-- 2008 fourth quarter and full-year net loss applicable to common stock of $86.5 million ($3.80 per share) and $88.2 million ($3.88 per share), respectively. Fourth quarter and full year results were impacted by:
-- A non-cash charge of $50.0 million ($1.92 per share after tax) for goodwill impairment. No impact on regulatory capital ratios or tangible equity. -- A non-cash charge of $26.8 million ($1.18 per share) that is included in income tax expense to establish a valuation allowance on deferred tax assets. -- A non-cash charge of $4.3 million ($0.12 per share after tax) for impairment of capitalized mortgage loan servicing rights. -- Securities losses of $6.9 million ($0.20 per share after tax) for the fourth quarter and $15.0 million ($0.43 per share after tax) for the full year. -- These items total $3.42 per share in the fourth quarter and $3.65 per share for the full year.
-- Pre-tax, pre-loan loss provision core operating earnings remain strong and improved in 2008 over 2007. -- Company remains "well capitalized." -- No executive officer bonuses for 2008 and all executive and senior officer salaries frozen at 2008 levels for 2009.
Independent Bank Corporation (Nasdaq: IBCP) reported a fourth quarter 2008 net loss applicable to common stock of
The net loss applicable to common stock for the year ended
The decrease in fourth quarter and full-year 2008 results compared to 2007 was primarily due to increases in the provision for loan losses, securities losses, impairment charges on capitalized mortgage loan servicing rights and goodwill, loan and collection expenses, losses on other real estate owned and income taxes (Including the aforementioned
Operating Results
The Company's tax equivalent net interest income totaled
Average interest-earning assets declined to
Service charges on deposits totaled
Securities losses totaled
Gains on the sale of mortgage loans were
Mortgage loan servicing generated a loss of
Non-interest expense totaled
During the fourth quarter of 2008 the Company updated its goodwill impairment testing (interim tests had also been performed in the second and third quarters of 2008). The Company's common stock price dropped further in the fourth quarter resulting in a wider difference between its market capitalization and book value. The results of the goodwill impairment testing showed that the estimated fair value of the Company's Independent Bank reporting unit was less than its carrying value of equity, resulting in this
Compensation and employee benefit costs declined by
Income tax expense for the fourth quarter of 2008 was
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes," requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard. In accordance with SFAS 109, the Company reviewed its deferred tax asset and determined that due mainly to the pre-tax loss incurred in 2008 and the challenging operating environment currently confronting all banks, that it must establish a valuation allowance for the majority of its net deferred tax asset. During the quarter ended
Despite the valuation allowance, these deferred tax assets remain available to offset future taxable income. All deferred tax assets will be analyzed quarterly for changes affecting the valuation allowance, which may be adjusted in future periods accordingly. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company analyzes changes in near-term market conditions and considers both positive and negative evidence as well as other factors which may impact future operating results in making the decision to establish or adjust this valuation allowance.
Pre-Tax, Pre-Loan Loss 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 income (loss) from continuing operations excluding: income tax expense (benefit), the provision for loan losses, securities gains or losses, and any impairment charges (including goodwill, losses on other real estate or repossessed assets and fair-value adjustments) or elevated loan and collection costs caused by this economic cycle.
The following table reconciles pre-tax pre-provision core operating earnings to consolidated income (loss) from continuing operations presented in accordance with U.S. generally accepted accounting principles ("GAAP"), which is a principal and useful measure of earnings and provides comparability of earnings with other companies. However, the Company believes presenting pre-tax pre-provision core operating earnings provides investors with the ability to better understand its underlying operating trends separate from the direct effects of the impairment charges, credit issues, fair value adjustments, securities gains or losses, challenges inherent in the real estate downturn and other economic cycle issues and displays a consistent core operating earnings trend before the impact of these challenges. The credit quality section of this release already isolates the challenges and issues related to the credit quality of the Company's loan portfolio and the impact on its earnings as reflected in the provision for loan losses.
Pre-Tax, Pre-Loan Loss Provision Core Operating Earnings Three Months Ended Year Ended 12/31/08 12/31/07 12/31/08 12/31/07 (in thousands) Income (loss) from continuing operations $(86,325) $2,278 $(87,964) $9,955 Income tax expense (benefit) 11,148 (15) 3,863 (1,103) Provision for loan Losses 24,831 9,393 68,287 43,160 Securities losses 6,924 964 14,961 705 Impairment charge on capitalized mortgage loan servicing 4,255 297 4,332 251 Impairment charge on goodwill 50,020 -- 50,020 343 Losses on other real estate and repossessed assets 1,758 104 3,849 276 Elevated loan and collection costs (1) 2,286 187 4,431 -- Pre-Tax, Pre-Loan Loss Provision Core Operating Earnings $14,897 $13,208 $61,779 $53,587
1. Represents the excess amount over a "normalized" level of $1.25 million quarterly or $5.0 million annually
TARP Capital Purchase Program
On
Although the CPP funds were initially utilized to pay down short-term borrowings with the Federal Reserve Bank, in the approximately 30-day period (ending
Asset Quality
Commenting on asset quality, CEO Magee added: "Our provision for loan losses increased significantly in the fourth quarter, reflecting a rise in non-performing loans, further weakening in real estate values and an elevated level of loan net charge-offs. However, as a result of our proactive efforts to manage credit, commercial loan 30- to 89-day delinquency rates are at their lowest level since 2005 and commercial loan watch credits increased by only 1.4% in the fourth quarter."
A breakdown of non-performing loans by loan type is as follows:
Loan Type 12/31/2008 9/30/2008 12/31/2007 (Dollars in Millions) Commercial $82.1 $74.2 $49.0 Consumer 4.9 3.9 3.4 Mortgage 38.9 33.9 23.1 Finance receivables 3.4 2.6 1.7 Total $129.3 $114.6 $77.2 Ratio of non-performing loans to total portfolio loans 5.25% 4.58% 3.07% Ratio of non-performing assets to total assets 5.06% 4.29% 2.68% Ratio of the allowance for loan losses to non-performing loans 44.79% 47.01% 58.63%
The increase in non-performing loans since year-end 2007 is due principally to an increase in non-performing commercial real estate loans and residential mortgage loans. The rise in non-performing commercial real estate loans is primarily the result of several additional credits with real estate developers becoming past due in 2008. These delinquencies largely reflect cash flow difficulties encountered by real estate developers in
The provision for loan losses was
Balance Sheet, Liquidity and Capital
Total assets were
Stockholders' equity totaled
Well Capitalized Regulatory Capital 12/31/2008 9/30/2008 12/31/2007 Minimum Ratio (estimate) Tier 1 capital to average assets 8.37% 7.45% 7.35% 5.00% Tier 1 capital to risk-weighted assets 10.76% 9.58% 9.25% 6.00% Total capital to risk-weighted assets 12.05% 10.84% 10.50% 10.00%
With regard to the outlook for 2009, CEO Magee concluded, "The new year is shaping up to be a very difficult one in terms of operating environment, given the continued challenges facing consumers and businesses in
Conference Call
To participate in the live conference call, please dial 1-800-860-2442. The call can also be accessed (listen-only mode) via the Company's Web site at IndependentBank.com in the "Investor Relations" section. A playback of the call can be accessed by dialing 1-877-344-7529 (Replay Passcode # 426611). The replay will be available through
In addition, a Power Point presentation associated with the fourth quarter 2008 conference call will be available on the Company's Web site at IndependentBank.com in the "Investor Relations" section under the "Presentations" tab beginning on
About Independent Bank Corporation
Independent Bank Corporation (Nasdaq: IBCP) is a
For more information, please visit our 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 or past 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 are 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, 2008 2007 (unaudited) Assets (in thousands) Cash and due from banks $57,705 $79,289 Trading securities 1,929 Securities available for sale 215,412 364,194 Federal Home Loan Bank and Federal Reserve Bank stock, at cost 28,063 21,839 Loans held for sale, carried at fair value, at December 31, 2008 27,603 33,960 Loans Commercial 980,391 1,066,276 Mortgage 839,496 873,945 Installment 356,806 368,478 Finance receivables 286,836 209,631 Total Loans 2,463,529 2,518,330 Allowance for loan losses (57,900) (45,294) Net Loans 2,405,629 2,473,036 Property and equipment, net 73,318 73,558 Bank owned life insurance 44,896 42,934 Goodwill 16,734 66,754 Other intangibles 12,190 15,262 Capitalized mortgage loan servicing rights 11,966 15,780 Accrued income and other assets 64,500 60,910 Total Assets $2,959,945 $3,247,516 Liabilities and Shareholders' Equity Deposits Non-interest bearing $308,041 $294,332 Savings and NOW 907,187 987,299 Retail time 668,968 707,419 Brokered time 182,283 516,077 Total Deposits 2,066,479 2,505,127 Federal funds purchased 750 54,452 Other borrowings 541,986 302,539 Subordinated debentures 92,888 92,888 Financed premiums payable 26,636 16,345 Liabilities of discontinued operations 34 Accrued expenses and other liabilities 32,629 35,629 Total Liabilities 2,761,368 3,007,014 Shareholders' Equity Preferred stock, Series A, no par value, $1,000 liquidation preference per share - 200,000 shares authorized; 72,000 shares outstanding at December 31, 2008 68,456 Common stock, $1.00 par value-40,000,000 shares authorized; issued and outstanding: 23,013,980 shares at December 31, 2008 and 22,647,511 shares at December 31, 2007 22,791 22,601 Capital surplus 200,687 195,302 Retained earnings (accumulated deficit) (70,149) 22,770 Accumulated other comprehensive loss (23,208) (171) Total Shareholders' Equity 198,577 240,502 Total Liabilities and Shareholders' Equity $2,959,945 $3,247,516
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Three Months Twelve Months Ended Ended Dec. 31, Sept. 30, Dec. 31, Dec. 31, 2008 2008 2007 2008 2007 (unaudited) (in thousands) Interest Income Interest and fees on loans $45,444 $46,427 $50,891 $186,747 $202,361 Interest on securities Taxable 1,909 2,078 2,258 8,467 9,635 Tax-exempt 1,240 1,652 2,297 7,238 9,920 Other investments 99 466 328 1,284 1,338 Total Interest Income 48,692 50,623 55,774 203,736 223,254 Interest Expense Deposits 9,717 9,577 20,684 46,697 89,060 Other borrowings 6,379 7,099 5,022 26,890 13,603 Total Interest Expense 16,096 16,676 25,706 73,587 102,663 Net Interest Income 32,596 33,947 30,068 130,149 120,591 Provision for loan losses 24,831 19,788 9,393 68,287 43,160 Net Interest Income After Provision for Loan Losses 7,765 14,159 20,675 61,862 77,431 Non-interest Income Service charges on deposit accounts 5,996 6,416 6,418 24,223 24,251 Net gains (losses) on assets Mortgage loans 1,204 969 904 5,181 4,317 Securities (6,924) (6,711) (964) (14,961) (705) VISA check card interchange income 1,394 1,468 1,376 5,728 4,905 Mortgage loan servicing (3,616) 340 364 (2,071) 2,236 Title insurance fees 280 307 344 1,388 1,551 Other income 2,310 2,659 2,731 10,233 10,590 Total Non- interest Income 644 5,448 11,173 29,721 47,145 Non-interest Expense Compensation and employee benefits 13,164 14,023 13,438 55,179 55,811 Occupancy, net 3,054 2,871 2,754 11,852 10,624 Loan and collection 3,536 2,008 1,437 9,431 4,949 Furniture, fixtures and equipment 1,770 1,662 1,944 7,074 7,633 Data processing 1,951 1,760 1,854 7,148 6,957 Loss on other real estate and repossessed assets 1,758 425 104 3,849 276 Advertising 1,691 1,575 1,549 5,534 5,514 Branch acquisition and conversion costs 330 Goodwill impairment 50,020 50,020 343 Other expenses 6,642 6,332 6,505 25,597 23,287 Total Non- interest Expense 83,586 30,656 29,585 175,684 115,724 Income (Loss) From Continuing Operations Before Income Tax (75,177) (11,049) 2,263 (84,101) 8,852 Income tax expense (benefit) 11,148 (5,723) (15) 3,863 (1,103) Income (Loss) From Continuing Operations (86,325) (5,326) 2,278 (87,964) 9,955 Discontinued operations, net of tax 154 402 Net Income (Loss) $(86,325) $(5,326) $2,432 $(87,964) $10,357 Preferred dividends 215 215 Net Income (Loss) Applicable to Common Stock $(86,540) $(5,326) $2,432 $(88,179) $10,357
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES Selected Financial Data Three Months Twelve Months Ended Ended Dec. 31, Sept. 30, Dec. 31, Dec. 31, 2008 2008 2007 2008 2007 (unaudited) Per Common Share Data (A) Income (Loss) From Continuing Operations Basic (B) $(3.80) $(.23) $.10 $(3.88) $.44 Diluted (C) (3.80) (.23) .10 (3.88) .44 Net Income (Loss) Basic (B) $(3.80) $(.23) $.11 $(3.88) $.46 Diluted (C) (3.80) (.23) .11 (3.88) .45 Cash dividends declared .01 .01 .21 .14 .84 Selected Ratios (annualized) (A) As a Percent of Average Interest- Earning Assets Tax equivalent interest income 7.11% 7.02% 7.65% 7.16% 7.71% Interest expense 2.31 2.26 3.43 2.53 3.45 Tax equivalent net interest income 4.80 4.76 4.22 4.63 4.26 Income (Loss) From Continuing Operations Average common equity (154.82)% (8.97)% 3.68% (37.44)% 3.96% Average assets (11.24) (0.66) 0.28 (2.77) 0.31 Net Income (Loss) to Average common equity (154.82)% (8.97)% 3.93% (37.44)% 4.12% Average assets (11.24) (0.66) 0.30 (2.77) 0.32 Average Shares Basic (B) 22,787,086 22,777,760 22,600,461 22,743,002 22,649,334 Diluted (C) 22,846,768 22,837,476 22,703,111 22,807,971 22,830,486
(A) For the three- and twelve- month periods ended December 31,
2008, these amounts are calculated using loss from continuing
operations applicable to common stock and net loss applicable
to common stock.
(B) Average shares of common stock for basic net income per share
include shares issued and outstanding during the period.
(C) Average shares of common stock for diluted net income per share
include shares to be issued upon exercise of stock options,
stock units for deferred compensation plan for non-employee
directors and unvested restricted shares. For any period
in which a loss is recorded, the assumed exercise of stock
options and stock units for deferred compensation plan for
non-employee directors would have an anti-dilutive impact
on the loss per share and thus are ignored in the diluted
per share calculation.
SOURCE Independent Bank Corporation