Independent Bank will sell 21 branches to Chemical

June 1, 2012
| By Pete Daly |
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Independent Bank Corp. of Ionia has agreed to sell 21 of its bank branches to Chemical Bank of Midland, effective by the end of the third quarter. The branches include six locations in the Battle Creek area and 15 in Northeast Michigan.

The bank, which has total assets of approximately $2.4 billion, said it expects the transaction to result in the transfer of approximately $420 million of deposits to Chemical Bank in exchange for the payment of a deposit premium of approximately $12.4 million. That amount represents a deposit premium of approximately 3.1 percent on Independent’s identified core deposits. Certain non-core deposits will be transferred at no premium.

Chemical Bank also will have the right to purchase certain loans originated at the branches being sold, at a discount of 1.75 percent.

“This branch sale allows us to significantly advance the final phase of our capital plan and achieve our targeted bank regulatory capital ratios without the dilution of a common stock offering. Further, by avoiding a large common stock issuance, we are able to protect our deferred tax asset. While exiting any market is difficult, we believe our remaining markets from West Michigan to Lansing, the Bay region and Southeast Michigan provide for significant growth in the future as well as the upside from the credit improvement we have been recently experiencing,” said Brad Kessel, president of Independent Bank.

The sale of the branches is projected to increase Independent Bank’s Tier 1 capital ratio from 6.84 percent to 8.81, and increase its total risk-based capital ratio from 11.81 percent to 12.85.

The deposits being transferred represent approximately 19 percent of the bank’s total deposits as of March 31. Following the transaction, Independent will continue to operate 80 branch locations throughout Michigan.

“It’s a very good thing for Independent Bank, and Chemical can afford to do this,” said Ted Fuger, a career bank analyst who works for Calder Investment Advisors in Grand Rapids. Fuger evaluates investment options for the firm’s clients and previously was a bank portfolio consultant at Robert W. Baird, among other positions.

Fuger said in his opinion, Chemical Bank is “very conservatively managed and basically, their stock held up very well” during the economic downturn, with Chemical having a “very large capital position.”

Independent Bank Corp. (Nasdaq: IBCP) was founded as First National Bank of Ionia in 1864. With the drop in residential property values in 2007, particularly in southeast Michigan, Independent began to have problems with its loan portfolio, as did many other banks.

In April, Independent reported first quarter net income of $2.4 million on common stock, or 7 cents per diluted share, versus a net loss on common stock of $8.4 million in the prior-year period.

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