Independent Bank Corp. Reports First Quarter Net Income of $26.8 Million

Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2020 first quarter net income of $26.8 million, or $0.78 per diluted share, compared to net income of $47.5 million, or $1.38 per diluted share, reported in the fourth quarter of 2019. First quarter results were negatively impacted by an elevated provision for credit losses of $25.0 million, which was calculated under the Current Expected Credit Loss ("CECL") accounting standard which became effective January 1, 2020. Assumptions regarding the impact of the Coronavirus ("COVID-19") pandemic were the primary driver of the credit loss provision. Please refer to Appendix C for additional information regarding the Company's CECL implementation and Appendix E for details about loan exposures that potentially could be deemed "at risk" as a result of COVID-19.

Rockland Trust has taken many actions in response to the COVID-19 pandemic and continues to closely monitor its impact on our colleagues, customers, and the communities we serve. The safety of our colleagues and customers, while simultaneously continuing to serve customer needs, is our top priority. Please refer to Appendices D to G for information about customer accommodations and other actions taken in response to the COVID-19 pandemic, including information regarding loan exposure and modifications, line of credit utilization, and Paycheck Protection Program ("PPP") loan volume.

“Rockland Trust is committed to striving to help our customers, our communities, and our colleagues as we face COVID-19 together,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “Rockland Trust colleagues have pulled together like never before and the level of discretionary effort and commitment demonstrated by my colleagues to each other, to our customers, and to our communities is truly inspiring. I thank each and every one of my colleagues for their extraordinary efforts. Rockland Trust is anchored by a strong capital position, ample sources of liquidity, and strong core deposits. We believe we are well-positioned as we move forward during this unprecedented time.”

BALANCE SHEET

Total assets of $12.0 billion at March 31, 2020 increased by $585.1 million, or 5.1%, from the prior quarter, and increased by $3.0 billion, or 33.2%, as compared to the year ago period.

Total loans rose by $42.8 million, or 0.5% (1.9% annualized) when compared to the prior quarter. The commercial portfolio experienced growth of 1.6% (6.3% annualized) during the first quarter, driven primarily by solid closings across all categories, offset by continued attrition, including within the recently acquired Blue Hills Bank ("BHB") loan portfolio. The consumer portfolio decreased as compared to the linked quarter, as the Company continues to sell a majority of its residential production into the secondary market, while home equity balances increased 4.4% (on an annualized basis).

Deposit balances of $9.4 billion at March 31, 2020 increased by $268.8 million, or 2.9%, (11.8% annualized) from the prior quarter, driven by strong growth in business, consumer, and municipal deposit balances across all core deposit categories. Time deposits declined by 9.0% from the prior quarter due primarily to the maturities of brokered certificates of deposits. Total cost of deposits for the quarter remained at 0.48%, as purchase accounting adjustments offset rate changes initiated later in the quarter.

The securities portfolio increased by $46.1 million, or 3.9%, when compared to the prior quarter, reflecting $113.8 million of purchases partially offset by paydowns, called securities, and maturities.

Total borrowings increased by $242.9 million, or 80.1%, compared to the prior quarter, comprised primarily of short-term, low cost Federal Home Loan Bank advances, reflecting proactive actions to increase on-balance sheet liquidity during this current environment of economic uncertainty. In addition, the Company entered into an interest rate swap on $100 million of these short-term borrowings, maturing in three years.

Stockholders' equity at March 31, 2020 remained consistent with December 31, 2019 levels at $1.7 billion. During the quarter, the Company executed on its previously announced stock repurchase plan for 1.5 million shares, repurchasing 1.2 million shares of common stock, at a $73.2 million cost, prior to the quarter end. The Company repurchased the remaining 300,000 shares in early April, completing the repurchase of all 1.5 million shares under the plan at an average share price of $63.39. Also affecting stockholders' equity was the impact of the January 1, 2020 adoption of CECL, which resulted in a nominal difference that was recorded as a direct adjustment to retained earnings, with a more significant level of loan provision being recognized and reflected in net income for the quarter and ending capital as of March 31, 2020. While regulatory relief options are available to defer CECL impacts, the Company has chosen not to exercise those options and will therefore not have a difference between book and regulatory capital due to CECL. Stockholders' equity increased by 52.1% when compared to the year ago period, reflecting the issuance of common stock associated with the BHB acquisition, partially offset by the repurchase of 1.2 million shares under the Company stock repurchase plan. Book value per share increased by $0.81, or 1.6%, to $50.50 during the first quarter as compared to the linked quarter. The Company's ratio of common equity to assets of 14.02% decreased by 97 basis points from the prior quarter and increased by 174 basis points from the same period a year ago. The Company's tangible book value per share at March 31, 2020 was $34.46, which rose from the prior quarter by $0.35, or 1.0%, and is now 16.3% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 10.01% at March 31, 2020 is 79 basis points below the prior quarter and 45 basis points above the year ago period.

NET INTEREST INCOME

Net interest income for the first quarter decreased 5.7% to $94.3 million compared to $100.0 million in the prior quarter. The 2020 first quarter net interest margin of 3.74% represents a reduction of 16 basis points from the prior quarter, and reflects continued yield compression from 2019 Federal Reserve rate cuts, additional rate cuts during March of 2020, and a decrease in purchase accounting loan accretion income which totaled $866,000 for the first quarter as compared to $3.4 million in the prior quarter.

NONINTEREST INCOME

Noninterest income of $26.4 million in the first quarter of 2020 was $6.9 million, or 20.6%, lower than the prior quarter. Significant changes in noninterest income in the first quarter compared to the prior quarter included the following:

• Service charge income and interchange and ATM fees decreased by $285,000, or 5.4%, and $809,000, or 14.2%, respectively, due primarily to seasonality and decreased overall activity due to COVID-19 pandemic limitations on customer behavior.

• Investment management income decreased by $801,000, or 10.5%, primarily due to a significant decline in market valuation. Assets under administration at March 31, 2020 decreased 12.5% to $4.0 billion.

• Mortgage banking income decreased by $2.4 million, or 73.7% . Despite strong closing volumes and a significant pipeline as of March 31, 2020, the sharp reductions in rates caused severe secondary market disruption and uncertainty over pipeline closing assumptions throughout the mortgage market, leading to significant declines in value over various hedging positions. In addition to the reduced hedge values, the Company also recorded a $661,000 loss related to the valuation of mortgage servicing assets.

• Loan level derivative income increased by $1.4 million, or 66.1%, as a result of increased customer demand in the quarter.

• Other noninterest income decreased by $4.2 million, or 53.4%. The decrease is attributable primarily to a one- time $3.1 million insurance recovery recognized during the fourth quarter of 2019, related to a claim settlement on a BHB loan that was fully charged off prior to the acquisition. Other decreases in the quarter included reduced gains on the sale of fixed assets and reduced capital gain distributions received on equity securities.

NONINTEREST EXPENSE

Noninterest expense of $66.8 million in the first quarter of 2020 was $605,000, or 0.9% lower than the prior quarter. Significant changes in noninterest expense in the first quarter compared to the prior quarter included the following:

• Salaries and employee benefits expense decreased by $415,000, or 1.1%, due primarily to reduced incentive expense.

• Occupancy and equipment expense increased by $219,000, or 2.4%, primarily due to increased software and equipment expense.

• Other noninterest expense decreased by $434,000, or 2.3%, largely due to decreases in the reserve for unfunded commitments, consultant fees, and system conversion costs, partially offset by increases in unrealized loss on equity securities, recruitment expense, and loss on the sale or disposition of fixed assets.

The tax rate for the quarter includes a $4.7 million discrete tax benefit recognized in the quarter associated with revised net operating loss (NOL) carryback provisions included in the federal Coronavirus, Aid, Relief and Economic Security Act ("CARES Act"). Excluding this discrete benefit, the tax rate would have been approximately 25%.

The Company generated a return on average assets and a return on average common equity of 0.94% and 6.22%, respectively, in the first quarter of 2020, as compared to 1.64% and 11.06%, respectively, for the prior quarter.

ASSET QUALITY

During the first quarter of 2020, the Company recorded total net charge-offs of $384,000, or 0.02% of average loans on an annualized basis. Nonperforming loans of $48.0 million at March 31, 2020 remained consistent with the prior quarter, with nonperforming loans as a percentage of gross loans also remaining steady at 0.54%. When compared to the year ago period, total nonperforming assets have increased by $4.7 million, or 10.9%. At March 31, 2020, delinquency as a percentage of loans was 0.33%, representing an increase of four basis points from the prior quarter.

The allowance for credit losses on loans was $92.4 million at March 31, 2020, as compared to $67.7 million at December 31, 2019. As previously noted, the Company recorded a $25.0 million provision for credit losses during the first quarter of 2020, in order to reserve for current expected credit losses in the Bank's loan portfolio, driven primarily by anticipated COVID-19 pandemic impacts. The Company’s allowance for credit losses as a percentage of loans was 1.04% and 0.76% at March 31, 2020 and December 31, 2019, respectively.

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 first quarter earnings at 10:00 a.m. Eastern Time on Friday, April 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: 10138816 and will be available through May 8, 2020. Additionally, a webcast replay will be available until April 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, 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 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.

(1) Estimated number for March 31, 2020.

(2) See Appendix A for detailed reconciliation from GAAP to Non-GAAP ratios.

(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $253,000, $256,000, and $202,000 for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively, determined by applying the Company's marginal tax rates in effect during each respective quarter.

(2) Interest rate spread represents the difference between 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.