Earnings Labs

Independent Bank Corp. (INDB)

Q4 2007 Earnings Call· Fri, Jan 18, 2008

$77.33

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Transcript

Operator

Operator

Hello and welcome to the Independent Bank Corporation’s fourth quarter 2007 earnings conference call. All participants will be in a listen only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. (Operator Instructions) Please note this conference is being recorded. Now, I’d like to turn the conference over to Dennis Sheahan.

Dennis K. Sheahan

Management

Good morning everyone and thank you for joining us on the call. This morning’s agenda will include a brief review of our fourth quarter 2007 earnings and guidance for 2008. We’ll have some comments from Chris Oddleifson, our Chief Executive and we’ll end the call with a Q&A period. Before I review our fourth quarter 2007 performance I will read the cautionary statements. This conference call may contain certain forward-looking statements with respect to the financial conditions, results of operations and business of Independent Bank Corp. Actual results may differ from those contemplated by the statements. Independent Bank Corp. which to caution listeners not to replace any undue reliance on any forward-looking statements and disclaims any intent to update publicly any forward-looking statements whether in response to new information, future events or otherwise. I’ll now review our fourth quarter 2007 performance. Independent Bank Corp reported GAAP diluted earnings per share of $0.56 and $2.00 per share for the fourth quarter and year ended 2007 respectively, representing an increase of 4% and decrease of 8% respectively from the same periods in the prior year. There are no non-core items in the fourth quarter of 2007. There are a number of non-core items in the fourth quarter of 2006 and both full year periods as detailed in the earnings release. Excluding these one time items, diluted earnings per share on an operating basis were $0.56 and $2.13 for the quarter and year ended December 31, 2007, decreases of 2% and 3% respectively from the same periods in 2006. Key takeaways from the fourth quarter and full year 2007 performance; continued strong net interest margin. The net interest margins for the fourth quarter of 2007 was 3.94%. Loan growth was strong in the fourth quarter led by commercial lending. We shared with you…

Christopher Oddleifson

Management

Good morning everybody. I’m pleased with our overall performance for the quarter and for the year. I know we’ve maintained a stable net interest margins, we have not had and do not anticipate significant credit issues, we’ve generated a responsible loan growth especially during the fourth quarter. We’ve taken advantage of our opportunities such as the O’Connell Investments acquisitions and the Compass Exchange Advisors’ acquisition at the very beginning of the year and the pending acquisition of Slade’s Bank. Earnings quality improved evidenced by 58% of our company’s loan portfolio is now in the business of commercial lending. Our securities portfolio is now only 18% of earning assets. Our fee revenue and diversity in growth is improved. Non-interest revenue has grown to 25% of total revenue and this has been driven by improved wealth management revenue and our 1031 exchange business acquisition. The consumer assets under management in our investment management group is, as Dennis mentioned, now about $1.3 billion up significantly since the end of last year. All of these positive results come from our focus on the essentials of our business. As we’ve discussed before we’ve really been aggressive in refining and retuning our business models for the past few years and we’re in great shape to leverage this platform. We’ve pushed beyond the traditional community banking model and not only do we have a terrific retail franchise but we’re working to make the most of the growth opportunities in commercial banking and wealth management. Our customers tell us that they [inaudible] satisfied and we’re fortunate that parts of Massachusetts in which we operate had growth rates that outpaced the store rates in other parts of the state. Our results, I think, are even more impressive when you consider the extremely challenging economic environment in which we’re operating.…

Operator

Operator

(Operator Instructions) Our first question is from Damon DelMonte with KBW. Damon DelMonte – Keefe, Bruyette & Woods, Inc.: I was wondering if you could talk a little bit about your commercial construction portfolio? You’ve had sustainable growth in that portfolio and I was just wondering if you could give a little color on some of the sizes of projects that these loans are for? And, kind of what projects they are for? Are they for mix use? Property? Medical buildings? Office? That kind of thing.

Christopher Oddleifson

Management

Sure. It’s actually pretty well diversified Damon. Our construction portfolio – this construction growth for us in the quarter was quite good because our construction portfolio really has been down from 05 to 06 levels as construction projects matured so we were happy to see this growth come in. Some of it is associated with our new market tax credit program. You mentioned a medical building, one of the larger spurts of growth in the fourth quarter was a medical building which is part of our new market tax credit program. Some of it is also residential development, office buildings; the growth in the fourth quarter a good chunk of it was in the office building category. To give you a break down of the construction portfolio the balance at December 31st was $133 million. Of that about $88 million is in the residential construction category, the remainder in office buildings, medical buildings, that sort of thing. Damon DelMonte – Keefe, Bruyette & Woods, Inc.: Also with respect to the home equity, are all those loans in market? Meaning your greater area of your footprint in Massachusetts? Or, do you guys have any non New England exposure

Christopher Oddleifson

Management

No, we do not. Damon DelMonte – Keefe, Bruyette & Woods, Inc.: Do you know what percentage of those loans you guys have the primary loan on?

Christopher Oddleifson

Management

The primary meaning the first? Or, the second? Damon DelMonte – Keefe, Bruyette & Woods, Inc.: The first.

Christopher Oddleifson

Management

Not off hand.

Dennis K. Sheahan

Management

We can get that for you. Damon DelMonte – Keefe, Bruyette & Woods, Inc.: What’s the highest combined loan-to-value that you guys will write to? I know you said what the average is.

Christopher Oddleifson

Management

The highest at this point is 80%. However, we have also restored and have done other re-valued the real estate through AVMs for the entire home equity portfolio. So, we do have loans in there that are in excess of 90%, are up to 90/10 and sometimes in excess of 90%. The ones that are in excess of 90% are mostly due to housing depreciation and so we’re watching that very carefully. Damon DelMonte – Keefe, Bruyette & Woods, Inc.: One final question, this is more of a detail question for you Dennis. In the non-interest expense portion of the income statement, other non-interest expenses was $5.2 million this quarter. Anything in there that should be excluded for a run rate going forward?

Dennis K. Sheahan

Management

Yeah, we had a little bit of an up tick in consulting expenses in the quarter that we wouldn’t expect to continue. We also had a $60,000 loss on the sale of one of our branch buildings. So, there were some modest expenses that won’t continue going forward. But, Damon as I mentioned in my comments we expect overall expenses to grow by 6% in 2008. So, if you use that across the categories, particularly salaries and benefits you should be okay. Operator (Operator Instructions) Sir, it appears that there are no further questions at this time.

Christopher Oddleifson

Management

Thanks very much.

Dennis K. Sheahan

Management

Thank you everybody for joining us on the call. I look forward to speaking to you when we finish our first quarter earnings. Thank you very much.