 | EARNINGS RELEASE | |
SI FINANCIAL GROUP, INC. REPORTS RESULTS FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 2013
Willimantic, Connecticut — February 26, 2014. SI Financial Group, Inc. (the “Company”) (NASDAQ Global Market: SIFI), the holding company of Savings Institute Bank and Trust Company (the “Bank”), reported net income of $1.0 million, or $0.08 basic and diluted earnings per share, for the quarter ended December 31, 2013 versus net income of $745,000, or $0.08 basic and diluted earnings per share, for the quarter ended December 31, 2012. The Company reported a net loss of $855,000, or $0.08 basic and diluted loss per share, for the year ended December 31, 2013 compared to net income of $1.1 million, or $0.11 basic and diluted earnings per share, for the year ended December 31, 2012.
The net loss for the year ended December 31, 2013 was primarily due to $2.6 million in pre-tax costs associated with the September 6, 2013 acquisition of Newport Bancorp, Inc. ("Newport"). Excluding the aforementioned costs net of taxes, the Company would have reported net income of $1.3 million, or $0.11 basic and diluted earnings per share, and $1.2 million, or $0.11 basic and diluted earnings per share, for the quarter and year ended December 31, 2013, respectively.(1)
Net interest income increased $3.5 million for both the quarter and year ended December 31, 2013, to $10.1 million and $29.7 million, respectively, compared to the same periods in 2012. Net interest income increased due to an increase in the average balance of loans outstanding and a lower cost of funds versus the comparable periods in 2012.
The provision for loan losses increased $40,000 and decreased $1.6 million for the quarter and year ended December 31, 2013, respectively, compared to the same periods in 2012. The increased provision in the fourth quarter was primarily due to an increase in net loan charge-offs. The decrease in the provision for the year was primarily due to decreases in nonperforming loans and net loan charge-offs. At December 31, 2013, nonperforming loans totaled $7.0 million, compared to $7.7 million at December 31, 2012, primarily due to decreases in nonperforming residential mortgage loans of $1.4 million and consumer loans of $297,000, offset by an increase of $1.2 million in multi-family and commercial mortgage loans. Net loan charge-offs were $92,000 and $790,000 for the quarter and year ended December 31, 2013, respectively, consisting primarily of residential mortgage loan charge-offs. Net loan charge-offs were $85,000 and $1.5 million for the quarter and year ended December 31, 2012, respectively. Two commercial loan relationships contributed to the higher level of loan charge-offs for the year ended December 31, 2012.
Noninterest income was $2.6 million and $2.4 million for the quarters ended December 31, 2013 and 2012, respectively, and $8.3 million and $8.7 million for the years ended December 31, 2013 and 2012, respectively. The Company realized a net loss of $236,000 and $1.2 million on the sale of securities during the fourth quarter and year ended December 31, 2013, respectively, primarily related to the sale of $6.0 million in collateralized debt obligations and non-agency mortgage-backed securities previously classified as substandard. Mortgage banking fees declined $550,000 and $810,000 for the quarter and year ended December 31, 2013, respectively, as a result of lower gains realized on residential mortgage loan sales. Lower wealth management fees for 2013 were attributable to the sale of SI Trust Servicing, a third-party provider of trust outsourcing services for community banks, in April 2012. Service fees increased $551,000 and $831,000 for the quarter and year ended December 31, 2013, respectively, as a result of increases in overdraft privilege fees and fees associated with higher electronic banking usage compared to the same periods in 2012. The Company recognized increases in fair value adjustments of $92,000 and $563,000 on certain derivative instruments during the fourth quarter and year ended December 31, 2013, respectively,
versus the comparable periods in 2012. Additionally, noninterest income for 2013 included a gain of $201,000 on the sale of $3.0 million in commercial business loans held for investment. For 2012, noninterest income included an aggregate loss of $698,000 (pre-tax) on the sale of SI Trust Servicing and write-downs of $392,000 on leasehold improvements and certain equipment related to the closure of the New London, Connecticut branch office. Other noninterest income for 2012 included an investment gain of $355,000 received from one of the Bank's small business investment company limited partnerships and a gain of $349,000 resulting from death benefit proceeds from a bank-owned life insurance policy.
Noninterest expenses increased $3.2 million and $7.0 million for the quarter and year ended December 31, 2013, respectively, compared to the same periods in 2012. Included in noninterest expenses for 2013 were pre-tax merger costs of $410,000 and $2.6 million for the respective periods. Higher noninterest expenses for 2013 reflect additional operating costs attributable to the six acquired branches from the Newport merger. Increases in salaries and benefits include additional lending staff and higher benefit costs related to equity-based incentive plan compensation and health insurance. Additionally, noninterest expenses for 2013 included prepayment penalties totaling $659,000 for the early extinguishment of certain higher rate Federal Home Loan Bank borrowings.
Total assets increased $393.5 million, or 41.3%, to $1.35 billion at December 31, 2013 from $952.9 million at December 31, 2012. The Newport acquisition contributed $361.1 million in loans receivable, $16.3 million in intangible assets, $11.3 million in bank-owned life insurance and $9.7 million in premises and equipment. The increase in total assets was offset by decreases of $10.4 million in cash and cash equivalents and $3.3 million in loans held for sale. Residential and commercial mortgage, commercial business and home equity loans increased $309.7 million, $40.8 million and $15.9 million, respectively. Residential and commercial mortgage loan originations declined $36.3 million during 2013 compared to 2012, offset by increases of $27.5 million in commercial business loan originations and $13.7 million in consumer loan originations.
Total liabilities increased $366.4 million, or 44.3%, to $1.19 billion at December 31, 2013 compared to $827.1 million at December 31, 2012. The increase in total liabilities included increases of $279.6 million in deposits and $78.6 million in Federal Home Loan Bank advances predominately as a result of the Newport acquisition. Contributing to higher deposits were increases in NOW and money market accounts of $149.6 million, certificates of deposit of $73.3 million, noninterest-bearing deposits of $49.6 million and savings accounts of $7.1 million. Growth in total deposits included $288.4 million from the Newport acquisition. The increase in other liabilities included $7.1 million in deferred compensation and accrued expenses assumed in the Newport acquisition.
Total shareholders’ equity increased $27.1 million from $125.8 million at December 31, 2012 to $152.8 million at December 31, 2013. The increase in shareholders' equity was attributable to the acquisition of Newport resulting in an increase in equity of $30.1 million and an unrealized gain of $104,000 on an interest-rate swap derivative, offset by an increase in unrealized losses on available for sale securities aggregating $2.4 million (net of taxes), dividends of $1.2 million and a net loss of $855,000. At December 31, 2013, the Bank’s regulatory capital exceeded the amounts required for it to be considered “well-capitalized” under applicable regulatory capital guidelines.
“We continue to be pleased with the integration of Newport Federal. Results for the fourth quarter, the first full quarter of operations following the merger, reflected improvement in the net interest margin, net interest income and earnings, despite the inclusion of $410,000 in merger expenses," 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-six branch locations, the Bank offers a full-range of financial services to individuals, businesses and municipalities within its market area.
Non-GAAP Financial Measures
We 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 that 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 net income (loss) per share to shareholders, excluding the tax-affected transaction costs related to the acquisition of Newport for the quarter and year ended December 31, 2013.
| Quarter Ended | Year Ended | ||||||
Net Income (Loss) (in thousands): | December 31, 2013 | December 31, 2013 | |||||
| Net income (loss) as reported | $ | 1,024 | $ | (855 | ) | ||
| Merger-related transaction costs (after tax) | 286 | 2,031 | |||||
| Net income adjusted for merger-related transaction costs | $ | 1,310 | $ | 1,176 | |||
| Earnings Per Share: | |||||||
| Basic and diluted as reported | $ | 0.08 | $ | (0.08 | ) | ||
| Merger-related transaction costs (after tax) | 0.03 | 0.19 | |||||
| Basic and diluted adjusted for merger-related transaction costs | $ | 0.11 | $ | 0.11 | |||
Forward-Looking Statements
This 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 ability to successfully integrate the operations of the former Newport Bancorp, Inc., 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, 2012, 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) | 2013 | 2012 | ||||||
| ASSETS | ||||||||
| Noninterest-bearing cash and due from banks | $ | 20,554 | $ | 16,364 | ||||
| Interest-bearing cash and cash equivalents | 4,849 | 21,325 | ||||||
| Federal funds sold | 1,918 | — | ||||||
| Securities | 183,329 | 184,591 | ||||||
| Loans held for sale | 1,764 | 5,069 | ||||||
| Loans receivable, net | 1,047,410 | 685,163 | ||||||
| Bank-owned life insurance | 20,726 | 9,060 | ||||||
| Premises and equipment, net | 21,090 | 11,216 | ||||||
| Intangible assets | 19,566 | 3,451 | ||||||
| Deferred tax asset | 9,705 | 4,639 | ||||||
| Other real estate owned, net | 2,429 | 1,293 | ||||||
| Other assets | 13,039 | 10,709 | ||||||
| Total assets | $ | 1,346,379 | $ | 952,880 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Liabilities | ||||||||
| Deposits | $ | 984,749 | $ | 705,148 | ||||
| Borrowings | 184,520 | 105,947 | ||||||
| Other liabilities | 24,268 | 16,026 | ||||||
| Total liabilities | 1,193,537 | 827,121 | ||||||
| Shareholders' equity | 152,842 | 125,759 | ||||||
| Total liabilities and shareholders' equity | $ | 1,346,379 | $ | 952,880 | ||||
SELECTED OPERATING DATA:
| Three Months Ended | Years Ended | |||||||||||||
| December 31, | December 31, | |||||||||||||
| (Dollars in Thousands / Unaudited) | 2013 | 2012 | 2013 | 2012 | ||||||||||
| Interest and dividend income | $ | 12,184 | $ | 8,863 | $ | 38,192 | $ | 35,824 | ||||||
| Interest expense | 2,097 | 2,322 | 8,454 | 9,633 | ||||||||||
| Net interest income | 10,087 | 6,541 | 29,738 | 26,191 | ||||||||||
| Provision for loan losses | 686 | 646 | 1,319 | 2,896 | ||||||||||
| Net interest income after provision for loan losses | 9,401 | 5,895 | 28,419 | 23,295 | ||||||||||
| Noninterest income | 2,560 | 2,398 | 8,305 | 8,717 | ||||||||||
| Noninterest expenses | 10,513 | 7,338 | 37,677 | 30,653 | ||||||||||
| Income (loss) before income taxes | 1,448 | 955 | (953 | ) | 1,359 | |||||||||
| Income tax provision (benefit) | 424 | 210 | (98 | ) | 241 | |||||||||
| Net income (loss) | $ | 1,024 | $ | 745 | $ | (855 | ) | $ | 1,118 | |||||
SELECTED OPERATING DATA - Concluded:
| Three Months Ended | Years Ended | ||||||||||||
| December 31, | December 31, | ||||||||||||
| (Unaudited) | 2013 | 2012 | 2013 | 2012 | |||||||||
| Earnings (loss) per share: | |||||||||||||
| Basic | $ | 0.08 | $ | 0.08 | $ | (0.08 | ) | $ | 0.11 | ||||
| Diluted | $ | 0.08 | $ | 0.08 | $ | (0.08 | ) | $ | 0.11 | ||||
| Weighted average shares outstanding: | |||||||||||||
| Basic | 12,274,489 | 9,567,215 | 10,434,191 | 9,730,797 | |||||||||
| Diluted | 12,322,115 | 9,601,472 | 10,434,191 | 9,755,692 | |||||||||
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) | 2013 | 2012 | 2013 | 2012 | |||||||||
| Selected Performance Ratios: | |||||||||||||
Return (loss) on average assets (1) | 0.30 | % | 0.31 | % | (0.08 | )% | 0.12 | % | |||||
Return (loss) on average equity (1) | 2.63 | 2.32 | (0.63 | ) | 0.86 | ||||||||
| Interest rate spread | 3.04 | 2.61 | 2.74 | 2.63 | |||||||||
| Net interest margin | 3.17 | 2.87 | 2.93 | 2.88 | |||||||||
Efficiency ratio (2) | 81.60 | 82.49 | 96.10 | 88.19 | |||||||||
| Asset Quality Ratios: | |||||||||||||
| Allowance for loan losses | $ | 6,916 | $ | 6,387 | |||||||||
Allowance for loan losses as a percent of total loans (3) | 0.66 | % | 0.93 | % | |||||||||
| Allowance for loan losses as a percent of nonperforming loans | 98.90 | % | 83.45 | % | |||||||||
| Nonperforming loans | $ | 6,993 | $ | 7,654 | |||||||||
Nonperforming loans as a percent of total loans (3) | 0.66 | % | 1.11 | % | |||||||||
Nonperforming assets (4) | $ | 9,422 | $ | 8,947 | |||||||||
| Nonperforming assets as a percent of total assets | 0.70 | % | 0.94 | % | |||||||||
| Per Share Data: | |||||||||||||
| Book value per share | $ | 11.94 | $ | 12.44 | |||||||||
Less: Intangible assets per share (5) | (1.53 | ) | (0.35 | ) | |||||||||
Tangible book value per share (5) | 10.41 | 12.09 | |||||||||||
| Dividends per share | 0.12 | 0.12 | |||||||||||
(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 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 $19.6 million and $3.5 million at December 31, 2013 and 2012, respectively. | |
CONTACT:
Diane Phillips, Executive Assistant/Investor Relations Administrator
Email: investorrelations@banksi.com
(860) 456-6514