Banker & Tradesman file photo
Borrowers are facing some of the steepest interest rates in over a decade, but that didn’t stop Rockland Trust Co. from growing its loan book last quarter.
The bank reported an $83 million increase in its total loans in its quarterly earnings call last week, driven by an $83 million boost in commercial real estate – a 1.1 percent boost – and a $117 million jump in residential real estate lending, largely adjustable-rate residential mortgages.
The bank’s earnings presentation stated construction lending was down $58 million, or 5.7 percent.
Total commercial loans declined by $37 million, a 0.3 percent drop, while consumer real estate lending was up by $117 million, a 3.5 percent increase. Total loans were up by $84.3 million, or 0.6 percent.
“We remain optimistic and open for business in our markets as we see market disruption drive a steady flow of new relationship opportunities across our commercial and small-business segment,” bank CFO Mark Ruggiero told investment analysts during the call.
Analysts probed Ruggerio and CEO Jeffrey Tengel about the $100 million in office loans the bank made that are maturing in the fourth quarter of this year, representing around 9 percent of its total office book.
One loan, worth $18 million, has already been renewed at the current, higher interest rate and is “performing based on a reappraised valuation,” Ruggerio said, while another two appear to be in good shape. A second loan is for an office property that’s 85 percent occupied and currently has a 5 percent interest rate, only 1.75 percent or 2 percent lower than what it will likely face when it renews, he said. The third is “pretty well-occupied,” he said, and acknowledged some tenant turnover that’s left the building’s owner looking for new tenants, but said “based on cashflow and reappraisal, we feel there’s a pretty good story there.”
The bank has around another $80 million in office loans coming due in 2024 and $175 million coming due in 2025.
Overall, the bank reported a 1.7 percent decline in total assets, to $19.4 billion as of Sept. 30, driven by lower cash and securities balances.
Rockland Trust’s third-quarter net income was $60.8 million, down slightly from the $62.8 million it brought in in the second quarter, while it generated a return on average assets of 1.25 percent and a return on average common equity of 8.35 percent, down slightly from the prior quarter in both respects.
Net interest income for the third quarter dropped 1.7 percent quarter-over-quarter to $149.9 million, thanks to deposit costs rising faster than repricing assets. Meanwhile, both the bank’s net interest margin was 3.47 percent, a 7 basis point reduction from the second quarter.
Looking ahead through 2024, Ruggiero told analysts he expects the bank would see its net interest margin shrink by a further 10 to 15 basis points if the Federal Reserve declines to raise its benchmark interest rate any further, as Rockland’s certificates of deposit mature.
A serial acquirer, Rockland Trust uncharacteristically does not have any new merger deals lined up at present, Tengel said, thanks to the current interest rate and economic environments.
“It’s difficult to do on either side,” he said during last week’s earnings call. “If you’re a seller you’re thinking, ‘I can increase the value of my franchise, so why would I sell?’ If you’re a buyer, the marks you have to take become challenging in a tangible book value earnback scenario.”
Still, Tengel said, he is continuing to prospect for potential acquisitions once the M&A environment improves so that Rockland can be smaller local banks’ “first call” if they decide it’s time to sell.
