Fitch Affirms Independent Bank Corp's IDR at 'BBB'; Outlook Revised to Stable

Fitch Ratings has affirmed the Long-term and Short-term Issuer Default Ratings (IDRs) of Independent Bank Corp's (INDB) and its subsidiary, Rockland Trust Company, at 'BBB' and 'F2', respectively. The Rating Outlook has been revised to Stable from Negative. A detailed list of rating actions follows at the end of this release.

KEY RATING DRIVERS - IDRs, VRs AND SENIOR DEBT

The ratings affirmation and Outlook revision to Stable reflects the company's stable asset quality and operating performance and Fitch's view that INDB's will continue to perform consistently while continuing to build capital and improve its liquidity profile. Fitch's Negative Rating Outlook reflected the possibility of a negative ratings action if capital levels did not improve, further deterioration in the liquidity profile occurred, or asset quality materially worsened. The Outlook revision to Stable reflects Fitch's view that INDB has made progress towards building capital and improving liquidity while asset quality has remained stable.

NDB's 'BBB' ratings are supported by its improving credit quality and stable earnings performance. Nonperforming assets (NPAs) were lower than Fitch's community bank peer averages, falling 9bps to 1.13% of total assets as of 2Q'14. Net charge offs (NCOs) to average loans also remain low relative to peers at 0.23% for the last 12 months.

INDB's earnings performance metrics continue to exhibit strength and stability, buoyed by relatively solid spread income and low credit costs. Although net interest margin (NIM) has recently trended down reflecting the prolonged low interest rate environment and modest growth of business originated at lower rates, net interest income remains healthy. Fitch expects INDB's net interest income to continue to outperform community banking peers with NIM exceeding peer averages.

Ratings are constrained by risk concentrations in commercial real estate (CRE) and lower levels of tangible common equity. Capital remains tighter than similarly rated peers with TCE at 7.05% at 2Q'14 compared to the peer median of 9.19%. Fitch notes that INDB's CRE relative to capital is also high at over 300% of total risk based capital. While Fitch views INDB's capital levels as adequate given its limited loss history and stable earnings profile, Fitch's current ratings incorporate the expectation that INDB will continue to build capital in the near term.

Fitch considers INDB's liquidity profile to be weak relative to community banking peers. INDB's primary funding source is its core deposit base, which comprises 87% of the total deposits. However, INDB's loan-to-deposit ratio of 92.5% at 2Q'14 is higher than the peer average of 79%. Additionally, total liquid assets are limited relative to peers with INDB's securities totaling only 11% of total assets.

RATING SENSITIVITIES - IDRS, VRs AND SENIOR DEBT

The current ratings are at the high end of their likely range, and the likelihood for a positive rating action is limited given the company's relatively low levels of tangible common equity and high concentration of CRE. However, if INDB improves capital to levels comparable to higher rated peers while reducing its relative exposure to CRE, positive rating action may result.

Conversely, if capital is pressured further by a reversal in credit quality performance or more aggressive capital management that would suggest a long term operating strategy with lower levels of capital, a negative ratings action could occur. While Fitch does not expect the bank to reduce capital from its current levels through a significant acquisition, if INDB pursues an acquisition that results in materially lower pro forma capital levels, a downgrade in ratings could result.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

INDB has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, INDB is not systemically important and therefore, the probability of support is unlikely. The IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

INDB's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS

INDB's IDR and VR is equalized with its operating company, Rockland Trust Company, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES

Rockland Trust Company's ratings are sensitive to changes to INDB's VR or any changes to Fitch's view of structural subordination between bank subsidiary and holding company. Rating sensitivities for the VR are listed above.

Fitch has affirmed the following ratings:

Independent Bank Corp.

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Support Rating at '5';

--Support Rating Floor at 'NF'.

Rockland Trust Company

--Long-Term IDR at 'BBB';

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Support Rating at '5';

--Support Rating Floor at 'NF';

--Long-Term deposits at 'BBB+';

--Short-Term deposits at 'F2'.

The Outlook has been revised to Stable from Negative.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria (Jan. 31, 2014');

--'Rating FI Subsidiaries and Holding Companies (Aug. 10, 2012)';

--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria (Jan. 31, 2014)';

--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles (March 27, 2014)';

--'U.S. Banking Quarterly Comment: 2Q14 (July 2014');

--'U.S. Banks: Liquidity and Deposit Funding (Diminishing QE Effectiveness and its Impact on Systemic Liquidity and Funding)' (Aug. 8, 2013);

--'U.S. Bank Mergers and Acquisitions' -- When Will The Catalysts Kick In? (July 11, 2013)

--'U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)' (June 18, 2013)

--'U.S. Banks: Home Equity Reset Risk Hitting the Reset Button in 2014' (April 29, 2013)

--'U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)' (Sept. 17, 2012);

--'Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)' (Aug. 7, 2012);

--'Risk Radar' (April 2014);

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Assessing and Rating Bank Subordinated and Hybrid Securities Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137

U.S. Bank HoldCos & OpCos: Evolving Risk Profiles

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096

U.S. Banking Quarterly Comment: 2Q14 (Environment Constraining Earnings)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=753107

U.S. Banks: Liquidity and Deposit Funding

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196

U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539

U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875

U.S. Banks -- Home Equity Reset Risk Hitting the Reset Button in 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=706915

U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688330

Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685638

Risk Radar Global 1Q14

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742560

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=878936

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