ROCKLAND, Mass.--(BUSINESS WIRE)--Independent Bank Corp. (Nasdaq Global Select Market: INDB), parent of Rockland Trust Company, today announced 2018 second quarter net income of $31.1 million, or $1.13 per diluted share, compared to net income of $27.6 million, or $1.00 per diluted share, reported in the prior quarter of 2018. Excluding merger and acquisition expenses incurred in the second quarter related to the pending MNB Bancorp ("MNB") merger announced on May 29, 2018, operating net income for the second quarter was $31.4 million, or $1.14 per diluted share. There were no items during the first quarter of 2018 that were considered to be noncore.

“Loans, deposits, and interest and fee income all increased during the second quarter of 2018 due to our focus on disciplined growth,” said Christopher Oddleifson, the Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company. “Rockland Trust also announced the signing of a merger agreement with The Milford National Bank and Trust Company during the second quarter, a transaction which is anticipated to close later this year and will help expand our Worcester County presence. Our consistency and strong financial performance is a direct result of the tireless efforts of my talented colleagues to serve our customers and strengthen the communities in which we work and live.”

BALANCE SHEET

Total assets of $8.4 billion at June 30, 2018 increased by $290.6 million, or 3.6%, from the prior quarter and by $363.7 million, or 4.5%, as compared to the year ago period.

Total loan growth of 1.8% (7.4% annualized) was broad based, with commercial and industrial loans leading the way with an increase of $73.1 million, or 8.1%. Residential real estate (+2.4%), home equity (+1.7%) and business banking (+10.1%), also experienced strong growth during the quarter. The only category with a decline in balances was commercial construction due to many projects reaching completion during the quarter.

Deposit balances in the second quarter of 2018 rose by $262.0 million, or 3.9% (15.6% annualized), from the prior quarter to over $7.0 billion. The Company experienced healthy growth in all core deposit categories which combined represented 90.4% of total deposits at June 30, 2018. Also contributing to the increase in deposits was an unanticipated, single customer inflow of approximately $95.2 million in the second quarter. The total cost of deposits increased by three basis points in the second quarter to 0.27%.

The securities portfolio remained relatively constant, increasing by $6.6 million, or 0.7%, compared to the prior quarter due to purchases of $46.2 million, offset by paydowns on existing securities.

The Company's total borrowings of $300.8 million remained relatively consistent with the prior quarter, reflecting an increase in customer repurchase agreements, offset by the maturity of a small Federal Home Loan Bank borrowing.

Stockholders' equity at June 30, 2018 rose to $977.1 million, an increase of 2.2% from March 31, 2018, due primarily to strong earnings, partially offset by a decrease in other comprehensive income related primarily to unrealized losses on available for sale securities. In addition, stockholders' equity increased by 6.8% compared to the year ago period, notwithstanding approximately $10.1 million, after tax, in net other comprehensive losses over that time period. Book value per share increased $0.74, or 2.1%, during the second quarter compared to the prior quarter, and the Company's ratio of common equity to assets of 11.66% decreased by 16 basis points from the prior quarter and increased by 25 basis points from the same period a year ago. The Company's tangible book value per share rose by $0.76, or 2.9%, to $26.78 in the second quarter compared to the first quarter of 2018, and is now 9.4% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.06% at June 30, 2018 is 6 basis points lower than the prior quarter and 42 basis points higher than the same period a year ago.

NET INTEREST INCOME

Net interest income for the second quarter increased 6.9% to $73.2 million compared to $68.5 million in the prior quarter, due primarily to strong earning asset growth and a higher net interest margin. The net interest margin for the second quarter was 3.89%, compared to 3.77% in the prior quarter, as the Company continues to benefit from its sustained asset sensitive position. The second quarter also included increased income associated with loan payoffs and prepayment penalties which increased the net interest margin by approximately 3 basis points.

NONINTEREST INCOME

Noninterest income of $21.9 million in the second quarter was $2.0 million, or 10.2%, higher than the prior quarter. Significant changes in noninterest income in the second quarter compared to the prior quarter included the following:

• Interchange and ATM fees increased by $596,000, or 14.3%, driven mainly by seasonal debit card activity.
• Investment management income rose by $680,000, or 11.1%, reflecting a higher level of assets under administration, along with seasonal tax preparation fees during the second quarter. Total assets under administration increased to $3.6 billion as of June 30, 2018.
• Mortgage banking income grew by $168,000, or 19.3%, due primarily to an overall increase in new loan originations.
• Loan level derivative income increased by $261,000, or 58.4%, as a result of increased customer demand in the quarter.
• Other noninterest income increased by $146,000, or 5.1%, primarily due to a gain on sale of loans partially offset by reduced loan fees.

NONINTEREST EXPENSE

Noninterest expense of $52.7 million in the second quarter was $763,000, or 1.4%, lower than 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 decreased by $812,000, or 2.6%, due primarily to seasonal decreases in payroll taxes, medical insurance, and retirement plan expenses partially offset by increases in incentive compensation and commissions.
• Occupancy and equipment expense was lower by $911,000, or 12.3%, mainly due to decreases in snow removal and utility costs.
• Merger and acquisition costs of $434,000 for the second quarter primarily reflect legal and professional fees associated with the pending acquisition of MNB which is anticipated to close in the fourth quarter of 2018. There were no such costs during the first quarter of 2018.
• Other noninterest expense increased by $655,000, or 5.1%, driven by increases in equity compensation for directors due to a change in the vesting requirements for the 2018 annual director equity grant, consultant fees and legal fees, offset by decreases in unrealized losses on equity securities and provision for unfunded commitments.

The Company generated a return on average assets and a return on average common equity of 1.52% and 12.85%, respectively, in the second quarter of 2018, as compared to 1.39% and 11.73%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.53% and 12.98% during the second quarter of 2018, respectively. During the first quarter of 2018, there were no items that the Company considered to be noncore.

The Company’s effective tax rate increased to 22.9% for the second quarter as compared to 19.9% in the prior quarter. The current quarter results included the reduced effect of excess tax benefits associated with stock compensation transactions and other discrete items which totaled $170,000 as compared to $1.2 million of excess tax benefit in the prior quarter.

ASSET QUALITY

During the second quarter, the Company recorded total net charge-offs of $305,000, or 0.02% of average loans on an annualized basis, essentially consistent with net charge-offs of $281,000 in the prior quarter. The provision for loan losses increased to $2.0 million for the second quarter of 2018 compared to $500,000 in the first quarter of 2018 due mainly to the strong loan growth during the quarter. Nonperforming loans decreased by 1.3% to $47.1 million, or 0.73% of loans, at June 30, 2018 from $47.7 million, or 0.75% of loans, at March 31, 2018. Total nonperforming assets decreased slightly to $47.4 million at the end of the second quarter, as compared to $48.1 million at the end of the prior quarter. Nonperforming asset levels declined by 13.6% as compared to the year ago period. At June 30, 2018 delinquency as a percentage of loans was 0.89%, representing an increase of ten basis points from the prior quarter.

The allowance for loan losses was $62.6 million at June 30, 2018, as compared to $60.9 million at March 31, 2018. The Company’s allowance for loan losses as a percentage of loans was 0.97% and 0.96% at June 30, 2018 and March 31, 2018, respectively.

ABOUT INDEPENDENT BANK CORP.

Independent Bank Corp. has approximately $8.4 billion in assets and is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Named in 2017 to The Boston Globe’s “Top Places to Work” list for the ninth consecutive year, 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, and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. The Company is an FDIC member and an Equal Housing Lender. To find out why Rockland Trust is the bank “Where Each Relationship Matters®”, please visit www.rocklandtrust.com.