Business line fundamentals drive solid performance

Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2021 third quarter net income of $40.0 million, or $1.21 per diluted share, compared to net income of $37.6 million, or $1.14 per diluted share, reported for the second quarter of 2021. Third quarter results included merger-related costs of $1.9 million associated with the acquisition of Meridian Bancorp Inc. ("Meridian") and its subsidiary, East Boston Savings Bank, which is expected to close in the fourth quarter of 2021. Excluding merger-related costs, net of tax, operating net income was $41.4 million, or $1.25 per diluted share, for the third quarter of 2021 compared to operating net income of $38.8 million, or $1.17 per diluted share for the second quarter of 2021. Please refer to "Reconciliation of Net Income (GAAP) to Operating Net Income (Non-GAAP)" below for a reconciliation of net income to operating net income.

“We enjoyed another quarter of solid performance owing to our sound fundamentals,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “While remaining focused on organic growth and providing best-in-class customer services to our customers, we have been hard at work collaborating with our counterparts at East Boston Savings Bank to prepare for the anticipated fourth quarter closing of the transaction, and we continue to be excited by the prospects of the combined companies. I would like to thank each of my colleagues for their dedication and contributions toward ensuring Rockland Trust lives out its mission of being the bank Where Each Relationship Matters^®.”

BALANCE SHEET

Total assets of $14.5 billion at September 30, 2021 increased by $339.1 million, or 2.4%, from the prior quarter, and by $1.4 billion, or 10.3%, as compared to the year ago period, driven by continued significant growth in deposits and cash balances. During the third quarter of 2021, the Company accelerated its deployment of a portion of this excess cash into investment securities.

Total loans at September 30, 2021 decreased by $131.0 million, or 1.5% (5.8% annualized), when compared to the prior quarter which was primarily attributable to a net reduction in Paycheck Protection Program ("PPP") loan balances. Exclusive of PPP loan activity, total loans declined $31.9 million, (1.5% annualized) reflecting ongoing heightened payoff activity, partially offset by continued strong closing activity. Excluding PPP loan activity, commercial loans increased $3.2 million, or 0.1% (0.2% annualized) during the third quarter, primarily due to growth in construction balances of $18.9 million, or 3.8%, and commercial and industrial of $13.3 million, or 1.07%, offset by a decrease in commercial real estate balances of $30.3 million, or 0.7%, from the prior quarter. New origination activity remained well diversified across various industries for the third quarter of 2021, with the largest volume of new loans attributable to residential development properties. On the consumer side, despite strong volumes of new loan originations, the low interest-rate environment and excess consumer liquidity positions continued to drive elevated payoff activity and historically low home equity line utilization rates, which led to decreases in both residential and home equity loan balances of $17.4 million and $17.9 million, respectively, when compared to the prior quarter.

Deposit balances of $12.3 billion at September 30, 2021 increased by $273.2 million, or 2.3% (9.0% annualized), from the prior quarter, reflecting continued robust new account activity in both consumer and business product categories, as well as increases on existing balances. With continued reduction in time deposit balances, core deposits increased to 92.0% of total deposits at September 30, 2021. This reduction in higher cost time deposits, combined with further rate reductions, contributed to a total cost of deposits for the third quarter of 0.05%, representing a reduction of two basis points when compared to the prior quarter.

The securities portfolio increased by $636.0 million, or 37.8%, when compared to the prior quarter, reflecting the aforementioned strategy to deploy a portion of excess cash balances into investment securities. Total purchases for the quarter were $733.1 million, offset by paydowns, calls, and maturities.

Total borrowings decreased by $14.7 million, or 8.5% when compared to the prior quarter reflecting repayments of outstanding debt, including the maturity of a $10 million advance from the Federal Home Loan Bank.

Stockholders' equity at September 30, 2021 increased by 0.8% (3.3% annualized), as compared to the prior quarter, reflecting continued strong earnings retention. Book value per share increased by $0.42, or 0.8%, to $53.14 during the third quarter as compared to the prior quarter. The Company's ratio of common equity to assets of 12.08% decreased by 19 basis points from the prior quarter and by 75 basis points from the year ago period, reflecting the significant growth in liquid assets. The Company's tangible book value per share at September 30, 2021 rose by $0.46, or 1.3%, from the prior quarter to $37.24, representing an increase of 5.9% from the year ago period. The Company's ratio of tangible common equity to tangible assets of 8.79% at September 30, 2021 represents a decrease of 10 basis points from the prior quarter and a decrease of 38 basis points from the year ago period. Please refer to Appendix A for a detailed reconciliation of Non-GAAP metrics.

NET INTEREST INCOME

Net interest income for the third quarter decreased to $90.1 million compared to $93.4 million for the prior quarter, driven primarily by a reduction in PPP fee recognition of $5.0 million, as $2.2 million was recognized in the third quarter compared to $7.2 million for the prior quarter. The combination of lower PPP fees and increased balances in short term, lower yielding assets in the third quarter compared to the prior quarter contributed to a 23 basis point reduction in average earning asset yields. This reduction resulted in a net interest margin decline of 21 basis points from the prior quarter to 2.78%. Please refer to Appendix C for additional details regarding the net interest margin.

NONINTEREST INCOME

Noninterest income of $26.5 million for the third quarter of 2021 was $1.5 million, or 6.0%, higher than the prior quarter. Significant changes in noninterest income for the third quarter compared to the prior quarter included the following:

• Deposit account fees increased by $476,000, or 12.5%, primarily driven by overdraft fees.
• Interchange and ATM fees increased by $373,000, or 12.2%, as a result of increased volume during the third quarter, reflecting a rise in customer spending.
• Investment management income increased by $302,000, or 3.4%, due primarily to increased insurance commissions. Additionally, assets under management as of September 30, 2021 remained consistent with the prior quarter's record high level at $5.4 billion.
• Mortgage banking income grew by $120,000, or 4.4%, reflecting continued strong volume for the quarter, offset by a reduction in gain on sale margins.
• Loan level derivative income increased by $470,000, due primarily to increased customer demand.
• Other noninterest income decreased by $258,000, or 5.4%, primarily attributable to decreased unrealized gains on equity securities and income from other investments, partially offset by increases in commercial loan fees and income from like-kind exchanges.

NONINTEREST EXPENSE

Noninterest expense of $72.4 million for the third quarter of 2021 was $0.9 million, or 1.2% lower than the prior quarter. Significant changes in noninterest expense for the third quarter compared to the prior quarter included the following:

• Salaries and employee benefits decreased by $400,000, or 0.9%, mainly due to decreases in payroll taxes and other commissions.
• Occupancy and equipment decreased by $142,000, or 1.6%, mainly due to decreases in rent on leased property.
• FDIC assessment increased by $205,000, or 26.5%, as the prior quarter benefited from a refund of prior period assessment fees of approximately $109,000, as well as an increased assessment base due to balance sheet growth.
• The Company incurred merger and acquisition expenses of $1.9 million in the third quarter of 2021 and $1.7 million in the second quarter of 2021. All such costs were related to the Company's acquisition of Meridian.
• Other noninterest expense decreased by 745,000, or 4.2%, primarily due to decreases in director equity compensation expense, legal fees, advertising, and provision for unfunded commitments, partially offset by increases in unrealized loss on equity securities, recruitment expense, and other miscellaneous expenses.

The Company generated a return on average assets and a return on average common equity of 1.11% and 9.04%, respectively, for the third quarter of 2021, as compared to 1.08% and 8.70%, respectively, for the prior quarter. On an operating basis, return on average assets and return on average common equity were 1.15% and 9.35%, respectively, for the third quarter of 2021 as compared to 1.12% and 8.98%, respectively for the prior quarter.

The tax rate of 26.1% for the third quarter was higher than the prior quarter rate of 24.9%, which was primarily driven by an increase in forecasted full year 2021 earnings.

ASSET QUALITY

During the third quarter, the Company recorded total net charge-offs of $111,000, which amounted to less than 0.1% of average loans on an annualized basis. Nonperforming loans decreased by 4.2% to $45.8 million, or 0.52% of total loans at September 30, 2021, as compared to $47.8 million, or 0.53% of total loans, at June 30, 2021.

In addition, total loans subject to a payment deferral remained relatively consistent with the prior quarter, amounting to $222.9 million, or 2.5% of total loans at September 30, 2021, with the highest concentration remaining in the accommodation industry portfolio. The majority of the loans subject to a payment deferral at September 30, 2021 were characterized as current loans. Delinquency as a percentage of total loans increased ten basis points from the prior quarter, yet remained low at 0.21%. Please refer to Appendix E for additional details regarding loans whose terms have been modified as a result of the COVID-19 pandemic.

The Company recorded credit reserve releases of $10.0 million during the third quarter of 2021, reflecting continued improvement in both expected asset quality metrics and overall macro-economic assumptions. The allowance for credit losses on total loans was $92.2 million at September 30, 2021, or 1.05% of total loans, as compared to $102.4 million at June 30, 2021, or 1.15% of total loans. The allowance for credit losses as a percentage of total loans, excluding PPP loans, was 1.09% and 1.21% at September 30, 2021 and June 30, 2021, respectively. Please refer to Appendix D for information regarding loan exposures within industries deemed highly impacted by the COVID-19 pandemic.

CONFERENCE CALL INFORMATION

Christopher Oddleifson, Chief Executive Officer, Robert Cozzone, Chief Operating Officer, Mark Ruggiero, Chief Financial Officer, and Gerard Nadeau, President and Chief Commercial Banking Officer will host a conference call to discuss third quarter earnings at 10:00 a.m. Eastern Time on Friday, October 22, 2021. Internet access to the call is available on the Company’s website at www.RocklandTrust.com or via telephonic access by dial-in at 1-888-336-7153 reference: INDB. A replay of the call will be available by calling 1-877-344-7529, Replay Conference Number: 10159135 and will be available through October 29, 2021. Additionally, a webcast replay will be available until October 22, 2022.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. (NASDAQ Global Select Market: INDB) is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Rockland Trust was named to The Boston Globe's "Top Places to Work" 2020 list, an honor earned for the 12th consecutive year. In 2021, Rockland Trust was ranked the #1 Bank in Massachusetts according to Forbes World's Best Banks list for the second year in a row. Rockland Trust has a longstanding commitment to equity and inclusion. This commitment is underscored by initiatives such as Diversity and Inclusion leadership training, a colleague Allyship mentoring program, and numerous Employee Resource Groups focused on providing colleague support and education, reinforcing a culture of mutual respect and advancing professional development, and Rockland Trust's sponsorship of diverse community organizations through charitable giving and employee-based volunteerism. In addition, Rockland Trust is deeply committed to the communities it serves, as reflected in the overall "Outstanding" rating in its most recent Community Reinvestment Act performance evaluation. Rockland Trust offers a wide range of banking, investment, and insurance services. The Bank serves businesses and individuals through approximately 100 retail branches, commercial and residential lending centers, and investment management offices in eastern Massachusetts, including Greater Boston, the South Shore, Cape Cod and Islands, Worcester County, and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. Rockland Trust is an FDIC member and an Equal Housing Lender. To find out why Rockland Trust is the bank "Where Each Relationship Matters®," please visit RocklandTrust.com.

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

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

• further weakening in the United States economy in general and the regional and local economies within the New England region and the Company’s market area, including future weakening caused by the COVID-19 pandemic;
• the length and extent of economic contraction as a result of the COVID-19 pandemic;
• unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;
• adverse changes or volatility in the local real estate market;
• adverse changes in asset quality and any unanticipated credit deterioration in our loan portfolio including those related to one or more large commercial relationships;
• failure to consummate or a delay in consummating the acquisition of Meridian, which is subject to standard closing conditions, including the receipt of regulatory approvals;
• acquisitions, including the acquisition of Meridian, may not produce results at levels or within time frames originally anticipated and may result in unforeseen integration issues or impairment of goodwill and/or other intangibles;
• additional regulatory oversight and related compliance costs, including the additional costs associated with the Company's increase in assets to over $10 billion;
• changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
• higher than expected tax expense, resulting from failure to comply with general tax laws and changes in tax laws;
• changes in market interest rates for interest earning assets and/or interest bearing liabilities and changes related to the phase-out of LIBOR;
• increased competition in the Company’s market areas;
• adverse weather, changes in climate, natural disasters, the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic, other public health crises or man-made events could negatively affect our local economies or disrupt our operations, which would have an adverse effect on our business or results of operations;
• a deterioration in the conditions of the securities markets;
• a deterioration of the credit rating for U.S. long-term sovereign debt;
• inability to adapt to changes in information technology, including changes to industry accepted delivery models driven by a migration to the internet as a means of service delivery;
• electronic fraudulent activity within the financial services industry, especially in the commercial banking sector;
• adverse changes in consumer spending and savings habits;
• the effect of laws and regulations regarding the financial services industry;
• changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) generally applicable to the Company’s business;
• the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions, including as a result of our participation in and execution of government programs related to the COVID-19 pandemic;
• changes in accounting policies, practices and standards, as may be adopted by the regulatory agencies as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters including, but not limited to, changes to how the Company accounts for credit losses;
• cyber security attacks or intrusions that could adversely impact our businesses; and
• other unexpected material adverse changes in our operations or earnings.

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

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

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). This information includes operating net income and operating earnings per share ("EPS"), operating return on average assets, operating return on average common equity, core net 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, 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 out-sized cash balances, unique low-yielding loans originated through government programs in response to the pandemic, or significant purchase accounting adjustments. Management believes that adjusting for these items to arrive at a core margin provides additional insight into the operating environment and how management decisions impact the net interest margin. Similarly, management reviews certain loan metrics such as growth rates and allowance as a percentage of total loans, adjusted to exclude loans that are not considered part of its core portfolio, which includes loans originated in association with government sponsored and guaranteed programs in response to the pandemic, to arrive at adjusted numbers more representative of the core growth of the portfolio and core reserve to loan ratio.

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

These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating net income, operating EPS, operating return on average assets, operating return on average common equity, core 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