Independent Bank Corporation Reports 2012 Second Quarter Results

IONIA, Mich., July 30, 2012 /PRNewswire/ -- Independent Bank Corporation (Nasdaq: IBCP) reported second quarter 2012 net income applicable to common stock of $3.2 million, or $0.11 per diluted share, versus a net loss applicable to common stock of $1.0 million, or $0.12 per share, in the prior-year period.  For the six months ended June 30, 2012, the Company reported net income applicable to common stock of $5.7 million, or $0.19 per diluted share, compared to a net loss applicable to common stock of $9.4 million, or $1.16 per share, in the prior-year period.

2012 results were highlighted by:

  • A second consecutive profitable quarter, with significant improvement in operating results driven by declines in the provision for loan losses and in non-interest expenses as well as an increase in non-interest income.
  • Additional improvement in asset quality, with non-performing assets down 10% during the quarter and 21% since the end of 2011.
  • A $3.1 million, or 75%, year-over-year decline in the provision for loan losses.
  • Strong mortgage-banking results with a $1.8 million, or 100%, year-over-year increase in net gains on mortgage loans.
  • Growth in core deposits (inclusive of those deposits in branches that are expected to be sold in the third quarter of 2012), which increased $90.2 million, or 4.4% since the end of 2011.
  • Regulatory capital ratios that increased and remain above minimum requirements for "well-capitalized" institutions.

On May 23, 2012 the Company announced the sale of 21 branches to Chemical Bank.  This transaction is expected to close on September 14, 2012.

Michael M. Magee, the Chief Executive Officer of Independent Bank Corporation, commented: "We are very pleased to report our second consecutive quarter of profitability in 2012 as well as further progress in improving asset quality, as evidenced by a reduction in our non-performing loans, loan net charge-offs and the provision for loan losses as compared to the year ago quarter.  We remain focused on building consistent profitability, and we are optimistic that the improvements we have observed in the Michigan economy will continue to help support our efforts.  Given the pending branch sale and the positive impact  on our regulatory capital ratios, our capital initiatives are now centered on strategies to convert the preferred stock owned by the U.S. Treasury into common stock and exiting TARP while still preserving the potential future use of our net deferred tax asset, which totaled approximately $71.9 million at June 30, 2012 and on which we have established a full valuation allowance.  The potential future recovery of this valuation allowance represents a source of capital that would be of significant value to our shareholders."

Operating Results

The Company's net interest income totaled $21.8 million during the second quarter of 2012, a decrease of $1.6 million, or 6.6% from the year-ago period, and a decrease of $0.3 million, or 1.2% from the first quarter of 2012.  The Company's net interest income as a percent of average interest-earning assets (the "net interest margin") was 4.02% during the second quarter of 2012, compared to 4.36% in the year-ago period, and 4.14% in the first quarter of 2012. The net interest margin decreased due primarily to a change in asset mix, as higher yielding loans declined and lower yielding short-term investments increased.  The year-over-year decrease in net interest income was partially offset by an increase in average interest-earning assets, which rose to $2.18 billion in the second quarter of 2012 compared to $2.15 billion in the year-ago quarter and $2.14 billion in the first quarter of 2012.  The increase in average interest-earning assets primarily reflects a rise in securities available for sale that was partially offset by a decline in loans.   

For the first six months of 2012, net interest income totaled $43.9 million, a decrease of $3.9 million, or 8.2% from 2011.  The Company's net interest margin for the first six months of 2012 decreased to 4.08% compared to 4.35% in 2011.  The reasons for the decline in net interest income for the first six months of 2012 are generally consistent with those described above for the comparative quarterly periods.

Service charges on deposits totaled $4.6 million and $8.8 million, respectively, for the second quarter and first six months of 2012, representing decreases of 4.8% and 3.5%, respectively, from the comparable year ago periods.  These decreases principally relate to a decline in customer overdraft occurrences.

Interchange income totaled $2.4 million and $4.7 million for the second quarter and first six months of 2012, respectively, representing increases of 4.3% and 5.7%, respectively, over the year ago comparative periods.  These increases primarily reflect a rise in customer debit card transaction volume and PIN-based interchange fees. 

Net gains on the sale of mortgage loans were $3.6 million in the second quarter of 2012, compared to $1.8 million in the year-ago quarter.  For the first six months of 2012, net gains on the sale of mortgage loans totaled $7.4 million compared to $3.7 million in 2011. The increase in net gains relates primarily to a rise in mortgage loan sales volume associated with increased origination volume driven by record low interest rates.

Mortgage loan servicing generated a loss of $1.1 million and $0.1 million in the second quarters of 2012 and 2011, respectively. This increased loss was due to the change in the impairment reserve (a $0.9 million impairment charge in the second quarter of 2012 compared to a $0.6 million impairment charge in the year-ago quarter) as well as a $0.7 million increase in the amortization of capitalized mortgage loan servicing rights.  The impairment charge in the second quarter of 2012 primarily reflects lower mortgage loan interest rates resulting in higher estimated future prepayment rates.  For the first six months of 2012, mortgage loan servicing generated a loss of $0.4 million as compared to income of $0.8 million in 2011.  The first six months comparative variance is primarily due to a $1.0 million increase in the amortization of capitalized mortgage loan servicing rights as well as changes in the impairment reserve ($0.2 million charge in 2012 versus a $0.1 million charge in 2011).  Capitalized mortgage loan servicing rights totaled $10.7 million at June 30, 2012 compared to $11.2 million at Dec. 31, 2011.  As of June 30, 2012, the Company serviced approximately $1.76 billion in mortgage loans for others on which servicing rights have been capitalized.

Non-interest expenses totaled $29.5 million in the second quarter of 2012, compared to $31.9 million in the year-ago period.  The quarterly year-over-year decline in non-interest expenses was primarily due to decreases in loan and collection costs (down $1.2 million), credit card and bank service fees (down $0.4 million), and vehicle service contract counterparty contingencies (down $1.0 million).  For all of 2012, non-interest expenses totaled $57.5 million versus $65.8 million in 2011.  The first six months decline in non-interest expenses was primarily due to decreases in loan and collection costs (down $2.2 million), occupancy costs (down $0.6 million), vehicle service contract counterparty contingencies expense (down $2.9 million), net losses on other real estate and repossessed assets (down $0.6 million), credit card and bank service fees (down $0.8 million), and other non-interest expenses (down $1.4 million).  Loan and collection costs have declined significantly in 2012, which primarily reflects the overall decrease in the volume of problem credits (non-performing loans and "watch" credits).  In addition, vehicle service contract counterparty contingencies expense has also declined significantly in 2012, which primarily reflects lower expected incurred losses and reduced levels of payment plan receivables.  

Asset Quality

Commenting on asset quality, CEO Magee added:  "Our provision for loan losses decreased by $3.1 million, or 74.6%, in the second quarter of 2012 compared to the year-ago amount, primarily reflecting a reduction in non-performing loans, a lower level of watch credits, reduced loan net charge-offs, and an overall decline in total loan balances.  Since the start of this year, non-performing loans and commercial loan watch credits have declined by approximately 25% and 17%, respectively.  In addition, thirty- to eighty-nine day delinquency rates at June 30, 2012 were 1.02% for commercial loans and 0.98% for mortgage and consumer loans. These are at or near to the lowest levels that we have seen in several years.  Nonetheless, we continue to focus on further improving asset quality and reducing credit related costs."

A breakdown of non-performing loans(1) by loan type is as follows:

 

Loan Type

    6/30/2012

12/31/2011

6/30/2011


(Dollars in Millions)

Commercial

$ 22.8

$ 29.3

$ 25.2

Consumer/installment

2.7

3.5

3.0

Mortgage

19.3

26.2

23.9

Payment plan receivables(2)

0.3

0.9

1.6

  Total

$ 45.1

$ 59.9

$ 53.7

Ratio of non-performing loans to total portfolio loans

3.09%

3.80%

3.21%

Ratio of non-performing assets to total assets

3.10%

4.07%

3.94%

Ratio of the allowance for loan losses to non-performing loans

113.97%

98.33%

112.66%

(1)     Excludes loans that are classified as "troubled debt restructured" that are still performing.

(2)     Represents payment plans for which no payments have been received for 90 days or more and for which Mepco has not yet completed the process to charge the applicable counterparty for the balance due. These balances exclude receivables due from Mepco counterparties related to the cancellation of payment plan receivables.

Non-performing loans have declined by $14.8 million, or 24.8%, since year-end 2011.  All categories of non-performing loans declined, but the principal decreases since year-end 2011 were in commercial loans and residential mortgage loans. The decline in non-performing loans primarily reflects loan net charge-offs, pay-offs, negotiated transactions and the migration of loans into ORE during 2012.  Non-performing commercial loans have declined by $55.3 million, or 70.9%, since they peaked in 2008.  Non-performing retail (residential mortgage and consumer/installment) loans have declined by $37.2 million, or 62.8%, since they peaked in 2009.  Other real estate and repossessed assets totaled $29.5 million at June 30, 2012, compared to $34.0 million at Dec. 31, 2011. 

The provision for loan losses was $1.1 million and $4.2 million in the second quarters of 2012 and 2011, respectively.  For the first six months of 2012, the provision for loan losses totaled $6.2 million versus $14.9 million in 2011.  The level of the provision for loan losses in each period reflects the Company's overall assessment of the allowance for loan losses, taking into consideration factors such as loan mix, levels of non-performing and classified loans, and loan net charge-offs.  Loan net charge-offs were $4.9 million (1.31% annualized of average loans) in the second quarter of 2012, compared to $9.4 million (2.21% annualized of average loans) in the second quarter of 2011.  Loan net charge-offs were $12.9 million (1.69% of average loans) and $22.3 million (2.58% of average loans) for all of 2012 and 2011, respectively.  The year to date declines in 2012 loan net charge-offs by category were: commercial loans $7.0 million; mortgage loans $1.6 million; and consumer/installment loans $0.7 million.  At June 30, 2012, the allowance for loan losses totaled $51.3 million, or 3.52% of portfolio loans, compared to $58.9 million, or 3.73% of portfolio loans, at Dec. 31, 2011.

Balance Sheet, Liquidity and Capital

Total assets were $2.40 billion at June 30, 2012, an increase of $96.1 million, or 4.2%, from Dec. 31, 2011.  Loans, excluding loans held for sale, were $1.46 billion at June 30, 2012, compared to $1.58 billion at Dec. 31, 2011.  Deposits (including $417.5 million related to the aforementioned pending branch sale) totaled $2.18 billion at June 30, 2012, an increase of $96.7 million from Dec. 31, 2011.  The increase in deposits is primarily due to growth in checking and savings accounts. 

Cash and cash equivalents totaled $419.8 million at June 30, 2012, versus $341.1 million at Dec. 31, 2011. Securities available for sale totaled $247.0 million at June 30, 2012, versus $157.4 million at Dec. 31, 2011.  This $89.6 million increase is primarily due to the purchase of residential mortgage-backed and U.S. government agency securities during the first six months of 2012.

Total shareholders' equity was $113.2 million at June 30, 2012, or 4.71% of total assets.  Tangible common equity totaled $24.1 million at June 30, 2012, or $2.75 per share.  The Company's wholly owned subsidiary, Independent Bank, remains "well capitalized" for regulatory purposes with the following ratios:

 

 

Regulatory Capital Ratio

 

 

6/30/2012

 

 

12/31/2011

Well
Capitalized
Minimum

 

Tier 1 capital to average total assets

 

6.98%

 

6.77%

 

5.00%

Tier 1 capital to risk-weighted assets

11.21%

10.13%

6.00%

Total capital to risk-weighted assets

12.48%

11.41%

10.00%

About Independent Bank Corporation

Independent Bank Corporation (Nasdaq Symbol: IBCP) is a Michigan-based bank holding company with total assets of approximately $2.4 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation now operates convenient locations across Michigan's Lower Peninsula through one state-chartered bank subsidiary. This subsidiary (Independent Bank) provides a full range of financial services, including commercial banking, mortgage lending, investments and title services. Independent Bank has received the "Highest Customer Satisfaction with Retail Banking in the North Central Region" from the J.D. Power and Associates 2012 Retail Banking Satisfaction StudySM.  The J.D. Power and Associates study results are based on experiences and perceptions of consumers surveyed January-February, 2012. Independent Bank Corporation is committed to providing exceptional personal service and value to its customers, stockholders and the communities it serves. 

For more information, please visit our website at: www.IndependentBank.com.

Any statements in this news release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as "expect," "believe," "intend," "estimate," "project," "may" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are predicated on management's beliefs and assumptions based on information known to Independent Bank Corporation's management as of the date of this news release and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of Independent Bank Corporation's management for future  operations, products or services, and forecasts of the Company's revenue, earnings or other measures of economic performance, including statements of profitability, estimates of credit quality trends, and statements about the potential value of our deferred tax assets. Such statements reflect the view of Independent Bank Corporation's management as of this date with respect to future events and are not guarantees of future performance.  These forward-looking statements involve assumptions and are subject to substantial risks and uncertainties, such as changes in Independent Bank Corporation's plans, objectives, expectations and intentions. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, the Company's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences include the ability of Independent Bank Corporation to meet the objectives of its capital restoration plan, the ability of Independent Bank to remain well-capitalized under federal regulatory standards, the pace of economic recovery within Michigan and beyond, our ability to collect receivables from Mepco Finance Corporation's counterparties related to cancellations of payment plans, changes in interest rates, changes in the accounting treatment of any particular item, the results of regulatory examinations, changes in industries where the Company has a concentration of loans, changes in the level of fee income, changes in general economic conditions and related credit and market conditions, and the impact of regulatory responses to any of the foregoing. Forward-looking statements speak only as of the date they are made. Independent Bank Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this news release or in any documents, Independent Bank Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition

 










June 30,


December 31,





2012


2011






(unaudited)



Assets


(In thousands, except share amounts)



Cash and due from banks

$

60,838

$

62,777



Interest bearing deposits


358,920


278,331



Cash and Cash Equivalents


419,758


341,108



Trading securities


86


77



Securities available for sale


247,047


157,444



Federal Home Loan Bank and Federal Reserve Bank stock, at cost


20,494


20,828



Loans held for sale, carried at fair value


43,386


44,801



Loans held for sale, carried at lower of cost or fair value


53,180


-



Loans







  Commercial


612,044


651,155



  Mortgage


547,210


590,876



  Installment


199,190


219,559



  Payment plan receivables


98,946


115,018



Total Loans


1,457,390


1,576,608



  Allowance for loan losses


(51,346)


(58,884)



Net Loans


1,406,044


1,517,724



Other real estate and repossessed assets


29,504


34,042



Property and equipment, net


50,802


62,548



Bank-owned life insurance


50,094


49,271



Other intangibles


7,065


7,609



Capitalized mortgage loan servicing rights


10,651


11,229



Prepaid FDIC deposit insurance assessment


11,008


12,609



Vehicle service contract counterparty receivables, net


28,879


29,298



Fixed assets held for sale relating to branch sale


8,491


-



Accrued income and other assets


16,976


18,818



Total Assets

$

2,403,465

$

2,307,406



Liabilities and Shareholders' Equity







Deposits







  Non-interest bearing

$

471,718

$

497,718



  Savings and interest-bearing checking


852,214


1,019,603



  Retail time


392,544


526,525



  Brokered time


48,860


42,279



Total Deposits


1,765,336


2,086,125



Deposits held for sale relating to branch sale


417,521


-



Other borrowings


17,929


33,387



Subordinated debentures


50,175


50,175



Vehicle service contract counterparty payables


7,118


6,633



Accrued expenses and other liabilities


32,214


28,459



Total Liabilities


2,290,293


2,204,779



Shareholders' Equity







  Preferred stock, no par value, 200,000 shares authorized; 74,426 shares







    issued and outstanding at June 30, 2012 and December 31, 2011;







    liquidation preference: $83,061 at  June 30, 2012 and







    $81,023 at December 31, 2011


82,004


79,857



  Common stock, no par value, 500,000,000 shares authorized;







     issued and outstanding:  8,749,220 shares at June 30, 2012







     and 8,491,526 shares at December 31, 2011


249,751


248,950



  Accumulated deficit


(208,569)


(214,259)



  Accumulated other comprehensive loss


(10,014)


(11,921)



Total Shareholders' Equity


113,172


102,627



Total Liabilities and Shareholders' Equity

$

2,403,465

$

2,307,406

















 

 

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

 









Three Months Ended


Six Months Ended




June 30,


March 31,


June 30,


June 30,




2012


2012


2011


2012


2011




(unaudited)




(In thousands)






Interest Income







  Interest and fees on loans

$

23,696

$

24,346

$

28,102

$

48,042

$

57,586


  Interest on securities












    Taxable


933


658


344


1,591


811


    Tax-exempt


244


296


298


540


630


  Other investments


382


396


383


778


818


Total Interest Income


25,255


25,696


29,127


50,951


59,845


Interest Expense












  Deposits


2,305


2,424


4,511


4,729


9,456


  Other borrowings


1,120


1,172


1,232


2,292


2,555


Total Interest Expense


3,425


3,596


5,743


7,021


12,011


Net Interest Income


21,830


22,100


23,384


43,930


47,834


Provision for loan losses


1,056


5,131


4,156


6,187


14,858


Net Interest Income After Provision for Loan Losses


20,774


16,969


19,228


37,743


32,976


Non-interest Income












  Service charges on deposit accounts


4,552


4,201


4,784


8,753


9,066


  Interchange income


2,407


2,322


2,308


4,729


4,476


  Net gains (losses) on assets












    Mortgage loans


3,579


3,860


1,793


7,439


3,728


    Securities


169


684


115


853


328



    Other than temporary impairment loss on securities













      Total impairment loss


(85)


(177)


327


(262)


(142)



      Loss recognized in other comprehensive loss


-


-


(327)


-


-



        Net impairment loss recognized in earnings


(85)


(177)


-


(262)


(142)


  Mortgage loan servicing


(1,088)


736


(126)


(352)


770



  Title insurance fees


489


508


318


997


791


  (Increase) decrease in fair value of U.S. Treasury warrant


(25)


(154)


642


(179)


996


  Other


3,044


2,604


2,622


5,648


5,154


Total Non-interest Income


13,042


14,584


12,456


27,626


25,167


Non-interest Expense












  Compensation and employee benefits


13,506


12,482


13,029


25,988


25,378


  Loan and collection


2,407


2,890


3,580


5,297


7,447


  Occupancy, net


2,490


2,716


2,663


5,206


5,764


  Data processing


2,450


2,339


2,415


4,789


4,725


  Furniture, fixtures and equipment


1,307


1,294


1,502


2,601


2,920


  Legal and professional


1,268


897


801


2,165


1,579


  Communications


826


875


889


1,701


1,837


  FDIC deposit insurance


816


857


652


1,673


1,887


  Net losses on other real estate and repossessed assets


633


987


777


1,620


2,183


  Credit card and bank service fees


624


651


1,013


1,275


2,060


  Advertising


639


556


670


1,195


1,224


  Vehicle service contract counterparty contingencies


326


471


1,311


797


3,657


  Provision for loss reimbursement on sold loans


126


432


363


558


769


  Costs (recoveries) related to unfunded lending commitments


(12)


(47)


89


(59)


184


  Other


2,077


649


2,151


2,726


4,159


Total Non-interest Expense


29,483


28,049


31,905


57,532


65,773


Income (Loss) Before Income Tax


4,333


3,504


(221)


7,837


(7,630)



Income tax benefit


-


-


(258)


-


(266)



                                                       Net Income (Loss)

$

4,333

$

3,504

$

37

$

7,837

$

(7,364)



Preferred stock dividends and discount accretion


1,092


1,056


1,051


2,148


2,059


Net Income (Loss) Applicable to Common Stock

$

3,241

$

2,448

$

(1,014)

$

5,689

$

(9,423)
































 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES  



Selected Financial Data  




















Three Months Ended  

Six Months Ended  



June 30,

March 31,


June 30,

June 30,



2012

2012


2011

2012

2011





(unaudited)


Per Common Share Data  














Net Income (Loss) Per Common Share (A)  














  Basic (B)

$

.38


$

0.29


$

(.12)

$

.66

$

(1.16)


  Diluted (C)


.11



0.07



(.12)


.19


(1.16)


Cash dividends declared per common share


.00



.00



.00


.00


.00






























Selected Ratios (D)














As a Percent of Average Interest-Earning Assets  














  Interest income


4.65


%

4.82


%

5.43

%

4.73

%

5.45

%

  Interest expense


0.63



0.68



1.07


0.65


1.10


  Net interest income


4.02



4.14



4.36


4.08


4.35


Net Income (Loss) to (A)  














Average common shareholders' equity


47.96


%

42.29


%

(11.94)

%

45.34

%

(50.84)

%

Average assets


0.54



0.42



(0.17)


0.48


(0.78)






























Average Shares














  Basic (B)


8,607,382



8,533,584



8,287,012


8,570,482


8,111,121


  Diluted (C)


40,798,694



47,318,098



49,640,081


40,737,967


49,428,827






























(A) These amounts are calculated using net income (loss) applicable to common stock.  For any period in which net income is recorded, dividends on convertible preferred stock are added back in the diluted per share calculation. 

(B) Average shares of common stock for basic net income (loss) per common share include shares issued and outstanding during the period and participating share awards. 

(C) Average shares of common stock for diluted net income per common share include shares to be issued upon conversion of convertible preferred stock, shares to be issued upon exercise of common stock warrants, shares to be issued upon exercise of stock options, restricted stock units and stock units for a deferred compensation plan for non-employee directors.  For any period in which a loss is recorded, the assumed conversion of convertible preferred stock, assumed exercise of common stock warrants, assumed exercise of stock options, restricted stock units and stock units for a deferred compensation plan for non-employee directors would have an anti-dilutive impact on the loss per share and are thus ignored in the diluted per share calculation.

(D) Ratios have been annualized.

 

SOURCE Independent Bank Corporation



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