10-K 1 k74340e10vk.txt ANNUAL REPORT 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, 2002 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 -------------------------------------------------------------------------------- (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. X . ----- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b2) Yes X No ----- ----- The aggregate market value of common stock held by non-affiliates of the Registrant as of June 30, 2002, was $336,942,576. The number of shares outstanding of the Registrant's common stock as of February 24, 2003 was 17,879,977. Documents incorporated by reference Portions of our definitive proxy statement, and appendix thereto, to be delivered to shareholders in connection with the April 17, 2003 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, 2002:
Main Office Total Total Bank Location Deposits Loans ---- -------- -------- ----- Independent Bank Bay City $679,029,000 $686,272,000 Independent Bank West Michigan Rockford 332,476,000 347,536,000 Independent Bank South Michigan Leslie 256,326,000 251,345,000 Independent Bank East Michigan Caro 274,956,000 225,866,000
1 ITEM 1. BUSINESS (Continued) Independent Bank (formerly Independent Bank MSB) merged with Independent Bank in 2001. Independent Bank MSB affiliated with the Registrant on September 15, 1999. On November 7, 1996, we 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 us. 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 us and certain related services. As a result, the sole assets of IBC Capital are our subordinated debentures. 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 and safe deposit box services. Our Banks' mortgage lending activities are primarily conducted through separate mortgage bank subsidiaries formed during 1998. Our Banks also offer title insurance services through a separate subsidiary. 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 77 branches, 4 drive-thru facilities and 12 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. 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 income for the three most recent years are as follows:
2002 2001 2000 ---- ---- ---- Interest and fees on loans 68.0% 72.9% 75.8% Other interest income 12.8 10.4 11.7 Non-interest income 19.2 16.7 12.5 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
As of December 31, 2002, we had 915 full-time employees and 275 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. 2 ITEM 1. BUSINESS (Continued) 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 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 3 ITEM 1. BUSINESS (Continued) 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. 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. 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. 4 ITEM 1. BUSINESS (Continued) 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 we can pay by 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. 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. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act 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. The SEC continues to issue new and proposed rules implementing various provisions of the Sarbanes-Oxley Act. 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 5 ITEM 1. BUSINESS (Continued) 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. 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, 2002, 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. 6 ITEM 1. BUSINESS (Continued) 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 director's or officer's or a principal shareholder may obtain credit from banks with which our 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. 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. 7 ITEM 1. BUSINESS (Continued) 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. 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 17, 2003 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:
2002 2001 2000 ---- ---- ---- (in thousands) Held to maturity States and political subdivisions $ 7,626 Mortgage-backed 11,972 Other 500 -------- Total $ 20,098 ======== Available for sale U.S. Treasury $ 306 $ 10,282 $ 303 U.S. Government agencies 1,982 States and political subdivisions 162,917 131,794 102,251 Mortgage-backed 84,923 75,806 51,345 Other asset-backed 42,138 3,200 Trust preferred 33,211 31,807 31,991 Preferred stock 26,297 19,636 23,049 Corporate 20,817 17,082 6,022 Other 637 696 504 -------- -------- -------- Total $371,246 $290,303 $217,447 ======== ======== ========
9 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) II. INVESTMENT PORTFOLIO (Continued) (B) The following table sets forth contractual maturities of securities at December 31, 2002 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 $ 306 3.03% States and political subdivisions $ 2,260 8.68% 19,735 7.80 $44,964 7.60% $ 95,958 7.44% Mortgage-backed 27,689 6.43 56,985 6.35 59 5.82 190 6.45 Other asset-backed 4,825 6.24 17,631 5.43 19,682 6.76 Trust preferred 33,211 7.10 Preferred stock 26,297 6.60 Corporate 1,454 5.29 19,363 6.09 Other securities 637 4.84 ------- -------- ------- -------- Total $36,228 6.50% $114,020 6.40% $64,705 7.34% $156,293 7.21% ======= ======== ======= ======== Tax equivalent adjustment for calculations of yield $ 69 $ 539 $ 1,196 $ 2,959 ======= ======== ======= ========
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 5.64% 3.04% 8.68% 1-5 years 5.07 2.73 7.80 5-10 years 4.94 2.66 7.60 After 10 years 4.83 2.42 7.25
10 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) III. LOAN PORTFOLIO (A) The following table sets forth total loans outstanding at December 31:
2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (in thousands) Loans held for sale $ 129,577 $ 77,220 $ 20,817 $ 12,950 $ 45,699 Real estate mortgage 601,799 661,462 772,223 757,019 695,489 Commercial 536,715 482,046 381,066 334,212 277,024 Installment 242,928 241,176 226,375 199,410 179,626 ---------- ---------- ---------- ---------- ---------- Total Loans $1,511,019 $1,461,904 $1,400,481 $1,303,591 $1,197,838 ========== ========== ========== ========== ==========
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, 2002:
Due Due After One Due Within But Within After One Year Five Years Five Years Total -------- ---------- ---------- -------- (in thousands) Real estate mortgage $ 60,404 $ 31,962 $ 88,384 $180,750 Commercial 189,313 285,950 61,452 536,715 -------- -------- -------- -------- Total $249,717 $317,912 $149,836 $717,465 ======== ======== ======== ========
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, 2002:
Fixed Variable Rate Rate Total -------- -------- -------- (in thousands) Due after one but within five years $283,323 $ 34,589 $317,912 Due after five years 148,692 1,144 149,836 -------- -------- -------- Total $432,015 $ 35,733 $467,748 ======== ======== ========
11 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) III. LOAN PORTFOLIO (Continued) (C) The following table sets forth non-performing loans at December 31:
2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (in thousands) (a) Loans accounted for on a non-accrual basis (1, 2) $5,738 $5,990 $5,200 $2,980 $4,302 (b) Aggregate amount of loans ninety days or more past due (excludes loans in (a) above) 3,961 2,771 1,571 2,029 2,240 (c) Loans not included above which are "troubled debt restructurings" as defined in Statement of Financial Accounting Standards No. 15 (2) 270 285 260 270 295 ------ ------ ------ ------ ------ Total non-performing loans $9,969 $9,046 $7,031 $5,279 $6,837 ====== ====== ====== ====== ======
(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 $857,000 would have been earned in 2002 had loans in categories (a) and (c) remained at their original terms, however, only $283,000 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 $900,000 at December 31, 2002. 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, 2002, 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, 2002, 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, 2002. 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:
2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (dollars in thousands) Total loans outstanding at the end of the year (net of unearned fees) $1,511,019 $1,461,904 $1,400,481 $1,303,591 $1,197,838 ========== ========== ========== ========== ========== Average total loans outstanding for the year (net of unearned fees) $1,437,925 $1,428,194 $1,352,356 $1,231,357 $1,131,143 ========== ========== ========== ========== ========== Balance of allowance for loan losses at beginning of year $ 16,167 $ 13,982 $ 12,985 $ 11,557 $ 9,639 ---------- ---------- ---------- ---------- ---------- Loans charged-off Real estate mortgage 626 125 176 100 84 Commercial 1,002 514 1,205 176 410 Installment 2,129 1,557 1,587 1,704 1,871 ---------- ---------- ---------- ---------- ---------- Total loans charged-off 3,757 2,196 2,968 1,980 2,365 ---------- ---------- ---------- ---------- ---------- Recoveries of loans previously charged-off Real estate mortgage 46 5 5 7 4 Commercial 73 65 109 299 196 Installment 614 574 564 441 455 ---------- ---------- ---------- ---------- ---------- Total recoveries 733 644 678 747 655 ---------- ---------- ---------- ---------- ---------- Net loans charged-off 3,024 1,552 2,290 1,233 1,710 Additions to allowance charged to operating expense 3,562 3,737 3,287 2,661 3,628 ---------- ---------- ---------- ---------- ---------- Balance at end of year $ 16,705 $ 16,167 $ 13,982 $ 12,985 $ 11,557 ========== ========== ========== ========== ========== Net loans charged-off as a percent of average loans outstanding (includes loans held for sale) for the year .21% .11% .17% .10% .15% Allowance for loan losses as a percent of loans outstanding (includes loans held for sale) at the end of the year 1.11 1.11 1.00 1.00 .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. 13 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:
2002 2001 2000 ---- ---- ---- 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 $ 8,115 35.5% $ 8,823 33.0% $ 4,683 27.4% Real estate mortgage 507 48.4 299 50.5 1,243 56.4 Installment 1,571 16.1 1,499 16.5 2,057 16.2 Unallocated 6,512 5,546 5,999 ------- ------- ------- ------- ------- ------- Total $16,705 100.0% $16,167 100.0% $13,982 100.0% ======= ======= ======= ======= ======= =======
1999 1998 ---- ---- Percent Percent Allowance of Loans to Allowance of Loans to Amount Total Loans Amount Total Loans --------- ----------- --------- ----------- (dollars in thousands) Commercial $ 4,210 25.9% $ 3,774 23.4% Real estate mortgage 1,208 58.8 965 61.6 Installment 1,783 15.3 1,437 15.0 Unallocated 5,784 5,381 ------- ------- ------- ------- Total $12,985 100.0% $11,557 100.0% ======= ======= ======= =======
14 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:
2002 2001 2000 ---- ---- ---- Average Average Average Balance Rate Balance Rate Balance Rate ------- ---- ------- ---- ------- ---- (dollars in thousands) Non-interest bearing demand $ 156,294 $ 138,200 $ 126,596 Savings and NOW 634,357 1.17% 583,817 1.97% 574,556 2.58% Time deposits 688,297 4.02 623,657 5.31 655,591 5.64 ---------- ---------- ---------- Total $1,478,948 2.38% $1,345,674 3.32% $1,356,743 3.82% ========== ========== ==========
The following table summarizes time deposits in amounts of $100,000 or more by time remaining until maturity at December 31, 2002:
(in thousands) Three months or less $131,318 Over three through six months 20,507 Over six months through one year 47,782 Over one year 147,902 -------- Total $347,509 ========
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:
2002 2001 2000 1999 1998 ----- ----- ----- ---- ----- Net income as a percent of Average common equity 21.34% 18.52% 16.59% 7.26% 10.72% Average total assets 1.52 1.35 1.15 0.52 0.72 Dividends declared per share as a percent of diluted net income per share 30.38 32.28 34.31 60.47 31.67 Average shareholders' equity as a percent of average total assets 7.14 7.28 6.92 7.16 6.76
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. 15 ITEM 2. PROPERTIES We and our Banks operate a total of 98 facilities in Michigan. 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. 16 ADDITIONAL ITEM - EXECUTIVE OFFICERS Our executive officers are appointed annually by our Board of Directors at the meeting of Directors following 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, 2002.
First elected as an executive Name (Age) Position officer ---------- -------- ------- Charles C. Van Loan (55) President, Chief Executive Officer and Director 1984 Robert N. Shuster (45) Executive Vice President and Chief Financial Officer 1999 Edward B. Swanson (49) President and Chief Executive Officer - Independent 1989 Bank South Michigan Michael M. Magee, Jr. (47) President and Chief Executive Officer - Independent 1993 Bank Ronald L. Long (43) President and Chief Executive Officer - Independent 1993 Bank East Michigan David C. Reglin (43) President and Chief Executive Officer - Independent 1998 Bank West Michigan Peter R. Graves (45) Senior Vice President, Commercial Loans 1999 Independent Bank Corporation Richard E. Butler (51) Senior Vice President, Operations - Independent 1998 Bank Corporation James J. Twarozynski (37) Senior Vice President, Controller - Independent 2002 Bank Corporation
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 1998, Mr. Reglin was Senior Vice President of Independent Bank West Michigan since 1991. Prior to being named Senior Vice President in 1999, Mr. Graves was Vice President of our Commercial Loan Services Department. Mr. Butler joined us 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. Prior to being named Senior Vice President in 2002, Mr. Twarozynski was Vice President and Controller. 17 PART II. ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 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 17, 2003 Annual Meeting of Shareholders (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" in the Appendix to our definitive proxy statement, to be delivered to shareholders in connection with the April 17, 2003 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 17, 2003 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 17, 2003 Annual Meeting of Shareholders (as 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 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 17, 2003 Annual Meeting of Shareholders (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, 2002 and 2001 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Comprehensive Income for the years ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements 18 PART II. 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 17, 2003 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 17, 2003 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 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 17, 2003 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. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions "Summary Compensation Table", "Option Grants in 2002" and "Aggregated Stock Option Exercises in 2002 and Year End Option Values" in our definitive proxy statement, to be delivered to shareholders in connection with the April 17, 2003 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 17, 2003 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. 19 PART III. The following sets forth certain information regarding our equity compensation plans as of December 31, 2002.
(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 1,100,000 $13.00 742,000 ========= ====== ======= Equity compensation plan not approved by security holders None None
(1) We have not granted warrants or rights applicable to this chart. 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 17, 2003 Annual Meeting of Shareholders is incorporated herein by reference. PART IV. ITEM 14. 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 - 14(c) and 15d - 14(c)) on January 31, 2003 (the "Evaluation Date"), have concluded that, as of such date, our disclosure controls and procedures were adequate and effective to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities in connection with the filing of our annual report on Form 10-K for the annual period ended December 31, 2002. There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls subsequent to the Evaluation Date through the date of this filing of Form 10-K for the annual period ended December 31, 2002, nor were there any significant deficiencies or material weaknesses in our internal controls that would require corrective action. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (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 17, 2003 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 on Form 8-K was filed on October 23, 2002, under item 9. The report included supplemental data to our press release dated October 23, 2002, regarding our earnings during the quarter ended September 30, 2002. 20 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 February 24, 2003. INDEPENDENT BANK CORPORATION /s/Charles C. Van Loan Charles C. Van Loan, 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 Charles C. Van Loan 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. Terry L. Haske, Director /s/Terry L. Haske --------------------------------- Robert L. Hetzler, Director /s/Robert L. Hetzler --------------------------------- 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 --------------------------------- Arch V. Wright, Jr., Director /s/Arch V. Wright, Jr. --------------------------------- Jeffrey A. Bratsburg, Director /s/Jeffrey A. Bratsburg --------------------------------- 21 CERTIFICATIONS I, Charles C. Van Loan, certify that: 1. I have reviewed this annual report on Form 10-K of Independent Bank Corporation.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. INDEPENDENT BANK CORPORATION Date: February 24, 2003 By: /s/ Charles C. Van Loan --------------------------- Charles C. Van Loan Its: Chief Executive Officer 22 I, Robert N. Shuster, certify that: 1. I have reviewed this annual report on Form 10-K of Independent Bank Corporation.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. INDEPENDENT BANK CORPORATION Date: February 24, 2003 By: /s/ Robert N. Shuster --------------------------- Robert N. Shuster Its: Chief Financial Officer 23 EXHIBIT INDEX Exhibit number and description EXHIBITS FILED HEREWITH 13 Appendix to our definitive proxy statement, relating to the April 17, 2003 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 21). 99.1 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). 99.2 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 Registration No. 333-79679). 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 September 17, 1998, filed under Registration No. 3380088). 4.1 Form of Indenture, dated as of December 17, 1996 (incorporated herein by reference to our 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 our 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 our 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 our 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 our Form S-2 Registration Statement dated December 6, 1996, filed under Registration No. 33-14507). 24 EXHIBIT INDEX (Continued) 4.6 Form of Preferred Security Certificate of IBC Capital Finance (included as an exhibit to Exhibit 4.5.), (incorporated herein by reference to our Form S-2 Registration Statement dated December 6, 1996, filed under Registration No. 33-14507). 4.7 Form of Preferred Securities Guarantee Agreement for IBC Capital Finance (incorporated herein by reference to our 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 our 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 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). * Represents a compensation plan. 25