Here's a 'Solid' Bank Stock to Buy Now, from KBW

NEW YORK (TheStreet) -- Investors looking for a solid bank-stock growth play, with relatively downside risk, should consider Independent Bank (INDB) of Hanover, Mass., according to KBW analyst Collyn Gilbert.

The analyst on Thursday upgraded Independent Bank to "outperform," from "market perform," while raising her price target for the shares to $44 from $40.00. The new price target implies upside of 15% over the next 12 months from the stock's closing price of $38.11 on Thursday.

Independent Bank's stock trades for 14.3 times the consensus 2015 earnings estimate of $2.67, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $2.46. Based on a quarterly dividend of 22 cents, the shares have a dividend yield of 2.31%.

Independent Bank is the holding company for Rockland Trust Company. The holding company had $6.099 billion in total assets Dec. 31. Earnings totaled $50.2 million, or $2.18 a share, during 2013, increasing from $42.6 million, or $1.95 a share, in 2012.

Net interest income grew 6% during 2013 to $182.6 million, while noninterest income grew 10% to $68.0 million. Noninterest expense grew 14% to 36.5 million during 2013; however, the company booked $8.7 million in merger and acquisition expenses during the year. The most recent acquisition was Mayflower Bancorp of Middleboro, Mass., in November, which included $126.6 million in loans and $218.9 million in loans.

Following a meeting with Independent Bank CEO Chris Oddleifson and CFO Rob Cozzone, Gilbert in a note to clients Thursday wrote, "We left our meetings with increased confidence in the strength of Independent's current market position, sustainability of growth (both organically and acquisitively), favorable interest rate risk position, and potential scalability of its wealth business."

The bank in 2013 grew its investment management fee revenue by 14% to $16.8 million, and even grew its mortgage revenue by 4% to $6.7 million. That's significant investment management fee income for a bank of this size, and growing mortgage revenue while the industry saw such a large decline in volume as long-term rates rose last year, was quite an achievement for any bank.

"Having grown its wealth business 176% since 2006, to roughly $2.3 billion assets under management, we tend to think INDB has cracked the code in making this segment a successful venture for the bank," Gilbert wrote.

The analyst estimates the bank will earn $2.42 a share this year, with EPS growing to $2.76 in 2015.

"As volatility and momentum (through varying lending segments) present themselves throughout the banking market, we continue to believe that operational strength, disciplined underwriting, prudent expense management, strong core funding, and favorable competitive dynamics should remain relevant drivers of long-term value, while also minimizing downside risk," she wrote.

Oddleifson Cozzone told Gilbert they expected the bank's commercial and industrial loans to grow by 7% this year, "outstripping the overall loan portfolio growth of a more modest 4% to 5%."

Independent Bank's shares were up 1.8% in late morning trading Friday, to $38.78.

INDB ChartINDB data by YCharts

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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