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

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

BALANCE SHEET

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

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

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

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

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

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

NET INTEREST INCOME

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

NONINTEREST INCOME

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

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

NONINTEREST EXPENSE

Noninterest expense of $51.5 million in the fourth quarter was $157,000, or 0.3% higher than the prior quarter. Significant changes in noninterest expense in the fourth quarter compared to the prior quarter included the following:

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

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

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

ASSET QUALITY

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

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

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer, will host a conference call to discuss fourth quarter earnings at 10:00 a.m. Eastern Time on Friday, January 19, 2018. Internet access to the call is available on the Company’s website at www.rocklandtrust.com or via telephonic access by dial-in at 1-888-336-7153 reference: INDB. A replay of the call will be available by calling 1-877-344-7529, Replay Conference Number: 10115190 and will be available through February 2, 2018. Additionally, a webcast replay will be available until January 19, 2019.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.1 billion in assets and is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Named in 2017 to The Boston Globe’s “Top Places to Work” list for the ninth consecutive year, Rockland Trust offers a wide range of banking, investment, and insurance services. The Bank serves businesses and individuals through approximately 100 retail branches, commercial and residential lending centers, and investment management offices in eastern Massachusetts, including Greater Boston, the South Shore, the Cape and Islands, and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. The Company is an FDIC member and an Equal Housing Lender. To find out why Rockland Trust is the bank “Where Each Relationship Matters®”, please visit www.rocklandtrust.com.

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

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

  • a weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area;
  • adverse changes or volatility in the local real estate market;
  • adverse changes in asset quality including an unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;
  • acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
  • changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
  • higher than expected tax expense, resulting from failure to comply with general tax laws, changes in tax laws, or failure to comply with requirements of the federal New Markets Tax Credit program;
  • unexpected changes in market interest rates for interest earning assets and/or interest bearing liabilities;
  • unexpected increased competition in the Company’s market area;
  • unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather or other external events;
  • a deterioration in the conditions of the securities markets;
  • a deterioration of the credit rating for U.S. long-term sovereign debt;
  • our inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
  • electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
  • adverse changes in consumer spending and savings habits;
  • the inability to realize expected synergies from merger transactions in the amounts or in the timeframe anticipated;
  • inability to retain customers and employees, including those acquired in previous acquisitions;
  • the effect of laws and regulations regarding the financial services industry including, but not limited to, the Dodd-Frank Wall Street Reform and the Consumer Protection Act and regulatory uncertainty surrounding these laws and regulations;
  • changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;
  • changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;
  • cyber security attacks or intrusions that could adversely impact our businesses; and
  • other unexpected material adverse changes in our operations or earnings.

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

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

Operating earnings, operating EPS and the adjusted effective tax rate exclude items that management believes are unrelated to its core banking business such as losses on extinguishment of debt, merger and acquisition expenses, and other items, such as one-time adjustments as a result of changes in laws and regulations. The Company’s management uses operating earnings and operating EPS to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such excluded gains or losses.

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

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

 

INDEPENDENT BANK CORP. FINANCIAL SUMMARY

CONSOLIDATED BALANCE SHEETS            
(Unaudited, dollars in thousands)         % Change % Change
December 31
2017		 September 30
2017		 December 31
2016		 Dec 2017 vs. Dec 2017 vs.
Sept 2017 Dec 2016
Assets
Cash and due from banks $ 103,485 $ 100,404 $ 97,196 3.07 % 6.47 %
Interest-earning deposits with banks 109,631 158,861 191,899 (30.99 )% (42.87 )%
Securities
Securities - trading 1,324 1,298 804 2.00 % 64.68 %
Securities - available for sale 447,498 429,125 363,644 4.28 % 23.06 %
Securities - held to maturity 497,688   478,798   487,076   3.95 % 2.18 %
Total securities 946,510 909,221 851,524 4.10 % 11.15 %
Loans held for sale (at fair value) 4,768 5,459 6,139 (12.66 )% (22.33 )%
Loans
Commercial and industrial 888,528 858,522 902,053 3.50 % (1.50 )%
Commercial real estate 3,116,561 3,087,160 3,010,798 0.95 % 3.51 %
Commercial construction 401,797 395,267 320,391 1.65 % 25.41 %
Small business 132,370   130,656   122,726   1.31 % 7.86 %
Total commercial 4,539,256   4,471,605   4,355,968   1.51 % 4.21 %
Residential real estate 754,329 756,130 644,426 (0.24 )% 17.05 %
Home equity - first position 612,990 615,132 577,006 (0.35 )% 6.24 %
Home equity - subordinate positions 439,098   437,163   411,141   0.44 % 6.80 %

Total consumer real estate

1,806,417   1,808,425   1,632,573   (0.11 )% 10.65 %
Other consumer 9,880   9,872   11,064   0.08 % (10.70 )%
Total loans 6,355,553   6,289,902   5,999,605   1.04 % 5.93 %
Less: allowance for loan losses (60,643 ) (59,710 ) (61,566 ) 1.56 % (1.50 )%
Net loans 6,294,910   6,230,192   5,938,039   1.04 % 6.01 %
Federal Home Loan Bank stock 11,597 11,597 11,497 — % 0.87 %
Bank premises and equipment, net 94,722 94,906 78,480 (0.19 )% 20.70 %
Goodwill 231,806 231,806 221,526 — % 4.64 %
Other intangible assets 9,341 10,299 9,848 (9.30 )% (5.15 )%
Cash surrender value of life insurance policies 151,528 150,352 144,503 0.78 % 4.86 %
Other real estate owned and other foreclosed assets 612 2,898 4,173 (78.88 )% (85.33 )%
Other assets 123,119   146,924   154,551   (16.20 )% (20.34 )%
Total assets $ 8,082,029   $ 8,052,919   $ 7,709,375   0.36 % 4.83 %
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 2,159,396 $ 2,183,760 $ 2,057,086 (1.12 )% 4.97 %
Savings and interest checking accounts 2,599,922 2,568,620 2,469,237 1.22 % 5.29 %
Money market 1,325,634 1,302,662 1,236,778 1.76 % 7.18 %
Time certificates of deposit 644,301   627,900   649,152   2.61 % (0.75 )%

Total deposits

6,729,253   6,682,942   6,412,253   0.69 % 4.94 %
Borrowings
Federal Home Loan Bank borrowings 53,264 53,272 50,819 (0.02 )% 4.81 %
Customer repurchase agreements 162,679 179,670 176,913 (9.46 )% (8.05 )%
Junior subordinated debentures, net 73,073 73,071 73,107 — % (0.05 )%
Subordinated debentures, net 34,682   34,670   34,635   0.03 % 0.14 %
Total borrowings 323,698   340,683   335,474   (4.99 )% (3.51 )%
Total deposits and borrowings 7,052,951   7,023,625   6,747,727   0.42 % 4.52 %
Other liabilities 85,269   98,070   96,958   (13.05 )% (12.06 )%
Total liabilities 7,138,220   7,121,695   6,844,685   0.23 % 4.29 %
Stockholders' equity
Common stock 273 273 268 — % 1.87 %
Additional paid in capital 479,430 477,877 451,664 0.32 % 6.15 %
Retained earnings 465,937 452,658 414,095 2.93 % 12.52 %
Accumulated other comprehensive (loss) income, net of tax (1,831 ) 416   (1,337 ) (540.14 )% 36.95 %
Total stockholders' equity 943,809   931,224   864,690   1.35 % 9.15 %

Total liabilities and stockholders' equity

$ 8,082,029   $ 8,052,919   $ 7,709,375   0.36 % 4.83 %
 
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)
      Three Months Ended        
        % Change % Change
December 31
2017		 September 30
2017		 December 31
2016		 Dec 2017 vs. Dec 2017 vs.
Sept 2017 Dec 2016
Interest income
Interest on federal funds sold and short-term investments $ 604 $ 417 $ 423 44.8 % 42.79 %
Interest and dividends on securities 5,864 5,661 5,379 3.59 % 9.02 %
Interest and fees on loans 66,384 65,667 57,561 1.09 % 15.33 %
Interest on loans held for sale 24   33   65   (27.27 )% (63.08 )%
Total interest income 72,876 71,778 63,428 1.53 % 14.90 %
Interest expense
Interest on deposits 3,692 3,331 2,801 10.84 % 31.81 %
Interest on borrowings 1,352   1,374   1,875   (1.60 )% (27.89 )%
Total interest expense 5,044   4,705   4,676   7.21 % 7.87 %
Net interest income 67,832 67,073 58,752 1.13 % 15.45 %
Provision for loan losses 1,300   —   4,000   nm   (67.50 )%
Net interest income after provision for loan losses 66,532 67,073 54,752 (0.81 )% 21.52 %
Noninterest income
Deposit account fees 4,485 4,401 4,673 1.91 % (4.02 )%
Interchange and ATM fees 4,410 4,525 4,160 (2.54 )% 6.01 %
Investment management 6,226 5,967 5,626 4.34 % 10.66 %
Mortgage banking income 1,351 1,338 2,149 0.97 % (37.13 )%
Increase in cash surrender value of life insurance policies 1,127 1,019 1,109 10.60 % 1.62 %
Gain on sale of equity securities — 12 1 nm nm
Loan level derivative income 1,109 784 1,528 41.45 % (27.42 )%
Other noninterest income 3,206   2,724   2,516   17.69 % 27.42 %
Total noninterest income 21,914 20,770 21,762 5.51 % 0.70 %
Noninterest expenses
Salaries and employee benefits 30,333 29,289 27,075 3.56 % 12.03 %
Occupancy and equipment expenses 6,391 6,085 5,940 5.03 % 7.59 %
Data processing and facilities management 1,256 1,272 1,144 (1.26 )% 9.79 %
FDIC assessment 834 673 725 23.92 % 15.03 %
Merger and acquisition expense — — 4,764 n/a nm
Loss on sale of equity securities 10 1 — 900.00 % nm
Other noninterest expenses 12,643   13,990   11,989   (9.63 )% 5.46 %
Total noninterest expenses 51,467 51,310 51,637 0.31 % (0.33 )%
Income before income taxes 36,979 36,533 24,877 1.22 % 48.65 %
Provision for income taxes 14,915   12,681   7,698   17.62 % 93.75 %
Net Income $ 22,064   $ 23,852   $ 17,179   (7.50 )% 28.44 %
(nm - the percentage is not meaningful)
 
Weighted average common shares (basic) 27,445,739 27,436,792 26,710,029
Common share equivalents 77,615   76,307   60,022  
Weighted average common shares (diluted) 27,523,354   27,513,099   26,770,051  
 
Basic earnings per share $ 0.80 $ 0.87 $ 0.64 (8.05 )% 25.00 %
Diluted earnings per share $ 0.80 $ 0.87 $ 0.64 (8.05 )% 25.00 %
 

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

Net income $ 22,064 $ 23,852 $ 17,179
Noninterest expense components
Add - merger and acquisition expenses —   —   4,764  
Noncore items, gross — — 4,764
Less - net tax benefit associated with noncore items (1) — — (1,702 )
2017 Tax Act: revaluation of net deferred tax assets 1,895 — —
2017 Tax Act: revaluation of LIHTC investments 466   —   —  
Total tax impact 2,361   —   (1,702 )
Net operating earnings $ 24,425   $ 23,852   $ 20,241   2.40 % 20.67 %
 
Diluted earnings per share, on an operating basis $ 0.89 $ 0.87 $ 0.76 2.30 % 17.11 %
(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) 3.64 % 3.65 % 3.36 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.08 % 1.18 % 0.89 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.20 % 1.18 % 1.05 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 9.28 % 10.18 % 8.07 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 10.28 % 10.18 % 9.51 %
 
 
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)
      Years Ended    
    % Change
December 31
2017		 December 31
2016		 Dec 2017 vs.
Dec 2016
 
Interest income
Interest on federal funds sold and short-term investments $ 1,418 $ 1,190 19.16 %
Interest and dividends on securities 22,553 20,968 7.56 %
Interest and fees on loans 253,131 224,244 12.88 %
Interest on loans held for sale 92   235   (60.85 )%

Total interest income

277,194 246,637 12.39 %
Interest expense
Interest on deposits 12,702 11,140 14.02 %
Interest on borrowings 5,632   7,653   (26.41 )%
Total interest expense 18,334   18,793   (2.44 )%
Net interest income 258,860 227,844 13.61 %
Provision for loan losses 2,950   6,075   (51.44 )%
Net interest income after provision for loan losses 255,910 221,769 15.39 %
Noninterest income
Deposit account fees 17,822 18,652 (4.45 )%
Interchange and ATM fees 17,291 16,210 6.67 %
Investment management 23,802 21,809 9.14 %
Mortgage banking income 4,960 6,607 (24.93 )%
Increase in cash surrender value of life insurance policies 4,127 4,089 0.93 %
Gain on sale of equity securities 19 6 216.67 %
Loan level derivative income 3,836 6,155 (37.68 )%
Other noninterest income 11,137   8,900   25.13 %
Total noninterest income 82,994 82,428 0.69 %
Noninterest expenses
Salaries and employee benefits 116,600 108,636 7.33 %
Occupancy and equipment expenses 24,693 22,867 7.99 %
Data processing and facilities management 4,988 4,975 0.26 %
FDIC assessment 3,068 3,380 (9.23 )%
Merger and acquisition expense 3,393 5,455 (37.80 )%
Loss on extinguishment of debt — 437 nm
Loss on sale of equity securities 16 32 (50.00 )%
Other noninterest expenses 51,601   46,340   11.35 %
Total noninterest expenses 204,359 192,122 6.37 %
Income before income taxes 134,545 112,075 20.05 %
Provision for income taxes 47,341   35,427   33.63 %
Net Income $ 87,204   $ 76,648   13.77 %
(nm - the percentage is not meaningful)
 
Weighted average common shares (basic) 27,294,028 26,404,071
Common share equivalents 78,076   51,847  
Weighted average common shares (diluted) 27,372,104   26,455,918  
 
Basic earnings per share $ 3.19 $ 2.90 10.00 %
Diluted earnings per share $ 3.19 $ 2.90 10.00 %
 

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

Net Income $ 87,204 $ 76,648
Noninterest expense components
Add - loss on extinguishment of debt — 437
Add - merger and acquisition expenses 3,393   5,455  
Noncore items, gross 3,393 5,892
Less - net tax benefit associated with noncore items (1) (1,241 ) (2,163 )
2017 Tax Act: revaluation of net deferred tax assets 1,895 —
2017 Tax Act: revaluation of LIHTC investments 466   —  
Total tax impact 1,120   (2,163 )
Net operating earnings $ 91,717   $ 80,377   14.11 %
 
Diluted earnings per share, on an operating basis $ 3.35 $ 3.04 10.20 %
(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) 3.60 % 3.40 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.11 % 1.04 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.16 % 1.09 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 9.55 % 9.43 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 10.05 % 9.89 %
 
     

ASSET QUALITY

(Unaudited, dollars in thousands) Nonperforming Assets At
December 31
2017		     September 30
2017		     December 31
2016
Nonperforming loans
Commercial & industrial loans $ 32,055 $ 32,556 $ 37,455
Commercial real estate loans 3,123 3,052 6,266
Small business loans 230 403 302
Residential real estate loans 8,129 8,297 7,782
Home equity 6,022 5,903 5,553
Other consumer 79   66   49  
Total nonperforming loans $ 49,638   $ 50,277   $ 57,407  
Other real estate owned 612   2,898   4,173  
Total nonperforming assets $ 50,250   $ 53,175   $ 61,580  
 
Nonperforming loans/gross loans 0.78 % 0.80 % 0.96 %
Nonperforming assets/total assets 0.62 % 0.66 % 0.80 %
Allowance for loan losses/nonperforming loans 122.17 % 118.76 % 107.24 %
Allowance for loan losses/total loans 0.95 % 0.95 % 1.03 %
Delinquent loans/total loans 0.77 % 0.82

%

0.33 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
December 31
2017		 September 30
2017		 December 31
2016
 
Nonperforming assets beginning balance $ 53,175 $ 54,812 $ 26,591
New to nonperforming 2,363 3,573 37,639
Loans charged-off (686 ) (817 ) (1,216 )
Loans paid-off (1,892 ) (3,679 ) (1,934 )
Loans transferred to other real estate owned/other assets — (107 ) (945 )
Loans restored to performing status (369 ) (557 ) (997 )
New to other real estate owned — 107 945
Acquired other real estate owned — — 2,100
Valuation write down (39 ) (238 ) (48 )
Sale of other real estate owned (2,195 ) — (681 )
Net capital improvements to other real estate owned — — 59
Other (107 ) 81   67  
Nonperforming assets ending balance $ 50,250   $ 53,175   $ 61,580  
 
     
Net Charge-Offs (Recoveries)
Three Months Ended     Years Ended
December 31
2017		     September 30
2017		     December 31
2016		 December 31
2017		     December 31
2016
Net charge-offs (recoveries)
Commercial and industrial loans $ 165 $ (280 ) $ 553 $ 3,276 $ (266 )
Commercial real estate loans (3 ) (286 ) 20 (346 ) (150 )
Small business loans 26 147 (36 ) 188 33
Residential real estate loans 23 28 (116 ) 176 (271 )
Home equity 28 16 47 78 461
Other consumer 128   144   171   501   527  
Total net charge-offs (recoveries) $ 367   $ (231 ) $ 639   $ 3,873   $ 334  
 
Net charge-offs (recoveries) to average loans (annualized) 0.02 % (0.01 )% 0.04 % 0.06 % 0.01 %
 
     
Troubled Debt Restructurings At
December 31
2017		     September 30
2017		     December 31
2016
Troubled debt restructurings on accrual status $ 25,852 $ 26,731 $ 27,093
Troubled debt restructurings on nonaccrual status 6,067   5,776   5,199  
Total troubled debt restructurings $ 31,919   $ 32,507   $ 32,292  
 
BALANCE SHEET AND CAPITAL RATIOS
December 31
2017		 September 30
2017		 December 31
2016
Gross loans/total deposits 94.45 % 94.12 % 93.56 %
Common equity tier 1 capital ratio (1) 11.20 % 11.13 % 10.82 %
Tier one leverage capital ratio (1) 10.04 % 10.03 % 9.77 %
Common equity to assets ratio GAAP 11.68 % 11.56 % 11.22 %
Tangible common equity to tangible assets ratio (2) 8.96 % 8.82 % 8.47 %
Book value per share GAAP $ 34.38 $ 33.94 $ 32.02
Tangible book value per share (2) $ 25.60 $ 25.12 $ 23.45

(1) Estimated number for December 31, 2017.
(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, 2017 September 30, 2017 December 31, 2016
Interest Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance     Paid (1)     Rate Balance     Paid (1)     Rate Balance     Paid (1)     Rate
Interest-earning assets
Interest-earning deposits with banks, federal funds sold, and short term investments $ 185,073 $ 604 1.29 % $ 132,327 $ 417 1.25 % $ 307,677 $ 423 0.55 %
Securities
Securities - trading 1,297 — — % 1,299 — — % 801 — — %
Securities - taxable investments 922,904 5,847 2.51 % 908,560 5,642 2.46 % 831,141 5,351 2.56 %
Securities - nontaxable investments (1) 2,365   25   4.19 % 2,817   29   4.08 % 4,274   43   4.00 %
Total securities 926,566 5,872 2.51 % 912,676 5,671 2.47 % 836,216 5,394 2.57 %
Loans held for sale 6,763 24 1.41 % 5,766 33 2.27 % 12,812 65 2.02 %
Loans
Commercial and industrial 856,272 9,135 4.23 % 868,358 9,173 4.19 % 856,983 8,447 3.92 %
Commercial real estate (1) 3,104,885 33,455 4.27 % 3,104,098 32,875 4.20 % 2,882,468 28,895 3.99 %
Commercial construction 401,309 4,528 4.48 % 365,143 4,177 4.54 % 354,235 3,718 4.18 %
Small business 130,403   1,861   5.66 % 130,275   1,828   5.57 % 117,131   1,609   5.46 %
Total commercial 4,492,869 48,979 4.33 % 4,467,874 48,053 4.27 % 4,210,817 42,669 4.03 %
Residential real estate 754,605 7,400 3.89 % 749,813 7,656 4.05 % 639,180 6,548 4.08 %
Home equity 1,050,815   10,155   3.83 % 1,046,894   10,081   3.82 % 979,179   8,437   3.43 %
Total consumer real estate 1,805,420 17,555 3.86 % 1,796,707 17,737 3.92 % 1,618,359 14,985 3.68 %
Other consumer 10,085   222   8.73 % 10,619   241   9.00 % 12,370   261   8.39 %
Total loans 6,308,374   66,756   4.20 % 6,275,200   66,031   4.17 % 5,841,546   57,915   3.94 %
Total interest-earning assets $ 7,426,776   $ 73,256   3.91 % $ 7,325,969   $ 72,152   3.91 % $ 6,998,251   $ 63,797   3.63 %
Cash and due from banks 98,397 100,228 92,836
Federal Home Loan Bank stock 11,597 12,734 12,507
Other assets 557,044   567,297   552,796  
Total assets $ 8,093,814   $ 8,006,228   $ 7,656,390  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,556,355 $ 1,052 0.16 % $ 2,562,557 $ 992 0.15 % $ 2,436,751 $ 757 0.12 %
Money market 1,337,491 1,261 0.37 % 1,309,457 1,171 0.35 % 1,239,411 825 0.26 %
Time deposits 635,941   1,379   0.86 % 611,080   1,168   0.76 % 645,611   1,219   0.75 %
Total interest-bearing deposits 4,529,787 3,692 0.32 % 4,483,094 3,331 0.29 % 4,321,773 2,801 0.26 %
Borrowings
Federal Home Loan Bank borrowings 53,267 262 1.95 % 53,926 302 2.22 % 54,038 379 2.79 %
Customer repurchase agreements 178,917 79 0.18 % 172,387 67 0.15 % 162,885 59 0.14 %
Junior subordinated debentures 73,072 584 3.17 % 73,070 578 3.14 % 73,132 1,011 5.50 %
Subordinated debentures 34,675   427   4.89 % 34,664   427   4.89 % 34,629   427   4.91 %
Total borrowings 339,931   1,352   1.58 % 334,047   1,374   1.63 % 324,684   1,876   2.30 %
Total interest-bearing liabilities $ 4,869,718   $ 5,044   0.41 % $ 4,817,141   $ 4,705   0.39 % $ 4,646,457   $ 4,677   0.40 %
Demand deposits 2,201,866 2,174,600 2,060,028
Other liabilities 79,208   84,782   103,144  
Total liabilities $ 7,150,792   $ 7,076,523   $ 6,809,629  
Stockholders' equity 943,022   929,705   846,761  
Total liabilities and stockholders' equity $ 8,093,814   $ 8,006,228   $ 7,656,390  
 
Net interest income $ 68,212   $ 67,447   $ 59,120  
 
Interest rate spread (2) 3.50 % 3.52 % 3.23 %
 
Net interest margin (3) 3.64 % 3.65 % 3.36 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,731,653 $ 3,692 $ 6,657,694 $ 3,331 $ 6,381,801 $ 2,801
Cost of total deposits 0.22 % 0.20 % 0.17 %
Total funding liabilities, including demand deposits $ 7,071,584 $ 5,044 $ 6,991,741 $ 4,705 $ 6,706,485 $ 4,677
Cost of total funding liabilities 0.28 % 0.27 % 0.28 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $380,000, $374,000, and $369,000 for the three months ended December 31, 2017, September 30, 2017, and December 31, 2016, respectively.
(2) Interest rate spread represents the difference between weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

      Years Ended
December 31, 2017     December 31, 2016
    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 $ 124,014 $ 1,418 1.14 % $ 228,861 $ 1,190 0.52 %
Securities
Securities - trading 1,223 — — % 701 — — %
Securities - taxable investments 901,891 22,465 2.49 % 826,131 20,851 2.52 %
Securities - nontaxable investments (1) 3,186   135   4.24 % 4,486   180   4.01 %
Total securities 906,300 22,600 2.49 % 831,318 21,031 2.53 %
Loans held for sale 4,760 92 1.93 % 9,213 235 2.55 %
Loans
Commercial and industrial 875,056 36,048 4.12 % 848,434 33,206 3.91 %
Commercial real estate (1) 3,067,077 127,512 4.16 % 2,748,337 111,977 4.07 %
Commercial construction 365,277 16,387 4.49 % 365,590 15,094 4.13 %
Small business 128,559   7,145   5.56 % 108,619   5,875   5.41 %
Total commercial 4,435,969 187,092 4.22 % 4,070,980 166,152 4.08 %
Residential real estate 713,608 28,179 3.95 % 633,313 25,487 4.02 %
Home equity 1,030,881   38,388   3.72 % 952,736   32,889   3.45 %
Total consumer real estate 1,744,489 66,567 3.82 % 1,586,049 58,376 3.68 %
Other consumer 10,641   944   8.87 % 13,398   1,185   8.84 %
Total loans 6,191,099   254,603   4.11 % 5,670,427   225,713   3.98 %
Total interest-earning assets $ 7,226,173   $ 278,713   3.86 % $ 6,739,819   $ 248,169   3.68 %
Cash and due from banks 97,694 91,107
Federal Home Loan Bank stock 12,781 12,831
Other assets 554,117   544,917  
Total assets $ 7,890,765   $ 7,388,674  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,541,845 $ 3,656 0.14 % $ 2,399,147 $ 3,173 0.13 %
Money market 1,298,598 4,224 0.33 % 1,178,262 2,996 0.25 %
Time deposits 622,909   4,822   0.77 % 649,678   4,971   0.77 %
Total interest-bearing deposits 4,463,352 12,702 0.28 % 4,227,087 11,140 0.26 %
Borrowings
Federal Home Loan Bank borrowings 59,204 1,385 2.34 % 61,398 1,653 2.69 %
Customer repurchase agreements 166,152 257 0.15 % 149,042 208 0.14 %
Junior subordinated debentures 73,074 2,281 3.12 % 73,207 4,083 5.58 %
Subordinated debentures 34,658   1,709   4.93 % 34,612   1,709   4.94 %
Total borrowings 333,088   5,632   1.69 % 318,259   7,653   2.40 %
Total interest-bearing liabilities $ 4,796,440   $ 18,334   0.38 % $ 4,545,346   $ 18,793   0.41 %
Demand deposits 2,098,501 1,924,173
Other liabilities 82,840   106,766  
Total liabilities $ 6,977,781 $ 6,576,285
Stockholders' equity 912,984   812,389  
Total liabilities and stockholders' equity $ 7,890,765   $ 7,388,674  
 
Net interest income $ 260,379   $ 229,376  
 
Interest rate spread (2) 3.48 % 3.27 %
 
Net interest margin (3) 3.60 % 3.40 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,561,853 $ 12,702 $ 6,151,260 $ 11,140
Cost of total deposits 0.19 % 0.18 %
Total funding liabilities, including demand deposits $ 6,894,941 $ 18,334 $ 6,469,519 $ 18,793
Cost of total funding liabilities 0.27 % 0.29 %

(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, 2017 and 2016, respectively.
(2) Interest rate spread represents the difference between weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(3) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

                     

Organic Loan and Deposit Growth

(Unaudited, dollars in thousands)                          
Year-over-Year
December 31
2017		 December 31
2016

Island Bancorp
Balances
Acquired

Organic
Growth/(Decline)

Organic
Growth/(Decline)
%

Loans
Commercial and industrial $ 888,528 $ 902,053 $ 4,271 $ (17,796 ) (1.97 )%
Commercial real estate 3,116,561 3,010,798 44,510 61,253 2.03 %
Commercial construction 401,797 320,391 106 81,300 25.38 %
Small business 132,370   122,726   57   9,587   7.81 %
Total commercial 4,539,256 4,355,968 48,944 134,344 3.08 %
Residential real estate 754,329 644,426 87,450 22,453 3.48 %
Home equity 1,052,088   988,147   18,921   45,020   4.56 %
Total consumer real estate 1,806,417 1,632,573 106,371 67,473 4.13 %
Total other consumer 9,880   11,064   236   (1,420 ) (12.83 )%
Total loans $ 6,355,553   $ 5,999,605   $ 155,551   $ 200,397   3.34 %
 
Deposits
Demand deposits $ 2,159,396 $ 2,057,086 $ 33,599 $ 68,711 3.34 %
Savings and interest checking accounts 2,599,922 2,469,237 47,095 83,590 3.39 %
Money market 1,325,634 1,236,778 63,915 24,941 2.02 %
Time certificates of deposit 644,301   649,152   14,971   (19,822 ) (3.05 )%
Total deposits $ 6,729,253   $ 6,412,253   $ 159,580   $ 157,420   2.45 %
 

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

APPENDIX A

(Unaudited, dollars in thousands, except per share data)

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

             
December 31
2017		 September 30
2017		 December 31
2016
Tangible common equity
Stockholders' equity (GAAP) $ 943,809 $ 931,224 $ 864,690 (a)
Less: Goodwill and other intangibles 241,147   242,105   231,374  
Tangible common equity $ 702,662   $ 689,119   $ 633,316   (b)
Tangible assets
Assets (GAAP) $ 8,082,029 $ 8,052,919 $ 7,709,375 (c)
Less: Goodwill and other intangibles 241,147   242,105   231,374  
Tangible assets $ 7,840,882   $ 7,810,814   $ 7,478,001   (d)
     
Common Shares 27,450,190   27,438,000   27,005,813   (e)
 
Common equity to assets ratio (GAAP) 11.68 % 11.56 % 11.22 % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 8.96 % 8.82 % 8.47 % (b/d)
Book value per share (GAAP) $ 34.38 $ 33.94 $ 32.02 (a/e)
Tangible book value per share (Non-GAAP) $ 25.60 $ 25.12 $ 23.45 (b/e)
 

APPENDIX B

(Unaudited, dollars in thousands)

The following table summarizes the impact of noncore items on 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 Years Ended

December 31 2017

    

September 30 2017

    

December 31 2016

December 31 2017

    

December 31 2016

Net interest income (GAAP) $ 67,832 $ 67,073 $ 58,752 $ 258,860 $ 227,844 (a)
 
Noninterest income (GAAP) $ 21,914   $ 20,770   $ 21,762   $ 82,994   $ 82,428   (b)
Noninterest income on an operating basis (Non-GAAP) $ 21,914 $ 20,770 $ 21,762 $ 82,994 $ 82,428 (c)
 
Noninterest expense (GAAP) $ 51,467 $ 51,310 $ 51,637 $ 204,359 $ 192,122 (d)
Less:
Loss on extinguishment of debt — — — — 437
Merger and acquisition expense —   —   4,764   3,393   5,455  

Noninterest expense on an operating basis (Non-GAAP)

$ 51,467 $ 51,310 $ 46,873 $ 200,966 $ 186,230 (e)
 
Total revenue (GAAP) $ 89,746 $ 87,843 $ 80,514 $ 341,854 $ 310,272 (a+b)
Total operating revenue (Non-GAAP) $ 89,746 $ 87,843 $ 80,514 $ 341,854 $ 310,272 (a+c)
 
Ratios
Noninterest income as a % of total revenue (GAAP based) 24.42 % 23.64 % 27.03 % 24.28 % 26.57 % (b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP) 24.42 % 23.64 % 27.03 % 24.28 % 26.57 % (c/(a+c))
Efficiency ratio (GAAP based) 57.35 % 58.41 % 64.13 % 59.78 % 61.92 % (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) 57.35 % 58.41 % 58.22 % 58.79 % 60.02 % (e/(a+c))
 

APPENDIX C

(Unaudited, dollars in thousands)

The following table summarizes the impact of the 2017 Tax Act on of the Company's calculation of the effective tax rate for the periods indicated:

         
Three Months Ended Years Ended
December 31
2017		     September 30
2017		     December 31
2016		   December 31, 2017   December 31, 2016
Income before income taxes $ 36,979 $ 36,533   $ 24,877 $ 134,545   $ 112,075 (a)
 
Provision for income taxes $ 14,915 $ 12,681 $ 7,698 $ 47,341 $ 35,427 (b)
Less:
2017 Tax Act: revaluation of net deferred tax assets 1,895 — — 1,895 — (c)
2017 Tax Act: revaluation of LIHTC investments 466   —   —   466   —   (d)
Taxes excluding impact of 2017 Tax Act $ 12,554 $ 12,681 $ 7,698 $ 44,980 $ 35,427 (e) ((b)-(c)-(d))
 
Effective tax rate 40.33 % 34.71 % 30.94 % 35.19 % 31.61 % (b)/(a)
Impact of 2017 Tax Act 6.38 % — % — % 1.76 % — % (c)+(d)/(a)
Adjusted effective tax rate 33.95 % 34.71 % 30.94 % 33.43 % 31.61 % (e)/(a)