Independent Bank Corp. Reports Third Quarter Net Income of $11.6 Million

Independent Bank Corp., (NASDAQ: INDB), parent of Rockland Trust Company, today announced net income of $11.6 million for the third quarter of 2012, or $0.53 on a diluted earnings per share basis.

The third quarter of 2012 contained various items which the Company considers to be non-core in nature. These items included $2.2 million of goodwill impairment associated with the Company’s 1031 Exchange business, $595,000 of merger-related expenses associated with the previously announced Central Bancorp, Inc. (NASDAQ: CEBK) acquisition and tax-exempt income of $1.3 million related to proceeds from life insurance policies. When excluding these non-core items, net income for the third quarter on an operating basis was $12.0 million, or $0.55 per diluted share.

Christopher Oddleifson, President and Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company, stated: “Our third quarter performance was a strong one and is driven by our strategy of disciplined growth. The steady growth in lending and core deposits evidences that the Rockland brand is resonating with consumers and businesses alike. Our customer-centric approach to deliver great products and service is meeting with much success in the marketplace which makes us confident about continuing to build franchise value.”

BALANCE SHEET

Total assets of $5.2 billion at September 30, 2012 are up $67.5 million from the prior quarter and $292.3 million, or 6.0%, as compared to the year ago period.

Total loans continued to trend upwards, rising to $4.1 billion at September 30, 2012, which represents an increase of 7.5%, on an annualized basis, from the prior quarter. The commercial loan portfolio continued to exhibit strong growth trends with an increase in outstanding balances of 11.4%, on an annualized basis, from the prior quarter. The commercial loan pipeline remains at strong levels. The first position home equity portfolio also sustained its track record of healthy growth in the third quarter, with an increase of 16.6%, on an annualized basis, from the prior quarter as customers continue to respond enthusiastically to the Company’s product offerings.

Deposits remained steady at $4.1 billion at September 30, 2012 as compared to the prior quarter. Core deposits increased by $53.8 million, or 6.3% on an annualized basis to $3.5 billion during the quarter with growth occurring in both consumer and business customer segments. Core deposits have now risen to 84.3% of total deposits. The Company’s cost of total deposits remained low at 0.26%, reflecting management’s continued emphasis on core deposits and profitable relationships.

The securities portfolio of $510.0 million decreased by $16.8 million during the quarter, as a result of paydowns as well as calls of $6.4 million in trust preferred securities, offset by additional purchases. The securities portfolio represents 9.8% of total assets at September 30, 2012.

Stockholders’ equity at September 30, 2012 increased to $493.0 million, an increase of 7.7%, on an annualized basis, when compared to June 30, 2012. The Tier 1 common ratio at September 30, 2012 remains strong and is estimated at 9.09%, as compared to 9.13% in the prior quarter. The Company’s tangible common ratio was 7.04% representing an increase from the prior quarter’s tangible common ratio of 6.89%.

NET INTEREST INCOME

Net interest income was $42.8 million for the third quarter of 2012, a slight increase from the linked quarter as robust loan growth served to counter the industry-wide pressure on interest margins caused by the prolonged low rate environment. The net interest margin was 3.72% in the third quarter of 2012, declining by eight basis points compared to the prior quarter, due to lower earning asset yields coupled with a limited ability to further reduce the Company’s overall cost of funds.

NONINTEREST INCOME

The Company recorded noninterest income of $16.1 million during the third quarter of 2012 which represents a $1.1 million, or 7.5%, increase from the prior quarter. Significant changes in noninterest income included the following:

• The Company received proceeds on life insurance policies in the amount of $1.3 million. The proceeds represent tax-exempt income to the Company.
• Income from loan level derivative activity associated with the Company’s commercial customers decreased by $324,000.

NONINTEREST EXPENSE

Inclusive of merger and integration costs and goodwill impairment, the Company recorded noninterest expense of $40.1 million during the third quarter of 2012 which represents a $3.1 million or an 8.3% increase from the prior quarter. Significant changes in noninterest expense included the following:

• Salaries and employee benefits increased by $929,000, or 4.7%, driven largely by an increase in incentive compensation of $1.2 million offset somewhat by lower pension expense.
• Merger and acquisition expenses were $595,000 for the third quarter relating to the previously announced acquisition of Central Bancorp, Inc., which is expected to close in the fourth quarter of 2012.
• During the third quarter of 2012 the Company recorded a $2.2 million goodwill impairment charge, which represented the total amount of goodwill relating to Compass Exchange Advisors, LLC (“Compass”) which was acquired in January 2007. Compass is a wholly-owned subsidiary of the Bank that provides like-kind exchange services pursuant to section 1031 of the Internal Revenue Code. The Company continues to offer these services and has not exited the business. However due to the prolonged low rate environment and the Federal Reserve Bank’s stated intent to maintain low rates for the foreseeable future, the Company determined the goodwill associated with this purchase to be impaired.

The Company generated a return on average assets and a return on average common equity in the third quarter of 2012 of 0.91% and 9.39% respectively, as compared to 0.71% and 7.34% for the quarter ended June 30, 2012. On a year to date basis the return on average assets and a return on average common equity was 0.87% and 9.01% at September 30, 2012 compared to 0.97% and 10.10% for the year ended September 30, 2011.

ASSET QUALITY

The provision for loan losses was $3.6 million for the third quarter compared to $8.5 million for the quarter ended June 30, 2012. The provision for loan loss exceeded net charge-offs in both periods as the Company continues to prudently add to loan loss reserves in line with strong loan growth trends. For the quarter, net charge-offs decreased to $2.3 million, or 0.22%, on an annualized basis of average loans compared to $8.4 million, or 0.86%, for the quarter ended June 30, 2012. The higher net charge-offs in the second quarter included $4.0 million related to a customer fraud. Delinquency as a percentage of loans decreased to 0.79% at September 30, 2012 compared to 0.82% at June 30, 2012. Nonperforming loans decreased slightly to $31.1 million, or 0.77% of total loans at September 30, 2012, from $31.3 million, or 0.79% of total loans at June 30, 2012. Nonperforming assets declined to $41.5 million at the end of the third quarter compared to $43.9 million in the linked quarter, primarily driven by a decrease in other real estate owned by the Bank.

The allowance for loan losses was $49.7 million, at September 30, 2012, an increase of $1.3 million from the prior quarter levels. The Company’s allowance for loan losses was 1.23% and 1.22% as a percentage of total loans at September 30, 2012 and June 30, 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 third quarter earnings at 10:00 a.m. Eastern Time on Friday, October 19, 2012. Internet access to the call is available on the Company’s website at www.RocklandTrust.com or by telephonic access by dial-in at 1-877-317-6789 reference: INDB. A replay of the call will be available by calling 1-877-344-7529. Replay Pass code: 10019254. The webcast replay will be available until October 19, 2013.

Independent Bank Corp., which has Rockland Trust Company as a wholly-owned bank subsidiary, has approximately $5.2 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 does not believe are related to its core banking business, 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 gains or losses which management deems not to be core to the Company’s operations. 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.