Independent Bank Corp. Reports Second Quarter Net Income of $37.6 Million

Business fundamentals remain strong

ROCKLAND, Mass.–(BUSINESS WIRE)–Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2021 second quarter net income of $37.6 million, or $1.14 per diluted share, compared to net income of $41.7 million, or $1.26 per diluted share, reported for the first quarter of 2021. Second quarter results included merger related costs of $1.7 million associated with the acquisition of Meridian Bancorp Inc. (“Meridian”) and its subsidiary East Boston Savings Bank, which is expected to close in the fourth quarter of 2021. Excluding these merger-related costs, net of tax, operating net income was $38.8 million, or $1.17 per diluted share, for the second quarter of 2021. Please refer to “Reconciliation of Net Income (GAAP) to Operating Net Income (Non-GAAP)” below for a reconciliation of net income to operating net income.

“Our core fundamentals are strong and we are well-positioned to continue to take advantage of growth opportunities as the local economy continues to re-adjust post-pandemic,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “We have been hard at work on our previously announced merger with Meridian Bancorp./East Boston Savings Bank and are excited about the possibilities the transaction represents for our future. I continue to be inspired by the dedication and effort of my colleagues, and their collective commitment to our customers, the communities we serve, and to each other as we live out our mission of being the bank Where Each Relationship Matters®.”

BALANCE SHEET

Total assets of $14.2 billion at June 30, 2021 increased by $420.3 million, or 3.1%, from the prior quarter, and by $1.2 billion, or 9.0%, as compared to the year ago period, driven by continued significant growth in deposits, leading to increased liquid assets in the second quarter of 2021.

Total loans at June 30, 2021 decreased by $307.7 million, or 3.3% (13.3% annualized), when compared to the prior quarter which was primarily attributable to a net reduction in Paycheck Protection Program (“PPP”) loan balances of $363.7 million, or 43.0%, as the program concluded its second round of funding with focus pivoting toward loan forgiveness. Exclusive of PPP loan activity, total loans increased $55.9 million, or 2.7% on an annualized basis, reflecting a modest, yet positive shift in overall economic activity. Fueling the net growth, commercial loans increased $66.2 million, or 1.1% (4.3% annualized) during the second quarter, primarily due to growth in residential-based commercial real estate projects, as well as 5.0% (19.9% annualized) growth in small business loans, capitalizing on positive momentum from the successful PPP experience and overall market disruption. Partially offsetting these growth factors, construction loan balances decreased 3.8% from the prior quarter, reflecting an accelerated pace of project completion, while modest new fundings and restrained line utilization in the commercial and industrial portfolio continued to challenge growth. Strong closing volumes were experienced within both the residential and home equity portfolios, with a larger portion of residential closings being retained in the portfolio rather than sold into the secondary market compared to prior quarters. However the low interest-rate environment and excess consumer liquidity positions continued to drive elevated payoff activity and historically low home equity line utilization rates.

Deposit balances of $12.0 billion at June 30, 2021 increased by $393.4 million, or 3.4% (13.6% annualized), from the prior quarter, reflecting additional government stimulus payments along with robust new account activity in both consumer and business product categories. With continued reduction in time deposit balances, core deposits rose to 91.6% of total deposits at June 30, 2021, which, combined with the runoff of higher cost time deposits and further rate reductions across all products, contributed to a total cost of deposits for the second quarter of 0.07%, representing a reduction of three basis points when compared to the prior quarter.

The securities portfolio increased by $251.3 million, or 17.6%, when compared to the prior quarter, reflecting a continued direct strategy to deploy a portion of excess cash balances into securities. Total purchases for the quarter were $340.2 million, offset by paydowns, calls, and maturities.

Total borrowings decreased by $4.7 million, or 2.6% when compared to the prior quarter reflecting repayments of outstanding debt.

Stockholders’ equity at June 30, 2021 increased by 1.5% (6.1% annualized), as compared to the prior quarter, reflecting continued strong earnings retention. Book value per share increased by $0.78, or 1.5%, to $52.72 during the second quarter as compared to the prior quarter. The Company’s ratio of common equity to assets of 12.27% decreased by 18 basis points from the prior quarter and by 57 basis points from the year ago period. The Company’s tangible book value per share at June 30, 2021 rose by $0.82, or 2.3%, from the prior quarter to $36.78, representing an increase of 6.3% from the year ago period. The Company’s ratio of tangible common equity to tangible assets of 8.89% at June 30, 2021 represents a 7 basis point decrease compared to the prior quarter and a 23 basis point decrease compared to the year ago period.

Please refer to Appendix A for a detailed reconciliation of Non-GAAP metrics.

NET INTEREST INCOME

Net interest income for the second quarter decreased to $93.4 million compared to $95.6 million for the prior quarter, driven primarily by reductions in PPP fee recognition as $7.2 million was recognized in the second quarter compared to $9.5 million for the prior quarter. The 2021 second quarter net interest margin was heavily impacted by the Company’s increased excess liquidity position, decreasing by 26 basis points from the prior quarter to 2.99%. The table below illustrates the changes within the net interest margin for the second quarter:

Net interest margin as of March 31, 2021

 

3.25

%

Excess liquidity – cash and securities

 

(0.19)

%

Loan yields

 

(0.03)

%

PPP loan impact

 

(0.06)

%

Other noncore adjustments

 

(0.01)

%

Decreased cost of funds

 

0.03

%

Net interest margin as of June 30, 2021

 

2.99

%

Please refer to Appendix C for additional details regarding the net interest margin.

NONINTEREST INCOME

Noninterest income of $25.0 million for the second quarter of 2021 was $279,000, or 1.1%, lower than the prior quarter. Significant changes in noninterest income for the second quarter compared to the prior quarter included the following:

Deposit account fees increased by $238,000, or 6.6%, primarily driven by overdraft fees.

Interchange and ATM fees increased by $348,000, or 12.8%, due primarily to increased volume during the second quarter, reflecting a rise in customer spending.

Investment management income increased by $568,000, or 6.8%, due primarily to an increase in assets under administration along with seasonal tax preparation fees during the second quarter. Assets under administration increased by 4.3% from the prior quarter to a record high of $5.4 billion as of June 30, 2021.

Mortgage banking income decreased by $3.0 million, or 52.9%, reflecting a larger portion of new originations retained in the Company’s portfolio versus sold into the secondary market, coupled with gain on sale margin compression during the quarter.

Income from bank owned life insurance policies increased $266,000, or 20.1%, reflecting the full quarter impact of $40.0 million in new policies purchased during the first quarter of 2021.

Other noninterest income increased by $1.7 million, or 52.5%, primarily attributable to $1.1 million in income recognized from other investments, unrealized gains on equity securities, and an increase in income from like-kind exchanges.

NONINTEREST EXPENSE

Noninterest expense of $73.3 million for the second quarter of 2021 was $3.6 million, or 5.2% higher than the prior quarter. Significant changes in noninterest expense for the second quarter compared to the prior quarter included the following:

Salaries and employee benefits increased by $2.7 million, or 6.9%, mainly due to increases in incentive compensation, general salaries, and other commissions. These increases were offset partially by decreases in medical plan insurance expenses and payroll taxes.

Occupancy and equipment decreased by $567,000, or 6.1%, mainly due to decreases in snow removal costs and cleaning expenses.

FDIC assessment decreased by $275,000, or 26.2%, reflecting a lower fee for the quarter along with a refund of prior period assessment fees of approximately $109,000.

During the second quarter of 2021 there were $1.7 million of merger and acquisition expenses relating to the Meridian acquisition. No such costs were incurred during the first quarter of 2021.

Other noninterest expense remained flat, primarily due to decreases in consultant fees and card issuance costs, partially offset by increases in legal fees, director expenses related to equity compensation during the quarter and additional reserve for unfunded commitments.

The Company generated a return on average assets and a return on average common equity of 1.08% and 8.70%, respectively, for the second quarter of 2021, as compared to 1.26% and 9.87%, respectively, for the prior quarter. On an operating basis, return on average assets and return on average common equity were 1.12% and 8.98%, respectively, for the second quarter of 2021.

The tax rate of 24.9% for the second quarter was higher than the prior quarter rate of 22.3%, which included $1.4 million of discrete tax benefits related primarily to low income housing tax credits and equity compensation.

ASSET QUALITY

During the second quarter, the Company recorded total net charge-offs of $192,000, or 0.01% of average loans on an annualized basis. Nonperforming loans decreased by 19.2% to $47.8 million, or 0.53% of total loans at June 30, 2021, as compared to $59.2 million, or 0.64% of total loans at March 31, 2021. The decrease was primarily attributable to the full pay-off of one large commercial loan during the second quarter.

In addition, total loans subject to a payment deferral remained relatively consistent with the prior quarter, amounting to $233.8 million, or 2.6% of total loans at June 30, 2021, with the highest concentration remaining in the accommodation portfolio. The majority of the loans subject to a payment deferral at June 30, 2021 were characterized as current loans. As such, delinquency as a percentage of total loans remained low at 0.11% as of June 30, 2021, representing a decrease of one basis point from the prior quarter. Please refer to Appendix E for additional details regarding loans whose terms have been modified as a result of the COVID-19 pandemic.

The Company recorded credit reserve releases of $5.0 million during the second quarter of 2021, reflecting continued improvement in asset quality metrics and overall macro-economic assumptions. The allowance for credit losses on total loans was $102.4 million at June 30, 2021, or 1.15% of total loans, as compared to $107.5 million at March 31, 2021, or 1.16% of total loans. The allowance for credit losses as a percentage of total loans, excluding PPP loans, was 1.21% and 1.28% at June 30, 2021 and March 31, 2021, respectively. Please refer to Appendix D for information regarding loan exposures within industries deemed highly impacted by the COVID-19 pandemic.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer, Robert Cozzone, Chief Operating Officer, Mark Ruggiero, Chief Financial Officer, and Gerard Nadeau, President and Chief Commercial Banking Officer will host a conference call to discuss second quarter earnings at 10:00 a.m. Eastern Time on Friday, July 23, 2021. 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: 10157162 and will be available through August 6, 2021. Additionally, a webcast replay will be available until July 23, 2022.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. (NASDAQ Global Select Market: INDB) is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Rockland Trust was named to The Boston Globe’s “Top Places to Work” 2020 list, an honor earned for the 12th consecutive year. In 2021, Rockland Trust was ranked the #1 Bank in Massachusetts according to Forbes World’s Best Banks list for the second year in a row. Rockland Trust has a longstanding commitment to equity and inclusion. This commitment is underscored by initiatives such as Diversity and Inclusion leadership training, a colleague Allyship mentoring program, and numerous Employee Resource Groups focused on providing colleague support and education, reinforcing a culture of mutual respect and advancing professional development, and Rockland Trust’s sponsorship of diverse community organizations through charitable giving and employee-based volunteerism. In addition, Rockland Trust is deeply committed to the communities it serves, as reflected in the overall “Outstanding” rating in its most recent Community Reinvestment Act performance evaluation. 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, Cape Cod and Islands, Worcester County, and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. 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 RocklandTrust.com.

This press release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 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:

further 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, including future weakening caused by the COVID-19 pandemic;

the length and extent of economic contraction as a result of the COVID-19 pandemic;

unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;

adverse changes or volatility in the local real estate market;

adverse changes in asset quality and any 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 related compliance costs, including the 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 and changes in tax laws;

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 areas;

adverse weather, changes in climate, natural disasters, the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, other public health crises or man-made events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations;

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 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;

the Company’s potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;

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.

Further, the foregoing factors may be exacerbated by the ultimate impact of the COVID-19 pandemic, which is unknown at this time. Statements about the COVID-19 pandemic and its potential impact on our business, financial condition, liquidity and results of operations may constitute forward-looking statements and are subject to the risk that actual results may differ, possibly materially, from what is reflected in such statements due to factors and future developments that are uncertain, unpredictable and, in many cases, beyond our control, including the scope, duration and extent of the pandemic and any resurgences, actions taken by governmental authorities in response to the pandemic and the direct and indirect impact on the Company’s employees, customers, business and third-parties with which the Company conducts business.

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 subsequent 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, core net margin, 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 the Company’s core banking business such as merger and acquisition expenses, and other items, if applicable. Management uses operating net income 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 reviews its core net interest margin to determine any items that may impact the net interest margin that may be one-time in nature or not reflective of its core operating environment, such as out-sized cash balances, unique low-yielding loans originated through government programs in response to the pandemic, or significant purchase accounting adjustments. Management believes that adjusting for these items to arrive at a core margin provides additional insight into the operating environment and how management decisions impact the net interest margin. Similarly, management reviews certain loan metrics such as growth rates and allowance as a percentage of total loans, adjusted to exclude loans that are not considered part of its core portfolio, which includes loans originated in association with government sponsored and guaranteed programs in response to the pandemic, to arrive at adjusted numbers more representative of the core growth of the portfolio and core reserve to loan ratio.

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 net income, operating EPS, operating return on average assets, operating return on average common equity, core net margin, 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.

Contacts

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

Mark J. Ruggiero
Chief Financial Officer and
Chief Accounting Officer
(781) 982-6281

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