Independent Bank (INDB) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls Financial Statements (Unaudited) This section presents Independent Bank Corp.'s unaudited consolidated financial statements, encompassing balance sheets, income, comprehensive income, equity, and cash flows, along with detailed notes Consolidated Balance Sheets This section provides a summary of the company's financial position, highlighting changes in assets, liabilities, and equity Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $19,400,931 | $19,294,174 | +0.6% | | Net Loans | $13,999,264 | $13,776,256 | +1.6% | | Total Securities | $3,023,072 | $3,129,281 | -3.4% | | Total Deposits | $15,248,051 | $15,879,007 | -4.0% | | Total Borrowings | $901,269 | $113,377 | +694.9% | | Total Stockholders' Equity | $2,854,914 | $2,886,701 | -1.1% | - Total assets increased slightly to $19.4 billion, driven by loan growth, while deposits decreased by $631 million. A significant increase in borrowings to $901.3 million was observed, up from $113.4 million at year-end 2022[15][16] Consolidated Statements of Income This section details the company's financial performance, including net interest income, credit loss provisions, and net income Income Statement Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $152,546 | $144,861 | $311,544 | $282,293 | | Provision for (release of) credit losses | $5,000 | $— | $12,250 | $(2,000) | | Net Income | $62,644 | $61,776 | $123,891 | $114,873 | | Diluted EPS | $1.42 | $1.32 | $2.78 | $2.44 | - Net income for Q2 2023 was $62.6 million, a slight increase from $61.8 million in Q2 2022. The growth was driven by higher net interest income, which was partially offset by a $5.0 million provision for credit losses, compared to zero provision in the prior-year quarter[19] Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, reflecting net income and other comprehensive income or loss components - Total comprehensive income was $45.7 million for Q2 2023, compared to $30.5 million in Q2 2022. The change was influenced by net income of $62.6 million and other comprehensive loss of $17.0 million, which included an $11.5 million net decrease in the fair value of securities available for sale[22] Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including impacts from net income, share repurchases, and dividends - Total stockholders' equity decreased from $2.89 billion at December 31, 2022, to $2.85 billion at June 30, 2023. The decrease was primarily due to share repurchases of $121.1 million and dividends of $48.6 million, partially offset by net income of $123.9 million and other comprehensive income of $10.1 million[27] - The company repurchased 1,617,033 shares for $121.1 million during the six months ended June 30, 2023[27] Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $142,230 | $172,438 | | Net cash used in investing activities | $(174,635) | $(494,196) | | Net cash used in financing activities | $(12,264) | $(442,659) | | Net decrease in cash and cash equivalents | $(44,669) | $(764,417) | - For the first six months of 2023, cash and cash equivalents decreased by $44.7 million. Key financing activities included a net decrease in deposits of $631.0 million and net advances from FHLB borrowings of $787.9 million, alongside $120.0 million in share repurchases[31][33] Notes to Consolidated Financial Statements Provides detailed disclosures supporting the main financial statements, covering accounting policies, financial instruments, and other required information Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides an overview of the company's financial condition and results of operations, analyzing balance sheet components, funding, income, expenses, capital, and risk management Executive Level Overview This section provides a high-level summary of the company's financial performance and key strategic drivers for the quarter - Net income for Q2 2023 was $62.6 million, or $1.42 per diluted share, compared to $61.8 million, or $1.32 per diluted share, in Q2 2022, representing increases of 1.4% and 7.6%, respectively[193] - Key performance drivers for the quarter included disciplined loan growth, stabilizing deposit balances, solid fee income growth, strong asset quality, and robust capital levels[195] - Tangible book value per share, a non-GAAP measure, grew by $0.57 during the quarter to $41.88[195][210] Financial Position This section analyzes the company's balance sheet, focusing on loans, deposits, asset quality, and capital adequacy - Total loans increased by $211.2 million (1.5%) to $14.1 billion at June 30, 2023, compared to year-end 2022, primarily driven by growth in residential real estate loans retained on the balance sheet[223] - Total deposits decreased by $631.0 million (4.0%) to $15.2 billion from year-end 2022, reflecting industry-wide dislocations and a competitive rate environment. Core deposits represented 82.6% of total deposits[264][265] - Nonperforming assets decreased to $45.8 million (0.24% of total assets) at June 30, 2023, from $54.9 million (0.28% of total assets) at year-end 2022[242] - The Company and the Bank exceeded all minimum regulatory capital requirements as of June 30, 2023, with a consolidated Total risk-based capital ratio of 15.76%[271][273] Results of Operations This section details the company's financial performance, including net interest income, credit provisions, noninterest income, and expenses Key Performance Ratios | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Return on average assets | 1.29% | 1.24% | | Return on average equity | 8.78% | 8.49% | | Net interest margin (FTE) | 3.54% | 3.27% | - Net interest income (FTE) for Q2 2023 increased 5.4% YoY to $153.7 million, primarily due to asset repricing in the rising rate environment, which was partially offset by higher funding costs[286] - A provision for credit losses of $5.0 million was recorded in Q2 2023, driven by reserve allocations for a large commercial and industrial credit that was subsequently charged off, and a large commercial real estate credit that moved to non-performing status[305] - Noninterest income increased 10.25% YoY to $30.8 million, driven by higher investment management fees and loan level derivative income[307] - Noninterest expense increased 5.51% YoY to $95.6 million, mainly due to higher salaries and employee benefits[311] Risk Management This section outlines the company's approach to managing various risk types, including liquidity, interest rate, and operational risks - The Company manages nine major risk types: strategic, culture, credit, liquidity, interest rate, operational, reputation, compliance, and technology[321] - In response to recent banking industry turmoil, the Company operated under its Liquidity Contingency Plan, proactively increasing borrowing capacity. As of June 30, 2023, total available and unused liquidity capacity was over $6.0 billion[334][332] - The Company's net interest income simulation shows a negative impact from both rising and falling rates as of June 30, 2023. A 100 basis point instantaneous rate increase is projected to decrease net interest income by 1.3% in the first year, a shift from the asset-sensitive position in the prior year[340] Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the detailed discussion on market risk, particularly interest rate risk, from the 'Risk Management' section - The information required for this item is included in the "Risk Management" section of Item 2, Management's Discussion and Analysis[352] Controls and Procedures Management evaluated the company's disclosure controls and procedures, concluding they were effective with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[353] - There were no changes in the Company's internal control over financial reporting during Q2 2023 that have materially affected, or are reasonably likely to materially affect, these controls[354] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits Legal Proceedings The company is involved in pending lawsuits, which management does not expect to materially affect financial position or results - In management's opinion, the final disposition of pending lawsuits from the ordinary course of business is not expected to have a material adverse effect on the Company's financial position or results of operations[355] Risk Factors This section reiterates ongoing risks, particularly those related to recent financial services industry events, with no material changes from prior disclosures - There have been no material changes to the Risk Factors disclosed in the 2022 Form 10-K as updated by the Q1 2023 Form 10-Q[357] - The report highlights the ongoing risks related to recent events in the financial services industry, such as decreased confidence in banks, market volatility, potential FDIC special assessments, and adverse regulatory changes[358] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the quarter, primarily for tax withholding obligations related to equity compensation Issuer Purchases of Equity Securities (Q2 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2023 | 47 | $62.86 | | May 2023 | 0 | $— | | June 2023 | 80 | $45.22 | | Total | 127 | $51.75 | - All shares purchased during the quarter were surrendered in connection with equity compensation grants to satisfy tax withholding obligations and were not part of a publicly announced repurchase plan[360] Other Information This section reports that during the quarter ended June 30, 2023, no directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - During Q2 2023, no directors or executive officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[364] Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and interactive data files (Exhibits 101, 104) Signatures This section contains the required signatures for the filing