2014

Independent Bank Corporation Reports 2013 Fourth Quarter And Full Year Results

IONIA, Mich., Jan. 30, 2014 /PRNewswire/ -- Independent Bank Corporation (Nasdaq: IBCP) reported fourth quarter 2013 net income of $4.8 million, or $0.21 per diluted share, versus net income of $11.9 million and net income applicable to common stock of $10.8 million, or $0.36 per diluted share, in the prior-year period.  Fourth quarter 2012 results include a net gain on branch sale of $5.4 million ($0.16 per diluted share).

For the year ended Dec. 31, 2013, the Company reported net income of $77.5 million and net income applicable to common stock of $82.1 million, or $3.55 per diluted share.  This compares to net income of $26.2 million and net income applicable to common stock of $21.9 million, or $0.80 per diluted share, in 2012.  Full year 2013 results include an income tax benefit of $54.9 million ($2.51 per diluted share) that is primarily the result of the Company reversing substantially all of its valuation allowance on deferred tax assets in the second quarter of 2013.

On Dec. 7, 2012, the Company completed the sale of 21 branches on which it recorded the aforementioned $5.4 million net gain.  This transaction resulted in the transfer of approximately $403.1 million of deposits and the sale of approximately $48.0 million of loans.  The transaction also resulted in the transfer of $336.1 million of cash to the purchaser of the branches.

The Company's eighth consecutive profitable quarter was highlighted by:

  • Further growth in commercial loan balances, which grew at a 6.2% annualized rate in the fourth quarter of 2013.
  • Continued progress in improving asset quality, with non-performing assets down 2.2% since Sept. 30, 2013 and loan net charge-offs down by 69.6% compared to the fourth quarter of 2012.
  • The October 2013 redemption of the $9.2 million of 8.25% trust preferred securities issued by IBC Capital Finance II which will result in annual interest expense savings of approximately $0.8 million.

William B. ("Brad") Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: "We are very pleased to report our eighth consecutive quarter of profitability as well as continued 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.  2013 was marked by several significant positive events, including our common equity offering, our exit from TARP, the restoration of interest payments on our trust preferred securities, and the reversal of substantially all of the valuation allowance on our deferred tax assets.  The Company has achieved a very strong capital structure with a tangible common equity to tangible assets ratio of 10.35% as of the end of 2013.  As we look ahead to 2014, we are focused on several initiatives to further improve earnings and long-term shareholder value, including:

  • Achieving prudent loan growth with a focus on increasing commercial loan and consumer installment loan balances.
  • Generating growth in several categories of non-interest income to partially offset the expected decline in gains on mortgage loans in 2014.
  • Further reducing non-interest expenses and improving the Company's efficiency ratio.
  • Continued improvement in asset quality.

2014 marks the 150th anniversary of Independent Bank Corporation, whose roots date back to 1864 as First National Bank of Ionia.  In connection with the celebration of this important milestone, we launched a new logo in the first quarter of 2014.  Several events focused on our customers and our communities will also take place during 2014 to celebrate our 150th anniversary.  We are optimistic about the Michigan economy and our opportunities to grow and prosper in 2014 and beyond."  

Operating Results

The Company's net interest income totaled $19.4 million during the fourth quarter of 2013, a decrease of $1.5 million, or 7.3% from the year-ago period, and down slightly ($0.2 million, or 0.9%) from the third quarter of 2013. The decrease in net interest income is primarily due to a decline in average interest-earning assets resulting from the 2012 branch sale. Average interest-earning assets declined to $1.962 billion in the fourth quarter of 2013 compared to $2.103 billion in the year-ago quarter. In addition, the Company's tax equivalent net interest income as a percent of average interest-earning assets (the "net interest margin") declined to 3.96% during the fourth quarter of 2013, compared to 3.99% in the year-ago period, and 4.10% in the third quarter of 2013.  The year-over-year decrease in the net interest margin is principally due to a change in asset mix, as lower yielding investment securities increased and higher yielding loans declined. 

For the full year of 2013, net interest income totaled $78.0 million, a decrease of $8.3 million, or 9.6% from 2012.  The decrease in net interest income is primarily due to a decline in average interest-earning assets resulting from the 2012 branch sale. Average interest-earning assets declined to $1.912 billion for all of 2013 compared to $2.151 billion during 2012. Partially offsetting the impact of the decline in average interest earning assets, was an increase in the Company's net interest margin which increased to 4.11% during 2013 compared to 4.04% during 2012.  This was due primarily to a decline in the cost of funds.

Service charges on deposits totaled $3.5 million and $14.1 million, respectively, for the fourth quarter and full year of 2013, compared to $4.4 million and $17.9 million, respectively, in the year ago periods.  Interchange income totaled $1.8 million and $7.4 million for the fourth quarter and full year of 2013, respectively, compared to $2.1 million and $9.2 million, respectively, in the year ago periods.  The declines in service charges on deposit accounts and interchange income primarily reflect the impact of the branch sale. 

Net gains on mortgage loans were $1.6 million in the fourth quarter of 2013, compared to $5.3 million in the year-ago quarter.  For the full year of 2013, net gains on mortgage loans totaled $10.0 million compared to $17.3 million in 2012. The decrease in net gains relates primarily to a rise in mortgage loan interest rates during 2013 that has significantly reduced mortgage loan refinance volumes.

Mortgage loan servicing generated income of $1.2 million and $0.9 million in the fourth quarters of 2013 and 2012, respectively. This improvement was due to a $0.7 million decrease in the amortization of capitalized mortgage loan servicing rights that was partially offset by the comparative change in the impairment reserve (a $0.7 million impairment recovery in the fourth quarter of 2013 versus a $1.1 million impairment recovery in the year-ago quarter).  The recovery of a portion of previously recorded impairment charges in the fourth quarter of 2013 primarily reflects the payoff/refinance of higher interest rate loans as well as an increase in interest rates which caused expected future mortgage loan prepayment speeds to decrease.  For the full year of 2013 and 2012, mortgage loan servicing generated income of $3.8 million and $0.2 million, respectively.  The full year comparative variance is primarily due to the comparative change in the impairment reserve (a $3.2 million impairment recovery in 2013 compared to a $0.5 million impairment recovery in 2012) and by a $0.9 million decrease in the amortization of capitalized mortgage loan servicing rights.  Capitalized mortgage loan servicing rights totaled $13.7 million at Dec. 31, 2013 compared to $11.0 million at Dec. 31, 2012.  As of Dec. 31, 2013, the Company serviced approximately $1.732 billion in mortgage loans for others on which servicing rights have been capitalized.

Non-interest expenses totaled $25.0 million in the fourth quarter of 2013, compared to $29.9 million in the year-ago period.  The quarterly year-over-year decline in non-interest expenses was due to decreases in a variety of areas, including compensation and benefits (down $2.1 million), occupancy costs (down $0.2 million), loan and collection costs (down $0.5 million), legal and professional fees (down $0.4 million), FDIC deposit insurance (down $0.4 million), provision for loss reimbursement on sold loans (down $0.6 million), net losses on other real estate and repossessed assets (down $0.8 million), and other non-interest expenses (down $0.4 million).  Partially offsetting these declines was a $0.9 million increase in vehicle service contract counterparty contingencies due to a $1.3 million additional reserve recorded on a receivable in the fourth quarter of 2013.  The reduction in non-interest expenses reflects the impact of the branch sale and the Company's improving asset quality metrics as well as various cost reduction initiatives.  For the full year of 2013, non-interest expenses totaled $104.1 million versus $116.7 million in 2012.  The categories of non-interest expenses that declined for the full year of 2013 are generally consistent with those described above for the comparative year-over-year quarterly periods. 

Asset Quality

Commenting on asset quality, President and CEO Kessel added:  "Our provision for loan losses decreased by $1.3 million in the fourth quarter of 2013 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 2013, non-performing loans and commercial loan watch credits have declined by approximately 46% and 32%, respectively.  In addition, thirty- to eighty-nine day delinquency rates at Dec. 31, 2013 were 0.53% for commercial loans and 1.21% for mortgage and consumer loans. These delinquency rates continue to be well managed as we strive to further improve asset quality and reduce credit related costs."

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

 

Loan Type

    12/31/2013

12/31/2012

12/31/2011


(Dollars in Thousands)

Commercial

$   5,369

$ 14,753

$ 29,282

Consumer/installment

2,147

2,343

3,449

Mortgage

10,366

15,736

26,214

Payment plan receivables(2)

23

104

938

  Total

$ 17,905

$ 32,936

$ 59,883

Ratio of non-performing loans to total portfolio loans

1.30%

2.32%

3.80%

Ratio of non-performing assets to total assets

1.64%

2.92%

4.07%

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

180.54%

134.43%

98.33%





  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 $15.0 million, or 45.6%, since year-end 2012.  All categories of non-performing loans declined, but the principal decreases since year-end 2012 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 2013.  Other real estate and repossessed assets totaled $18.3 million at Dec. 31, 2013, compared to $26.1 million at Dec. 31, 2012. 

The provision for loan losses was a credit of $0.8 million and an expense of $0.4 million in the fourth quarters of 2013 and 2012, respectively.  The provision for loan losses was a credit of $4.0 million and an expense of $6.9 million for all of 2013 and 2012, respectively.  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 $1.3 million (0.37% annualized of average loans) in the fourth quarter of 2013, compared to $4.2 million (1.15% annualized of average loans) in the fourth quarter of 2012.  Loan net charge-offs were $8.0 million (0.58% of average loans) and $20.9 million (1.39% of average loans) for all of 2013 and 2012, respectively.  The full year decline in 2013 loan net charge-offs by category were: commercial loans $6.7 million; mortgage loans $4.8 million; consumer/installment loans $1.1 million and other $0.2 million.  At Dec. 31, 2013, the allowance for loan losses totaled $32.3 million, or 2.35% of portfolio loans, compared to $44.3 million, or 3.12% of portfolio loans, at Dec. 31, 2012.

Balance Sheet, Liquidity and Capital

Total assets were $2.210 billion at Dec. 31, 2013, an increase of $186.1 million from Dec. 31, 2012.  Loans, excluding loans held for sale, were $1.375 billion at Dec. 31, 2013, compared to $1.419 billion at Dec. 31, 2012.  Deposits totaled $1.885 billion at Dec. 31, 2013, an increase of $105.3 million from Dec. 31, 2012.  The increase in deposits is primarily due to growth in checking, savings and reciprocal deposit account balances. 

Cash and cash equivalents totaled $119.1 million at Dec. 31, 2013, versus $179.8 million at Dec. 31, 2012. Securities available for sale totaled $462.5 million at Dec. 31, 2013, versus $208.4 million at Dec. 31, 2012.  This $254.1 million increase in securities available for sale is primarily due to the purchase of residential mortgage-backed, asset-backed, corporate and municipal securities during 2013.

Total shareholders' equity was $231.6 million at Dec. 31, 2013, or 10.48% of total assets.  Tangible common equity totaled $228.4 million (10.35% of tangible assets) at Dec. 31, 2013, or $10.01 per share, as compared to $46.8 million (2.32% of tangible assets) at Dec. 31, 2012, or $5.15 per share.

The Company's wholly owned subsidiary, Independent Bank, remains "well capitalized" for regulatory purposes with the following ratios:

 

 

 

Regulatory Capital Ratio

 

 

 

12/31/2013

 

 

 

12/31/2012

Well

Capitalized
Minimum

 

Tier 1 capital to average total assets

 

10.09%

 

8.26%

 

5.00%

Tier 1 capital to risk-weighted assets

15.30%

13.67%

6.00%

Total capital to risk-weighted assets

16.57%

14.95%

10.00%

 

Earnings Conference Call

Brad Kessel, President and CEO, and Rob Shuster, CFO, will review the Company's fourth quarter and full year 2013 results in a conference call for investors and analysts beginning at 9:30 am ET on Thursday, Jan. 30, 2014.

To participate in the live conference call, please dial 1-888-317-6016. Also the conference call will be accessible through an audio webcast with user-controlled slides via the following event site/URL:  http://services.choruscall.com/links/ibcp140130.html.

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10038924). The replay will be available through 9:00 am ET on Feb. 14, 2014.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $2.2 billion.  Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a branch network 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 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 Web site 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 include descriptions of plans and objectives of Independent Bank Corporation's management for future or past operations, products or services, and forecasts of the Company's revenue, earnings or other measures of economic performance. 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, involve assumptions and are subject to substantial risks and uncertainties, such as the 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 realize its deferred tax assets, the ability of Independent Bank to remain well-capitalized under federal regulatory standards, the pace of economic recovery within Michigan and beyond, 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










December 31,


December 31,





2013


2012






(unaudited)



Assets


(In thousands, except share amounts)



Cash and due from banks

$

48,156

$

55,487



Interest bearing deposits


70,925


124,295



Cash and Cash Equivalents


119,081


179,782



Interest bearing deposits - time


17,999


-



Trading securities


498


110



Securities available for sale


462,481


208,413



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


23,419


20,838



Loans held for sale, carried at fair value


20,390


47,487



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


-


3,292



Loans







  Commercial


635,234


617,258



  Mortgage


486,633


527,340



  Installment  


192,065


189,849



  Payment plan receivables


60,638


84,692



Total Loans


1,374,570


1,419,139



  Allowance for loan losses


(32,325)


(44,275)



Net Loans


1,342,245


1,374,864



Other real estate and repossessed assets


18,282


26,133



Property and equipment, net


48,594


47,016



Bank-owned life insurance


52,253


50,890



Deferred tax assets, net


57,550


-



Capitalized mortgage loan servicing rights


13,710


11,013



Vehicle service contract counterparty receivables, net


7,716


18,449



Other intangibles


3,163


3,975



Prepaid FDIC deposit insurance assessment


-


9,448



Accrued income and other assets


22,562


22,157



Total Assets

$

2,209,943

$

2,023,867



Liabilities and Shareholders' Equity







Deposits







  Non-interest bearing

$

518,658

$

488,126



  Savings and interest-bearing checking


910,352


871,238



  Reciprocal


83,527


33,242



  Retail time


358,800


372,340



  Brokered time


13,469


14,591



Total Deposits


1,884,806


1,779,537



Other borrowings


17,188


17,625



Subordinated debentures


40,723


50,175



Vehicle service contract counterparty payables


4,089


7,725



Accrued expenses and other liabilities


31,556


33,830



Total Liabilities


1,978,362


1,888,892



Shareholders' Equity







  Convertible preferred stock, no par value, 200,000 shares authorized;







    None issued and outstanding at December 31, 2013 and 74,426 shares







    issued and outstanding at December 31, 2012; liquidation preference:







    $85,150 at December 31, 2012


-


84,204



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







     issued and outstanding:  22,819,136 shares at December 31, 2013







     and 9,093,732 shares at December 31, 2012


351,173


251,237



  Accumulated deficit


(110,347)


(192,408)



  Accumulated other comprehensive loss


(9,245)


(8,058)



Total Shareholders' Equity


231,581


134,975



Total Liabilities and Shareholders' Equity

$

2,209,943

$

2,023,867

















 

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations















Three Months Ended


Twelve Months Ended



December 31,


September 30,


December 31,


December 31,



2013


2013


2012


2013


2012



(unaudited)



(In thousands)

Interest Income







  Interest and fees on loans

$

19,568

$

20,083

$

22,353

$

80,664

$

93,780


  Interest on securities












    Taxable


1,287


1,109


688


4,059


2,934


    Tax-exempt


339


282


243


1,101


1,044


  Other investments


331


310


430


1,297


1,640


Total Interest Income


21,525


21,784


23,714


87,121


99,398


Interest Expense












  Deposits


1,343


1,371


1,961


5,706


8,913


  Other borrowings


831


884


879


3,456


4,230


Total Interest Expense


2,174


2,255


2,840


9,162


13,143


Net Interest Income


19,351


19,529


20,874


77,959


86,255


Provision for loan losses


(835)


(355)


449


(3,988)


6,887


Net Interest Income After Provision for Loan Losses


20,186


19,884


20,425


81,947


79,368


Non-interest Income












  Service charges on deposit accounts


3,473


3,614


4,395


14,076


17,887


  Interchange income


1,820


1,852


2,135


7,362


9,188


  Net gains (losses) on assets












    Mortgage loans


1,607


1,570


5,282


10,022


17,323


    Securities


190


14


72


395


1,226


    Other than temporary impairment loss on

          securities












      Total impairment loss


-


-


(7)


(26)


(339)


      Loss recognized in other comprehensive loss


-


-


-


-


-


        Net impairment loss recognized in

          earnings


-


-


(7)


(26)


(339)


  Mortgage loan servicing


1,192


338


882


3,806


166


  Title insurance fees


421


409


484


1,682


1,963


  Increase in fair value of U.S. Treasury warrant


-


-


(74)


(1,025)


(285)


  Net gain on branch sale


-


-


5,402


-


5,402


  Other


2,210


2,040


2,826


8,537


11,034


Total Non-interest Income


10,913


9,837


21,397


44,829


63,565


Non-interest Expense












  Compensation and employee benefits


12,311


12,591


14,385


47,924


53,983


  Occupancy, net


2,257


2,017


2,416


8,845


10,104


  Data processing


1,971


2,090


2,049


8,019


8,009


  Loan and collection


1,374


1,584


1,836


6,886


9,965


  Vehicle service contract counterparty

          contingencies


1,434


149


551


4,837


1,629


  Furniture, fixtures and equipment


1,122


1,051


1,145


4,293


4,635


  Communications


714


695


886


2,919


3,677


  Legal and professional


616


487


1,058


2,459


4,175


  FDIC deposit insurance


409


685


817


2,435


3,306


  Advertising


552


652


652


2,433


2,494


  Provision for loss reimbursement on sold

          loans


(284)


1,417


361


2,152


1,112


  Interchange expense


407


410


478


1,645


1,799


  Credit card and bank service fees


288


310


383


1,263


2,091


  Net losses on other real estate and

          repossessed assets


146


119


943


1,237


2,854


  Write-down of property and equipment held

          for sale


-


-


-


-


860


  Recoveries related to unfunded lending

          commitments


(33)


(86)


(91)


(90)


(688)


  Other


1,685


1,763


2,038


6,861


6,730


Total Non-interest Expense


24,969


25,934


29,907


104,118


116,735


Income Before Income Tax


6,130


3,787


11,915


22,658


26,198


Income tax expense (benefit)


1,321


282


-


(54,851)


-


                                                       Net Income 

$

4,809

$

3,505

$

11,915

$

77,509

$

26,198


Preferred stock dividends and discount

          accretion


-


(749)


(1,106)


(3,001)


(4,347)


Preferred stock discount


-


7,554


-


7,554


-


Net Income Applicable to Common Stock

$

4,809

$

10,310

$

10,809

$

82,062

$

21,851



























 

 

 


INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

Selected Financial Data









Three Months Ended


Twelve Months Ended




December 31,


September 30,


December 31,


December 31,




2013


2013


2012


2013


2012




(unaudited)


Per Common Share Data






Net Income Per Common Share (A)













  Basic (B)

$

0.21

$

0.73

$

1.21

$

5.87

$

2.51



  Diluted (C)


0.21


0.17


0.36


3.55


0.80



Cash dividends declared per common

     share


0.00


0.00


0.00


0.00


0.00





























Selected Ratios (D)













As a Percent of Average Interest-Earning Assets


  Interest income


4.40

%

4.57

%

4.53

%

4.59

%

4.65

%


  Interest expense


0.44


0.47


0.54


0.48


0.61



  Net interest income


3.96


4.10


3.99


4.11


4.04



Net Income to (A)












  Average common shareholders' equity


8.29

%

25.64

%

99.01

%

64.22

%

68.29

%


  Average assets


0.87


1.90


1.87


3.87


0.92





























Average Shares













  Basic (B)


22,815,467


14,167,043


8,921,761


13,970,024


8,709,389



  Diluted (C)


23,360,524


21,169,623


33,301,197


21,864,306


32,885,138



 

(A) These amounts are calculated using net income applicable to common stock.  Dividends on convertible preferred stock are added back and preferred stock discount is subtracted out in the diluted per share calculation. 

(B) Average shares of common stock for basic net income 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. 

(D) Ratios have been annualized for quarterly periods.

 

SOURCE Independent Bank Corporation



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