Independent Bank Corp. Reports First Quarter Net Income of $12.3 Million

Independent Bank Corp., (NASDAQ: INDB), parent of Rockland Trust Company, today announced net income for the first quarter of 2013 was $12.3 million, or $0.54 on a diluted earnings per share basis. The results of the first quarter of 2013 represent an increase of $0.09, or 20.0%, on a diluted earnings per share basis as compared to the fourth quarter of 2012. These quarters contained various items such as merger and acquisition expenses, which the Company considers to be non-core in nature. When excluding these items, net operating earnings for the first quarter were $13.3 million, or $0.58 on a diluted earnings per share basis, as compared with the prior quarter net operating earnings of $13.7 million, or $0.61 on a diluted earnings per share basis. Additionally, the Company’s net operating earnings increased by $1.1 million or 9.2%, as compared to the year ago quarter’s net operating earnings of $12.2 million.

Christopher Oddleifson, President and Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company, stated: “Despite the pervasive low interest rate environment, Rockland Trust continues to perform well as a result of our customer centric approach. Our formula for success – high-touch service, state-of-the-art technology, and convenient banking options – allows our customers to bank on their terms. Our focus remains on growing long-term profitable relationships while continuing to add value for our shareholders. This quarter’s performance reflects continued progress in both of these areas.”

BALANCE SHEET

Total assets of $5.7 billion at March 31, 2013 have decreased by $35.9 million from the prior quarter and increased by $735.4 million, or 14.8%, as compared to the year ago period, inclusive of the acquisition of Central Bancorp, Inc. (“Central”) in November 2012.

Total loans of $4.5 billion at March 31, 2013, have decreased by $31.5 million when compared to the prior quarter and have increased by $617.7 million or 16.0% when compared to March 31, 2012. The commercial loan portfolio continued to grow, rising by $38.4 million, or 5.1% on an annualized basis, during the quarter. The pipeline of new originations is steadily rebuilding following the high level of closings experienced during the fourth quarter. Offsetting the growth in commercial, the residential portfolio decreased by $57.5 million, or 38.0% on an annualized basis, due to the majority of new production being sold into the secondary market, as well as elevated prepayment activity. On a year-over year basis, the loan growth in the commercial portfolio has been strong, with balances increasing 16.2%. The consumer real estate portfolio, driven by home equities, has also seen robust growth as compared to the prior year with an increase of 17.0%.

Deposits remained steady at $4.6 billion at March 31, 2013, with core deposits representing 82.9% of total deposits. The increase in deposits as compared to the first quarter of 2012, represents growth of $605.7 million, or 15.4%, as the Company continues to focus on building profitable relationships. Total cost of deposits declined slightly to 0.24% for the quarter, reflecting the Company’s continued emphasis on core deposits.

The securities portfolio of $544.8 million increased by $37.2 million during the quarter due to purchases of $79.6 million, used to strengthen balance sheet liquidity and meet collateral needs, partly offset by principal pay downs. The securities portfolio represents 9.5% of total assets at March 31, 2013 as compared to 8.8% of total assets at December 31, 2012.

Stockholders’ equity at March 31, 2013 rose to $537.6 million, an increase of 1.6% for the quarter. As compared to the year ago period, stockholders’ equity has increased by $58.7 million, or 12.3%. The Tier 1 common ratio at March 31, 2013 increased to an estimated 8.98%, as compared to 8.76% in the prior quarter. The Company’s tangible common ratio was 6.76%, representing an increase from the prior quarter’s level of 6.56%.

NET INTEREST INCOME

Net interest income was $44.9 million for the first quarter of 2013, a $617,000 decrease from the linked quarter, primarily driven by the accelerated recognition of fair value discounts from payoffs of acquired loans in the prior quarter, which had a negative impact on the margin of six basis points on a comparative basis. In addition, the Company continues to experience lower earning asset yields coupled with a limited ability to further reduce the Company’s overall cost of funds. As a result of these factors, the Company’s net interest margin decreased, as anticipated, to 3.58% for the first quarter of 2013, representing a decrease of ten basis points.

NONINTEREST INCOME

The Company recorded noninterest income of $15.7 million during the first quarter of 2013 which represents a $1.3 million, or 7.6%, decrease from the prior quarter. Significant changes in noninterest income included the following:

• Investment management income increased by $218,000, or 6.0%, as assets under administration in the investment management division continued to increase to $2.3 billion at March 31, 2013, representing growth of $98.3 million, or 4.5% as compared to the linked quarter.
• Interchange and ATM fees decreased by $266,000, or 10.3%, due to a seasonal decrease in usage by customers.
• Income from loan level derivatives associated with the Company’s commercial customers decreased by $179,000 due to reduced new loan activity during the first quarter as the Company’s new business pipeline rebuilds.
• Other noninterest income decreased by $986,000, or 36.2%, driven by the prior quarter’s inclusion of $622,000 of income associated with certain tax credits, as well as decreases in various other categories, including commercial loan fees and income on called securities.

NONINTEREST EXPENSE

The Company recorded noninterest expense of $42.9 million during the first quarter of 2013 which represents a $2.1 million, or 4.7% decrease from the prior quarter. Significant changes in noninterest expense included the following:

• Merger and acquisition expenses associated with the Central Bancorp., Inc. acquisition were $1.3 million for the first quarter, representing a decrease of $4.1 million from the linked quarter.
• Salaries and employee benefits increased by $616,000, or 2.8%, largely as a result of an increase in salaries driven by the inclusion of Central’s employee base for the full quarter, and higher payroll taxes offset by a decrease in incentive program accruals.
• Occupancy and equipment expense increased $694,000, or 15.2%, mainly due to higher snow removal costs.
• Other noninterest expenses increased by $789,000, or 7.3%, mainly due to an increase in advertising expense of $701,000 due to the timing of a new marketing campaign.

The Company generated a return on average assets and a return on average common equity in the first quarter of 2013 of 0.88% and 9.25%, respectively, as compared to 0.73% and 7.68% for the quarter ended December 31, 2012. On an operating basis the return on average assets and the return on average common equity were 0.96% and 10.04%, respectively, in the first quarter, as compared to 1.00% and 10.54% in the fourth quarter.

ASSET QUALITY

The provision for loan losses was $1.3 million for the first quarter compared to $4.4 million for the quarter ended December 31, 2012. The provision for loan losses exceeded net charge-offs in both periods as the Company continues to prudently add to loan loss reserves in line with recent loan growth trends. For the quarter, net charge-offs decreased to $1.2 million, or 0.11%, on an annualized basis of average loans as compared to $2.3 million, or 0.21%, in the prior quarter. Nonperforming loans increased by $4.3 million to $33.1 million, or 0.74% of total loans at March 31, 2013, from $28.8 million, or 0.64% of total loans at December 31, 2012. Nonperforming assets increased to $46.8 million at the end of the first quarter compared to $42.4 million in the linked quarter. Delinquency as a percentage of loans increased to 1.05% at March 31, 2013 compared to 0.82% at December 31, 2012.

The allowance for loan losses was $51.9 million at March 31, 2013, an increase of $72,000 from the prior quarter levels. The Company’s allowance for loan losses was 1.16% and 1.15% as a percentage of total loans at March 31, 2013 and December 31, 2012, respectively.

Christopher Oddleifson and Denis K. Sheahan, Chief Financial Officer, of Independent Bank Corp. and Rockland Trust Company, will host a conference call to discuss first quarter earnings at 10:00 a.m. Eastern Time on Friday, April 26, 2013. Internet access to the call is available on the Company’s website at www.RocklandTrust.com or by telephonic access by dial-in at 1-888-317-6016 reference: INDB. A replay of the call will be available by calling 1-877-344-7529. Replay Pass code: 10027151. The webcast replay will be available until April 26, 2014.

Independent Bank Corp., which has Rockland Trust Company as a wholly-owned bank subsidiary, has approximately $5.7 billion in assets. Rockland Trust offers a wide range of commercial banking products and services, retail banking products and services, business and consumer loans, insurance products and services, and investment management services. To find out why Rockland Trust is the bank Where Each Relationship Matters®, 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. Actual results may differ from those contemplated by these statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements. 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.

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”). Operating earnings, which is a non-GAAP financial measure, excludes gain or loss due to items that management believes are unrelated to its core banking business and will not have a material financial impact on operating results in future periods, such as gains or losses on the sales of securities, merger and acquisition expenses, and other items. The Company’s management uses operating earnings to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such gains or losses. The Company has included information on operating earnings because management believes that investors may find it useful to have access to the same analytical tool used by management and may also find that it facilitates the comparison of the Company to other companies in the financial services industry. Non-GAAP operating earnings should not be viewed as a substitute for operating results determined in accordance with GAAP. An item which management deems to be non-core and excludes when computing non-GAAP operating earnings can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP operating earnings are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $245,000, $258,000, and $285,000 for the three months ended March 31, 2013, December 31, 2012, and March 31, 2012, respectively.

(2) Interest rate spread represents the difference between the 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.