SI Financial Group, Inc. (the “Company”) (NASDAQ Global
Market: SIFI), the holding company for Savings Institute Bank
and Trust Company (the “Bank”), reported net income of $1.5
million, or $0.13 diluted earnings per share, for the quarter ended
December 31, 2018 versus a net loss of $1.6 million, or $0.13
diluted loss per share, for the quarter ended December 31,
2017. The Company reported net income of $9.6 million, or
$0.80 diluted earnings per share, for the year ended
December 31, 2018 compared to $5.2 million, or $0.44 diluted
earnings per share, for the year ended December 31, 2017.
Excluding pre-tax costs of $1.1 million associated with the
pending merger with Berkshire Hills Bancorp, Inc. ("Berkshire"),
the Company would have reported net income of $2.4 million and
$10.4 million, or $0.20 and $0.88 diluted earnings per share, for
the quarter and year ended December 31, 2018,
respectively.(1) The Company anticipates the merger with
Berkshire to be completed in the second quarter of 2019, subject to
regulatory and shareholder approvals and other customary closing
conditions. The net loss for the quarter and lower net income
for the year ended December 31, 2017 was related to a charge
to income tax expense of $4.0 million as a result of the
revaluation of the Company's net deferred tax asset due to the
passage of the Tax Cuts and Jobs Act on December 22, 2017, which
reduced the corporate income tax rate from 35% to 21%. This
charge was recorded as additional income tax expense in the
Company's statement of income for the quarter ended
December 31, 2017. Excluding the aforementioned charge
to income tax expense in 2017, the Company would have reported net
income of $2.4 million and $9.2 million, or $0.20 and $0.77 diluted
earnings per share, for the quarter and year ended December 31,
2017, respectively.(1)
Net interest income increased $804,000 to $11.7 million and $2.2
million to $45.1 million for the quarter and year ended
December 31, 2018, respectively, compared to the same periods
in 2017. Higher net interest income was due to increases in
the average balance of loans and the average yield earned on loans
and other interest-earning assets and a decrease in the average
balance of borrowings, partially offset by a higher average balance
of deposits, increases in the average rates paid on deposits and
borrowings and a decrease in the average balance of other
interest-earning assets.
The provision for loan losses increased $961,000 and $2.5
million for the quarter and the year ended December 31, 2018,
respectively, compared to the same periods in 2017. The
increase was primarily due to increases in nonperforming loans, net
loan charge-offs and reserves for impaired loans and an increase in
commercial loans, which carry a higher degree of risk than other
loans held in the loan portfolio. At December 31, 2018,
nonperforming loans totaled $9.8 million, compared to $6.4 million
at December 31, 2017, resulting from increases in
nonperforming multi-family and commercial real estate and
residential real estate loans of $1.6 million and $1.3 million,
respectively. Net loan charge-offs were $666,000 and $795,000
for the quarter and year ended December 31, 2018,
respectively, consisting primarily of commercial business loan
charge-offs. Net loan charge-offs for the quarter and year
ended December 31, 2017 were $43,000 and $147,000,
respectively.
Noninterest income increased $109,000 and $78,000 to $2.6
million and $11.2 million for the quarter and year ended
December 31, 2018, respectively, versus the comparable periods
in the prior year primarily due to increases in service fees and
other noninterest income, offset by decreases in fees from mortgage
banking activities and wealth management fees. Service fees
increased $181,000 and $233,000 for the quarter and year ended
December 31, 2018, respectively, compared to the same periods
in 2017, primarily due to a higher volume of overdraft and
electronic banking charges. Other noninterest income
increased $140,000 and $534,000 for the quarter and year ended
December 31, 2018, respectively, primarily due to swap fees
from interest rate swap agreements of $124,000 and $781,000 and
profit distributions from our investment in three small business
investment companies of $55,000 and $127,000 for the quarter and
year ended December 31, 2018, respectively. Other
noninterest income in 2017 included a pre-tax gain of $795,000 on
the sale of the Company's trust and asset management business in
May 2017. As a result of the sale, wealth management fees
decreased $7,000 and $523,000 for the quarter and year ended
December 31, 2018, respectively, compared to the same periods
in 2017. Fees earned from mortgage banking activities
decreased $219,000 and $458,000 for the quarter and the year ended
December 31, 2018, respectively, due to decreased volume on
residential fixed-rate loan sales.
Noninterest expenses increased $1.4 million and $1.3 million for
the quarter and year ended December 31, 2018, respectively,
compared to the same periods in 2017. Contributing to the
increase in noninterest expenses were pre-tax merger-related
transaction costs of $1.1 million for both the quarter and year
ended December 31, 2018, associated with the pending merger with
Berkshire. Salaries and employee benefits increased $448,000
and $861,000 for the fourth quarter and the year ended
December 31, 2018, respectively, as compared to the same
periods in 2017, primarily attributable to an increase in salaries
and related compensation, benefits and taxes. Marketing
expenses increased $122,000 and $208,000 for the quarter and year
ended December 31, 2018, respectively, due primarily to
focused commercial banking and cash management marketing
initiatives. Compared to the same periods in 2017, other real
estate operations decreased $243,000 and $456,000 for the quarter
and year ended December 31, 2018, respectively, due to lower
holding costs related to the other real estate properties and the
sale of five foreclosed properties held by the Bank during
2018. Professional services decreased $14,000 and $219,000
for the quarter and year ended December 31, 2018, respectively,
primarily due to a decrease in legal expense, partially offset by
an increase in audit fees.
Total assets increased $68.9 million, or 4.4%, to $1.65 billion
at December 31, 2018, principally due to increases of $75.4
million in net loans receivable and $4.4 million in cash and cash
equivalents, offset by a decrease of $10.2 million in available for
sale securities. The higher balance of net loans receivable
reflects increases in multi-family and commercial real estate loans
of $86.9 million, construction loans of $14.6 million, medical
loans of $9.7 million, condominium association loans of $8.8
million and other commercial business loans of $8.7 million, offset
by decreases in SBA and USDA guaranteed loans of $21.0 million,
residential real estate loans of $12.9 million and time share loans
of $11.1 million. Compared to 2017, commercial real estate
and commercial business loan originations increased $105.3 million
and $6.3 million, respectively, while residential real estate and
consumer loan originations both decreased $5.0 million during
2018. The decrease in available for sale securities during
2018 was due to maturities used to fund loan growth.
Total liabilities increased $65.2 million, or 4.6%, to $1.48
billion at December 31, 2018. Deposits increased $80.0
million, or 6.6%, during 2018 due to increases in certificates of
deposit of $69.6 million and noninterest bearing deposits of $29.2
million, offset by decreases in NOW and money market deposits of
$10.5 million and savings accounts of $8.3 million. Deposit
growth remained strong due to competitive products offered and cash
management initiatives. The increase in deposits was offset
by a decrease of $18.3 million in borrowings, from $178.3 million
at December 31, 2017 to $160.1 million at December 31,
2018, resulting from repayments of Federal Home Loan Bank advances
with funds from excess deposits.
Total shareholders’ equity increased $3.6 million from $168.5
million at December 31, 2017 to $172.1 million at
December 31, 2018. The increase in shareholders' equity
was attributable to net income of $9.6 million, offset by an
increase in the net unrealized loss on available for sale
securities of $704,000 (net of taxes), and dividends declared of
$2.8 million. At December 31, 2018, the Bank’s
regulatory capital exceeded the amounts required for it to be
considered “well-capitalized” under applicable regulatory capital
guidelines.
“Deposit and loan growth during 2018 continued to drive
performance as core banking results once again improved year over
year. These improvements reflect management’s efforts in key
areas such as growing low-cost demand deposits, reducing wholesale
funding and expense control as evidenced by a slightly higher net
interest margin and a lower efficiency ratio," commented Rheo A.
Brouillard, President and Chief Executive Officer.
SI Financial Group, Inc. is the holding company for Savings
Institute Bank and Trust Company. Established in 1842,
Savings Institute Bank and Trust Company is a community-oriented
financial institution headquartered in Willimantic,
Connecticut. Through its twenty-three branch locations, the
Bank offers a full-range of financial services to individuals,
businesses and municipalities within its market area.
Non-GAAP Financial MeasuresWe believe that
certain non-GAAP financial measures provide investors with
information useful in understanding our financial performance, our
performance trends and financial position. Specifically, we
provide measures based on what we believe are our operating
earnings on a consistent basis and exclude non-core operating items
which affect the GAAP reporting of results of operations. We,
as well as securities analysts, investors and other interested
parties, use these measures to compare peer company operating
performance. We believe our presentation and discussion,
together with the accompanying reconciliations, provide a complete
understanding of factors and trends affecting our business and
allows investors to view performance in a manner similar to
management. These non-GAAP measures should not be considered
a substitute for GAAP basis measures and results, and we strongly
encourage investors to review our consolidated financial statements
in their entirety and not to rely on any single financial
measure. Because non-GAAP financial measures are not
standardized, it may not be possible to compare these financial
measures with other companies' non-GAAP financial measures having
the same or similar names.
(1)The table below presents a reconciliation of net income
(loss) and earnings (loss) per share to shareholders, excluding the
tax-affected transaction costs related to the pending merger with
Berkshire for the quarter and year ended December 31, 2018 and the
revaluation of the deferred tax asset for the quarter and year
ended December 31, 2017.
|
Three Months
Ended |
|
Years
Ended |
|
December
31, |
|
December
31, |
(Dollars in Thousands,
Except Per Share Data / Unaudited) |
2018 |
2017 |
|
2018 |
2017 |
Net Income
(Loss): |
|
|
|
|
|
Net income (loss) - GAAP
basis |
$ |
1,501 |
|
$ |
(1,563 |
) |
|
$ |
9,565 |
|
$ |
5,242 |
|
Merger-related
transaction costs (after tax) |
858 |
|
— |
|
|
858 |
|
— |
|
Revaluation of deferred
tax asset |
— |
|
3,969 |
|
|
— |
|
3,969 |
|
Net income - Non-GAAP
basis |
$ |
2,359 |
|
$ |
2,406 |
|
|
$ |
10,423 |
|
$ |
9,211 |
|
|
|
|
|
|
|
Earnings (Loss)
Per Share: |
|
|
|
|
|
Diluted as reported -
GAAP basis |
$ |
0.13 |
|
$ |
(0.13 |
) |
|
$ |
0.80 |
|
$ |
0.44 |
|
Merger-related
transaction costs (after tax) |
0.07 |
|
— |
|
|
0.08 |
|
— |
|
Revaluation of deferred
tax asset |
— |
|
0.33 |
|
|
— |
|
0.33 |
|
Diluted adjusted -
Non-GAAP basis |
$ |
0.20 |
|
$ |
0.20 |
|
|
$ |
0.88 |
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Looking StatementsThis release contains
“forward-looking statements” that are based on assumptions and may
describe future plans, strategies and expectations of the
Company. These forward-looking statements are generally
identified by the use of the words “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “project” or similar expressions.
The Company’s ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors
that could have a material adverse effect on the operations of the
Company and its subsidiaries include, but are not limited to,
changes in market interest rates, regional and national economic
conditions, legislative and regulatory changes, monetary and fiscal
policies of the United States government, including policies of the
United States Treasury and the Federal Reserve Board, the quality
and composition of the loan or investment portfolios, demand for
loan products, deposit flows, competition, demand for financial
services in the Company’s market area, changes in the real estate
market values in the Company’s market area and changes in relevant
accounting principles and guidelines. For discussion of these
and other risks that may cause actual results to differ from
expectations, refer to the Company’s Annual Report on Form 10-K for
the year ended December 31, 2017, including the section
entitled “Risk Factors,” and subsequent Quarterly Reports on Form
10-Q filed with the SEC. These risks and uncertainties should be
considered in evaluating any forward-looking statements and undue
reliance should not be placed on such statements. Except as
required by applicable law or regulation, the Company does not
undertake, and specifically disclaims any obligation, to release
publicly the result of any revisions that may be made to any
forward-looking statements to reflect events or circumstances after
the date of the statements or to reflect the occurrence of
anticipated or unanticipated events.
SELECTED FINANCIAL CONDITION DATA:
|
|
December
31, |
|
December
31, |
(Dollars in Thousands /
Unaudited) |
|
2018 |
|
2017 |
|
|
|
|
|
ASSETS |
|
|
|
|
Noninterest-bearing cash
and due from banks |
|
$ |
17,433 |
|
|
$ |
16,872 |
|
Interest-bearing cash and cash
equivalents |
|
70,496 |
|
|
66,614 |
|
Securities |
|
156,495 |
|
|
167,545 |
|
Loans held for sale |
|
1,915 |
|
|
835 |
|
Loans receivable, net |
|
1,312,565 |
|
|
1,237,174 |
|
Bank-owned life insurance |
|
34,633 |
|
|
33,726 |
|
Premises and equipment, net |
|
19,552 |
|
|
19,409 |
|
Intangible assets |
|
16,291 |
|
|
16,893 |
|
Deferred tax asset |
|
6,921 |
|
|
6,412 |
|
Other real estate owned, net |
|
720 |
|
|
1,226 |
|
Other assets |
|
12,806 |
|
|
14,250 |
|
|
|
|
|
|
Total assets |
|
$ |
1,649,827 |
|
|
$ |
1,580,956 |
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
Liabilities |
|
|
|
|
Deposits |
|
$ |
1,288,031 |
|
|
$ |
1,208,047 |
|
Borrowings |
|
160,084 |
|
|
178,342 |
|
Other liabilities |
|
29,584 |
|
|
26,086 |
|
Total liabilities |
|
1,477,699 |
|
|
1,412,475 |
|
|
|
|
|
|
Shareholders' equity |
|
172,128 |
|
|
168,481 |
|
|
|
|
|
|
Total liabilities and shareholders'
equity |
|
$ |
1,649,827 |
|
|
$ |
1,580,956 |
|
|
|
|
|
|
|
|
|
|
SELECTED OPERATING DATA:
|
|
Three Months
Ended |
|
Years
Ended |
|
|
December
31, |
|
December
31, |
(Dollars in Thousands /
Unaudited) |
|
2018 |
2017 |
|
2018 |
2017 |
|
|
|
|
|
|
|
Interest and dividend
income |
|
$ |
15,499 |
|
$ |
13,638 |
|
|
$ |
58,171 |
|
$ |
53,987 |
|
Interest expense |
|
3,833 |
|
2,776 |
|
|
13,048 |
|
11,081 |
|
Net interest income |
|
11,666 |
|
10,862 |
|
|
45,123 |
|
42,906 |
|
|
|
|
|
|
|
|
Provision for loan
losses |
|
1,121 |
|
160 |
|
|
3,143 |
|
661 |
|
Net interest income after provision
for loan losses |
|
10,545 |
|
10,702 |
|
|
41,980 |
|
42,245 |
|
|
|
|
|
|
|
|
Noninterest income |
|
2,607 |
|
2,498 |
|
|
11,239 |
|
11,161 |
|
Noninterest
expenses |
|
11,209 |
|
9,772 |
|
|
41,065 |
|
39,795 |
|
Income before income taxes |
|
1,943 |
|
3,428 |
|
|
12,154 |
|
13,611 |
|
|
|
|
|
|
|
|
Income tax
provision |
|
442 |
|
4,991 |
|
|
2,589 |
|
8,369 |
|
Net income (loss) |
|
$ |
1,501 |
|
$ |
(1,563 |
) |
|
$ |
9,565 |
|
$ |
5,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SELECTED OPERATING DATA - Concluded:
|
Three Months
Ended |
|
Years
Ended |
|
December
31, |
|
December
31, |
(Unaudited) |
2018 |
2017 |
|
2018 |
2017 |
|
|
|
|
|
|
Earnings (loss)
per share: |
|
|
|
|
|
Basic |
$ |
0.13 |
|
$ |
(0.13 |
) |
|
$ |
0.81 |
|
$ |
0.44 |
|
Diluted |
$ |
0.13 |
|
$ |
(0.13 |
) |
|
$ |
0.80 |
|
$ |
0.44 |
|
|
|
|
|
|
|
Weighted
average shares outstanding: |
|
|
|
|
|
Basic |
11,742,170 |
|
11,886,618 |
|
|
11,809,898 |
|
11,859,401 |
|
Diluted |
11,809,806 |
|
11,886,618 |
|
|
11,890,034 |
|
11,926,519 |
|
|
|
|
|
|
|
|
|
|
|
SELECTED FINANCIAL RATIOS:
|
At or For
the |
|
At or For
the |
|
Three Months
Ended |
|
Years
Ended |
|
December
31, |
|
December
31, |
(Dollars in Thousands,
Except Per Share Data / Unaudited) |
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
Selected
Performance Ratios (1): |
|
|
|
|
|
|
|
Return (loss) on average
assets |
0.36 |
% |
|
(0.39 |
)% |
|
0.60 |
% |
|
0.33 |
% |
Return (loss) on
average equity |
3.46 |
|
|
(3.59 |
) |
|
5.61 |
|
|
3.09 |
|
Interest rate
spread |
2.73 |
|
|
2.71 |
|
|
2.76 |
|
|
2.69 |
|
Net interest
margin |
3.03 |
|
|
2.92 |
|
|
3.01 |
|
|
2.89 |
|
Efficiency ratio
(2) |
78.53 |
|
|
73.14 |
|
|
72.86 |
|
|
73.60 |
|
|
|
|
|
|
|
|
|
Asset Quality
Ratios: |
|
|
|
|
|
|
|
Allowance for loan
losses |
|
|
|
|
$ |
14,682 |
|
|
$ |
12,334 |
|
Allowance for loan
losses as a percent of total loans (3) |
|
|
|
|
1.11 |
% |
|
0.99 |
% |
Allowance for loan
losses as a percent of nonperforming loans |
|
|
|
|
149.54 |
|
|
192.60 |
|
Nonperforming
loans |
|
|
|
|
$ |
9,818 |
|
|
$ |
6,404 |
|
Nonperforming loans as
a percent of total loans (3) |
|
|
|
|
0.74 |
% |
|
0.51 |
% |
Nonperforming assets
(4) |
|
|
|
|
$ |
10,538 |
|
|
$ |
7,630 |
|
Nonperforming assets as
a percent of total assets |
|
|
|
|
0.64 |
% |
|
0.48 |
% |
|
|
|
|
|
|
|
|
Per Share
Data: |
|
|
|
|
|
|
|
Book value per
share |
|
|
|
|
$ |
14.28 |
|
|
$ |
13.76 |
|
Less: Intangible
assets per share (5) |
|
|
|
|
(1.35 |
) |
|
(1.38 |
) |
Tangible book value per
share (5) |
|
|
|
|
12.93 |
|
|
12.38 |
|
Dividends per
share |
|
|
|
|
$ |
0.24 |
|
|
$ |
0.20 |
|
_____
(1)
Quarterly ratios have been annualized. |
(2)
Represents noninterest expenses divided by the sum of net interest
and noninterest income, less any realized gains or losses on the
sale of securities and other-than-temporary impairment losses on
securities. |
(3) Total
loans exclude deferred fees and costs. |
(4)
Nonperforming assets consist of nonperforming loans and other real
estate owned. |
(5)
Tangible book value per share equals book value per share less the
effect of intangible assets, which consisted of goodwill and other
intangibles of $16.3 million and $16.9 million at December 31, 2018
and 2017, respectively. |
CONTACT:Catherine Pomerleau, Executive
Assistant/Investor Relations AdministratorEmail:
investorrelations@banksi.com(860) 456-6514
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