Beneficial Bancorp, Inc., the parent company of Beneficial Bank, today proclaimed its financial results for the quarter and year finished December 31, 2017.
Beneficial recorded a net loss of $3.30M and net income of $23.90M, or ($0.050) and $0.320 for each diluted share, for the quarter and year finished December 31, 2017, respectively, compared to net income of $7.60M and $25.50M, or $0.1 and $0.340 for each diluted share, for the quarter and year finished December 31, 2K16.
Net income for the quarter and year finished December 31, 2017 included a one- time $13.10M charge, or $0.180 for each diluted share, of additional income tax expense related to the enactment of H.R. 1 (originally known as the “Tax Cuts and Jobs Act”) and its impact on the re-measurement of our net deferred tax assets due to the diminution in the corporate income tax rate to 21.00% from 35.00%.
Net income for the year finished December 31, 2K16 included $8.80M of merger and restructuring charges related to the acquisition of Conestoga Bank (“Conestoga”) and the Bank’s April 2K16 expense management reduction program.
On January 25, 2K18, the Company declared its seventh consecutive quarterly cash dividend of $0.060 for each share. Additionally, the Company declared a special dividend of $0.250 for each share given our high capital levels and expected benefit to future earnings as a result of the Tax Reform Act. Both dividends will be payable on or after February 15, 2K18, to common shareholders of record at the close of business on February 5, 2K18.
Highlights for the quarter and year finished December 31, 2017, are as follows:
- Net interest income inclined $5.10M and $19.00M, or 12.70% and 12.60%, respectively, for the quarter and year finished December 31, 2017, compared to the similar periods in the prior year primarily due to the Conestoga acquisition and organic growth in our loan portfolio.
- Throughout the year finished December 31, 2017, both our commercial loan portfolio and residential loan portfolio inclined $93.40M, or 3.80%, and $49.10M, or 5.50%, respectively.
- Throughout the quarter and year finished December 31, 2017, the Company recorded a $245.00 thousand and a $1.60M net gain on the sale of $3.00M and $17.80M of the guaranteed portion of SBA loans, respectively.
- Charge-offs continue to remain low. Net charge-offs for the year finished December 31, 2017, totaled $3.10M, or 8.0 basis points of average loans, compared to net charge-offs of $2.70M, or 8.0 basis points of average loans, in the similar period in the 2K16.
- Following the passage of H.R. 1 and the anticipated savings from lower future taxes, we announced a special $1,000.00 bonus paid to over 600.00 employees and enhanced our medical coverage to our entire employee base. We also evaluated the compensation of our hourly employees and raised our minimum hourly rate to $14.00.
- Asset quality metrics continued to remain strong with a non-performing asset to total assets, excluding government guaranteed student loans, of 0.360% at December 31, 2017.
- Our allowance for loan losses totaled $43.30M, or 1.070% of total loans, as of December 31, 2017, compared to $43.30M, or 1.080% of total loans, as of December 31, 2K16.
- Throughout the year finished December 31, 2017, the Company purchased 703,800.00 shares under its previously announced stock repurchase plan.
- Our tangible capital to tangible assets inclined to 15.330% at December 31, 2017, compared to 15.10% at December 31, 2K16. Tangible book value for each share totaled $11.370 at December 31, 2017.
Gerard Cuddy, Beneficial’s President, and CEO, stated “We expect that the passage of the Tax Reform Act will reduce our effective tax rate to approximately 21.00% in 2K18.
We intend to invest some of the tax savings in our employee base, technology, our brand community investment and the startup of Neumann which we believe will help drive improved future performance. Our financial results in 2017 were driven by growth in our balance sheet, continued favorable asset quality and management of our expense base.
Although we are seeing some growth in our commercial lending businesses, overall growth remains slow. Our focus remains on employee engagement, a superior client experience, prudent capital management and organic growth to continue to improve the financial performance of our organization.”
Balance Sheet
Total assets inclined $60.20M, or 1.00%, to $5.80 billion at December 31, 2017, compared to $5.740 billion at December 31, 2K16.
The incline in total assets was primarily due to an incline in cash and cash equivalents and loan growth, partially offset by a diminish in investment securities.
Cash and cash equivalents inclined $270.60M to $557.60M at December 31, 2017, from $287.00M at December 31, 2K16.
Over the past few years, we have been focused on reducing our investments and increasing our loan portfolio.
As growth slowed in the second half of 2017, investment maturities and repayments inclined our cash levels. The excess cash that we are holding will be used to fund future loan growth.
Investments diminished $204.50M, or 19.00%, to $870.80M at December 31, 2017, compared to $1.080 billion at December 31, 2K16, as we continued to focus on improving our balance sheet mix by reducing the%age of our assets in investments and growing our loan portfolio.
We carry on to focus on maintaining a high-quality investment portfolio that provides a steady stream of cash flows both in the current and in rising interest rate environments.
Loans inclined $23.60M to $4.030 billion at December 31, 2017, from $4.010 billion at December 31, 2K16. The incline in loans was primarily due to organic growth in our commercial loan portfolio and residential real estate loan portfolio of $93.40M (3.80% growth) and $49.10M (5.50% growth), respectively, partially offset by diminishes in our consumer loan portfolio due primarily to a diminish in indirect auto loans resulting from our planned run-off of this portfolio segment. As previously disclosed, we decided to exit the indirect lending business in the first quarter of 2017.
Deposits diminished $7.70M, or 0.20%, to $4.150 billion at December 31, 2017, from $4.160 billion at December 31, 2K16.
The diminish in deposits was primarily due to diminishes in interest-bearing checking and money market accounts, partially offset by inclines in interest retail checking and non-interest bearing business checking accounts.
Borrowings inclined $50.00M to $540.40M at December 31, 2017, and are being used as a low-cost funding source to replace higher cost brokered CDs.
Consolidated stockholders’ equity inclined $21.10M, or 2.10%, to $1.030 billion at December 31, 2017, from $1.010 billion at December 31, 2K16.
The incline in stockholders’ equity was primarily due to net income of $23.90M as well as the issuance of 1,119,663.00 shares from the exercise of stock options resulting in an incline in additional paid-in capital, partially offset by the declaration of cash dividends and stock repurchases throughout 2017.
Net Interest Income
For the quarter finished December 31, 2017, net interest income was $45.00M, an incline of $5.10M, or 12.70%, from the quarter finished December 31, 2K16.
The incline in net interest income was primarily due to an incline in average interest-earning assets of $142.50M with growth occurring in our higher yielding loan portfolio as well as prepayment income of $3.10M.
The net interest margin totaled 3.280% for the quarter finished December 31, 2017, as compared to 3.00% for the similar period in 2K16. Throughout the quarter finished December 31, 2017, the net interest margin was benefited 23.0 basis points by loan prepayment income.
Also throughout the quarter finished December 31, 2017, the net interest margin was negatively impacted 15.0 basis points by higher cash levels due to slower than anticipated loan growth as average cash for the quarter totaled $500.70M, an incline of $252.80M from $247.90M throughout the quarter finished December 31, 2K16.
For the year finished December 31, 2017, Beneficial reported net interest income of $169.90M, an incline of $19.00M, or 12.60%, from the year finished December 31, 2K16.
The incline in net interest income was primarily due to the acquisition of Conestoga throughout the second quarter of 2K16 and organic loan growth, which resulted in higher interest-earning assets of $411.10M in 2017 compared to 2K16 as well as prepayment income of $4.00M.
Our net interest margin inclined to 3.120% for the year finished December 31, 2017, from 3.00% for the similar period in 2K16. For the year finished December 31, 2017, the net interest margin was benefited 7.0 basis points by loan prepayment income.
Non-interest Income
For the quarter finished December 31, 2017, non-interest income totaled $7.20M, a diminish of $1.00M, or 12.60%, from the quarter finished December 31, 2K16.
The diminish was primarily due to a $1.20M gain recorded on limited partnership investments throughout the quarter finished December 31, 2K16, partially offset by a $245.00 thousand gain on the sale of the guaranteed portion of SBA loans recorded throughout the quarter finished December 31, 2017.
For the year finished December 31, 2017, non-interest income totaled $28.80M, an incline of $960.00 thousand, or 3.50%, from the year finished December 31, 2K16.
The incline was primarily due to a $1.60M net gain on the sale of $17.80M of SBA loans recorded throughout the year finished December 31, 2017, a $765.00 thousand incline in interchange fees, and a $308.00 thousand incline in returned check charges, partially offset by a $1.80M investment gain recorded throughout the year finished December 31, 2K16 from the sale of stock that we held in a financial institution that was acquired.
Non-interest Expense
For the quarter finished December 31, 2017, non-interest expense totaled $35.40M, a diminish of $99.00 thousand, or 0.30%, from the quarter finished December 31, 2K16.
The diminish in non-interest expense was primarily due to a $486.00 thousand diminish in charges associated with a branch closure, a $288.00 thousand diminish in operational losses, and a $283.00 thousand diminish in loan, classified loan and OREO related expense, partially offset by an incline in salaries and employee benefits of $1.10M due primarily due to inclined costs associated with equity awards granted under the Company’s 2K16 Omnibus Incentive Plan as well as annual merit inclines, and incentives related to our special one thousand dollar bonus payments.
For the year finished December 31, 2017, non-interest expense totaled $138.80M, a diminish of $327.00 thousand, or 0.20%, from the year finished December 31, 2K16.
The diminish in non-interest expense was primarily due to $8.80M of merger and restructuring charges related to the acquisition of Conestoga and our April 2K16 expense management reduction program recorded throughout the year finished December 31, 2K16.
This diminishes to non-interest expense was partially offset by an incline in salaries and employee benefits of $6.70M and a $2.00M incline in board fees due primarily to inclined costs associated with equity awards granted under the Company’s 2K16 Omnibus Incentive Plan.
Income Taxes
For the quarter finished December 31, 2017, we recorded a provision for income taxes of $19.10M, reflecting an effective tax rate of 121.30%, compared to a provision for income taxes of $4.50M, reflecting an effective tax rate of 37.20% for the quarter finished December 31, 2K16.
The incline in income tax expense and the effective tax rate for the quarter finished December 31, 2017 compared to the similar period a year ago is primarily due to the previously discussed $13.10M of additional income tax expense recorded throughout the quarter finished December 31, 2017 related to the passage of H.R. 1, enacted on December 22, 2017, which lowered the federal corporate tax rate to 21.00% from 35.00%.
Exclusive of the impact of the passage of H.R. 1, we recorded a provision for income taxes of $5.90M, reflecting an effective tax rate of 37.70%, throughout the quarter, finished December 31, 2017.
For the year finished December 31, 2017, we recorded a provision for income taxes of $32.80M, reflecting an effective tax rate of 57.80%, compared to a provision for income taxes of $13.60M, reflecting an effective tax rate of 34.90%, for the year finished December 31, 2K16.
Exclusive of the impact of the H.R. 1, we recorded a provision for income taxes of $19.70M, reflecting an effective tax rate of 34.70%, throughout the year, finished December 31, 2017.
As a result of the passage of H. R. 1, our corporate federal income tax rate in 2K18 and future years will be reduced from 35.00% to 21.00%.
Asset Quality
Non-accruing loans, excluding government guaranteed student loans, inclined $8.40M to $20.50M at December 31, 2017, compared to $12.10M at December 31, 2K16.
Our ratio of non-performing assets to total assets, excluding government guaranteed student loans, inclined to 0.360% at December 31, 2017, compared to 0.220% at December 31, 2K16.
The incline in non-accruing loans can primarily be attributed to the downgrade to doubtful and change to non-accrual of a shared national credit throughout the first quarter of 2017 with an outstanding balance of $8.00M as of December 31, 2017.
As a result of loan growth and charge-offs, we recorded a $1.00M and $3.10M provision for loan losses throughout the quarter and year finished December 31, 2017, respectively.
We recorded a $485.00 thousand provision for loan losses throughout the quarter and year finished December 31, 2K16.
Our allowance for loan losses totaled $43.30M, or 1.070% of total loans, as of December 31, 2017, compared to $43.30M, or 1.080% of total loans, as of December 31, 2K16.
Capital
Beneficial’s and the Bank’s capital position remains strong relative to current regulatory requirements. Beneficial and the Bank continue to have substantial liquidity that has been retained in cash or invested in high-quality government-backed securities.
As of December 31, 2017, Beneficial’s tangible capital to tangible assets totaled 15.330%. In addition, at December 31, 2017, we had the ability to borrow up to $2.10 billion combined from the Federal Home Loan Bank of Pittsburgh and the Federal Reserve Bank of Philadelphia.
