted earnings per share basis, an increase of $43.6 million, or 35.8%, as compared to the prior year. In addition, full year operating net income was $184.6 million, or $5.62 on a diluted earnings per share basis, an increase of $54.8 million, or 42.2%, as compared to 2018.

“2019 was a tremendous year for Rockland Trust,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “We achieved record earnings, record profitability, and delivered a strong return on equity to our shareholders. Our outstanding 2019 performance derived from the dedication and effort of each and every one of my colleagues, and their collective outstanding commitment to our customers, the communities we serve, and to each other. Those efforts were complemented by the Blue Hills acquisition, which we closed during the first half of 2019. We enter 2020 with strong fundamentals, good momentum and a continuing clear, disciplined focus upon the priorities of our customers.”

BALANCE SHEET

Total assets of $11.4 billion at December 31, 2019 decreased by $143.5 million, or 1.2%, from the prior quarter, and inclusive of the 2019 second quarter acquisition of Blue Hills Bancorp, Inc. ("BHB"), increased by $2.5 billion, or 28.7%, as compared to the year ago period.

Loan closing volumes remained strong in the fourth quarter, but were outpaced by elevated payoff activity, which continues to be partially attributable to the recently acquired BHB portfolio. The net impact of this activity resulted in total loans decreasing by $39.9 million, or 0.5%, from the prior quarter to $8.9 billion. The commercial portfolio experienced modest growth, driven primarily by increased construction lending, while paydown activity negated strong closings in the commercial and industrial and commercial real estate portfolios. The consumer portfolio decreased as compared to the linked quarter, as the Company continues to sell a majority of its residential production into the secondary market, and as demand for home equity lending remains constrained by the current interest rate environment. Inclusive of the BHB acquisition, total loans increased by $2.0 billion, or 28.5%, when compared to the year ago period.

Deposit balances of $9.1 billion at December 31, 2019 decreased by $178.7 million, or 1.9%, compared to the third quarter of 2019, which was driven primarily by cash flow volatility associated with larger commercial deposit balances as well as some runoff in the acquired BHB deposit base. This continued runoff of higher cost time deposits contributed to a decline in the cost of deposits of two basis points, to 0.48% in the fourth quarter as compared to the prior quarter. Inclusive of the BHB acquisition, total deposits increased by $1.7 billion, or 23.2%, when compared to the year ago period.

The securities portfolio remained consistent with the prior quarter, reflecting $55.5 million of purchases offset by paydowns.

Total borrowings increased by $10.3 million, or 3.5%, compared to the prior quarter, primarily due to a $45.0 million Federal Home Loan Bank overnight borrowing position partially offset by a $35.0 million redemption of subordinated debt.

Stockholders' equity at December 31, 2019 rose to $1.7 billion, an increase of 1.5% as compared to September 30, 2019, driven by continued strong earnings retention, and partially offset by a decrease in other comprehensive income of $8.0 million. Stockholders' equity increased by 59.1% when compared to the year ago period, due primarily to the issuance of common stock associated with the BHB acquisition. Book value per share increased by $0.74, or 1.5%, to $49.69 during the fourth quarter as compared to the linked quarter. The Company's ratio of common equity to assets of 14.99% increased by 41 basis points from the prior quarter and by 286 basis points from the same period a year ago. The Company's tangible book value per share at December 31, 2019 was $34.11, representing an increase from the prior quarter of $0.75, or 2.2%, and is now 19.4% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 10.80% at December 31, 2019 is 38 basis points higher than the prior quarter and 145 basis points above the year ago period.

NET INTEREST INCOME

Net interest income for the fourth quarter decreased 4.4% to $100.0 million compared to $104.6 million in the prior quarter. The decrease reflects the cumulative impact of recent Federal Reserve rate cuts, lower acquired loan accretion income, and a decrease in overall average earning assets. The 2019 fourth quarter net interest margin of 3.90% reflects a reduction of 13 basis points from the prior quarter, and includes purchase accounting loan accretion income of $3.4 million for the fourth quarter as compared to $3.9 million in the prior quarter.

NONINTEREST INCOME

Noninterest income of $33.3 million in the fourth quarter of 2019 was $1.5 million, or 4.7%, higher than the prior quarter. Significant changes in noninterest income in the fourth quarter compared to the prior quarter included the following:

• Interchange and ATM fees decreased by $432,000, or 7.0%, due primarily to a seasonal decline in debit card usage along with higher annual debit card branding incentives that occurred in the third quarter of 2019.

• Investment management income increased by $442,000, or 6.1%, compared to the prior quarter, due to new asset generation and increased retail commissions. Assets under administration at December 31, 2019 rose 0.7% during the quarter to $4.6 billion and are now 26.2% above prior year levels.

• Mortgage banking income decreased by $698,000, or 17.6%, reflecting an anticipated seasonal decline in activity.

• Loan level derivative income decreased by $573,000, or 20.9%, as a result of decreased customer demand in the quarter.

• Other noninterest income increased by $3.1 million, or 64.9%. The increase is attributable primarily to a $3.1 million insurance recovery related to a claim settlement on an acquired BHB loan that was fully charged off prior to the acquisition.

NONINTEREST EXPENSE

Noninterest expense of $67.4 million in the fourth quarter of 2019 was $88,000, or 0.1% lower 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 decreased by $1.7 million, or 4.2%, due primarily to reduced incentive accruals corresponding to the Company's lower earnings per share in the fourth quarter compared to the third quarter.

• Occupancy and equipment expense increased by $543,000, or 6.3%, mainly due to one-time facility exit costs and snow removal costs.

• Data processing expense increased by $118,000, or 7.8%, driven primarily by periodic system upgrades.

• There were no merger and acquisition costs for the fourth quarter compared to $705,000 in the prior quarter related to final BHB acquisition integration costs.

• Other noninterest expense increased by $1.6 million, or 9.4%, mainly due to increased provision for unfunded commitments, as well as increases in consultant fees, system conversion costs, and software maintenance.

The Company generated a return on average assets and a return on average common equity of 1.64% and 11.06%, respectively, in the fourth quarter of 2019, as compared to 1.78% and 12.33%, respectively, for the prior quarter.

The Company's effective tax rate decreased to 23.2% for the fourth quarter as compared to 24.7% in the prior quarter, which was primarily attributable to a discrete benefit of $632,0000 associated with amended state tax returns filed during the quarter, as well as a related year to date favorable adjustment in the current quarter to reflect the newly determined lower state tax rate. Approximately $370,000 of this benefit was paid out in turn and included in the aforementioned higher consulting expenses incurred during the quarter.

ASSET QUALITY

During the fourth quarter of 2019, the Company recorded total net charge-offs of $3.2 million, primarily relating to a single charge-off of $2.5 million on a recently acquired loan. As such, there was $4.0 million provision for loan losses in the fourth quarter of 2019, as provision was also needed for legacy loan growth during the quarter. Nonperforming loans increased to $48.0 million at December 31, 2019 compared to prior quarter balances of $45.7 million, and increased to 0.54% of loans in the fourth quarter compared to 0.51% in the third quarter. However, total nonperforming assets are down slightly at December 31, 2019 to $48.0 million when compared to the prior period due to the sale of other real estate owned. When compared to the year ago period, total nonperforming assets have increased modestly by $2.6 million, or 5.8%. At December 31, 2019, delinquency as a percentage of loans was 0.29%, representing an increase of three basis points from the prior quarter.

The allowance for loan losses was $67.7 million at December 31, 2019, as compared to $66.9 million at September 30, 2019. The Company’s allowance for loan losses as a percentage of loans was 0.76% and 0.75% at December 31, 2019 and September 30, 2019, respectively.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer, Robert Cozzone, Chief Operating Officer, and Mark Ruggiero, Chief Financial Officer, will host a conference call to discuss fourth quarter earnings at 10:00 a.m. Eastern Time on Friday, January 17, 2020. 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: 10136428 and will be available through January 31, 2020. Additionally, a webcast replay will be available until January 17, 2021.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Named in 2018 to The Boston Globe’s “Top Places to Work” list for the 10th consecutive year, Rockland Trust offers a wide range of banking, investment, and insurance services. The Bank serves businesses and individuals through over 100 retail branches, commercial and residential lending centers, and investment management offices in eastern Massachusetts, including Greater Boston, the South Shore, the Cape and Islands, as well as in Worcester County and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. The Company is an FDIC member and an Equal Housing Lender. To find out why Rockland Trust is the bank “Where Each Relationship Matters®”, please visit www.rocklandtrust.com.

This press release contains certain “forward-looking statements” with respect to the financial condition, results of operations and business of the Company. These statements may be identified by such forward-looking terminology as “expect,” “achieve,” “plan,” “believe,” “future,” “positioned,” “continued,” “will,” “would,” “potential,” or similar statements or variations of such terms. Actual results may differ from those contemplated by these forward-looking statements.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, but are not limited to:

• a weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area;
• adverse changes or volatility in the local real estate market;
• adverse changes in asset quality including an unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;
• acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
• additional regulatory oversight and additional costs associated with the Company's increase in assets to over $10 billion;
• changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
• higher than expected tax expense, resulting from failure to comply with general tax laws, changes in tax laws, or failure to comply with requirements of the federal New Markets Tax Credit program;
• changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR;
• increased competition in the Company’s market area;
• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;
• a deterioration in the conditions of the securities markets;
• a deterioration of the credit rating for U.S. long-term sovereign debt;
• inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
• electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
• adverse changes in consumer spending and savings habits;
• the inability to realize expected synergies from merger transactions in the amounts or in the timeframes anticipated;
• inability to retain customers and employees, including those acquired in recent acquisitions;
• the effect of laws and regulations regarding the financial services industry;
• 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 including, but not limited to , changes to how the Company accounts for credit losses;
• cyber security attacks or intrusions that could adversely impact our businesses; and
• other unexpected material adverse changes in our operations or earnings.

The Company wishes to caution readers not to place undue reliance on any forward-looking statements as the Company’s business and its forward-looking statements involve substantial known and unknown risks and uncertainties described in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q (“Risk Factors”). Except as required by law, the Company disclaims any intent or obligation to update publicly any such forward-looking statements, whether in response to new information, future events or otherwise. Any public statements or disclosures by the Company following this release which modify or impact any of the forward-looking statements contained in this release will be deemed to modify or supersede such statements in this release. In addition to the information set forth in this press release, you should carefully consider the Risk Factors.

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This information includes operating net income and operating earnings per share ("EPS"), operating return on average assets, operating return on average common equity, tangible book value per share and the tangible common equity ratio.

Operating net income, operating EPS, operating return on average assets and operating return on average common equity exclude items that management believes are unrelated to its core banking business such as merger and acquisition expenses, and other items, if applicable. The Company’s management uses operating earnings and related ratios and operating EPS to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such items.

Management also supplements its evaluation of financial performance with analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or "tangible common equity", by common shares outstanding), the tangible common equity ratio (which is computed by dividing tangible common equity by "tangible assets", defined as total assets less goodwill and other intangibles). The Company has included information on tangible book value per share and the tangible common equity ratio because management believes that investors may find it useful to have access to the same analytical tools used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.

These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating earnings, operating EPS, operating return on average assets, operating return on average equity, tangible book value per share and the tangible common equity ratio, are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.