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Independent Bank Profits Plunge as Mortgage Income Drops

JUL 28, 2014 3:27pm ET
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Independent Bank Corp. in Ionia, Mich., reported lower second-quarter earnings as income related to mortgages fell dramatically.

The $2.3-billion-asset company reported Monday net income of $6.1 million, a 90% decline from a year earlier. The second quarter 2013 results included a $57.6 million gain associated with the reversal of the company’s valuation allowance against its deferred tax asset. On a pretax basis, the second-quarter earnings of $7.9 million were up nearly 14.5% from a year earlier.

Still, the earnings fell short of analysts' expectations. Earnings per share of 26 cents were 7 cents lower than the estimates of analysts polled by Bloomberg.

An 88% drop in mortgage loan servicing income contributed to noninterest income falling 23%, to $10.1 million. Independent generated $193,000 in mortgage loan servicing income during the second quarter due to a change in the impairment reserve, the company said. The company also reported $1.5 million in gains on the sale of mortgages, down 53% from a year earlier. The mortgage sales, however, were up 32% from the first quarter.

Net interest income decreased 5%, to $18.5 million. The company's net interest margin compressed 42 basis points, to 3.74%, as higher yielding loans declined in the second quarter and lower yielding investment securities rose compared to a year earlier.

The income decline was partially offset by the company cutting its noninterest expenses 19%, to $22.6 million.

Credit-related costs, which includes loan and collection expenses, net gains or losses on other real estate and repossessed assets, the provision for loss reimbursement on sold loans, and vehicle service contract counterparty contingencies, was down year over year by 73%, a total decline of $4 million.

"We remain focused on the long-term improvement in our profitability, primarily through organic growth with a particular emphasis on commercial and consumer lending as well as core deposits," said William Kessel, chief executive of Independent Bank Corp., in an earnings release. "During the second quarter, our commercial loans and consumer installment loans grew by $25.1 million, or 12% annualized."

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