INDEPENDENT BANK CORPORATION 
By IONIA, Mich., Jan. 30, 2013 /PRNewswire/ -- Independent Bank Corporation (Nasdaq: IBCP) reported fourth quarter 2012 net income applicable to common stock of $10.8 million, or $0.36 per diluted share, versus a net loss applicable to common stock of $9.8 million, or $1.15 per share, in the prior-year period. For the year ended Dec. 31, 2012, the Company reported net income applicable to common stock of $21.9 million, or $0.80 per diluted share, compared to a net loss applicable to common stock of $24.4 million, or $2.94 per share, in the prior-year period. For periods where the Company is reporting a profit, the diluted earnings per share calculation includes, among other things, the assumed conversion of mandatorily convertible preferred stock using a five-day average price per common share based on the applicable period end.
The Company's fourth consecutive profitable quarter was highlighted by:
-- Completion of the previously announced branch sale with a resulting net
gain of $5.4 million.
-- Additional improvement in asset quality, with non-performing assets down
15% during the quarter and 37% since the end of 2011.
-- A $6.5 million, or 94%, year-over-year decline in the quarterly
provision for loan losses.
-- Strong mortgage-banking results with a $1.8 million, or 51%,
year-over-year increase in quarterly net gains on mortgage loans.
-- Regulatory capital ratios that increased significantly and remain
substantially above minimum requirements for "well-capitalized"
institutions.
William B. ("Brad") Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: "We are very pleased to report our fourth 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. With the completion of the branch sale and the resulting increase in 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 exit TARP. We are also focused on preserving the potential future use of our net deferred tax asset, which totaled approximately $65.1 million at Dec. 31, 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 substantial value to our shareholders."
Operating Results
The Company's net interest income totaled $20.9 million during the fourth quarter of 2012, a decrease of $2.1 million, or 9.1% from the year-ago period, and a decrease of $0.6 million, or 2.7% from the third quarter of 2012. The Company's net interest income as a percent of average interest-earning assets (the "net interest margin") was 3.96% during the fourth quarter of 2012, compared to 4.40% in the year-ago period, and 3.92% in the third quarter of 2012. The net interest margin decreased on a year-over-year basis due primarily to a change in asset mix, as higher yielding loans declined and lower yielding interest-bearing cash balances and short-term investments increased. However, in Dec. 2012, lower yielding interest-bearing cash balances and other short-term investments declined primarily due to funding needed for the branch sale. Average interest-earning assets were $2.10 billion in the fourth quarter of 2012 compared to $2.08 billion in the year-ago quarter and $2.18 billion in the third quarter of 2012.
For the full year of 2012, net interest income totaled $86.3 million, a decrease of $8.3 million, or 8.8% from 2011. The Company's net interest margin for the full year of 2012 decreased to 4.01% compared to 4.42% in 2011. The reasons for the decline in net interest income for the full year of 2012 are generally consistent with those described above for the comparative year-over-year quarterly periods.
Service charges on deposits totaled $4.4 million and $17.9 million, respectively, for the fourth quarter and full year of 2012, compared to $4.6 million and $18.3 million, respectively, in the year ago periods. Interchange income totaled $2.1 million and $9.2 million for the fourth quarter and full year of 2012, respectively, compared to $2.3 million and $9.1 million, respectively, in the year ago periods. The year-over-year quarterly declines in 2012 are due primarily to the impact of the branch sale.
Net gains on mortgage loans were $5.3 million in the fourth quarter of 2012, compared to $3.5 million in the year-ago quarter. For the full year of 2012, net gains on mortgage loans totaled $17.3 million compared to $9.3 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 income of $0.9 million in the fourth quarter of 2012 compared to a loss of $0.1 million in the fourth quarter of 2011. This improvement was due to the change in the impairment reserve (a $1.1 million impairment recovery in the fourth quarter of 2012 compared to a $0.2 million impairment charge in the year-ago quarter) that was partially offset by a $0.3 million increase in the amortization of capitalized mortgage loan servicing rights. The recovery of a portion of previously recorded impairment charges in the fourth quarter of 2012 primarily reflects the payoff/refinance of higher interest rate loans as well as a modest increase in interest rates which caused expected future mortgage loan prepayment speeds to slightly decrease. For the full year of 2012 and 2011, mortgage loan servicing generated income of $0.2 million and a loss of $2.0 million, respectively. The full year comparative variance is primarily due to the change in the impairment reserve (a $0.5 million impairment recovery in 2012 compared to a $3.3 million impairment charge in 2011) that was partially offset by a $1.6 million increase in the amortization of capitalized mortgage loan servicing rights. Capitalized mortgage loan servicing rights totaled $11.0 million at Dec. 31, 2012 compared to $11.2 million at Dec. 31, 2011. As of Dec. 31, 2012, the Company serviced approximately $1.75 billion in mortgage loans for others on which servicing rights have been capitalized.
The Company recorded a net gain of $5.4 million on the sale of 21 branches. This transaction closed on December 7, 2012 and 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.
Non-interest expenses totaled $29.9 million in the fourth quarter of 2012, compared to $36.7 million in the year-ago period. The quarterly year-over-year decline in non-interest expenses was primarily due to decreases in occupancy costs (down $0.4 million), loan and collection costs (down $0.5 million), legal and professional fees (down $0.6 million), net losses on other real estate and repossessed assets (down $0.8 million), credit card and bank service fees (down $0.3 million), vehicle service contract counterparty contingencies (down $5.5 million) and the provision for loss reimbursement on sold loans (down $0.6 million). These declines were partially offset by a $1.9 million increase in compensation and benefits. For the full year of 2012, non-interest expenses totaled $116.7 million versus $133.9 million in 2011. The categories of non-interest expenses that declined for the full year of 2012 are generally consistent with those described above for the comparative year-over-year quarterly periods. Credit related costs (loan and collection, net losses on other real estate and repossessed assets, and vehicle service contract counterparty contingencies) have declined significantly in 2012, which primarily reflects the overall decrease in the volume of problem credits (non-performing loans and "watch" credits), stabilization in collateral values, and lower expected incurred losses and reduced levels of payment plan receivables. The increase in compensation and benefits primarily reflects expenses associated with reinstating certain employee incentive programs (including the Company's employee stock ownership plan) that had been suspended or reduced in prior years, and severance costs related to staff reduction initiatives. Excluding the impact of the branch sale, average full time equivalent employee levels declined by 7.5% during 2012 as compared to the prior year period.
Asset Quality
Commenting on asset quality, President and CEO Kessel added: "Our provision for loan losses decreased by $6.5 million, or 93.5%, in the fourth 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 2012, non-performing loans and commercial loan watch credits have declined by approximately 45% and 33%, respectively. In addition, thirty- to eighty-nine day delinquency rates at Dec. 31, 2012 were 0.97% for commercial loans and 1.40% 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 12/31/2012 12/31/2011 12/31/2010
-------------- ---------- ----------
(Dollars in Millions)
Commercial $14.8 $29.3 $29.6
Consumer/installment 2.3 3.5 4.2
Mortgage 15.7 26.2 30.9
Payment plan
receivables(2) 0.1 0.9 2.9
--- --- ---
Total $32.9 $59.9 $67.6
----- ----- -----
Ratio of non-
performing loans to
total portfolio
loans 2.32% 3.80% 3.73%
---- ---- ----
Ratio of non-
performing assets to
total assets 2.92% 4.07% 4.22%
---- ---- ----
Ratio of the
allowance for loan
losses to non-
performing loans 134.43% 98.33% 100.50%
------ ----- ------
(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 $26.9 million, or 45.0%, 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 $63.3 million, or 81.1%, since they peaked in 2008. Non-performing retail (residential mortgage and consumer/installment) loans have declined by $41.1 million, or 69.5%, since they peaked in 2009. Other real estate and repossessed assets totaled $26.1 million at Dec. 31, 2012, compared to $34.0 million at Dec. 31, 2011.
The provision for loan losses was $0.4 million and $6.9 million in the fourth quarters of 2012 and 2011, respectively. For the full year of 2012, the provision for loan losses totaled $6.9 million versus $27.9 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 $4.2 million (1.15% annualized of average loans) in the fourth quarter of 2012, compared to $6.9 million (1.70% annualized of average loans) in the fourth quarter of 2011. Loan net charge-offs were $20.9 million (1.46% of average loans) and $37.0 million (2.20% of average loans) for all of 2012 and 2011, respectively. The full year decline in 2012 loan net charge-offs by category were: commercial loans $9.7 million; mortgage loans $5.0 million; and consumer/installment loans $1.3 million. At Dec. 31, 2012, the allowance for loan losses totaled $44.3 million, or 3.12% 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 $2.02 billion at Dec. 31, 2012, a decrease of $283.5 million, or 12.3%, from Dec. 31, 2011. The decline in total assets is due to the impact of the branch sale. Loans, excluding loans held for sale, were $1.42 billion at Dec. 31, 2012, compared to $1.58 billion at Dec. 31, 2011. Deposits totaled $1.78 billion at Dec. 31, 2012, a decrease of $306.6 million from Dec. 31, 2011. Excluding the impact of the branch sale, deposits would have increased by $96.5 million during 2012.
Cash and cash equivalents totaled $179.8 million at Dec. 31, 2012, versus $341.1 million at Dec. 31, 2011. This decrease is due to the impact of the branch sale. Securities available for sale totaled $208.4 million at Dec. 31, 2012, versus $157.4 million at Dec. 31, 2011. This $51.0 million increase is primarily due to the purchase of residential mortgage-backed and U.S. government agency securities during 2012.
Total shareholders' equity was $135.0 million at Dec. 31, 2012, or 6.7% of total assets. Tangible common equity totaled $46.8 million 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:
Well
Capitalized
Regulatory Capital Ratio 12/31/2012 12/31/2011 Minimum
------------------------ ---------- ---------- -------
Tier 1 capital to average
total assets(1) 8.26% 6.77% 5.00%
Tier 1 capital to risk-
weighted assets 13.67% 10.13% 6.00%
Total capital to risk-
weighted assets 14.95% 11.41% 10.00%
(1) This ratio would be 9.40% at 12/31/12 if based on period end assets rather than average assets.
About Independent Bank Corporation
Independent Bank Corporation (Nasdaq Symbol: IBCP) is a Michigan-based bank holding company with total assets of approximately $2.0 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 Study(SM). 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
----------------------------------------------
December 31, December 31,
2012 2011
---- ----
(unaudited)
----------
Assets (In thousands, except share amounts)
Cash and due from banks $55,487 $62,777
Interest bearing deposits 124,295 278,331
------- -------
Cash and Cash Equivalents 179,782 341,108
Trading securities 110 77
Securities available for sale 208,413 157,444
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 20,838 20,828
Loans held for sale, carried at fair value 47,487 44,801
Loans held for sale, carried at lower of cost or fair value 3,292 -
Loans
Commercial 617,258 651,155
Mortgage 527,340 590,876
Installment 189,849 219,559
Payment plan receivables 84,692 115,018
Total Loans 1,419,139 1,576,608
Allowance for loan losses (44,275) (58,884)
------- -------
Net Loans 1,374,864 1,517,724
Other real estate and repossessed assets 26,133 34,042
Property and equipment, net 47,016 62,548
Bank-owned life insurance 50,890 49,271
Other intangibles 3,975 7,609
Capitalized mortgage loan servicing rights 11,013 11,229
Prepaid FDIC deposit insurance assessment 9,448 12,609
Vehicle service contract counterparty receivables, net 18,449 29,298
Accrued income and other assets 22,157 18,818
Total Assets $2,023,867 $2,307,406
========== ==========
Liabilities and Shareholders' Equity
Deposits
Non-interest bearing $488,126 $497,718
Savings and interest-bearing checking 871,238 1,019,603
Reciprocal 33,242 28,508
Retail time 372,340 526,525
Brokered time 14,591 13,771
------ ------
Total Deposits 1,779,537 2,086,125
Other borrowings 17,625 33,387
Subordinated debentures 50,175 50,175
Vehicle service contract counterparty payables 7,725 6,633
Accrued expenses and other liabilities 33,830 28,459
Total Liabilities 1,888,892 2,204,779
--------- ---------
Shareholders' Equity
Convertible preferred stock, no par value, 200,000 shares authorized;
74,426 shares issued and outstanding at December 31, 2012 and
December 31, 2011; liquidation preference: $85,150 at December 31,
2012 and $81,023 at December 31, 2011 84,204 79,857
Common stock, no par value, 500,000,000 shares authorized;
issued and outstanding: 9,093,732 shares at December 31, 2012
and 8,491,526 shares at December 31, 2011 251,237 248,950
Accumulated deficit (192,408) (214,259)
Accumulated other comprehensive loss (8,058) (11,921)
Total Shareholders' Equity 134,975 102,627
------- -------
Total Liabilities and Shareholders' Equity $2,023,867 $2,307,406
========== ==========
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
-------------------------------------
Three Months Ended Twelve Months Ended
December 31, September 30, December 31, December 31,
2012 2012 2011 2012 2011
---- ---- ---- ---- ----
(unaudited)
----------
(In thousands)
Interest Income
Interest and fees on loans $22,353 $23,385 $25,766 $93,780 $110,574
Interest on securities
Taxable 688 655 314 2,934 1,422
Tax-exempt 243 261 288 1,044 1,219
Other investments 430 432 362 1,640 1,547
--- ----- -----
Total Interest Income 23,714 24,733 26,730 99,398 114,762
------ ------ ------ ------ -------
Interest Expense
Deposits 1,961 2,223 2,571 8,913 15,257
Other borrowings 879 1,059 1,198 4,230 4,936
----- ----- -----
Total Interest Expense 2,840 3,282 3,769 13,143 20,193
----- ----- ----- ------ ------
Net Interest Income 20,874 21,451 22,961 86,255 94,569
Provision for loan losses 449 251 6,917 6,887 27,946
--- --- ----- ----- ------
Net Interest Income After Provision for Loan Losses 20,425 21,200 16,044 79,368 66,623
------ ------ ------ ------ ------
Non-interest Income
Service charges on deposit accounts 4,395 4,739 4,617 17,887 18,306
Interchange income 2,135 2,324 2,259 9,188 9,091
Net gains (losses) on assets
Mortgage loans 5,282 4,602 3,509 17,323 9,262
Securities 72 301 (22) 1,226 249
Other than temporary impairment loss on securities
Total impairment loss (7) (70) (614) (339) (760)
Loss recognized in other comprehensive loss - - - - -
--- --- --- --- ---
Net impairment loss recognized in earnings (7) (70) (614) (339) (760)
Mortgage loan servicing 882 (364) (126) 166 (2,011)
Title insurance fees 484 482 375 1,963 1,465
(Increase) decrease in fair value of U.S. Treasury warrant (74) (32) 112 (285) 1,137
Net gain on branch sale 5,402 - - 5,402 -
Other 2,826 2,560 2,381 11,034 10,174
----- ------ ------
Total Non-interest Income 21,397 14,542 12,491 63,565 46,913
------ ------ ------ ------ ------
Non-interest Expense
Compensation and employee benefits 14,385 13,610 12,452 53,983 50,484
Occupancy, net 2,416 2,482 2,768 10,104 11,183
Loan and collection 1,836 2,832 2,309 9,965 12,414
Data processing 2,049 2,024 2,113 8,009 8,208
Furniture, fixtures and equipment 1,248 1,194 1,307 5,043 5,535
Legal and professional 1,058 952 1,611 4,175 3,941
FDIC deposit insurance 817 816 735 3,306 3,507
Communications 783 785 852 3,269 3,552
Net losses on other real estate and repossessed assets 943 291 1,710 2,854 5,824
Advertising 652 647 539 2,494 2,503
Credit card and bank service fees 383 433 727 2,091 3,656
Interchange expense 478 468 411 1,799 1,543
Vehicle service contract counterparty contingencies 551 281 6,046 1,629 11,048
Provision for loss reimbursement on sold loans 361 193 973 1,112 1,993
Write-down of property and equipment held for sale - 860 - 860 -
Recoveries related to unfunded lending commitments (91) (538) (48) (688) (36)
Other 2,038 1,966 2,208 6,730 8,593
----- ----- -----
Total Non-interest Expense 29,907 29,296 36,713 116,735 133,948
------ ------ ------ ------- -------
Income (Loss) Before Income Tax 11,915 6,446 (8,178) 26,198 (20,412)
Income tax expense (benefit) - - 536 - (212)
--- --- --- --- ----
Net Income (Loss) $11,915 $6,446 $(8,714) $26,198 $(20,200)
Preferred stock dividends and discount accretion 1,106 1,093 1,055 4,347 4,157
----- ----- ----- ----- -----
Net Income (Loss) Applicable to Common Stock $10,809 $5,353 $(9,769) $21,851 $(24,357)
======= ====== ======= ======= ========
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
-----------------------
Three Months Ended Twelve Months Ended
December 31, September 30, December 31, December 31,
2012 2012 2011 2012 2011
---- ---- ---- ---- ----
(unaudited)
----------
Per Common Share Data
Net Income (Loss) Per Common Share (A)
Basic (B) $1.21 $.61 $(1.15) $2.51 $(2.94)
Diluted (C) .36 .16 (1.15) .80 (2.94)
Cash dividends declared per common share .00 .00 .00 .00 .00
Selected Ratios (D)
As a Percent of Average Interest-Earning Assets
Interest income 4.50% 4.52% 5.12% 4.62% 5.36%
Interest expense 0.54 0.60 0.72 0.61 0.94
Net interest income 3.96 3.92 4.40 4.01 4.42
Net Income (Loss) to (A)
Average common shareholders' equity 99.01% 62.71% (124.60)% 68.29% (68.44)%
Average assets 1.87 0.89 (1.68) 0.92 (1.02)
Average Shares
Basic (B) 8,921,761 8,778,899 8,480,507 8,709,389 8,277,280
Diluted (C) 33,301,197 39,674,719 69,908,107 32,885,138 69,687,356
(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 for quarterly periods.
SOURCE Independent Bank Corporation
