Independent Bank Corp. of Ionia, Mich., has hired a consultant to improve the performance of its insurance premium finance subsidiary.
The $3.4 billion-asset company said it hired Gilbert N. Zitin, the former head of Aon Credit Services Corp., to evaluate the operations at its Mepco Insurance Premium Financing Inc. of Chicago.
Mr. Zitin "will provide a wide range of services including an assessment of Mepco's operations and strategies," Independent Bank said last week in a press release.
Robert Schuster, Independent's chief financial officer and the interim president of Mepco, said that he has known Mr. Zitin for a several years. "He and I were talking, and I thought it just made a lot of sense to have him come in and take a look at what we were doing," Mr. Schuster said.
Mr. Schuster said Mr. Zitin agreed on a "short-term" contract, but added that it could be extended. Mr. Schuster declined to discuss specific goals set for Mepco.
Mepco provides loans and financing to businesses with large insurance premiums and consumers who have extended automobile warranties. Independent acquired it in 2003.
Brad Milsaps, an analyst with Sandler O'Neill & Partners LP, wrote in a research note issued Friday that Mr. Zitin's appointment came as no surprise, since Independent has had to buy brokered deposits to fund Mepco's loan growth, and the purchases have been eating into the parent company's profits.
Shares of Independent, a client of Sandler's, gained 0.4% Friday. Mr. Milsaps maintained his "hold" rating on the stock.
In the second quarter, Mepco's net income dropped by more than half from a year earlier, to $889,000. That income accounted for 8% of Independent's $10.6 million of earnings for the period, versus 18% a year earlier.
"Mepco's loans typically carry higher-than-average yields, but the loans are typically funded with very short-term borrowings, which has resulted in tighter spreads as short-term rates have climbed," Mr. Milsaps wrote.
Kevin K. Reevey, an analyst at BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., said that competition among insurance premium finance companies has increased this year as spreads have narrowed.
Other banking companies, such as the $9.2 billion-asset Wintrust Financial Corp. of Lake Forest, Ill., have felt similar pressure on their premium finance subsidiaries, Mr. Reevey said. For Independent, "it's such a small piece of the overall business, but it's a nice product extension for them."
But Mr. Milsaps wrote that hiring Mr. Zitin was a step in the right direction. Mr. Zitin retired from Aon Credit Services, one of the world's largest insurance premium finance companies, in June 2001.
Mr. Reevey said that a Mepco sale is probably not imminent, and Mr. Milsaps wrote that selling the unit now might not be Independent's best option, because the performance should improve as interest rates rise.
Also, Independent might have other problems on the horizon, he wrote.
"We remain concerned about asset quality issues that may prove to be beyond management's control, due to further weakness in the Michigan economy," whose growth is slowing down, Mr. Milsaps wrote. All of Independent's 98 branches are in Michigan.
