Stability amidst latest banking challenges

Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2023 first quarter net income of $61.2 million, or $1.36 per diluted share, compared to 2022 fourth quarter net income of $77.0 million, or $1.69 per diluted share. First quarter results were driven primarily by increases in interest expense, reflecting both an increase in overall cost of deposits as well as an increase in levels of borrowings as result of deposit balance reductions.

The Company generated a return on average assets and a return on average common equity of 1.30% and 8.63%, respectively, for the first quarter of 2023, as compared to 1.56% and 10.70%, respectively, for the prior quarter.

“Rockland Trust remains strong. Our disciplined underwriting and comprehensive capital and liquidity planning positions us well to navigate the current landscape.” said Jeffrey Tengel, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “We remain confident that our balance sheet management strategies will continue to serve us in the weeks and months ahead. Our diverse business model, focus on core relationships, and service excellence have been the foundational keys to our success over these many years and these key attributes will continue to guide us.”

BALANCE SHEET

Total assets of $19.4 billion at March 31, 2023 increased by $148.2 million, or 0.8% compared to the prior quarter, due primarily to higher on-balance sheet liquidity in the form of cash balances. Total assets decreased by $716.8 million, or 3.6%, as compared to March 31, 2022, fueled primarily by lower deposit levels and associated cash balances compared to the prior year.

Total loans at March 31, 2023 of $13.9 billion increased by $19.3 million, or 0.1% (0.6% annualized), compared to the prior quarter level. The commercial portfolio decreased by $26.7 million, or 0.2% during the quarter, reflecting approximately $159.9 million of transfers from construction to commercial real estate, as well as an overall cautious posture over new commitments. Small business loans rose modestly in the first quarter. As in prior quarters, the vast majority of residential real estate originations were retained on the balance sheet, resulting in growth of $60.1 million, or 3.0% for the quarter, while home equity balances remained relatively flat.

Deposit balances of $15.3 billion at March 31, 2023 decreased by $606.8 million, or 3.8%, from December 31, 2022, primarily reflective of industry wide dislocations in the first quarter along with seasonality, a competitive rate environment, and redeployment of customer excess liquidity due to inflationary and other factors. Core deposits declined to 85.6% of total deposits at March 31, 2023, compared to 87.9% at December 31, 2022, driven primarily by core deposit outflows in conjunction with growth in higher yielding time deposits, which increased $259.6 million, or 21.7%, in comparison to prior quarter. The total cost of deposits for the quarter increased 24 basis points to 0.59% in line with the higher rate environment.

Borrowings increased by $879.0 million during the first quarter of 2023 in response to deposit balance reductions and share repurchase activity, as well as preemptive measures to bolster on-balance sheet liquidity in response to the high deposit risk environment experienced across the industry during the month of March. The additional borrowings were comprised primarily of short term borrowings from the Federal Home Loan Bank. In conjunction with these borrowings, the Company entered into $300 million of hedges resulting in a weighted average cost of 3.7% over an average term of 3.5 years.

The securities portfolio decreased by $19.3 million, or 0.6%, compared to December 31, 2022 driven primarily by paydowns, calls, and maturities, partially offset by unrealized gains of $22.2 million in the available for sale portfolio. Total securities represented 16.0% of total assets at March 31, 2023, as compared to 16.2% at December 31, 2022.

During the first quarter of 2023, the Company repurchased 1.6 million shares of common stock for $120 million at an average price per share of $74.18, marking the full completion of its share repurchase program announced in October 2022. Stockholders' equity at March 31, 2023 decreased 1.9% when compared to December 31, 2022, driven primarily by the impact of the share repurchases, partially offset by strong earnings retention and other comprehensive income. The Company's ratio of common equity to assets of 14.56% at March 31, 2023 represented a decrease of 40 basis points, or 2.7% from December 31, 2022 and a decrease of 15 basis points, or 1.0%, from March 31, 2022. Despite the stock repurchase activity, the Company's book value per share increased by $0.92, or 1.5%, to $64.17 during the first quarter as compared to the prior quarter. The Company's tangible book value per share at March 31, 2023 rose by $0.19, or 0.5%, from the prior quarter to $41.31, and represented an increase of 0.4% from the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.89% at March 31, 2023 represented a decrease of 37 basis points from the prior quarter and a decrease of 29 basis points from the year ago period. Please refer to Appendix A for a detailed reconciliation of Non-GAAP balance sheet metrics.

NET INTEREST INCOME

Net interest income for the first quarter of 2023 decreased 5.6% to $159.0 million compared to $168.4 million for the prior quarter, driven primarily by higher funding costs due to raised deposit pricing along with increased borrowings, resulting in a reduction in net interest margin of six basis points to 3.79% for the quarter. Core margin decreased four basis points to 3.78% for the first quarter of 2023, when excluding purchase accounting and other non-core items. Please refer to Appendix C for additional details regarding the net interest margin and Non-GAAP reconciliation of core margin.

NONINTEREST INCOME

Noninterest income of $28.2 million for the first quarter of 2023 represented a decrease $4.1 million, or 12.6%, as compared to the prior quarter. Significant changes in noninterest income for the first quarter of 2023 compared to the prior quarter included the following:

• Investment management income decreased by $615,000, or 5.9%, despite an overall increase in assets under administration, due primarily to timing of new asset inflows and reduced fee ratios experienced during the first quarter. Total assets under administration rose by $352.3 million, or 6.1%, to $6.1 billion during the first quarter of 2023.

• Mortgage banking income decreased by $218,000 in comparison to the prior quarter primarily reflecting reduced fees and lower mortgage service asset valuation.

• The increase in cash surrender value of life insurance policies declined by $282,000, or 13.2%, due primarily to annual dividends received during the fourth quarter of 2022. The Company also received proceeds on life insurance policies resulting in a gain of $11,000 for the first quarter, as compared to a gain of $691,000 in the prior quarter.

• Loan level derivative income decreased by $1.0 million due primarily to lower customer demand.

• Other noninterest income decreased by $1.3 million, or 18.1%, due primarily to an $894,000 gain on the sale of a closed branch facility recognized during the fourth quarter of 2022 with no such gain during the first quarter of 2023, as well as a $372,000 decrease associated with tax credit purchases.

NONINTEREST EXPENSE

Noninterest expense of $98.7 million for the first quarter of 2023 represented a $3.8 million, or 4.0%, increase as compared to the prior quarter. Significant changes in noninterest expense for the first quarter compared to the prior quarter included the following:

• Salaries and employee benefits increased by $3.2 million, or 6.0%, due primarily to CEO transition related expenses, increased payroll taxes, and valuation changes in the Company's life insurance obligations, partially offset by decreased incentive programs.

• Occupancy and equipment increased by $236,000, or 1.9%, due mainly to seasonal increases in snow removal costs and utility costs, partially offset by reduced building repairs and maintenance and landscaping expenses.

• FDIC assessment increased by $884,000, or 51.2%, due primarily to increased assessment rates.

• Other noninterest expense decreased by $637,000, or 2.6%, due primarily to decreases in advertising and consultant fees.

The Company’s tax rate for the first quarter of 2023 increased to 24.69%, compared to 23.18% for the prior quarter, primarily due to the recognition of discrete items realized during the fourth quarter of 2022.

ASSET QUALITY

The first quarter provision for credit losses of $7.3 million primarily reflects an additional reserve allocation associated with further credit deterioration of a large commercial and industrial credit that migrated to nonperforming status during 2022, resulting in a full specific reserve allocation on the loan. Nonperforming loans increased slightly during the quarter to $56.2 million, or 0.40% of total loans at March 31, 2023, as compared to $54.9 million, or 0.39% of total loans at December 31, 2022. Net charge-offs were minimal at $538,000 or 0.02% of average loans annualized for the first quarter of 2023. Delinquency as a percentage of total loans decreased three basis points from the prior quarter to 0.27% at March 31, 2023.

The allowance for credit losses on total loans was $159.1 million, or 1.14% of total loans at March 31, 2023, as compared to $152.4 million, or 1.09% of total loans, at December 31, 2022.

CONFERENCE CALL INFORMATION

Jeffrey Tengel, Chief Executive Officer, and Mark Ruggiero, Chief Financial Officer and Executive Vice President of Consumer Lending, will host a conference call to discuss first quarter earnings at 10:00 a.m. Eastern Time on Friday, April 21, 2023. 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: 3587499 and will be available through April 28, 2023. Additionally, a webcast replay will be available on the Company's website until April 21, 2024.

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" 2022 list, an honor earned for the 14th consecutive year. 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 located throughout Eastern Massachusetts as well as in 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.

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;
• the 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, and as a result of recent disruptions in the banking industry;
• 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 the London Interbank Offered Rate ("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, any further resurgences or variants of the COVID-19 virus, 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, actions that the U.S. government may take to avoid exceeding the debt ceiling, or uncertainties surrounding the debt ceiling and the federal budget;
• 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, including any such changes in laws and regulations as a result of recent disruptions in the banking industry, and the associated costs of such changes;
• the Company's potential judgments, claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory and government actions;
• 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 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 may include 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 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.

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