Independent Bank Corp. Reports Second Quarter Net Income of $62.6 Million

Solid performance reflects strong business fundamentals

Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2023 second quarter net income of $62.6 million, or $1.42 per diluted share, compared to 2023 first quarter net income of $61.2 million, or $1.36 per diluted share. Second quarter results were driven by healthy loan volumes, strong fee income, and disciplined expense management.

The Company generated a return on average assets and a return on average common equity of 1.29% and 8.78%, respectively, for the second quarter of 2023, as compared to 1.30% and 8.63%, respectively, for the prior quarter.

“Our solid performance reflects both the underlying strength of our core franchise and our resilience to the current difficult operating environment. Our sound business fundamentals, including disciplined underwriting and comprehensive capital and liquidity planning, continue to serve us well and position us to take advantage of the right opportunities.” said Jeffrey Tengel, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “Our focus will continue to center on capitalizing on our diverse business model and maintaining a laser focus on cultivating and expanding our valuable core relationships.”

BALANCE SHEET

Total assets of $19.4 billion at June 30, 2023 were virtually unchanged from the prior quarter and decreased by $581.5 million, or 2.9%, as compared to the prior year level, driven primarily by lower cash balances and associated deposit levels.

Total loans at June 30, 2023 of $14.1 billion increased by $192.0 million, or 1.4% (5.5% annualized), compared to the prior quarter level. Solid closing activity along with reduced attrition drove a modest 0.5% (2.0% annualized) increase in total commercial balances, while small business loans also exhibited solid growth, rising 5.0% over the prior quarter. In addition, the vast majority of residential real estate originations were retained on the balance sheet, resulting in growth in that portfolio of $125.6 million, or 6.0% for the quarter, while home equity balances increased slightly by $4.6 million, or 0.4%, compared to the prior quarter level.

Deposit balances of $15.2 billion at June 30, 2023 decreased slightly by $24.1 million, or 0.2%, from March 31, 2023, reflecting a stabilization of overall deposit balances as compared to the prior quarter. As a result of the continued migration of balances to higher rate time deposits, the total cost of deposits for the quarter increased 26 basis points to 0.85%. Core deposits represented 82.6% of total deposits at June 30, 2023, compared to 85.6% at March 31, 2023.

Borrowings decreased by $91.1 million, or 9.2%, during the second quarter of 2023, primarily driven by a redeployment of the balance sheet cash position. In addition, the Company entered into an additional $100 million of pay-fixed borrowings hedges during the quarter, bringing the total of such hedges to $400 million.

The securities portfolio decreased by $86.9 million, or 2.8%, compared to March 31, 2023 driven primarily by paydowns, calls, and maturities, along with unrealized losses of $15.0 million in the available for sale portfolio during the second quarter. Total securities represented 15.6% of total assets at June 30, 2023, as compared to 16.0% at March 31, 2023.

Stockholders' equity at June 30, 2023 increased 0.8% when compared to March 31, 2023, driven primarily by strong earnings retention and partially offset by unrealized losses on the available for sale investment securities portfolio included in other comprehensive income. The Company's ratio of common equity to assets of 14.72% at June 30, 2023 represented an increase of 16 basis points, or 1.1%, from March 31, 2023 and an increase of 35 basis points, or 2.4%, from June 30, 2022. The Company's book value per share increased by $0.52, or 0.8%, to $64.69 at June 30, 2023 as compared to the prior quarter. The Company's tangible book value per share at June 30, 2023 rose by $0.57, or 1.4%, from the prior quarter to $41.88, and represented an increase of 3.9% from the year ago period, despite 1.6 million shares of common stock repurchased during the first quarter of 2023. The Company's ratio of tangible common equity to tangible assets of 10.05% at June 30, 2023 represented an increase of 16 basis points from the prior quarter and an increase of 26 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 second quarter of 2023 decreased 4.1% to $152.5 million compared to $159.0 million for the prior quarter, reflecting a full quarter of increased wholesale borrowings as well as higher deposit costs, resulting in a reduction in net interest margin of 25 basis points to 3.54% for the quarter. The core margin decreased 26 basis points to 3.52% for the second 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 $30.8 million for the second quarter of 2023 represented an increase of $2.5 million, or 8.9%, as compared to the prior quarter. Significant changes in noninterest income for the second quarter of 2023 compared to the prior quarter included the following:

• Deposit account fees decreased by $408,000, or 6.9%, due primarily to reduced overdraft fees stemming from the Company's policy changes, which went into effect in March 2023.
• Interchange and ATM fees increased by $294,000, or 7.0%, driven by increased transaction volume during the second quarter of 2023.
• Investment management income increased by $569,000, or 5.8%, due primarily to seasonal tax preparation fees, as well as increased market valuations. Total assets under administration rose by $158.6 million, or 2.6%, to a record level of $6.3 billion during the second quarter of 2023.
• Mortgage banking income grew by $362,000 in comparison to the prior quarter, primarily reflecting increased saleable volume.
• The Company received proceeds on life insurance policies resulting in a gain of $176,000 for the second quarter, as compared to a gain of $11,000 in the prior quarter.
• Loan level derivative income increased by $867,000 compared to the prior quarter due primarily to higher customer demand.
• Other noninterest income increased by $580,000, or 10.0%, due primarily to interest income recognized from income tax return refunds received during the quarter and increased Federal Home Loan Bank dividend income.

NONINTEREST EXPENSE

Noninterest expense of $95.6 million for the second quarter of 2023 represented a decrease of $3.1 million, or 3.1%, as compared to the prior quarter. Significant changes in noninterest expense for the second quarter compared to the prior quarter included the following:

• Salaries and employee benefits decreased by $3.0 million, or 5.3%, due primarily to non-recurring CEO transition related expenses incurred during the first quarter, as well as decreases in payroll taxes and incentive compensation, partially offset by increases in medical plan insurance.
• Occupancy and equipment decreased by $437,000, or 3.4%, due mostly to seasonal decreases in snow removal and utilities costs.
• Other noninterest expense increased by $264,000, or 1.1%, due primarily to director equity compensation granted during the quarter, advertising and sponsorships, partially offset by decreases in legal fees.

The Company’s tax rate for the second quarter of 2023 decreased slightly to 24.30%, compared to 24.69% for the prior quarter.

ASSET QUALITY

Net charge-offs were $23.5 million for the second quarter of 2023, driven primarily by the full charge-off of a large nonperforming commercial and industrial credit which had previously been fully reserved for. The second quarter provision for credit losses declined to $5.0 million from $7.3 million in the prior quarter and was driven primarily by the migration of a single commercial real estate loan to non-accrual, as well as loan growth during the quarter. As a result, nonperforming loans decreased to $45.7 million, or 0.32% of total loans at June 30, 2023, as compared to $56.2 million, or 0.40% of total loans at March 31, 2023. Delinquency as a percentage of total loans increased three basis points from the prior quarter to 0.30% at June 30, 2023.

The allowance for credit losses on total loans decreased to $140.6 million, or 0.99% of total loans, at June 30, 2023, as compared to $159.1 million, or 1.14% of total loans, at March 31, 2023. The decline in the coverage ratio was driven primarily by the aforementioned commercial and industrial loan charged-off during the quarter.

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 second quarter earnings at 10:00 a.m. Eastern Time on Friday, July 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: 3932449 and will be available through July 28, 2023. Additionally, a webcast replay will be available on the Company's website until July 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, whether caused by geopolitical concerns, including as a result of the conflict between Russia and Ukraine, recent disruptions in the banking industry, or other factors;
• 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 or uncertainties surrounding 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