Independent Bank Corp. Reports Third Quarter Net Income of $33.0 Million

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Strong Earnings Growth Marked by Higher Revenues and Returns

Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2018 third quarter net income of $33.0 million, or $1.20 per diluted share, compared to net income of $31.1 million, or $1.13 per diluted share, reported in the prior quarter of 2018. Excluding merger and acquisition expenses incurred in the third and second quarters of 2018 related to the pending MNB Bancorp ("MNB") merger announced on May 29, 2018 and the Blue Hills Bancorp ("BHB") merger announced on September 20, 2018, operating net income was $34.9 million, or $1.27 per diluted share during the third quarter compared to $31.4 million, or $1.14 per diluted share during the second quarter.

"Rockland Trust continued to grow during the third quarter, as loans increased and our net interest margin continued to expand," said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. "We also recently announced the signing of an agreement to acquire Blue Hills Bank, a transaction which will improve Rockland Trust's presence in overlapping and adjacent markets and permit us to expand onto Nantucket Island upon its anticipated closing in the first half of 2019. Our ongoing success is a testament to the hard work of my talented colleagues and the enduring relationships they forge with each other and with the customers and communities that Rockland Trust serves."

BALANCE SHEET

Total assets of $8.4 billion at September 30, 2018 remained consistent with the prior quarter, and increased by $322.6 million, or 4.0%, as compared to the year ago period.

Total loans grew by 0.7% (2.9% annualized) over the prior quarter. This growth was led by an increase of $27.5 million, or 11.2% on an annualized basis, in commercial and industrial loans with the primary driver being growth in asset-based lending. In addition, there was a $22.4 million, or 11.4% on an annualized basis, increase in residential real estate loans as the portfolio continues to benefit from seasonal demand. Business banking and home equity loans also experienced modest growth during the quarter. The decline in the commercial construction portfolio reflected projects reaching completion during the quarter.

Deposit balances of $7.0 billion in the third quarter of 2018 decreased by $37.3 million, or 0.5%, from the prior quarter. The overall decrease was driven primarily by seasonal declines in the municipal category, offset by strong growth (13.0% on an annualized basis) in demand deposit balances which now comprise 33.5% of total deposits. The total cost of deposits increased by three basis points in the third quarter to 0.30%.

The securities portfolio was up modestly, increasing by $8.7 million, or 0.9%, compared to the prior quarter, due to purchases of $47.2 million, offset by paydowns on existing securities.

The Company's total borrowings of $299.7 million remained relatively consistent with the prior quarter.

Stockholders' equity at September 30, 2018 rose to $998.3 million, an increase of 2.2% from June 30, 2018, due primarily to strong earnings, partially offset by decreases in other comprehensive income largely attributable to unrealized losses on available for sale securities. In addition, stockholders' equity increased by 7.2% compared to the year ago period. Book value per share increased $0.76, or 2.1%, during the third quarter, and the Company's ratio of common equity to assets of 11.92% increased by 26 basis points from the prior quarter and by 36 basis points from the same period a year ago. The Company's tangible book value per share rose by $0.78, or 2.9%, to $27.56 in the third quarter of 2018 from the second quarter and is now 9.7% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.33% at September 30, 2018 is 27 basis points higher than the prior quarter and 51 basis points above the same period a year ago.

NET INTEREST INCOME

Net interest income for the third quarter increased 4.2% to $76.2 million compared to $73.2 million in the prior quarter, due to solid average earning asset growth and a higher net interest margin. The net interest margin rose to 3.94%, compared to 3.89% in the prior quarter, as the Company continues to benefit from its sustained asset sensitive position.

NONINTEREST INCOME

Noninterest income of $23.3 million in the third quarter of 2018 was $1.4 million, or 6.3%, higher than the prior quarter. Significant changes in noninterest income in the third quarter compared to the prior quarter included the following:

  • Interchange and ATM fees increased by $178,000, or 3.7%, driven mainly by seasonality.
  • Investment management income decreased by $258,000, or 3.8%, due to decreased revenue associated with seasonal tax preparation that occurred in the prior quarter along with lower retail commissions. Total assets under administration were $3.6 billion as of September 30, 2018, representing an increase of $78.3 million from the prior quarter.
  • Mortgage banking income grew by $184,000, or 17.7%, due primarily to an overall increase in new loan originations.
  • The Company received proceeds on life insurance policies during the third quarter, resulting in a gain of $1.5 million.
  • Loan level derivative income decreased by $316,000, or 44.6%, as a result of reduced customer demand in the quarter.

NONINTEREST EXPENSE

Noninterest expense of $55.4 million in the third quarter of 2018 was $2.8 million, or 5.2%, higher than the prior quarter. Significant changes in noninterest expense in the third quarter compared to the prior quarter included the following:

  • Salaries and employee benefits expense increased by $807,000, or 2.7%, reflecting increases in base salaries, incentive compensation and medical insurance, partially offset by a decrease in payroll taxes.
  • Occupancy and equipment expense was lower by $187,000, or 2.9%, mainly due to decreases in cleaning costs, equipment maintenance and repairs and utility costs.
  • Merger and acquisition costs of $2.7 million for the third quarter included $2.1 million attributable to the pending BHB acquisition, which is anticipated to close in the first half of 2019, and $557,000 attributable to the pending MNB acquisition, which is anticipated to close in the fourth quarter of 2018. The majority of these costs include investment banker fees, professional fees, and legal fees.
  • Other noninterest expense decreased by $180,000, or 1.3%, driven by decreases in equity compensation for directors due to a change in the vesting requirements for the 2018 annual director equity grant that was implemented in the second quarter of 2018, partially offset by increases in advertising expense.

The Company generated a return on average assets and a return on average common equity of 1.57% and 13.19%, respectively, in the third quarter of 2018, as compared to 1.52% and 12.85%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.66% and 13.96%, respectively, during the third quarter of 2018, as compared to 1.53% and 12.98%, respectively, for the prior quarter.

The Company's effective tax rate increased slightly to 23.2% for the third quarter as compared to 22.9% in the prior quarter.

ASSET QUALITY

During the third quarter of 2018, the Company recorded total net charge-offs of $397,000, or 0.02% of average loans on an annualized basis, representing a slight increase from net charge-offs of $305,000 in the prior quarter. The provision for loan losses decreased to $1.1 million for the third quarter of 2018 compared to $2.0 million in the second quarter of 2018 due mainly to decreased loan growth experienced during the current quarter as compared to the prior quarter. Nonperforming loans decreased by 3.6% to $45.4 million, or 0.70% of loans, at September 30, 2018 from $47.1 million, or 0.73% of loans, at June 30, 2018. Total nonperforming assets decreased to $45.6 million at the end of the third quarter, as compared to $47.4 million at the end of the prior quarter. Nonperforming asset levels declined by 14.3% as compared to the year ago period. At September 30, 2018 delinquency as a percentage of loans was 0.71%, representing a decrease of eighteen basis points from the prior quarter.

The allowance for loan losses was $63.2 million at September 30, 2018, as compared to $62.6 million at June 30, 2018. The Company's allowance for loan losses as a percentage of loans was 0.97% at both September 30, 2018 and June 30, 2018.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer, will host a conference call to discuss third quarter earnings at 10:00 a.m. Eastern Time on Friday, October 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: 10122971 and will be available through November 2, 2018. Additionally, a webcast replay will be available until October 19, 2019.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.4 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;
  • inability to raise capital on terms that are favorable;
  • additional regulatory oversight and additional costs associated with the Company's anticipated increase in assets to over $10 billion.
  • changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
  • higher than expected tax expense, resulting from failure to comply with general tax laws, changes in tax laws, or failure to comply with requirements of the federal New Markets Tax Credit program;
  • 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;
  • failure to consummate or a delay in consummating the acquisitions of MNB Bancorp and Blue Hills Bancorp, which are subject to certain standard conditions, including regulatory approvals and shareholder approval for the Blue Hills Bancorp transaction;
  • 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 the MNB Bancorp and Blue Hills Bancorp 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 net income and operating earnings per share ("EPS"), 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 net income and operating EPS exclude items that management believes are unrelated to its core banking business such as merger and acquisition expenses, and other items, if applicable. The Company's management uses operating earnings and 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.

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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 noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company's results for any particular quarter or year. The Company's non-GAAP performance measures, including operating earnings, operating EPS, 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
September 30
2018
June 30
2018
September 30
2017
Sept 2018 vs.

Sept 2018 vs.

June 2018

Sept 2017
Assets
Cash and due from banks $ 102,540 $ 113,930 $ 100,404 (10.00 )% 2.13 %
Interest-earning deposits with banks 148,307 209,176 158,861 (29.10 )% (6.64 )%
Securities
Trading 1,581 1,598 1,298 (1.06 )% 21.80 %
Equities 20,430 20,133 1.48 %

 

100.00%

 

Available for sale 435,861 442,929 429,125 (1.60 )% 1.57 %
Held to maturity 553,705   538,261   478,798   2.87 % 15.64 %  
Total securities 1,011,577 1,002,921 909,221 0.86 % 11.26 %
Loans held for sale (at fair value) 10,431 9,614 5,459 8.50 % 91.08 %
Loans
Commercial and industrial 1,003,780 976,264 858,522 2.82 % 16.92 %
Commercial real estate 3,132,491 3,131,337 3,087,160 0.04 % 1.47 %
Commercial construction 352,491 364,225 395,267 (3.22 )% (10.82 )%
Small business 149,200   147,137   130,656   1.40 % 14.19 %  
Total commercial 4,637,962   4,618,963   4,471,605   0.41 % 3.72 %  
Residential real estate 801,810 779,421 756,130 2.87 % 6.04 %
Home equity - first position 647,132 646,626 615,132 0.08 % 5.20 %
Home equity - subordinate positions 426,829   422,671   437,163   0.98 % (2.36 )%  
Total consumer real estate 1,875,771   1,848,718   1,808,425   1.46 % 3.72 %  
Other consumer 13,669   11,590   9,872   17.94 % 38.46 %  
Total loans 6,527,402   6,479,271   6,289,902   0.74 % 3.78 %  
Less: allowance for loan losses (63,235 ) (62,557 ) (59,710 ) 1.08 % 5.90 %  
Net loans 6,464,167   6,416,714   6,230,192   0.74 % 3.76 %  
Federal Home Loan Bank stock 13,107 13,107 11,597 % 13.02 %
Bank premises and equipment, net 95,941 95,838 94,906 0.11 % 1.09 %
Goodwill 231,806 231,806 231,806 % %
Other intangible assets 7,379 7,918 10,299 (6.81 )% (28.35 )%
Cash surrender value of life insurance policies 153,186 153,574 150,352 (0.25 )% 1.88 %
Other real estate owned and other foreclosed assets 190 245 2,898 (22.45 )% (93.44 )%
Other assets 136,866   126,159   146,924   8.49 % (6.85 )%  
Total assets $ 8,375,497   $ 8,381,002   $ 8,052,919   (0.07 )% 4.01 %  
Liabilities and Stockholders' Equity
Deposits
Demand deposits $ 2,337,221 $ 2,262,871 $ 2,183,760 3.29 % 7.03 %
Savings and interest checking accounts 2,621,926 2,739,228 2,568,620 (4.28 )% 2.08 %
Money market 1,353,641 1,351,623 1,302,662 0.15 % 3.91 %
Time certificates of deposit 663,451   659,768   627,900   0.56 % 5.66 %  
Total deposits 6,976,239   7,013,490   6,682,942   (0.53 )% 4.39 %  
Borrowings
Federal Home Loan Bank borrowings 50,767 50,775 53,272 (0.02 )% (4.70 )%
Customer repurchase agreements 141,176 142,235 179,670 (0.74 )% (21.42 )%
Junior subordinated debentures, net 73,078 73,077 73,071 % 0.01 %
Subordinated debentures, net 34,717   34,705   34,670   0.03 % 0.14 %  
Total borrowings 299,738   300,792   340,683   (0.35 )% (12.02 )%  
Total deposits and borrowings 7,275,977   7,314,282   7,023,625   (0.52 )% 3.59 %  
Other liabilities 101,215   89,655   98,070   12.89 % 3.21 %  
Total liabilities 7,377,192   7,403,937   7,121,695   (0.36 )% 3.59 %  
Stockholders' equity
Common stock 274 274 273 %

 

0.37 %
Additional paid in capital 483,222 481,979 477,877 0.26 % 1.12 %
Retained earnings 527,473 504,926 452,658 4.47 % 16.53 %
Accumulated other comprehensive income (loss), net of tax (12,664 ) (10,114 ) 416   25.21 % nm
Total stockholders' equity 998,305   977,065   931,224   2.17 % 7.20 %  
Total liabilities and stockholders' equity $ 8,375,497   $ 8,381,002   $ 8,052,919   (0.07 )% 4.01 %  

(nm - the percentage is not meaningful)

 
           
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)
Three Months Ended
        % Change % Change

September 30
2018

June 30
2018
September 30
2017

Sept 2018 vs.

Sept 2018 vs.

June 2018

Sept 2017
Interest income
Interest on federal funds sold and short-term investments $ 916 $ 541 $ 417 69.32 %

 

119.66 %
Interest and dividends on securities 6,678 6,514 5,661 2.52 % 17.97 %
Interest and fees on loans 75,220 72,082 65,667 4.35 % 14.55 %
Interest on loans held for sale 61   30   33   103.33 %   84.85 %  
Total interest income 82,875 79,167 71,778 4.68 % 15.46 %
Interest expense
Interest on deposits 5,251 4,587 3,331 14.48 % 57.64 %
Interest on borrowings 1,390   1,412   1,374   (1.56 )%   1.16 %  
Total interest expense 6,641   5,999   4,705   10.70 %   41.15 %  
Net interest income 76,234 73,168 67,073 4.19 % 13.66 %
Provision for loan losses 1,075   2,000     (46.25 )%  

100.00%

 

Net interest income after provision for loan losses 75,159 71,168 67,073 5.61 % 12.06 %
Noninterest income
Deposit account fees 4,658 4,551 4,401 2.35 % 5.84 %
Interchange and ATM fees 4,947 4,769 4,525 3.73 % 9.33 %
Investment management 6,564 6,822 5,967 (3.78 )% 10.01 %
Mortgage banking income 1,222 1,038 1,338 17.73 % (8.67 )%
Increase in cash surrender value of life insurance policies 984 998 1,019 (1.40 )% (3.43 )%
Gain on life insurance benefits 1,463

100.00%

 

 

100.00%

 

Gain on sale of equity securities 4 2 12 100.00 % (66.67 )%
Loan level derivative income 392 708 784 (44.63 )% (50.00 )%
Other noninterest income 3,030   2,999   2,724   1.03 %   11.23 %  

Total noninterest income

23,264 21,887 20,770 6.29 % 12.01 %
Noninterest expenses
Salaries and employee benefits 31,095 30,288 29,289 2.66 % 6.17 %
Occupancy and equipment expenses 6,310 6,497 6,085 (2.88 )% 3.70 %
Data processing and facilities management 1,287 1,264 1,272 1.82 % 1.18 %
FDIC assessment 725 691 673 4.92 % 7.73 %
Merger and acquisition expense 2,688 434 nm

100.00%

 

Loss on sale of equity securities 1 n/a (100.00 )%
Other noninterest expenses 13,334   13,514   13,990   (1.33 )%   (4.69 )%  
Total noninterest expenses 55,439 52,688 51,310 5.22 % 8.05 %
Income before income taxes 42,984 40,367 36,533 6.48 % 17.66 %
Provision for income taxes 9,969   9,249   12,681   7.78 %   (21.39 )%  
Net Income $ 33,015   $ 31,118   $ 23,852   6.10 %   38.42 %  
(nm - the percentage is not meaningful)
 
Weighted average common shares (basic) 27,537,841 27,526,653 27,436,792
Common share equivalents 63,499   54,525   76,307  
Weighted average common shares (diluted) 27,601,340   27,581,178   27,513,099  
 
Basic earnings per share $ 1.20 $ 1.13 $ 0.87 6.19 % 37.93 %
Diluted earnings per share $ 1.20 $ 1.13 $ 0.87 6.19 % 37.93 %
 

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

Net income $ 33,015 $ 31,118 $ 23,852
Noninterest expense components
Add - merger and acquisition expenses 2,688   434    
Noncore items, gross 2,688 434
Less - net tax benefit associated with noncore items (1) (756 ) (122 )  
Noncore items, net of tax 1,932   312    
Operating net income $ 34,947   $ 31,430   $ 23,852   11.19 % 46.52 %
 
Diluted earnings per share, on an operating basis $ 1.27 $ 1.14 $ 0.87 11.40 % 45.98 %
 

(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) 3.94 % 3.89 % 3.65 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.57 % 1.52 % 1.18 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.66 % 1.53 % 1.18 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 13.19 % 12.85 % 10.18 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 13.96 % 12.98 % 10.18 %
 
       
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, dollars in thousands, except per share data)  
Nine Months Ended
% Change
September 30
2018
September 30
2017
Sept 2018 vs.
Sept 2017
 
Interest income
Interest on federal funds sold and short-term investments $ 1,768 $ 814 117.20 %
Interest and dividends on securities 19,427 16,689 16.41 %
Interest and fees on loans 214,486 186,747 14.85 %
Interest on loans held for sale 110   68   61.76 %

Total interest income

235,791 204,318 15.40 %
Interest expense
Interest on deposits 13,773 9,010 52.86 %
Interest on borrowings 4,145   4,280   (3.15 )%
Total interest expense 17,918   13,290   34.82 %
Net interest income 217,873 191,028 14.05 %
Provision for loan losses 3,575   1,650   116.67 %
Net interest income after provision for loan losses 214,298 189,378 13.16 %
Noninterest income
Deposit account fees 13,640 13,337 2.27 %
Interchange and ATM fees 13,889 12,881 7.83 %
Investment management 19,528 17,576 11.11 %
Mortgage banking income 3,130 3,609 (13.27 )%
Increase in cash surrender value of life insurance policies 2,929 3,000 (2.37 )%
Gain on life insurance benefits 1,463 100.00%
Gain on sale of equity securities 6 19 (68.42 )%
Loan level derivative income 1,547 2,727 (43.27 )%
Other noninterest income 8,882   7,931   11.99 %
Total noninterest income 65,014 61,080 6.44 %
Noninterest expenses
Salaries and employee benefits 92,483 86,267 7.21 %
Occupancy and equipment expenses 20,215 18,302 10.45 %
Data processing and facilities management 3,837 3,732 2.81 %
FDIC assessment 2,214 2,234 (0.90 )%
Merger and acquisition expense 3,122 3,393 (7.99 )%
Loss on sale of equity securities 6 (100.00 )%
Other noninterest expenses 39,707   38,958   1.92 %
Total noninterest expenses 161,578 152,892 5.68 %
Income before income taxes 117,734 97,566 20.67 %
Provision for income taxes 26,046   32,426   (19.68 )%
Net Income $ 91,688   $ 65,140   40.76 %
 
 
Weighted average common shares (basic) 27,517,210 27,242,902
Common share equivalents 62,596   78,043  
Weighted average common shares (diluted) 27,579,806   27,320,945  
 
Basic earnings per share $ 3.33 $ 2.39 39.33 %
Diluted earnings per share $ 3.32 $ 2.38 39.50 %
 

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

Net Income $ 91,688 $ 65,140
Noninterest expense components
Add - merger and acquisition expenses 3,122   3,393  

Noncore items, gross

3,122 3,393
Less - net tax benefit associated with noncore items (1) (878 ) (1,241 )
Operating net income $ 93,932   $ 67,292   39.59 %
 
Diluted earnings per share, on an operating basis $ 3.41 $ 2.46 38.62 %
 

(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) 3.87 % 3.59 %
Return on average assets GAAP (calculated by dividing net income by average assets) 1.49 % 1.11 %
Return on average assets on an operating basis (calculated by dividing net operating earnings by average assets) 1.53 % 1.15 %
Return on average common equity GAAP (calculated by dividing net income by average common equity) 12.60 % 9.65 %
Return on average common equity on an operating basis (calculated by dividing net operating earnings by average common equity) 12.91 % 9.96 %
 
   

ASSET QUALITY

(Unaudited, dollars in thousands) Nonperforming Assets At
September 30
2018
    June 30
2018
   

September 30
2017

Nonperforming loans
Commercial & industrial loans $ 28,742 $ 30,095 $ 32,556
Commercial real estate loans 1,960 3,110 3,052
Small business loans 191 384 403
Residential real estate loans 8,076 7,612 8,297
Home equity 6,367 5,861 5,903
Other consumer 58   50   66  
Total nonperforming loans 45,394   47,112   50,277  
Other real estate owned 190   245   2,898  

Total nonperforming assets

$ 45,584   $ 47,357   $ 53,175  
 
Nonperforming loans/gross loans 0.70 % 0.73 % 0.80 %
Nonperforming assets/total assets 0.54 % 0.57 % 0.66 %
Allowance for loan losses/nonperforming loans 139.30 % 132.78 % 118.76 %
Allowance for loan losses/total loans 0.97 % 0.97 % 0.95 %
Delinquent loans/total loans 0.71 % 0.89 % 0.82 %
 
Nonperforming Assets Reconciliation for the Three Months Ended
September 30
2018
June 30
2018
September 30
2017
 
Nonperforming assets beginning balance $ 47,357 $ 48,071 $ 54,812
New to nonperforming 4,984 3,642 3,573
Loans charged-off (847 ) (568 ) (817 )
Loans paid-off (4,932 ) (2,209 ) (3,679 )
Loans restored to performing status (921 ) (1,490 ) (557 )
Valuation write down (238 )
Other (57 ) (89 ) 81  
Nonperforming assets ending balance $ 45,584   $ 47,357   $ 53,175  
 
   
Net Charge-Offs (Recoveries)
Three Months Ended     Nine Months Ended
September 30
2018
    June 30
2018
    September 30
2017
September 30
2018
    September 30
2017
Net charge-offs (recoveries)
Commercial and industrial loans $ 110 $ (55 ) $ (280 ) $ 176 $ 3,111
Commercial real estate loans 53 (18 ) (286 ) 15 (343 )
Small business loans 101 92 147 208 162
Residential real estate loans (9 ) 108 28 136 153
Home equity 16 72 16 133 50
Other consumer 126   106   144   315   373  
Total net charge-offs (recoveries) $ 397   $ 305   $ (231 ) $ 983   $ 3,506  
 
Net charge-offs (recoveries) to average loans (annualized) 0.02 % 0.02 % (0.01 )% 0.02 % 0.08 %
 
   
Troubled Debt Restructurings At
September 30
2018
    June 30
2018
    September 30
2017
Troubled debt restructurings on accrual status $ 24,554 $ 25,528 $ 26,731
Troubled debt restructurings on nonaccrual status 3,370   4,095   5,776  
Total troubled debt restructurings $ 27,924   $ 29,623   $ 32,507  
 
BALANCE SHEET AND CAPITAL RATIOS
September 30
2018
June 30
2018
September 30
2017
Gross loans/total deposits 93.57 % 92.38 % 94.12 %
Common equity tier 1 capital ratio (1) 11.92 % 11.64 % 11.13 %
Tier one leverage capital ratio (1) 10.49 % 10.39 % 10.03 %
Common equity to assets ratio GAAP 11.92 % 11.66 % 11.56 %
Tangible common equity to tangible assets ratio (2) 9.33 % 9.06 % 8.82 %
Book value per share GAAP $ 36.25 $ 35.49 $ 33.94
Tangible book value per share (2) $ 27.56 $ 26.78 $ 25.12
 

(1) Estimated number for September 30, 2018.
(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
September 30, 2018     June 30, 2018     September 30, 2017
    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 $ 180,802 $ 916 2.01 % $ 122,116 $ 541 1.78 % $ 132,327 $ 417 1.25 %
Securities
Securities - trading 1,608 % 1,599 % 1,299 %
Securities - taxable investments 1,005,787 6,664 2.63 % 993,222 6,498 2.62 % 908,560 5,642 2.46 %
Securities - nontaxable investments (1) 1,992   18   3.58 % 2,204   20   3.64 % 2,817   29   4.08 %
Total securities $ 1,009,387 $ 6,682 2.63 % $ 997,025 $ 6,518 2.62 % $ 912,676 $ 5,671 2.47 %
Loans held for sale 8,340 61 2.90 % 4,719 30 2.55 % 5,766 33 2.27 %
Loans
Commercial and industrial 975,980 11,936 4.85 % 943,110 11,116 4.73 % 868,358 9,173 4.19 %
Commercial real estate (1) 3,144,613 37,048 4.67 % 3,092,771 35,175 4.56 % 3,104,098 32,875 4.20 %
Commercial construction 356,091 4,572 5.09 % 416,830 5,256 5.06 % 365,143 4,177 4.54 %
Small business 147,518   2,183   5.87 % 138,758   2,008   5.80 % 130,275   1,828   5.57 %
Total commercial 4,624,202 55,739 4.78 % 4,591,469 53,555 4.68 % 4,467,874 48,053 4.27 %
Residential real estate 792,154 7,959 3.99 % 769,441 7,661 3.99 % 749,813 7,656 4.05 %
Home equity 1,071,511   11,457   4.24 % 1,061,082   10,830   4.09 % 1,046,894   10,081   3.82 %
Total consumer real estate 1,863,665 19,416 4.13 % 1,830,523 18,491 4.05 % 1,796,707 17,737 3.92 %
Other consumer 13,040   244   7.42 % 10,295   211   8.22 % 10,619   241   9.00 %
Total loans $ 6,500,907   $ 75,399   4.60 % $ 6,432,287   $ 72,257   4.51 % $ 6,275,200   $ 66,031   4.17 %
Total interest-earning assets 7,699,436   $ 83,058   4.28 % $ 7,556,147   $ 79,346   4.21 % $ 7,325,969   $ 72,152   3.91 %
Cash and due from banks 106,273 100,952 100,228
Federal Home Loan Bank stock 13,107 13,399 12,734
Other assets 547,296   545,994   567,297  
Total assets $ 8,366,112   $ 8,216,492   $ 8,006,228  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,654,157 $ 1,433 0.21 % $ 2,664,148 $ 1,293 0.19 % $ 2,562,557 $ 992 0.15 %
Money market 1,373,594 2,056 0.59 % 1,360,216 1,667 0.49 % 1,309,457 1,171 0.35 %
Time deposits 652,638   1,762   1.07 % 653,373   1,627   1.00 % 611,080   1,168   0.76 %
Total interest-bearing deposits $ 4,680,389 $ 5,251 0.45 % $ 4,677,737 $ 4,587 0.39 % $ 4,483,094 $ 3,331 0.29 %
Borrowings
Federal Home Loan Bank borrowings 50,770 248 1.94 % 62,600 295 1.89 % 53,926 302 2.22 %
Customer repurchase agreements 148,575 75 0.20 % 143,259 64 0.18 % 172,387 67 0.15 %
Junior subordinated debentures 73,077 640 3.47 % 73,076 625 3.43 % 73,070 578 3.14 %
Subordinated debentures 34,711   427   4.88 % 34,699   428   4.95 % 34,664   427   4.89 %
Total borrowings $ 307,133   $ 1,390   1.80 % $ 313,634   $ 1,412   1.81 % $ 334,047   $ 1,374   1.63 %
Total interest-bearing liabilities $ 4,987,522   $ 6,641   0.53 % $ 4,991,371   $ 5,999   0.48 % $ 4,817,141   $ 4,705   0.39 %
Demand deposits 2,300,943 2,174,571 2,174,600
Other liabilities 84,442   79,266   84,782  
Total liabilities $ 7,372,907   $ 7,245,208   $ 7,076,523  
Stockholders' equity 993,205   971,284   929,705  
Total liabilities and stockholders' equity $ 8,366,112   $ 8,216,492   $ 8,006,228  
 
Net interest income $ 76,417   $ 73,347   $ 67,447  
 
Interest rate spread (2) 3.75 % 3.73 % 3.52 %
 
Net interest margin (3) 3.94 % 3.89 % 3.65 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,981,332 $ 5,251 $ 6,852,308 $ 4,587 $ 6,657,694 $ 3,331
Cost of total deposits 0.30 % 0.27 % 0.20 %
Total funding liabilities, including demand deposits $ 7,288,465 $ 6,641 $ 7,165,942 $ 5,999 $ 6,991,741 $ 4,705
Cost of total funding liabilities 0.36 % 0.34 % 0.27 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $183,000, $179,000, and $374,000 for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, respectively, determined by applying the Company's marginal tax rates in effect during each respective quarter.
(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.

   
Nine Months Ended
September 30, 2018     September 30, 2017
    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 $ 128,646 $ 1,768 1.84 % $ 103,437 $ 814 1.05 %
Securities
Securities - trading 1,547 % 1,198 %
Securities - taxable investments 988,885 19,381 2.62 % 894,809 16,618 2.48 %
Securities - nontaxable investments (1) 2,152   58   3.60 % 3,462   109   4.21 %
Total securities $ 992,584 $ 19,439 2.62 % $ 899,469 $ 16,727 2.49 %
Loans held for sale 5,291 110 2.78 % 4,086 68 2.23 %
Loans
Commercial and industrial 933,163 32,667 4.68 % 881,387 26,913 4.08 %
Commercial real estate (1) 3,115,076 105,511 4.53 % 3,054,336 94,057 4.12 %
Commercial construction 390,061 14,499 4.97 % 353,134 11,859 4.49 %
Small business 139,523   6,053   5.80 % 127,938   5,284   5.52 %
Total commercial 4,577,823 158,730 4.64 % 4,416,795 138,113 4.18 %
Residential real estate 772,663 23,121 4.00 % 699,793 20,779 3.97 %
Home equity 1,061,280   32,492   4.09 % 1,024,164   28,233   3.69 %
Total consumer real estate 1,833,943 55,613 4.05 % 1,723,957 49,012 3.80 %
Other consumer 11,340   669   7.89 % 10,828   722   8.91 %
Total loans $ 6,423,106   $ 215,012   4.48 % $ 6,151,580   $ 187,847   4.08 %
Total interest-earning assets $ 7,549,627   $ 236,329   4.19 % $ 7,158,572   $ 205,456   3.84 %
Cash and due from banks 101,642 97,457
Federal Home Loan Bank stock 13,174 13,180
Other assets 546,276   553,129  
Total assets $ 8,210,719   $ 7,822,338  
Interest-bearing liabilities
Deposits
Savings and interest checking accounts $ 2,632,311 $ 3,819 0.19 % $ 2,536,954 $ 2,604 0.14 %
Money market 1,357,488 5,087 0.50 % 1,285,492 2,963 0.31 %
Time deposits 646,055   4,867   1.01 % 618,518   3,443   0.74 %
Total interest-bearing deposits $ 4,635,854 $ 13,773 0.40 % $ 4,440,964 $ 9,010 0.27 %
Borrowings
Federal Home Loan Bank borrowings 62,055 803 1.73 % 61,206 1,123 2.45 %
Customer repurchase agreements 149,174 205 0.18 % 161,850 178 0.15 %
Junior subordinated debentures 73,076 1,855 3.39 % 73,074 1,697 3.10 %
Subordinated debentures 34,699   1,282   4.94 % 34,652   1,282   4.95 %
Total borrowings $ 319,004   $ 4,145   1.74 % $ 330,782   $ 4,280   1.73 %
Total interest-bearing liabilities $ 4,954,858   $ 17,918   0.48 % $ 4,771,746   $ 13,290   0.37 %
Demand deposits 2,202,305 2,063,668
Other liabilities 80,964   84,063  
Total liabilities $ 7,238,127 $ 6,919,477
Stockholders' equity 972,592   902,861  
Total liabilities and stockholders' equity $ 8,210,719   $ 7,822,338  
 
Net interest income $ 218,411   $ 192,166  
 
Interest rate spread (2) 3.71 % 3.47 %
 
Net interest margin (3) 3.87 % 3.59 %
 

Supplemental Information

Total deposits, including demand deposits $ 6,838,159 $ 13,773 $ 6,504,632 $ 9,010
Cost of total deposits 0.27 % 0.19 %
Total funding liabilities, including demand deposits $ 7,157,163 $ 17,918 $ 6,835,414 $ 13,290
Cost of total funding liabilities 0.33 % 0.26 %
 

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $538,000 and $1.1 million for the nine months ended September 30, 2018 and 2017, 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.

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:

               

September 30
2018

June 30
2018
September 30
2017
Tangible common equity
Stockholders' equity (GAAP) $ 998,305 $ 977,065 $ 931,224 (a)
Less: Goodwill and other intangibles 239,185   239,724   242,105  
Tangible common equity $ 759,120   $ 737,341   $ 689,119   (b)
Tangible assets
Assets (GAAP) $ 8,375,498 $ 8,381,002 $ 8,052,919 (c)
Less: Goodwill and other intangibles 239,185   239,724   242,105  
Tangible assets $ 8,136,313   $ 8,141,278   $ 7,810,814   (d)
     
Common Shares 27,540,843   27,532,524   27,437,791   (e)
 
Common equity to assets ratio (GAAP) 11.92 % 11.66 % 11.56 % (a/c)
Tangible common equity to tangible assets ratio (Non-GAAP) 9.33 % 9.06 % 8.82 % (b/d)
Book value per share (GAAP) $ 36.25 $ 35.49 $ 33.94 (a/e)
Tangible book value per share (Non-GAAP) $ 27.56 $ 26.78 $ 25.12 (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 Nine Months Ended
September 30
2018
    June 30
2018
    September 30
2017

September 30,
2018

   

September 30,
2017

Net interest income (GAAP) $ 76,234 $ 73,168 $ 67,073 $ 217,873 $ 191,028 (a)
 
Noninterest income (GAAP) $ 23,264   $ 21,887   $ 20,770   $ 65,014   $ 61,080   (b)
Noninterest income on an operating basis (Non-GAAP) $ 23,264 $ 21,887 $ 20,770 $ 65,014 $ 61,080 (c)
 
Noninterest expense (GAAP) $ 55,439 $ 52,688 $ 51,310 $ 161,578 $ 152,892 (d)
Less:
Merger and acquisition expense 2,688   434     3,122   3,393  
Noninterest expense on an operating basis (Non-GAAP) $ 52,751 $ 52,254 $ 51,310 $ 158,456 $ 149,499 (e)
 
Total revenue (GAAP) $ 99,498 $ 95,055 $ 87,843 $ 282,887 $ 252,108 (a+b)
Total operating revenue (Non-GAAP) $ 99,498 $ 95,055 $ 87,843 $ 282,887 $ 252,108 (a+c)
 
Ratios
Noninterest income as a % of total revenue (GAAP based) 23.38 % 23.03 % 23.64 % 22.98 % 24.23 % (b/(a+b))
Noninterest income as a % of total revenue on an operating basis (Non-GAAP) 23.38 % 23.03 % 23.64 % 22.98 % 24.23 % (c/(a+c))
Efficiency ratio (GAAP based) 55.72 % 55.43 % 58.41 % 57.12 % 60.65 % (d/(a+b))
Efficiency ratio on an operating basis (Non-GAAP) 53.02 % 54.97 % 58.41 % 56.01 % 59.30 % (e/(a+c))

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