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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, 2004 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 (I.R.S. employer identification no.)
incorporation)
230 W. Main St., P.O. Box 491,
Ionia, Michigan 48846
(Address of principal executive (Zip Code)
offices)
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)
8.25% Cumulative Trust Preferred Securities, $25.00 Liquidation Amount
(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. .
------
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2)
Yes X No
----- -----
The aggregate market value of common stock held by non-affiliates of the
Registrant as of June 30, 2004, was $485,637,027.
The number of shares outstanding of the Registrant's common stock as of March 8,
2005 was 21,250,291.
Documents incorporated by reference
Portions of our definitive proxy statement, and appendix thereto, to be
delivered to shareholders in connection with the April 26, 2005 Annual Meeting
of Shareholders are incorporated by reference into Part I, Part II and Part III
of this annual report.
The Exhibit Index appears on Page 24
Any statements in this document that are not historical facts are
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. Words such as "expect," "believe," "intend," "estimate,"
"project," "may" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements are predicated on
management's beliefs and assumptions based on information known to Independent
Bank Corporation's management as of the date of this document and do not purport
to speak as of any other date. Forward-looking statements may include
descriptions of plans and objectives of Independent Bank Corporation's
management for future or past operations, products or services, and forecasts of
the Company's revenue, earnings or other measures of economic performance,
including statements of profitability, business segments and subsidiaries, and
estimates of credit quality trends. Such statements reflect the view of
Independent Bank Corporation's management as of this date with respect to future
events and are not guarantees of future performance; involve assumptions and are
subject to substantial risks and uncertainties, such as the changes in
Independent Bank Corporation's plans, objectives, expectations and intentions.
Should one or more of these risks materialize or should underlying beliefs or
assumptions prove incorrect, the Company's actual results could differ
materially from those discussed. Factors that could cause or contribute to such
differences are changes in interest rates, changes in the accounting treatment
of any particular item, the results of regulatory examinations, changes in
industries where the Company has a concentration of loans, changes in the level
of fee income, changes in general economic conditions and related credit and
market conditions, and the impact of regulatory responses to any of the
foregoing. Forward-looking statements speak only as of the date they are made.
Independent Bank Corporation does not undertake to update forward-looking
statements to reflect facts; circumstances, assumptions or events that occur
after the date the forward-looking statements are made. For any forward-looking
statements made in this document, Independent Bank Corporation claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
PART I
ITEM 1. BUSINESS
Independent Bank Corporation was incorporated under the laws of the State of
Michigan on September 17, 1973, for the purpose of becoming a bank holding
company. We are registered under the Bank Holding Company Act of 1956, as
amended, and own the outstanding stock of four banks (the "Banks") which are all
organized under the laws of the State of Michigan.
Aside from the stock of our Banks, we have no other substantial assets. We
conduct no business except for the provision of certain management and
operational services to our Banks, the collection of fees and dividends from our
Banks and the payment of dividends to our 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
us. The proportional costs of these plans are borne by each of our Banks and
their respective subsidiaries.
We have no material patents, trademarks, licenses or franchises except the
corporate franchises of our Banks which permit them to engage in commercial
banking pursuant to Michigan law.
The following table shows each of our Banks and their total deposits and loans
as of December 31, 2004:
Main
Office Total Total
Bank Location Deposits Loans
- ---- -------- -------------- --------------
Independent Bank Bay City $1,017,930,000 $1,066,267,000
Independent Bank
West Michigan Rockford 383,460,000 387,825,000
Independent Bank
South Michigan Leslie 303,428,000 276,735,000
Independent Bank
East Michigan Caro 486,463,000 494,463,000
1
ITEM 1. BUSINESS (Continued)
On July 1, 2004 we completed the acquisition of North Bancorp, Inc. North was a
commercial bank headquartered in Northern Michigan. North was merged into
Independent Bank.
On May 31, 2004 we completed the acquisition of Midwest Guaranty Bancorp, Inc.
Midwest was a commercial bank headquartered in southeast Michigan. Midwest was
merged in Independent Bank East Michigan.
On April 15, 2003 we completed the acquisition of Mepco Insurance Premium
Financing, Inc. Mepco is a 40-year old Chicago-based company that specializes in
financing insurance premiums for businesses and extended automobile warranties
for consumers. Mepco is operated as a wholly owned subsidiary of Independent
Bank.
During 2003, we formed IBC Capital Finance II, a Delaware statutory business
trust ("IBC Capital II"). IBC Capital II'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 us. IBC Capital II
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 us and certain related services. As a result,
the sole assets of IBC Capital II are our subordinated debentures. Prior to 2004
the trust was consolidated in our financial statements and the common securities
and subordinated debentures were eliminated in consolidation. Under new
accounting guidance, FASB Interpretation No. 46, as revised in December 2003
("FIN 46R"), the trust is no longer consolidated with Independent Bank
Corporation. The effect of no longer consolidating the trust had no material
impact on our operating results.
In connection with our acquisition of Midwest, we assumed all of the duties,
warranties and obligations of Midwest as the sponsor and sole holder of the
common securities of Midwest Guaranty Trust I ("MGT"). In 2002, MGT, a special
purpose entity, issued common securities to Midwest and trust preferred
securities as part of a pooled offering. Midwest issued subordinated debentures
to the trust in exchange for the proceeds of the offering, which debentures
represent the sole asset of MGT.
In connection with our acquisition of North, we assumed all of the duties,
warranties and obligations of North as the sole general partner of Gaylord
Partners, Limited Partnership ("GPLP"), a special purpose entity. In 2002, North
contributed to the capital of GPLP and GPLP issued floating rate cumulative
preferred securities as part of a private placement offering. North issued
subordinated debentures to GPLP in exchange for the proceeds of the offering,
which debentures represent the sole asset of GPLP.
Our Banks transact business in the single industry of commercial banking. Most
of our Banks' offices provide full-service lobby and drive-thru services in the
communities which they serve. Automatic teller machines are also provided at
most locations.
Our Banks' activities cover all phases of commercial banking, including checking
and savings accounts, commercial lending, direct and indirect consumer
financing, mortgage lending, insurance premium and automobile warranty financing
and safe deposit box services. Our Banks' mortgage lending activities are
primarily conducted through separate mortgage bank subsidiaries. Insurance
premium and automobile warranty financing activity is conducted through a
separate subsidiary owned by one of our Banks. Our Banks also offer title
insurance services through a separate subsidiary and provide investment and
insurance services through a third party agreement with PrimeVest Financial
Services, Inc. Our Banks do not offer trust services. Our principal markets are
the rural and suburban communities across lower Michigan that are served by our
Banks' branch networks. The local economies of the communities served by our
Banks are relatively stable and reasonably diversified. Our Banks serve their
markets through their four main offices and a total of 88 branches, 4 drive-thru
facilities and 14 loan production offices.
Our 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 we do and offer certain services that
we do not currently provide. Such competitors may also have greater lending
limits than our Banks. Competition may increase as a result of the
Gramm-Leach-Bliley Act of 1999 (the "GLB Act"), and 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
us.
2
ITEM 1. BUSINESS (Continued)
Price (the interest charged on loans and/or paid on deposits) remains a
principal means of competition within the financial services industry. Our Banks
also compete on the basis of service and convenience, utilizing the strengths
and benefits of our decentralized structure in 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 revenue
for the three most recent years are as follows:
2004 2003 2002
----- ----- -----
Interest and fees on loans 69.8% 65.3% 68.0%
Other interest income 11.3 11.3 12.8
Non-interest income 18.9 23.4 19.2
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
As of March 8, we had 1,089 full-time employees and 287 part-time employees.
Supervision and Regulation
The following is a summary of certain statutes and regulations affecting us.
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 us and our Banks.
General
Financial institutions and their holding companies are extensively regulated
under Federal and state law. Consequently, our growth and earnings performance
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 Michigan Office of Financial and Insurance Services, Division of
Financial Institutions (the "OFIS"), 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 us establishes a comprehensive
framework for our operations and is intended primarily for the protection of the
FDIC's deposit insurance funds, the depositors of our Banks, and the public,
rather than our shareholders.
Federal law and regulations establish supervisory standards applicable to the
lending activities of our Banks, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
Independent Bank Corporation
General. We are a bank holding company and, as such, are registered with, and
subject to regulation by, the Federal Reserve under the Bank Holding Company
Act, as amended (the "BHCA"). Under the BHCA, we are subject to periodic
examination by the Federal Reserve, and are required to file periodic reports of
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 OFIS deems a bank's capital to be impaired, the OFIS 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
3
ITEM 1. BUSINESS (Continued)
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 OFIS 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 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 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.
Eligible bank holding companies that elect to operate as financial holding
companies may engage in, or own shares in companies engaged in, a wider range of
nonbanking activities, including securities and insurance activities and any
other activity that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines by regulation or order is financial in
nature, incidental to any such financial activity or complementary to any such
financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. The Bank
Holding Company Act generally does not place territorial restrictions on the
domestic activities of non-bank subsidiaries of bank or financial holding
companies. While we believe we are eligible to elect to operate as a financial
holding company, as of the date of this filing, we have not applied for approval
to operate as a financial holding company.
4
ITEM 1. BUSINESS (Continued)
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. The Federal Reserve has not advised us of any specific minimum
Tier 1 Capital leverage ratio applicable to us.
Included in our Tier 1 capital is $62.4 million of trust preferred securities
(classified on our balance sheet as "Subordinated debentures"). In March 2005,
the Federal Reserve Board issued a final rule that would retain trust preferred
securities in the Tier 1 capital of bank holding companies. After a transition
period ending March 31, 2009, the aggregate amount of trust preferred securities
and certain other capital elements would be limited to 25 percent of Tier 1
capital elements, net of goodwill (less any associated deferred tax liability).
The amount of trust preferred securities and certain other elements in excess of
the limit could be included in the Tier 2 capital, subject to restrictions.
Based upon our existing levels of Tier 1 capital, trust preferred securities and
goodwill, this final Federal Reserve Board rule would have reduced our Tier 1
capital to average assets ratio by approximately 25 basis points at December 31,
2004 (this calculation assumes no transition period).
The Federal bank regulatory agencies are required 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. Most of our revenues will be received in the form of dividends, if
any, paid by our Banks. Thus, our ability to pay dividends to our shareholders
will indirectly be limited by statutory restrictions on the ability of our Banks
to pay dividends. Further, in a policy statement, the Federal Reserve has
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 weaken 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 amount of dividends that an insured bank can pay 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. We do not have any holders of preferred stock.
Federal Securities Regulation. Our common stock is registered with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We are therefore subject to the information, proxy solicitation, insider
trading and other restrictions and requirements of the SEC under the Exchange
Act. The Sarbanes-Oxley Act of 2002 provides for numerous changes to the
reporting, accounting, corporate governance and business practices of companies
as well as financial and other professionals who have involvement with the U.S.
public markets.
5
ITEM 1. BUSINESS (Continued)
Our Banks
General. Our Banks are Michigan banking corporations and their deposit accounts
are insured by the Bank Insurance Fund ("BIF") of the FDIC. As BIF-insured
Michigan chartered banks, our Banks are subject to the examination, supervision,
reporting and enforcement requirements of the OFIS, 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 our 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.
The Federal Deposit Insurance Corporation Improvement Act ("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. If the actual reserve drops below the current mandated reserve of
1.25% then our BIF insurance assessments may increase.
FICO Assessments. Our Banks, as members of BIF, are subject to assessments to
cover the payments on outstanding obligations of the financing corporation
("FICO"). FICO was created 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. From now until 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. It is estimated that FICO assessments during
this period will be less than 0.025% of deposits.
OFIS Assessments. Michigan banks are required to pay supervisory fees to the
OFIS to fund the OFIS's operations. The amount of supervisory fees paid by a
bank is based upon the bank's total assets.
Capital Requirements. The FDIC has established the following minimum capital
standards for state-chartered, FDIC-insured non-member banks, such as our 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.
6
ITEM 1. BUSINESS (Continued)
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
At December 31, 2004, each of our Bank's ratios exceeded minimum requirements
for the well-capitalized category.
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.
Dividends. Under Michigan law, banks are restricted as to the maximum amount of
dividends they may pay on their common stock. Our Banks may not pay dividends
except out of their net income after deducting their 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.
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.
Insider Transactions. Our Banks are subject to certain restrictions imposed by
the Federal Reserve Act on "covered transactions" with us or our subsidiaries on
investments in our stock or other securities issued by us or our subsidiaries
and the acceptance of our stock or other securities issued by us or our
subsidiaries as collateral for loans. Certain limitations and reporting
requirements are also placed on extensions of credit by our Banks to their
directors and officers, to our directors and officers and those of our
subsidiaries, to our principal shareholders, 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 one of our
directors or officers or a principal shareholder may obtain credit from banks
with which our Banks maintain a correspondent relationship.
7
ITEM 1. BUSINESS (Continued)
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.
Investment and Other Activities. Under federal law and FDIC regulations,
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 our Banks.
Consumer Banking. Our Banks' business includes making a variety of types of
loans to individuals. In making these loans, our Banks are subject to State
usury and regulatory laws and to various Federal statutes, including the privacy
of consumer financial information provisions of the Gramm Leach-Bliley Act and
regulations promulgated thereunder, 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 our Banks, including the maintenance and operation of
escrow accounts and the transfer of mortgage loan servicing. In receiving
deposits, our 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 our Banks and their respective
directors and officers.
Branching Authority. Michigan banks, such as our Banks, have the authority
under Michigan law to establish branches anywhere in the State of Michigan,
subject to receipt of all required regulatory approvals.
Banks may establish interstate branch networks through acquisitions of other
banks. 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 only if specifically authorized
by state law.
Michigan 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 the OFIS (1) acquisition of Michigan banks by FDIC-insured
banks, savings banks or savings and loan associations located in other states,
(2) sale by a Michigan bank of branches to an FDIC-insured bank, savings bank or
savings and loan association located in a state in which a Michigan bank could
purchase branches of the purchasing entity, (3) consolidation of Michigan banks
and FDIC-insured banks, savings banks or savings and loan associations located
in other states having laws permitting such consolidation, (4) establishment 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 a
Michigan bank to establish a branch in such jurisdiction, and (5) establishment
by foreign banks of branches located in Michigan.
Mepco Insurance Premium Financing, Inc.
Our subsidiary, Mepco Insurance Premium Financing, Inc., is engaged in the
business of insurance premium financing and the financing of extended vehicle
service contracts throughout the United States. Most States specifically
regulate premium financing, including requiring premium finance companies to be
licenced, limiting the amount of finance and other charges that can be imposed
on borrowings and regulating the refund of unearned premiums. In addition to
being subject to these laws, Mepco is subject to other federal and state laws
generally applicable to lending and related activities.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and all amendments to those reports are available free of charge
through our website at www.ibcp.com as soon as reasonably practicable after
filing with the SEC.
8
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" of the
Appendix to our definitive proxy statement, to be delivered to shareholders in
connection with the April 26, 2005 Annual Meeting of Shareholders (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:
2004 2003 2002
-------- -------- --------
(in thousands)
Available for sale
U.S. Treasury $ 9,924 $ 301 $ 306
States and political subdivisions 244,488 197,791 162,917
Mortgage-backed 222,454 138,986 84,923
Other asset-backed 23,577 33,130 42,138
Trust preferred 19,916 31,078 33,211
Preferred stock 25,913 30,263 26,297
Corporate 2,000 21,909 20,817
Other 2,636 538 637
-------- -------- --------
Total $550,908 $453,996 $371,246
======== ======== ========
9
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
II. INVESTMENT PORTFOLIO (Continued)
(B) The following table sets forth contractual maturities of securities at
December 31, 2004 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)
Available for sale
U.S. Treasury $ 9,924 3.07%
States and political
subdivisions 8,412 7.65 43,158 7.27 $ 65,046 7.26% $127,872 6.33%
Mortgage-backed 3,689 4.31 157,615 4.49 60,932 5.83 218 6.40
Other asset-backed 3,983 7.40 17,089 6.30 2,505 7.72
Trust preferred 19,916 6.29
Preferred stock 2,044 7.86 23,869 4.88
Corporate 2,000 5.21
Other securities 99 3.20 2,537 5.83
------- -------- -------- --------
Total $18,084 6.64% $229,929 5.11% $128,483 6.59% $174,412 6.12%
======= ======== ======== ========
Tax equivalent adjustment
for calculations of yield $ 225 $ 1,153 $ 1,547 $ 3,141
======= ======== ======== ========
The rates set forth in the tables above for obligations of state and political
subdivisions and preferred stock 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
Available for sale Rate Adjustment Equivalent Basis
- ------------------ ---------- ---------- ----------------
Under 1 year 4.97% 2.68% 7.65%
1-5 years 4.82 2.55 7.37
5-10 years 4.72 2.54 7.26
After 10 years 4.01 2.07 6.08
10
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
III. LOAN PORTFOLIO
(A) The following table sets forth total loans outstanding at December 31:
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
(in thousands)
Loans held for sale $ 38,756 $ 32,642 $ 129,577 $ 77,220 $ 20,817
Real estate mortgage 773,609 681,602 601,799 661,462 772,223
Commercial 931,251 603,558 536,715 482,046 381,066
Installment 266,042 234,562 242,928 241,176 226,375
Finance receivables 254,388 147,671
---------- ---------- ---------- ---------- ----------
Total Loans $2,264,046 $1,700,035 $1,511,019 $1,461,904 $1,400,481
========== ========== ========== ========== ==========
The loan portfolio is periodically and systematically reviewed and the
results of these reviews are reported to our Boards of Directors. 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, 2004:
Due
Due After One Due
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- ----------
(in thousands)
Real estate mortgage $ 72,759 $ 59,412 $ 4,588 $ 136,759
Commercial 522,626 341,189 67,436 931,251
Finance receivables 194,184 60,204 254,388
-------- -------- ------- ----------
Total $789,569 $460,805 $72,024 $1,322,398
======== ======== ======= ==========
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, 2004:
Fixed Variable
Rate Rate Total
-------- -------- --------
(in thousands)
Due after one but within five years $401,900 $58,905 $460,805
Due after five years 71,651 373 72,024
-------- ------- --------
Total $473,551 $59,278 $532,829
======== ======= ========
11
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
III. LOAN PORTFOLIO (Continued)
(C) The following table sets forth non-performing loans at December 31:
2004 2003 2002 2001 2000
------- ------- ------ ------ ------
(in thousands)
(a) Loans accounted for on a
non-accrual basis (1, 2) $11,804 $ 9,122 $5,738 $5,990 $5,200
(b)Aggregate amount of loans
ninety days or more past due
(excludes loans in (a) above) 3,123 3,284 3,961 2,771 1,571
(c)Loans not included above which
are "troubled debt restructurings"
as defined in Statement of
Financial Accounting
Standards No. 15(2) 218 335 270 285 260
------- ------- ------ ------ ------
Total non-performing loans $15,145 $12,741 $9,969 $9,046 $7,031
======= ======= ====== ====== ======
(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 $1,089,000 would have been earned in 2004 had
loans in categories (a) and (c) remained at their original terms; however,
only $278,000 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 $7,900,000 at December 31,
2004. 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 our Banks.
At December 31, 2004, 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, 2004, 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, 2004.
12
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:
2004 2003 2002
---------- ---------- ----------
(dollars in thousands)
Total loans outstanding at the end of
the year (net of unearned fees) $2,264,046 $1,700,035 $1,511,019
========== ========== ==========
Average total loans outstanding for
the year (net of unearned fees) $2,012,181 $1,623,565 $1,437,925
========== ========== ==========
Unfunded Unfunded Unfunded
Loan Commit- Loan Commit- Loan Commit-
Losses ments Losses ments Losses ments
------- -------- ------- -------- ------- --------
Balance at beginning of year $16,836 $ 892 $15,830 $875 $15,286 $881
------- ------ ------- ---- ------- ----
Loans charged-off
Real estate mortgage 677 413 626
Commercial 849 1,628 1,002
Installment 3,194 2,412 2,129
Finance receivables 221 160
------- ------- -------
Total loans charged-off 4,941 4,613 3,757
------- ------- -------
Recoveries of loans previously
charged-off
Real estate mortgage 39 115 46
Commercial 190 216 73
Installment 1,012 756 614
Finance receivables 10
------- ------- -------
Total recoveries 1,251 1,087 733
------- ------- -------
Net loans charged-off 3,690 3,526 3,024
Additions to allowance charged to
operating expense 3,355 954 4,015 17 3,568 (6)
Allowance on loans from businesses acquired 8,236 517
------- ------ ------- ---- ------- ----
Balance at end of year $24,737 $1,846 $16,836 $892 $15,830 $875
======= ====== ======= ==== ======= ====
Net loans charged-off as a percent of
average loans outstanding (includes
loans held for sale) for the year .18% .22% .21%
Allowance for loan losses as a
percent of loans outstanding (includes
loans held for sale) at the end of the year 1.09 .99 1.05
13
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
2001 2000
---------- ----------
(dollars in thousands)
Total loans outstanding at the end of
the year (net of unearned fees) $1,461,904 $1,400,481
========== ==========
Average total loans outstanding for
the year (net of unearned fees) $1,428,194 $1,352,356
========== ==========
Unfunded Unfunded
Loan Commit- Loan Commit-
Losses ments Losses ments
------- -------- ------- --------
Balance at beginning of year $13,509 $473 $12,618 $367
------- ---- ------- ----
Loans charged-off
Real estate mortgage 125 176
Commercial 514 1,205
Installment 1,557 1,587
Finance receivables
------- -------
Total loans charged-off 2,196 2,968
------- -------
Recoveries of loans previously
charged-off
Real estate mortgage 5 5
Commercial 65 109
Installment 574 564
------- -------
Total recoveries 644 678
------- -------
Net loans charged-off 1,552 2,290
Additions to allowance charged to
operating expense 3,329 408 3,181 106
Allowance on loans from business acquired
------- ---- ------- ----
Balance at end of year $15,286 $881 $13,509 $473
======= ==== ======= ====
Net loans charged-off as a percent of
average loans outstanding (includes loans
held for sale) for the year .11% .17%
Allowance for loan losses as a
percent of loans outstanding
(includes loans held for sale)
at the end of the year 1.05 .96
The allowance for loan losses reflected above is a valuation allowance in
its entirety and the only allowance available to absorb probable loan losses.
Further discussion of the provision and allowance for loan losses (a
critical accounting policy) 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
ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)
IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
(B) Our 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:
2004 2003 2002
----------------------- ----------------------- -----------------------
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 $13,640 41.1% $ 8,088 35.5% $ 7,543 35.5%
Real estate mortgage 988 35.9 442 42.0 464 48.4
Installment 2,769 11.8 1,299 13.8 1,311 16.1
Finance receivables 964 11.2 699 8.7
Unallocated 6,376 6,308 6,512
------- ----- ------- ----- ------ -----
Total $24,737 100.0% $16,836 100.0% $15,830 100.0%
======= ===== ======= ===== ======= =====
2001 2000
----------------------- -----------------------
Percent Percent
Allowance of Loans to Allowance of Loans to
Amount Total Loans Amount Total Loans
--------- ----------- --------- -----------
(dollars in thousands)
Commercial $ 8,183 33.0% $ 4,490 27.4%
Real estate mortgage 278 50.5 1,226 56.4
Installment 1,279 16.5 1,794 16.2
Unallocated 5,546 5,999
------- ----- ------- -----
Total $15,286 100.0% $13,509 100.0%
======= ===== ======= =====
15
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:
2004 2003 2002
----------------- ---------------------- -----------------
Average Average Average
Balance Rate Balance Rate Balance Rate
---------- ---- ---------- ---- ---------- ----
(dollars in thousands)
Non-interest bearing demand $ 240,800 $ 183,032 $ 156,294
Savings and NOW 805,885 0.56% 688,697 0.71% 634,357 1.17%
Time deposits 912,285 2.61 741,731 3.09 688,297 4.02
---------- ---------- ----------
Total $1,958,970 1.45% $1,613,460 1.72% $1,478,948 2.38%
========== ========== ==========
The following table summarizes time deposits in amounts of $100,000 or more
by time remaining until maturity at December 31, 2004:
(in thousands)
--------------
Three months or less $192,657
Over three through six months 105,912
Over six months through one year 119,720
Over one year 286,149
--------
Total $704,438
========
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:
2004 2003 2002 2001 2000
----- ----- ----- ----- -----
Net income as a percent of
Average common equity 19.42% 24.89% 21.34% 18.52% 16.59%
Average total assets 1.42 1.69 1.52 1.35 1.15
Dividends declared per share as a
percent of diluted net income per share 35.9 31.6 30.38 32.28 34.31
Average shareholders' equity as a percent
of average total assets 7.31 6.80 7.14 7.28 6.92
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 9 to the consolidated financial
statements incorporated herein by reference in Item 8, Part II of this report.
16
ITEM 2. PROPERTIES
We and our Banks operate a total of 118 facilities in Michigan and 1 facility in
Chicago, Illinois. The individual properties are not materially significant to
us or our 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 our business, our 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.
Currently, we are not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
ADDITIONAL ITEM - EXECUTIVE OFFICERS
Our executive officers are appointed annually by our Board of Directors at the
meeting of Directors preceeding the Annual Meeting of Shareholders. There are no
family relationships among these officers and/or our Directors 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 our executive
officers and certain key officers of our subsidiaries (included for information
purposes only) at December 31, 2004.
First elected
as an executive
Name (Age) Position officer
- ---------- -------- ---------------
Charles C. Van Loan (57) Chairman of the Board of Directors 1984
Michael M. Magee, Jr. (49) President, Chief Executive Officer and Director 1993
Robert N. Shuster (47) Executive Vice President and Chief Financial Officer 1999
Edward B. Swanson (51) President and Chief Executive Officer - Independent 1989
Bank South Michigan
William B. Kessel (40) President and Chief Executive Officer - Independent 2004
Bank
Ronald L. Long (45) President and Chief Executive Officer - Independent 1993
Bank East Michigan
David C. Reglin (45) President and Chief Executive Officer - Independent 1998
Bank West Michigan
Peter R. Graves (47) Senior Vice President, Commercial Loans 1999
Independent Bank Corporation
Richard E. Butler (53) Senior Vice President, Operations - Independent 1998
Bank Corporation
James J. Twarozynski (39) Senior Vice President, Controller - Independent 2002
Bank Corporation
Prior to being named as chairman of the board in effective January 1, 2005, Mr.
Van Loan was President and Chief Executive Officer of Independent Bank
Corporation since 1993.
Prior to being named as President and Chief Executive Officer on January 1,
2005, Mr. Magee was Executive Vice President and COO since 2004 and prior to
that was President and Chief Executive Officer of Independent Bank since 1993.
Prior to being named Executive Vice President and Chief Financial Officer in
2001, Mr. Shuster was President and Chief Executive Officer of Independent Bank
MSB since 1999 and President and CEO of Mutual Savings Bank, f.s.b since 1994.
Prior to being named President and Chief Executive officer in 2004, Mr. Kessel
was Senior Vice President of Independent Bank since 1996.
Prior to being named Senior Vice President in 1999, Mr. Graves was Vice
President of our Commercial Loan Services Department.
Prior to being named Senior Vice President in 2002, Mr. Twarozynski was Vice
President and Controller.
18
PART II.
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The information set forth under the caption "Quarterly Summary " in the Appendix
to our definitive proxy statement, to be delivered to shareholders in connection
with the April 26, 2005 Annual Meeting of Shareholders (as filed as exhibit 13
to this report on Form 10-K) is incorporated herein by reference.
The following table shows certain information relating to purchases of common
stock for the three-months ended December 31, 2004 pursuant to our share
repurchase plan:
Remaining
Total Number of Number of
Shares Purchased Shares
as Part of a Authorized for
Total Number of Average Price Publicly Purchase Under
Period Shares Purchased(1) Paid Per Share Announced Plan(2) the Plan(3)
- ------------- ------------------- -------------- ----------------- --------------
October 2004 288 $27.10 288
November 2004
December 2004 855 29.83 855
----- ------ ----- ---
Total 1,143 $29.14 1,143 0
===== ====== ===== ===
(1) All of the shares purchased were used to fund our Deferred Compensation and
Stock Purchase Plan for Non-employee Directors.
(2) Our current stock repurchase plan, announced December 4, 2003, authorizes
the purchase up to 750,000 shares of our common stock. The repurchase plan
expired on December 31, 2004.
(3) The stock purchase plan announced December 4, 2003 expired on December 31,
2004 in accordance with its stated expiration date. A new stock purchase
plan was announced February 9, 2005, authorizing the purchase up to 750,000
shares of our common stock. This purchase plan expires on December 31,
2005.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Consolidated Financial
Data" in the Appendix to our definitive proxy statement, to be delivered to
shareholders in connection with the April 26, 2005 Annual Meeting of
Shareholders (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" in the Appendix to
our definitive proxy statement, to be delivered to shareholders in connection
with the April 26, 2005 Annual Meeting of Shareholders (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" in the
Appendix to our definitive proxy statement, to be delivered to shareholders in
connection with the April 26, 2005 Annual Meeting of Shareholders (as filed as
exhibit 13 to this report on Form 10-K) is incorporated herein by reference.
19
PART II.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and the independent auditor's
report are set forth in the Appendix to our definitive proxy statement, to be
delivered to shareholders in connection with the April 26, 2005 Annual Meeting
of Shareholders (as filed as exhibit 13 to this report on Form 10-K) is
incorporated herein by reference.
Management's Annual Report on Internal Controls Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at
December 31, 2004 and 2003
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
The supplementary data required by this item set forth under the caption
"Quarterly Financial Data" in the Appendix to our definitive proxy statement, to
be delivered to shareholders in connection with the April 26, 2005 Annual
Meeting of Shareholders (as filed as exhibit 13 to this report on Form 10-K) is
incorporated herein by reference.
The portions of the Appendix to our definitive proxy statement, to be delivered
to shareholders in connection with the April 26, 2005 Annual Meeting of
Shareholders (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
ITEM 9A. CONTROLS AND PROCEDURES
1. Evaluation of Disclosure Controls and Procedures. With the participation
of management, our chief executive officer and chief financial officer,
after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a - 15e and 15d - 15e) as of
the year ended December 31, 2004 (the "Evaluation Date"), have concluded
that, as of such date, our disclosure controls and procedures were
effective.
2. Management's Annual Report on Internal Control Over Financial Reporting
under Item 8 hereof is included in the 2004 Annual Report under the caption
"Management's Annual Report on Internal Control over Financial Reporting"
and is incorporated herein by reference. The Company's accounting firm's
attestation on that Report is also included in the 2004 Annual Report under
the first captioned Report of Independent Registered Public Accounting Firm
under item 8 hereof and is incorporated herein by reference.
3. There were no changes in our internal control over financial reporting
during the quarter ended December 31, 2004, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
20
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS - The information with respect to our Directors, set forth under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in our definitive proxy statement, to be delivered to
shareholders in connection with the April 26, 2005 Annual Meeting of
Shareholders is incorporated herein by reference.
EXECUTIVE OFFICERS - Reference is made to additional item under Part I of this
report on Form 10-K.
We have adopted a Code of Ethics for our Chief Executive Officer and Senior
Financial Officers. A copy of our Code of Ethics is posted on our website at
www.ibcp.com, under Investor Relations, and a printed copy is available upon
request by writing to our Chief Financial Officer, Independent Bank Corporation,
P.O. Box 491, Ionia, Michigan 48846.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table",
"Option Grants in 2004" and "Aggregated Stock Option Exercises in 2004 and Year
End Option Values" in our definitive proxy statement, to be delivered to
shareholders in connection with the April 26, 2005 Annual Meeting of
Shareholders is incorporated herein by reference. Information under the caption
"Committee Report on Executive Compensation" in our 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" in our
definitive proxy statement, to be delivered to shareholders in connection with
the April 26, 2005 Annual Meeting of Shareholders is incorporated herein by
reference. Information under the captions "Shareholder Return Performance Graph"
and "Committee Report on Executive Compensation" in our definitive proxy
statement is not incorporated by reference herein and is not deemed to be filed
with the Securities and Exchange Commission.
We maintain certain equity compensation plans under which common stock is
authorized for issuance to employees and directors, including our Incentive
Share Grant Plan, Non-employee Director Stock Option Plan, Employee Stock Option
Plan and Long-Term Incentive Plan.
The following sets forth certain information regarding our equity compensation
plans as of December 31, 2004.
(c)
Number of securities
(a) remaining available for
Number of securities (b) future issuance under
to be issued upon Weighted-average equity compensation
exercise of outstanding exercise price of plans (excluding
options, warrants outstanding options, securities reflected
Plan Category and rights (1) warrants and rights in column (a))
- ------------- ----------------------- -------------------- -----------------------
Equity compensation plans
approved by security holders 1,170,000 $17.69 141,000
========= ====== =======
Equity compensation plan
not approved by security holders None None
(1) We have not granted warrants or rights applicable to this chart.
21
PART III.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Transactions Involving Management"
in our definitive proxy statement, to be delivered to shareholders in connection
with the April 26, 2005 Annual Meeting of Shareholders is incorporated herein by
reference.
PART IV.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information set forth under the caption "Audit Matters and Our Relationship
With Our Independent Public Accountants" in our definitive proxy statement, to
be delivered to shareholders in connection with the April 26, 2005 Annual
Meeting of Shareholders is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
All of our financial statements are incorporated herein by reference
as set forth in the Appendix to our definitive proxy statement, to be
delivered to shareholders in connection with the April 26, 2005 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.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, we have duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, dated March 8, 2005.
INDEPENDENT BANK CORPORATION
/s/ Michael M. Magee, Jr. Michael M. Magee, Jr., President and
- --------------------------- Chief Executive Officer
(Principal Executive Officer)
/s/ Robert N. Shuster Robert N. Shuster, Executive Vice President and
- --------------------------- Chief Financial Officer
(Principal Financial Officer)
/s/ James J. Twarozynski James J. Twarozynski, Senior 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 our behalf and in the
capacities and on the dates indicated. Each director whose signature appears
below hereby appoints Michael M. Magee, Jr. and Robert N. Shuster and each of
them severally, as his attorney-in-fact, to sign in his name and on his behalf,
as a director, and to file with the Commission any and all amendments to this
Report on Form 10-K.
Stephen L. Gulis, Jr., Director /s/ Stephen L. Gulis, Jr.
----------------------------------------------
Terry L. Haske, Director /s/ Terry L. Haske
----------------------------------------------
Robert L. Hetzler, Director /s/ Robert L. Hetzler
----------------------------------------------
Michael M. Magee, Director /s/ Michael M. Magee, Jr.
----------------------------------------------
James E. McCarty, Director /s/ James E. McCarty
----------------------------------------------
Charles A. Palmer, Director /s/ Charles A. Palmer
----------------------------------------------
Charles C. Van Loan, Director /s/ Charles C. Van Loan
----------------------------------------------
Jeffrey A. Bratsburg, Director /s/ Jeffrey A. Bratsburg
----------------------------------------------
23
EXHIBIT INDEX
Exhibit number and description
EXHIBITS FILED HEREWITH
10.9 Escrow Agreement, dated September 30, 2004, made by and among
Independent Bank Corporation, The Edward M. Walder Trust and The Paul
M. Walder Trust, and J.P. Morgan Trust Company, N.A.
13 Appendix to our definitive proxy statement, relating to the April 26,
2005 Annual Meeting of Shareholders. This appendix will be filed with
the Commission as part of our proxy statement and will be delivered to
our 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 23).
31.1 Certificate of the Chief Executive Officer of Independent Bank
Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
31.2 Certificate of the Chief Financial Officer of Independent Bank
Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
32.1 Certificate of the Chief Executive Officer of Independent Bank
Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
32.2 Certificate of the Chief Financial Officer of Independent Bank
Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350).
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 herein by reference to Exhibit 2.1 to our Form S-4
Registration Statement dated May 28, 1999, filed under Registation No.
333-79679).
2.1 Agreement and plan of merger between Independent Bank Corporation and
Midwest Guaranty Bancorp, Inc., dated February 4, 2004 (incorporated
herein by reference to Appendix A to our Form S-4 Registration
Statement dated March 23, 2004, filed under Registration No.
333-113854).
2.2 Agreement and plan of merger between Independent Bank Corporation and
North Bancorp, Inc., dated March 4, 2004 (incorporated herein by
reference to Appendix A to our amended Form S-4 Registration Statement
dated May 21, 2004, filed under Registration No. 333-114782).
3.1 Restated Articles of Incorporation (incorporated herein by reference to
Exhibit 3(i) to our report on Form 10-Q for the quarter ended June 30,
1994).
3.1(a) Amendments to Article III and Article VI of the Articles of
Incorporation (incorporated herein by reference to Exhibit 3.1(a) to
our report on Form 10-K for the year ended December 31, 2000).
3.2 Amended and Restated Bylaws (incorporated herein by reference to
Exhibit 3(ii) to our 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 our Form S-3 Registration
Statement dated May 24, 2002, filed under Registration No. 3380088).
24
EXHIBIT INDEX (Continued)
4.1 Certificate of Trust of IBC Capital Finance II dated February 26, 2003
(incorporated herein by reference to Exhibit 4.1 to our report on Form
10-Q for the quarter ended March 31, 2003).
4.2 Amended and Restated Trust Agreement of IBC Capital Finance II dated
March 19, 2003 (incorporated herein by referrence to Exhibit 4.2 to our
report on Form 10-Q for the quarter ended March 31, 2003).
4.3 Preferred Securities Certificate of IBC Capital Finance II dated March
19, 2003 (incorporated herein by reference to Exhibit 4.3 to our report
on Form 10-Q for the quarter ended March 31, 2003).
4.4 Preferred Securities Guarantee Agreement dated March 19, 2003
(incorporated herein by reference to Exhibit 4.4 to our report on Form
10-Q for the quarter ended March 31, 2003).
4.5 Agreement as to Expenses and Liabilities dated March 19, 2003
(incorporated herein by reference to Exhibit 4.5 to our report on Form
10-Q for the quarter ended March 31, 2003).
4.6 Indenture dated March 19, 2003 (incorporated herein by reference to
Exhibit 4.6 to our report on Form 10-Q for the quarter ended March 31,
2003).
4.7 8.25% Junior Subordinated Debenture of Independent Bank Corporation
dated March 19, 2003 (incorporated herein by reference to Exhibit 4.6
to our report on Form 10-Q for the quarter ended March 31, 2003).
10.1* Deferred Benefit Plan for Directors (incorporated herein by reference
to Exhibit 10(C) to our report on Form 10-K for the year ended December
31, 1984).
10.2 The form of Indemnity Agreement approved by our 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
our report on Form 10-K for the year ended December 31, 1988).
10.3* Incentive Share Grant Plan, as amended, approved by our shareholders at
its April 21, 1992 Annual Meeting (incorporated herein by reference to
Exhibit 10 to our report on Form 10-K for the year ended December 31,
1992).
10.4* Non-Employee Director Stock Option Plan, as amended, approved by our
shareholders at its April 15, 1997 Annual Meeting (incorporated herein
by reference to Exhibit 4 to our 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 our shareholders at
its April 17, 2000 Annual Meeting (incorporated herein by reference to
Exhibit 4 to our Form S-8 Registration Statement dated October 8, 2000,
filed under registration No. 333-47352).
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 our report on Form 10-K for the year ended December
31, 1998).
10.7* Independent Bank Corporation Long-term Incentive Plan, approved by our
shareholders at its April 16, 2002 Annual Meeting (incorporated herein
by reference to Exhibit 4 to our Form S-8 Registration Statement dated
May 24, 2002, filed under registration No. 333-89072).
10.8 Agreement and Plan of Merger by and among Independent Bank Corporation,
IBC Merger Co., Mepco Insurance Premium Financing, Inc., and the
shareholders of Mepco Insurance Premium Financing, Inc., dated February
24, 2003 (incorporated herein by reference to Exhibit 99.2 to our Form
8-K dated February 24, 2003).
* Represents a compensation plan.
25