After hitting a low of $1 per share in mid December, the stock price of Independent Bank (IBCP) has soared to almost $4 per share. On Friday, IBCP rose $.63 to $3.80, a 20% gain on the day. Volume of the normally thinly traded stock has also increased dramatically since mid December. Trading volume for IBCP has averaged 96,700 shares per day over the past year but on Friday volume spiked to 1.35 million shares. Friday’s trading volume represented a huge 18% of the IBCP’s float of 7.47 million shares.
Share values of bank stocks have been rallying lately based on improved fundamentals and forecasts for improved economic growth. In the case of IBCP, however, the huge volume and almost 400% price gain in a month seems to suggest that some investors are expecting a takeover.
Other large regional banks have recently seen their share prices climb on takeover speculation, including SunTrust Banks and Regions Financial. Many analysts are expecting a wave of bank acquisitions and mergers as strong banks seek to build market share and profits by taking over weaker banks. Hancock Holding recently agreed to acquire Whitney National Bank in a stock for stock deal that valued Whitney shares at $15.48, a premium of 42% over Whitney’s stock price.
Even after the huge rally, IBCP shares sell for only 65% of tangible book value. Independent Bank Corporation (the holding company for Independent Bank) has a book value of $7.12/share and a tangible book value of $5.89/share. An acquiring bank would be purchasing a valuable bank franchise in Michigan that provides a full range of financial services. IBCP, founded in 1864, is headquartered in Ionia, Michigan, has $2.7 billion in total assets, $2.4 billion in deposits and a network of 111 branches across Michigan’s Lower Peninsula.
Independent Bank has experienced large losses over the past three years due principally to non-performing commercial and residential mortgage loans and losses on Trust Preferred Securities. For the calendar years ending 2008 and 2009, respectively, IBCP had a net loss of $91.9 million and $94.5 million. For the nine months ended September 30, 2010, the Bank lost an additional $15.9 million. Independent Bank borrowed $72 million from the US Treasury under the Capital Purchase Program (TARP) on December 12, 2008, and stopped making dividend payments in August 2009 to conserve cash.
IBCP’s stock price declined below $1 per share and the Nasdaq notified the Bank that it no longer met continued listing requirements since IBCP’s stock price closed below $1 per share for 30 consecutive business days. IBCP was able to maintain its listing on the NASDAQ by initiating a one-for-ten reverse stock split effective August 31, 2010.
After reporting financial results in November, Independent Bank’s President and CEO, Michael Magee, expressed confidence about future results stating that “Although our third quarter 2010 operating results continue to reflect the difficult market conditions we face in Michigan, we are encouraged that these results are much improved as compared to the year ago quarter. In addition, we have made further progress in improving our asset quality, which was reflected in a reduction in our provision for loan losses and non-performing loans.”
Although the Bank remains “well capitalized” for regulatory purposes, Independent Bank implemented a capital restoration plan to increase tangible common equity and reduce annual interest and dividend expense. The Bank completed transactions that allow conversion of outstanding Trust Preferred Securities and preferred stock held by the U.S. Treasury (pursuant to the TARP Capital Purchase Program) into common shares. In addition, the Bank plans on a public stock offering to raise additional capital.
Although Independent Bank appears to be on the road to recovery and is in no danger of failing, the Bank may view a merger as an opportunity to increase profits and increase shareholder value.