Independent Bank Corp. Reports Third Quarter NET Income of $14.7 Million
Strong Fundamentals Lead to Solid Operating EPS Growth
Rockland, Massachusetts (October 17, 2013). Independent Bank Corp., (NASDAQ: INDB),parent of Rockland Trust Company, today announced net income for the third quarter of 2013 was $14.7 million, or $0.64 per diluted share. These results represent an increase of $0.08, or 14.3%, on a diluted earnings per share basis as compared to the second quarter of 2013. Both quarters contained items, such as merger and acquisition expenses and gain on extinguishment of debt, which the Company considers to be non-core in nature. When excluding these items, net operating earnings for the third quarter were $14.4 million, or $0.63 per diluted share, representing an increase from the prior quarter's operating earnings of $13.2 million, or $0.58 per diluted share.
Christopher Oddleifson, President and Chief Executive Officer of Independent Bank Corp. and Rockland Trust Company, stated: "Our commitment to a high quality customer experience has once again translated into strong financial results. We continue to grow commercial loans and core deposits by attracting new customers from our competitors. Additionally, the hard work of my colleagues in building deeper customer relationships is fueling healthy fee income growth. This is an exciting time, as we expand into Boston and prepare to welcome Mayflower Bank customers and colleagues to Rockland Trust in the fourth quarter."
Total assets of $5.9 billion at September 30, 2013 have increased by $42.9 million from the prior quarter and by $703.4 million, or 13.6%, as compared to the year ago period, inclusive of the acquisition of Central Bancorp, Inc. ("Central") in November 2012.
Total loans of $4.6 billion at September 30, 2013, have increased by $25.9 million when compared to the prior quarter and by $499.9 million, or 12.3%, when compared to September 30, 2012. The commercial loan portfolio continued its healthy growth, despite high payoff activity, rising by $32.1 million, or 4.0% on an annualized basis, during the quarter. Both the commercial and industrial and commercial real estate portfolios rose during the quarter as loan pipelines remain strong. In addition, the home equity portfolio resumed its growth, increasing by $12.2 million, or 6.1%, on an annualized basis. Offsetting this growth was the ongoing decline in the residential portfolio which decreased by $17.1 million, or 13.2% on an annualized basis. The decrease in the residential portfolio has slowed significantly as the increase in mortgage rates has reduced refinancing activity.
Deposit growth was strong during the quarter, increasing by $80.8 million, or 6.9% on an annualized basis, to $4.8 billion at September 30, 2013. This growth was led by core deposits, which increased $99.2 million to 85.3% of total deposits. The total cost of deposits remained at 0.23% for the quarter, reflecting the Company's continued emphasis on lower cost funding sources.
Management deployed some of the Company's excess cash during the quarter by purchasing investments and opportunistically prepaying $60.0 million of Federal Home Loan Bank Advances. The securities portfolio increased by $72.6 million to $601.8 million at September 30, 2013, and represents 10.2% of total assets. The investments purchased during the quarter were primarily Agency Mortgage-Backed Securities.
Stockholders' equity at September 30, 2013 rose to $555.7 million, an increase of 2.2% for the quarter. As compared to the year ago period, stockholders' equity has increased by $62.8 million, or 12.7%. The Tier 1 common ratio at September 30, 2013 increased to an estimated 9.27% as compared to 9.04% in the prior quarter. The Company's tangible common ratio was 6.89%, representing an increase from the prior quarter's level of 6.72%.
NET INTEREST INCOME
Net interest income was $45.2 million for the third quarter of 2013, compared to $45.6 million in the linked quarter. During the third quarter, the Company's net interest margin decreased by 14 basis points to 3.43%. Primary factors contributing to the net interest margin decline included lower loan yields which led to a seven basis point decrease, higher cash and cash equivalent balances which led to a six basis point decrease, and purchase accounting adjustments which accounted for two basis points of the decrease in the margin from the linked quarter.
The Company recorded noninterest income of $18.1 million during the third quarter of 2013 which represents a $1.4 million, or 8.6%, increase from the prior quarter. Significant changes in noninterest income included the following:
- Deposit account fees increased by $261,000, or 6.0%, mainly due to increases in overdraft and nonsufficient fund fees driven by seasonal volume.
- Investment management income decreased by $182,000, or 4.2%, primarily due to the inclusion of seasonal tax preparation fees in the second quarter. Assets under administration remained consistent at $2.2 billion at September 30, 2013, as compared to the linked quarter and were 1.2% above prior year levels.
- Mortgage banking income increased $174,000, or 10.4%, primarily due to a positive income impact from managements' focus on selling loans under a mandatory delivery process. Income from loan level derivatives increased by $515,000, or 63.1%, due to increased commercial loan activity during the third quarter.
- During the third quarter the Company recognized a gain of $763,000 on the extinguishment of debt related to the prepayment of $60.0 million of Federal Home Loan Bank Advances previously assumed as part of the Central Bancorp., Inc. acquisition.
The Company recorded noninterest expense of $40.7 million during the third quarter of 2013 which represents a $1.4 million, or 3.4%, decrease from the prior quarter. Significant changes in noninterest expense included the following:
- Salaries and employee benefits increased by $1.1 million, or 4.9%, driven by an increase in incentive compensation.
- Occupancy and equipment expense decreased $346,000, or 7.0%, as a result of decreases in maintenance and repairs, cleaning costs, and depreciation expense.
- Merger and acquisition expenses were $366,000 for the third quarter which represented a decrease of $388,000 from the linked quarter.
- Other noninterest expenses decreased by $1.7 million, or 13.4%, mainly due to decreases in marketing expenses of $832,000, loan work-out costs of $279,000, examinations and audit fees of $149,000, as well as a reduction in mortgage related expenses of $122,000, associated with the recent outsourcing of mortgage operations.
The Company generated a return on average assets and a return on average common equity in the third quarter of 2013 of 1.00% and 10.53%, respectively, as compared to 0.89% and 9.40% for the quarter ended June 30, 2013. On an operating basis, the return on average assets and the return on average common equity were 0.98% and 10.36%, respectively, in the third quarter, as compared to 0.93% and 9.74% in the second quarter.
The provision for loan losses was $2.7 million for the third quarter compared to $3.1 million for the quarter ended June 30, 2013. The provision for loan losses exceeded net charge-offs in both periods as the Company continues to prudently add to loan loss reserves in line with recent loan growth trends. For the quarter, net charge-offs were consistent with the prior quarter at $2.1 million, or 0.18%, on an annualized basis of average loans. Nonperforming loans increased by $1.4 million to $37.9 million, or 0.83%, of total loans at September 30, 2013, from $36.5 million, or 0.81% of total loans at June 30, 2013, due to higher nonaccrual commercial loans offset somewhat by a decrease in nonaccrual home equity loans. Nonperforming assets increased slightly to $48.9 million at the end of the third quarter compared to $48.1 million in the linked quarter. Delinquency as a percentage of loans decreased to 0.90% at September 30, 2013 compared to 1.03% at June 30, 2013.
The allowance for loan losses was $53.6 million at September 30, 2013, an increase of $586,000 from the prior quarter levels. The Company's allowance for loan losses was 1.18% and 1.17% of total loans at September 30, 2013 and June 30, 2013, respectively. Christopher Oddleifson - Chief Executive Officer, Denis Sheahan - Chief Operating Officer, and Robert Cozzone - Chief Financial Officer will host a conference call to discuss third quarter earnings at 10:00 a.m. Eastern Time on Friday, October 18, 2013. Internet access to the call is available on the Company's website at www.RocklandTrust.com or via telephonic access by dial-in at 1-888-317-6016 reference: INDB. A replay of the call will be available by calling 1-877-344-7529. Replay Pass code: 10034289. The webcast replay will be available until October 18, 2014.
Rockland Trust is a full-service commercial bank headquartered in Massachusetts with $5.9 billion in assets. The sole bank subsidiary of Independent Bank Corp., Rockland Trust provides a wide range of consumer, business, investment, and insurance products and services. Named a Boston Globe "Best Place to Work" for four consecutive years and one of America's "Best Banks" by Forbes for three consecutive years, Rockland Trust's network consists of 75 retail branches, 10 commercial lending offices, four investment management, and three residential lending centers throughout Eastern Massachusetts and Rhode Island. To find out why Rockland Trust is the bank "Where Each Relationship Matters®", please visit www.RocklandTrust.com. Member FDIC. Equal Housing Lender.
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 believes are unrelated to its core banking business and will not have a material financial impact on operating results in future periods, 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 such gains or losses. 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.