Independent Bank Corporation Reports 2015 Second Quarter Results

GRAND RAPIDS, Mich., July 27, 2015 (GLOBE NEWSWIRE) -- Independent Bank Corporation (NASDAQ:IBCP) reported second quarter 2015 net income of $5.6 million, or $0.24 per diluted share, versus net income of $6.1 million, or $0.26 per diluted share, in the prior-year period. For the six months ended June 30, 2015, the Company reported net income of $9.4 million, or $0.40 per diluted share, compared to net income of $9.2 million, or $0.39 per diluted share, in the prior-year period.

Second quarter 2015 highlights include:

  • A $0.3 million, or 4.4%, year-over-year increase in pre-tax income.
  • A $1.0 million, or 4.3%, year-over-year decrease in total non-interest expenses.
  • Total net loan growth of $27.0 million, or 7.6% annualized.
  • Improvement in asset quality, with non-performing assets down 17.8% during the quarter.
  • An increase in tangible book value per share to $11.06 at June 30, 2015 from $10.94 at Mar. 31, 2015.
  • The payment of a six cent per share dividend on common stock on May 15, 2015.

William B. ("Brad") Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: "We are very pleased to report strong overall results for the second quarter of 2015. Solid loan growth and mortgage loan originations and sales, as well as our continuing efforts to reduce non-interest expenses, contributed to a 4.4% increase in our pre-tax income. Further, despite continued pressure from the low interest rate environment, we did achieve growth in net interest income on both a year-over-year and sequential quarterly comparative basis. As to two previously announced initiatives, we completed the consolidation of six branch offices on Apr. 30, 2015, and we acquired approximately 207,000 shares of our common stock under our share repurchase plan during the second quarter. Finally, we expect to close on the sale of our Midland, Michigan branch on Aug. 28, 2015. We anticipate that this transaction will result in a pre-tax gain of approximately $1.5 million in the third quarter of 2015 (assuming a deposit level of $14.0 million for calculating the 6% deposit premium)."

Operating Results

The Company's net interest income totaled $18.7 million during the second quarter of 2015, an increase of $0.2 million, or 0.9% from the year-ago period, and up by $0.6 million, or 3.4% from the first quarter of 2015. The Company's tax equivalent net interest income as a percent of average interest-earning assets (the "net interest margin") was 3.62% during the second quarter of 2015, compared to 3.74% in the year-ago period, and 3.57% in the first quarter of 2015. The year-over-year quarterly increase in net interest income is due to an increase in average interest-earning assets that was only partially offset by a decline in the net interest margin. The decrease in the net interest margin is primarily due to the prolonged low interest rate environment that has resulted in declining year-over-year average yields on the Company's loan portfolio. Average interest-earning assets were $2.08 billion in the second quarter of 2015 compared to $2.01 billion in the year ago quarter and $2.06 billion in the first quarter of 2015.

For the first six months of 2015, net interest income totaled $36.8 million, a decrease of $0.2 million, or 0.6% from 2014. The Company's net interest margin for the first six months of 2015 decreased to 3.60% compared to 3.76% in 2014. The decrease in net interest income for the first six months of 2015 is due to the decline in the net interest margin that was only partially offset by an increase in average interest-earning assets.

Service charges on deposit accounts totaled $3.1 million and $6.0 million, respectively, for the second quarter and first six months of 2015, representing decreases of 11.7% and 9.4%, respectively, from the comparable year ago periods. The decline in service charges is due principally to a decrease in non-sufficient funds ("NSF") occurrences and related NSF fees.

Interchange income totaled $2.2 million and $4.4 million for the second quarter and first six months of 2015, respectively, representing increases of 8.4% and 9.3%, respectively, over the year ago comparative periods. The increase in interchange income in 2015 as compared to 2014 primarily results from a new Debit Brand Agreement with MasterCard (which replaced our former agreement with VISA) that was executed in Jan. 2014. The Company began converting its debit card base to MasterCard in June 2014 and completed the conversion in Sept. 2014.

Net gains on mortgage loans were $1.8 million in the second quarter of 2015, compared to $1.5 million in the year-ago quarter. For the first six months of 2015, net gains on mortgage loans totaled $3.9 million compared to $2.6 million in 2014. Mortgage loan origination and sales volumes have increased in 2015 principally due to a rise in refinance volume resulting from a year-over-year decrease in mortgage loan interest rates.

Mortgage loan servicing generated income of $1.5 million and $0.2 million in the second quarters of 2015 and 2014, respectively. The quarterly comparative variance is due primarily to the change in the impairment reserve (a $1.2 million recovery of previously recorded impairment charges in the second quarter of 2015 as compared to a $0.2 million impairment charge in the year-ago quarter) that was partially offset by a $0.1 million increase in the amortization of capitalized mortgage loan servicing rights. For the first six months of 2015, mortgage loan servicing generated income of $1.0 million compared to income of $0.5 million in 2014. Capitalized mortgage loan servicing rights totaled $12.5 million at June 30, 2015 compared to $12.1 million at Dec. 31, 2014. As of June 30, 2015, the Company serviced approximately $1.65 billion in mortgage loans for others on which servicing rights have been capitalized.

Non-interest expenses totaled $21.6 million in the second quarter of 2015, compared to $22.6 million in the year-ago period. For the first six months of 2015, non-interest expenses totaled $43.7 million versus $45.0 million in 2014. Most categories of expenses declined in 2015 as compared to the year ago period, reflecting the Company's ongoing efforts to reduce non-interest expenses and improve its efficiency ratio.

The Company recorded an income tax expense of $2.6 million and $4.4 million in the second quarter and first six months of 2015, respectively. This compares to an income tax expense of $1.8 million and $3.3 million in the second quarter and first six months of 2014, respectively. The second quarter and year-to-date 2014 income tax expense was reduced by a credit of approximately $0.7 million due to a true-up of the amount of unrecognized tax benefits relative to certain net operating loss carryforwards and the reversal of the valuation allowance on a capital loss carryforward that was believed to be more likely than not to be realized due to a strategy executed during the second quarter of 2014 that generated capital gains.

Asset Quality

Commenting on asset quality, President and CEO Kessel added: "We continue to make progress in further improving asset quality, as evidenced by declines in non-performing assets and loan net charge-offs. In addition, thirty- to eighty-nine day delinquency rates at June 30, 2015 were 0.09% for commercial loans and 0.57% for mortgage and consumer loans. These early stage delinquency rates continue to be well-managed."

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

Loan Type 6/30/2015 12/31/2014 6/30/2014
(Dollars in Thousands)
Commercial $ 4,233 $ 4,573 $ 5,107
Consumer/installment 1,174 1,595 1,705
Mortgage 6,912 9,056 10,520
Payment plan receivables(2) 18 14 11
Total $ 12,337 $ 15,238 $ 17,343
Ratio of non-performing loans to total portfolio loans 0.85% 1.08% 1.26%
Ratio of non-performing assets to total assets 0.73% 0.96% 1.58%
Ratio of the allowance for loan losses to non-performing loans 199.29% 170.56% 162.58%
(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 $2.9 million, or 19.0%, since Dec. 31, 2014 and by $5.0 million, or 28.9%, since June 30, 2014. The decline in non-performing loans primarily reflects loan net charge-offs, pay-offs, negotiated transactions and the migration of loans into ORE. ORE and repossessed assets totaled $4.5 million at June 30, 2015, compared to $6.5 million at Dec. 31, 2014.

The provision for loan losses was a credit of $0.1 million and $1.8 million in the second quarters of 2015 and 2014, respectively. The provision for loan losses was a credit of $0.8 million and $1.4 million in the first six months of 2015 and 2014, 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. The Company recorded loan net recoveries of $0.04 million (0.01% annualized of average loans) in the second quarter of 2015, compared to loan net charge-offs of $0.4 million (0.12% annualized of average loans) in the second quarter of 2014. Loan net charge-offs were $0.6 million (0.09% of average loans) and $2.7 million (0.40% of average loans) for the first six months of 2015 and 2014, respectively. The year to date declines in 2015 loan net charge-offs by category were: commercial loans $1.9 million; mortgage loans $0.1 million; and consumer/installment loans $0.1 million. At June 30, 2015, the allowance for loan losses totaled $24.6 million, or 1.70% of portfolio loans, compared to $26.0 million, or 1.84% of portfolio loans, at Dec. 31, 2014.

Balance Sheet, Liquidity and Capital

Total assets were $2.29 billion at June 30, 2015, an increase of $40.2 million from Dec. 31, 2014. Loans, excluding loans held for sale, were $1.45 billion at June 30, 2015, compared to $1.41 billion at Dec. 31, 2014. Deposits totaled $1.96 billion at June 30, 2015, an increase of $37.1 million from Dec. 31, 2014. The increase in deposits is primarily due to growth in checking and savings account balances.

Cash and cash equivalents totaled $58.3 million at June 30, 2015, versus $74.0 million at Dec. 31, 2014. Securities available for sale totaled $557.7 million at June 30, 2015, versus $533.2 million at Dec. 31, 2014. This $24.5 million increase is primarily due to the purchase of residential mortgage-backed securities, asset-backed securities, and municipal securities during the first six months of 2015.

Total shareholders' equity was $254.4 million at June 30, 2015, or 11.11% of total assets. Tangible common equity totaled $251.9 million at June 30, 2015, or $11.06 per share. The Company's wholly owned subsidiary, Independent Bank, remains significantly above "well capitalized" for regulatory purposes with the following ratios:



Regulatory Capital Ratios


6/30/2015


12/31/2014
Well
Capitalized
Minimum

Tier 1 capital to average total assets

9.99%

10.46%

5.00%
Tier 1 common equity to risk-weighted assets 14.18% n/a 6.50%
Tier 1 capital to risk-weighted assets 14.18% 15.63% 8.00%
Total capital to risk-weighted assets 15.45% 16.90% 10.00%

Share Repurchase Plan

As previously announced, on Jan. 21, 2015, the Board of Directors of the Company authorized a share repurchase plan. Under the terms of the share repurchase plan, the Company is authorized to buy back up to 5% of its outstanding common stock. The repurchase plan is authorized to last through Dec. 31, 2015.

Thus far in 2015 (through July 24, 2015), the Company had repurchased 277,415 shares (or approximately 1.2% of its outstanding common stock) at a weighted average price of $13.22 per share.

Earnings Conference Call

Brad Kessel, President and CEO, and Rob Shuster, CFO, will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Monday, July 27, 2015.

To participate in the live conference call, please dial 1-866-200-8394. 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/ibcp150727.html.

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10067703). The replay will be available through Aug. 3, 2015.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ:IBCP) is a Michigan-based bank holding company with total assets of approximately $2.3 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a 64 office 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 "anticipates," "believes," "contemplates," "feels," "expects," "estimates," "seeks," "strives," "plans," "intends," "outlook," "forecast," "position," "target," "mission," "assume," "achievable," "potential," "strategy," "goal," "aspiration," "opportunity," "initiative," "outcome," "continue," "remain," "maintain," "on course," "trend," "objective," "looks forward" and variations of such words and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions, as they relate to Independent Bank Corporation or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of Independent Bank Corporation's management 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 Independent Bank Corporation's revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries, and estimates of credit trends. Such statements reflect the view of Independent Bank Corporation's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Independent Bank Corporation's actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in capital and credit markets; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; any future acquisitions or divestitures; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Independent Bank Corporation's customers; the implementation of Independent Bank Corporation's strategies and business models; Independent Bank Corporation's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties, failure of technology infrastructure or information security incidents; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; competitive product and pricing pressures among financial institutions within Independent Bank Corporation's markets; changes in customer behavior; management's ability to maintain and expand customer relationships; management's ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events; changes in accounting standards and the critical nature of Independent Bank Corporation's accounting policies. Independent Bank Corporation cautions that the foregoing list of factors is not exclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. In particular, please refer to "Item 1A. Risk Factors" in Independent Bank Corporation's Annual Report on Form 10-K for the year ended December 31, 2014. Forward-looking statements speak only as of the date they are made. Independent Bank Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward looking statements are made. For any forward-looking statements made in this news release or in any documents, Independent Bank Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
2015 2014
(unaudited)
(In thousands, except share
amounts)
Assets
Cash and due from banks $ 44,272 $ 48,326
Interest bearing deposits and repurchase agreement 14,045 25,690
Cash and Cash Equivalents 58,317 74,016
Interest bearing deposits - time 10,853 13,561
Trading securities 180 203
Securities available for sale 557,695 533,178
Federal Home Loan Bank and Federal Reserve Bank stock, at cost 15,146 19,919
Loans held for sale, carried at fair value 30,518 23,662
Loans
Commercial 711,007 690,955
Mortgage 469,662 472,628
Installment 228,761 206,378
Payment plan receivables 40,577 40,001
Total Loans 1,450,007 1,409,962
Allowance for loan losses (24,586) (25,990)
Net Loans 1,425,421 1,383,972
Other real estate and repossessed assets 4,471 6,454
Property and equipment, net 44,172 45,948
Bank-owned life insurance 54,300 53,625
Deferred tax assets, net 44,157 48,632
Capitalized mortgage loan servicing rights 12,535 12,106
Vehicle service contract counterparty receivables, net 7,273 7,237
Other intangibles 2,453 2,627
Accrued income and other assets 21,463 23,590
Total Assets $ 2,288,954 $ 2,248,730
Liabilities and Shareholders' Equity
Deposits
Non-interest bearing $ 617,126 $ 576,882
Savings and interest-bearing checking 965,330 943,734
Reciprocal 49,015 53,668
Retail time 328,646 338,720
Brokered time 1,300 11,298
Total Deposits 1,961,417 1,924,302
Other borrowings 12,325 12,470
Subordinated debentures 35,569 35,569
Vehicle service contract counterparty payables 2,305 1,977
Accrued expenses and other liabilities 22,963 24,041
Total Liabilities 2,034,579 1,998,359
Shareholders' Equity
Preferred stock, no par value, 200,000 shares authorized; none issued or outstanding -- --
Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 22,769,416 shares at June 30, 2015 and 22,957,323 shares at December 31, 2014 349,580 352,462
Accumulated deficit (89,815) (96,455)
Accumulated other comprehensive loss (5,390) (5,636)
Total Shareholders' Equity 254,375 250,371
Total Liabilities and Shareholders' Equity $ 2,288,954 $ 2,248,730
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2015 2015 2014 2015 2014
(unaudited)
Interest Income (In thousands)
Interest and fees on loans $ 17,751 $ 17,239 $ 18,146 $ 34,990 $ 36,361
Interest on securities
Taxable 1,869 1,758 1,596 3,627 2,979
Tax-exempt 222 217 287 439 549
Other investments 289 338 328 627 751
Total Interest Income 20,131 19,552 20,357 39,683 40,640
Interest Expense
Deposits 967 1,007 1,260 1,974 2,553
Other borrowings 463 454 559 917 1,071
Total Interest Expense 1,430 1,461 1,819 2,891 3,624
Net Interest Income 18,701 18,091 18,538 36,792 37,016
Provision for loan losses (134) (659) (1,845) (793) (1,417)
Net Interest Income After Provision for Loan Losses 18,835 18,750 20,383 37,585 38,433
Non-interest Income
Service charges on deposit accounts 3,117 2,850 3,532 5,967 6,587
Interchange income 2,240 2,142 2,067 4,382 4,008
Net gains (losses) on assets
Mortgage loans 1,784 2,139 1,505 3,923 2,649
Securities (33) 85 54 52 166
Mortgage loan servicing 1,452 (420) 193 1,032 457
Title insurance fees 337 256 217 593 491
Other 2,090 1,910 2,508 4,000 4,673
Total Non-interest Income 10,987 8,962 10,076 19,949 19,031
Non-Interest Expense
Compensation and employee benefits 11,791 11,785 11,818 23,576 23,056
Occupancy, net 2,040 2,419 2,153 4,459 4,636
Data processing 2,027 1,930 1,777 3,957 3,863
Loan and collection 967 1,155 1,427 2,122 2,892
Furniture, fixtures and equipment 965 952 1,053 1,917 2,122
Communications 694 736 711 1,430 1,500
Advertising 448 484 601 932 1,120
Legal and professional 453 380 420 833 821
FDIC deposit insurance 351 343 422 694 839
Interchange expense 289 291 342 580 744
Credit card and bank service fees 203 202 245 405 508
Vehicle service contract counterparty contingencies 30 29 73 59 141
Costs related to unfunded lending commitments 4 16 5 20 15
Provision for loss reimbursement on sold loans 45 (69) 15 (24) (466)
Net gains on other real estate and repossessed assets (139) (39) (38) (178) (125)
Other 1,411 1,537 1,536 2,948 3,294
Total Non-interest Expense 21,579 22,151 22,560 43,730 44,960
Income Before Income Tax 8,243 5,561 7,899 13,804 12,504
Income tax expense 2,624 1,780 1,847 4,404 3,314
Net Income $ 5,619 $ 3,781 $ 6,052 $ 9,400 $ 9,190
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2015 2015 2014 2015 2014
(unaudited)
Per Common Share Data
Net Income Per Common Share
Basic (A) $ 0.25 $ 0.16 $ 0.26 $ 0.41 $ 0.40
Diluted (B) 0.24 0.16 0.26 0.40 0.39
Cash dividends declared per common share 0.06 0.06 0.06 0.12 0.06
Selected Ratios (C)
As a Percent of Average Interest-Earning Assets
Interest income 3.90% 3.86% 4.10% 3.88% 4.13%
Interest expense 0.28 0.29 0.36 0.28 0.37
Net interest income 3.62 3.57 3.74 3.60 3.76
Net Income to
Average common shareholders' equity 8.86% 6.05% 10.13% 7.46% 7.81%
Average assets 0.98 0.67 1.08 0.83 0.83
Average Shares
Basic (A) 22,899,040 22,996,621 22,928,009 22,942,533 22,907,867
Diluted (B) 23,440,478 23,537,629 23,465,780 23,484,018 23,454,020
(A) Average shares of common stock for basic net income per common share include shares issued and outstanding during the period and participating share awards.
(B) Average shares of common stock for diluted net income per common share include shares to be issued upon exercise of stock options, restricted stock units and stock units for a deferred compensation plan for non-employee directors.
(C) Ratios have been annualized.

CONTACT: William B. Kessel, President and CEO, 616.447.3933 Robert N. Shuster, Chief Financial Officer, 616.522.1765Source:Independent Bank Corporation