INDEPENDENT BANK CORPORATION 
By IONIA, Mich., May 2, 2011 /PRNewswire/ -- Independent Bank Corporation (NASDAQ: IBCP) reported a first quarter 2011 net loss applicable to common stock of $8.4 million, or $1.06 per share, versus a net loss applicable to common stock of $14.9 million, or $6.21 per share, in the prior-year period. The reduced loss was primarily due to declines in the provision for loan losses and in non-interest expenses that were partially offset by a decline in net interest income.
Michael M. Magee, the Chief Executive Officer of Independent Bank Corporation, commented: "Our results for the first quarter of 2011 reflect 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. However, these improvements in asset quality have not yet resulted in a sufficient decline in credit-related costs to return the organization to profitability. We remain focused on a return to profitability as soon as possible, and we are optimistic that recent improvements we have observed in the Michigan economy will help support our efforts. Net interest income continued to decline in the first quarter, which adversely impacted our core operating results. This decline in net interest income has been driven by our maintenance of high levels of liquidity and our need to reduce total loans in order to preserve our regulatory capital ratios. As we announced in Feb. 2011, we continue to evaluate our alternatives in connection with our capital plan initiatives in consultation with our financial advisors and the U.S. Treasury. In particular, we are evaluating the merits of a smaller capital raise with a goal of preserving the potential future use of our net deferred tax asset, which totaled approximately $66.7 million at the end of 2010 and on which we had established a $65.8 million valuation allowance."
For the second year in a row, Independent Bank has received a perfect "five" Power Circle(TM) Rating for customer service from the J.D. Power and Associates Retail Banking Satisfaction Study(SM). The Power Circle Ratings measure customer satisfaction on a scale of one to five. The study measured customer satisfaction among 23 banks in Michigan and four nearby states. As detailed in a recent Detroit Free Press article, these results were based on a nationwide survey of 52,000 retail banking consumers in Jan. and Feb. 2011. The study analyzed customer satisfaction with the retail banking experience based on six factors: account activities; account information; facilities; fees; problem resolution; and product offerings.
"I am very proud of our associates for building on our success from last year. It is exciting to see our service mission 'to impress every customer every day, every time' take flight and grow relationships with customers across the state," said CEO Magee.
Operating Results
The Company's net interest income totaled $24.5 million during the first quarter of 2011, a decrease of $5.6 million or 18.6% from the year-ago period, and a decrease of $1.6 million, or 6.2% from the fourth quarter of 2010. The Company's net interest income as a percent of average interest-earning assets (the "net interest margin") was 4.34% during the first quarter of 2011 compared to 4.45% in the year ago period, and 4.35% in the fourth quarter of 2010. The decrease in net interest income is primarily due to an overall decline in average interest-earning assets as well as a change in asset mix, as higher yielding loans declined and lower yielding overnight investments at the Federal Reserve Bank increased. This change in asset mix principally reflects the Company's current strategy of maintaining significantly higher balances of overnight investments to enhance liquidity. Average interest-earning assets declined to $2.27 billion in the first quarter of 2011 compared to $2.73 billion in the year ago quarter and $2.38 billion in the fourth quarter of 2010. This decline reflects the Company's efforts to preserve its regulatory capital ratios by reducing total assets.
Non-interest income totaled $12.7 million in the first quarter of 2011, compared to $12.4 million in the year-ago period, representing an increase of $0.3 million, or 2.7%. Increases in interchange income (up $0.2 million), mortgage loan servicing income (up $0.5 million) and other non-interest income (up $0.6 million) were largely offset by a decline in service charges on deposit accounts of $1.0 million (reflecting in part, regulatory changes implemented in mid-2010).
Non-interest expenses totaled $33.5 million in the first quarter of 2011, compared to $39.5 million in the year-ago period representing a decrease of $6.0 million, or 15.2%. The decline in non-interest expenses was primarily due to decreases in compensation and employee benefits (down $0.9 million), loan and collection expenses (down $0.9 million), vehicle service contract payment plan counterparty contingencies (down $1.1 million), net losses on other real estate ("ORE") and repossessed assets (down $0.6 million), FDIC deposit insurance (down $0.6 million), credit card and bank service fees (down $0.6 million) and other non-interest expenses (down $0.9 million). The Company continues to focus on reducing and containing operating expenses.
Pre-Tax, Pre-Provision Core Operating Earnings
The Company is presenting pre-tax, pre-provision core operating earnings in this release for purposes of additional analysis of operating results. Pre-tax, pre-provision core operating earnings, as defined by management, represents the Company's income (loss) excluding: income tax expense (benefit), the provision for loan losses, costs (recoveries) related to unfunded lending commitments, securities gains or losses, vehicle service contract counterparty contingencies, any impairment charges or recoveries (including capitalized mortgage loan servicing rights, goodwill and net losses on ORE or repossessed assets) and elevated loan and collection costs caused by the current economic cycle.
The following table reconciles consolidated net loss presented in accordance with U.S. generally accepted accounting principles ("GAAP") to pre-tax, pre-provision core operating earnings. Pre-tax, pre-provision core operating earnings is not a measurement of the Company's financial performance under GAAP and should not be considered as an alternative to net income (loss) under GAAP. Pre-tax, pre-provision core operating earnings has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of the Company's results as reported under GAAP. However, the Company believes presenting pre-tax, pre-provision core operating earnings provides investors with the ability to gain a further understanding of its underlying operating trends separate from the direct effects of any impairment charges, credit issues, certain fair value adjustments, securities gains or losses, and challenges inherent in the real estate downturn and other economic cycle issues. It displays core operating earnings trends before the impact of these challenges. The Asset Quality section of this release isolates the challenges and issues related to the credit quality of the Company's loan portfolio and the impact on its results as reflected in the provision for loan losses.
The decline in the Company's pre-tax, pre-provision core operating earnings in the first quarter of 2011 as compared to the first quarter of 2010 is principally due to a decrease in net interest income as described above and as compared to the fourth quarter of 2010 is primarily due to decreases in net interest income and gains on mortgage loan sales.
Pre-Tax, Pre-Provision Core Operating Earnings
Quarter Ended
3/31/11 12/31/10 3/31/10
------- -------- -------
(in thousands)
Net loss $(7,401) $(4,146) $(13,837)
Income tax expense (benefit) (8) (504) (264)
Provision for loan losses(1) 11,171 7,463 17,070
Securities (gains) losses (71) 14 (147)
Vehicle service contract counterparty
contingencies 2,346 4,386 3,418
Impairment (recovery) charge on capitalized
loan servicing (555) (2,742) (145)
Net losses on other real estate and
repossessed assets 1,406 4,843 2,029
Elevated loan and collection costs (2) 2,617 2,697 3,536
----- ----- -----
Pre-Tax, Pre-Provision Core Operating
Earnings $9,505 $12,011 $11,660
(1) Includes costs (recoveries) related to unfunded lending commitments.
(2) Represents the excess amount over a "normalized" level of $1.25
million quarterly or $5.0 million annually.
Asset Quality
Commenting on asset quality, CEO Magee added: "Our provision for loan losses decreased by $5.9 million, or 34.9%, in the first quarter of 2011 compared to the year-ago level, 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. However, the provision for loan losses in the first quarter of 2011 did increase over the last quarter of 2010 due primarily to additional specific reserves on several commercial credits and an increase in the allowance for residential mortgage loans associated with historical loss allocations. Non-performing loans have declined by nearly 40% over the past year. In addition, thirty- to eighty-nine day delinquency rates at Mar. 31, 2011 declined to 1.07% for commercial loans and 1.35% for mortgage and consumer loans. These are the lowest levels that we have seen in over two years. We continue to focus on improving asset quality and reducing credit related costs."
A breakdown of non-performing loans(1) by loan type is as follows:
Loan Type 3/31/2011 12/31/2010 3/31/2010
--------- ---------- ---------
(Dollars in Millions)
Commercial $26.5 $29.6 $43.9
Consumer/installment 3.7 4.2 7.8
Mortgage 27.7 30.9 43.2
Payment plan receivables(2) 2.0 2.9 3.4
--- --- ---
Total $59.9 $67.6 $98.3
----- ----- -----
Ratio of non-performing loans to
total portfolio loans 3.45% 3.73% 4.56%
---- ---- ----
Ratio of non-performing assets to
total assets 3.93% 4.22% 4.78%
---- ---- ----
Ratio of the allowance for loan
losses to non-performing loans 110.50% 100.50% 77.48%
(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 Finance Corporation
("Mepco") has not yet completed the process to charge the applicable
counterparty for the balance due. These amounts are to be
distinguished from receivables due to Mepco from its counterparties
related to cancelled payment plans for which Mepco has completed the
process to charge the applicable counterparty for the balance due,
which totaled $40.6 million, $37.3 million, and $10.0 million (each
net of reserves), at Mar. 31, 2011, Dec. 31, 2010, and Mar. 31, 2010
respectively.
The decrease in non-performing loans since year-end 2010 is due principally to declines in non-performing commercial loans and residential mortgage loans. These declines primarily reflect loan net charge-offs, pay-offs, negotiated transactions, and the migration of loans into ORE. Non-performing commercial loans relate largely to delinquencies caused by cash-flow difficulties encountered by real estate developers (due to a decline in sales of real estate) as well as owners of income-producing properties (due to higher vacancy rates and/or lower rental rates). Non-performing commercial loans have declined for nine consecutive quarters and are at their lowest level since early 2007. Non-performing residential mortgage loans are primarily due to delinquencies reflecting both weak economic conditions and soft residential real estate values in many parts of Michigan. Retail non-performing loans have declined for seven consecutive quarters and are at their lowest level since early 2008. Other real estate and repossessed assets totaled $37.5 million at Mar. 31, 2011, compared to $39.4 million at Dec. 31, 2010, and $40.3 million at Mar. 31, 2010.
The provision for loan losses was $11.1 million and $17.0 million in the first quarters of 2011 and 2010, 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 $12.9 million (2.93% annualized of average loans) in the first quarter of 2011, compared to $22.6 million (4.10% annualized of average loans) in the first quarter of 2010. The decline in first quarter 2011 loan net charge-offs compared to year ago levels is primarily due to an $8.5 million decline in commercial loan net charge-offs. At Mar. 31, 2011, the allowance for loan losses totaled $66.1 million, or 3.82% of portfolio loans, compared to $67.9 million, or 3.75% of portfolio loans, at Dec. 31, 2010.
Balance Sheet, Liquidity and Capital
Total assets were $2.48 billion at Mar. 31, 2011, a decrease of $59.0 million from Dec. 31, 2010. Loans, excluding loans held for sale, were $1.73 billion at Mar. 31, 2011, compared to $1.81 billion at Dec. 31, 2010. Deposits totaled $2.22 billion at Mar. 31, 2011, a decrease of $28.9 million from Dec. 31, 2010. The decline in deposits is primarily due to a planned reduction of brokered time deposits.
Cash and cash equivalents totaled $388.0 million at Mar. 31, 2011, versus $385.4 million at Dec. 31, 2010. Securities available for sale totaled $111.9 million at Mar. 31, 2011, versus $67.9 million at Dec. 31, 2010. This $44.1 million increase is primarily due to the purchase of short-term U.S. Treasury securities during the first quarter of 2011.
Total shareholders' equity totaled $112.9 million at Mar. 31, 2011, or 4.56% of total assets. Tangible common equity totaled $27.6 million at Mar. 31, 2011, or $3.40 per share. The Company's wholly owned subsidiary, Independent Bank, remains "well capitalized" for regulatory purposes with the following ratios:
Well
Capitalized
Regulatory Capital Ratios 3/31/2011 12/31/2010 Minimum
------------------------- --------- ---------- -----------
Tier 1 capital to average total
assets 6.60% 6.58% 5.00%
Tier 1 capital to risk-weighted
assets 9.87 9.77 6.00
Total capital to risk-weighted
assets 11.16 11.06 10.00
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $2.5 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation now operates over 100 offices 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 the Company's Web site at: 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, business segments and subsidiaries, and estimates of credit quality trends. 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 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, 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
----------------------------------------------
March 31, December 31,
2011 2010
---- ----
(unaudited)
(in thousands, except
Assets share amounts)
Cash and due from banks $50,926 $48,933
Interest bearing deposits 337,064 336,441
------- -------
Cash and Cash Equivalents 387,990 385,374
Trading securities 105 32
Securities available for sale 111,936 67,864
Federal Home Loan Bank and
Federal Reserve Bank stock, at
cost 23,630 23,630
Loans held for sale, carried at
fair value 20,351 50,098
Loans
Commercial 689,772 707,530
Mortgage 639,372 658,679
Installment 232,700 245,644
Payment plan receivables 170,626 201,263
Total Loans 1,732,470 1,813,116
Allowance for loan losses (66,135) (67,915)
------- -------
Net Loans 1,666,335 1,745,201
Other real estate and repossessed
assets 37,513 39,413
Property and equipment, net 67,033 68,359
Bank-owned life insurance 48,347 47,922
Other intangibles 8,637 8,980
Capitalized mortgage loan
servicing rights 15,531 14,661
Prepaid FDIC deposit insurance
assessment 14,751 15,899
Vehicle service contract
counterparty receivables, net 40,592 37,270
Accrued income and other assets 33,453 30,545
Total Assets $2,476,204 $2,535,248
========== ==========
Liabilities and Shareholders'
Equity
Deposits
Non-interest bearing $444,707 $451,856
Savings and NOW 1,005,756 995,662
Retail time 522,338 530,774
Brokered time 250,166 273,546
------- -------
Total Deposits 2,222,967 2,251,838
Other borrowings 46,015 71,032
Subordinated debentures 50,175 50,175
Vehicle service contract
counterparty payables 13,668 11,739
Accrued expenses and other
liabilities 30,441 31,379
Total Liabilities 2,363,266 2,416,163
--------- ---------
Shareholders' Equity
Preferred stock, no par value,
200,000 shares authorized;
74,426 shares
issued and outstanding at March
31, 2011 and December 31, 2010;
liquidation preference: $1,048 at
March 31, 2011 and $1,036 at
December 31, 2010 76,708 75,700
Common stock, no par
value-authorized: 500,000,000
shares
at March 31, 2011 and December
31, 2010; issued and
outstanding:
8,123,969 shares at March 31,
2011 and 7,860,483 shares at
December 31, 2010 247,406 246,407
Accumulated deficit (198,311) (189,902)
Accumulated other comprehensive
loss (12,865) (13,120)
Total Shareholders' Equity 112,938 119,085
------- -------
Total Liabilities and
Shareholders' Equity $2,476,204 $2,535,248
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
-------------------------------------
Three Months Ended
December March
March 31, 31, 31,
2011 2010 2010
---- ---- ----
(unaudited)
-----------
(in thousands)
Interest
Income
Interest
and
fees
on
loans $29,484 $32,210 $39,027
Interest
on
securities
Taxable 467 481 1,160
Tax-
exempt 332 338 685
Other
investments 435 399 372
---
Total
Interest
Income 30,718 33,428 41,244
------ ------ ------
Interest
Expense
Deposits 4,945 5,700 8,219
Other
borrowings 1,323 1,662 2,994
-----
Total
Interest
Expense 6,268 7,362 11,213
----- ----- ------
Net
Interest
Income 24,450 26,066 30,031
Provision
for
loan
losses 11,076 7,528 17,014
------ ----- ------
Net
Interest
Income
After
Provision
for
Loan
Losses 13,374 18,538 13,017
------ ------ ------
Non-
interest
Income
Service
charges
on
deposit
accounts 4,282 4,887 5,275
Net
gains
(losses)
on
assets
Mortgage
loans 1,935 4,286 1,843
Securities 213 14 265
Other
than
temporary
loss
on
securities
available
for
sale
Total
impairment
loss (469) (28) (118)
Loss
recognized
in
other
comprehensive
income 327 -- --
--- --- ---
Net
impairment
loss
recognized
in
earnings (142) (28) (118)
Interchange
income 2,168 2,160 1,936
Mortgage
loan
servicing 896 2,465 432
Title
insurance
fees 473 644 494
Other 2,886 2,781 2,254
-----
Total
Non-
interest
Income 12,711 17,209 12,381
------ ------ ------
Non-
interest
Expense
Compensation
and
employee
benefits 12,349 12,262 13,213
Loan
and
collection 3,867 3,947 4,786
Occupancy,
net 3,101 2,791 2,909
Vehicle
service
contract
counterparty
contingencies 2,346 4,386 3,418
Data
processing 2,310 2,367 2,469
Furniture,
fixtures
and
equipment 1,418 1,582 1,719
Net
losses
on
other
real
estate
and
repossessed
assets 1,406 4,843 2,029
FDIC
deposit
insurance 1,235 1,589 1,802
Credit
card
and
bank
service
fees 1,047 1,237 1,675
Advertising 554 567 779
Costs
(recoveries)
related
to
unfunded
lending
commitments 95 (65) 56
Other 3,766 4,891 4,644
-----
Total
Non-
interest
Expense 33,494 40,397 39,499
------ ------ ------
Loss
Before
Income
Tax (7,409) (4,650) (14,101)
Income
tax
benefit (8) (504) (264)
--- ---- ----
Net
Loss $(7,401) $(4,146) $(13,837)
Preferred
stock
dividends
and
discount
accretion 1,008 796 1,077
----- --- -----
Net
Loss
Applicable
to
Common
Stock $(8,409) $(4,942) $(14,914)
======= ======= ========
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
-----------------------
Three Months Ended
December
March 31, 31, March 31,
2011 2010 2010
---- ---- ----
(unaudited)
-----------
Per Common Share Data (A)
Net Loss Per Common Share (B)
Basic (C) $(1.06) $(0.65) $(6.21)
Diluted (D) (1.06) (0.65) (6.21)
Cash dividends declared per
common share .00 .00 .00
Selected Ratios (E)
As a Percent of Average
Interest-Earning Assets
Interest income 5.46% 5.58% 6.12%
Interest expense 1.12 1.23 1.67
Net interest income 4.34 4.35 4.45
Net Loss to (B)
Average common equity (83.75)% (43.56)% (184.46)%
Average assets (1.36) (0.75) (2.06)
Average Shares (A)
Basic (C) 7,933,276 7,646,814 2,403,161
Diluted (D) 32,555,495 58,713,431 2,410,355
(A) Per share data and shares outstanding have been adjusted for a 1-
for-10 reverse stock split in 2010.
(B) These amounts are calculated using net loss applicable to common
stock.
(C) Average shares of common stock for basic net income per share
include shares issued and outstanding during the period and
participating share awards.
(D) Average shares of common stock for diluted net income per 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 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 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.
(E) Ratios have been annualized.
SOURCE Independent Bank Corporation
