UPDATE 2-Oppenheimer ups Independent Bank; shares rise

(Recasts; adds details, share movement, analysts' comments)

By Adheesha Sarkar

BANGALORE, June 27 (Reuters) - Oppenheimer upgraded Independent Bank Corp (IBCP.O) to "perform" from "underperform," saying that two dividend cuts this year will help the bank holding company maintain its capital levels.

Shares of the company rose as much as 40 percent in morning trade but pared the gains later in the session.

"The company's decision to reduce the dividend twice this year should provide more capital cushion during these volatile times, and we are not assuming any capital raise in our estimates," Oppenheimer analyst Terry McEvoy said in a note to clients.

On Thursday, the Ionia, Michigan-based company slashed its quarterly dividend by 91 percent to 1 cent a share. In March, it had reduced its dividend by about 50 percent to 11 cents per share.

Independent Bank also said that it currently does not expect to raise additional capital through any type of equity offering.

"The dividend cuts along with shrink in the balance sheet will enable the company not to raise additional capital, which is positive for the shareholders," McEvoy said by phone.

The analyst said it views the stock as "a speculative investment" and fairly priced as it is down 57 percent year-to-date compared with a 19 percent decline in the Nasdaq bank index.

"The market was probably anticipating a dilutive common share raise, while they cut their dividend. The market liked the fact that there isn't an immediate need for the company to raise capital," FTN Midwest analyst David Scharf said.

TOUGH TIMES AHEAD

Scharf said the company has major difficulties ahead, given the worsening environment in Michigan, which has the highest unemployment rate in the nation.

Independent Bank had attrubited the dividend cut to unsettled market environment and continued weak economic conditions in Michigan.

"It is still too early to say they have made it to the worst," Scharf, who has a "neutral" rating on the stock, said by phone.

In a note to clients, Scharf said there is no reason to buy the stock until real estate values stabilize and employment growth resumes in Michigan.

However, Oppenheimer's McEvoy said further downside to the stock remains limited.