Exhibit 99.1
NEWS FROM
(INDEPENDENT BANK CORPORATION LOGO)
FOR IMMEDIATE RELEASE CONTACT: Robert N. Shuster
Executive Vice President and
Date Submitted: July 27, 2006 Chief Financial Officer
NASDAQ Symbol: IBCP #616/522-1765
INDEPENDENT BANK CORPORATION
REPORTS SECOND QUARTER 2006 RESULTS
IONIA, Michigan, July 27, 2006 . . . Independent Bank Corporation (Nasdaq:
IBCP), a Michigan-based bank holding company reported that its second quarter
2006 net income was $10.6 million or $0.48 per diluted share. A year earlier,
net income totaled $12.1 million or $0.53 per diluted share. Return on average
equity and return on average assets were 16.65% and 1.25%, respectively in the
second quarter of 2006 compared to 19.84% and 1.52%, respectively in 2005.
The Company's net income for the six months ended June 30, 2006 totaled $22.9
million or $1.03 per diluted share. Net income for the first six months of 2005
was $23.4 million or $1.03 per diluted share.
The decline in the comparative quarterly net income was primarily due to the
following factors:
- Net interest income decreased by $1.0 million as the benefits of loan
growth (a 10.6% growth rate over the past twelve months and a 7.6%
annualized growth rate in the first six months of 2006) were more than
offset by a decline in the net interest margin.
- A goodwill impairment charge of $0.6 million was recorded in the
second quarter of 2006 at First Home Financial, the Company's mobile
home lending subsidiary that was acquired in 1998.
- Net gains on sales of securities declined by $1.1 million.
- Offsetting the above items, the accrual for performance based
compensation was reduced by approximately $1.2 million based upon the
Company's incentive compensation plan and targets established for all
of 2006.
Commenting on the Company's results, President and CEO, Michael M. Magee stated,
"Our profitability in the second quarter of 2006 was adversely impacted by both
the flat yield curve and competition for deposits and loans which continued to
pressure our net interest margin. Net interest income declined by $1.5 million
on a comparative quarterly basis in our insurance premium finance segment as
growth in the balance of finance receivables was more than offset by a
significant decline in margins. Our banks actually achieved a $0.5 million
increase in net interest income on a comparative quarterly basis, despite
persistent margin pressures. We believe that the margins in our insurance
premium finance segment will stabilize once the Fed interest rate tightening
cycle ends. In response to these challenges we have just completed another round
of cost reductions (primarily concentrated in our mortgage-banking operations)
that are expected to decrease our non-interest expenses by approximately $1.0
million annually. We are continuing to look at other areas for revenue
enhancements or cost reductions that will assist us in working through the
current challenging economic environment. However, we are optimistic that in
addition to these proactive steps, the conditions that are currently eroding our
net interest margin will begin to abate by year end."
The Company's tax equivalent net interest income totaled $35.1 million during
the second quarter of 2006, which represents a $1.0 million or 2.7% decrease
from the comparable quarter one year earlier. The adjustments to determine tax
equivalent net interest income were $1.7 million and $1.6 million for the second
quarters of 2006 and 2005, respectively, and were computed using a 35% tax rate.
The decrease in tax equivalent net interest income primarily reflects a 42 basis
point decline in the Company's tax equivalent net interest income as a percent
of average interest-earning assets (the "net interest margin") that was
partially offset by a $193.6 million increase in the balance of average
interest-earning assets.
The increase in average interest-earning assets is due to growth in all
categories of loans. The net interest margin was equal to 4.47% during the
second quarter of 2006 compared to 4.89% in the second quarter of 2005. The tax
equivalent yield on average interest-earning assets rose to 7.66% in the second
quarter of 2006 from 7.06% in the second quarter of 2005. This increase
primarily reflects the rise in short-term interest rates that has resulted in
variable rate loans re-pricing and new loans being originated at higher rates.
The increase in the tax equivalent yield on average interest-earning assets was
more than offset by a 102 basis point rise in the Company's interest expense as
a percentage of average interest-earning assets (the "cost of funds") to 3.19%
during the second quarter of 2006 from 2.17% during the second quarter of 2005.
The increase in the Company's cost of funds reflects the rise in short-term
interest rates that has resulted in higher rates on certain short-term and
variable rate borrowings and higher rates on deposits.
Service charges on deposits totaled $5.0 million in the second quarter of 2006,
a $0.1 million or 1.2% decrease from the comparable period in 2005. VISA check
card interchange income increased by 27.2%, to $0.9 million for the second
quarter of 2006 from $0.7 million for the second quarter of 2005. The increase
in interchange income resulted primarily from the continued growth of checking
accounts and increased debit card usage.
Gains on the sale of real estate mortgage loans were $1.2 million and $1.3
million in the second quarters of 2006 and 2005, respectively. Real estate
mortgage loan sales totaled $73.2 million in the second quarter of 2006 compared
to $96.0 million in the second quarter of 2005. Real estate mortgage loans
originated totaled $135.8 million in the second quarter of 2006 and $187.0
million in the comparable quarter of 2005. The declines in both mortgage loan
sales and origination volumes primarily reflect the impact of higher interest
rates resulting in a decrease in mortgage lending activity. Loans held for sale
were $31.3 million at June 30, 2006, compared to $28.6 million at December 31,
2005.
The second quarter of 2006 included $0.2 million in securities gains due
primarily to the sale of $1.1 million of Fannie Mae preferred stock. The Company
had previously recorded a $0.1 million other than temporary impairment charge on
this security. The second quarter of 2005 included approximately $1.3 million of
net gains on securities sales. During the second quarter of 2005 the holding
company liquidated its portfolio of four different bank stocks which generated
gains of approximately $1.4 million. These gains were partially offset by a $0.1
million other then temporary impairment charge recorded on Fannie Mae and
Freddie Mac preferred stocks.
Income from real estate mortgage loan servicing was $0.6 million and $0.2
million in the second quarters of 2006 and 2005, respectively. This increase is
primarily due to changes in the impairment reserve on capitalized mortgage loan
servicing rights. Activity related to capitalized mortgage loan servicing rights
is as follows:
Quarter Ended
(in thousands)
-------------------------
06/30/06 06/30/05
-------- --------------
Balance at beginning of period $13,728 $12,255
Servicing rights capitalized 760 824
Amortization (371) (479)
Decrease (increase) in impairment reserve 11 (285)
------- -------
Balance at end of period $14,128 $12,315
------- -------
Impairment reserve at period end $ -- $ 432
------- -------
The changes in the impairment reserve reflect the valuation of capitalized
mortgage loan servicing rights at each period end. At June 30, 2006, the Company
was servicing approximately $1.52 billion in real estate mortgage loans for
others on which servicing rights have been capitalized. This servicing portfolio
had a weighted average coupon rate of approximately 5.92%, a weighted average
service fee of 25.9 basis points and an estimated fair market value of $20.7
million.
Non-interest expense totaled $26.8 million in the second quarter of 2006, an
increase of $0.7 million, or 2.7%, compared to the second quarter of 2005. The
Company accrues for performance based
compensation (expected annual cash bonuses, equity based compensation and the
employee stock ownership plan contribution) based on the provisions of the
incentive compensation plan and the performance targets established by the
Company's Board of Directors. Based on the Company's actual operating results
for the first six months of 2006 as compared to the established incentive
compensation plan targets, performance based compensation was reduced by $1.2
million during the second quarter of 2006. The addition of new branch and loan
production offices resulted in increases in such costs as occupancy, furniture
and equipment and data processing. Compensation and employee benefits expenses
in 2006 were also impacted by merit pay increases that were effective January 1,
2006.
The second quarter of 2006 included a goodwill impairment charge of $0.6 million
at First Home Financial (FHF) which the Company acquired in 1998. FHF is a loan
origination company based in Grand Rapids, Michigan that specializes in the
financing of manufactured homes located in mobile home parks or communities.
This industry has faced a challenging environment as several buyers of this type
of loan have exited the market or materially altered the guidelines under which
they will purchase such loans. Further, regulatory changes have reduced the
opportunity to generate revenues on the sale of insurance related to this type
of lending. As a result, revenues and profits have declined at FHF over the last
few years and have continued to decline in 2006. The Company tests goodwill for
impairment and based on the fair value of FHF (as determined by a valuation
completed by a third party) the goodwill associated with FHF was reduced from
$1.5 million to $0.9 million. Since the Company acquired the stock of FHF, no
income tax benefit was recorded related to the $0.6 million goodwill impairment
charge.
A breakdown of non-performing loans by loan type is as follows:
Loan Type 6/30/2006 12/31/2005 6/30/2005
- --------- --------- ---------- ---------
(Dollars in Millions)
Commercial $ 10.8 $ 5.2 $ 14.6
Commercial guaranteed
under federal program -- -- 1.3
Consumer 1.8 2.3 1.9
Real estate mortgage 8.0 7.2 6.2
Finance receivables 3.5 3.3 3.5
------- ------- -------
Total $ 24.1 $ 18.0 $ 27.5
======= ======= =======
Ratio of non-performing
loans to total
portfolio loans 0.91% 0.70% 1.15%
======= ======= =======
Ratio of the allowance for
loan losses to
non-performing loans 101.52% 127.95% 93.58%
======= ======= =======
The increase in non-performing loans since year end 2005 is due primarily to an
increase in non-performing commercial loans. The increase in non-performing
commercial loans is due primarily to two commercial real estate loan
relationships becoming over 90 days past due during the first quarter of 2006.
One of these loans with a balance of $3.6 million is secured by a low/moderate
income apartment complex. The Company has commenced collection of this credit
through foreclosure and has established a specific allowance for loss of $0.3
million. A new general partner has been appointed to manage this property and a
potential refinancing of this credit by a third-party is pending. The second
commercial real estate loan has a balance of $1.5 million and is secured by
vacant land. A sale of the real estate securing this loan is pending the
clearance of certain conditions (primarily related to the removal of subordinate
liens). The consummation of this sale is expected to cure this default. Other
real estate and repossessed assets totaled $1.9 million at June 30, 2006
compared to $2.1 million at December 31, 2005.
The provision for loan losses was approximately $2.7 million and $2.5 million in
the second quarters of 2006 and 2005, respectively. The level of the provision
for loan losses in each period reflects the Company's assessment of the
allowance for loan losses, taking into consideration factors such as loan mix,
levels of non-performing and classified loans and net loan charge-offs. Net loan
charge-offs were $1.8 million (0.27% annualized of average loans) in the second
quarter of 2006 compared to $1.5 million (0.26% annualized of average loans) in
the second quarter of 2005. At June 30, 2006, the allowance for loan losses
totaled $24.5 million, or 0.92% of portfolio loans compared to $23.0 million or
0.90% of portfolio loans at December 31, 2005.
Total assets were $3.44 billion at June 30, 2006, compared to $3.36 billion at
December 31, 2005. Loans, excluding loans held for sale, increased to $2.65
billion at June 30, 2006, from $2.56 billion at December 31, 2005. The increase
in loans reflects growth in all categories of lending - commercial, real estate
mortgage, installment and finance receivables. Deposits totaled $2.71 billion at
June 30, 2006, an increase of $69.3 million from December 31, 2005.
Stockholders' equity totaled $256.5 million at June 30, 2006, or 7.45% of total
assets, and represents a net book value per share of $11.73.
ABOUT INDEPENDENT BANK CORPORATION
Independent Bank Corporation (Nasdaq: IBCP) is a Michigan-based bank holding
company with total assets of over $3 billion. Founded as First National Bank of
Ionia in 1864, Independent Bank Corporation now operates over 100 offices across
Michigan's Lower Peninsula through four state-chartered bank subsidiaries. These
subsidiaries, Independent Bank, Independent Bank East Michigan, Independent Bank
South Michigan and Independent Bank West Michigan, provide a full range of
financial services, including commercial banking, mortgage lending, investments
and title services. Financing for insurance premiums and extended automobile
warranties is also available through Mepco Insurance Premium Financing, Inc., a
wholly owned subsidiary of Independent Bank. 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.ibcp.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
June 30, December 31,
2006 2005
---------- ------------
(unaudited)
-------------------------
(in thousands)
Assets
Cash and due from banks $ 77,776 $ 67,586
Securities available for sale 452,347 483,447
Federal Home Loan Bank stock, at cost 17,322 17,322
Loans held for sale 31,329 28,569
Loans
Commercial 1,053,067 1,030,095
Real estate mortgage 859,523 852,742
Installment 329,313 304,053
Finance receivables 411,134 368,871
---------- ----------
Total Loans 2,653,037 2,555,761
Allowance for loan losses (24,480) (23,035)
---------- ----------
Net Loans 2,628,557 2,532,726
Property and equipment, net 67,243 63,173
Bank owned life insurance 40,271 39,451
Goodwill 55,805 55,946
Other intangibles 9,443 10,729
Accrued income and other assets 62,628 56,899
---------- ----------
Total Assets $3,442,721 $3,355,848
========== ==========
Liabilities and Shareholders' Equity
Deposits
Non-interest bearing $ 301,787 $ 295,151
Savings and NOW 837,358 861,277
Time 1,571,191 1,484,629
---------- ----------
Total Deposits 2,710,336 2,641,057
Federal funds purchased 108,197 80,299
Other borrowings 201,341 227,047
Subordinated debentures 64,197 64,197
Financed premiums payable 45,419 35,378
Accrued expenses and other liabilities 56,717 59,611
---------- ----------
Total Liabilities 3,186,207 3,107,589
---------- ----------
Shareholders' Equity
Preferred stock, no par value--200,000 shares authorized; none
outstanding
Common stock, $1.00 par value--40,000,000 shares authorized;
issued and outstanding: 21,862,154 shares at June 30, 2006
and 21,991,001 shares at December 31, 2005 21,862 21,991
Capital surplus 176,109 179,913
Retained earnings 55,691 41,486
Accumulated other comprehensive income 2,852 4,869
---------- ----------
Total Shareholders' Equity 256,514 248,259
---------- ----------
Total Liabilities and Shareholders' Equity $3,442,721 $3,355,848
========== ==========
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Six Months Ended
Ended June 30, June 30,
----------------- ------------------
2006 2005 2006 2005
------- ------- -------- -------
(unaudited) (unaudited)
----------------- ------------------
(in thousands, except per share
amounts)
Interest Income
Interest and fees on loans $52,605 $43,985 $102,522 $85,170
Securities available for sale
Taxable 2,797 3,561 5,645 7,253
Tax-exempt 2,851 2,736 5,720 5,304
Other investments 199 123 422 335
------- ------- -------- -------
Total Interest Income 58,452 50,405 114,309 98,062
------- ------- -------- -------
Interest Expense
Deposits 19,343 10,664 37,314 19,838
Other borrowings 5,707 5,307 10,031 10,269
------- ------- -------- -------
Total Interest Expense 25,050 15,971 47,345 30,107
------- ------- -------- -------
Net Interest Income 33,402 34,434 66,964 67,955
Provision for loan losses 2,711 2,528 4,297 4,134
------- ------- -------- -------
Net Interest Income After Provision for Loan Losses 30,691 31,906 62,667 63,821
------- ------- -------- -------
Non-interest Income
Service charges on deposit accounts 5,031 5,094 9,499 9,312
Mepco litigation settlement 2,800
Net gains on assets
Real estate mortgage loans 1,188 1,307 2,214 2,695
Securities 171 1,283 171 1,251
Title insurance fees 440 468 882 965
Manufactured home loan origination fees and commissions 247 337 486 611
VISA check card interchange income 871 685 1,662 1,307
Real estate mortgage loan servicing 621 174 1,274 1,238
Other income 2,276 1,958 4,395 3,828
------- ------- -------- -------
Total Non-interest Income 10,845 11,306 23,383 21,207
------- ------- -------- -------
Non-interest Expense
Compensation and employee benefits 12,693 13,177 26,696 26,656
Occupancy, net 2,513 2,103 5,281 4,341
Furniture, fixtures and equipment 1,771 1,715 3,602 3,513
Data processing 1,485 1,247 2,889 2,390
Advertising 1,055 1,099 2,075 2,078
Goodwill impairment 612 612
Other expenses 6,717 6,801 14,707 13,366
------- ------- -------- -------
Total Non-interest Expense 26,846 26,142 55,862 52,344
------- ------- -------- -------
Income Before Income Tax 14,690 17,070 30,188 32,684
Income tax expense 4,088 4,944 7,243 9,257
------- ------- -------- -------
Net Income $10,602 $12,126 $ 22,945 $23,427
======= ======= ======== =======
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Per Share Data (A)
Net Income
Basic $ .49 $ .54 $ 1.05 $ 1.05
Diluted .48 .53 1.03 1.03
Cash dividends declared .20 .18 .40 .36
Selected Ratios
As a percent of average interest-earning assets
Tax equivalent interest income 7.66% 7.06% 7.58% 6.99%
Interest expense 3.19 2.17 3.06 2.08
Tax equivalent net interest income 4.47 4.89 4.52 4.91
Net income to
Average equity 16.65% 19.84% 18.37% 19.61%
Average assets 1.25 1.52 1.37 1.49
Average Shares (A)
Basic 21,851,546 22,260,866 21,848,724 22,275,528
Diluted 22,210,745 22,668,609 22,215,329 22,712,401
(A) Restated to give effect to a 5% stock dividend paid in September 2005.
Average shares of common stock for basic net income per share include
shares issued and outstanding during the period. Average shares of common
stock for diluted net income per share include shares to be issued upon
exercise of stock options and stock units for deferred compensation plan
for non-employee directors.