Independent Bank (IBCP) in Ionia, Mich., attributed a significant plunge in quarterly profits to a slump in mortgage refinancing activity.
The $2.3 billion-asset company's first-quarter earnings fell 34% from a year earlier, to $3.1 million. Earnings per share of 13 cents were 3 cents lower than the estimates of analysts polled by Bloomberg.
Independent's net interest income fell 5.5%, to $18.5 million. The net interest margin compressed by 46 basis points, to 3.79%. Higher-yielding loans fell in the first quarter while lower-yielding investment securities rose, the company said in a press release Monday.
Meanwhile, lower mortgage lending and sale volumes pushed Independent's noninterest income down to $9 milliona 19% decrease. Higher mortgage loan interest rates led to a slowdown in refinancing activity, which in turn lowered mortgage banking revenue.
"Although our earnings declined compared to the year-ago quarter, they were generally in line with our expectations, given the sharp drop in gains on mortgage loans that we anticipated due principally to a decrease in mortgage loan refinance volumes," Independent President and Chief Executive William Kessel said in the release.
Independent partially offset these declines by cutting noninterest expenses. Operating costs fell 12%, to $22.4 million, as the company scaled back its loan and collection expenses as well as losses on other real estate and repossessed assets.
The company set aside $400,000 in its loan-loss provision, compared to a $700,000 credit a year earlier. Net chargeoffs slipped 18%, to $2.3 million. While Independent lowered its mortgage and consumer loan charge-offs, its commercial loan charge-offs rose by $500,000.
"We remain optimistic about the company's prospects for improved earnings for the balance of 2014 as compared to the first quarter," Kessel said. "Near term, we expect an increase in mortgage loan gains as we move into the spring and summer home sales season in Michigan. Further, new contracts related to our debit card program and core data processing are expected to increase interchange income and reduce data processing costs in the future as compared to first quarter 2014 levels. Finally, we are focused on continued commercial loan growth, which we believe will lead to stabilization in total loan balances and our net interest income."