OREANDA-NEWS. 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 is Stable. 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 reflect the company's stable asset quality and steady operating performance. In Fitch's view, INDB will continue to deliver consistent financial measures such as lower-than-peers' net charge-offs (NCOs) as well as stable, reasonable returns while continuing to build capital. Although Fitch believes the company's balance sheet liquidity is weaker than peers, an offset is the company's sizeable mix of non-interest-bearing deposits, which is above its peer group average. The Stable Outlook also incorporates the view that INDB has made progress towards building capital.

INDB's 'BBB' rating is supported by its consistent performance evidenced by low level of credit losses and relatively stable earnings through various credit downturns. Fitch notes that during the credit downturn, INDB's NCOs peaked in 2010 at 43 basis points (bps), much lower than its peers despite the significant concentration in commercial real estate (CRE). During the recent quarter, credit measures reflect continued improvement although Fitch recognizes that asset quality has benefited from the continued low rate environment. Although Fitch expects credit losses to normalize over the medium term, incorporated in INDB's ratings is continued above peer credit performance.

INDB's earnings performance metrics continue to exhibit 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, net interest income remains healthy. Further, INDB's performance relative to Fitch's community bank peer group tends to be more consistent with less volatility in earnings despite its loan concentrations.

Ratings are constrained by risk concentrations in CRE and lower levels of tangible common equity. In Fitch's view, INDB's high CRE to total risk based capital position of over 300% warrants a solid capital positon. Over the last few years, INDB's capital metrics have improved, although they are still below similarly rated peers. INDB's tangible common equity (TCE) ratio stood at 8.22% at the second quarter of 2016 (2Q16) compared to the community bank peer group median of 9.27%. While Fitch views INDB's capital levels as adequate for its current ratings given its limited loss history and stable earnings profile, Fitch expects that INDB will manage its TCE position at roughly 8.25%-8.50%, which is the company's long-term target. Given INDB's nature as a strategic acquirer, the bank's current ratings incorporate the possibility that capital levels may experience temporary dips due to acquisitions.

Fitch considers INDB's liquidity profile to be somewhat weaker relative to the community bank peer group. INDB's loan-to-deposit ratio of 91.6% at 2Q16 is higher than the peer average of 81%. Additionally, total liquid assets are limited relative to peers with INDB's cash and securities totaling only 15.7% of total assets. However, Fitch notes INDB's funding sources help support current ratings. The company has a sizeable amount of non-interest-bearing deposits, accounting for 31% of total deposits at 2Q16, which is among the highest in its peer group. INDB's primary funding source is its core deposit base, which composes 90% of the total deposits.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

INDB's subordinated debt is notched one level below its Viability Rating (VR) of 'bbb' for loss severity in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.

LONG - AND SHORT-TERM DEPOSIT RATINGS

The uninsured deposit ratings of Independent Bank Corp are rated one notch higher than INDB's IDR and senior unsecured debt because U. S. uninsured deposits benefit from depositor preference. U. S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

HOLDING COMPANY

INDB's IDR and VR are equalized with those of its operating bank, Rockland Trust Co., 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. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary default probabilities.

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. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES

IDRS, VRs AND SENIOR DEBT

The current ratings are at the high end of their range, and the likelihood for a positive rating action is limited. In Fitch's view, the company's relatively low levels of tangible common equity, high concentration of CRE and weaker liquidity profile compared to the community bank peer group are rating constraints.

Ratings could come under pressure if INDB's capital position were to be negatively impacted by a reversal in credit quality performance or more aggressive capital management evidenced by a reduction in target capital levels. A negative rating action could also occur if INDB were to organically grow into new lending types where the company lacked a competitive advantage or expertise that materially altered the company's lending mix. Additionally, should the company pursue an acquisition that results in materially lower pro forma capital levels, negative rating action is possible.

While Fitch views INDB's ratings at the upper end of their range, positive rating momentum could emerge should the bank manage through a period of rising rates without substantially increasing reliance on wholesale funding. Further, growth in non-interest income that brings INDB's reliance on spread income more in line with higher-rated banks could generate positive rating action.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The subordinated debt and hybrid capital ratings are primarily sensitive to any change in INDB's VR (or bank subsidiaries).

LONG - AND SHORT-TERM DEPOSIT RATINGS

The long - and short-term deposit ratings are sensitive to any change to INDB's Long - and Short-Term IDR.

HOLDING COMPANY

Should INDB's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.

SUPPORT RATING AND SUPPORT RATING FLOOR

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

Fitch has affirmed the following ratings:

Independent Bank Corp.

--Long-Term IDR at 'BBB'; Outlook Stable;

--Short-Term IDR at 'F2';

--Viability Rating at 'bbb';

--Subordinated debt at 'BBB-';

--Support Rating at '5';

--Support Rating Floor at 'NF'.

Rockland Trust Company

--Long-Term IDR at 'BBB'; Outlook Stable;

--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'.