Independent Bank Corp (Mass) (NASDAQ:INDB) Q2 2019 Earnings Conference Call - Final Transcript

Jul 19, 2019 • 10:00 am ET

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Independent Bank Corp (Mass) (NASDAQ:INDB) Q2 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
Mark J. Ruggiero

card portfolio, as well as increased income from equity method investments in FHLB dividend income.

Total non-interest expense of $93 million for the quarter represents a $36.7 million -- $36.7 million or 65% increase from the prior quarter. Included in this number is $24.7 million of merger-related expenses, the majority of which includes severance and contract termination cost. When excluding merger-related expenses, non-interest expense increased approximately $13 million from the prior quarter with the major driver as being salaries and benefits increase of $5.7 million, including the new combined higher workforce base, increased incentive expense, as well as well as some transitionary costs through the acquisition core conversion date of June 7. Occupancy and equipment expense increased $1.3 million, reflecting primarily the enhanced branch network from the Blue Hills acquisition. A net loss of approximately $1.5 million was realized on the $47 million deleverage security sale previously mentioned by Rob, which is included in other non-interest expense. Other drivers of that category increase from the prior quarter include increased amortization of intangible assets acquired in the acquisition, increased consulting expenses, director's fees tied to immediately vested awards customarily granted in the second quarter, and provision for unfunded commitments.

Despite the increases in absolute dollars noted, the successful achievement of expected cost saves from the Blue Hills acquisition that Rob covered has led to a further reduction in the operating efficiency ratio to 50.7% for the quarter. Asset quality metrics remain strong. Net charge-offs for the quarter remained at only 1 basis point of loans on an annualized basis, and the uptick in non-performing assets are primarily attributable to approximately $5.2 million of combined nonperforming loans and other real estate owned balances obtained in the Blue Hills acquisition. The provision level of $1 million for the quarter was needed primarily to accommodate growth in non-acquired loan balances.

For a quick update on the Company's current expected credit loss or CECL preparation, the Company is finalizing its initial forecast assumptions and economic scenarios to layer into the model on top of the loan level historical loss factors. This step will lead to a more refined process of generating parallel runs to the current loss model, which will then lead to outputs needed to fine tune assumptions over the second half of the year.

I'll now provide an update on guidance for the rest of the year. Given the significant change in the overall composition of the Company as a result of the Blue Hills acquisition, our guidance will be primarily focused on the second half of the year. With a continued focus on company liquidity, along with pricing competition and additional expected run off on certain acquired portfolios, overall loan growth is anticipated to be flat to low-single digit growth for the rest of the year.

Deposits are expected to grow in the low-single digit range for the rest of the year. Assuming no changes to rates from the Fed, the net interest margin is anticipated to be in the high 3.9%