Independent Bank Corporation Reports 2012 Third Quarter Results

       Independent Bank Corporation Reports 2012 Third Quarter Results

PR Newswire

IONIA, Mich., Oct. 30, 2012

IONIA, Mich., Oct. 30, 2012 /PRNewswire/ --Independent Bank Corporation
(Nasdaq: IBCP) reported third quarter 2012 net income applicable to common
stock of $5.4 million, or $0.16 per diluted share, versus a net loss
applicable to common stock of $5.2 million, or $0.61 per share, in the
prior-year period. For the nine months ended Sept. 30, 2012, the Company
reported net income applicable to common stock of $11.0 million, or $0.36 per
diluted share, compared to a net loss applicable to common stock of $14.6
million, or $1.78 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 third consecutive profitable quarter was highlighted by:

  oAdditional improvement in asset quality, with non-performing assets down
    7% during the quarter and 26% since the end of 2011.
  oA $5.9 million, or 96%, year-over-year decline in the quarterly provision
    for loan losses.
  oStrong mortgage-banking results with a $2.6 million, or 127%,
    year-over-year increase in quarterly net gains on mortgage loans.
  oYear-over-year growth in core deposits (excluding the pending impact of a
    branch sale).
  oRegulatory capital ratios that increased and remain above minimum
    requirements for "well-capitalized" institutions.

The previously announced sale of 21 branches to Chemical Bank (the "Branch
Sale") did not close in the third quarter of 2012. The Branch Sale is now
expected to close prior to year end 2012.

Michael M. Magee, the Chief Executive Officer of Independent Bank Corporation,
commented: "We are very pleased to report our third 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. We
remain focused on building consistent profitability. Our capital initiatives
remain centered on strategies to convert the preferred stock owned by the U.S.
Treasury into common stock and exiting TARP, while still preserving the
potential future use of our net deferred tax asset, which totaled
approximately $69.2 million at Sept. 30, 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. Also, the Branch Sale is expected to have a significant
positive impact on our regulatory capital ratios."

Operating Results

The Company's net interest income totaled $21.5 million during the third
quarter of 2012, a decrease of $2.3 million, or 9.8% from the year-ago period,
and a decrease of $0.4 million, or 1.7% from the second quarter of 2012. The
Company's net interest income as a percent of average interest-earning assets
(the "net interest margin") was 3.92% during the third quarter of 2012,
compared to 4.59% in the year-ago period, and 4.02% in the second quarter of
2012. The net interest margin decreased due primarily to a change in asset
mix, as higher yielding loans declined and lower yielding short-term
investments increased. The increase in lower yielding interest-bearing cash
balances and other short-term investments, in part, reflects the Company's
efforts to increase liquidity in order to provide the future funding needed
for the pending Branch Sale. The year-over-year decrease in net interest
income was partially offset by an increase in average interest-earning assets,
which rose to $2.18 billion in the third quarter of 2012 compared to $2.06
billion in the year-ago quarter and $2.18 billion in the second quarter of
2012. The increase in average interest-earning assets in 2012 primarily
reflects a rise in securities available for sale and overnight
interest-bearing balances at the Federal Reserve Bank that were partially
offset by a decline in loans.

For the first nine months of 2012, net interest income totaled $65.4 million,
a decrease of $6.2 million, or 8.7% from 2011. The Company's net interest
margin for the first nine months of 2012 decreased to 4.03% compared to 4.43%
in 2011. The reasons for the decline in net interest income for the first
nine months of 2012 are generally consistent with those described above for
the comparative quarterly periods.

Service charges on deposits totaled $4.7 million and $13.5 million,
respectively, for the third quarter and first nine months of 2012, relatively
unchanged when compared to $4.6 million and $13.7 million, respectively, in
the year ago periods. Interchange income was also relatively unchanged and
totaled $2.3 million and $7.1 million for the third quarter and first nine
months of 2012, respectively, compared to $2.4 million and $6.8 million,
respectively, in the year ago periods.

Net gains on mortgage loans were $4.6 million in the third quarter of 2012,
compared to $2.0 million in the year-ago quarter. For the first nine months
of 2012, net gains on mortgage loans totaled $12.0 million compared to $5.8
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 a loss of $0.4 million and $2.7 million in
the third quarters of 2012 and 2011, respectively. This decreased loss was due
to the change in the impairment reserve (a $0.4 million impairment charge in
the third quarter of 2012 compared to a $3.1 million impairment charge in the
year-ago quarter) that was partially offset by a $0.4 million increase in the
amortization of capitalized mortgage loan servicing rights. The impairment
charge in the third quarter of 2012 primarily reflects lower mortgage loan
interest rates resulting in higher estimated future prepayment rates. For the
first nine months of 2012 and 2011, mortgage loan servicing generated a loss
of $0.7 million and $1.9 million, respectively. The first nine months
comparative variance is primarily due to the change in the impairment reserve
(a $0.6 million impairment charge in 2012 compared to a $3.2 million
impairment charge in 2011) that was partially offset by a $1.3 million
increase in the amortization of capitalized mortgage loan servicing rights.
Capitalized mortgage loan servicing rights totaled $10.2 million at Sept. 30,
2012 compared to $11.2 million at Dec. 31, 2011. As of Sept. 30, 2012, the
Company serviced approximately $1.76 billion in mortgage loans for others on
which servicing rights have been capitalized.

Non-interest expenses totaled $29.3 million in the third quarter of 2012,
compared to $31.5 million in the year-ago period. The quarterly
year-over-year decline in non-interest expenses was primarily due to decreases
in net losses on other real estate and repossessed assets (down $1.6 million),
credit card and bank service fees (down $0.4 million), and vehicle service
contract counterparty contingencies (down $1.1 million). These declines were
partially offset by an increase in compensation and benefits (up $1.0 million)
as well as a $0.9 million write down of property and equipment related to
branches that will be closed in the fourth quarter of 2012. For the first
nine months of 2012, non-interest expenses totaled $86.8 million versus $97.2
million in 2011. This decline in non-interest expenses was primarily due to
decreases in loan and collection costs (down $2.0 million), occupancy costs
(down $0.7 million), net losses on other real estate and repossessed assets
(down $2.2 million), vehicle service contract counterparty contingencies
expense (down $3.9 million), credit card and bank service fees (down $1.2
million), and other non-interest expenses (down $2.0 million). These
year-to-date declines were partially offset by an increase in compensation and
benefits (up $1.6 million) as well as the aforementioned $0.9 million write
down of property and equipment. 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. This increase was partially offset by a
5.8% decline in full time equivalent employees in the first nine months of
2012 as compared to the prior year period.

Asset Quality

Commenting on asset quality, CEO Magee added: "Our provision for loan losses
decreased by $5.9 million, or 95.9%, in the third 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 this year, non-performing
loans and commercial loan watch credits have declined by approximately 35% and
21%, respectively. In addition, thirty- to eighty-nine day delinquency rates
at Sept. 30, 2012 were 0.92% for commercial loans and 1.16% for mortgage and
consumer loans. These are near to the lowest levels that we have seen in
several years. Nonetheless, we continue to focus on further improving asset
quality and reducing credit related costs."

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

Loan Type                                    9/30/2012 12/31/2011 9/30/2011
                                            (Dollars in Millions)
Commercial                                  $ 19.5        $ 29.3     $ 22.3
Consumer/installment                        2.5           3.5        3.1
Mortgage                                    16.6          26.2       24.2
Payment plan receivables^(2)                0.2           0.9        1.3
 Total                                     $ 38.8        $ 59.9     $ 50.9
Ratio of non-performing loans to total      2.71%         3.80%      3.13%
portfolio loans
Ratio of non-performing assets to total     2.88%         4.07%      3.66%
assets
Ratio of the allowance for loan losses to   123.62%       98.33%     115.56%
non-performing loans

(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 $21.0 million, or 35.1%, 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 $58.5
million, or 75.0%, since they peaked in 2008. Non-performing retail
(residential mortgage and consumer/installment) loans have declined by $40.1
million, or 67.7%, since they peaked in 2009. Other real estate and
repossessed assets totaled $30.3 million at Sept. 30, 2012, compared to $34.0
million at Dec. 31, 2011.

The provision for loan losses was $0.3 million and $6.2 million in the third
quarters of 2012 and 2011, respectively. For the first nine months of 2012,
the provision for loan losses totaled $6.4 million versus $21.0 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 $3.7
million (1.00% annualized of average loans) in the third quarter of 2012,
compared to $7.9 million (1.89% annualized of average loans) in the third
quarter of 2011. Loan net charge-offs were $16.7 million (1.46% of average
loans) and $30.1 million (2.35% of average loans) for the first nine months of
2012 and 2011, respectively. The year to date declines in 2012 loan net
charge-offs by category were: commercial loans $9.2 million; mortgage loans
$3.2 million; and consumer/installment loans $0.9 million. At Sept. 30, 2012,
the allowance for loan losses totaled $48.0 million, or 3.35% 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 $2.40 billion at Sept. 30, 2012, an increase of $93.4
million, or 4.0%, from Dec. 31, 2011. Loans, excluding loans held for sale,
were $1.43 billion at Sept. 30, 2012, compared to $1.58 billion at Dec. 31,
2011. Deposits (including $405.9 million related to the aforementioned
pending Branch Sale) totaled $2.17 billion at Sept. 30, 2012, an increase of
$84.4 million from Dec. 31, 2011. The increase in deposits is primarily due
to growth in checking and savings.

Cash and cash equivalents totaled $460.5 million at Sept. 30, 2012, versus
$341.1 million at Dec. 31, 2011. Securities available for sale totaled $230.2
million at Sept. 30, 2012, versus $157.4 million at Dec. 31, 2011. This $72.7
million increase is primarily due to the purchase of residential
mortgage-backed and U.S. government agency securities during the first nine
months of 2012.

Total shareholders' equity was $121.5 million at Sept. 30, 2012, or 5.1% of
total assets. Tangible common equity totaled $31.6 million at Sept. 30, 2012,
or $3.59 per share. The Company's wholly owned subsidiary, Independent Bank,
remains "well capitalized" for regulatory purposes with the following ratios:

Regulatory Capital Ratio         9/30/2012 12/31/2011 Well Capitalized Minimum
                                                   

Tier 1 capital to average total  7.29%     6.77%      5.00%
assets
Tier 1 capital to risk-weighted  11.94%    10.13%     6.00%
assets
Total capital to risk-weighted   13.22%    11.41%     10.00%
assets

About Independent Bank Corporation

Independent Bank Corporation (Nasdaq Symbol: IBCP) is a Michigan-based bank
holding company with total assets of approximately $2.4 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

                                          September 30,     December 31,
                                          2012              2011
                                          (unaudited)
Assets                                    (In thousands, except share amounts)
Cash and due from banks                   $    56,911       $   62,777
Interest bearing deposits                      403,633          278,331
Cash and Cash Equivalents       460,544          341,108
Trading securities                             38               77
Securities available for sale                  230,186          157,444
Federal Home Loan Bank and Federal             20,494           20,828
Reserve Bank stock, at cost
Loans held for sale, carried at fair           41,969           44,801
value
Loans held for sale, carried at lower of       52,280           -
cost or fair value
Loans
 Commercial                                   603,538          651,155
 Mortgage                                     537,107          590,876
 Installment                                  197,736          219,559
 Payment plan receivables                     93,608           115,018
Total Loans                     1,431,989        1,576,608
 Allowance for loan losses                    (48,021)         (58,884)
Net Loans                       1,383,968        1,517,724
Other real estate and repossessed assets       30,347           34,042
Property and equipment, net                    47,062           62,548
Bank-owned life insurance                      50,493           49,271
Other intangibles                              6,793            7,609
Capitalized mortgage loan servicing            10,205           11,229
rights
Prepaid FDIC deposit insurance assessment      10,229           12,609
Vehicle service contract counterparty          18,773           29,298
receivables, net
Property and equipment held for sale           10,148           -
Accrued income and other assets                27,303           18,818
Total Assets                              $    2,400,832    $   2,307,406
Liabilities and Shareholders' Equity
Deposits
 Non-interest bearing                    $    485,109      $   497,718
 Savings and interest-bearing checking        853,603          1,019,603
 Retail time                                  377,085          526,525
 Brokered time                                48,859           42,279
Total Deposits                                 1,764,656        2,086,125
Deposits held for sale relating to branch      405,850          -
sale
Other borrowings                               17,720           33,387
Subordinated debentures                        50,175           50,175
Vehicle service contract counterparty          8,414            6,633
payables
Accrued expenses and other liabilities         32,489           28,459
Total Liabilities                              2,279,304        2,204,779
Shareholders' Equity
 Preferred stock, no par value, 200,000
shares authorized; 74,426 shares
 issued and outstanding at September
30, 2012 and December 31, 2011;
 liquidation preference: $84,099 at
September 30, 2012 and
 $81,023 at December 31, 2011               83,097           79,857
 Common stock, no par value, 500,000,000
shares authorized;
 issued and outstanding: 8,804,415
shares at September 30, 2012
 and 8,491,526 shares at December 31,      250,080          248,950
2011
 Accumulated deficit                          (203,217)        (214,259)
 Accumulated other comprehensive loss         (8,432)          (11,921)
Total Shareholders' Equity                     121,528          102,627
Total Liabilities and Shareholders'       $    2,400,832    $   2,307,406
Equity

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations

                                                       Three Months Ended                  Nine Months Ended
                                                         September   June      September   September 30,
                                                         30,         30,       30,
                                                         2012        2012      2011        2012     2011
                                                         (unaudited)
                                                         (In thousands)
Interest Income
 Interest and fees on loans                           $ 23,385    $ 23,696  $ 27,222    $ 71,427 $ 84,808
 Interest on securities
 Taxable                                              655         933       297         2,246    1,108
 Tax-exempt                                           261         244       301         801      931
 Other investments                                      432         382       367         1,210    1,185
Total Interest Income                                    24,733      25,255    28,187      75,684   88,032
Interest Expense
 Deposits                                               2,223       2,305     3,230       6,952    12,686
 Other borrowings                                       1,059       1,120     1,183       3,351    3,738
Total Interest Expense                                   3,282       3,425     4,413       10,303   16,424
Net Interest Income                                      21,451      21,830    23,774      65,381   71,608
Provision for loan losses                                251         1,056     6,171       6,438    21,029
Net Interest Income After Provision for Loan Losses      21,200      20,774    17,603      58,943   50,579
Non-interest Income
 Service charges on deposit accounts                    4,739       4,552     4,623       13,492   13,689
 Interchange income                                     2,324       2,407     2,356       7,053    6,832
 Net gains (losses) on assets
 Mortgage loans                                       4,602       3,579     2,025       12,041   5,753
 Securities                                           301         169       (57)        1,154    271
 Other than temporary impairment loss on securities
 Total impairment loss                              (70)        (85)      (4)         (332)    (146)
 Loss recognized in other comprehensive loss        -           -         -           -        -
 Net impairment loss recognized in earnings       (70)        (85)      (4)         (332)    (146)
 Mortgage loan servicing                                (364)       (1,088)   (2,655)     (716)    (1,885)
 Title insurance fees                                   482         489       299         1,479    1,090
 (Increase) decrease in fair value of U.S. Treasury     (32)        (25)      29          (211)    1,025
warrant
 Other                                                  2,560       3,044     2,639       8,208    7,793
Total Non-interest Income                                14,542      13,042    9,255       42,168   34,422
Non-interest Expense
 Compensation and employee benefits                     13,610      13,506    12,654      39,598   38,032
 Loan and collection                                    2,832       2,407     2,658       8,129    10,105
 Occupancy, net                                         2,482       2,490     2,651       7,688    8,415
 Data processing                                        2,492       2,450     2,502       7,281    7,227
 Furniture, fixtures and equipment                      1,194       1,307     1,308       3,795    4,228
 Legal and professional                                 952         1,268     751         3,117    2,330
 FDIC deposit insurance                                 816         816       885         2,489    2,772
 Communications                                         785         826       863         2,486    2,700
 Net losses on other real estate and repossessed        291         633       1,931       1,911    4,114
assets
 Advertising                                            647         639       740         1,842    1,964
 Credit card and bank service fees                      433         624       869         1,708    2,929
 Vehicle service contract counterparty contingencies    281         326       1,345       1,078    5,002
 Write-down of property and equipment held for sale     860         -         -           860      -
 Provision for loss reimbursement on sold loans         193         126       251         751      1,020
 Costs (recoveries) related to unfunded lending         (538)       (12)      (172)       (597)    12
commitments
 Other                                                  1,966       2,077     2,226       4,692    6,385
Total Non-interest Expense                               29,296      29,483    31,462      86,828   97,235
Income (Loss) Before Income Tax                          6,446       4,333     (4,604)     14,283   (12,234)
Income tax benefit                                       -           -         (482)       -        (748)
 $ 6,446     $ 4,333   $ (4,122)   $ 14,283 $ (11,486)
Net Income (Loss)
Preferred stock dividends and discount accretion         1,093       1,092     1,043       3,241    3,102
Net Income (Loss) Applicable to Common Stock           $ 5,353     $ 3,241   $ (5,165)   $ 11,042 $ (14,588)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data

                 Three Months Ended                     Nine Months Ended
                 September    June 30,     September    September 30,
                 30,                       30,
                 2012         2012         2011         2012         2011
                 (unaudited)
Per Common Share
Data
Net Income
(Loss) Per
Common Share (A)
 Basic (B)      $ .61        $ .38        $ (.61)      $ 1.28       $ (1.78)
 Diluted (C)      .16          .11          (.61)        .36          (1.78)
Cash dividends
declared per       .00          .00          .00          .00          .00
common share
Selected Ratios
(D)
As a Percent of
Average
Interest-Earning
Assets
 Interest         4.52       % 4.65       % 5.44       % 4.67       % 5.45       %
income
 Interest         0.60         0.63         0.85         0.64         1.02
expense
 Net interest     3.92         4.02         4.59         4.03         4.43
income
Net Income
(Loss) to (A)
 Average common
shareholders'      62.71      % 47.96      % (56.07)    % 52.38      % (52.57)    %
equity
 Average assets   0.89         0.54         (0.89)       0.62         (0.81)
Average Shares
 Basic (B)        8,778,899    8,607,382    8,400,950    8,637,176    8,208,793
 Diluted (C)      39,674,719   40,798,694   50,999,510   39,402,803   50,783,918

(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.

SOURCE Independent Bank Corporation

Website: http://www.IndependentBank.com
Contact: Robert Shuster, Chief Financial Officer, +1-616-522-1765