Independent Bank Corp. (NASDAQ: INDB) — FY 2023 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2023. Independent Bank Corp. is the parent of Rockland Trust Company, a community bank serving Eastern Massachusetts, Worcester County, and Rhode Island. At year-end, the company reported $19.35 billion in assets, $14.87 billion in deposits, and $2.90 billion in stockholders’ equity.
Financial results and condition
| Metric | FY 2023 / Dec. 31, 2023 | FY 2022 / Dec. 31, 2022 |
|---|---|---|
| Net income | $239.5 million | $263.8 million |
| Diluted earnings per share | $5.42 | $5.69 |
| Net interest income | $606.5 million | $613.2 million |
| Net interest margin, fully tax-equivalent | 3.54% | 3.46% |
| Noninterest income | $124.6 million | $114.7 million |
| Noninterest expense | $392.7 million | $373.7 million |
| Provision for credit losses | $23.3 million | $6.5 million |
| Loans | $14.28 billion | $13.93 billion |
| Deposits | $14.87 billion | $15.88 billion |
| Borrowings | $1.22 billion | $113.4 million |
| Operating cash flow | $277.0 million | $421.2 million |
Net income fell 9.2%; diluted EPS fell 4.7%. Net interest income declined despite a higher margin, as funding costs rose sharply. Interest expense increased to $189.2 million from $29.6 million. The efficiency ratio was 53.72%, compared with 51.33%. Return on average assets was 1.24% (1.33%); return on average common equity was 8.31% (9.05%).
Loans grew 2.5%, led by residential real estate loans, up 19.1%; commercial loans declined 0.4%. Commercial real estate represented 56.3% of total loans. Nonperforming loans were $54.4 million, or 0.38% of gross loans, broadly flat versus $54.9 million and 0.39% a year earlier. Net charge-offs increased to $33.4 million from $1.0 million, primarily reflecting commercial portfolio losses. The allowance for credit losses was $142.2 million, or 1.00% of loans, versus $152.4 million and 1.09%.
Deposits declined 6.4%, while the average total cost of deposits rose to 0.96% from 0.15%. Core deposits were 84.6% of deposits, down from 91.8%, reflecting outflows and migration to higher-cost time deposits. Estimated uninsured deposits declined to $4.6 billion from $5.4 billion. The company increased FHLB borrowing by approximately $1.1 billion; year-end additional borrowing capacity across disclosed sources was $5.93 billion. Regulatory capital remained above required minimums: company CET1 was 14.19%, total risk-based capital 15.91%, and Tier 1 leverage 10.96%.
Cash and cash equivalents ended the year at $224.3 million, down $128.6 million. Investing activities used $211.7 million and financing activities used $193.9 million. The available-for-sale securities portfolio had $125.6 million of gross unrealized losses at year-end; accumulated other comprehensive loss improved to $114.8 million from $163.1 million. Held-to-maturity securities had fair value of $1.42 billion against $1.57 billion amortized cost.
Material changes, outlook, and risks
- Management attributed lower earnings chiefly to higher deposit and borrowing costs, higher credit-loss provision, and higher operating expenses. Fee income rose 8.7%, including growth in investment management fees; mortgage banking income declined 33.8% as higher rates reduced saleable loan volume.
- Management reported disciplined loan growth, stable asset quality, strong fee income, and prudent expense management. It did not provide specific 2024 earnings or balance-sheet guidance. Its allowance forecast assumed gradual Federal Reserve rate easing beginning mid-2024, slower job growth, unemployment peaking at 4.1%, slightly lower home prices, and continued weakness in office property values.
- Liquidity actions during 2023 included drawing on FHLB capacity and pledging additional assets after industry turmoil. Borrowings also supported share repurchases. The company repurchased 2.9 million shares for $189 million during 2023 and declared $2.20 per share in dividends, versus $2.08 in 2022.
- Principal risks include deposit competition and funding costs, interest-rate sensitivity, regional economic and real-estate weakness, commercial real estate and office exposure, commercial credit losses, securities valuation, regulatory and FDIC assessment costs, and cyber and operational risks. Goodwill of $985 million was not impaired, but the reporting unit’s fair value exceeded carrying value by less than 10%, which management said may leave goodwill at risk if conditions deteriorate.
- The FDIC special assessment was estimated at $1.1 million in 2023, payable over eight quarters beginning in Q1 2024. Pending ordinary-course lawsuits were not expected by management to materially affect financial position or results. The auditor issued an unqualified opinion on the financial statements and internal controls; the allowance for credit losses and goodwill impairment were identified as critical audit matters.
Investor verification priorities
- Track deposit balances, mix, pricing, uninsured deposits, and whether FHLB borrowing remains elevated as deposits stabilize or decline.
- Review commercial real estate, especially office, maturities, criticized and classified loans, modifications, charge-offs, and allowance adequacy.
- Assess whether margin improvement can persist as deposit costs reprice and interest rates change; compare actual results with management’s allowance assumptions.
- Monitor unrealized securities losses, tangible capital, available liquidity, and any effect of asset pledging or securities sales on funding flexibility.
- Verify future FDIC assessment expense, goodwill headroom and impairment indicators, and the sustainability of dividends and share repurchases.