Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2016 fourth quarter net income of $17.2 million, or $0.64 per diluted share, compared to $20.5 million, or $0.78 per diluted share, reported in the prior quarter. Net income for the full year was $76.6 million, or $2.90 on a diluted earnings per share basis, as compared to $65.0 million, or $2.50 per diluted share in the prior year. The current quarter and full year net income includes items that the Company considers to be noncore, such as merger and acquisition expenses, loss on extinguishment of debt and gains or losses on the sale of securities. When excluding these items and their related tax impact, net income for the fourth quarter was $20.2 million, or $0.76 on a diluted earnings per share basis, versus $20.6 million, or $0.78 per diluted share in the prior quarter. In addition, on an operating basis, full year net income was $80.4 million, or $3.04 on a diluted earnings per share basis, as compared to $71.7 million, or $2.76 per diluted share in the prior year.

“Rockland Trust’s financial performance reached new heights in 2016 as we achieved another annual earnings per share record,” said Christopher Oddleifson, the President and Chief Executive Officer of Independent Bank Corp. and Rockland Trust. “In 2016 my colleagues' devotion to superior customer service produced steady organic growth in both loans and deposits. Those efforts were complemented by the Bank of Cape Cod acquisition, which we announced early in 2016 and closed during the fourth quarter.”

NEW ENGLAND BANCORP ACQUISITION

On November 10, 2016, the Company acquired New England Bancorp ("NEB"), the parent company of Bank of Cape Cod. This resulted in the addition of one location in Osterville, Massachusetts while three of the former NEB branches were consolidated into existing Rockland Trust locations. The transaction included the acquisition of $225.7 million in loans and the assumption of $175.7 million in deposits, each at fair value. Total consideration of $41.7 million consisted primarily of 672,665 shares of Independent Bank Corp. common stock issued to New England Bancorp shareholders. The following table provides the purchase price allocation of net assets acquired for this transaction:

Net Assets Acquired at Fair Value          
(Dollars in thousands)
Assets
Cash $ 9,679
Loans 225,731
Premises and equipment 201
Goodwill 20,443
Core deposit intangible 670
Other assets 19,197
Total assets acquired $ 275,921
Liabilities
Deposits $ 175,686
Borrowings 51,150
Other liabilities 7,344
Total liabilities assumed $ 234,180
Purchase price $ 41,741

For further detail on the loans and deposits acquired, see the organic growth table provided near the end of the financial schedules accompanying this release.

BALANCE SHEET

Total assets of $7.7 billion at December 31, 2016 increased by $207.4 million, or 2.8%, from the prior quarter and by $499.9 million, or 6.9%, as compared to the year ago period, inclusive of the NEB acquisition.

Exclusive of the acquisition, total loans grew in the fourth quarter by $27.7 million, or 1.9% on an annualized basis, and increased by $226.2 million, or 4.1%, when compared to the year ago period. This reflected the continued modest growth in the various commercial portfolios, which increased by $30.8 million, or 3.0% on an annualized basis, from the third quarter of 2016. The increase in the commercial real estate portfolio was driven mainly by the reclassification of construction loans that converted to permanent loans. On the consumer side, the home equity portfolio continued to benefit from a healthy housing market and successful marketing efforts, increasing organically by $16.6 million, or 6.8% on an annualized basis, during the fourth quarter. The residential mortgage portfolio was impacted by refinancings and net paydowns, declining organically by $18.9 million, or 11.9% on an annualized basis in the fourth quarter.

Exclusive of the acquisition, deposits decreased by $32.9 million, or 2.1% on an annualized basis during the fourth quarter, as compared to the linked quarter, attributable to a $49.1 million decrease in time deposits. This decrease in time deposits was partially due to the Company's planned run-off of higher cost, noncore deposits. Alternatively, core deposits increased organically by $16.2 million in the fourth quarter, and represent 89.9% of total deposits at December 31, 2016. Despite the addition of the higher cost NEB deposits, the total cost of deposits remained at 0.17% for the quarter, reflecting the Company’s continued emphasis on lower cost funding sources.

The securities portfolio increased by $32.9 million from the prior quarter due to $70.4 million in purchases of agency collateralized mortgage obligations and $23.0 million of agency mortgage pass-thru securities, offset by paydowns on existing securities. The higher yield curve towards the end of the fourth quarter was viewed as an opportunity to deploy some excess liquidity. Total securities of $851.5 million at December 31, 2016 comprised 11.0% of total assets of the Company at December 31, 2016.

The Company's FHLB borrowings remained unchanged at $50.8 million at December 31, 2016. All of NEB's FHLB borrowings of $51.2 million were paid off shortly after the acquisition closed and resulted in no prepayment penalty, as the borrowings were booked to fair value as part of the acquisition accounting.

Stockholders' equity at December 31, 2016 rose to $864.7 million, an increase of 5.7% from September 30, 2016 and 12.1% from the year ago period, primarily due to the NEB acquisition and continued strong earnings retention. In addition, book value per share increased $0.93, or 3.0%, during the fourth quarter and the Company's ratio of common equity to assets of 11.22% increased 31 basis points from the prior quarter end and of 52 basis points from the same period a year ago. Despite the increased goodwill from the NEB acquisition and the impact of the higher rates on the valuation of the available for sale securities portfolio, the Company's tangible book value per share rose by $0.37, or 1.6%, in the fourth quarter compared to the third quarter, and its ratio of tangible common equity to tangible assets of 8.47% represents an increase 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 was $58.8 million, representing a $1.1 million, or 1.9%, increase over the prior quarter. The increase was mainly attributable to higher levels of interest earning assets, inclusive of the NEB acquisition. The Company’s net interest margin decreased by four basis points from the prior quarter to 3.36%, driven primarily by a seven basis point decrease resulting from lower prepayment penalties on the commercial real estate portfolio, partially offset by increases in market rates during the quarter.

NONINTEREST INCOME

Noninterest income totaled $21.8 million in the fourth quarter, which represents a $1.3 million, or 6.6%, increase from the prior quarter. Significant changes in noninterest income in the fourth quarter compared to the prior quarter included the following:

  • Deposit account fees and interchange and ATM fees decreased by $130,000, or 1.5%, driven mainly by seasonality.
  • Investment management income increased by $180,000, or 3.3%, due to an increase in retail investments and insurance-related income as well as continued growth in assets under administration, which increased 1.2% to $2.9 billion as of December 31, 2016.
  • Mortgage banking income increased by $186,000, or 9.5%, driven mainly by impairment recovery on the Company's mortgage servicing asset due to the higher rate environment.
  • The increase in cash surrender value of life insurance policies of $125,000, or 12.7%, was due to annual dividend income.
  • Loan level derivative income increased by $718,000, or 88.6%, due to higher customer demand in the fourth quarter.
  • Other noninterest income increased $266,000, or 11.1%, mainly due to an increase in certain loan fees and capital gain distributions received on equity securities, partially offset by decreases in income from a Community Reinvestment Act investment as well as 1031 tax exchange income.

NONINTEREST EXPENSE

The Company recorded noninterest expense of $51.6 million during the fourth quarter, which represents a $4.8 million, or 10.2%, increase from 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 $320,000, or 1.2%, due primarily to decreases in the valuation of the Company's split dollar liability related to bank-owned life insurance policies, as a result of interest rate movements.
  • Occupancy and equipment expenses increased by $507,000, or 9.3%, mainly due to accelerated depreciation of leasehold improvements relating to a branch closing in the fourth quarter.
  • Data processing expense decreased by $256,000, or 18.3%, due mainly to one-time costs incurred during the third quarter of 2016 associated with implementation of new software.
  • Merger and acquisition costs amounted to $4.8 million for the quarter as compared to $151,000 in the prior quarter. The majority of the expenses related to compensation and severance agreements, as well as legal and consulting fees associated with the fourth quarter closing of the NEB acquisition. Also included in this amount was approximately $483,000 of expenses incurred related to the pending acquisition of Island Bancorp, Inc., which is expected to close in the second quarter of 2017.
  • Other noninterest expense increased by $236,000, or 2.0%, driven primarily by higher provisions for unfunded commitments and consultant fees, partially offset by lower advertising, recruitment, and legal expenses.

The Company generated a return on average assets and a return on average common equity of 0.89% and 8.07%, respectively, in the fourth quarter, as compared to 1.09% and 9.98%, respectively, for the prior quarter. Additionally, on an operating basis, the Company generated a return on average assets and return on average common equity of 1.05% and 9.51%, respectively, in the fourth quarter, as compared to 1.10% and 10.03%, respectively, for the prior quarter.

ASSET QUALITY

During the fourth quarter, the Company recorded total net charge-offs of $639,000, or 0.04% of average loans on an annualized basis, compared to net charge-offs of $472,000 in the prior quarter. The provision for loan losses increased to $4.0 million for the fourth quarter versus $950,000 in the third quarter of 2016, reflecting a $3.6 million specific loan loss reserve for one large commercial relationship which was placed on nonaccrual status in the fourth quarter. This action accounted for the increase in nonperforming loans to $57.4 million, or 0.96% of loans at December 31, 2016 from $24.8 million, or 0.43% at September 30, 2016. Total nonperforming assets likewise increased to $61.6 million at the end of the fourth quarter, from $26.6 million at the end of the prior quarter. Delinquency as a percentage of loans remained low at 0.33% at December 31, 2016, a decrease of eleven basis points from the prior quarter, as this single commercial relationship was current on payments as of year end. The decision to place the credits associated with the relationship on nonaccrual resulted from an expectation that the borrower will no longer be able to make full interest and principal payments.

The allowance for loan losses was $61.6 million at December 31, 2016, as compared to $58.2 million at September 30, 2016. The Company’s allowance for loan losses as a percentage of loans was 1.03% and 1.01% as of December 31, 2016 and September 30, 2016, respectively.

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 20, 2017. 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: 10098161 and will be available through February 3, 2017. Additionally, a webcast replay will be available until January 20, 2018.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $7.7 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 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;
  • 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 delay in consummating the acquisition of Island Bancorp, which is subject to certain standard conditions, including approval of the transaction by Island Bancorp shareholders and receipt of required regulatory approvals;
  • 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, also return on average assets and return on average equity on an operating basis. 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.

 

INDEPENDENT BANK CORP. FINANCIAL SUMMARY

CONSOLIDATED BALANCE SHEETS                              
(Unaudited dollars in thousands) % Change % Change

December 31
2016

September 30
2016

December 31
2015

Dec 2016 vs.

Dec 2016 vs.

Sept 2016 Dec 2015
Assets
Cash and due from banks $ 97,196 $ 92,185 $ 84,813 5.44 % 14.60 %
Interest-earning deposits with banks 191,899 265,618 190,952 (27.75 )% 0.50 %
Securities
Securities - trading 804 809 356 (0.62 )% 125.84 %
Securities - available for sale 363,644 387,008 367,249 (6.04 )% (0.98 )%
Securities - held to maturity 487,076   430,763   477,507   13.07 % 2.00 %
Total securities 851,524 818,580 845,112 4.02 % 0.76 %
Loans held for sale (at fair value) 6,139 13,334 5,990 (53.96 )% 2.49 %
Loans
Commercial and industrial 902,053 857,713 843,276 5.17 % 6.97 %
Commercial real estate 3,010,798 2,787,660 2,653,434 8.00 % 13.47 %
Commercial construction 320,391 376,245 373,368 (14.85 )% (14.19 )%
Small business 122,726   115,054   96,246   6.67 % 27.51 %
Total commercial 4,355,968   4,136,672   3,966,324   5.30 % 9.82 %
Residential real estate 644,426 632,685 638,606 1.86 % 0.91 %
Home equity - first position 577,006 559,867 543,092 3.06 % 6.24 %
Home equity - subordinate positions 411,141   405,245   384,711   1.45 % 6.87 %
Total consumer real estate 1,632,573   1,597,797   1,566,409   2.18 % 4.22 %
Other consumer 11,064   11,664   14,988   (5.14 )% (26.18 )%
Total loans 5,999,605   5,746,133   5,547,721   4.41 % 8.15 %
Less: allowance for loan losses (61,566 ) (58,205 ) (55,825 ) 5.77 % 10.28 %
Net loans 5,938,039   5,687,928   5,491,896   4.40 % 8.12 %
Federal Home Loan Bank stock 11,497 11,304 14,431 1.71 % (20.33 )%
Bank premises and equipment, net 78,480 76,429 75,663 2.68 % 3.72 %
Goodwill and other intangibles 231,374 210,834 212,909 9.74 % 8.67 %
Other assets 303,227   325,797   287,703   (6.93 )% 5.40 %
Total assets $ 7,709,375   $ 7,502,009   $ 7,209,469   2.76 % 6.93 %
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 2,057,086 $ 2,024,235 $ 1,846,593 1.62 % 11.40 %
Savings and interest checking accounts 2,469,237 2,417,195 2,370,141 2.15 % 4.18 %
Money market 1,236,778 1,198,959 1,089,139 3.15 % 13.56 %
Time certificates of deposit 649,152   629,071   684,830   3.19 % (5.21 )%
Total deposits 6,412,253   6,269,460   5,990,703   2.28 % 7.04 %
Borrowings
Federal Home Loan Bank borrowings 50,819 50,826 102,080 (0.01 )% (50.22 )%
Customer repurchase agreements and other short-term borrowings 176,913 140,914 133,958 25.55 % 32.07 %
Junior subordinated debentures 73,107 73,157 73,306 (0.07 )% (0.27 )%
Subordinated debentures 34,635   34,624   34,589   0.03 % 0.13 %
Total borrowings 335,474   299,521   343,933   12.00 % (2.46 )%
Total deposits and borrowings 6,747,727   6,568,981   6,334,636   2.72 % 6.52 %
Other liabilities 96,958 114,786 103,370 (15.53 )% (6.20 )%
Stockholders' equity
Common stock 268 261 260 2.68 % 3.08 %
Additional paid in capital 451,664 409,731 405,486 10.23 % 11.39 %
Retained earnings 414,095 404,750 368,169 2.31 % 12.47 %
Accumulated other comprehensive income (loss), net of tax (1,337 ) 3,500   (2,452 ) (138.20 )% (45.47 )%
Total stockholders' equity 864,690   818,242   771,463   5.68 % 12.08 %
Total liabilities and stockholders' equity $ 7,709,375   $ 7,502,009   $ 7,209,469   2.76 % 6.93 %
             
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited dollars in thousands, except per share data)
Three Months Ended
        % Change % Change
December 31
2016		 September 30
2016		 December 31
2015

Dec 2016 vs.

Dec 2016 vs.

Sept 2016 Dec 2015
Interest income
Interest on federal funds sold and short-term investments $ 423 $ 387 $ 137 9.3 % 208.76 %
Interest and dividends on securities 5,379 5,062 5,218 6.26 % 3.09 %
Interest and fees on loans 57,561 56,778 54,463 1.38 % 5.69 %
Interest on loans held for sale 65   81   52   (19.75 )% 25.00 %
Total interest income 63,428 62,308 59,870 1.80 % 5.94 %
Interest expense
Interest on deposits 2,801 2,733 2,940 2.49 % (4.73 )%
Interest on borrowings 1,875   1,907   2,045   (1.68 )% (8.31 )%
Total interest expense 4,676   4,640   4,985   0.78 % (6.20 )%
Net interest income 58,752 57,668 54,885 1.88 % 7.05 %
Provision for loan losses 4,000   950   500   321.05 % 700.00 %
Net interest income after provision for loan losses 54,752 56,718 54,385 (3.47 )% 0.67 %
Noninterest income
Deposit account fees 4,522 4,622 4,694 (2.16 )% (3.66 )%
Interchange and ATM fees 4,160 4,190 3,911 (0.72 )% 6.37 %
Investment management 5,626 5,446 5,120 3.31 % 9.88 %
Mortgage banking income 2,149 1,963 1,331 9.48 % 61.46 %
Increase in cash surrender value of life insurance policies 1,109 984 1,007 12.70 % 10.13 %
Gain on sale of equity securities 1 — 1 100.00 % — %
Loan level derivative income 1,528 810 1,013 88.64 % 50.84 %
Other noninterest income 2,667   2,401   2,747   11.08 % (2.91 )%
Total noninterest income 21,762 20,416 19,824 6.59 % 9.78 %
Noninterest expenses
Salaries and employee benefits 27,075 27,395 26,777 (1.17 )% 1.11 %
Occupancy and equipment expenses 5,940 5,433 5,511 9.33 % 7.78 %
Data processing and facilities management 1,144 1,400 1,168 (18.29 )% (2.05 )%
FDIC assessment 725 725 986 — % (26.47 )%
Merger and acquisition expense 4,764 151 — 3,054.97 % 100.00 %
Loss on sale of equity securities — — 91 n/a (100.00 )%
Other noninterest expenses 11,989   11,753   11,953   2.01 % 0.30 %
Total noninterest expenses 51,637 46,857 46,486 10.20 % 11.08 %
Income before income taxes 24,877 30,277 27,723 (17.84 )% (10.27 )%
Provision for income taxes 7,698   9,793   8,268   (21.39 )% (6.89 )%
Net Income $ 17,179   $ 20,484   $ 19,455   (16.13 )% (11.70 )%
 
Weighted average common shares (basic) 26,710,029 26,324,316 26,238,004
Common share equivalents 60,022   53,072   52,772  
Weighted average common shares (diluted) 26,770,051   26,377,388   26,290,776  
 
Basic earnings per share $ 0.64 $ 0.78 $ 0.74 (17.95 )% (13.51 )%
Diluted earnings per share $ 0.64 $ 0.78 $ 0.74 (17.95 )% (13.51 )%
 

Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP):

Net income $ 17,179 $ 20,484 $ 19,455
Noninterest expense components
Add - merger and acquisition expenses 4,764   151   —  
Noncore items, gross 4,764 151 —
Less - net tax benefit associated with noncore items (1) (1,702 ) (61 ) —  
Noncore items, net of tax 3,062   90   —  
Net operating earnings $ 20,241   $ 20,574   $ 19,455   (1.62 )% 4.04 %
 
Diluted earnings per share, on an operating basis $ 0.76 $ 0.78 $ 0.74 (2.56 )% 2.70 %
(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.
 

Performance ratios

Net interest margin (FTE) 3.36 % 3.40 % 3.34 %
Return on average assets GAAP (calculated by dividing net income by average assets) 0.89 % 1.09 % 1.07 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.05 % 1.10 % 1.07 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 8.07 % 9.98 % 10.03 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 9.51 % 10.03 % 10.03 %
           
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited dollars in thousands, except per share data)
Years Ended

% Change

December 31
2016

December 31
2015		 Dec 2016 vs.
Dec 2015
 
Interest income
Interest on federal funds sold and short-term investments $ 1,190 $ 349 240.97 %
Interest and dividends on securities 20,968 20,247 3.56 %
Interest and fees on loans 224,244 214,724 4.43 %
Interest on loans held for sale 235   225   4.44 %
Total interest income 246,637 235,545 4.71 %
Interest expense
Interest on deposits 11,140 11,576 (3.77 )%
Interest on borrowings 7,653   9,041   (15.35 )%
Total interest expense 18,793   20,617   (8.85 )%
Net interest income 227,844 214,928 6.01 %
Provision for loan losses 6,075   1,500   305.00 %
Net interest income after provision for loan losses 221,769 213,428 3.91 %
Noninterest income
Deposit account fees 18,085 18,078 0.04 %
Interchange and ATM fees 16,210 14,728 10.06 %
Investment management 21,809 20,735 5.18 %
Mortgage banking income 6,607 5,163 27.97 %
Increase in cash surrender value of life insurance policies 4,089 3,692 10.75 %
Gain on sale of fixed income securities — 798 (100.00 )%
Gain on sale of equity securities 6 20 (70.00 )%
Loan level derivative income 6,155 3,830 60.70 %
Other noninterest income 9,467   8,844   7.04 %
Total noninterest income 82,428 75,888 8.62 %
Noninterest expenses
Salaries and employee benefits 108,636 105,068 3.40 %
Occupancy and equipment expenses 22,867 23,020 (0.66 )%
Data processing and facilities management 4,975 4,631 7.43 %
FDIC assessment 3,380 3,979 (15.05 )%
Merger and acquisition expense 5,455 10,501 (48.05 )%
Loss on extinguishment of debt 437 122 258.20 %
Loss on sale of fixed income securities — 1,124 (100.00 )%
Loss on sale of equity securities 32 99 (67.68 )%
Other noninterest expenses 46,340   48,594   (4.64 )%
Total noninterest expenses 192,122 197,138 (2.54 )%
Income before income taxes 112,075 92,178 21.59 %
Provision for income taxes 35,427   27,218   30.16 %
Net Income $ 76,648   $ 64,960   17.99 %
 
Weighted average common shares (basic) 26,404,071 25,891,382
Common share equivalents 51,847   68,566  
Weighted average common shares (diluted) 26,455,918   25,959,948  
 
Basic earnings per share $ 2.90 $ 2.51 15.54 %
Diluted earnings per share $ 2.90 $ 2.50 16.00 %
 

Reconciliation of Net Income (GAAP) to Operating Earnings (Non-GAAP):

Net Income $ 76,648 $ 64,960
Noninterest income components
Less - gain on sale of fixed income securities — (798 )
Noninterest expense components
Add - impairment on acquired facilities — 109
Add - loss on extinguishment of debt 437 122
Add - loss on sale of fixed income securities — 1,124
Add - merger and acquisition expenses 5,455   10,501  
Noncore items, gross 5,892 11,058
Less - net tax benefit associated with noncore items (1) (2,163 ) (4,285 )
Noncore items, net of tax 3,729   6,773  
Net operating earnings $ 80,377   $ 71,733   12.05 %
 
Diluted earnings per share, on an operating basis $ 3.04 $ 2.76 10.14 %
(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.
 

Performance ratios

Net interest margin (FTE) 3.40 % 3.42 % (0.58 )%
Return on average assets GAAP (calculated by dividing net income by average assets) 1.04 % 0.93 % 11.83 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.09 % 1.03 % 5.83 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 9.43 % 8.79 % 7.28 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 9.89 % 9.70 % 1.96 %
     

ASSET QUALITY

(Unaudited dollars in thousands) Nonperforming Assets At

December 31
2016

       September 30
2016		       December 31
2015
Nonperforming loans
Commercial & industrial loans $ 37,455 $ 3,065 $ 3,699
Commercial real estate loans 6,266 7,399 8,160
Small business loans 302 288 239
Residential real estate loans 7,782 7,684 8,795
Home equity 5,553 6,311 6,742
Other consumer 49   46   55  
Total nonperforming loans $ 57,407   $ 24,793   $ 27,690  
Other real estate owned 4,173   1,798   2,159  
Total nonperforming assets $ 61,580   $ 26,591   $ 29,849  
 
Nonperforming loans/gross loans 0.96 % 0.43 % 0.50 %
Nonperforming assets/total assets 0.80 % 0.35 % 0.41 %
Allowance for loan losses/nonperforming loans 107.24 % 234.76 % 201.61 %
Gross loans/total deposits 93.56 % 91.65 % 92.61 %
Allowance for loan losses/total loans 1.03 % 1.01 % 1.01 %
Delinquent loans/total loans 0.33 % 0.44 % 0.56 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
December 31
2016		 September 30
2016		 December 31
2015
 
Nonperforming assets beginning balance $ 26,591 $ 27,473 $ 32,099
New to nonperforming 37,639 2,630 3,455
Loans charged-off (1,216 ) (1,143 ) (1,130 )
Loans paid-off (1,934 ) (2,049 ) (2,965 )
Loans transferred to other real estate owned/other assets (945 ) — —
Loans restored to performing status (997 ) (288 ) (1,248 )
New to other real estate owned 945 — —
Acquired other real estate owned 2,100 — —
Valuation write down (48 ) (5 ) —
Sale of other real estate owned (681 ) (42 ) (270 )
Net capital improvements to other real estate owned 59 — (2 )
Other 67   15   (90 )
Nonperforming assets ending balance $ 61,580   $ 26,591   $ 29,849  
     
Net Charge-Offs (Recoveries)
Three Months Ended     Twelve Months Ended

December 31
2016

     September 30
2016		     December 31
2015		 December 31
2016		     December 31
2015
Net charge-offs (recoveries)
Commercial and industrial loans $ 553 $ (36 ) $ (211 ) $ (266 ) $ 417
Commercial real estate loans 20 217 27 (150 ) (743 )
Small business loans (36 ) 70 (6 ) 33 3
Residential real estate loans (116 ) (130 ) (38 ) (271 ) 152
Home equity 47 130 (71 ) 461 354
Other consumer 171   221   179   527   592  
Total net charge-offs (recoveries) $ 639   $ 472   $ (120 ) $ 334   $ 775  
 
Net charge-offs (recoveries) to average loans (annualized) 0.04 % 0.03 % (0.01 )% 0.01 % 0.01 %
    Troubled Debt Restructurings At
December 31
2016		     September 30
2016		     December 31
2015
Troubled debt restructurings on accrual status $ 27,093 $ 27,644 $ 32,849
Troubled debt restructurings on nonaccrual status 5,199   5,910   5,225  
Total troubled debt restructurings $ 32,292   $ 33,554   $ 38,074  
 
CAPITAL ADEQUACY
December 31
2016		 September 30
2016		 December 31
2015
Common equity tier 1 capital ratio (1) 10.82 % 10.78 % 10.44 %
Tier one leverage capital ratio (1) 9.76 % 9.59 % 9.33 %
Common equity to assets ratio GAAP 11.22 % 10.91 % 10.70 %
Tangible common equity to tangible assets ratio (2) 8.47 % 8.33 % 7.98 %
Book value per share GAAP $ 32.02 $ 31.09 $ 29.40
Tangible book value per share (2) $ 23.45 $ 23.08 $ 21.29
(1) Estimated number for December 31, 2016.
(2) See appendix A for detailed reconciliation from GAAP to Non-GAAP ratios
 

INDEPENDENT BANK CORP. SUPPLEMENTAL FINANCIAL INFORMATION

                                   
 
(Unaudited - dollars in thousands) Three Months Ended
December 31, 2016 September 30, 2016 December 31, 2015
Interest Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance   Paid   Rate Balance   Paid   Rate Balance   Paid   Rate
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments $ 307,677 $ 423 0.55 % $ 305,728 $ 387 0.50 % $ 214,191 $ 137 0.25 %
Securities
Securities - trading 801 — — % 805 — — % 394 — — %
Securities - taxable investments 831,141 5,351 2.56 % 815,889 5,034 2.45 % 815,778 5,186 2.52 %
Securities - nontaxable investments (1) 4,274   43   4.00 % 4,382   43   3.90 % 4,891   49   3.97 %
Total securities 836,216 5,394 2.57 % 821,076 5,077 2.46 % 821,063 5,235 2.53 %
Loans held for sale 12,812 65 2.02 % 11,652 81 2.77 % 9,422 52 2.19 %
Loans
Commercial and industrial 856,983 8,447 3.92 % 851,497 8,420 3.93 % 844,460 8,254 3.88 %
Commercial real estate (1) 2,882,468 28,895 3.99 % 2,723,832 28,466 4.16 % 2,641,570 26,872 4.04 %
Commercial construction 354,235 3,718 4.18 % 370,085 3,881 4.17 % 355,749 3,676 4.10 %
Small business 117,131   1,609   5.46 % 111,932   1,502   5.34 % 93,521   1,272   5.40 %
Total commercial 4,210,817 42,669 4.03 % 4,057,346 42,269 4.14 % 3,935,300 40,074 4.04 %
Residential real estate 639,180 6,548 4.08 % 631,582 6,334 3.99 % 645,448 6,151 3.78 %
Home equity 979,179   8,437   3.43 % 958,317   8,243   3.42 % 919,531   8,127   3.51 %
Total consumer real estate 1,618,359 14,985 3.68 % 1,589,899 14,577 3.65 % 1,564,979 14,278 3.62 %
Other consumer 12,370   261   8.39 % 13,026   291   8.89 % 15,783   470   11.81 %
Total loans 5,841,546   57,915   3.94 % 5,660,271   57,137   4.02 % 5,516,062   54,822   3.94 %
Total interest-earning assets $ 6,998,251   $ 63,797   3.63 % $ 6,798,727   $ 62,682   3.67 % $ 6,560,738   $ 60,246   3.64 %
Cash and due from banks 92,836 94,547 117,285
Federal Home Loan Bank stock 12,507 11,304 14,431
Other assets 552,796   552,247   520,903  
Total assets $ 7,656,390   $ 7,456,825   $ 7,213,358  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,436,751 $ 757 0.12 % $ 2,408,498 $ 756 0.12 % $ 2,324,827 $ 915 0.16 %
Money market 1,239,411 825 0.26 % 1,197,382 758 0.25 % 1,127,013 718 0.25 %
Time deposits 645,611   1,219   0.75 % 635,635   1,219   0.76 % 694,641   1,307   0.75 %
Total interest-bearing deposits 4,321,773 2,801 0.26 % 4,241,515 2,733 0.26 % 4,146,481 2,940 0.28 %
Borrowings
Federal Home Loan Bank borrowings 54,038 379 2.79 % 51,100 391 3.04 % 104,023 571 2.18 %
Customer repurchase agreements and other short-term borrowings 162,885 59 0.14 % 151,982 52 0.14 % 146,287 49 0.13 %
Junior subordinated debentures 73,132 1,011 5.50 % 73,184 1,037 5.64 % 73,333 1,016 5.48 %
Subordinated debentures 34,629   427   4.91 % 34,617   427   4.91 % 34,582   409   4.64 %
Total borrowings 324,684   1,876   2.30 % 310,883   1,907   2.44 % 358,226   2,045   2.26 %
Total interest-bearing liabilities $ 4,646,457   $ 4,677   0.40 % $ 4,552,398   $ 4,640   0.41 % $ 4,504,707   $ 4,985   0.44 %
Demand deposits 2,060,028 1,976,177 1,833,133
Other liabilities 103,144   112,018   106,226  
Total liabilities $ 6,809,629   $ 6,640,593   $ 6,444,066  
Stockholders' equity 846,761 816,232 769,292
Total liabilities and stockholders' equity $ 7,656,390   $ 7,456,825   $ 7,213,358  
 
Net interest income $ 59,120   $ 58,042   $ 55,261  
 
Interest rate spread (2) 3.23 % 3.26 % 3.20 %
 
Net interest margin (3) 3.36 % 3.40 % 3.34 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,381,801 $ 2,801 $ 6,217,692 $ 2,733 $ 5,979,614 $ 2,940
Cost of total deposits 0.17 % 0.17 % 0.20 %
Total funding liabilities, including demand deposits $ 6,706,485 $ 4,677 $ 6,528,575 $ 4,640 $ 6,337,840 $ 4,985
Cost of total funding liabilities 0.28 % 0.28 % 0.31 %

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $369,000, $374,000, and $376,000 for the three months ended December 31, 2016, September 30, 2016, and December 31, 2015, 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.

     
Twelve Months Ended
December 31, 2016       December 31, 2015
    Interest         Interest    
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
Interest-earning assets
Interest earning deposits with banks, federal funds sold, and short term investments $ 228,861 $ 1,190 0.52 % $ 138,694 $ 349 0.25 %
Securities
Securities - trading 701 — — % 389 — — %
Securities - taxable investments 826,131 20,851 2.52 % 787,781 20,120 2.55 %
Securities - nontaxable investments (1) 4,486   180   4.01 % 5,101   195   3.82 %
Total securities 831,318 21,031 2.53 % 793,271 20,315 2.56 %
Loans held for sale 9,213 235 2.55 % 9,244 225 2.43 %
Loans
Commercial and industrial 848,434 33,206 3.91 % 858,043 33,569 3.91 %
Commercial real estate (1) 2,748,337 111,977 4.07 % 2,590,482 106,801 4.12 %
Commercial construction 365,590 15,094 4.13 % 304,545 12,838 4.22 %
Small business 108,619   5,875   5.41 % 90,081   4,900   5.44 %
Total commercial 4,070,980 166,152 4.08 % 3,843,151 158,108 4.11 %
Residential real estate 633,313 25,487 4.02 % 641,218 25,603 3.99 %
Home equity 952,736   32,889   3.45 % 892,920   30,777   3.45 %
Total consumer real estate 1,586,049 58,376 3.68 % 1,534,138 56,380 3.68 %
Other consumer 13,398   1,185   8.84 % 17,175   1,664   9.69 %
Total loans 5,670,427   225,713   3.98 % 5,394,464   216,152   4.01 %
Total interest-earning assets $ 6,739,819   $ 248,169   3.68 % $ 6,335,673   $ 237,041   3.74 %
Cash and due from banks 91,107 110,202
Federal Home Loan Bank stock 12,831 31,080
Other assets 544,917   512,908  
Total assets $ 7,388,674   $ 6,989,863  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,399,147 $ 3,173 0.13 % $ 2,242,245 $ 3,556 0.16 %
Money market 1,178,262 2,996 0.25 % 1,102,892 2,878 0.26 %
Time deposits 649,678   4,971   0.77 % 708,094   5,142   0.73 %
Total interest-bearing deposits 4,227,087 11,140 0.26 % 4,053,231 11,576 0.29 %
Borrowings
Federal Home Loan Bank borrowings 61,398 1,653 2.69 % 106,686 2,208 2.07 %
Customer repurchase agreements and other short-term borrowings 149,042 208 0.14 % 138,363 210 0.15 %
Wholesale repurchase agreements — — — % 32,192 746 2.32 %
Junior subordinated debentures 73,207 4,083 5.58 % 73,407 4,026 5.47 %
Subordinated debentures 34,612   1,709   4.94 % 38,692   1,851   4.73 %
Total borrowings 318,259   7,653   2.40 % 389,340   9,041   2.32 %
Total interest-bearing liabilities $ 4,545,346   $ 18,793   0.41 % $ 4,442,571   $ 20,617   0.46 %
Demand deposits 1,924,173 1,704,253
Other liabilities 106,766   103,839  
Total liabilities $ 6,576,285 $ 6,250,663
Stockholders' equity 812,389   739,200  
Total liabilities and stockholders' equity $ 7,388,674   $ 6,989,863  
 
Net interest income $ 229,376   $ 216,424  
 
Interest rate spread (2) 3.27 % 3.28 %
 
Net interest margin (3) 3.40 % 3.42 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,151,260 $ 11,140 $ 5,757,484 $ 11,576
Cost of total deposits 0.18 % 0.20 %
Total funding liabilities, including demand deposits $ 6,469,519 $ 18,793 $ 6,146,824 $ 20,617
Cost of total funding liabilities 0.29 % 0.34 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $1.5 million for both the twelve months ended December 31, 2016 and 2015, 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.

                     

Organic Loan and Deposit Growth

(Unaudited, dollars in thousands) Linked quarter

December 31
2016

September 30
2016

Balance
Acquired

Organic Growth/
(Loss)

Organic
Growth/(Loss)
%

Loans
Commercial and industrial $ 902,053 $ 857,713 $ 35,767 $ 8,573 1.00 %
Commercial real estate 3,010,798 2,787,660 148,016 75,122 2.69 %
Commercial construction 320,391 376,245 4,633 (60,487 ) (16.08 )%
Small business 122,726   115,054   53 7,619   6.62 %
Total commercial 4,355,968 4,136,672 188,469 30,827 0.75 %
Residential real estate 644,426 632,685 30,670 (18,929 ) (2.99 )%
Home equity 988,147   965,112   6,439 16,596   1.72 %
Total consumer real estate 1,632,573 1,597,797 37,109 (2,333 ) (0.15 )%
Total other consumer 11,064   11,664   153 (753 ) (6.46 )%
Total loans $ 5,999,605   $ 5,746,133   $ 225,731 $ 27,741   0.48 %
 
Deposits
Demand deposits $ 2,057,086 $ 2,024,235 $ 32,889 $ (38 ) — %
Savings and interest checking accounts 2,469,237 2,417,195 32,151 19,891 0.82 %
Money market 1,236,778 1,198,959 41,449 (3,630 ) (0.30 )%
Time certificates of deposit 649,152   629,071   69,197 (49,116 ) (7.81 )%
Total deposits $ 6,412,253   $ 6,269,460   $ 175,686 $ (32,893 ) (0.52 )%
 
 
Year-To-Date

December 31
2016

December 31
2015

Balance
Acquired

Organic Growth/
(Loss)

Organic
Growth/(Loss)
%

Loans
Commercial and industrial $ 902,053 $ 843,276 $ 35,767 $ 23,010 2.73 %
Commercial real estate 3,010,798 2,653,434 148,016 209,348 7.89 %
Commercial construction 320,391 373,368 4,633 (57,610 ) (15.43 )%
Small business 122,726   96,246   53 26,427   27.46 %
Total commercial 4,355,968 3,966,324 188,469 201,175 5.07 %
Residential real estate 644,426 638,606 30,670 (24,850 ) (3.89 )%
Home equity 988,147   927,803   6,439 53,905   5.81 %
Total consumer real estate 1,632,573 1,566,409 37,109 29,055 1.85 %
Total other consumer 11,064   14,988   153 (4,077 ) (27.20 )%
Total loans $ 5,999,605   $ 5,547,721   $ 225,731 $ 226,153   4.08 %
 
Deposits
Demand deposits $ 2,057,086 $ 1,846,593 $ 32,889 $ 177,604 9.62 %
Savings and interest checking accounts 2,469,237 2,370,141 32,151 66,945 2.82 %
Money market 1,236,778 1,089,139 41,449 106,190 9.75 %
Time certificates of deposit 649,152   684,830   69,197 (104,875 ) (15.31 )%
Total deposits $ 6,412,253   $ 5,990,703   $ 175,686 $ 245,864   4.10 %

Certain amounts in prior year financial statements have been reclassified to conform to the current year's presentation.

APPENDIX A

(Dollars in thousands, except share and per share data)

The following table summarizes the calculation of the Company's tangible common equity ratio and tangible book value per share for the periods indicated:

               
December 31
2016		 September 30
2016		 December 31
2015
Tangible common equity
Stockholders' equity (GAAP) $ 864,690 $ 818,242 $   771,463 (a)
Less: Goodwill and other intangibles 231,374   210,834   212,909  
Tangible common equity 633,316   607,408   558,554   (b)
Tangible assets
Assets (GAAP) 7,709,375 7,502,009 7,209,469 (c)
Less: Goodwill and other intangibles 231,374   210,834   212,909  
Tangible assets $ 7,478,001   $ 7,291,175   $   6,996,560   (d)
     
Common Shares 27,005,813   26,320,467   26,236,352   (e)
 
Common equity to assets ratio (GAAP) 11.22 % 10.91 % 10.70 % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 8.47 % 8.33 % 7.98 % (b/d)
Book value per share (GAAP) $ 32.02 $ 31.09 $ 29.40 (a/e)
Tangible book value per share (Non-GAAP) $ 23.45 $ 23.08 $ 21.29 (b/e)

APPENDIX B

(Dollars in thousands)

The following table summarizes the impact of noncore items on the calculation of the Company's calculation of noninterest income and noninterest expense, as well as the impact of noncore items on noninterest income as a percentage of total revenue and the efficiency ratio for the periods indicated:

    Three Months Ended       Twelve Months Ended  

December 31,
2016

    

September 30,
2016

    

December 31,
2015

December 31,
2016

    

December 31,
2015

Net interest income (GAAP) $ 58,752 $ 57,668 $ 54,885 $ 227,844 $ 214,928 (a)
 
Noninterest income (GAAP) $ 21,762 $ 20,416 $ 19,824 $ 82,428 $ 75,888 (b)
Less:
Gain on sale of fixed income securities —   —   —   —   798  
Noninterest income on an operating basis (Non-GAAP) $ 21,762 $ 20,416 $ 19,824 $ 82,428 $ 75,090 (c)
 
Noninterest expense (GAAP) $ 51,637 $ 46,857 $ 46,486 $ 192,122 $ 197,138 (d)
Less:
Impairment on acquired facilities — — — — 109
Loss on extinguishment of debt — — — 437 122
Loss on sale of fixed income securities — — — — 1,124
Merger and acquisition expense 4,764   151   —   5,455   10,501  
Noninterest expense on an operating basis (Non-GAAP) $ 46,873 $ 46,706 $ 46,486 $ 186,230 $ 185,282 (e)
 
Total revenue (GAAP) $ 80,514 $ 78,084 $ 74,709 $ 310,272 $ 290,816 (a+b)
Total operating revenue (Non-GAAP) $ 80,514 $ 78,084 $ 74,709 $ 310,272 $ 290,018 (a+c)
 
Ratios
Noninterest income as a % of total revenue (GAAP based) 27.03 % 26.15 % 26.53 % 26.57 % 26.09 % (b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP) 27.03 % 26.15 % 26.53 % 26.57 % 25.89 % (c/(a+c))
Efficiency ratio (GAAP based) 64.13 % 60.01 % 62.22 % 61.92 % 67.79 % (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) 58.22 % 59.82 % 62.22 % 60.02 % 63.89 % (e/(a+c))