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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999 or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission file Number 0-7818
INDEPENDENT BANK CORPORATION
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
MICHIGAN 38-2032782
- --------------------------------------------- -------------------------
(State or other jurisdiction of incorporation) (I.R.S. employer
identification no.)
230 W. Main St., P.O. Box 491, Ionia, Michigan 48846
- ---------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 527-9450
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
-----------------------------
(Title of class)
9.25% Cumulative Trust Preferred Securities, $25.00 Liquidation Amount
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant. (For this purpose only, the affiliates of the Registrant have
been assumed to be the executive officers and directors of the Registrant and
their associates.)
Common Stock, $1.00 Par Value - $105,274,448
--------------------------------------------
(Based on $10.88 per common share, the last reported sales price on The Nasdaq
Stock Market on March 14, 2000. Reference is made to Part II, Item 5 for further
information).
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common stock, $1.00 par value - 11,196,482 shares at March 14, 2000
Documents incorporated by reference
Portions of the Registrant's definitive proxy statement, and appendix thereto
dated March 15, 2000, relating to its
April 18, 2000 Annual Meeting of Shareholders are incorporated by reference into
Part I, Part II and Part III of this form.
The Exhibit Index appears on Page 24
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Included or incorporated by reference in this Form 10-K are certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements are based upon the beliefs of the
Registrant's management as well as on assumptions made by and information
currently available to the Registrant at the time such statements were made.
Actual results could differ materially from those included in such
forward-looking statements as a result of, among other things, the factors
included in or incorporated by reference in this Report, general and certain
economic and business factors, which may be beyond the control of the
Registrant. Investors are cautioned that all forward-looking statements involve
risks and uncertainty.
PART I
ITEM 1. BUSINESS
Independent Bank Corporation (the "Registrant") was incorporated under the laws
of the State of Michigan on September 17, 1973, for the purpose of becoming a
bank holding company. The Registrant is registered under the Bank Holding
Company Act of 1956, as amended, and owns the outstanding stock of five banks
(the "Banks") which are all organized under the laws of the State of Michigan.
Aside from the stock of the Banks, the Registrant has no other substantial
assets. The Registrant conducts no business except for the provision of certain
management and operational services to the Banks, the collection of fees and
dividends from the Banks and the payment of dividends to the Registrant's
shareholders. Certain employee retirement plans (including employee stock
ownership and deferred compensation plans) as well as health and other insurance
programs have been established by the Registrant. The proportional costs of
these plans are borne by each of the Banks and their respective subsidiaries.
The Registrant and the Banks have no material patents, trademarks, licenses or
franchises except the corporate franchises of the Banks which permit them to
engage in commercial banking pursuant to Michigan law.
The following table shows each of the Banks and their total loans and deposits
as of December 31, 1999:
Main
Office Total Total
Bank Location Deposits Loans
---- -------- -------- -----
Independent Bank Ionia $329,150,000 $287,801,000
Independent Bank
West Michigan Rockford 259,744,000 273,733,000
Independent Bank
South Michigan Leslie 157,362,000 148,090,000
Independent Bank
East Michigan Caro 262,130,000 215,202,000
Independent Bank MSB Bay City 304,184,000 378,765,000
Independent Bank (formerly First Security Bank) affiliated with the Registrant
on June 1, 1974. Independent Bank consolidated with North Bank, the sole banking
subsidiary of North Bank Corporation which was acquired by the Registrant
effective May 31, 1996.
Independent Bank West Michigan is the result of a merger in 1985 of the First
State Bank of Newaygo (acquired December 16, 1974), the Western State Bank,
Howard City (acquired February 7, 1977), and the Bank of Rockford (organized by
the Registrant as a new bank on August 18, 1975).
Independent Bank South Michigan is the result of a merger in 1985 of the Peoples
Bank of Leslie (acquired February 16, 1981) and the Olivet State Bank (acquired
on October 16, 1979).
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ITEM 1. BUSINESS (Continued)
Independent Bank East Michigan is the result of the consolidation of the former
American Home Bank (acquired October 8, 1993), Pioneer Bank (acquired October
15, 1993) and The Kingston State Bank (acquired March 7, 1994). On December 13,
1996 Independent Bank East Michigan purchased eight offices from First of
America Bank--Michigan N.A..
Independent Bank MSB (formerly Mutual Savings Bank, f.s.b.) affiliated with the
Registrant on September 15, 1999.
On November 7, 1996, the Registrant formed IBC Capital Finance, a Delaware
statutory business trust ("IBC Capital"). IBC Capital's business and affairs are
conducted by its property trustee, a Delaware trustee, and three individual
administrative trustees who are employees or officers of or affiliated with the
Registrant. IBC Capital exists for the sole purposes of selling and issuing its
preferred and common securities, using the proceeds from the sale of those
securities to acquire subordinated debentures issued by the Registrant and
certain related services. As a result, the sole assets of IBC Capital are the
subordinated debentures of the Registrant.
The Banks transact business in the single industry segment of commercial
banking. Most of the Banks' offices provide full-service lobby and drive-in
services in the communities which they serve. Automatic teller machines are also
provided at most locations.
The Banks' activities cover all phases of commercial banking, including checking
and savings accounts, commercial and agricultural lending, direct and indirect
consumer financing, mortgage lending and deposit box services. The Banks'
mortgage lending activities are primarily conducted through separate mortgage
bank subsidiaries formed during 1998. The Banks also offer title insurance
services through a separate subsidiary. The Banks do not offer trust services.
The principal markets are the rural and suburban communities across lower
Michigan that are served by the Banks' branch networks. The local economies of
the communities served by the Banks are relatively stable and reasonably
diversified. The Banks serve their markets through their five main offices and a
total of 77 branch and 8 loan production offices.
The Banks compete with other commercial banks, savings and loan associations,
credit unions, mortgage banking companies, securities brokerage companies,
insurance companies, and money market mutual funds. Many of these competitors
have substantially greater resources than the Registrant and the Banks and offer
certain services that the Registrant and Banks do not currently provide. Such
competitors may also have greater lending limits than the Banks. The number of
competitors may increase as a result of the easing of restrictions on interstate
banking effected under the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"). In addition, non-bank
competitors are generally not subject to the extensive regulations applicable to
the Registrant and the Banks.
Price (the interest charged on loans and/or paid on deposits) remains a
principal means of competition within the financial services industry. The Banks
also compete on the basis of service and convenience, utilizing the strengths
and benefits of the Registrant's decentralized structure to providing financial
services.
The principal sources of revenue, on a consolidated basis, are interest and fees
on loans, other interest income and non-interest income. The sources of income
for the three most recent years are as follows:
1999 1998 1997
---- ---- ----
Interest and fees on loans 74.7% 70.5% 67.1%
Other interest income 13.1 16.3 23.6
Non-interest income 12.2 13.2 9.3
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
As of December 31, 1999, the Registrant and the Banks had 766 full-time
employees and 259 part-time employees.
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ITEM 1. BUSINESS (Continued)
Supervision and Regulation
The following is a summary of certain statutes and regulations affecting the
Registrant and the Banks. This summary is qualified in its entirety by reference
to the particular statutes and regulations. A change in applicable laws or
regulations may have a material effect on the Registrant, the Banks and the
businesses of the Registrant and the Banks.
General
Financial institutions and their holding companies are extensively regulated
under Federal and state law. Consequently, the growth and earnings performance
of the Registrant and the Banks can be affected not only by management decisions
and general and local economic conditions, but also by the statutes administered
by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Board of
Governors of the Federal Reserve System (the "Federal Reserve"), the Federal
Deposit Insurance Corporation (the "FDIC"), the Commissioner of the Michigan
Financial Institutions Bureau ("Commissioner"), the Internal Revenue Service,
and state taxing authorities. The effect of such statutes, regulations and
policies and any changes thereto can be significant and cannot be predicted.
Federal and state laws and regulations generally applicable to financial
institutions and their holding companies regulate, among other things, the scope
of business, investments, reserves against deposits, capital levels, lending
activities and practices, the nature and amount of collateral for loans, the
establishment of branches, mergers, consolidations and dividends. The system of
supervision and regulation applicable to the Registrant and the Banks
establishes a comprehensive framework for their operations and is intended
primarily for the protection of the FDIC's deposit insurance funds, the
depositors of the Banks, and the public, rather than shareholders of the
Registrant.
Federal law and regulations establish supervisory standards applicable to the
lending activities of the Banks, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
Recent Legislation
The Gramm-Leach-Bliley Act of 1999 (the "GLB Act"), modifies many of the
principal federal laws which regulate financial institutions and removes large
parts of a regulatory framework that had its origins in the Depression Era of
the 1930s.
Effective March 11, 2000, new opportunities will be available for banking
organizations, other depository institutions, insurance companies and securities
firms to enter into combinations that permit a single financial services
organization to offer customers more financial products and services.
Specifically, the GLB Act provides two new vehicles through which a banking
organization can engage in a variety of activities which, prior to the Act, they
were not allowed to engage in. First, a bank holding company meeting certain
requirements may elect to become a financial holding company ("FHC"). FHCs are
generally authorized to engage in all "financial activities" and, under certain
circumstances, to make equity investments in other companies (i.e., merchant
banking). In order to be eligible to elect to become a FHC, a bank holding
company and all of its depository financial institutions must: (1) be "well
capitalized"; (2) be "well managed"; and (3) have a rating of "satisfactory" or
better in their most recent Community Reinvestment Act examination. Both the
bank holding company and all of its depository financial institutions must also
continue to satisfy these requirements after the bank holding company elects to
become a FHC or else the FHC will be subject to various restrictions. The
Federal Reserve Board will be the umbrella regulator of FHCs, but functional
regulation of a FHC's separately regulated subsidiaries will be conducted by
their primary functional regulator.
Second, the GLB Act also provides that a national bank (and a state bank, so
long as otherwise allowable under its state's law), which satisfies certain
requirements, may own a new type of subsidiary called a financial subsidiary
("FS"). The GLB Act authorizes FSs to engage in many (but not all) of the
activities that FHCs are authorized to engage in. In order to be eligible to own
a FS, a bank must satisfy the three requirements noted above, plus several
additional requirements.
The GLB Act also imposes several rules that are designed to protect the privacy
of the customers of financial institutions. For example, the GLB Act requires
financial institutions to adopt and disseminate annually a privacy
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ITEM 1. BUSINESS (Continued)
policy and prohibits financial institutions from disclosing certain customer
information to "non-affiliated third parties" for certain uses. All financial
institutions, regardless of whether they elect to utilize FHCs or FSs, are
subject to the GLB Act's privacy provisions. The Registrant and the Banks are
also subject to certain state laws that deal with the use and distribution of
non-public personal information. In addition to its privacy provisions, the GLB
Act also contains various other provisions that apply to banking organizations,
regardless of whether they elect to utilize FHCs or FSs.
The Registrant
General. The Registrant is a bank holding company and, as such, is registered
with, and subject to regulation by, the Federal Reserve under the Bank Holding
Company Act, as amended (the "BHCA"). Under the BHCA, the Registrant is subject
to periodic examination by the Federal Reserve, and is required to file periodic
reports of its operations and such additional information as the Federal Reserve
may require.
In accordance with Federal Reserve policy, a bank holding company is expected to
act as a source of financial strength to its subsidiary banks and to commit
resources to support the subsidiary banks in circumstances where the bank
holding company might not do so absent such policy. In addition, if the
Commissioner deems a bank's capital to be impaired, the Commissioner may require
a bank to restore its capital by special assessment upon a bank holding company,
as the bank's sole shareholder. If the bank holding company were to fail to pay
such assessment, the directors of that bank would be required, under Michigan
law, to sell the shares of that bank stock owned by the bank holding company to
the highest bidder at either public or private auction and use the proceeds of
the sale to restore the bank's capital.
Any capital loans by a bank holding company to a subsidiary bank are subordinate
in right of payment to deposits and to certain other indebtedness of such
subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Investments and Activities. In general, any direct or indirect acquisition by a
bank holding company of any voting shares of any bank which would result in the
bank holding company's direct or indirect ownership or control of more than 5%
of any class of voting shares of such bank, and any merger or consolidation of
the bank holding company with another bank holding company, will require the
prior written approval of the Federal Reserve under the BHCA. In acting on such
applications, the Federal Reserve must consider various statutory factors
including the effect of the proposed transaction on competition in relevant
geographic and product markets, and each party's financial condition, managerial
resources, and record of performance under the Community Reinvestment Act.
In addition and subject to certain exceptions, the Change in the Bank Control
Act ("Control Act") and regulations promulgated thereunder by the Federal
Reserve, require any person acting directly or indirectly, or through or in
concert with one or more persons, to give the Federal Reserve 60 days' written
notice before acquiring control of a bank holding company. Transactions which
are presumed to constitute the acquisition of control include the acquisition of
any voting securities of a bank holding company having securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended, if, after
the transaction, the acquiring person (or persons acting in concert) owns,
controls or holds with power to vote 25% or more of any class of voting
securities of the institution. The acquisition may not be consummated subsequent
to such notice if the Federal Reserve issues a notice within 60 days, or within
certain extensions of such period, disapproving the acquisition.
The merger or consolidation of an existing bank subsidiary of a bank holding
company with another bank, or the acquisition by such a subsidiary of the assets
of another bank, or the assumption of the deposit and other liabilities by such
a subsidiary requires the prior written approval of the responsible Federal
depository institution regulatory agency under the Bank Merger Act, based upon a
consideration of statutory factors similar to those outlined above with respect
to the BHCA. In addition, in certain cases an application to, and the prior
approval of, the Federal Reserve under the BHCA and/or Commissioner under
Michigan banking laws, may be required.
With certain limited exceptions, the BHCA prohibits any bank holding company
from engaging, either directly or indirectly through a subsidiary, in any
activity other than managing or controlling banks unless the proposed
non-banking activity is one that the Federal Reserve has determined, as of the
day before the enactment of the GLB Act, to be so closely related to banking as
to be a proper incident thereto. Under current Federal Reserve regulations, such
permissible non-banking activities include such things as mortgage banking,
equipment leasing, securities brokerage, and consumer and commercial finance
company operations. Well-capitalized and well-managed bank
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ITEM 1. BUSINESS (Continued)
holding companies may, however, engage de novo in certain types of non-banking
activities without prior notice to, or approval of, the Federal Reserve,
provided that written notice of the new activity is given to the Federal Reserve
within 10 business days after the activity is commenced. If a bank holding
company wishes to engage in a non-banking activity by acquiring a going concern,
prior notice and/or prior approval will be required, depending upon the
activities in which the company to be acquired is engaged, the size of the
company to be acquired and the financial and managerial condition of the
acquiring bank company.
In evaluating a proposal to engage (either de novo or through the acquisition
of a going concern) in a non-banking activity, the Federal Reserve will consider
various factors, including among others the financial and managerial resources
of the bank holding company, and the relative public benefits and adverse
effects which may be expected to result from the performance of the activity by
an affiliate of the bank holding company. The Federal Reserve may apply
different standards to activities proposed to be commenced de novo and
activities commenced by acquisition, in whole or in part, of a going concern.
Capital Requirements. The Federal Reserve uses capital adequacy guidelines in
its examination and regulation of bank holding companies. If capital falls below
minimum guidelines, a bank holding company may, among other things, be denied
approval to acquire or establish additional banks or non-bank businesses.
The Federal Reserve's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: (i) a leverage
capital requirement expressed as a percentage of total assets, and (ii) a
risk-based requirement expressed as a percentage of total risk-weighted assets.
The leverage capital requirement consists of a minimum ratio of Tier 1 capital
(which consists principally of shareholders' equity) to total assets of 3% for
the most highly rated companies with minimum requirements of 4% to 5% for all
others. The risk-based requirement consists of a minimum ratio of total capital
to total risk-weighted assets of 8%, of which at least one-half must be Tier 1
capital.
The risk-based and leverage standards presently used by the Federal Reserve are
minimum requirements, and higher capital levels will be required if warranted by
the particular circumstances or risk profiles of individual banking
organizations. For example, Federal Reserve regulations provide that additional
capital may be required to take adequate account of, among other things,
interest rate risk and the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any banking
organization experiencing or anticipating significant growth would be expected
to maintain capital ratios, including tangible capital positions (i.e., Tier 1
capital less all intangible assets), well above the minimum levels. The Federal
Reserve has not advised the Registrant of any specific minimum Tier 1 Capital
leverage ratio applicable to it.
FDICIA requires the Federal bank regulatory agencies biennially to review
risk-based capital standards to ensure that they adequately address interest
rate risk, concentration of credit risk and risks from non-traditional
activities.
Dividends. The Registrant is a corporation separate and distinct from the Banks.
Most of the Registrant's revenues will be received by it in the form of
dividends, if any, paid by the Banks. Thus, the Registrant's ability to pay
dividends to its shareholders will indirectly be limited by statutory
restrictions on the ability of its Banks to pay dividends. Further, the Federal
Reserve has issued a policy statement on the payment of cash dividends by bank
holding companies. In the policy statement, the Federal Reserve expressed its
view that a bank holding company experiencing earnings weaknesses should not pay
cash dividends exceeding its net income or which can only be funded in ways that
weakened the bank holding company's financial health, such as by borrowing.
Additionally, the Federal Reserve possesses enforcement powers over bank holding
companies and their non-bank subsidiaries to prevent or remedy actions that
represent unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies. Similar enforcement powers over
subsidiary banks are possessed by the FDIC. The "prompt corrective action"
provisions of federal law and regulation authorizes the Federal Reserve to
restrict the payment of dividends by the Registrant for an insured bank which
fails to meet specified capital levels.
In addition to the restrictions on dividends imposed by the Federal Reserve,
the Michigan Business Corporation Act provides that dividends may be legally
declared or paid only if after the distribution, a corporation can pay its debts
as they come due in the usual course of business and its total assets equal or
exceed the sum of its liabilities plus the amount that would be needed to
satisfy the preferential rights upon dissolution of any holders of preferred
stock whose preferential rights are superior to those receiving the
distribution. The Registrant does not have any holders of its preferred stock.
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ITEM 1. BUSINESS (Continued)
The Banks
General. The Banks are Michigan banking corporations and their deposit accounts
are principally insured by the Bank Insurance Fund ("BIF") of the FDIC. As
BIF-insured Michigan chartered banks, the Banks are subject to the examination,
supervision, reporting and enforcement requirements of the Commissioner, as the
chartering authority for Michigan banks, and the FDIC, as administrator of the
BIF. These agencies and the federal and state laws applicable to the banks and
their operations, extensively regulate various aspects of the banking business
including, among other things, permissible types and amounts of loans,
investments and other activities, capital adequacy, branching, interest rates on
loans and on deposits, the maintenance of non-interest bearing reserves on
deposit accounts, and the safety and soundness of banking practices.
Deposit Insurance. As FDIC-insured institutions, banks are required to pay
deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums, based upon
their level of capital and supervisory evaluation. Institutions classified as
well-capitalized and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized and considered of
substantial supervisory concern pay the highest premium. Risk classification of
all insured institutions is made by the FDIC for each semi-annual assessment
period. FDICIA requires the FDIC to establish assessment rates at levels which
will maintain the Deposit Insurance Fund at a mandated reserve ratio of not less
than 1.25% of estimated insured deposits. Accordingly, the FDIC established the
schedule of BIF insurance assessments, ranging from 0% of deposits for
institutions in the lowest risk category to .27% of deposits for institutions in
the highest risk category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order, or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.
Capital Requirements. The FDIC has established the following minimum capital
standards for state-chartered, FDIC-insured non-member banks, such as the Banks:
a leverage requirement consisting of a minimum ratio of Tier 1 capital to total
assets of 3% for the most highly-rated banks with minimum requirements of 4% to
5% for all others, and a risk-based capital requirement consisting of a minimum
ratio of total capital to total risk-weighted assets of 8%, at least one-half of
which must be Tier 1 capital. Tier 1 capital consists principally of
shareholders' equity. These capital requirements are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. For example, FDIC
regulations provide that higher capital may be required to take adequate account
of, among other things, interest rate risk and the risks posed by concentrations
of credit, nontraditional activities or securities trading activities.
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Federal regulations define these capital categories as
follows:
TOTAL TIER 1
RISK-BASED RISK-BASED
CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO
------------- ------------- --------------
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -- -- A ratio of tangible equity
to total assets of 2% or
less
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ITEM 1. BUSINESS (Continued)
At December 31, 1999, each of the Banks' ratios exceeded minimum requirements
for the well-capitalized category. (See note 17 to the 1999 consolidated
financial statements on pages A-29 through A-30 of the Appendix to the
Registrant's definitive proxy statement, dated March 15, 2000, relating to the
April 18, 2000 Annual Meeting of Shareholders (as filed with the commission and
filed as exhibit 13 to this report on Form 10-K.))
Depending upon the capital category to which an institution is assigned, the
regulators' corrective powers include: requiring the submission of a capital
restoration plan; placing limits on asset growth and restrictions on activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
ordering a new election of directors of the institution; requiring that senior
executive officers or directors be dismissed; prohibiting the institution from
accepting deposits from correspondent banks; requiring the institution to divest
certain subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
In general, a depository institution may be reclassified to a lower category
than is indicated by its capital levels if the appropriate federal depository
institution regulatory agency determines the institution to be otherwise in an
unsafe or unsound condition or to be engaged in an unsafe or unsound practice.
This could include a failure by the institution, following receipt of a
less-than-satisfactory rating on its most recent examination report, to correct
the deficiency.
Commissioner Assessments. Michigan banks are required to pay supervisory fees to
the Commissioner to fund the operations of the Michigan Financial Institutions
Bureau. The amount of supervisory fees paid by a bank is based upon the bank's
total assets, as reported to the Commissioner.
FICO Assessments. The Banks, as members of BIF, are subject to assessments to
cover the payments on outstanding obligations of the financing corporation
("FICO"). FICO was created in 1987 to finance the recapitalization of the
Federal Savings and Loan Insurance Corporation, the predecessor to the FDIC's
Savings Association Insurance Fund (the "SAIF"), which insures the deposits of
thrift institutions. Through January 1, 2000, the FICO assessments made against
BIF members may not exceed 20 percent of the amount of FICO assessments made
against SAIF members. Through 1999, SAIF members paid FICO assessments at a rate
equal to approximately 0.063 percent of deposits, while BIF members paid FICO
assessments at a rate equal to approximately 0.013 percent of deposits. Between
January 1, 2000, and the maturity of the outstanding FICO obligations in 2019,
BIF members and SAIF members will share the cost of the interest on the FICO
bonds on a pro rata basis. Such cost is anticipated to approximate .021 percent
of deposits.
Dividends. Under Michigan law, banks are restricted as to the maximum amount of
dividends they may pay on their common stock.
Banks may not pay dividends except out of net profits after deducting its
losses and bad debts. A Michigan state bank may not declare or pay a dividend
unless the bank will have a surplus amounting to at least 20% of its capital
after the payment of the dividend. If the bank has a surplus less than the
amount of its capital, it may not declare or pay any dividend until an amount
equal to at least 10% of net profits for the preceding one-half year (in the
case of quarterly or semi-annual dividends) or full-year (in the case of annual
dividends) has been transferred to surplus. A Michigan state bank may, with the
approval of the Commissioner, by vote of shareholders owning two thirds of the
stock eligible to vote increase its capital stock by a declaration of a stock
dividend, provided that after the increase the bank's surplus equals at least
20% of its capital stock, as increased. The bank may not declare or pay any
dividend until the cumulative dividends on preferred stock (should any such
stock be issued and outstanding) have been paid in full.
Federal law generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. The FDIC may prevent an insured bank from paying dividends if
the bank is in default of payment of any assessment due to the FDIC. In
addition, the FDIC may prohibit the payment of dividends by the Bank, if such
payment is determined, by reason of the financial condition of the bank, to be
an unsafe and unsound banking practice.
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ITEM 1. BUSINESS (Continued)
Insider Transactions. The Banks are subject to certain restrictions imposed by
the Federal Reserve Act on "covered transactions" with the Registrant or its
subsidiaries on investments in the stock or other securities of the Registrant
or its subsidiaries and the acceptance of the stock or other securities of the
Registrant or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the banks to
their directors and officers, to directors and officers of the Registrant and
its subsidiaries, to principal shareholders of the Registrant, and to "related
interests" of such directors, officers and principal shareholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Registrant or one of its subsidiaries or a
principal shareholder of the Registrant may obtain credit from banks with which
the Banks maintain a correspondent relationship.
Safety and Soundness Standards. Pursuant to FDICIA, the FDIC adopted guidelines
to establish operational and managerial standards to promote the safety and
soundness of federally insured depository institutions. The guidelines establish
standards for internal controls, information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings. In general, the
guidelines prescribe the goals to be achieved in each area, and each institution
will be responsible for establishing its own procedures to achieve those goals.
If an institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or more of the
standards is of such severity that it could threaten the safe and sound
operation of the institution. Failure to submit an acceptable compliance plan,
or failure to adhere to a compliance plan that has been accepted by the
appropriate regulator, would constitute grounds for further enforcement action.
State Bank Activities. Under FDICIA, as implemented by final regulations adopted
by the FDIC, FDIC-insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. FDICIA, as implemented by
FDIC regulations, also prohibits FDIC-insured state banks and their
subsidiaries, subject to certain exceptions, from engaging as a principal in any
activity that is not permitted for a national bank or its subsidiary,
respectively, unless the bank meets, and continues to meet, its minimum
regulatory capital requirements and the FDIC determines the activity would not
pose a significant risk to the deposit insurance fund of which the bank is a
member. Impermissible investments and activities must be otherwise divested or
discontinued within certain time frames set by the FDIC in accordance with
FDICIA. These restrictions are not currently expected to have a material impact
on the operations of the Banks.
Consumer Banking. The Banks' business includes making a variety of types of
loans to individuals. In making these loans, the Banks are subject to State
usury and regulatory laws and to various Federal statutes, such as the Equal
Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act, Real
Estate Settlement Procedures Act, and Home Mortgage Disclosure Act, and the
regulations promulgated thereunder, which prohibit discrimination, specify
disclosures to be made to borrowers regarding credit and settlement costs, and
regulate the mortgage loan servicing activities of the banks, including the
maintenance and operation of escrow accounts and the transfer of mortgage loan
servicing. In receiving deposits, the Banks are subject to extensive regulation
under state and Federal law and regulations, including the Truth in Savings Act,
the Expedited Funds Availability Act, the Bank Secrecy Act, the Electronic Funds
Transfer Act, and the Federal Deposit Insurance Act. Violation of these laws
could result in the imposition of significant damages and fines upon the Banks
and their respective directors and officers.
Other. The Riegle-Neal Act allows bank holding companies to acquire banks
located in any state in the United States without regard to geographic
restrictions or reciprocity requirements imposed by state law, but subject to
certain conditions, including limitations on the aggregate amount of deposits
that may be held by the acquiring holding company and all of its insured
depository institution affiliates. The Riegle-Neal Act also allows banks to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions that include limitations on the aggregate amount
of deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of de novo interstate
branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is allowed
by the Riegle-Neal Act only if specifically authorized by state law. The
legislation allowed individual states to "opt-out" of certain provisions of the
Riegle-Neal Act if appropriate legislation was enacted prior to June 1, 1997.
Michigan did not opt out of the Riegle-Neal Act, and now permits both U.S. and
non-U.S. banks to establish branch offices in Michigan. The Michigan Banking
Code permits, in appropriate circumstances and with the approval of
8
10
ITEM 1. BUSINESS (Continued)
the Commissioner, (i) the acquisition of all or substantially all of the assets
of a Michigan-chartered bank by an FDIC-insured bank, savings bank, or savings
and loan association located in another state, (ii) the acquisition by a
Michigan-chartered bank of all or substantially all of the assets of an
FDIC-insured bank, savings bank or savings and loan association located in
another state, (iii) the consolidation of one or more Michigan-chartered banks
and FDIC-insured banks, savings banks or savings and loan associations located
in other states having laws permitting such consolidation, with the resulting
organization chartered by Michigan, (iv) the establishment by a foreign bank,
which has not previously designated any other state as its home state under the
International Banking Act of 1978, of branches located in Michigan, and (v) the
establishment or acquisition of branches in Michigan by FDIC-insured banks
located in other states, the District of Columbia or U.S. territories or
protectorates having laws permitting Michigan-chartered banks to establish
branches in such jurisdiction. Further, the Michigan Banking Code permits, upon
written notice to the Commissioner, (i) the acquisition by a Michigan-chartered
bank of one or more branches (not comprising all or substantially all of the
assets) of an FDIC-insured bank, savings bank or savings and loan association
located in another state, the District of Columbia, or a U.S. territory or
protectorate, (ii) the establishment by Michigan-chartered banks of branches
located in other states, the District of Columbia, or U.S. territories or
protectorates, and (iii) the consolidation of one or more Michigan-chartered
banks and FDIC-insured banks, savings banks or savings and loan associations
located in other states, with the resulting organization chartered by one of
such other states.
In addition to the authorization of interstate banking discussed above, Michigan
law permits banks to consolidate on a state-wide basis and to operate the
offices of merged banks as branches of a surviving bank. Also, with the written
approval of the Commissioner, banks may relocate their main office to any
location in the state, establish and operate branch banks anywhere in the state
and contract with other banks to act as branches thereof. To better serve their
customers, the Banks have entered into interbank branching agreements, whereby
each of the Banks may act as a branch of the other four Banks.
9
11
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE
I. (A) DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
(B) INTEREST RATES AND INTEREST DIFFERENTIAL
(C) INTEREST RATES AND DIFFERENTIAL
The information set forth in the tables captioned "Average Balances and Tax
Equivalent Rates" and "Change in Tax Equivalent Net Interest Income" on page A-4
of the Appendix to the Registrant's definitive proxy statement, dated March 15,
2000, relating to the April 18, 2000 Annual Meeting of Shareholders (as filed
with the commission and filed as exhibit 13 to this report on Form 10-K) is
incorporated herein by reference.
II. INVESTMENT PORTFOLIO
(A) The following table sets forth the book value of securities at December
31:
1999 1998 1997
---- ---- ----
(in thousands)
Held to maturity
U.S. Government agencies $ 997
States and political subdivisions $ 11,148 $ 16,563 18,353
Mortgage-backed securities 59,467 130,060 224,177
Other securities 500 14,678 390
-------- -------- --------
Total $ 71,115 $161,301 $243,917
======== ======== ========
Available for sale
U.S. Treasury $ 301 $ 4,328 $ 7,105
U.S. Government agencies 1,874 11,040 15,492
States and political subdivisions 115,120 42,326 26,849
Mortgage-backed securities 55,646 83,469 125,300
Other securities 22,359 14,461 8,176
-------- -------- --------
Total $195,300 $155,624 $182,922
======== ======== ========
10
12
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
II. INVESTMENT PORTFOLIO (Continued)
(B) The following table sets forth contractual maturities of securities at
December 31, 1999 and the weighted average yield of such securities:
Maturing Maturing
Maturing After One After Five Maturing
Within But Within But Within After
One Year Five Years Ten Years Ten Years
------------------- ------------------ ------------------- -------------------
Amount Yield Amount Yield Amount Yield Amount Yield
---------- ------- ----------- -------
(dollars in thousands)
Held to Maturity
States and political $ 2,959 8.97% $6,652 9.43% $1,168 9.25% $369 10.45%
subdivisions
Mortgage-backed securities --
guaranteed or issued by
U.S. Government agencies 56,608 5.46 2,630 6.22 212 8.94 17 9.94
Other securities 500 5.12
------- ------ ------ ----
Total $60,067 5.63% $9,282 8.52% $1,380 9.20% $386 10.42%
======= ====== ====== ====
Tax equivalent adjustment
for calculations of yield $93 $220 $38 $14
=== ==== === ===
Available for sale
U.S. Treasury $ 301 4.87%
U.S. Government agencies $1,874 6.37%
States and political 1,036 8.91 $6,857 8.89% 35,506 7.66 $71,721 7.83%
subdivisions
Mortgage backed securities
Guaranteed or issued by U.S.
Government agencies 2,480 6.24 9,917 7.55 3,094 7.22 6,275 7.20
Other mortgage-backed
securities 3,443 6.81 10,553 7.68 14,639 7.99 5,245 7.93
Other securities 7,965 6.74 14,394 7.58
------ ------- ------- -------
Total $7,260 6.83% $35,292 7.67% $55,113 7.68% $97,635 7.76%
====== ======= ======= =======
Tax equivalent adjustment
for calculations of yield $32 $213 $952 $1,965
=== ==== ==== ======
The rates set forth in the tables above for obligations of state and political
subdivisions have been restated on a tax equivalent basis assuming a marginal
tax rate of 35%. The amount of the adjustment is as follows:
Tax-Exempt Rate on Tax
Held to maturity Rate Adjustment Equivalent Basis
---------- ---------- ----------------
Under 1 year 5.83% 3.14% 8.97%
1-5 years 6.13 3.30 9.43
5-10 years 6.01 3.24 9.25
After 10 years 6.79 3.66 10.45
Available for sale
Under 1 year 5.79% 3.12% 8.91%
1-5 years 5.78 3.11 8.89
5-10 years 4.98 2.68 7.66
After 10 years 5.09 2.74 7.83
11
13
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
III. LOAN PORTFOLIO
(A) The following table sets forth loans outstanding at December 31:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
Loans held for sale $ 12,950 $ 45,699 $ 23,625 $ 12,599 $ 18,453
Real estate mortgage 757,019 695,489 658,429 547,999 398,326
Commercial and agricultural 334,212 277,024 222,726 178,348 119,117
Installment 199,410 179,626 180,097 135,860 96,084
---------- ---------- ---------- -------- --------
Total Loans $1,303,591 $1,197,838 $1,084,877 $874,806 $631,980
========== ========== ========== ======== ========
The loan portfolio is periodically and systematically reviewed and the
results of these reviews are reported to the Boards of Directors of the
Registrant and the Banks. The purpose of these reviews is to assist in assuring
proper loan documentation, to facilitate compliance with consumer protection
laws and regulations, to provide for the early identification of potential
problem loans (which enhances collection prospects) and to evaluate the adequacy
of the allowance for loan losses.
(B) The following table sets forth scheduled loan repayments (excluding 1-4
family residential mortgages and installment loans) at December 31, 1999:
Due
Due After One Due
Within But Within After
One Year Five Years Five Years Total
--------- ---------- ---------- -------
(in thousands)
Real estate mortgage $ 27,951 $ 62,898 $28,442 $119,291
Commercial and agricultural 115,932 172,890 45,390 334,212
-------- -------- ------- --------
Total $143,883 $235,788 $73,832 $453,503
======== ======== ======= ========
The following table sets forth loans due after one year which have
predetermined (fixed) interest rates and/or adjustable (variable) interest rates
at December 31, 1999:
Fixed Variable
Rate Rate Total
------------- ------------- -----------
(in thousands)
Due after one but within five years $183,611 $52,177 $235,788
Due after five years 56,826 17,006 73,832
-------- ------- --------
Total $240,437 $69,183 $309,620
======== ======= ========
12
14
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
III. LOAN PORTFOLIO (Continued)
(C) The following table sets forth non-performing loans at December 31:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
(a) Loans accounted for on a
non-accrual basis (1, 2) $ 2,980 $4,302 $3,559 $ 2,124 $ 2,327
(b) Aggregate amount of loans
ninety days or more past due
(excludes loans in (a) above) 2,029 2,240 1,904 1,994 427
(c) Loans not included above which
are "troubled debt restructurings"
as defined in Statement of Financial
Accounting Standards No. 15 (2) 270 295 184 197 247
-------- ------- ------ ------- -------
Total non-performing loans $ 5,279 $ 6,837 $5,647 $ 4,315 $ 3,001
======== ======= ====== ======= =======
(1) The accrual of interest income is discontinued when a loan becomes 90 days
past due and the borrower's capacity to repay the loan and collateral
values appear insufficient. Non-accrual loans may be restored to accrual
status when interest and principal payments are current and the loan
appears otherwise collectible.
(2) Interest in the amount of $571,000 would have been earned in 1999 had loans
in categories (a) and (c) remained at their original terms, however, only
$280,000 was included in interest income for the year with respect to these
loans.
Other loans of concern identified by the loan review department which are
not included as non-performing totaled approximately $1,000,000 at December 31,
1999. These loans involve circumstances which have caused management to place
increased scrutiny on the credits and may, in some instances, represent an
increased risk of loss to the Banks.
At December 31, 1999, there was no concentration of loans exceeding 10% of
total loans which is not already disclosed as a category of loans in this
section "Loan Portfolio" (Item III(A)).
There were no other interest-bearing assets at December 31, 1999, that
would be required to be disclosed above (Item III(C)), if such assets were
loans.
There were no foreign loans outstanding at December 31, 1999.
13
15
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE
(A) The following table sets forth loan balances and summarizes the changes
in the allowance for loan losses for each of the years ended December 31:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(dollars in thousands)
Loans outstanding at the end of
the year (net of unearned fees) $1,303,591 $1,197,838 $1,084,877 $874,807 $631,980
========== ========== ========== ======== ========
Average loans outstanding for
the year (net of unearned fees) $1,222,564 $1,124,847 $ 975,476 $738,421 $559,747
========== ========== ========= ======== ========
Balance of allowance for loan losses
at beginning of year $11,557 $ 9,639 $8,815 $6,966 $6,626
------ ----- ----- ----- -----
Loans charged-off
Real estate 100 84 96 44 24
Commercial and agricultural 176 410 262 79 196
Installment 1,704 1,871 1,383 1,066 575
----- ----- ----- ----- ---
Total loans charged-off 1,979 2,365 1,741 1,189 795
----- ----- ----- ----- ---
Recoveries of loans previously
charged-off
Real estate 7 4 1 8 64
Commercial and agricultural 299 196 151 142 142
Installment 441 455 438 295 124
--- --- --- --- ---
Total recoveries 746 655 590 445 330
--- --- --- --- ---
Net loans charged-off 1,233 1,710 1,151 744 465
Additions to allowance charged to
operating expense 2,661 3,628 1,975 1,413 805
Allowance on loans acquired 1,180
------- ------- ------ ------- ------
Balance at end of year $12,985 $11,557 $9,639 $ 8,815 $6,966
======= ======= ====== ======= ======
Net loans charged-off as a percent of
average loans outstanding for the year .10% .15% .12% .10% .08%
Allowance for loan losses as a
percent of loans outstanding at
the end of the year 1.00 .96 .89 1.01 1.10
The allowance for loan losses reflected above is a valuation allowance in
its entirety and the only allowance available to absorb future loan losses.
Further discussion of the provision and allowance for loan losses as well
as non-performing loans is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations, incorporated herein by reference
to Item 7, Part II of this report.
14
16
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
(B) The Banks have allocated the allowance for loan losses to provide for
the possibility of losses being incurred within the categories of loans set
forth in the table below. The amount of the allowance that is allocated and the
ratio of loans within each category to total loans at December 31 follows:
1999 1998 1997
---- ---- ----
Percent Percent Percent
Allowance of Loans to Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
-------------- ------------- -------------- ------------- -------------- -------------
(dollars in thousands)
Commercial and
agricultural $ 4,210 25.9% $ 3,774 23.4% $2,920 20.8%
Real estate -- -- --
mortgage 1,208 58.8 965 61.6 1,080 62.6
Installment 1,783 15.3 1,437 15.0 1,383 16.6
Unallocated 5,784 5,381 4,256
------- ----- ------- ----- ------ -----
Total $12,985 100.0% $11,557 100.0% $9,639 100.0%
======= ===== ======= ===== ====== =====
1996 1995
---- ----
Percent Percent
Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans
-------------- ------------- -------------- -------------
(dollars in thousands)
Commercial and
agricultural $3,129 20.4% $2,574 18.8%
Real estate
mortgage 868 64.1 746 66.0
Installment 1,125 15.5 774 15.2
Unallocated 3,693 2,872
------ ----- ------ -----
Total $8,815 100.0% $6,966 100.0%
====== ===== ====== =====
15
17
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
V. DEPOSITS
The following table sets forth average deposit balances and the
weighted-average rates paid thereon for the years ended December 31:
1999 1998 1997
---- ---- ----
Average Average Average
Balance Rate Balance Rate Balance Rate
------- ---- ------- ---- ------- ----
(dollars in thousands)
Non-interest bearing demand $ 125,936 $ 107,403 $ 91,440
Savings and NOW 576,194 2.38% 525,638 2.65% 501,548 2.76%
Time deposits 578,294 5.26 535,861 5.47 490,382 5.47
---------- ---------- ---------
Total $1,280,424 3.45% $1,168,902 3.70% $1,083,370 3.75%
========== ========== ==========
The following table summarizes time deposits in amounts of $100,000 or more
by time remaining until maturity at December 31, 1999:
(in thousands)
Three months or less $ 55,930
Over three through six months 14,742
Over six months through one year 13,442
Over one year 97,953
--------
Total $182,067
========
VI. RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and to average
total assets, and certain other ratios, for the years ended December 31 follow:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net income as a percent of
Average common equity 7.26% 10.72% 1.37% 7.80% 6.00%
Average total assets .52 0.72 .09 .55 .41
Dividends declared per share as a
percent of net income per share 60.00 31.43 223.08 36.62 45.10
Average shareholders' equity as a percent
of average total assets 7.16 6.76 6.69 7.06 6.87
Additional performance ratios are set forth in Selected Consolidated
Financial Data, incorporated herein by reference in Item 6, Part II of this
report. Any significant changes in the current trend of the above ratios are
reviewed in Management's Discussion and Analysis of Financial Condition and
Results of Operations, incorporated herein by reference in Item 7, Part II of
this report.
VII. SHORT-TERM BORROWINGS
Short-term borrowings are discussed in note 8 to the consolidated financial
statements incorporated herein by reference in Item 8, Part II of this report.
16
18
ITEM 2. PROPERTIES
The Registrant and the Banks operate a total of 93 facilities in Michigan. The
individual properties are not materially significant to the Registrants' or the
Banks' business or to the consolidated financial statements.
With the exception of the potential remodeling of certain facilities to provide
for the efficient use of work space or to maintain an appropriate appearance,
each property is considered reasonably adequate for current and anticipated
needs.
ITEM 3. LEGAL PROCEEDINGS
Due to the nature of their business, the Banks are often subject to numerous
legal actions. These legal actions, whether pending or threatened, arise through
the normal course of business and are not considered unusual or material.
During 1999 and 1997, the Registrant settled lawsuits against Mutual Savings
Bank, f.s.b. for $2.0 million and $9.7 million, respectively. Such amounts were
included in net income in the respective year. These lawsuits represent actions
by shareholders of Mutual Savings Bank, f.s.b. which alleged certain violations
of federal and state securities laws.
Currently, no material legal procedures are pending which involve the Registrant
or the Banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
19
ADDITIONAL ITEM - EXECUTIVE OFFICERS
Executive officers of the Registrant are appointed annually by the Board of
Directors at the meeting of Directors following the Annual Meeting of
Shareholders. There are no family relationships among these officers and/or the
Directors of the Registrant nor any arrangement or understanding between any
officer and any other person pursuant to which the officer was elected.
The following sets forth certain information with respect to the Registrant's
executive officers and certain key officers of its subsidiaries (included for
information purposes only) at December 31, 1999.
First elected
as an officer of
Name (Age) Position with Registrant the Registrant
- ---------- ------------------------ --------------
Charles C. Van Loan (52) President, Chief Executive 1984
Officer and Director
William R. Kohls (42) Executive Vice President and 1985
Chief Financial Officer
Edward B. Swanson (46) President and Chief Executive 1989
Officer - Independent Bank
South Michigan
Michael M. Magee, Jr. (44) President and Chief Executive 1993
Officer - Independent Bank
Ronald L. Long (40) President and Chief Executive 1993
Officer - Independent Bank
East Michigan
David C. Reglin (40) President and Chief Executive 1998
Officer - Independent Bank
West Michigan
Robert N. Shuster (42) President and Chief Executive 1999
Officer - Independent Bank MSB
Peter R. Graves (42) Senior Vice President, Commercial 1999
Loans - Independent Bank
Corporation
Richard E. Butler (48) Senior Vice President, Operations - 1998
Independent Bank Corporation
Prior to being named President and Chief Executive Officer in 1998, Mr. Reglin
was Senior Vice President of Independent Bank West Michigan since 1991.
Prior to being named President and Chief Executive Officer in 1999, Mr. Shuster
was President and CEO of Mutual Savings Bank, f.s.b since 1994.
The President and Chief Executive Officer of each of the Registrant's subsidiary
banks serve as members of various committees of the Registrant.
Prior to being named Senior Vice President in 1999, Mr. Graves was Vice
President of the Registrants commercial loan services department.
Mr. Butler joined the Registrant in 1998 as Senior Vice President. Prior to that
time Mr. Butler was Vice President, Mortgage Servicing Operations at The former
First of America Bank - Michigan, N.A.
18
20
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information set forth under the caption "Quarterly Summary " on Page A-34 of
the Appendix to the Registrant's definitive proxy statement, dated March 15,
2000, relating to the April 18, 2000 Annual Meeting of Shareholders (as filed
with the commission and as filed as exhibit 13 to this report on Form 10-K) is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated Financial
Data" on Page A-12 of the Appendix to the Registrant's definitive proxy
statement, dated March 15, 2000, relating to the April 18, 2000 Annual Meeting
of Shareholders (as filed with the commission and as filed as exhibit 13 to this
report on Form 10-K) is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages A-2 through
A-11 of the Appendix to the Registrant's definitive proxy statement, dated March
15, 2000, relating to the April 18, 2000 Annual Meeting of Shareholders (as
filed with the commission and as filed as exhibit 13 to this report on Form
10-K) is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth in the caption "Asset/liability management" on pages
A-10 through A-11 of the Appendix to the Registrant's definitive proxy
statement, dated March 15, 2000, relating to the April 18, 2000 Annual Meeting
of Shareholders (as filed with the commission and filed as exhibit 13 to this
report on Form 10-K) is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Registrant and the
independent auditor's report are set forth on pages A-13 through A-33 of the
Appendix to the Registrant's definitive proxy statement, dated March 15, 2000,
relating to the April 20, 2000 Annual Meeting of Shareholders (as filed with the
commission and as filed as exhibit 13 to this report on Form 10-K) is
incorporated herein by reference.
Independent Auditor's Report
Consolidated Statements of Financial Condition at
December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
19
21
PART II.
The supplementary data required by this item set forth under the caption
"Quarterly Financial Data" on page A-34 of the Appendix to the Registrant's
definitive proxy statement, dated March 15, 2000, relating to the April 18, 2000
Annual Meeting of Shareholders (as filed with the commission and as filed as
exhibit 13 to this report on Form 10-K) is incorporated herein by reference.
The portions of the Appendix to the Registrant's definitive proxy statement,
dated March 15, 2000, relating to the April 18, 2000 Annual Meeting of
Shareholders (as filed with the commission and as filed as exhibit 13 to this
report on Form 10-K) which are not specifically incorporated by reference as
part of this Form 10-K are not deemed to be a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS - The information with respect to Directors of the Registrant, set
forth under the caption "Election of Directors" on pages 2 through 4 of the
Registrant's definitive proxy statement, dated March 15, 2000, relating to the
April 18, 2000 Annual Meeting of Shareholders (as filed with the commission) is
incorporated herein by reference.
EXECUTIVE OFFICERS - Reference is made to additional item under Part I of this
report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table",
"Option Grants in 1999" and "Aggregated Stock Option Exercises in 1999 and Year
End Option Values" on pages 11 through 13 of the Registrant's definitive proxy
statement, dated March 15, 2000, relating to the April 18, 2000 Annual Meeting
of Shareholders (as filed with the commission) is incorporated herein by
reference. Information under the caption "Committee Report on Executive
Compensation" on pages 9 through 10 of the definitive proxy statement is not
incorporated by reference herein and is not deemed to be filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Voting Securities and Record
Date", "Election of Directors" and "Securities Ownership of Management" on pages
1, 2 and 11, respectively, of the Registrant's definitive proxy statement, dated
March 15, 2000, relating to the April 18, 2000 Annual Meeting of Shareholders
(as filed with the commission) is incorporated herein by reference. Information
under the captions "Shareholder Return Performance Graph" and "Committee Report
on Executive Compensation" on pages 8 through 10 of the definitive proxy
statement is not incorporated by reference herein and is not deemed to be filed
with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Transactions Involving Management"
on page 13 of the Registrant's definitive proxy statement, dated March 15, 2000,
relating to the April 18, 2000 Annual Meeting of Shareholders (as filed with the
commission) is incorporated herein by reference.
20
22
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements All financial statements of the Registrant are
incorporated herein by reference as set forth in the Appendix to the
Registrant's definitive proxy statement, dated March 15, 2000, relating
to the April 18, 2000 Annual Meeting of Shareholders (filed as exhibit
13 to this report on Form 10-K.)
2. Financial Statement Schedules Not applicable
3. Exhibits (Numbered in accordance with Item 601 of Regulation S-K) The
Exhibit Index is located on the final page of this report on Form 10-K.
(b) Reports on Form 8-K A report of Form 8-K was filed on November 15,
1999, under items 2 and 7, including the required financial statements
relating to acquisition of Mutual Savings Bank, f.s.b.
21
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, dated March 14, 2000.
INDEPENDENT BANK CORPORATION
s/Charles C. Van Loan Charles C. Van Loan, President and Chief Executive Officer
- ------------------------------------- (Principal Executive Officer)
s/William R. Kohls William R. Kohls, Executive Vice President and Chief Financial
- ------------------------------------- Officer (Principal Financial Officer)
s/James J. Twarozynski James J. Twarozynski, Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated. Each director of the Registrant,
who's signature appears below hereby appoints Charles C. Van Loan and William R.
Kohls and each of them severally, as his attorney-in-fact, to sign in his name
and on his behalf, as a director of the Registrant, and to file with the
Commission any and all amendments to this Report on Form 10-K.
Keith E. Bazaire, Director s/Keith E. Bazaire
-------------------------------
Terry L. Haske, Director s/Terry L. Haske
-------------------------------
Thomas F. Kohn, Director s/Thomas F. Kohn
-------------------------------
Robert J. Leppink, Director s/Robert J. Leppink
-------------------------------
Charles A. Palmer, Director
-------------------------------
Charles C. Van Loan, Director s/Charles C. Van Loan
-------------------------------
Arch V. Wright, Jr., Director s/Arch V. Wright, Jr.
-------------------------------
Jeffrey A. Bratsburg, Director s/Jeffrey A. Bratsburg
-------------------------------
22
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EXHIBIT INDEX
Exhibit number and description
EXHIBITS FILED HEREWITH
13 Appendix to the Registrant's definitive proxy statement, dated March 15,
2000, relating to the April 18, 2000 Annual Meeting of Shareholders. This
appendix was filed with the Commission as part of the Company's proxy
statement and was delivered to the Company's shareholders in compliance
with Rule 14(a)-3 of the Securities Exchange Act of 1934, as amended.
21 List of Subsidiaries.
23 Consent of Independent Accountants
24 Power of Attorney (Included on page 22).
27 Financial Data Schedule
EXHIBITS INCORPORATED BY REFERENCE
2 Agreement and plan of reorganization between Independent Bank Corporation
and Mutual Savings Bank, f.s.b., dated March 24, 1999 (incorporated herin
by reference to Exhibit 2.1 to the Registrants Form S-4 Registration
Statement dated May 28, 1999, filed under Registation No. 333-79679).
3.1 Restated Articles of Incorporation (incorporated herein by reference to
Exhibit 3(i) to the Registrant's report on Form 10-Q for the quarter
ended June 30, 1994).
3.2 Amended and Restated Bylaws (incorporated herein by reference to Exhibit
3(ii) to the Registrant's report on Form 10-Q for the quarter ended June
30, 1994).
4 Automatic Dividend Reinvestment and Stock Purchase Plan, as amended
(incorporated herein by reference to the Registrant's Form S-3
Registration Statement dated September 17, 1998, filed under Registration
No. 3380088).
4.1 Form of Indenture, dated as of December 17, 1996 (incorporated herein by
reference to the Registrant's Form S-2 Registration Statement dated
December 6, 1996, filed under Registration No. 33-14507).
4.2 Form of Subordinated Debenture (included as an exhibit to Exhibit 4.1),
(incorporated herein by reference to the Registrant's Form S-2
Registration Statement dated December 6, 1996, filed under Registration
No. 33- 14507).
4.3 Certificate of Trust of IBC Capital Finance (incorporated herein by
reference to the Registrant's Form S-2 Registration Statement dated
December 6, 1996, filed under Registration No. 33-14507).
4.4 Trust Agreement of IBC Capital Finance dated as of November 7, 1996
(incorporated herein by reference to the Registrant's Form S-2
Registration Statement dated December 6, 1996, filed under Registration
No. 33-14507).
4.5 Form of Amended and Restated Trust Agreement of IBC Capital Finance dated
as of December 17, 1996 (incorporated herein by reference to the
Registrant's Form S-2 Registration Statement dated December 6, 1996,
filed under Registration No. 33-14507).
4.6 Form of Preferred Security Certificate of IBC Capital Finance (included
as an exhibit to Exhibit 4.5.), (incorporated herein by reference to the
Registrant's Form S-2 Registration Statement dated December 6, 1996,
filed under Registration No. 33-14507).
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25
EXHIBIT INDEX (Continued)
4.7 Form of Preferred Securities Guarantee Agreement for IBC Capital Finance
(incorporated herein by reference to the Registrant's Form S-2
Registration Statement dated December 6, 1996, filed under Registration
No. 33-14507).
4.8 Form of Agreement as to Expenses and Liabilities (included as an exhibit
to Exhibit 4.5), (incorporated herein by reference to the Registrant's
Form S-2 Registration Statement dated December 6, 1996, filed under
Registration No. 33-14507).
10.1* Deferred Benefit Plan for Directors (incorporated herein by reference to
Exhibit 10(C) to the Registrant's report on Form 10-K for the year ended
December 31, 1984).
10.2 The form of Indemnity Agreement approved by the Registrant's shareholders
at its April 19, 1988 Annual Meeting, as executed with all of the
Directors of the Registrant (incorporated herein by reference to Exhibit
10(F) to the Registrant's report on Form 10-K for the year ended December
31, 1988).
10.3* Incentive Share Grant Plan, as amended, approved by the Registrant's
shareholders at its April 21, 1992 Annual Meeting (incorporated herein by
reference to Exhibit 10 to the Registrant's report on Form 10-K for the
year ended December 31, 1992).
10.4* Non-Employee Director Stock Option Plan, as amended, approved by the
Registrant's shareholders at its April 15, 1997 Annual Meeting
(incorporated herein by reference to Exhibit 4 to the Registrant's Form
S-8 Registration Statement dated July 28, 1997, filed under registration
No. 333-32269).
10.5* Employee Stock Option Plan, as amended, approved by the Registrant's
shareholders at its April 15, 1997 Annual Meeting (incorporated herein by
reference to Exhibit 4 to the Registrant's Form S-8 Registration
Statement dated July 28, 1997, filed under registration No. 333-32267).
10.6 The form of Management Continuity Agreement as executed with executive
officers and certain senior managers (incorporated herein by reference to
Exhibit 10 to the Registrant's report on Form 10-K for the year ended
December 31, 1998).
* Represents a compensation plan.
24