Press Release

Independent Bank Corp. Reports Second Quarter Net Income of $24.9 Million

Company Release - 7/23/2020 4:23 PM ET

Results continue to reflect the Coronavirus Pandemic operating environment

ROCKLAND, Mass.--(BUSINESS WIRE)-- Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2020 second quarter net income of $24.9 million, or $0.76 per diluted share, compared to net income of $26.8 million, or $0.78 per diluted share, reported in the first quarter of 2020. Both quarters' results were negatively impacted by elevated provision for credit losses of $20.0 million and $25.0 million for the second and first quarters, respectively. Second quarter results also reflected a return to a higher, more normalized tax rate.

Assumptions regarding the impact of the Coronavirus ("COVID-19") pandemic continue to be the primary driver of the credit loss provision. Please refer to Appendix D for additional information regarding the Company's Current Expected Credit Losses assumptions and results.

Rockland Trust continues to monitor the COVID-19 pandemic impact on our colleagues, customers, and the communities we serve. The safety of our colleagues and customers continues to be of the utmost importance, while the Company simultaneously continues to serve customer needs. Please refer to Appendices E through G for information regarding loan exposures that potentially could be deemed as highly impacted, loan modifications processed and requested, and Paycheck Protection Program ("PPP") loan volume.

"We remain confident in the strength of our financial position as we continue to navigate through the current environment,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “Observing my colleagues over these past few months has once-again demonstrated to me what I already knew: the professionalism and dedication of my Rockland Trust colleagues is what truly sets Rockland Trust apart. I am pleased we were able to help over 5,600 borrowers obtain Paycheck Protection Program (PPP) loans, with a total principal amount of approximately $800 million. In addition I was gratified to observe the investments we made in recent years to build out a sophisticated suite of digital and online capabilities enabled our customers to seamlessly access banking services when branch activity was reduced. I am extremely proud to be a part of Rockland Trust, the bank Where Each Relationship Matters.”

BALANCE SHEET

Total assets of $13.0 billion at June 30, 2020 increased by $1.0 billion, or 8.7%, from the prior quarter, and increased by $1.4 billion, or 12.2%, as compared to the year ago period. Total asset growth in the second quarter is primarily attributable to the Company's participation in the Paycheck Protection Program ("PPP"), as both higher cash and loan balances were generated from the funded PPP loans.

Interest-earning cash of $974.1 million as of June 30, 2020 reflects an increase of $628.4 million when compared to the prior quarter, as PPP loan fundings and other deposit growth fueled the significant increase.

Total loans rose by $443.2 million, or 5.0%, (20.0% annualized) when compared to the prior quarter, as PPP loan balances of $793.0 million at June 30, 2020 contributed significantly to the increase. When excluding PPP activity, loans declined by $349.8 million, or 3.92%, for the quarter. The majority of this decline occurred in the commercial and industrial ("C&I") and residential portfolios, as C&I balances reflect significantly reduced line utilization across multiple products, while the residential decline continues to reflect the lower rate environment driving the majority of production to be sold into the secondary market.

Deposit balances of $10.7 billion at June 30, 2020 increased by $1.3 billion, or 13.8%, (55.6% annualized) from the prior quarter, as a combination of PPP loan fundings, government stimulus programs, and a customer focus on retaining liquidity have fueled significant growth during the quarter. As these PPP funds get utilized and immediate stimulus money is disbursed, some level of decline from this elevated deposit level is expected to occur. Regarding time deposits, maturities of brokered certificates of deposits led to a 14.0% decline in balances when compared to the prior quarter. Deposit rate reductions resulted in the total cost of deposits for the second quarter declining by 20 basis points to 0.28% as compared to the prior quarter.

The securities portfolio decreased by $61.9 million, or 5.0%, when compared to the prior quarter, reflecting $10.0 million of purchases offset by paydowns, called securities, and maturities.

Total borrowings decreased by $250.3 million, or 45.8%, compared to the prior quarter, as the aforementioned enhanced on-balance sheet liquidity position led to a $200.0 million prepayment on short-term borrowings held with the Federal Home Loan Bank ("FHLB"). The payoff resulted in a prepayment penalty of $389,000, which is included in other noninterest expense for the quarter. Additionally, during the quarter, $37.5 million of the parent company long-term line of credit was paid down.

Stockholders' equity at June 30, 2020 remained relatively consistent with March 31, 2020. During the second quarter, the Company repurchased the remaining 300,000 shares under its previously announced stock repurchase plan at an average price of $65.65. Despite the repurchase of 1.5 million shares that was executed over the first and second quarters of 2020, stockholders' equity increased by 2.2% when compared to the year ago period, reflecting strong earnings retention and an increase in accumulated other comprehensive income of $30.9 million, offsetting the $73.2 million impact of the stock repurchases. Book value per share increased by $0.25, or 0.5%, to $50.75 during the second quarter as compared to the linked quarter. The Company's ratio of common equity to assets of 12.84% decreased by 118 basis points from the prior quarter and decreased by 126 basis points from the same period a year ago. The Company's tangible book value per share at June 30, 2020 rose by $0.13, or 0.4%, from the prior quarter to $34.59, and is now 8.1% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.12% at June 30, 2020 is 89 basis points below the prior quarter and 80 basis points below the year ago period, largely attributable to the increase in the Company's balance sheet and stock repurchase activity.

NET INTEREST INCOME

Net interest income for the second quarter decreased 3.4% to $91.1 million compared to $94.3 million in the prior quarter largely due to the negative impact of the lower interest rate environment along with the mix of interest earning assets. The 2020 second quarter net interest margin of 3.25% represents a reduction of 49 basis points from the prior quarter. The table below illustrates the factors that contributed to the decline in the net interest margin for the second quarter:

Net Interest margin as of March 31, 2020

 

3.74

%

Decreased loan yields

 

(0.43

)%

Excess liquidity (cash) levels

 

(0.19

)%

PPP loan activity at 1% interest rate

 

(0.12

)%

PPP loan fee amortization

 

0.08

%

Loan purchase accounting

 

0.03

%

Decreased cost of funds

 

0.16

%

Other

 

(0.02

)%

Net interest margin as of June 30, 2020

 

3.25

%

Please refer to Appendix C for additional details regarding the net interest margin, including a three-quarter trend of an adjusted core margin.

NONINTEREST INCOME

Noninterest income of $28.2 million in the second quarter of 2020 was $1.8 million, or 6.6%, higher than the prior quarter. Significant changes in noninterest income in the second quarter compared to the prior quarter included the following:

  • Deposit account fees decreased by $2.1 million, or 43.1%, driven by significant reductions in overdraft fees as customers benefited from the government stimulus payments.
  • Interchange and ATM fees increased by $318,000, or 6.5%, reflecting general increases in consumer spending.
  • Investment management income increased by $467,000, or 6.8%, primarily due to an increase in market valuation, along with seasonal tax preparation fees during the second quarter. Assets under administration at June 30, 2020 increased 10.1% to $4.4 billion.
  • Mortgage banking income grew by $4.1 million, as the stabilization of the secondary market combined with strong demand led to the significant increase for the quarter.
  • Although remaining at an elevated level, loan level derivative income decreased by $733,000, or 20.4%, when compared to the strong first quarter results.
  • Other noninterest income decreased by $314,000, or 8.6%, attributable to decreases in small business equity funds income and reduced interest on cash collateral balances, offset by unrealized gains on equity securities of $1.4 million for the quarter.

NONINTEREST EXPENSE

Noninterest expense of $66.6 million in the second quarter of 2020 was consistent with the prior quarter. Significant changes in noninterest expense in the second quarter compared to the prior quarter included the following:

  • Salaries and employee benefits expense remained relatively consistent, with minor netting changes in various components.
  • Data processing and facilities management decreased by $199,000, or 12.0% due to timing of certain initiatives and system upgrades.
  • FDIC assessment increased by $503,000, reflecting a second quarter partial benefit associated with the final allocation of credits, whereas such credits resulted in no related expense in the first quarter.
  • Other noninterest expense decreased by $413,000, or 2.2%, largely due to decreases in unrealized loss on equity securities of $1.8 million, along with decreases in loss on sale of disposition of fixed assets and advertising expenses. These decreases were offset by increases in director expenses related to the equity compensation granted during the quarter, additional reserve for unfunded commitments, pre-payment fees on borrowings, retail branch traffic control and other miscellaneous expenses.

The tax rate for the quarter was 23.80% vs. the prior quarter of 7.4%, as the prior quarter benefited from a $4.7 million discrete tax benefit associated with net operating loss carryback provisions included in the federal Coronavirus Aid, Relief and Economic Security Act ("CARES Act").

The Company generated a return on average assets and a return on average common equity of 0.79% and 5.97%, respectively, in the second quarter of 2020, as compared to 0.94% and 6.22%, respectively, for the prior quarter.

ASSET QUALITY

The allowance for credit losses on loans was $112.2 million at June 30, 2020, or 1.20% of total loans, as compared to $92.4 million at March 31, 2020, or 1.04% of total loans. As previously noted, the Company recorded a $20.0 million provision for credit losses during the second quarter of 2020, reflecting assumptions over future losses that contemplate the impact of the COVID-19 pandemic on various industries and customer segments, related requests for loan deferral accommodations, and government stimulus programs.

The granting of loan deferrals has not resulted in increased asset quality risk metrics, as nonperforming and delinquency amounts do not reflect loans that have been modified as a result of the COVID-19 pandemic. During the second quarter of 2020, the Company recorded total net charge-offs of $200,000, or 0.01% of average loans on an annualized basis. Nonperforming loans of $48.8 million at June 30, 2020 were a slight increase over the prior quarter level of $48.0 million, with nonperforming loans as a percentage of gross loans decreasing slightly to 0.52% compared to 0.54% at March 31, 2020. When compared to the year ago period, total nonperforming assets have increased by 1.3%. At June 30, 2020, delinquency as a percentage of loans was 0.24%, representing a decrease of nine basis points from the prior quarter. Please refer to appendix F for additional details regarding loans whose terms have been modified as a result of COVID-19.

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 second quarter earnings at 10:00 a.m. Eastern Time on Friday, July 24, 2020. 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: 10145222 and will be available through August 7, 2020. Additionally, a webcast replay will be available until July 24, 2021.

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. Continually recognized for its impressive financial performance and its outstanding culture for employees and customers alike, the bank is dedicated to giving back to the communities it serves through programs such as financial literacy. 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, as well as in Worcester County and Rhode Island. Rockland Trust also offers a full suite of mobile and online 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 us at 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:

  • 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 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;
  • additional regulatory oversight and 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, changes in tax laws, or failure to comply with requirements of the federal New Markets Tax Credit program;
  • 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 area;
  • 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.

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"), operating return on average assets, operating return on average common equity, core net 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 its core banking business such as merger and acquisition expenses, and other items, if applicable. The Company’s management uses operating earnings 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 net interest 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 earnings, operating EPS, operating return on average assets, operating return on average equity, 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.

INDEPENDENT BANK CORP. FINANCIAL SUMMARY

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

(Unaudited, dollars in thousands)

 

 

 

 

 

 

% Change

 

% Change

 

June 30
2020

 

March 31
2020

 

June 30
2019

 

Jun 2020 vs.

 

Jun 2020 vs.

 

 

 

 

Mar 2020

 

Jun 2019

Assets

 

 

 

 

 

 

 

 

 

Cash and due from banks

$

131,615

 

 

$

125,638

 

 

$

121,001

 

 

4.76

%

 

8.77

%

Interest-earning deposits with banks

974,105

 

 

345,739

 

 

73,013

 

 

181.75

%

 

1,234.15

%

Securities

 

 

 

 

 

 

 

 

 

Trading

2,541

 

 

2,247

 

 

1,939

 

 

13.08

%

 

31.05

%

Equities

20,810

 

 

19,439

 

 

20,807

 

 

7.05

%

 

0.01

%

Available for sale

420,517

 

 

437,296

 

 

393,148

 

 

(3.84

)%

 

6.96

%

Held to maturity

731,026

 

 

777,798

 

 

797,359

 

 

(6.01

)%

 

(8.32

)%

Total securities

1,174,894

 

 

1,236,780

 

 

1,213,253

 

 

(5.00

)%

 

(3.16

)%

Loans held for sale

45,395

 

 

43,756

 

 

123,557

 

 

3.75

%

 

(63.26

)%

Loans

 

 

 

 

 

 

 

 

 

Commercial and industrial

2,004,645

 

 

1,448,224

 

 

1,400,924

 

 

38.42

%

 

43.09

%

Commercial real estate

4,071,047

 

 

4,061,347

 

 

4,058,066

 

 

0.24

%

 

0.32

%

Commercial construction

537,788

 

 

527,138

 

 

491,598

 

 

2.02

%

 

9.40

%

Small business

170,288

 

 

177,820

 

 

173,927

 

 

(4.24

)%

 

(2.09

)%

Total commercial

6,783,768

 

 

6,214,529

 

 

6,124,515

 

 

9.16

%

 

10.76

%

Residential real estate

1,431,129

 

 

1,528,416

 

 

1,655,182

 

 

(6.37

)%

 

(13.54

)%

Home equity - first position

650,922

 

 

656,994

 

 

656,515

 

 

(0.92

)%

 

(0.85

)%

Home equity - subordinate positions

469,601

 

 

489,276

 

 

487,984

 

 

(4.02

)%

 

(3.77

)%

Total consumer real estate

2,551,652

 

 

2,674,686

 

 

2,799,681

 

 

(4.60

)%

 

(8.86

)%

Other consumer

24,228

 

 

27,215

 

 

26,591

 

 

(10.98

)%

 

(8.89

)%

Total loans

9,359,648

 

 

8,916,430

 

 

8,950,787

 

 

4.97

%

 

4.57

%

Less: allowance for credit losses

(112,176

)

 

(92,376

)

 

(65,960

)

 

21.43

%

 

70.07

%

Net loans

9,247,472

 

 

8,824,054

 

 

8,884,827

 

 

4.80

%

 

4.08

%

Federal Home Loan Bank stock

15,090

 

 

23,274

 

 

26,085