Independent Bank Corporation Reports Increase in Second Quarter 2008 Earnings

IONIA, Mich., July 22 /PRNewswire-FirstCall/ -- Independent Bank
Corporation (Nasdaq: IBCP), a leading Michigan-based community bank, reported
second quarter 2008 net income from continuing operations of $3.3 million, or
$0.15 per diluted share, versus net income from continuing operations of
$108,000, or $0.00 per diluted share, in the prior-year period. For the
quarter ended June 30, 2008, the Company recorded net income of $3.3 million,
or $0.15 per diluted share, compared to a net loss of $43,000, or $0.00 per
diluted share, in the second quarter of 2007.
Return on average equity and return on average assets (based on net income
from continuing operations) were 5.58% and 0.42%, respectively, in the second
quarter of 2008, compared to 0.17% and 0.01%, respectively, in the second
quarter of 2007.
For the six months ended June 30, 2008, net income from continuing
operations was $3.7 million, or $0.16 per diluted share, compared to $4.0
million, or $0.17 per diluted share, in the same six-month period of 2007.
Net income for the six months ended June 30, 2008 was $3.7 million, or $0.16
per diluted share, compared to $4.2 million, or $0.18 per diluted share, in
the prior-year six-month period.
The year-on-year increase in second quarter 2008 income from continuing
operations was primarily attributable to increases in net interest income,
securities gains and mortgage loan servicing income as well as a decline in
the provision for loan losses. These changes were partially offset by higher
non-interest expenses and income taxes.
Michael M. Magee, President and CEO of Independent Bank Corporation,
commented: "We are very pleased with the improvement in our current quarter
results particularly in the face of a challenging market. The increase in our
net interest margin was particularly encouraging. Our bank remains well
capitalized. Moreover, we intend to continue to build our regulatory capital
ratios without the need for any equity offering through our earnings and a
selective reduction of our total assets."
Operating Results
The Company's tax equivalent net interest income totaled $34.5 million
during the second quarter of 2008, an increase of $2.5 million or 7.7% from
the year-ago period, and an increase of $2.8 million, or 8.7% from the first
quarter of 2008. The Company's tax equivalent net interest income as a
percent of average interest-earning assets (the "net interest margin") was
4.68% during the second quarter of 2008 compared to 4.27% in the year ago
period, and 4.30% in the first quarter of 2008. As noted in the Company's
prior earnings release, based on current conditions, the decline in short-term
interest rates earlier in 2008 was expected to have a beneficial impact on the
future net interest margin. This benefit was evident in the second quarter of
2008 as the Company's cost of funds declined by 60 basis points compared to
the first quarter. However, the full realization of this benefit has been
partially offset by the adverse impact of an increased level of non-performing
assets. Interest income was reduced by $0.6 million in the second quarter of
2008, compared to $0.4 million in the second quarter of 2007, due to the
reversal of interest on loans placed on non-accrual during the quarter.
Service charges on deposits totaled $6.2 million in the second quarter of
2008, a 3.4% decrease from the comparable period in 2007 due primarily to a
decline in overdraft fees. VISA check card interchange income increased by
15.7% to $1.5 million for the second quarter of 2008, up from $1.3 million in
the second quarter of 2007. The increase in check card interchange revenues
resulted primarily from an increase in debit card usage by the Company's
customer base.
Securities gains totaled $0.8 million in the second quarter of 2008,
versus $0.1 million in the comparable period in 2007. The Company generated
$0.7 million of gains in the current quarter related to the sale of $20.7
million of municipal securities. The sale of certain municipal securities in
the second quarter of 2008 was initiated in order to reduce the mix of
tax-exempt securities and to begin a process of selectively deleveraging the
balance sheet in order to enhance regulatory capital ratios.
Gains on the sale of mortgage loans were $1.1 million in the second
quarter of 2008, compared to $1.2 million in the year-ago quarter. Mortgage
loan sales totaled $80.2 million in the second quarter of 2008, compared to
$77.9 million in the second quarter of 2007. Mortgage loans originated
totaled $111.3 million in the second quarter of 2008, compared to $129.6
million in the comparable quarter of 2007. The decline in mortgage loan
originations is primarily due to an increase in mortgage loan interest rates
during the second quarter of 2008 leading to a drop in refinancing activity.
In addition, purchase money mortgage activity has declined due to lower home
sales volumes. Loans held for sale were $26.2 million at June 30, 2008,
compared to $34.0 million at December 31, 2007.
Mortgage loan servicing income was $1.5 million in the second quarter of
2008, versus $0.7 million in the year-ago period. This increase is primarily
due to a $1.0 million recovery of previously recorded impairment charges on
capitalized mortgage loan servicing rights in the second quarter of 2008,
compared to a $0.1 million recovery of previously recorded impairment charges
in the second quarter of 2007. At June 30, 2008, the Company was servicing
approximately $1.66 billion in mortgage loans for others on which servicing
rights have been capitalized.
Non-interest expense totaled $31.2 million in the second quarter of 2008,
compared to $29.8 million in the year-ago period. The rise in non-interest
expenses was primarily due to increases in loan and collection expenses and
losses on other real estate and repossessed assets. These items increased
because of the elevated level of non-performing loans and lower residential
housing prices.
Asset Quality
Commenting on asset quality, CEO Magee stated: "While we remain cautious
about economic conditions, we were pleased with the slowing rate of growth in
non-performing loans and watch credits in the current quarter, as well as the
improvement in commercial loan delinquency rates. These improvements reflect,
in part, the ongoing efforts of our team to proactively identify and assess
potential problem loans."
A breakdown of non-performing loans by loan type is as follows:

Loan Type 6/30/2008 3/31/2008 12/31/2007
(Dollars in Millions)
Commercial $74.4 $72.1 $49.0
Consumer 3.9 3.4 3.4
Mortgage 30.6 24.8 23.1
Finance receivables 2.5 1.9 1.7
Total $111.4 $102.2 $77.2
Ratio of non-performing
loans to total
portfolio loans 4.34% 4.03% 3.03%
Ratio of non-performing
assets to total assets 3.78% 3.53% 2.65%
Ratio of the allowance
for loan losses to
non-performing loans 45.81% 48.84% 58.63%

The increase in non-performing loans since year-end 2007 is due
principally to an increase in non-performing commercial loans, which primarily
reflect the addition of several credits with real estate developers becoming
past due in 2008. These delinquencies largely reflect cash flow difficulties
encountered by many real estate developers in Michigan as they confront a
significant decline in sales of real estate. The elevated level of
non-performing mortgage loans is primarily due to a rise in foreclosures
reflecting both weak economic conditions and soft residential real estate
values in many parts of Michigan. Other real estate and repossessed assets
totaled $11.0 million at June 30, 2008, compared to $9.7 million at December
31, 2007.
The provision for loan losses was $12.4 million and $14.9 million in the
second quarters of 2008 and 2007, 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.
Loan net charge-offs were $11.3 million (1.78% annualized of average loans) in
the second quarter of 2008, compared to $7.4 million (1.18% annualized of
average loans) in the second quarter of 2007. The second quarter 2008 loan
net charge-offs were divided among the following categories: commercial loans,
$8.4 million; consumer loans, $0.7 million (including $0.2 million of deposit
overdrafts); and mortgage loans, $2.2 million. The commercial loan and
mortgage loan net charge-offs in the second quarter of 2008 primarily reflect
write-downs to expected liquidation values for real estate or other collateral
securing the loans. At June 30, 2008, the allowance for loan losses totaled
$51.1 million, or 1.99% of portfolio loans, compared to $45.3 million or 1.78%
of portfolio loans at December 31, 2007.
Balance Sheet
Total assets were $3.24 billion at June 30, 2008, compared to $3.28
billion at December 31, 2007. Loans, excluding loans held for sale, were
$2.57 billion at June 30, 2008, compared to $2.55 billion at December 31,
2007. Deposits totaled $2.08 billion at June 30, 2008, a decrease of $425.0
million from December 31, 2007. The decrease in deposits primarily reflects a
$403.5 million decline in brokered certificates of deposits ("brokered CD's").
During the first six months of 2008 maturing or callable brokered CD's were
replaced with borrowings from the Federal Home Loan Bank and Federal Reserve
Bank due to significantly lower comparative costs.
Stockholders' equity totaled $238.3 million at June 30, 2008, or 7.36% of
total assets, representing a net book value per share of $10.35. The Company
remains "well capitalized" for regulatory purposes.
Magee concluded: "Like so many other Midwest-based community banks, we
have continued to confront some of the most challenging industry conditions in
recent memory. While the current economic outlook is not expected to improve
significantly in the near term, we believe our process and operating
discipline will enable our Company to improve shareholder value over the long
run. We remain firmly committed to containing costs, improving credit
quality, and upholding the fundamentals of community banking."
Conference Call
Michael M. Magee, President and Chief Executive Officer, Robert N.
Shuster, Chief Financial Officer and Stefanie M. Kimball, Chief Lending
Officer, will review second quarter 2008 results in a conference call for
investors and analysts beginning at 10:00 a.m. ET on Wednesday, July 23, 2008.
To participate in the live conference call, please dial 1-800-860-2442.
The call can also be accessed (listen-only mode) via the Company's website at
www.ibcp.com in the "Investor Relations" section. A playback of the call can
be accessed by dialing 1-877-344-7529 (Replay Passcode # 420264). The replay
will be available through July 31, 2008.
In addition, a Power Point presentation associated with the second quarter
2008 conference call will be available on the Company's website at
www.ibcp.com in the "Investor Relations" section under the "Presentations" tab
beginning on Wednesday, July 23, 2008.
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 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. Payment plans to purchase vehicle service
contracts are also available through Mepco Finance Corporation, 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,
2008 2007
(unaudited)
Assets (in thousands)
Cash and due from banks $ 69,441 $ 79,289
Trading securities 12,963
Securities available for sale 308,757 364,194
Federal Home Loan Bank and Federal Reserve Bank
stock, at cost 28,063 21,839
Loans held for sale, carried at fair value, at
June 30, 2008 26,188 33,960
Loans
Commercial 1,060,216 1,066,276
Mortgage 861,886 873,945
Installment 366,786 368,478
Finance receivables 276,535 238,197
Total Loans 2,565,423 2,546,896
Allowance for loan losses (51,104) (45,294)
Net Loans 2,514,319 2,501,602
Property and equipment, net 72,413 73,558
Bank owned life insurance 43,897 42,934
Goodwill 66,754 66,754
Other intangibles 13,708 15,262
Capitalized mortgage loan servicing rights 16,551 15,780
Accrued income and other assets 65,981 60,910
Total Assets $ 3,239,035 $ 3,276,082

Liabilities and Shareholders' Equity
Deposits
Non-interest bearing $ 306,506 $ 294,332
Savings and NOW 978,894 987,299
Retail time 682,199 707,419
Brokered time 112,539 516,077
Total Deposits 2,080,138 2,505,127
Federal funds purchased 40,671 54,452
Other borrowings 702,059 302,539
Subordinated debentures 92,888 92,888
Financed premiums payable 53,931 44,911
Liabilities of discontinued operations 34
Accrued expenses and other liabilities 31,078 35,629
Total Liabilities 3,000,765 3,035,580
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:
23,014,262 shares at June 30, 2008 and
22,647,511 shares at December 31, 2007 22,773 22,601
Capital surplus 196,819 195,302
Retained earnings 22,178 22,770
Accumulated other comprehensive income (loss) (3,500) (171)
Total Shareholders' Equity 238,270 240,502
Total Liabilities and Shareholders' Equity $ 3,239,035 $ 3,276,082

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2008 2008 2007 2008 2007
(unaudited)
(in thousands)

Interest Income
Interest and
fees on loans $46,750 $48,126 $50,576 $94,876 $100,529
Interest on
securities
Taxable 2,176 2,304 2,592 4,480 5,069
Tax-exempt 2,099 2,247 2,535 4,346 5,135
Other investments 362 357 464 719 778

Total Interest
Income 51,387 53,034 56,167 104,421 111,511
Interest Expense
Deposits 11,191 16,212 23,378 27,403 45,786
Other borrowings 6,975 6,437 2,313 13,412 5,617
Total Interest
Expense 18,166 22,649 25,691 40,815 51,403
Net Interest
Income 33,221 30,385 30,476 63,606 60,108
Provision for
loan losses 12,352 11,316 14,893 23,668 23,032
Net Interest
Income After
Provision for
Loan Losses 20,869 19,069 15,583 39,938 37,076
Non-interest Income
Service charges
on deposit
accounts 6,164 5,647 6,380 11,811 11,268
Net gains (losses)
on assets
Mortgage loans 1,141 1,867 1,238 3,008 2,319
Securities 837 (2,163) 128 (1,326) 207
VISA check card
interchange
income 1,495 1,371 1,292 2,866 2,242
Mortgage loan
servicing 1,528 (323) 712 1,205 1,239
Title insurance
fees 384 417 430 801 844
Other income 2,588 2,676 2,593 5,264 5,324
Total
Non-interest
Income 14,137 9,492 12,773 23,629 23,443
Non-interest Expense
Compensation and
employee benefits 13,808 14,184 14,784 27,992 28,752
Occupancy, net 2,813 3,114 2,735 5,927 5,349
Loan and
collection 2,031 1,856 1,221 3,887 2,227
Furniture, fixtures
and equipment 1,825 1,817 1,991 3,642 3,891
Data processing 1,712 1,725 1,912 3,437 3,350
Loss on other real
estate and
repossessed assets 1,560 106 68 1,666 92
Advertising 1,168 1,100 1,341 2,268 2,493
Branch acquisition
and conversion
costs (92) 330
Goodwill impairment 343
Other expenses 6,274 6,349 5,841 12,623 10,940
Total
Non-interest
Expense 31,191 30,251 29,801 61,442 57,767
Income (Loss)
From Continuing
Operations
Before Income
Tax 3,815 (1,690) (1,445) 2,125 2,752
Income tax expense
(benefit) 469 (2,031) (1,553) (1,562) (1,248)
Income From
Continuing
Operations 3,346 341 108 3,687 4,000
Discontinued
operations,
net of tax (151) 200
Net Income
(Loss) $3,346 $341 $(43) $3,687 $4,200

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2008 2008 2007 2008 2007
(unaudited)
Per Share Data
Income From Continuing
Operations
Basic (A) $ .15 $ .02 $ .00 $ .16 $ .18
Diluted (B) .15 .01 .00 .16 .17
Net Income (Loss)
Basic (A) $ .15 $ .02 $ .00 $ .16 $ .18
Diluted (B) .15 .01 .00 .16 .18
Cash dividends declared .01 .11 .21 .12 .42

Selected Ratios (annualized)
As a Percent of Average
Interest-Earning Assets
Tax equivalent interest
income 7.15% 7.37% 7.70% 7.26% 7.72%
Interest expense 2.47 3.07 3.43 2.77 3.47
Tax equivalent net
interest income 4.68 4.30 4.27 4.49 4.25
Income From Continuing
Operations
Average equity 5.58% 0.56% 0.17% 3.07% 3.14%
Average assets 0.42 0.04 0.01 0.23 0.25
Net Income (Loss) to
Average equity 5.58% 0.56% (0.07)% 3.07% 3.30%
Average assets 0.42 0.04 (0.01) 0.23 0.26

Average Shares
Basic (A) 22,767,396 22,638,898 22,584,535 22,703,147 22,705,901
Diluted (B) 22,834,331 22,768,219 22,801,194 22,806,178 22,973,356

(A) Average shares of common stock for basic net income per share include
shares issued and outstanding during the period.
(B) Average shares of common stock for diluted net income per share
include shares to be issued upon exercise of stock options, stock units for
deferred compensation plan for non-employee directors and unvested restricted
shares. For any period in which a loss is recorded, the assumed exercise of
stock options and stock units for deferred compensation plan for non-employee
directors would have an anti-dilutive impact on the loss per share and thus
are ignored in the diluted per share calculation.
SOURCE Independent Bank Corporation

Robert N. Shuster, Executive Vice President and Chief Financial Officer, of
Independent Bank Corporation, +1-616-522-1765