Higher revenues drive earnings growth

Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2022 third quarter net income of $71.9 million, or $1.57 per diluted share, compared to 2022 second quarter net income of $61.8 million, or $1.32 per diluted share, driven primarily by strong net interest margin expansion and profitable deployment of liquid assets.

The Company generated a return on average assets and a return on average common equity of 1.43% and 9.90%, respectively, for the third quarter of 2022, as compared to 1.24% and 8.49%, respectively, for the prior quarter.

“The strength of our third quarter performance is attributable to our long-term, sustained focus on building core relationships and disciplined growth combined with astute balance sheet management,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “Our results reflect the tireless commitment and dedication of our colleagues, who each day live out our shared mission of forging enduring relationships with each other and with the customers and communities that Rockland Trust serves.”

BALANCE SHEET

Total assets of $19.7 billion at September 30, 2022 decreased by $279.2 million, or 1.4% from the prior quarter due primarily to a decline in cash balances, and increased by $5.2 billion, or 35.6%, as compared to the year ago period, inclusive of the 2021 fourth quarter acquisition of Meridian Bancorp, Inc. ("Meridian") and its subsidiary, East Boston Savings Bank, which closed during the fourth quarter of 2021.

Total loans at September 30, 2022 of $13.7 billion increased by $24.6 million, or 0.7% on an annualized basis compared to the prior quarter level. Excluding $19.4 million of net paydowns associated with the Paycheck Protection Program ("PPP"), the loan portfolio increased by $44.0 million, or 1.3% on an annualized basis, compared to the prior quarter. Strong consumer loan activity continued to be the primary driver of organic loan growth, as the majority of residential real estate loan closings were retained on the balance sheet, resulting in 6.2% growth (24.8% annualized) for the quarter in that portfolio, while increased demand and line utilization fueled 2.0% (8.1% annualized) growth in home equity balances for the quarter. Excluding PPP loans, commercial and industrial balances increased 1.8% (7.0% annualized) during the quarter, driven primarily by increased line utilization and strong closing volumes, but were offset by attrition within the commercial real estate and construction categories resulting in a total commercial portfolio decrease of 1.0%.

Deposit balances of $16.3 billion at September 30, 2022 decreased by $300.6 million, or 1.8%, from the prior quarter primarily attributable to continued runoff in higher-cost time and certain rate sensitive deposits. Despite the reduction in total balances, non-interest bearing deposits rose by $60.1 million, or 1.1%, in the third quarter as new core account opening activity remained strong. Core deposits comprised 87.8% of total deposits at September 30, 2022, an increase from 86.8% at June 30, 2022, while the total cost of deposits for the quarter increased 10 basis points to 0.15%.

Total borrowings decreased by $25.0 million, or 18.1% when compared to the prior quarter reflecting primarily the maturity of a short-term Federal Home Loan Bank borrowing.

The securities portfolio increased by $212.2 million, or 7.2%, when compared to the prior quarter, reflecting the Company's ongoing strategy to deploy a portion of excess cash balances into investment securities. Total purchases for the quarter were $325.3 million, offset by an unrealized loss of $55.5 million related to the available for sale portfolio, as well as paydowns, calls, and maturities. Total securities represented 16.0% of total assets at September 30, 2022, as compared to 14.7% at June 30, 2022.

During the third quarter, the Company repurchased an additional 443,000 shares of its common stock for $34.6 million, marking the completion of its previously announced stock repurchase program. In total, the Company repurchased 1.8 million shares of its common stock under the program over the first three quarters of 2022 at an average price of $78.32 per share. Stockholders' equity at September 30, 2022 decreased 1.9% when compared to the prior quarter, primarily attributable to the aforementioned share repurchases executed during the third quarter, along with increased other comprehensive losses of $69.6 million, which were partially offset by strong earnings retention. As a result of this decrease in stockholders' equity, book value per share decreased by $0.59, or 0.9%, to $61.73 during the third quarter as compared to the prior quarter. The Company's ratio of common equity to assets of 14.3% at September 30, 2022 represented a decrease of 7 basis points from the prior quarter and an increase of 18.4% from the year ago period. The Company's tangible book value per share at September 30, 2022 declined by $0.75, or 1.9%, from the prior quarter to $39.56, but represented an increase of 6.2% from the year ago period inclusive of the accretive impact of the Meridian acquisition. The Company's ratio of tangible common equity to tangible assets of 9.66% at September 30, 2022 represents a decrease of 13 basis points from the prior quarter and an increase of 9.9% from the year ago period. Please refer to Appendix A for a detailed reconciliation of Non-GAAP metrics.

In consideration of the Company’s strong current capital position, the Company is announcing a new stock repurchase plan, which authorizes repurchases by the Company of up to $120 million in common stock and is scheduled to expire on October 19, 2023.

NET INTEREST INCOME

Net interest income for the third quarter increased 12.2% to $162.6 million compared to $144.9 million for the prior quarter, primarily reflecting the positive impact of asset repricing in the rising interest rate environment in conjunction with relatively modest deposit rate increases, partially offset by a reduction in net PPP fee income of $1.3 million. Average earning asset levels were essentially flat in the third quarter compared to the prior quarter. The reported net interest margin increased by 37 basis points from the prior quarter to 3.64%, and increased 36 basis points to 3.59% on a core basis when excluding PPP fees, purchase accounting, and other non-recurring items. Please refer to Appendix C for additional details regarding the net interest margin.

NONINTEREST INCOME

Noninterest income of $28.2 million for the third quarter of 2022 was $297,000, or 1.1% higher as compared to the prior quarter. Significant changes in noninterest income for the third quarter compared to the prior quarter included the following:

• Deposit account fees and interchange and ATM fees increased by $433,000, or 7.4%, and $304,000, or 7.5%, respectively, both driven primarily by increased transaction volume during the third quarter.

• Investment management income decreased by $893,000, or 9.6%, primarily driven by a reduction in seasonal tax preparation fees recognized during the second quarter and a decline in overall asset valuations during the third quarter. The decline in market valuations was mitigated by a healthy volume of new asset inflows, resulting in a modest $65.0 million, or 1.3% decrease in assets under administration to $5.1 billion as of September 30, 2022.

• Mortgage banking income decreased by $457,000, or 43.9%, primarily due to overall reduced activity, with the vast majority of originations being retained in portfolio.

• Other noninterest income increased by $509,000, or 9.7%, primarily attributable to a gain on the sale of a vacated office space recently acquired during the Meridian acquisition and increased foreign currency exchange fees.

NONINTEREST EXPENSE

Noninterest expense of $92.7 million for the third quarter of 2022 was $2.2 million, or 2.4%, higher as compared to the prior quarter. Significant changes in noninterest expense for the third quarter compared to the prior quarter included the following:

• Salaries and employee benefits increased by $3.2 million, or 6.4%, primarily due to increases in salaries and incentives.

• Occupancy and equipment increased by $679,000, or 5.8%, due mainly to increases in office equipment costs and equipment maintenance and repairs.

• Other noninterest expense decreased by $1.6 million, or 6.4%, due primarily to decreases in unrealized losses on equity securities, director expenses (which were incurred during the second quarter related primarily to grants of equity compensation), and reduced consultant fees.

The Company’s tax rate for the third quarter of 2022 remained relatively flat at 24.37%, compared to 24.84% for the prior quarter.

ASSET QUALITY

Nonperforming loans remained consistent at $56.0 million, or 0.41% of total loans at September 30, 2022, as compared to $55.9 million, or 0.41% of total loans at June 30, 2022, with minimal net charge-offs recorded during the third quarter of 2022. Delinquency as a percentage of total loans decreased 23 basis points from the prior quarter to 0.17% at September 30, 2022, due primarily to the resolution and full payoff of a non-performing commercial loan.

In conjunction with the category shifts on current nonperforming loans and no significant changes to the overall economic outlook, the Company recorded a $3.0 million provision for credit losses during the third quarter of 2022. The allowance for credit losses on total loans was $147.3 million, or 1.08% of total loans, at September 30, 2022, as compared to $144.3 million, or 1.06% of total loans, at June 30, 2022.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer, Robert Cozzone, Chief Operating Officer, and Mark Ruggiero, Chief Financial Officer, will host a conference call to discuss third quarter earnings and other matters at 10:00 a.m. Eastern Time on Friday, October 21, 2022. Internet access to the call is available on the Company’s website at https://INDB.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: 5395173 and will be available through October 28, 2022. Additionally, a webcast replay will be available on the Company's website until October 21, 2023.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. (NASDAQ Global Select Market: INDB) is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Rockland Trust was named to The Boston Globe's "Top Places to Work" 2021 list, an honor earned for the 13th consecutive year. *In 2022, Rockland Trust was ranked #1 in Customer Satisfaction with Retail Banking in New England. Rockland Trust has a longstanding commitment to equity and inclusion. This commitment is underscored by initiatives such as Diversity and Inclusion leadership training, a colleague Allyship mentoring program, and numerous Employee Resource Groups focused on providing colleague support and education, reinforcing a culture of mutual respect and advancing professional development, and Rockland Trust's sponsorship of diverse community organizations through charitable giving and employee-based volunteerism. In addition, Rockland Trust is deeply committed to the communities it serves, as reflected in the overall "Outstanding" rating in its most recent Community Reinvestment Act performance evaluation. Rockland Trust offers a wide range of banking, investment, and insurance services. The Bank serves businesses and individuals through over 120 retail branches, commercial and residential lending centers, and investment management offices in eastern Massachusetts, including Greater Boston, South Shore, North Shore, Cape Cod and Islands, Worcester County, and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. Rockland Trust is an FDIC member and an Equal Housing Lender. To find out why Rockland Trust is the bank "Where Each Relationship Matters®," please visit RocklandTrust.com.

This press release contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations and business of the Company. These statements may be identified by such forward-looking terminology as “expect,” “achieve,” “plan,” “believe,” “future,” “positioned,” “continued,” “will,” “would,” “potential,” or similar statements or variations of such terms. Actual results may differ from those contemplated by these forward-looking statements.

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

• further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including any future weakening caused by the COVID-19 pandemic and any uncertainty regarding the length and extent of economic contraction as a result of the pandemic;
• the potential effects of inflationary pressures, labor market shortages and supply chain issues;
• the instability or volatility in financial markets and unfavorable general economic or business conditions, globally, nationally or regionally, caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine;
• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;
• adverse changes or volatility in the local real estate market;
• adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;
• acquisitions may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
• additional regulatory oversight and related compliance costs;
• changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
• higher than expected tax expense, resulting from failure to comply with general tax laws and changes in tax laws;
• changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR;
• increased competition in the Company’s market areas;
• adverse weather, changes in climate, natural disasters, geopolitical concerns, including those arising from the conflict between Russia and Ukraine;
• the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, any further resurgences or variants of the COVID-19 virus, the efficacy and availability of vaccines, boosters or other treatments, actions taken by governmental authorities in response thereto, other public health crises or man-made events, and their impact on the Company's local economies or the Company's operations;
• a deterioration in the conditions of the securities markets;
• a deterioration of the credit rating for U.S. long-term sovereign debt;
• inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
• electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
• adverse changes in consumer spending and savings habits;
• the effect of laws and regulations regarding the financial services industry;
• changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;
• the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;
• changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters including, but not limited to, changes to how the Company accounts for credit losses;
• cyber security attacks or intrusions that could adversely impact our businesses; and
• other unexpected material adverse changes in our operations or earnings.

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

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

Operating net income, operating EPS, operating return on average assets and operating return on average common equity, exclude items that management believes are unrelated to the Company's core banking business such as merger and acquisition expenses, provision for credit losses on acquired loan portfolios, and other items, if applicable. Management uses operating net income and related ratios and operating EPS to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such items. Management reviews its core margin to determine any items that may impact the net interest margin that may be one-time in nature or not reflective of its core operating environment, such as unique low-yielding loans originated through government programs in response to the pandemic, or significant purchase accounting adjustments, or other adjustments such as nonaccrual interest reversals/recoveries and prepayment penalties. Management believes that adjusting for these items to arrive at a core margin provides additional insight into the operating environment and how management decisions impact the net interest margin. Similarly, management reviews certain loan metrics such as growth rates and allowance as a percentage of total loans, adjusted to exclude loans that are not considered part of its core portfolio, which includes loans originated in association with government sponsored and guaranteed programs in response to the pandemic, to arrive at adjusted numbers more representative of the core growth of the portfolio and core reserve to loan ratio.

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

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

Category: Earnings Releases