Published in Finance

Independent Bank to close 8 branch offices this year, increases loan-loss provisions

BY Thursday, April 30, 2020 05:58pm

GRAND RAPIDS — Independent Bank Corp. plans to close eight branch offices later this year as consumers increasingly use online and mobile banking, but could open new locations elsewhere in the state.

The Grand Rapids-banked Independent Bank (Nasdaq: IBCP) plans to consolidate the offices into nearby branches that on average are less than 5 miles away from the branches that are closing, said Executive Vice President and CFO Stephen Erickson. The furthest distance a closing office is from another Independent branch is less than 8 miles, Erickson said Thursday.

“Similar to the rest of the industry, as we’ve expanded our suite of electronic banking products, we have experienced lower transaction accounts across our branches. As we analyzed the change in branch traffic, deposit growth and the needs of the communities we serve, we made the decision to consolidate eight branches,” CFO Stephen Erickson said during a conference call to discuss Independent Bank’s quarterly results. “As a community bank, it was important to us to ensure the need of our customers to still have physical access to a branch if they needed it. In all cases, we have alternative branches very close to the closing facility.”

Independent Bank has 68 offices in the Lower Peninsula.

The branch consolidations will generate more than $1.3 million in annual cost savings and come with a one-time expense of $800,000, most of which will occur in the second and third quarters, Erickson said.

The offices Independent Bank plans to consolidate into nearby locations are in Troy, Pigeon, Acme, Ionia, Potterville and Olivet, CEO Brad Kessel said in an email to MiBiz. The bank also plans to consolidate offices on the campuses on Central Michigan University in Mt. Pleasant and Saginaw Valley State University into other branches in those markets.

Each of the bank branches will close by July 30, Kessel said.

Independent Bank will continue to further assess existing office locations, the potential for new locations where needed, and the usage of digital banking technologies.

“Moving forward, we will continue to be focused on expenses as opportunities exist to gain additional efficiencies as we optimize our delivery channels and focus on improving internal processes,” Erickson said.

That focus could include opening new locations elsewhere in markets around the state, according to Kessel.

“We are considering adding locations in several markets where there is greater growth potential,” he said. 

One-time costs that include a significantly higher quarterly provision to cover loan losses from the COVID-19 pandemic cut into Independent Bank earnings in the first quarter.

Independent Bank reported $4.8 million in net income for the quarter, or 21 cents per diluted share. That compares to net income of $9.3 million, or 39 cents per diluted share, in the first quarter a year earlier.

The results included a $6.7 million loan-loss provision for the quarter, “due to the economic shock” of the state’s stay-at-home executive order, significantly higher unemployment claims and “the heightened requests for payment relief from our borrowers,” Erickson said. The provision was tied to a single borrower.

A year earlier, the bank had a quarterly loan-loss provision of just $664,000.

In response to the pandemic, Independent Bank provided deferrals of up to 90 days for 151 commercial borrowers with $129.3 million in loans, which equates to 10.9 percent of its loan portfolio. Most deferrals were for principal and interest. The bank also provided payment deferrals on 807 mortgage borrowers totaling $118.5 million in loans, and 605 retail customers with $76.6 million in loans.

The bank ended the quarter with $2.71 billion in total loans.

Kessel said only a small percentage of borrowers had asked for forbearance. 

“It’ll be interesting to see if that changes here now as we come to another month end, but for the first month end we really just had very little forbearance requests come in,” he said. “So I feel good about that portfolio and time will tell.”

As of Thursday morning, Independent Bank had submitted and secured approval for $250 million in loans for about 1,800 customers through the U.S. Small Business Administration’s Paycheck Protection Program.

Commercial, mortgage and consumer loan growth declined slightly in the first quarter. The bank now expects flat to low single-digit loan growth for 2020, Erickson said. That and other estimates for the year were “very difficult” to calculate “due to the uncertainty of the surrounding the economic and social toll that the COVID-19 pandemic has created,” Erickson said, noting they “may be greatly impacted depending on the depth and duration of the COVID-19 event.”

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