Independent Bank Corp. (nasdaq global select market:INDB), parent of Rockland Trust Company, today announced 2018 fourth quarter net income of $29.9 million, or $1.07 per diluted share, compared to net income of $33.0 million, or $1.20 per diluted share, reported in the prior quarter of 2018. Excluding merger and acquisition expenses incurred in the fourth and third quarters of 2018 related to the MNB Bancorp ("MNB") merger which closed in November 2018 and the Blue Hills Bancorp ("BHB") merger announced on September 20, 2018, operating net income was $35.9 million, or $1.29 per diluted share during the fourth quarter of 2018 compared to $34.9 million, or $1.27 per diluted share during the third quarter of 2018. Full year net income was $121.6 million, or $4.40 on a diluted earnings per share basis, an increase of $34.4 million, or 39.5%, as compared to the prior year. In addition, full year operating net income was $129.8 million, or $4.69 on a diluted earnings per share basis, an increase of $38.1 million, or 41.5% compared to 2017. Operating diluted earnings per share of $1.34 in the fourth quarter of 2018 increased 40.0% as compared to the prior year.
For further details on the loans and deposits acquired, see the Organic Loan and Deposit Growth table provided near the end of the financial schedules accompanying this release.
Total assets of $8.9 billion at December31, 2018 increased by $476.1 million, or 5.7% from the prior quarter, and by $769.6 million, or 9.5%, as compared to the year ago period, inclusive of the 2018 fourth quarter MNB acquisition.
Excluding the MNB acquisition, total loans grew by $85.3 million, or 1.3% (5.2% annualized) over the prior quarter and by $257.1 million, or 4.05%, when compared to the year ago period. The fourth quarter organic increase was led by an increase of $44.9 million, or 17.8% on an annualized basis, in commercial and industrial loans, with the primary driver being growth in asset-based lending. In addition, there was a $25.8 million, or 12.8% on an annualized basis, increase in residential real estate loans as the portfolio continues to benefit from strong jumbo loan demand. Business banking also experienced organic growth, increasing by $2.9 million, or 7.7% on an annualized basis.
Exclusive of the MNB acquisition, total deposits rose by $172.7 million, or 2.5% (9.8% annualized) from the prior quarter and by $419.7 million, or 6.2%, when compared to the prior year. A portion of the increase reflects the discontinuance and transition of $141.2 million in customer repurchase agreements, which were classified as borrowings in the prior quarter. Excluding this transition, total organic deposit growth for the fourth quarter was 1.8% on an annualized basis and was marked by continued growth in demand deposits and declines in money market and time deposits. Inclusive of the acquired MNB deposits, the total cost of deposits increased by four basis points in the fourth quarter to 0.34%.
The securities portfolio increased by $63.6 million, or 6.3%, compared to the prior quarter, due in part to the MNB acquisition combined with purchases of $93.9 million, offset by paydowns on existing securities.
The Company's total borrowings decreased by $41.0 million, or 13.7%, compared to the prior quarter due primarily to the aforementioned transition of customer repurchase agreement balances. Partially offsetting this decrease was an increase in Federal Home Loan Bank borrowings of $97.0 million, which reflects a $122.0 million overnight borrowing position offset by a $25.0 million maturity during the quarter.
Stockholders' equity at December31, 2018 rose to $1.1 billion, an increase of 7.5% from September30, 2018 and 13.7% compared to the year ago period, due primarily to stock issuance associated with the fourth quarter 2018 MNB acquisition combined with strong earnings retention. In addition, the Company recorded a net gain of $11.5 million, after tax, within other comprehensive income during the fourth quarter, due to increased values associated with available for sale securities and certain derivative positions. Book value per share increased $1.98, or 5.5%, during the fourth quarter. The Company's ratio of common equity to assets of 12.13% increased by 21 basis points from the prior quarter and by 45 basis points from the same period a year ago. Inclusive of the added goodwill from the MNB acquisition, the Company's tangible book value per share rose by $1.01, or 3.7%, to $28.57 from the prior quarter and is now 11.6% higher than the year ago period. The Company's ratio of tangible common equity to tangible assets of 9.35% at December31, 2018 is two basis points higher than the prior quarter and 39 basis points above the year ago period.
Net interest income for the fourth quarter increased 5.3% to $80.3 million compared to $76.2 million in the prior quarter, due to solid average earning asset growth, including the MNB acquisition, and a higher net interest margin. The net interest margin rose to 4.05%, compared to 3.94% in the prior quarter, as the Company continues to benefit from its asset sensitive position.
Investment management income rose by $63,000, or 1.0%. The additional income associated with $160.9 million of assets under administration included in the MNB acquisition along with increased retail commissions helped offset the impact of weak equity markets that prevailed during the fourth quarter. Total assets under administration, inclusive of the acquired MNB portfolio, were $3.6 billion as of December31, 2018.
Mortgage banking income decreased by $281,000, or 23.0%, due to a seasonal decrease in volume.
In the prior quarter, the Company received proceeds on life insurance policies, resulting in a gain of $1.5 million. There were no such gains during the fourth quarter.
Loan level derivative income increased by $434,000, or 110.7%, as a result of increased customer demand in the quarter.
Other noninterest income increased $1.2 million, or 40.1%, primarily due to a gain of $1.1 million on the sale of a previously closed branch facility.
Salaries and employee benefits expense increased by $750,000, or 2.4%, reflecting increases associated with the MNB acquisition and related personnel, along with increased incentive and performance-based equity award expense, partially offset by decreases in pension and medical insurance expenses.
Occupancy and equipment expense increased by $573,000, or 9.1%, due to the MNB acquisition, increased repairs and maintenance and various one-time rent adjustment items.
Merger and acquisition costs of $8.0 million for the fourth quarter included $7.8 million attributable to the MNB acquisition and $283,000 attributable to the BHB acquisition, which is anticipated to close in the first half of 2019. The majority of these costs include contract terminations, severance, and legal fees.
Other noninterest expense increased by $2.4 million, or 18.3%, due to a $1.1 million loss on equity securities, plus increased loan workout costs, debit card expense and core deposit and intangible amortization. The increases were partially offset by decreases in consulting expenses and lower FDIC assessment fees.
The Company generated a return on average assets and a return on average common equity of 1.38% and 11.49%, respectively, in the fourth quarter of 2018, as compared to 1.57% and 13.19%, respectively, for the prior quarter. On an operating basis, the Company generated a return on average assets and return on average equity of 1.66% and 13.78%, respectively, during the fourth quarter of 2018, as compared to 1.66% and 13.96%, respectively, for the prior quarter.
The Company’s effective tax rate decreased to 21.6% for the fourth quarter as compared to 23.2% in the prior quarter.
During the fourth quarter of 2018, the Company recorded total net charge-offs of $142,000, or 0.01% of average loans on an annualized basis, representing a decrease from net charge-offs of $397,000 in the prior quarter. The provision for loan losses increased to $1.2 million for the fourth quarter of 2018 compared to $1.1 million in the third quarter of 2018, both of which were primarily attributable to loan growth. Nonperforming loans of $45.4 million, or 0.66% of loans at December31, 2018 were consistent with prior quarter balances of $45.4 million, or 0.70% of loans. Other real estate owned was reduced to zero in the fourth quarter. Total nonperforming assets remained relatively consistent at $45.4 million at the end of the fourth quarter, as compared to $45.6 million at the end of the prior quarter and represent a decline of 9.6% as compared to the year ago period. At December31, 2018, delinquency as a percentage of loans was 0.67%, representing a decrease of four basis points from the prior quarter.
During the fourth quarter of 2018 nonaccrual loans associated with a large commercial loan customer that had previously declared bankruptcy were modified when a court confirmed the customer’s bankruptcy reorganization plan. That revision to loan terms required the Company to deem loans associated with the customer a troubled debt restructure as of December 31, 2018. Loans associated with the customer remain on nonaccrual status and are included in the nonperforming loan totals reported above.
The allowance for loan losses was $64.3 million at December31, 2018, as compared to $63.2 million at September30, 2018. The Company’s allowance for loan losses as a percentage of loans was 0.93% at December31, 2018 and 0.97% at September30, 2018. The decrease in this percentage is attributable to the treatment of loans acquired in connection with the MNB acquisition. These acquired loans are recorded at fair value, which includes consideration for estimated credit losses, and without carryover of the respective portfolio's historical allowance for loan losses.
Christopher Oddleifson, Chief Executive Officer and Robert Cozzone, Chief Financial Officer, will host a conference call to discuss fourth quarter earnings at 10:00 a.m. Eastern Time on Friday, January 18, 2019. Internet access to the call is available on the Company’s website at www.rocklandtrust.com or via telephonic access by dial-in at 1-888-336-7153 reference: INDB. A replay of the call will be available by calling 1-877-344-7529, Replay Conference Number: 10127265 and will be available through February 1, 2019. Additionally, a webcast replay will be available until January 18, 2020.
Independent Bank Corp. has approximately $8.9 billion in assets and is the holding company for Rockland Trust Company, a full-service commercial bank headquartered in Massachusetts. Named in 2018 to The Boston Globe’s “Top Places to Work” list for the 10 [th] consecutive year, Rockland Trust offers a wide range of banking, investment, and insurance services. The Bank serves businesses and individuals through approximately 100 retail branches, commercial and residential lending centers, and investment management offices in eastern Massachusetts, including Greater Boston, the South Shore, the Cape and Islands, as well as in Worcester County and Rhode Island. Rockland Trust also offers a full suite of mobile, online, and telephone banking services. The Company is an FDIC member and an Equal Housing Lender. To find out why Rockland Trust is the bank “Where Each Relationship Matters®”, please visit www.rocklandtrust.com.
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”). This information includes operating net income and operating earnings per share ("EPS"), operating return on average assets, operating return on average equity, tangible book value per share and the tangible common equity ratio.
Operating net income, operating EPS, operating return on average assets and operating return on average common equity exclude items that management believes are unrelated to its core banking business such as merger and acquisition expenses, and other items, if applicable. The Company’s management uses operating earnings and related ratios and operating EPS to measure the strength of the Company’s core banking business and to identify trends that may to some extent be obscured by such items.
Management also supplements its evaluation of financial performance with analysis of tangible book value per share (which is computed by dividing stockholders' equity less goodwill and identifiable intangible assets, or "tangible common equity", by common shares outstanding), the tangible common equity ratio (which is computed by dividing tangible common equity by "tangible assets", defined as total assets less goodwill and other intangibles). The Company has included information on tangible book value per share and the tangible common equity ratio because management believes that investors may find it useful to have access to the same analytical tool used by management. As a result of merger and acquisition activity, the Company has recognized goodwill and other intangible assets in conjunction with business combination accounting principles. Excluding the impact of goodwill and other intangibles in measuring asset and capital values for the ratios provided, along with other bank standard capital ratios, provides a framework to compare the capital adequacy of the Company to other companies in the financial services industry.
These non-GAAP measures should not be viewed as a substitute for operating results and other financial measures determined in accordance with GAAP. An item which management deems to be noncore and excludes when computing these non-GAAP measures can be of substantial importance to the Company’s results for any particular quarter or year. The Company’s non-GAAP performance measures, including operating earnings, operating EPS, operating return on average assets, operating return on average equity, tangible book value per share and the tangible common equity ratio are not necessarily comparable to non-GAAP performance measures which may be presented by other companies.
2017 Dec 2018 vs. Dec 2018 vs.
(1) Estimated number for December 31, 2018.
(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $185,000, $183,000, and $380,000 for the three months ended December 31, 2018, September 30, 2018, and December 31, 2017, respectively, determined by applying the Company's marginal tax rates in effect during each respective quarter.
(1) The total amount of adjustment to present interest income and yield on a fully tax-equivalent basis is $724,000 and $1.5 million for the twelve months ended December 31, 2018 and 2017, respectively.
Certain amounts in prior year financial statements have been reclassified to conform to the current year's presentation.