UNITED STATES
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, 20112013 or
 
o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from____________to_____________from 
to    

Commission file number0-7818
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)    527-5820
Securities registered pursuant to Section 12(b) of the Act:
 
Common Stock, $1.00No Par Value
NASDAQ
(Title of class)(Name of Exchange)
8.25% Cumulative Trust Preferred SecuritiesNASDAQ
(Title of class)
(Name of Exchange)
 
Securities registered pursuant to Section 12(g) of the Act: None.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes o No x
 
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 Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes xNo o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x    No o
 
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'sregistrant'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 Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting Companycompany x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b of the Exchange Act).
Yes oNo x
 
The aggregate market value of common stock held by non-affiliates of the Registrantregistrant as of June 30, 2011,28, 2013, was $16,550,000.$56,411,932.
 
The number of shares outstanding of the Registrant'sregistrant's common stock as of March 12, 20126, 2014 was 8,22,920543,725,730.
 
Documents incorporated by reference
reference:  Portions of our definitive proxy statement and annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders, are incorporated by reference into Part I, Part II, Part III, and Part IV of this Form 10-K.
 
The Exhibit Index appears on Pages 43-4536-37
 
FORWARD-LOOKING STATEMENTS

Discussions and statementsStatements in this Annual Report on Form 10-K that are not statements of historical fact, including without limitation, statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “forecast,” “anticipate,” “estimate,” “project,” “intend,” “likely,” “optimistic” and “plan,”“plan” and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions, and other statements that are not historical facts, are forward-looking statements. Forward-looking statements include, but are not limited to, descriptions of plans and objectives for future operations, products or services; projections of our future revenue, earnings or other measures of economic performance; forecasts of credit losses and other asset quality trends; predictions as tostatements about our bank’s ability to maintain certain regulatory capital standards; our expectation that we will have sufficient cash on hand to meet expected obligations during 2012;business and descriptions of steps we may take to improve our capital position.growth strategies; and expectations about economic and market conditions and trends.  These forward-looking statements express our current expectations, forecasts of future events, or long-term goalsgoals.  They are based on assumptions, estimates, and by their nature, are subjectforecasts that, although believed to assumptions, risks, and uncertainties.  Although we believe that the expectations, forecasts, and goals reflected in these forward-looking statements arebe reasonable, actualmay turn out to be incorrect.   Actual results could differ materially from those discussed in the forward-looking statements for a variety of reasons, including, among others:including:

·economic, market, operational, liquidity, credit, and interest rate risks associated with our ability to successfully raise new equity capital, effect a conversion of our outstanding preferred stock held by the U.S. Treasury into our common stock, and otherwise implement our capital plan;business;
·economic conditions generally and in the financial services industry, particularly economic conditions within Michigan and the regional and local real estate markets in which our bank operates;
·the failure of assumptions underlying the establishment of, and provisions made to, our allowance for loan losses;
·the timing and pace of an economic recovery in Michigan and the United States in general, including regional and local real estate markets;
·the ability of our bank to remain well-capitalized;
·the failure of assumptions underlying our estimate of probable incurred losses from vehicle service contract payment plan counterparty contingencies, including our assumptions regarding future cancellations of vehicle service contracts, the value to us of collateral that may be available to recover funds due from our counterparties, and our ability to enforce the contractual obligations of our counterparties to pay amounts owing to us;
·further adverse developmentsincreased competition in the vehicle service contract industry;financial services industry, either nationally or regionally;
·potential limitations on our ability to accessachieve loan and rely on wholesale funding sources;deposit growth;
·the risk that salesvolatility and direction of our common stock could trigger a reduction in the amount of net operating loss carryforwards that we may be able to utilize for income tax purposes;market interest rates;
·the continued services of our management team, particularly as we work through our asset quality issues and the implementation of our capital restoration plan;team; and
·implementation of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act or other new legislation, which may have significant effects on us and the financial services industry, the exact nature and extent of which cannot be determined at this time.industry.

This list provides examples of factors that could affect the results described by forward-looking statements contained in this Annual Report on Form 10-K, but the list is not intended to be all inclusive.all-inclusive.  The risk factors disclosed in Part I – Item 1A below include all known risks our management believes could materially affect the results described by forward-looking statements in this report.  However, those risks may not be the only risks we face.  Our results of operations, cash flows, financial position, and prospects could also be materially and adversely affected by additional factors that are not presently known to us, that we currently consider to be immaterial, or that develop after the date of this report.  We cannot assure you that our future results will meet expectations. While we believe the forward-looking statements in this report are reasonable, you should not place undue reliance on any forward-looking statement. In addition, these statements speak only as of the date made. We do not undertake, and expressly disclaim, any obligation to update or alter any statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.

1
PART I

PART I

ITEM 1.     
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 all of the outstanding stock of Independent Bank (the "bank"), which is also organized under the laws of the State of Michigan.

Aside from the stock of our bank, we have no other substantial assets.  We conduct no business except for the collection of dividends or returns of capital from our bank and the payment of dividends to our shareholders and the payment of interest on subordinated debentures.  Currently, we are not paying any dividends on our common stock or preferred stock and are deferring interest on our subordinated debentures.  Certainstock.  We have established certain employee retirement plans, (includingincluding an employee stock ownership plan (ESOP) and deferred compensation plans)plans, as well as health and other insurance programs, have been established by us.  The coststhe cost of these plans arewhich is borne by our subsidiaries.

We have no material patents, trademarks, licenses or franchises except the corporate franchisecharter of our bank, which permits it to engage in commercial banking pursuant to Michigan law.

Our bank's main office location is Ionia, Michigan and it had total loans (excluding loans held for sale) and total deposits of $1.577 billion and $2.086 billion, respectively, at December 31, 2011.

Our bank transacts business in the single industry of commercial banking.  MostIt offers a broad range of our bank's offices provide full-service lobbybanking services to individuals and drive-thru services in the communities they serve.  Automatic teller machines are also provided at most locations.

Our bank's activities cover all phases of banking,businesses, including checking and savings accounts, commercial lending, direct and indirect consumer financing, mortgage lending, and safe deposit box services.  Mepco Finance Corporation, a subsidiary of our bank, acquires and services payment plans used by consumers to purchase vehicle service contracts provided and administered by third parties.  In addition, our bank offers title insurance services through a separate subsidiary and provides investment and insurance services through a third party agreement with PrimeVest Financial Services, Inc.  Our bank does not offer trust services.  Our principal markets are the rural and suburban communities across Lowerlower Michigan, thatwhich are served by ourthe bank's branch network.  Our bank serves its markets through its main office in Ionia, Michigan, and a total of 10070 branches, 32 drive-thru facilities, and 25 loan production offices.  The ongoing economic stress in Michigan has adversely impacted manyMost of our markets which is manifested in higher levels of loan defaultsbank's branches provide full-service lobby and lower demand for credit.drive-thru services, as well as automatic teller machines (ATMs).  In addition, we provide internet and mobile banking capabilities to our customers.  We continue to see customer transaction volume declining at our bank offices and increasing through our electronic channels.

Our bank competes with other commercial banks, savings banks, 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 bank.  In addition, non-bank competitors are generally not subject to the extensive regulations applicable to us.

Price (the interest charged on loans and/orand paid on deposits) remains a principal means of competition within the financial services industry.  Our bank also competes on the basis of service and convenience in providing financial services.

As of December 31, 2013, our bank had total loans (excluding loans held for sale) of $1.375 billion and total deposits of $1.885 billion.  As of December 31, 2013, we had 723 full-time employees and 173 part-time employees.

In addition to general banking services, our bank also offers title insurance services through a separate subsidiary and investment and insurance services through a third party agreement with Cetera Investment Services LLC.

Mepco Finance Corporation ("Mepco"), a subsidiary of our bank, acquires and services payment plans used by consumers to purchase vehicle service contracts provided and administered by third parties.  Mepco purchases payment plans from companies (which we refer to as Mepco’s “counterparties”) that provide vehicle service contracts to consumers. The payment plans (which are classified as payment plan receivables in our consolidated statements of financial condition) permit a consumer to purchase a service contract by making installment payments, generally for a term of 12 to 24 months, to the sellers of those contracts (one of the counterparties). Mepco does not have recourse against the consumer for non-payment of a payment plan and therefore does not evaluate the creditworthiness of the individual customer. When consumers stop making payments or exercise their right to voluntarily cancel the contract, the remaining unpaid balance of the payment plan is normally recouped by Mepco from the counterparties that sold the contract and provided the coverage. The refund obligations of these counterparties are not fully secured. We record losses or charges in vehicle service contract counterparty contingencies expense, included in non-interest expenses, for estimated defaults by these counterparties in their obligations to Mepco.
2
ITEM 1.
BUSINESS (continued)

On a consolidated basis, our 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:

 2011  2010  2009  2013  2012  2011 
Interest and fees on loans  68.4%  64.5%  71.5%  61.1%  57.5%  68.4%
Other interest income  2.6   3.0   4.5   4.9   3.5   2.6 
Non-interest income  29.0   32.5   24.0   34.0   39.0   29.0 
  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%

As of December 31, 2011, we had 940 full-time employees and 245 part-time employees.Recent Developments
 
2
On December 7, 2012, we sold 21 branches to another financial institution (the “Branch Sale”), including 6 branches in the Battle Creek market area and 15 branches in northeast Michigan.  The Branch Sale resulted in the transfer of approximately $403.1 million of deposits in exchange for our receipt of a deposit premium of approximately $11.5 million.  It also resulted in the sale of approximately $48.0 million of loans at a discount of 1.75%, the sale of premises and equipment totaling approximately $8.1 million, and our transfer of $336.1 million of cash to the purchaser.  We recorded a net gain on the Branch Sale of approximately $5.4 million in the fourth quarter of 2012. 
 
ITEM 1.BUSINESS (Continued)

Recent Developments

Since 2009,In addition to the Branch Sale, we have been focused on strengtheningclosed or consolidated a total of 15 other branch locations since 2011.
In 2013, we successfully completed the implementation of a capital plan we had adopted to restore and improve our capital base in the face of weak economic conditions.  Our bank began to experience rising levels of non-performing loans and higher provisions for loan losses in 2006 as the Michigan economy experienced economic stress ahead of national trends. Although our bank remained profitable through the second quarter of 2008, it began incurring losses inposition.  In particular, during the third quarter of 2008, which losses pressured its capital ratios.  While our bank has always remained well-capitalized under federal regulatory guidelines,2013, we projected that due to our elevated levels of non-performing assets, as well as anticipated losses incompleted the future, an increase in equity capital would likely be necessary in order for our bank to remain well-capitalized.following:

In 2009, we retained financial and legal advisors to assist us in reviewing our capital alternatives. We also took steps at that time to preserve our capital, including discontinuing cash dividends on our common stock and exercising our right to defer all quarterly distributions on our outstanding trust preferred securities and the preferred stock we issued to the U.S. Department of the Treasury (the “Treasury”) pursuant to the Troubled Asset Relief Program (“TARP”).  In December 2009, the Board of Directors of our bank adopted resolutions requiring our bank to achieve certain minimum capital ratios.  The minimum ratios established by our bank's Board are higher than the minimum ratios necessary to be considered well-capitalized under federal regulatory standards, which we considered prudent given our elevated levels of non-performing assets and the continuing economic stress in Michigan.  Set forth below are the minimum capital ratios imposed by our bank’s Board and the minimum ratios necessary to be considered well-capitalized under federal regulatory standards:
 
Independent Bank -
Actual as of
December 31, 2011
 
Minimum Ratios
Established by
Our Board
 
Required to be
Well-Capitalized
Total Capital to Risk-Weighted Assets11.41% 11.00% 10.00%
Tier 1 Capital to Average Total Assets6.77% 8.00% 5.00%

In January 2010, our Board of Directors adopted a capital restoration plan (the “Capital Plan”) that documents our objectives and plans for meeting these ratios. The three primary initiatives of our Capital Plan are:

●
·		On July 26, 2013, we executed a Securities Purchase Agreement with the conversionUnited States Department of our 72,000 shares of Series A Fixed Rate Cumulative Perpetual Preferred Stock, with an original liquidation preference of $1,000 per share (“Series A Preferred Stock”) issued to the Treasury under the Capital Purchase Program (“CPP”UST” or “Treasury”) of TARP into shares of our common stock;
●
an offer to exchange shares of our common stock for our outstanding trust preferred securities; and
●
a public offering of our common stock for cash.

In anticipation of pursuing these capital initiatives, we engaged independent third parties to perform a review (“stress test”) on our commercial and retail loan portfolios to confirm that the similar analyses we performed internally were reasonable and did not materially understate our projected loan losses. Based on the conclusions of these reviews, which were completed in January 2010, we determined that we did not need to modify our projections used for purposes of our Capital Plan.

To date, we have made progress on a number of initiatives to advance the Capital Plan:

●
On January 29, 2010, we held a special shareholder meeting at which our shareholders approved (1) an increase in the number of shares of common stock we are authorized to issue from 60 million to 500 million, (2) the conversion of the preferred stock held by the Treasury into shares of our common stock, (3) the issuance of shares of our common stock in exchange for our outstanding trust preferred securities, and (4) an option exchange program, pursuant to which our employees (excluding directors and certain executive officers) were ablewe agreed to exchange underwater optionspurchase from the UST for new options at approximately a value-for-value exchange.  This option exchange was completed in March 2010.

3
ITEM 1.BUSINESS (Continued)

●
On April 16, 2010, we closed an Exchange Agreement with the Treasury pursuant to which the Treasury exchanged $72$81.0 million in aggregate liquidation value of our Series A Preferred Stock, plus approximately $2.4 million in accrued but unpaid dividends on such shares, intocash consideration:  (i) 74,426 shares of our Series B Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, with an original liquidation preference of $1,000 per share (“Series B Convertible Preferred Stock”). As part of this exchange, we also amended, including any and restatedall accrued and unpaid dividends; and (ii) the terms of theAmended and Restated Warrant issued to the Treasury in December 2008 to purchase up to 346,154 shares of our common stock in order to adjust the initialat an exercise price of the Warrant to be equal to the conversion price applicable to the Series B Convertible Preferred Stock.

The shares of Series B Convertible Preferred Stock are convertible into shares of our common stock. Subject to the receipt of applicable approvals, the Treasury has the right to convert the Series B Convertible Preferred Stock into our common stock at any time. We have the right to compel a conversion of the Series B Convertible Preferred Stock into our common stock at any time provided the following conditions are met:

(1)we receive appropriate approvals from the Board of Governors of the Federal Reserve System$7.234 per share and expiring on December 12, 2018 (the "Federal Reserve"“Warrant”);
(2)at least $40 million aggregate liquidation amount of our trust preferred securities are exchanged for shares of our common stock;
(3)we complete a new cash equity raise of not less than $100 million on terms acceptable to the Treasury in its sole discretion (other than with respect to the price offered per share); and
(4)we make any required anti-dilution adjustments to the rate at which the Series B Convertible Preferred Stock is converted into our common stock.
 
●
On June 23, 2010, we completed the exchange·We sold a total of an aggregate of 5,109,125 newly issued13.225 million shares of our common stock in a public offering for $41.4total net proceeds of $97.1 million (including 11.5 million shares sold on August 28, 2013, and 1.725 million shares sold on September 10, 2013 pursuant to the underwriters’ overallotment option), after payment of $5.4 million in aggregate liquidation amountunderwriting discounts and other offering expenses;
·On August 29, 2013, we brought current the interest payments and quarterly dividends we had been deferring since the fourth quarter of 2009 on all of our outstandingsubordinated debentures and trust preferred  securities and $2.3 million of accrued and unpaid interest. This transaction satisfied one ofsecurities;
·On August 30, 2013, we completed the conditions to our ability to compel a conversionredemption of the Series B Convertible Preferred Stock held byand Warrant from the Treasury.UST pursuant to the terms of the Securities Purchase Agreement described above, which resulted in our exit from the Troubled Asset Relief Program (TARP);

●
·On August 31, 2010,October 11, 2013, we effected a reverse stock split of our issued and outstanding common stock. Pursuant to this reverse split, each 10 shares of our common stock issued and outstanding immediately prior to the reverse split was converted into 1 share of our common stock.  We conducted this reverse split primarily as a means to maintain our share price above $1.00 per share in order to continue to meet Nasdaq listing standards. All share or per share information included in this Annual Report on Form 10-K has been retroactively restated to reflect the effectsredeemed all of the reverse split.8.25% trust preferred securities ($9.2 million) issued by IBC Capital Finance II, which will reduce our annual interest expense by approximately $0.8 million.

We have taken steps toward the advancement of the final phase of our Capital Plan, an offering of our common stock for cash, but have not commenced such offering.  The offering has currently been delayed while we reevaluate our strategic alternatives in consultation with our financial advisors and the U.S. Treasury.  In particular, we are evaluating the merits of a smaller capital raise with a goal of preserving the potential future use of our net deferred tax asset, which totaled approximately $75.2 million as of December 31, 2011, and on which we had established a full valuation allowance.  As of December 31, 2011, we met one of the two target capital ratios set forth in our Capital Plan as the bank's total capital to risk-weighted assets ratio of 11.41% exceeded the target of 11%.

In addition to the forgoing, on July 7, 2010 we executed an Investment Agreement and Registration Rights Agreement with Dutchess Opportunity Fund, II, LP (“Dutchess”) for the sale of shares of our common stock. These agreements serve to establish an equity line facility as a contingent source of liquidity at the parent company level. Pursuant to the Investment Agreement, Dutchess committed to purchase up to $15.0 million of our common stock over a 36-month period ending November 1, 2013. We have the right, but no obligation, to draw on this equity line facility from time to time during such 36-month period by selling shares of our common stock to Dutchess. The sales price is at a 5% discount to the market price of our common stock at the time of the draw (as such market price is determined pursuant to the terms of the Investment Agreement). To date, we have sold a total of 777,974 shares (345,177 shares in the fourth quarter of 2010, 253,759 shares in the first quarter of 2011 and 179,038 shares in the second quarter of 2011) of our common stock to Dutchess under this equity line for total net proceeds of $1.8 million.  At the present time, we have shareholder approval to sell approximately 3.2 million additional shares under this equity line.
4

ITEM 1.BUSINESS (Continued)

On October 25, 2011, the respective Boards of Directors of the holding company and our bank entered into a Memorandum of Understanding (the "MOU") with the FRB and the Michigan Office of Financial and Insurance Regulation (the "OFIR").  The MOU largely duplicates certain of the provisions in the Board resolutions described above, but also has the following specific requirements:

Submission of a joint revised capital plan by November 30, 2011 to maintain sufficient capital at the holding company on a consolidated basis and at the bank on a stand-alone basis;
Submission of quarterly progress reports regarding disposition plans for any assets in excess of $1.0 million that are in ORE, are 90 days or more past due, are on our "watch list," or were adversely classified in our most recent examination;
Enhanced reporting and monitoring at Mepco regarding risk management and the internal classification of assets; and
Enhanced interest rate risk modeling practices.

We believe we have met all of the requirements of the MOU.

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 bank.

3
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 Federal Reserve, the Federal DepositFDIC, the Michigan Department of Insurance Corporation (the "FDIC"and Financial Services (“Michigan DIFS”), the OFIR, 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 necessarily 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,fund, our depositors, and the public, rather than our shareholders.

Federal law and regulations establish supervisory standards applicable to the lending activities of our bank, including internal controls, credit underwriting, loan documentation and loan-to-value ratios for loans secured by real property.

Regulatory Developments

Troubled Assets Relief Program (TARP)Emergency Economic Stabilization Act of 2008.  On October 3, 2008, Congress enactedTARP was created pursuant to the Emergency Economic Stabilization Act of 2008 ("EESA")(EESA).  The EESA enables the federal government, under terms and conditions developed by the Treasury, to insure troubled assets, including mortgage-backed securities, and collect premiums from participating financial institutions. The EESA includes, among other provisions: (a) the $700 billion Troubled Assets Relief Program (TARP), under which the Treasury is authorized to purchase, insure, hold, and sell a wide variety of financial instruments, particularly those that are based on or related to residential or commercial mortgages originated or issued on or before March 14, 2008; and (b) an increase in the amount of deposit insurance provided by the FDIC. Both of these specific provisions are discussed below.

5

ITEM 1.BUSINESS (Continued)

Troubled Assets Relief Program (TARP).  Under TARP, the Treasury authorized a voluntary Capital Purchase Program (CPP) to purchase senior preferred shares of qualifying financial institutions that elected to participate. Participating companies mustwere required to adopt certain standards for executive compensation, including (a) prohibiting certain "golden parachute" payments (as defined in the EESA) to senior executive officers; (b) requiring recovery of any compensation paid to senior executive officers based on criteria that is later proven to be materially inaccurate; and (c) prohibiting incentive compensation that encourages unnecessary and excessive risks that threaten the value of the financial institution.  The termsIn addition, pursuant to the American Recovery and Reinvestment Act of 2009, TARP recipients were subject to the CPP also limit certain uses of capital byfollowing restrictions and standards throughout the issuer, including repurchases of company stock and increasesperiod in dividends.which any obligation arising from financial assistance provided under TARP remained outstanding:

·limits on compensation incentives for risk-taking by senior executive officers;
·requirement of recovery of any compensation paid based on inaccurate financial information;
·prohibition on certain "golden parachute payments";
·prohibition on compensation plans that would encourage manipulation of reported earnings to enhance the compensation of employees;
·establishment of board compensation committees by publicly-registered TARP recipients comprised entirely of independent directors, for the purpose of reviewing employee compensation plans;
·prohibition on bonuses, retention awards, and incentive compensation, except for payments of long-term restricted stock; and
·limitation on luxury expenditures.

On December 12, 2008, we participated in TARP through the CPP and issued $72 million in capital to the Treasury in the form of Series A Preferred Stock that paid cash dividends at the rate of 5% per annum through February 14, 2014, and 9% per annum thereafter. In addition, the Treasury received a Warrantwarrant to purchase 346,154 shares of our common stock at a price of $31.20 per share.  As described above, onOn April 16, 2010, we closed on an exchange transaction with the Treasury in which the Treasury accepted our newly issuednewly-issued shares of Series B Convertible Preferred Stock in exchange for the entire $72 million in aggregate liquidation value of the shares of Series A Preferred Stock, plus the value of all accrued and unpaid dividends on such shares of Series A Preferred Stock (approximately $2.4 million).  The shares of Series B Convertible Preferred Stock havehad an aggregate liquidation amount equal to $74,426,000.

With the exception of being convertible into shares of our common stock, the terms of  As described above we redeemed the Series B Convertible Preferred Stock and the warrant held by the Treasury and exited TARP on August 30, 2013.   As a result, we are substantially similarno longer subject to the terms of the Series A Preferred Stock that were exchanged.  The Series B Convertible Preferred Stock qualifies as Tier 1 regulatory capital, subject to limitations,various restrictions and is entitled to cumulative dividends quarterly at a rate of 5% per annum through February 14, 2014, and 9% per annum thereafter.  The Series B Convertible Preferred Stock is non-voting, other than class voting rights on certain matters that could adversely affect the Series B Convertible Preferred Stock. If dividends on the Series B Convertible Preferred Stock have not been paid for an aggregate of six quarterly dividend periods or more, whether consecutive or not, the holders of the Series B Convertible Preferred Stock, voting together with holders of any then outstanding voting parity stock, have the right to elect two additional directors at our next annual meeting of shareholders or at a special meeting of shareholders called for that purpose. These directors would be elected annually and serve until all accrued and unpaid dividends on the Series B Convertible Preferred Stock have been paid. Because we have deferred dividends on the Series B Convertible Preferred Stock for at least six quarterly dividend periods, the Treasury currently has the right to elect two directors to our board.  At this time, in lieu of electing such directors, the Treasury requested us to allow (and we agreed) an observer to attend our Board of Directors meetings beginning in the third quarter of 2011.  The Treasury continues to retain the right to elect two directors asstandards described above.

The Treasury (and any subsequent holder of the shares) has the right to convert the Series B Convertible Preferred Stock into our common stock at any time, subject to the receipt of any applicable approvals.  We have the right to compel a conversion of the Series B Convertible Preferred Stock into our common stock if the following conditions are met:

we receive appropriate approvals from the Federal Reserve;
at least $40 million aggregate liquidation amount of trust preferred securities have been exchanged for our common stock;
we complete a new cash equity raise of not less than $100 million on terms acceptable to the Treasury in its sole discretion (other than with respect to the price offered per share); and
we make any required anti-dilution adjustments to the rate at which the Series B Convertible Preferred Stock is converted into our common stock.
6

ITEM 1.BUSINESS (Continued)

If converted by the Treasury (or any subsequent holder) or by us pursuant to either of the above-described conversion rights, each share of Series B Convertible Preferred Stock (liquidation amount of $1,000 per share) will convert into a number of shares of our common stock equal to a fraction, the numerator of which is $750 and the denominator of which is $7.234, referred to as the "conversion rate," provided that such conversion rate will be subject to certain anti-dilution adjustments.  If converted by the holder or by us pursuant to either of the above-described conversion rights, as of December 31, 2011, the Series B Convertible Preferred Stock and accrued and unpaid dividends would have been convertible into approximately 12.7 million shares of our common stock.  This conversion rate will be subject to certain anti-dilution adjustments that may result in a greater number of shares being issued to the holder of the Series B Convertible Preferred Stock.

Unless earlier converted by the Treasury (or any subsequent holder) or by us as described above, the Series B Convertible Preferred Stock will convert into shares of our common stock on a mandatory basis on April 16, 2017.  In any such mandatory conversion, each share of Series B Convertible Preferred Stock (liquidation amount of $1,000 per share) will convert into a number of shares of our common stock equal to a fraction, the numerator of which is $1,000 and the denominator of which is the market price of our common stock at the time of such mandatory conversion (as such market price is determined pursuant to the terms of the Series B Convertible Preferred Stock).

At the time any shares of Series B Convertible Preferred Stock are converted into our common stock, we will be required to pay all accrued and unpaid dividends on the Series B Convertible Preferred Stock being converted in cash or, at our option, in shares of our common stock, in which case the number of shares to be issued will be equal to the amount of accrued and unpaid dividends to be paid in common stock divided by the market price of our common stock at the time of conversion (as such market price is determined pursuant to the terms of the Series B Convertible Preferred Stock).  Accrued and unpaid dividends on the Series B Convertible Preferred Stock totaled approximately $6.6 million at December 31, 2011.

The maximum number of shares of our common stock that may be issued upon conversion of all Series B Convertible Preferred Stock (including any accrued dividends) is 14.4 million, unless we receive shareholder approval to issue a greater number of shares.

The Series B Convertible Preferred Stock may be redeemed by us, subject to the approval of the Federal Reserve, at any time, in an amount up to the cash proceeds (minimum of approximately $18.6 million) from qualifying equity offerings of common stock (plus any net increase to our retained earnings after the original issue date). If the Series B Convertible Preferred Stock is redeemed prior to the first dividend payment date falling on or after the second anniversary of the original issue date, the redemption price will be equal to the $1,000 liquidation amount per share plus any accrued and unpaid dividends. If the Series B Convertible Preferred Stock is redeemed on or after such date, the redemption price will be the greater of (a) the $1,000 liquidation amount per share plus any accrued and unpaid dividends and (b) the product of the applicable conversion rate (as described above) and the average of the market prices per share of our common stock (as such market price is determined pursuant to the terms of the Series B Convertible Preferred Stock) over a 20 trading day period beginning on the trading day immediately after we give notice of redemption to the holder (plus any accrued and unpaid dividends). In any redemption, we must redeem at least 25% of the number of Series B Convertible Preferred Stock shares originally issued to the Treasury, unless fewer of such shares are then outstanding (in which case all of the Series B Convertible Preferred Stock must be redeemed).

In connection with such exchange transaction, we also amended and restated the terms of the Warrant issued to the Treasury in December 2008 to adjust the initial exercise price of the Warrant to be equal to the initial conversion price applicable to the Series B Convertible Preferred Stock described above.

7
ITEM 1.BUSINESS (Continued)

Federal Deposit Insurance Coverage.  The EESA temporarily raised the limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor, and the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010 (the "Dodd-Frank Act")  made this temporary increase in the insurance limit permanent.  In October 2008, the FDIC also announced the Temporary Liquidity Guarantee Program.  Under one component of this program, the Transaction Account Guarantee Program (TAGP), the FDIC temporarily provided unlimited coverage for non-interest bearing transaction accounts (as defined in the TAGP) for participating institutions that did not opt out.  This temporary coverage expired on December 31, 2010; however, the Dodd-Frank Act extended protection similar to that provided under the TAGP through December 31, 2012.

Financial Stability Plan. On February 10, 2009, the Treasury announced the Financial Stability Plan ("FSP"), which is a comprehensive set of measures intended to shore up the U.S. financial system and earmarks the balance of the unused funds originally authorized under the EESA. The major elements of the FSP include: (i) a capital assistance program that will invest in convertible preferred stock of certain qualifying institutions, (ii) a consumer and business lending initiative to fund new consumer loans, small business loans and commercial mortgage asset-backed securities issuances, (iii) a new public-private investment fund that will leverage public and private capital with public financing to purchase up to $500 billion to $1 trillion of legacy "toxic assets" from financial institutions, and (iv) assistance for homeowners by providing up to $75 billion to reduce mortgage payments and interest rates and establishing loan modification guidelines for government and private programs.

American Recovery and Reinvestment Act of 2009. On February 17, 2009, Congress enacted the American Recovery and Reinvestment Act of 2009 ("ARRA"). In enacting the ARRA, Congress intended to provide a stimulus to the U.S. economy in light of the significant economic downturn. The ARRA includes federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and numerous domestic spending efforts in education, healthcare and infrastructure. The ARRA also includes numerous non-economic recovery related items, including a limitation on executive compensation in federally-aided financial institutions, including banks that have received or will receive assistance under TARP.

Under the ARRA, a financial institution (including our bank) will be subject to the following restrictions and standards throughout the period in which any obligation arising from financial assistance provided under TARP remains outstanding:

·Limits on compensation incentives for risk-taking by senior executive officers;
·Requirement of recovery of any compensation paid based on inaccurate financial information;
·Prohibition on "golden parachute payments" (as defined in the AARA);
·Prohibition on compensation plans that would encourage manipulation of reported earnings to enhance the compensation of employees;
·Establishment of board compensation committees by publicly-registered TARP recipients comprised entirely of independent directors, for the purpose of reviewing employee compensation plans;
·Prohibition on bonuses, retention awards, and incentive compensation, except for payments of long-term restricted stock; and
·Limitation on luxury expenditures.

In addition, TARP recipients are required to permit a separate, non-binding  shareholder vote to approve the compensation of executives. The chief executive officer and chief financial officer of each TARP recipient will be required to provide a written certification of compliance with these standards to the SEC.
8
ITEM 1.BUSINESS (Continued)

Homeowner Affordability and Stability Plan.Plan.  On February 18, 2009, President Obama announced the Homeowner Affordability and Stability Plan ("HASP"). The HASP is intended to support a recovery in the housing market and ensure that workers can continue to pay off their mortgages through the following elements:

·Provide access to low-cost refinancing for responsible homeowners suffering from falling home prices;
·Aa $75 billion homeowner stability initiative to prevent foreclosure and help responsible families stay in their homes; and

4
ITEM 1.
BUSINESS (continued)
·Supportsupport of low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

The Treasury has issued extensive guidance on the scope and mechanics of various components of HASP.  We continue to monitor these developments and assess their potential impact on our business.

Dodd-Frank Act.  On July 21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act in(the “Dodd-Frank Act”) into law.  This new federal law includes the following:

·the creation of the new Consumer Financial Protection Bureau (CFPB) with power to promulgate and, with respect to financial institutions with more than $10 billion in assets, enforce consumer protection laws;
·the creation of the Financial Stability Oversight Council chaired by the Secretary of the Treasury with authority to identify institutions and practices that might pose a systemic risk to the U.S. economy;
·provisions affecting corporate governance and executive compensation of all companies whose securities are registered with the SEC;
·a provision that broadens the base for FDIC insurance assessments and permanently increases FDIC deposit insurance to $250,000;
·provisions that change the assessment base for federal deposit insurance (from the amount of insured deposits to consolidated assets less tangible capital) and increase the minimum ratio of reserves to deposits to 1.35%;
·a provision under which interchange fees for debit cards of issuers with at least $10 billion in assets are set by the Federal Reserve under a restrictive "reasonable and proportional cost" per transaction standard;
·a provision that requires bank regulators to set minimum capital levels for bank holding companies that are at least as strong as those required for their insured depository subsidiaries, subject to a grandfather clause for financial institutions with less than $15 billion in assets as of December 31, 2009; and
·new restrictions on how mortgage brokers and loan originators may be compensated.

TAlthoughhe CFPB has issued new consumer protection regulations, including regulations that impact residential mortgage lending and servicing. In addition, the CFPB is in the process of drafting additional regulations that will change certain disclosure requirements used with respect to residential mortgage lending. We have experienced, and expect to continue to experience, increased costs and expenses related to compliance with these and other new consumer protection and other regulations.  The Dodd-Frank Act and regulations being issued as a numberresult of the regulationsDodd-Frank Act have had, and we expect will continue to have, a significant impact on the banking industry, including our organization.
New Capital Rules Under Basel III.  On July 2, 2013, the Federal Reserve approved a final rule that establishes an integrated regulatory capital framework (the “New Capital Rules”). The rule will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act have been issued, manyAct.  In general, under the New Capital Rules, minimum requirements will increase for both the quantity and quality of capital held by banking organizations. Consistent with the international Basel framework, the New Capital Rules include a new minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.  As to the quality of capital, the New Capital Rules emphasize common equity Tier 1 capital, the most loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital instruments. The New Capital Rules also change the methodology for calculating risk-weighted assets to enhance risk sensitivity.  The application of the new requirementsNew Capital Rules to our organization is described below.
Volcker Rule. The federal banking agencies and the SEC published final regulations to implement the Volcker Rule on December 10, 2013. The Volcker Rule generally prohibits banking entities from engaging in proprietary trading and from owning and sponsoring "covered funds" (e.g. hedge funds and private equity funds). The final rule becomes effective April 1, 2014, with full compliance generally required by July 21, 2015.   We do not currently expect implementation of the Volcker Rule to have not yet been implemented and will likely be subject to implementing regulations over the course of several years.  As these provisions continue to be implemented, we expect they maya material impact on our business operations and may negatively affectas we believe our earnings and financial condition by affecting our ability to offer certain products or earn certain fees and by exposing us to increased compliance and other costs.  At this time, it is difficult to assessinvestment activity will involve only investments exempt from the full impact of the Dodd-Frank Act on our business.Volcker Rule.

5
ITEM 1.
BUSINESS (continued)

Future Legislation.  Various other legislative and regulatory initiatives, including proposals to overhaul the bankingbank regulatory system, are from time to time introduced in Congress and state legislatures, as well as regulatory agencies.  Such future legislation regarding financial institutions may change banking statutes and our operating environment in substantial and unpredictable ways and could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance depending on whether any such potential legislation is introduced and enacted.among organizations within the industry. The nature and extent of future legislative and regulatory changes affecting financial institutions is very unpredictable. We cannot determine the ultimate effect that any such potential legislation, if enacted, would have upon our financial condition or results of operations.

Independent Bank Corporation

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.

9

ITEM 1.BUSINESS (Continued)

Federal Reserve policy historically has required bank holding companies to act as a source of strength to their bank subsidiaries and to commit capital and financial resources to support those subsidiaries. The Dodd-Frank Act codified this policy as a statutory requirement. Such support may be required by the Federal Reserve at times when we might otherwise determine not to provide it.

In addition, if the OFIRMichigan DIFS deems a bank's capital to be impaired, the OFIRit may require a bank to restore its capital by special assessment upon athe bank holding company, as the bank's sole shareholder.  If the bank holding company failed to pay such assessment, the directors of that bank would be required, under Michigan law, to sell the shares of 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.Federal law places restrictions on the ability of our holding company to engage in certain transactions, make investments, and participate (directly or indirectly through a subsidiary) in various 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 10% 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 institutionfederal 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 OFIRMichigan DIFS under Michigan banking laws, may be required.

6
ITEM 1.
BUSINESS (continued)
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 holding company.

10
ITEM 1.BUSINESS (Continued)

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 nonbankingnon-banking activities, including securities and insurance activities and any other activity that the Federal Reserve, in consultation with 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 BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank or financial holding companies.  We have not applied for approval to operate as a financial holding company and have no current intention of doing so.

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 ratedhighly-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-basedrisk‑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 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.

Included in ourOur Tier 1 capital as of December 31, 2011, is $38.22013, includes $39.5 million of trust preferred securities (classified on our balance sheet as "Subordinated debentures").  The Federal Reserve has issued rules regarding trust preferred securities as a component of the Tier 1 capital of bank holding companies. The aggregate amount of trust preferred securities and certain other capital elements is limited to 25 percent of Tier 1 capital elements, net of goodwill (net of 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.  The provisions of the Dodd-Frank Act imposed additional limitations on the ability to include trust preferred securities as Tier 1 capital; however, these additional limitations do not apply to our outstanding trust preferred securities.

We are subject to the New Capital Rules described above beginning on January 1, 2015.  The federal bank2.5% capital conservation buffer is being phased in over a four-year period beginning in 2016.  Also, under the New Capital Rules, our existing trust preferred securities are grandfathered as qualifying regulatory agencies are required biennially to review risk-basedcapital.  We believe that we currently exceed all of the capital standards to ensure that they adequately address interest rate risk, concentrationratio requirements of credit risk and risks from non-traditional activities.the New Capital Rules.

Dividends.  MostHistorically, most of our revenues arehave been received in the form of dividends paid by our bank. We can also make requests for returns of capital from our bank; however, such requests require the approval of both the Federal Reserve and the Michigan DIFS.  Thus, our ability to pay dividends to our shareholders is indirectly limited by statutory restrictions on the ability of our bank to pay dividends or return capital to us, as discusseddescribed below.  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 whichthat can only be funded in ways that weaken the bank holding company's financial health, such as by borrowing.  Additionally, theThe 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.  The "prompt corrective action" provisions of federal law and regulation authorizesauthorize the Federal Reserve to restrict the amount of dividends that can be paid by an insured bank can pay whichthat fails to meet specified capital levels.

7
ITEM 1.
BUSINESS (continued)
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, athe 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.

11
We have not paid any dividend to our shareholders since the third quarter of 2009.  The timing of our ability to resume paying dividends to our shareholders is primarily dependent on the ability of our bank to pay dividends or make a return of capital to us, as described below.

Change in Control LimitationsITEM 1..  BUSINESS (Continued)

Because we have suspended all dividends onSubject to certain exceptions, the shares ofChange in the Series B Convertible Preferred StockBank Control Act ("Control Act") and all quarterly payments on our outstanding trust preferred securities, we are currently prohibited from paying any cash dividends on our common stock.  In addition, in December of 2009, our Board of Directors adopted resolutions that prohibit us from paying any dividends on our common stock without, in each case, the prior written approval ofregulations promulgated thereunder by the Federal Reserve, andrequire any person acting directly or indirectly, or through or in concert with one or more persons, to give the OFIR.Federal Reserve 60 days' written notice before acquiring control of a bank holding company.  Pursuant to the Control Act, the Federal Reserve has the authority to prevent any such acquisition.  Transactions that 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 10% or more of any class of voting securities of the institution.

Federal Securities Regulation.  Our common stock is registered with the 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.

OurIndependent Bank

General. Independent Bank is a Michigan banking corporation isand a member of the Federal Reserve System, and its deposit accounts are insured by the FDIC's Deposit Insurance Fund ("DIF") of the FDIC..  As a member of the Federal Reserve System and a Michigan charteredMichigan-chartered bank, our bank is subject to the examination, supervision, reporting and enforcement requirements of the Federal Reserve as its primary federal regulator and OFIRthe Michigan DIFS as the chartering authority for Michigan banks. These agencies and the federal and state laws applicable to our bank and its 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 an FDIC-insured institution, our bank is required to pay deposit insurance premium assessments to the FDIC.  Under the FDIC's risk-based assessment system for deposit insurance premiums, all insured depository institutions are placed into one of four categories (Risk Categories I, II, III, and IV), based primarily on their level of capital and supervisory evaluations.

Historically,evaluations, for purposes of determining the institution's assessment rates for deposit insurance premiums have been largely based on the risk category of the institution and the amount of its deposits.  However, the Dodd-Frank Act passed in 2010 required the FDIC to establish rules settingrate.  Deposit insurance premium assessments are generally based on an institution's total assets minus its tangible equity instead of  deposits. On February 7, 2011, the FDIC adopted a final rule under which, effective for assessments for the second quarter of 2011 and payable at the end of September 2011, the initial base assessment rate for institutions in Risk Category I (generally, well-capitalized institutions with a CAMELS composite rating of 1 or 2) is set at an annual rate of between 5 and 9 basis points.  The initial base assessment rate for institutions in Risk Categories II, III, and IV is set at annual rates of 14, 23, and 35 basis points, respectively, and the initial base assessment rate for institutions with at least $10 billion in assets and certain "highly complex institutions" is set at an annual rate of between 5 and 35 basis points.  These initial base assessment rates are adjusted to determine an institution's final assessment rate based on its brokered deposits and unsecured debt.  In addition, the rates are subject to a new depository institution debt adjustment, which is meant to offset the benefit received by institutions that issue long-term, unsecured liabilities when those liabilities are held by other insured depository institutions. However, institutions may exclude from the unsecured debt amount used in calculating the depository institution debt adjustment an amount equal to no more than 3% of their Tier 1 capital. Total base assessment rates after adjustments, other than the depository institution debt adjustment, range from 2.5 to 9 basis points for Risk Category I, 9 to 24 basis points for Risk Category II, 18 to 33 basis points for Risk Category III, 30 to 45 basis points for Risk Category IV, and 2.5 to 45 basis points for institutions with at least $10 billion in assets and certain "highly complex institutions."

On December 15, 2010, the FDIC established 2.0% as the Designated Reserve Ratio ("DRR"), that is, the ratio of the DIF to insured deposits. The FDIC adopted a plan under which it will meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act.  The Dodd-Frank Act requires the FDIC to partially offset the effect of the increase in the DRR on institutions with assets less than $10 billion.

12

ITEM 1.BUSINESS (Continued)equity.

During the fourth quarter of 2009, we prepaidwere required to prepay estimated quarterly deposit insurance premium assessments to the FDIC for periods through the fourth quarter of 2012.  These estimated quarterly deposit insurance premium assessments were based on projected deposit balances over the assessment periods.  The prepaid deposit insurance premium assessments totaled $12.6 million at December 31,years 2010, 2011, and will be expensed over the assessment period (through the fourth quarter of 2012).2012.  The actual expense over the assessment periods will be different from thisperiod was significantly lower than the amount prepaid, amount due to various factors, including variances in actual deposit balances and we received a return of the assessment base and rates used during each assessment period.

In addition, in 2008, the bank elected to participate in the FDIC's Transaction Account Guarantee Program (TAGP), which required us to pay an additional assessment to the FDIC.  Under the TAGP, funds in non-interest bearing transaction accounts, in interest-bearing transaction accounts with an interest rate of 0.25% or less (after June 30, 2010), and in Interest on Lawyers Trust Accounts (IOLTA) had a temporary unlimited guaranteeoverpayment from the FDIC.  This temporary coverage expired on December 31, 2010.  The Dodd-Frank Act extended protection similar to that provided underFDIC during the TAGP through December 31, 2012 for only non-interest bearing transaction accounts.  This coverage applies to all insured depository institutions, and there is no separate FDIC assessment for the insurance.  Furthermore, this unlimited coverage is separate from, and in addition to, the coverage provided to depositors with respect to other accounts held at an insured depository institution.second quarter of 2013.

FICO Assessments.  Our bank, as a member of the DIF, is 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, which was created to insure the deposits of thrift institutions and was merged with the Bank Insurance Fund into the newly formed DIF in 2006.  From now until the maturity of the outstanding FICO obligations in 2019, DIF 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 approximately 0.070%0.006% of deposits.average tangible assets.
8
ITEM 1.
BUSINESS (continued)

OFIRMichigan DIFS Assessments.  Michigan banks are required to pay supervisory fees to the OFIRMichigan DIFS to fund their operations.  The amount of supervisory fees paid by a bank is based upon the bank's total assets.

Capital Requirements. The Federal Reserve has established the following minimum capital standards for state-chartered, FDIC-insured member banks, such as our bank:  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, Federal Reserve 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.

13

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
Risk-Based
Capital Ratio
 
Tier 1
Risk-Based
Capital Ratio
 Leverage Ratio
Well capitalized10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
UndercapitalizedLess than 8% Less than 4% Less than 4%
Significantly undercapitalizedLess 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, 2011,2013, our bank's ratios exceeded minimum requirements for the well-capitalized category.  In December 2009, the Board of Directors of our bank adopted resolutions requiring our bank to achieve minimum capital ratios that are higher than the minimum requirements described in the Federal Reserve's capital guidelines.  See "Recent Developments" above for more information.

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 rates 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 to correct the deficiency following receipt of a less-than-satisfactory rating on its most recent examination report, to correct the deficiency.report.

Dividends.  Under Michigan law, banks are restricted as to the maximum amount of dividends they may pay on their common stock.  Our bank may not pay dividends except out of its net income after deducting its losses and bad debts.  AIn addition, a Michigan state bank may not declare or pay a dividend unless the bank will have a surplus amounting to at least 20%20 percent of its capital after the payment of the dividend.

As
9
ITEM 1.
BUSINESS (continued)
In addition, as a member of the Federal Reserve System, our bank is required to obtain the prior approval of the Federal Reserve for the declaration or payment of a dividend if the total of all dividends declared in any year will exceed the total of (a) the bank's retained net income (as defined by federal regulation) for that year, plus (b) the bank's retained net income for the preceding two years.

Federal law also 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.  In addition, the Federal Reserve may prohibit the payment of dividends by a bank if such payment is determined, by reason of the financial condition of the bank, to be an unsafe and unsound banking practice or if the bank is in default of payment of any assessment due to the FDIC.

In addition to these restrictions, inAt December of 2009, the Board of Directors of31, 2013, our bank adopted resolutions that prohibit our bank from paying anyhad negative retained earnings of approximately $50.0 million and therefore cannot pay dividends to ourthe holding company withoutcompany.  In lieu of the prior written approvalpayment of dividends, we intend to make periodic requests to the Federal Reserve and the OFIR.  See "Recent Developments" above for more information.
14
ITEM 1.BUSINESS (Continued)Michigan DIFS to approve a return of capital from our bank.  In August 2013, pursuant to a request approved by both the Federal Reserve and Michigan DIFS, our bank made a return of capital to our holding company in the amount of $7.5 million.

Insider Transactions. Our bank is subject to certain restrictions imposed by the Federal Reserve Act on "covered transactions" with us or our subsidiaries, which include investments in our stock or other securities issued by us or our subsidiaries, the acceptance of our stock or other securities issued by us or our subsidiaries as collateral for loans, and extensions of credit to us or our subsidiaries.  Certain limitations and reporting requirements are also placed on extensions of credit by our bank to the directors and officers of the Company,holding company, the bank, and the subsidiaries of the bank,bank; to the principal shareholders of the Company,holding company; 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 bank maintains a correspondent relationship.

Safety and Soundness Standards. Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC adopted guidelines to establish operational and managerial standards to promote the safety and soundness of federally insuredfederally-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 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 bank's primary federal regulator determines the activity would not pose a significant risk to the DIF.  Impermissible investments and activities must be otherwise divested or discontinued within certain time frames set by the bank's primary federal regulator in accordance with federal law.  These restrictions are not currently expected to have a material impact on the operations of our bank.

Consumer Banking.  Our bank's business includes making a variety of types of loans to individuals.  In making these loans, our bank is subject to state usury and regulatoryother consumer protection laws and to various federal statutes, including provisions of the Gramm Leach-Bliley Act aimed at protecting the privacy of consumer financial information, provisions of the Gramm Leach-Bliley Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, and the regulations promulgated under these statutes, which (among other things) prohibit discrimination, specify disclosures to be made to borrowers regarding credit and settlement costs, and regulate the mortgage loan servicing activities of our bank, including the maintenance and operation of escrow accounts and the transfer of mortgage loan servicing.  In receiving deposits, our bank is 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 bank and its directors and officers.

10
ITEM 1.
BUSINESS (continued)

Branching Authority.  Michigan banks, such as our bank, 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 OFIRMichigan DIFS (1) the acquisition of Michigan banks by FDIC-insured banks or savings banks located in other states, (2) the sale by a Michigan bank of branches to an FDIC-insured bank or savings bank located in a state in which a Michigan bank could purchase branches of the purchasing entity, (3) the consolidation of Michigan banks and FDIC-insured banks or savings banks located in other states having laws permitting such consolidation, (4) the 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) the establishment by foreign banks of branches located in Michigan.

15

ITEM 1.BUSINESS (Continued)

Mepco Finance Corporation

Our subsidiary, Mepco Finance Corporation, is engaged in the business of acquiring and servicing payment plans used by consumers throughout the United States who have purchased a vehicle service contract and choose to make monthly payments for their coverage.  In the typical transaction, no interest or other finance charge is charged to these consumers.  As a result, Mepco is generally not subject to regulation under consumer lending laws.  However, Mepco is subject to various federal and state laws designed to protect consumers, including laws against unfair and deceptive trade practices and laws regulating Mepco's payment processing activities, such as the Electronic Funds Transfer Act.

Mepco purchases payment plans from companies (which we refer to as Mepco’s “counterparties”) that provide vehicle service contracts to consumers. The payment plans (which are classified as payment plan receivables in our consolidated statements of financial condition) permit a consumer to purchase a service contract by making installment payments, generally for a term of 12 to 24 months, to the sellers of those contracts (one of the “counterparties”). Mepco does not have recourse against the consumer for nonpayment of a payment plan, and therefore does not evaluate the creditworthiness of the individual customer. When consumers stop making payments or exercise their right to voluntarily cancel the contract, the remaining unpaid balance of the payment plan is normally recouped by Mepco from the counterparties that sold the contract and provided the coverage. The refund obligations of these counterparties are not fully secured. We record losses or charges in vehicle service contract contingencies expense, included in non-interest expenses, for estimated defaults by these counterparties in their obligations to Mepco.Available Information

Our annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K, and all amendments to those reports are available free of charge through our website at www.IndependentBank.com as soon as reasonably practicable after filing with the SEC.Securities and Exchange Commission (SEC).
11
ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE
 
I.
(A)DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
16
(B)
INTEREST RATES AND INTEREST DIFFERENTIAL
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
(C)
INTEREST RATES AND DIFFERENTIAL

The information set forth in the tables captioned "Average Balances and Rates" and "Change in Net Interest Income" of our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

II.                INVESTMENT PORTFOLIO
II.
INVESTMENT PORTFOLIO

(A)  The following table sets forth the book value of securities at December 31:
  2011 2010  2009 
  (in thousands) 
          
Trading - Preferred stock $77  $32  $54 

 2013  2012  2011 
 (in thousands) 
 
  
  
 
Trading - Preferred stock $498  $110  $77 
Available for sale                     
U.S agency residential mortgage-backed $94,206  $13,331  $47,522  $203,460  $127,412  $94,206 
States and political subdivisions  27,317   31,259   67,132   153,678   39,051   27,317 
Other asset backed  45,185   --   -- 
U.S agency  25,017   --   --   31,808   30,667   25,017 
Corporate  19,137   --   -- 
Private label residential mortgage-backed  8,268   14,184   30,975   6,788   8,194   8,268 
Trust preferred  2,636   9,090   13,017   2,425   3,089   2,636 
Other asset-backed  --   --   5,505 
Total $157,444  $67,864  $164,151  $462,481  $208,413  $157,444 

12
ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE  (Continued)

(B) The following table sets forth contractual maturities of securities at December 31, 20112013 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)
Trading – Preferred stock                   $77   0.00%
                           
Tax equivalent adjustment for calculations of yield                   $--     
                           
Available for sale                          
U.S agency residential mortgage-backed $3   4.68% $64,090   2.17% $28,891   2.86% $1,222   1.73%
States and political subdivisions  1,493   4.76   7,366   4.08   11,748   3.74   6,710   4.36 
U.S. agency  --       --       10,026   1.00   14,991   1.72 
Private label residential mortgage-backed  --       163   5.95   3,885   4.23   4,220   5.65 
Trust preferred  --       --       --       2,636   4.21 
Total $1,496   4.76% $71,619   2.38% $54,550   2.80% $29,779   3.09%
                                 
Tax equivalent adjustment for calculations of yield $--      $--      $--      $--     
  
 
Maturing
 Within
 One Year
  
Maturing
 After One
 But Within
 Five Years
  
Maturing
After Five
But Within
 Ten Years
  
 
Maturing
 After
Ten Years
 
  Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield 
  (dollars in thousands) 
 
 
  
  
  
  
  
  
  
 
Trading – Preferred stock 
  
  
  
  
  
  $498   0.00%
 
 
  
  
  
  
  
         
Tax equivalent adjustment for calculations of yield 
  
  
  
  
  
  $--     
 
 
  
  
  
  
  
         
Available for sale
 
  
  
  
  
  
         
U.S agency residential mortgage-backed $-  
  $43,265   1.85% $132,911   1.18% $27,284   1.65%
States and political subdivisions  12,948   1.28%  57,652   1.74   15,580   4.75   67,498   3.59 
Other asset backed  7,259   0.43   24,940   0.62   9,031   0.89   3,955   1.00 
U.S. agency  --       10,517   0.86   15,902   0.97   5,389   0.97 
Corporate  2,004   0.70   16,137   1.12   996   1.87   --     
Private label residential mortgage-backed  --       48   5.97   3,333   4.24   3,407   5.33 
Trust preferred  --       --       --       2,425   1.58 
Total $22,211   0.95% $152,559   1.46% $177,753   1.52% $109,958   2.89%
 
                                
Tax equivalent adjustment for calculations of yield $38      $211      $195      $282     

The rates set forth in the tables above for those obligations of state and political subdivisions that are tax exempt have not been restated on a tax equivalent basis due toassuming a marginal tax rate of 35%.  The amount of the current net operating loss carryforward position and the deferred tax asset valuation allowance.adjustment is as follows.
 
 
Available for sale
 
Tax-Exempt
Rate
  
 
Adjustment
  
Rate on Tax
Equivalent Basis
 
   Under 1 year  0.99%  0.29%  1.28%
   1-5 years  1.37   0.37   1.74 
   5-10 years  3.50   1.25   4.75 
   After 10 years  3.17   0.42   3.59 

1713
ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
 
ITEM 1.     BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
III.              LOAN PORTFOLIO
III.
LOAN PORTFOLIO

(A)  The following table sets forth total loans outstanding at December 31:

  
2011
   
2010
   
2009
   
2008
   
2007
  2013  2012  2011  2010  2009 
  (in thousands)  (in thousands) 
Loans held for sale $44,801  $50,098  $34,234  $27,603  $33,960  $20,390  $50,779  $44,801  $50,098  $34,234 
Mortgage  590,876   658,679   749,298   839,496   873,945   486,633   527,340   590,876   658,679   749,298 
Commercial  651,155   707,530   840,367   976,391   1,066,276   635,234   617,258   651,155   707,530   840,367 
Installment  219,559   245,644   303,366   356,806   368,478   192,065   189,849   219,559   245,644   303,366 
Payment plan receivables  115,018   201,263   406,341   286,836   209,631   60,638   84,692   115,018   201,263   406,341 
Total Loans $1,621,409  $1,863,214  $2,333,606  $2,487,132  $2,552,290  $1,394,960  $1,469,918  $1,621,409  $1,863,214  $2,333,606 

The loan portfolio is periodically and systematically reviewed, and the results of these reviews are reported to the Board of Directors of our bank.  The purpose of these reviews is to assist in assuring proper loan documentation, to facilitate compliance with consumer protectionapplicable 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, 2011:2013:

    Due        
  Due  
  
 
 Due  After One  Due     Due  After One  Due  
 
 Within  But Within  After     Within  But Within  After  
 
 One Year  Five Years  Five Years  Total  One Year  Five Years  Five Years  Total 
 (in thousands)  (in thousands)
Mortgage $31,096  $10,444  $3,582  $45,122  $1  $201  $47,972  $48,174 
Commercial  260,427   342,896   47,832   651,155   180,053   401,533   53,648   635,234 
Payment plan receivables  49,803   65,215   --   115,018   21,880   38,758   --   60,638 
Total $341,326  $418,555  $51,414  $811,295  $201,934  $440,492  $101,620  $744,046 

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, 2011:2013:
 
  Fixed  Variable    
  Rate  Rate  Total 
  (in thousands) 
Due after one but within five years $408,116  $10,439  $418,555 
Due after five years  47,895    3,519   51,414 
Total $456,011  $13,958  $469,969 
  
Fixed
Rate
  
Variable
Rate
  
 
Total
 
  (in thousands) 
Due after one but within five years $304,979  $135,514  $440,493 
Due after five years  42,472   59,148   101,620 
Total $347,451  $194,662  $542,113 

14
18
ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
ITEM 1.     BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
LOAN PORTFOLIO (Continued)

(C)  The following table sets forth loans on non-accrual, loans ninety days or more past due and troubled debt restructured loans at December 31:

 2011  2010  2009  2008  2007  2013  2012  2011  2010  2009 
 (in thousands)  (in thousands) 
(a) Loans accounted for on a non-accrual basis (1, 2) $59,309  $66,652  $105,965  $122,639  $72,682  $17,905  $32,929  $59,309  $66,652  $105,965 
                                        
(b) Aggregate amount of loans ninety days or more past due (excludes loans in (a) above)  574   928   3,940   2,626   4,394   --   7   574   928   3,940 
                                        
(c) Loans not included above which are "troubled debt restructurings" as defined by accounting guidance  116,569   113,812   71,961   9,160    173 
(c) Loans not included above which are "troubled debt restructurings"as defined by accounting guidance  114,887   126,730   116,569   113,812   71,961 
                                        
Total $176,452  $181,392  $181,866  $134,425  $77,249  $132,792  $159,666  $176,452  $181,392  $181,866 

 (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 $9,512,000$7,819,000 would have been earned in 20112013 had loans in categories (a) and (c) remained at their original terms; however, only $5,273,000$5,753,000 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 in the table above were zero at December 31, 2011.2013.

At December 31, 2011,2013, 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, 2011,2013, that would be required to be disclosed above (Item III(C)), if such assets were loans.

There were no foreign loans at December 31, 2013, 2012 and 2011.  Total loans in 2010 and 2009 include $0.1 million and $1.7 million, respectively of payment plan receivables from customers domiciled in Canada.  There were no other foreign loans outstanding prior to that time.
15
ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
IV.
SUMMARY OF LOAN LOSS EXPERIENCE

19
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:
 
  2011   2010   2009  2013  2012  2011   
  (dollars in thousands)  (dollars in thousands) 
Total loans outstanding at the end of the year (net of unearned fees) $1,621,409     $1,863,214     $2,333,606     $1,394,960  
  $1,469,918  
  $1,621,409  
 
                          
      
      
 
Average total loans outstanding for the year (net of unearned fees) $1,711,948     $2,082,117     $2,470,568     $1,413,796  
  $1,550,456  
  $1,711,948  
 
                     
     Unfunded      Unfunded      Unfunded 
 Loan  Commit-  Loan  Commit-  Loan  Commit-      
      
      
 
 Losses  ments  Losses  ments  Losses  ments  
 
Loan
 Losses
  
Unfunded
Commit-
ments
  
 
Loan
 Losses
  
Unfunded
Commit-
ments
  
 
Loan
 Losses
  
Unfunded
Commit-
ments
 
Balance at beginning of year $67,915  $1,322  $81,717  $1,858  $57,900  $2,144  $44,275  $598  $58,884  $1,286  $67,915  $1,322 
Loans charged-off                                                
Mortgage  15,608       20,263       22,869       6,319       10,741       15,608     
Commercial  20,491       36,108       51,840       7,358       12,588       20,491     
Installment  5,439       7,726       7,562       2,520       4,009��      5,439     
Payment plan receivables  186       82       25       35       70       186     
Total loans charged-off  41,724       64,179       82,296       16,232       27,408       41,724     
                        
Recoveries of loans previously charged-off                                                
Mortgage  1,441       1,155       791       1,996       1,581       1,441     
Commercial  1,850       969       731       5,119       3,610       1,850     
Installment  1,451       1,475       1,271       1,074       1,311       1,451     
Payment plan receivables  5       13       2       81       20       5     
Total recoveries  4,747       3,612       2,795       8,270       6,522       4,747     
Net loans charged-off  36,977       60,567       79,501       7,962       20,886       36,977     
Reclassification to loans held for sale          610             
Additions (deductions) included in operations  27,946   (36)  46,765   (536)  103,318   (286)  (3,988)  (90)  6,887   (688)  27,946   (36)
                        
Balance at end of year $58,884  $1,286  $67,915  $1,322  $81,717  $1,858  $32,325  $508  $44,275  $598  $58,884  $1,286 
                                                
Net loans charged-off as a percent of average loans outstanding (includes loans held for sale) for the year  2.16%      2.91%      3.22%      0.56%      1.35%      2.16%    
                                                
Allowance for loan losses as a percent of loans outstanding (includes loans held for sale) at the end of the year  3.63       3.65       3.50       2.32       3.01       3.63     
 
16
20

ITEM 1.     BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
IV.              SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
 
 2010  2009 
  2008   2007  (dollars in thousands) 
  (dollars in thousands)  
  
  
  
 
Total loans outstanding at the end of the year (net of unearned fees) $2,487,132     $2,552,290     $1,863,214  
  $2,333,606  
 
                   
      
 
Average total loans outstanding for the year (net of unearned fees) $2,569,368     $2,541,305     $2,082,117  
  $2,470,568  
 
              
     Unfunded      Unfunded 
 Loan  Commit-  Loan  Commit-      
      
 
 Losses  ments  Losses  ments  
 
Loan
Losses
  
Unfunded
 Commit-
ments
  
 
Loan
 Losses
  
Unfunded
 Commit-
ments
 
Balance at beginning of year $45,294  $1,936  $26,879  $1,881  $81,717  $1,858  $57,900  $2,144 
Loans charged-off                                
Mortgage  11,942       6,644       20,263       22,869     
Commercial  43,641       14,236       36,108       51,840     
Installment  6,364       5,943       7,726       7,562     
Payment plan receivables  49       213       82       25     
Total loans charged-off  61,996       27,036       64,179       82,296     
Recoveries of loans previously charged-off                
Recoveries of loans previously                
charged-off                
Mortgage  318       381       1,155       791     
Commercial  1,800       328       969       731     
Installment  1,340       1,629       1,475       1,271     
Payment plan receivables  31       8       13       2     
Total recoveries  3,489       2,346       3,612       2,795     
Net loans charged-off  58,507       24,690       60,567       79,501     
Additions (deductions) included in operations  71,113   208   43,105   55   46,765   (536)  103,318   (286)
Balance at end of year $57,900  $2,144  $45,294  $1,936  $67,915  $1,322  $81,717  $1,858 
                                
Net loans charged-off as a percent of average loans outstanding (includes loans held for sale) for the year  2.28%      .97%      2.91%      3.22%    
                                
Allowance for loan losses as a percent of loans outstanding (includes loans held for sale) at the end of the year  2.33       1.77       3.65       3.50     

The allowance for loan losses reflected above is a valuation allowance in its entirety and the only allowance available to absorb probable incurred 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 in our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and is incorporated herein by reference.
17
ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
 
21
ITEM 1.     BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
IV.              SUMMARY OF LOAN LOSS EXPERIENCE  (Continued)
IV.
SUMMARY OF LOAN LOSS EXPERIENCE  (Continued)

(B)  We have allocated the allowance for loan losses to provide for probable incurred losses 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 follow:
 
 
2011
  
2010
  
2009
 
    Percent     Percent     Percent 
 Allowance  of Loans to  Allowance  of Loans to  Allowance  of Loans to  2013  2012  2011 
 Amount  Total Loans  Amount  Total Loans  Amount  Total Loans  
 
Allowance
Amount
  
Percent
of Loans to
Total Loans
  
 
Allowance
Amount
  
Percent
of Loans to
Total Loans
  
 
Allowance
Amount
  
Percent
of Loans to
Total Loans
 
 (dollars in thousands)  (dollars in thousands) 
Commercial $18,183   40.2% $23,836   38.0% $41,259   36.1% $6,827   45.5% $11,402   42.2% $18,183   40.2%
Mortgage  22,885   39.2   22,642   38.0   18,434   33.5   17,195   36.3   21,447   39.1   22,885   39.2 
Installment  6,146   13.5   6,769   13.2   6,404   13.0   2,246   13.8   3,378   12.9   6,146   13.5 
Payment plan receivables  197   7.1   389   10.8   754   17.4   97   4.4   144   5.8   197   7.1 
Unallocated  11,473       14,279       14,866       5,960      7,904      11,473    
Total $58,884   100.0% $67,915   100.0% $81,717   100.0% $32,325   100.0% $44,275   100.0% $58,884   100.0%
 
  2010  2009 
  
 
Allowance
Amount		  
Percent
of Loans to
Total Loans
  
 
Allowance
Amount		  
Percent
of Loans to
Total Loans
 
  (dollars in thousands) 
Commercial $23,836   38.0% $41,259   36.1%
Mortgage  22,642   38.0   18,434   33.5 
Installment  6,769   13.2   6,404   13.0 
Payment plan receivables  389   10.8   754   17.4 
Unallocated  14,279      14,866    
Total $67,915   100.0% $81,717   100.0%
  
2008
  
2007
 
     Percent     Percent 
  Allowance  of Loans to  Allowance  of Loans to 
  Amount  Total Loans  Amount  Total Loans 
  (dollars in thousands) 
Commercial $33,090   39.3% $27,829   41.8%
Mortgage  8,729   34.9   4,657   35.6 
Installment  4,264   14.3   3,224   14.4 
Payment plan receivables  486   11.5   475   8.2 
Unallocated  11,331       9,109     
Total $57,900   100.0% $45,294   100.0%
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ITEM 1.
BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
 
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ITEM 1.     BUSINESS -- STATISTICAL DISCLOSURE  (Continued)
V.                DEPOSITS
V.
DEPOSITS

The following table sets forth average deposit balances and the weighted-average rates paid thereon for the years ended December 31:
 
  
2011
   
2010
   
2009
 
  Average      Average      Average     2013  2012  2011 
  
Balance
  Rate   
Balance
  Rate   
Balance
  Rate  
Average
Balance
  
 
Rate
  
Average
Balance
  
 
Rate
  
Average
Balance
  
 
Rate
 
  (dollars in thousands)  (dollars in thousands) 
Non-interest bearing demand $467,305     $349,376     $321,802     $500,673  
  $523,926  
  $467,305  
 
Savings and NOW  1,006,305   0.22%  1,089,992   0.26%  992,529   0.58%  908,740   0.12%  1,060,882   0.17%  1,006,305   0.22%
Time deposits  656,944   1.98   978,098   2.59   1,019,624   2.91   423,291   1.08   552,903   1.28   656,944   1.98 
Total $2,130,554   0.72% $2,417,466   1.17% $2,333,955   1.52% $1,832,704   0.31% $2,137,711   0.42% $2,130,554   0.72%

The following table summarizes time deposits in amounts of $100,000 or more by time remaining until maturity at December 31, 2011:2013:
 
 (in thousands)  (in thousands) 
Three months or less $39,163  $41,002 
Over three through six months  21,909   43,107 
Over six months through one year  52,187   58,268 
Over one year  75,360   49,292 
Total $188,619  $191,669 
                                                          
VI.              RETURN ON EQUITY AND ASSETS
VI.
RETURN ON EQUITY AND ASSETS

The ratio of net income (loss) to average shareholders' equity and to average total assets, and certain other ratios, for the years ended December 31 follow:
 
 2013  2012  2011  2010  2009 
Net income (loss) as a percent of(1)
 
  
  
  
  
 
Average common equity  64.22%  68.29%  (68.44)%  (54.38)%  (90.72)%
Average total assets  3.87   0.92   (1.02)  (0.75)  (3.17)
 
                    
Dividends declared per share as a percent of diluted net income per share  0.00   0.00   0.00   0.00  NM 
 
                    
Average shareholders' equity as a percent of average total assets  8.69   4.82   4.76   3.92   5.80 

  2011  2010  2009  2008  2007 
Income (loss) from continuing operations as a percent of(1)
               
Average common equity  (68.44)%  (54.38)%  (90.72)%  (39.01)%  3.96%
Average total assets  (1.02)  (0.75)  (3.17)  (2.88)  0.31 
                     
Net income (loss) as a percent of(1)
                    
Average common equity  (68.44)  (54.38)  (90.72)  (39.01)  4.12 
Average total assets  (1.02)  (0.75)  (3.17)  (2.88)  0.32 
                     
Dividends declared per share as a percent of diluted net income per share  0.00   0.00  NM  NM   185.43 
                     
Average shareholders' equity as a percent of average total assets  4.76   3.92   5.80   7.50   7.72 

(1)For 2011, 2010, 2009 and 2008, theseThese amounts are calculated using loss from continuing operationsnet income (loss) applicable to common stock and net loss applicable to common stock.
NM – Not meaningful.

Additional performance ratios are set forth in Selected Consolidated Financial Data in our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and is incorporated herein by reference.  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 in our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and is incorporated herein by reference.
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VII.             SHORT-TERM BORROWINGS
VII.
SHORT-TERM BORROWINGS

Short-term borrowings are discussed in note 9 to the consolidated financial statements incorporated herein by reference to Part II, Item 8 Part II of this report.
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24
ITEM 1A.
RISK FACTORS

Investing in our common stock involves risks, including (among others) the following factors:

ITEM 1A.RISK FACTORSGeneral political, economic or industry conditions, either domestically or internationally, may be less favorable than expected.

Local, domestic, and international economic, political and industry-specific conditions affect the financial services industry, directly and indirectly. Conditions such as or related to inflation, recession, unemployment, volatile interest rates, international conflicts and other factors outside of our control, such as real estate values, energy costs, fuel prices, state and local municipal budget deficits, and government spending and the U.S. national debt, may, directly and indirectly, adversely affect us. As has been the case with the impact of recent economic conditions, economic downturns could result in the delinquency of outstanding loans, which could have a material adverse impact on our earnings.

Governmental monetary and fiscal policies may adversely affect the financial services industry, and therefore impact our financial condition and results of operations.

Monetary and fiscal policies of various governmental and regulatory agencies, particularly the Federal Reserve, affect the financial services industry, directly and indirectly. The Federal Reserve regulates the supply of money and credit in the U.S., and its monetary and fiscal policies determine in a large part our cost of funds for lending and investing and the return that can be earned on such loans and investments. Changes in such policies, including changes in interest rates, will influence the origination of loans, the value of investments, the generation of deposits and the rates received on loans and investment securities and paid on deposits. Changes in monetary and fiscal policies are beyond our control and difficult to predict. Our financial condition and results of operations could be materially adversely impacted by changes in governmental monetary and fiscal policies.

Volatility and disruptions in global capital and credit markets may adversely impact our business, financial condition and business may be materiallyresults of operations.

Global capital and adversely affected if wecredit markets are unablesometimes subject to successfully implement our Capital Plan.
Our Capital Plan, which is described in more detail under “Business – Recent Developments” above, has a primary objectiveperiods of achievingextreme volatility and thereafter maintaining certain minimum capital ratios required by resolutions adopted by our bank's Board of Directors in December 2009 (as subsequently amended).  In 2009 and 2010, we engaged in various transactions to help us achieve the minimum capital ratios set forthdisruption. Disruptions, uncertainty or volatility in the Capital Plan, which are also described under "Business – Recent Developments" above.  However, we have not yet completed the final initiative of our Capital Plan, which is a public offering for cash.  As of December 31, 2011, our bank met one of the two minimum capital ratios set forth in the resolutions, but not both.
We are currently reevaluating our alternatives for achieving the objectives of the Capital Plan, including the size and timing of any common stock offering.  In particular, we are evaluating the merits of a smaller capital raise with a goal of preserving the potential future use of our net deferred tax asset, which totaled approximately $75.2 million as of December 31, 2011, and on which we had established a $75.2 million valuation allowance.  This evaluation will also take into account our ongoing operating results, as well as input from our financial advisors and the Treasury.
However, whatever strategy we pursue to reach the objectives of the Capital Plan will involve risks and uncertainties.  The successful implementation of our Capital Plan is, in many respects, largely out of our control as it primarily depends on factors such ascredit markets may limit our ability to raise newaccess capital and manage liquidity, which depends on factors such as the stability of the financial markets, other macro economic conditions, and investors’ perception of the ability of the Michigan economy to continue to recover from the current recession.  In addition, other risks, including each of those described in these "Risk Factors," could negatively affect our operating performance in significant ways, which would in turn have a negative impact on our ability to reach the goals set forth in our Capital Plan.
If we are unable to achieve the minimum capital ratios set forth in our Capital Plan, it would likely materially andmay adversely affect our business, financial condition and results of operations. Further, our customers may be adversely impacted by such conditions, which could have a negative impact on our business, financial condition and results of operations.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the valueactions and commercial soundness of our securities. An inability to improve our capital position would make it very difficult for us to withstand continued lossesother financial institutions. Financial services institutions are interrelated as a result of continued economic difficulties in Michigantrading, clearing, counterparty and other factors, as described elsewhererelationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in this “Risk Factors” section.  Itthe financial industry.  As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led, and may further lead, to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions could expose us to credit risk in the event of default by a counterparty. In addition, our credit risk may be impacted when the collateral held by us cannot be realized upon or is possible that our bank’s capital could fall belowliquidated at prices not sufficient to recover the levels necessary to remain well-capitalized under federal regulatory standards.  In that case, our primary bank regulators may impose regulatory restrictions and requirements on us through a regulatory enforcement action. If our bank fails to remain well-capitalized under federal regulatory standards, it will be prohibited from accepting or renewing brokered deposits without the prior consentfull amount of the financial instrument exposure due to us. There is no assurance that any such losses would not adversely affect us and possibly be material in nature.

Changes in regulation or oversight may have a material adverse impact on our operations.

We are subject to extensive regulation, supervision and examination by the Federal Reserve, the FDIC, the Michigan DIFS, the SEC and other regulatory bodies. Such regulation and supervision governs the activities in which would likelywe may engage. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, investigations and limitations related to our securities, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material adverse impact on our business, financial condition or results of operations.
20
ITEM 1A.
RISK FACTORS (continued)

In particular, Congress and other regulators have recently increased their focus on the regulation of the financial condition. If our regulators take enforcement action againstservices industry.  The effects on us it would likely increase our expenses (due to additional costs associated with complying with such enforcement action)of recent legislation and could limit our business operations (due to restrictions imposed byregulatory actions cannot reliably be fully determined at this time. Moreover, as some of the enforcement action). There could be other expenses associated with a continued deterioration of our capital, such as increased deposit insurance premiums payablelegislation and regulatory actions previously implemented in response to the FDIC.
If we do not remain well-capitalized, meet certain minimum capital levels or certain profitability requirements or if we incur a rapid decline in net worth we could lose our ability to sell and/or service loans to Fannie Mae or Freddie Mac. This couldrecent financial crisis expire, the impact our ability to generate gainsof the conclusion of these programs on the salefinancial sector and on the economic recovery is unknown. Any delay in the economic recovery or a worsening of loans and generate servicing income. A forced liquidation of our servicing portfolio could also impact the value that could be recovered on this asset. Fannie Mae has the most stringent eligibility requirements covering capital levels, profitability and decline in net worth. Fannie Mae requires seller/servicers to be well-capitalized. For the profitability requirement, we cannot record four or more consecutive quarterly losses and experience a 30% decline in net worth over the same period. Finally, our net worth cannot decline by more than 25% in one quarter or more than 40% over two consecutive quarters. The highest level of capital we are required to maintain is at least $2.5 million plus 0.25% of loans serviced for Freddie Mac.
Additional restrictions would make it increasingly difficult for us to withstand the current economic conditions, any continued deterioration in our loan portfolio, or any additional charges related to estimated potential incurred losses for Mepco from vehicle service contract counterparty contingencies. We could then be required to engage in a sale or other transaction with a third party or our bank could be placed into receivership by bank regulators. Any such event could be expected to result in a loss of the entire value of our outstanding shares of common stock and it could also result in a loss of the entire value of our outstanding trust preferred securities and preferred stock.
25
We may not achieve results similar to our current financial projections.market conditions could adversely affect us. We can neither predict when or whether future regulatory or legislative reforms will be enacted nor what their contents will be. The impact of any future legislation or regulatory actions on our businesses or operations cannot be reliably determined at this time, and such impact may adversely affect us.
In our annual report, to be delivered to shareholders in connection with the April 24, 2012 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), we disclose certain information regarding our potential future financial performance, including  our belief that our bank can remain above “well-capitalized” for regulatory purposes for the foreseeable future, even without additional capital, and attain the bank regulatory capital ratios required by the Capital Plan in 2012 and our belief that our bank can return to profitability in 2012.  These projections and assumptions were based on information about circumstances and conditions existing as of the date of this Annual Report on Form 10-K. The projections are based on estimates and assumptions that are inherently uncertain and, though considered reasonable by us, are subject to significant business, economic, and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that actual results will not be significantly different than the information disclosed.  It is possible that our bank may not be able to remain well-capitalized as we work through asset quality issues and seek to return to consistent profitability.  Any significant deterioration in or inability to improve our capital position would make it very difficult for us to withstand continued losses that we may incur and that may be increased or made more likely as a result of continued economic difficulties and other factors.  We do not intend to update any such forward-looking information. Neither we nor any other person or entity assumes any responsibility for the accuracy or validity of these projections, as the projections are not, and should not be taken as, a guarantee of our future financial performance or condition.

We have credit risk inherent in our loan portfolios, and our allowance for loan losses may not be sufficient to cover actual loan losses.

Our loan customers may not repay their loans according to their respective terms, and the collateral securing the payment of these loans may be insufficient to cover any losses we may incur. We have experienced and may continue to experience significant credit losses which could have a material adverse effect on our operating results. We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. Non-performing loans amounted to $59.9$17.9 million and $67.6$32.9 million at December 31, 20112013 and December 31, 2010,2012, respectively. Our allowance coverage ratio of non-performing loans was 98.3%180.5% and 100.5%134.4% at December 31, 20112013 and December 31, 2010,2012, respectively. In determining the size of the allowance for loan losses, we rely on our experience and our evaluation of current economic conditions. If our assumptions or judgments prove to be incorrect, our current allowance for loan losses may not be sufficient to cover certain loan losses inherent in our loan portfolio, and adjustments may be necessary to account for different economic conditions or adverse developments in our loan portfolio. Material additions to our allowance would adversely impact our operating results. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize additional loan charge-offs. Any increase in our allowance for loan losses or loan charge-offs required by these regulatory agencies would have a material adverse effect on our results of operations and financial condition.

Although we have performedperform periodic internal and external testing of our loan portfolio to help ensure the adequacy of our allowance for loan losses, if the assumptions or judgments used in these analyses prove to be incorrect, our current allowance for loan losses may not be sufficient to cover loan losses inherent in our loan portfolio. In addition, these analyses were completed in early 2010, and we have not undertaken updated analyses with the same level of detail. Material additions to our allowance would adversely impact our operating results. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize additional loan charge-offs, notwithstanding any internal or external analysis that has been performed.
26
Our business has been and may continue to be adversely affected Any increase in our allowance for loan losses or loan charge-offs required by current conditions in the financial markets and economic conditions generally, and particularly by economic conditions in Michigan.
Our success depends tothese regulatory agencies could have a great extent upon the general economic conditions in Michigan’s lower peninsula. We have in general experienced a slowing economy in Michigan since 2001. Unlike larger banks that are more geographically diversified, we provide banking services to customers primarily in Michigan’s lower peninsula. Our loan portfolio, the ability of the borrowers to repay these loans, and the value of the collateral securing these loans will be impacted by local economic conditions. The economic difficulties faced in Michigan have had and may continue to have many adverse consequences, including the following:

Loan delinquencies may increase;

Problem assets and foreclosures may increase;

Demand for our products and services may decline; and

Collateral for our loans may decline in value, in turn reducing customers’ borrowing power and reducing the value of assets and collateral associated with existing loans.

Additionally, the overall capital and credit markets have experienced unprecedented levels of volatility and disruption since the start of the U.S. recession. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. As a consequence of the U.S. recession, business activity across a wide range of industries faces serious difficulties due to the lack of consumer spending and the extreme lack of liquidity in the global credit markets. Unemployment has also increased significantly and may continue to increase. While Michigan's unemployment rate has declined in recent months, it is still among the highest of all states.
While we believe we started to see some positive trends in the Michigan economy in 2010 and 2011, the general business environment has continued to have an overallmaterial adverse effect on our business during 2010 and 2011. If conditions do not show some meaningful and sustainable improvement, our business, financial condition, and results of operations will likely continueand financial condition.

We have credit risk in our securities portfolio.
We maintain diversified securities portfolios, which include obligations of the Treasury and government-sponsored agencies as well as securities issued by states and political subdivisions, mortgage-backed securities, corporate securities and asset-backed securities.  We seek to limit credit losses in our securities portfolios by generally purchasing only highly rated securities (rated "AA" or higher by a major debt rating agency) and by conducting due diligence on the issuer. However, gross unrealized losses on securities available for sale in our portfolio totaled approximately $7.0 million as of December 31, 2013 (compared to approximately $2.6 million as of December 31, 2012). We believe these unrealized losses are temporary in nature and are expected to be adversely affected byrecovered within a reasonable time period as we believe we have the ability to hold the securities to maturity or until such time as the unrealized losses reverse. However, we evaluate securities available for sale for other than temporary impairment (OTTI) at least quarterly and more frequently when economic conditions.
Currentor market developments, particularlyconcerns warrant such evaluation. Those evaluations may result in real estate markets,OTTI charges to our earnings. In addition to these impairment charges, we may, in the future, experience additional losses in our securities portfolio which may result in charges that could materially adversely affect our industry, business and results of operations.
Dramatic declines in the housing market in recent years, with falling home prices and increasing foreclosures and unemployment, have resulted in, and may continue to result in, significant write-downs of asset values by us and other financial institutions. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. As a result of these conditions, many lenders and institutional investors have reduced, and in some cases ceased to provide, funding to borrowers including financial institutions.
Although we believe the Michigan economy started to show signs of stabilization in 2010 and 2011, it is possible conditions will not stabilize or recover at or even close to the pace expected.
This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and widespread reduction of business activity generally. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets, and reduced business activity could materially and adversely affect our business, financial condition and results of operations.
Further negative market developments may continue to negatively affect consumer confidence levels and may continue to contribute to increases in delinquencies and default rates, which may impact our charge-offs and provisions for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry.
27
 
The assumptions we make in calculating estimated potential losses on vehicle service contract counterparty receivables for Mepco may be inaccurate, which could lead to vehicle service contract counterparty contingencies expense that is materially greater than the charges we have taken to date.
 
One of our subsidiaries, Mepco, is engaged in the business of acquiring and servicing payment plans for consumers who purchase vehicle service contracts and similar products. The receivables generated in this business involve a different, and generally higher, level of risk of delinquency or collection than generally associated with the loan portfolios of our bank. Upon cancellation of the payment plans acquired by Mepco (whether due to voluntary cancellation by the consumer or non-payment), the third party entities that provide the service contracts or other products to consumers (which we refer to as Mepco's "counterparties") become obligated to refund Mepco the unearned portion of the sales price previously funded by Mepco.  These obligations of Mepco's counterparties are shown as "vehicle service contract counterparty receivables" in our Consolidated Statements of Financial Condition.  At December 31, 2011,2013, the aggregate amount of such obligations owing to Mepco by counterparties, net of write-downs and reserves made through the recognition of "vehicle service contract counterparty contingencies expense," totaled $29.3$7.7 million.  This compares to a balance of $37.3$18.4 million and $29.3 million at December 31, 2010.2012, and December 31, 2011, respectively.
21
ITEM 1A.
RISK FACTORS (continued)
 
In most cases, there is no collateral to secure the counterparties’ refund obligations to Mepco, but Mepco has the contractual right to offset unpaid refund obligations against amounts Mepco would otherwise be obligated to fund to the counterparties. In addition, even when other collateral is involved, the refund obligations of these counterparties are not fully secured. Mepco incurs losses when it is unable to fully recover funds owing to it by counterparties upon cancellation of the underlying service contracts.
 
Historically, Mepco's counterparties generally fulfilled their obligations to Mepco to refund Mepco the amounts owed upon cancellation of the service contracts.  However, events in the vehicle service contract industry starting in approximately 2009 have significantly increased the size of these counterparty obligations.  These events, which included allegations that several service contract providers violated telemarketing and other consumer protection laws, contributed to significantly higher cancellation rates for outstanding service contracts and significantly lower sales of new service contract products which, in turn, contributed to several of Mepco's counterparties either going out of business or defaulting on their obligations to Mepco.  Although Mepco generally has recourse against more than one counterparty upon the cancellation of a service contract, Mepco hasdid not historically hadhave to enforce its rights against one counterparty (e.g., the administrator of a particular service contract that cancelled) based upon the default of a second counterparty (e.g., the seller of the service contract).  As Mepco has begun to enforce these rights in recent years, certain of its counterparties are challenging their payment obligations to Mepco.  Mepco is currently involved in litigation with several counterparties to enforce Mepco's rights to collect refunds owing from those counterparties.  We expect we willmay need to initiate additional lawsuits against other counterparties that do not pay their obligations to Mepco.  Mepco is also taking other steps to collect the outstanding amount of its vehicle service contract counterparty receivables, including through liquidation of collateral and claims against the bankruptcy estate of a counterparty that previously represented a significant portion of Mepco’s business.
 
In evaluating the collectability of these receivables, Mepco estimates probable incurred losses that Mepco expects to incur as a result of being unable to fully collect all amounts owing to Mepco.  The aggregate amount of these probable incurred losses (shown as vehicle"vehicle service contract counterparty contingencies expenseexpense" in our Consolidated Statements of Operations) recorded in past years has grown from $0 in 2007, to $1.0was $4.8 million, in 2008, to $31.2$1.6 million in 2009, and declined to $18.6 million in 2010 and $11.0 million in 2011.2013, 2012 and 2011, respectively.
 
The determination of these losses requires a significant amount of judgment because a number of factors can influence the amount of loss that we may ultimately incur. These factors include our estimate of future cancellations of vehicle service contracts (including cancellations that may result from a counterparty discontinuing its business operations), our evaluation of collateral that may be available to recover funds due from our counterparties, and the amount collected from counterparties in connection with their contractual obligations.  We apply a rigorous process, based upon observable contract activity and past experience, to estimate probable incurred losses for our vehicle service contract counterparty contingencies, but there can be no assurance that our modeling process will successfully identify all such losses.  Because of the uncertainty surrounding the numerous and complex assumptions made, actual losses could exceed the charges we have taken to date, and the additional losses we incur could be material.
28
Mepco has historically contributed a meaningful amount of profit to our consolidated results of operations, but we have shrunk the size of its business significantly since 2009 as a result of the events and risks referenced above.
For 2008 and 2007, Mepco had net income of $10.7 million and $5.5 million, respectively. With the counterparty losses experienced by Mepco since late 2009 (as referenced in the previous risk factor), Mepco reported net losses of $11.7 million in 2009 (which included a $16.7 million goodwill impairment charge), $1.4 million in 2010, and $4.8 million in 2011.
As a result of these adverse events and unique risks within the vehicle service contract industry, we have made a concerted effort to significantly reduce the size and scope of Mepco's business in the past two years.  Net payment plan receivables have been reduced from $406.3 million (or approximately 13.7% of total assets) at December 31, 2009, to $201.3 million (or approximately 7.9% of total assets) at December 31, 2010, to $115.0 million (or approximately 5.0% of total assets) at December 31, 2011.  This represents a decline of over 71% since 2009. We expect the amount of total payment plan receivables will continue to decline at a more moderate pace during 2012.
This decline in payment plan receivables has had a significant adverse impact on our net interest income and net interest margin.
 
Even though the size of Mepco's business has been significantly reduced in recent years, it still presents unique market, operational, and internal control challenges and risks.
 
Mepco faces unique operational and internal control challenges due to the relatively rapid turnover of its portfolio and high volume of new payment plans. Mepco's business is highly specialized, and its results of operation depend largely on the continued services of its executives and other key employees familiar with its business. In addition, because activity in this market is conducted primarily through relationships with unaffiliated vehicle service contract direct marketers and administrators and because the customers are located nationwide, risk management and general supervisory oversight are generally more difficult than in our bank. The risk of third party fraud is also higher as a result of these factors. Acts of fraud are difficult to detect and deter, and we cannot assure investors that the risk management procedures and controls will prevent losses from fraudulent activity. Although we have an internal control system at Mepco, we may be exposed to the risk of material loss in this business.
Our operations may be adversely affected if we are unable to secure adequate funding. Our use of wholesale funding sources exposes us to liquidity risk and potential earnings volatility.
We rely on wholesale funding, including Federal Home Loan Bank borrowings, brokered deposits, and Federal Reserve Bank borrowings, to augment our core deposits to fund our business.  As of December 31, 2011,2013, Mepco had total assets of $94.6 million, which amounts to 4.3 percent of our use of such wholesale funding sources amounted to approximately $75.7 million or 3.6% of total funding. Because wholesale funding sources are affected by general market conditions, the availability of funding from wholesale sources may be dependent on the confidence these parties have in our commercial and consumer banking operations. The continued availability to us of these funding sources is uncertain, and brokered deposits may be difficult for us to retain or replace at attractive rates as they mature. Our liquidity will be constrained if we are unable to renew our wholesale funding sources or if adequate financing is not available in the future at acceptable rates of interest or at all. We may not have sufficient liquidity to continue to fund new loans, and we may need to liquidate loans or other assets unexpectedly, in order to repay obligations as they mature.
The constraint on our liquidity would be exacerbated if we were to experience a reduction in our core deposits, and we cannot be sure we will be able to maintain our current level of core deposits. In particular, those deposits that are currently uninsured or those deposits that were in the FDIC Transaction Account Guarantee Program ("TAGP"), which expired on December 31, 2010, may be particularly susceptible to outflow, although the Dodd-Frank Act extended protection similar to that provided under the TAGP through December 31, 2012 for only non-interest bearing transaction accounts. At December 31, 2011 we had $123.1 million of uninsured deposits and an additional $170.9 million of deposits that were in non-interest bearing transaction accounts and fully insured through December 31, 2012 under the Dodd-Frank Act. A reduction in core deposits would increase our need to rely on wholesale funding sources, at a time when our ability to do so may be more restricted, as described above.
In addition, if we fail to remain "well-capitalized" under federal regulatory standards, we will be prohibited from accepting or renewing brokered deposits without the prior consent of the FDIC. As of December 31, 2011, we had brokered deposits of approximately $42.3 million. Approximately $30.6 million of these brokered deposits mature during the next 12 months. As a result, any such restrictions on our ability to access brokered deposits are likely to have a material adverse impact on our business and financial condition.
consolidated assets.
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29
ITEM 1A.
RISK FACTORS (continued)
Moreover, we cannot be sure we will be able to maintain our current level of core deposits. Our deposit customers could move their deposits in reaction to media reports about bank failures in general or, particularly, if our financial condition were to deteriorate further. A reduction in core deposits would increase our need to rely on wholesale funding sources, at a time when our ability to do so may be more restricted, as described above.
Our financial performance will be materially and adversely affected if we are unable to maintain our access to funding or if we are required to rely more heavily on more expensive funding sources. In such case, our net interest income and results of operations would be adversely affected.
Dividends being deferred on our outstanding trust preferred securities and our outstanding preferred stock are accumulating and are expected to continue to increase as we have no current plans to resume such dividend payments at any time in the near future.
We are currently deferring payment of quarterly dividends on our preferred stock held by the Treasury, which pays cumulative dividends quarterly at a rate of 5% per annum through February 14, 2014, and 9% per annum thereafter. In addition, we have exercised our right to defer all quarterly interest payments on the subordinated debentures we issued to our trust subsidiaries. As a result, all quarterly dividends on the related trust preferred securities are also being deferred. We may defer such interest payments for a total of 20 consecutive calendar quarters without causing an event of default under the documents governing these securities. After such period, we must pay all deferred interest and resume quarterly interest payments or we will be in default.  Our right to continue to defer these interest payments without being in default of the related debt instruments will expire in late 2014.
We do not have any current plans to resume dividend payments on our outstanding trust preferred securities or our outstanding preferred stock. If and when either of such payments resume, however, the accrued amounts must be paid and made current. As of December 31, 2011, the amount of these accrued but unpaid dividends on our outstanding trust preferred securities and our outstanding Series B Convertible Preferred Stock was $11.0 million.
We face uncertainty with respect to legislative efforts by the federal government to help stabilize the U.S. financial system, address problems that caused the recent crisis in the U.S. financial markets, or otherwise regulate the financial services industry.
Beginning in the fourth quarter of 2008, the federal government enacted new laws intended to strengthen and restore confidence in the U.S. financial system. See "Business—Regulatory Developments" above for additional information regarding these developments. There can be no assurance, however, as to the actual impact that such programs will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of these and other programs to stabilize the financial markets and a continuation or worsening of depressed financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit, or the trading price of our common stock.
In addition, additional legislation or regulations may be adopted in the future that could adversely impact us. For example, on July 21, 2010, the President signed the Dodd-Frank Act into law, which includes the creation of the new Consumer Financial Protection Bureau with power to promulgate and, with respect to financial institutions with more than $10 billion in assets, enforce consumer protection laws; the creation of the Financial Stability Oversight Council chaired by the Secretary of the Treasury with authority to identify institutions and practices that might pose a systemic risk; provisions affecting corporate governance and executive compensation of all companies whose securities are registered with the Securities and Exchange Commission; a provision that broadens the base for FDIC insurance assessments and permanently increases FDIC deposit insurance to $250,000; a provision under which interchange fees for debit cards of issuers with at least $10 billion in assets are set by the Federal Reserve under a restrictive "reasonable and proportional cost" per transaction standard; a provision that requires bank regulators to set minimum capital levels for bank holding companies that are as strong as those required for their insured depository subsidiaries, subject to a grandfather clause for financial institutions with less than $15 billion in assets as of December 31, 2009; and new restrictions on how mortgage brokers and loan originators may be compensated.  Although a number of the regulations required by the Dodd-Frank Act have been issued, many of the new requirements have not yet been implemented and will likely be subject to implementing regulations over the course of several years.  As these provisions continue to be implemented, we expect they may impact our business operations and may negatively affect our earnings and financial condition by affecting our ability to offer certain products or earn certain fees and by exposing us to increased compliance and other costs.  At this time, it is difficult to assess the full impact of the Dodd-Frank Act on our business. This legislation as well as other similar federal initiatives could have a material adverse impact on our business.
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We have credit risk inherent in our securities portfolio.
We maintain diversified securities portfolios, which include obligations of the Treasury and government-sponsored agencies as well as securities issued by states and political subdivisions, mortgage-backed securities, and asset-backed securities. We also invest in capital securities, which include preferred stocks and trust preferred securities. We seek to limit credit losses in our securities portfolios by generally purchasing only highly rated securities (rated "AA" or higher by a major debt rating agency) or by conducting significant due diligence on the issuer for unrated securities. However, gross unrealized losses on securities available for sale in our portfolio totaled approximately $5.2 million as of December 31, 2011 (compared to approximately $5.2 million as of December 31, 2010). We believe these unrealized losses are temporary in nature and are expected to be recovered within a reasonable time period as we believe we have the ability to hold the securities to maturity or until such time as the unrealized losses reverse. However, we evaluate securities available for sale for other than temporary impairment (OTTI) at least quarterly and more frequently when economic or market concerns warrant such evaluation. Those evaluations may result in OTTI charges to our earnings. In addition to these impairment charges, we may, in the future, experience additional losses in our securities portfolio which may result in charges that could materially adversely affect our results of operations.
 
Our mortgage-banking revenues are susceptible to substantial variations, dependent largely upondue in part to factors that we do not control, such as market interest rates.
 
A portion of our revenues are derived from gains on the sale of real estate mortgage loans. We realized net gains of $9.3 million on the sale of mortgage loans during 2011 compared to $12.3 million during 2010. These net gains primarily depend on the volume of loans we sell, which in turn depends on our ability to originate real estate mortgage loans and the demand for fixed-rate obligations and other loans that are outside of our established interest-rate risk parameters. Net gains on real estate mortgage loans are also dependent upon economic and competitive factors as well as our ability to effectively manage exposure to changes in interest rates. Consequently, they can often be a volatile part of our overall revenues.  We realized net gains of $10.0 million on mortgage loans during 2013 compared to $17.3 million during 2012 and $9.3 million during 2011.
 
FluctuationsWe are subject to liquidity risk in our operations, which could adversely impact our ability to fund various obligations.

Liquidity risk is the possibility of being unable to meet obligations as they come due or capitalize on growth opportunities as they arise because of an inability to liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances. Liquidity is required to fund various obligations, including credit obligations to borrowers, loan originations, withdrawals by depositors, repayment of debt, dividends to shareholders, operating expenses and capital expenditures. Liquidity is derived primarily from retail deposit growth and earnings retention, principal and interest payments on loans and investment securities, net cash provided from operations and access to other funding. If we are unable to maintain adequate liquidity, then our business, financial condition and results of operations could be negatively impacted.

Our parent company must rely on dividends or returns of capital from our bank for most of its cash flow.

Our parent company is a separate and distinct legal entity from our bank.  Generally, our parent company receives substantially all of its cash flow from dividends or returns of capital from our subsidiary bank. These dividends or returns of capital are the principal source of funds to pay our parent company’s operating expenses and for cash dividends on our common stock. Various federal and/or state laws and regulations limit the amount of dividends that the bank may pay to the parent company.  For example, at the present time, because our bank has negative retained earnings, it is not permitted to pay any dividends to our parent company.  Therefore, we have recently made requests for a return of capital from the bank to our parent company.  A return of capital request requires approval by our federal and state bank regulators, and there is no assurance that we will obtain such approval.  In the event our bank cannot obtain approval for a return of capital or is unable to pay future dividends to our parent company, we may not be able to pay future cash dividends on our common stock.

Any future strategic acquisitions or divestitures may present certain risks to our business and operations.

Difficulties in capitalizing on the opportunities presented by a future acquisition may prevent us from fully achieving the expected benefits from the acquisition, or may cause the achievement of such expectations to take longer to realize than expected.  Further, the assimilation of the acquired entity's customers and markets could result in higher than expected deposit attrition, loss of key employees, disruption of our businesses or the businesses of the acquired entity or otherwise adversely affect our ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition. These matters could have an adverse effect on us for an undetermined period. We will be subject to similar risks and difficulties in connection with any future decisions to downsize, sell or close units or otherwise change our business mix.

Compliance with new capital requirements may adversely affect us.

The capital requirements applicable to us as a bank holding company as well as to our subsidiary bank are in the process of being substantially revised, in connection with Basel III and the requirements of the Financial Reform Act. These requirements, and any other new regulations, could adversely affect our ability to pay dividends, or could require us to reduce business levels or to raise capital, including in ways that may adversely affect our results of operations or financial condition and/or existing shareholders. The ultimate impact of the new capital requirements cannot be determined at this time and will depend on a number of factors, including treatment and implementation by the U.S. bank regulators. However, maintaining higher levels of capital may reduce our profitability and otherwise adversely affect our business, financial condition, or results of operations.

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ITEM 1A.
RISK FACTORS (continued)

Declines in the businesses or industries of our customers could cause increased credit losses, which could adversely affect us.

Our business customer base consists, in part, of customers in volatile businesses and industries such as the automotive production industry and the real estate business. These industries are sensitive to global economic conditions and supply chain factors. Any decline in one of those customers' businesses or industries could cause increased credit losses, which in turn could adversely affect us.

The introduction, implementation, withdrawal, success and timing of business initiatives and strategies may be less successful or may be different than anticipated, which could adversely affect our business.

We make certain projections and develop plans and strategies for our banking and financial products. If we do not accurately determine demand for or changes in our banking and financial product needs, it could result in us incurring significant expenses without the anticipated increases in revenue, which could result in a material adverse effect on our business.  For example, in May 2014, we plan to convert our debit card base from the VISA brand to the MasterCard brand.  We anticipate generating more net interchange revenue as a result of this change.  However, difficulties encountered in converting our card base or in our customers’ acceptance of the brand change could adversely impact our business and results of operations.

We may not be able to utilize technology to efficiently and effectively develop, market, and deliver new products and services to our customers.

The financial services industry experiences rapid technological change with regular introductions of new technology-driven products and services. The efficient and effective utilization of technology enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to market and deliver products and services that will satisfy customer demands, meet regulatory requirements, and create additional efficiencies in our operations. We may not be able to effectively develop new technology-driven products and services or be successful in marketing or supporting these products and services to our customers, which could have a material adverse impact on our financial condition and results of operations.

Operational difficulties, failure of technology infrastructure or information security incidents could adversely affect our business and operations.

We are exposed to many types of operational risk, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, failure of our controls and procedures and unauthorized transactions by employees or operational errors, including clerical or recordkeeping errors or those resulting from computer or telecommunications systems malfunctions. Given the high volume of transactions we process, certain errors may be repeated or compounded before they are identified and resolved.  In particular, our operations rely on the secure processing, storage and transmission of confidential and other information on our technology systems and networks. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems.

We also face the risk of operational disruption, failure or capacity constraints due to our dependency on third party vendors for components of our business infrastructure, including our core data processing systems which are largely outsourced. While we have selected these third party vendors carefully, we do not control their operations. As such, any failure on the part of these business partners to perform their various responsibilities could also adversely affect our business and operations.

We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, which may include, for example, computer viruses, cyber attacks, spikes in transaction volume and/or customer activity, electrical or telecommunications outages, or natural disasters. Although we have programs in place related to business continuity, disaster recovery and information security to maintain the confidentiality, integrity, and availability of our systems, business applications and customer information, such disruptions may give rise to interruptions in service to customers and loss or liability to us.

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ITEM 1A.
RISK FACTORS (continued)

The occurrence of any failure or interruption in our operations or information systems, or any security breach, could cause reputational damage, jeopardize the confidentiality of customer information, result in a loss of customer business, subject us to regulatory intervention or expose us to civil litigation and financial loss or liability, any of which could have a material adverse effect on us.

Changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing, could reduceadversely affect our profitability.net interest income and financial condition.

We realizeThe operations of financial institutions such as us are dependent to a large degree on net interest income, primarily fromwhich is the difference between interest earned onincome from loans and investments and the interest paidexpense on deposits and borrowings. Our interest income and interest expense are affected by generalPrevailing economic conditions, the trade, fiscal and bymonetary policies of the federal government and the policies of various regulatory authorities. While we have taken measures intended to manageagencies all affect market rates of interest and the risksavailability and cost of operatingcredit, which in turn significantly affect financial institutions' net interest income. Volatility in interest rates can also result in disintermediation, which is the flow of funds away from financial institutions into direct investments, such as federal government and corporate securities and other investment vehicles, which, because of the absence of federal insurance premiums and reserve requirements, generally pay higher rates of return than financial institutions. Our financial results could be materially adversely impacted by changes in financial market conditions.

Competitive product and pricing pressures among financial institutions within our markets may change.

We operate in a changing interest ratevery competitive environment, there can be no assurance that these measures will be effectivewhich is characterized by competition from a number of other financial institutions in avoiding undue interest rate risk.each market in which we operate. We expect thatcompete with large national and regional financial institutions and with smaller financial institutions in terms of products and pricing. If we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will work against us, and our earnings may be negatively affected.
We are unable to predict fluctuations of market interest rates,compete effectively in products and pricing in our markets, business could decline, which are affected by, among other factors, changes in the following:

inflation or deflation rates;
levels of business activity;
recession;
unemployment levels;
money supply;
domestic or foreign events; and
instability in domestic and foreign financial markets.

We rely heavily on our management team, and the unexpected loss of key managers may adversely affect our operations and the ability to implement our Capital Plan and business strategies.
The continuity of our operations is influenced strongly by our ability to attract and to retain senior management experienced in banking and financial services. Our ability to retain executive officers and the current management teams of each of our lines of business will continue to be important to successful implementation of our Capital Plan and our strategies. We do not have employment or non-compete agreements with any of our executives or other key employees (although we recently entered into a Consulting and Transition Agreement with our Chief Executive Officer in connection with our announced management transition plan announced in 2011). In addition, we face restrictions on our ability to compensate our executives as a result of our participation in the CPP under TARP. Many of our competitors do not face these same restrictions. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition or results of operations.

Changes in customer behavior may adversely impact our business, financial condition and financial results.results of operations.

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Competition withWe use a variety of methods to anticipate customer behavior as a part of our strategic planning and to meet certain regulatory requirements. Individual, economic, political, industry-specific conditions and other financial institutionsfactors outside of our control, such as fuel prices, energy costs, real estate values or other factors that affect customer income levels, could alter predicted customer borrowing, repayment, investment and deposit practices. Such a change in these practices could materially adversely affect our profitability.ability to anticipate business needs and meet regulatory requirements.

We face vigorous competition from banksFurther, difficult economic conditions may negatively affect consumer confidence levels. A decrease in consumer confidence levels would likely aggravate the adverse effects of these difficult market conditions on us, our customers and otherothers in the financial institutions including savings banks, finance companies,industry.

Our ability to maintain and credit unions. A numberexpand customer relationships may differ from expectations

The financial services industry is very competitive. We not only vie for business opportunities with new customers, but also compete to maintain and expand the relationships we have with our existing customers. While we believe that we can continue to grow many of these banksrelationships, we will continue to experience pressures to maintain these relationships as our competitors attempt to capture our customers. Failure to create new customer relationships and other financial institutions have substantially greater resourcesto maintain and lending limits, larger branch systems, and a wider array of banking services. To a limited extent, we also compete with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies, and insurance companies, which are not subjectexpand existing customer relationships to the same degreeextent anticipated may adversely impact our earnings.

Our ability to retain key officers and employees may change.

Our future operating results depend substantially upon the continued service of regulation as that imposed on bank holding companies. As a result, these non-bank competitors may have an advantage over usour executive officers and key personnel. Our future operating results also depend in providing certain services, and this competition may reduce or limit our margins on banking services, reduce our market share, and adversely affect our results of operations and financial condition.
We will face challenges insignificant part upon our ability to achieve future growthattract and retain qualified management, financial, technical, marketing, sales and support personnel. Competition for qualified personnel is intense, and we cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the near term.requisite skills to serve in these positions, and it may be increasingly difficult for us to hire personnel over time.
25
ITEM 1A.
RISK FACTORS (continued)
 
Our current capital position has prevented us from pursuing any meaningful growth initiatives,Further, our ability to retain key officers and we have taken actions to shrink our balance sheet. Our current focus, as discussed elsewhere in this Annual Report on Form 10-K and in our annual report to shareholders included as Exhibit 13 to this Annual Report on Form 10-K, is to strengthen our capital base, as opposed to pursuing growth.
We operate in a highly regulated environment andemployees may be adversely affectedimpacted by changes in federal and local laws and regulations.
We are generally subject to extensive regulation, supervision, and examination by federal and state banking authorities. The burden of regulatory compliance has increased under current legislation and banking regulations and is likely to continue to have a significant impact onregulation affecting the financial services industry. Recent legislativeOur business, financial condition or results of operations could be materially adversely affected by the loss of any key employees, or our inability to attract and retain skilled employees.

Legal and regulatory changes as well as changesproceedings and related matters with respect to the financial services industry, including those directly involving us, could adversely affect us or the financial services industry in general.

We have been, and may in the future be, subject to various legal and regulatory enforcement policiesproceedings. It is inherently difficult to assess the outcome of these matters, and capital adequacy guidelines are likely to increasethere can be no assurance that we will prevail in any proceeding or litigation. Any such matter could result in substantial cost and diversion of our cost of doing business. In addition, future legislative or regulatory changesefforts, which by itself could have a substantial impactmaterial adverse effect on us. Additional legislationour financial condition and regulations may be enacted or adoptedoperating results. Further, adverse determinations in the futuresuch matters could result in actions by our regulators that could significantlymaterially adversely affect our powers, authority,business, financial condition or results of operations.

Methods of reducing risk exposures might not be effective.

Instruments, systems and operations; increase our costsstrategies used to hedge or otherwise manage exposure to various types of doing business;credit, market and asliquidity, operational, compliance, business risks and enterprise-wide risk could be less effective than anticipated. As a result, give an advantage to our competitors whowe may not be subjectable to similar legislative and regulatory requirements. Further, regulators have significant discretion and power to preventeffectively mitigate our risk exposures in particular market environments or remedy unsafe or unsound practices or violationsagainst particular types of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory power may have a negative impact on our results of operations and financial condition.
There have been numerous media reports about bank failures,risk, which we expect will continue as additional banks fail. These reports have created concerns among certain of our customers, particularly those with deposit balances in excess of deposit insurance limits.
We have proactively sought to provide appropriate information to our deposit customers about our organization in order to retain our business and deposit relationships. To date, we have not experienced a meaningful loss of core deposits, nor have we had to offer above market interest rates in order to retain our core deposits. However, we cannot be sure we will continue to be successful in maintaining the majority of our core deposit base. The outflow of significant amounts of deposits could have a material adverse impact on our liquidity andbusiness, financial condition or results of operations.

IncreasesTerrorist activities or other hostilities may adversely affect the general economy, financial and capital markets, specific industries, and us.

Terrorist attacks or other hostilities may disrupt our operations or those of our customers. In addition, these events have had and may continue to have an adverse impact on the U.S. and world economies in FDIC insurance premiumsgeneral and consumer confidence and spending in particular, which could harm our operations. Any of these events could increase volatility in the U.S. and world financial markets, which could harm our stock price and may limit the capital resources available to us and our customers. This could have a material adverse effectimpact on our earnings.
As an FDIC-insured institution, we are required to pay deposit insurance premium assessments to the FDIC. Due to higher levels of bank failures beginning in 2008, the FDIC has taken numerous steps to restore reserve ratios of the deposit insurance fund. Our deposit insurance expense increased substantially in 2009 compared to prior periods, reflecting higher ratesoperating results, revenues and a special assessment of $1.4 million in the second quarter of 2009. This industry-wide special assessment was equal to 5 basis points on our total assets less our Tier 1 capital.
Since April 1, 2011, banks have been charged FDIC insurance premiums based on net assets (defined as the quarter to date average daily total assets less the quarter to date average daily Tier 1 capital) rather than based on average domestic deposits.  Initial base assessment rates vary from 0.05% to 0.35% of net assetscosts and may be adjusted between negative 0.025% and positive 0.10% for an unsecured debt adjustment and a brokered deposit adjustment.  This new FDIC assessment system has resulted in a decline in our deposit insurance premiums from $6.8 million in 2010 to $3.5 million in 2011.  However, if our financial condition worsens and our Tier 1 capital deteriorates further, our deposit insurance expense may increase. The amount of deposit insurance that we are required to pay is also subject to factors outside of our control, including bank failures and regulatory initiatives. Such increases may adversely affect our results of operations.
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Initiatives we may take to fully implement our Capital Plan could be highly dilutive to our existing common shareholders.
Our Capital Plan contemplates capital raising initiatives that involve the issuance of a significant number of shares of our common stock, as described under "Business – Recent Developments" above.  While we are currently re-evaluating the best strategy to implement our Capital Plan, any pursuit of these capital raising initiatives is likely to be highly dilutive to our existing common shareholders and their voting power. The market price of our common stock could decline as a result of the dilutive effect of the capital raising transactions we may enter into or the perception that such transactions could occur.
It is possible the Treasury or one or more private investors could end up owning a significant percentage of our stock and have the ability to exert significant influence over our management and operations.
One of the primary capital raising initiatives set forth in our Capital Plan consists of the conversion of the preferred stock held by the Treasury into shares of our common stock. As described under "Business – Recent Developments" above, the Series B Convertible Preferred Stock currently held by the Treasury is convertible into shares of our common stock. Any such conversion is likely to result in the Treasury owning a significant percentage of our outstanding common stock, perhaps over 50%.
Except with respect to certain designated matters, the Treasury has agreed to vote all shares of our common stock acquired upon conversion of the Series B Convertible Preferred Stock or upon exercise of the amended and restated Warrant that are beneficially owned by it and its controlled affiliatesincreased volatility in the same proportion (for, against, or abstain) as all other shares of our common stock are voted. The "designated matters" are (i) the election and removal of our directors, (ii) the approval of any merger, consolidation or similar transaction that requires the approval of our shareholders, (iii) the approval of a sale of all or substantially all of our assets or property, (iv) the approval of our dissolution, (v) the approval of any issuance of any of our securities on which our shareholders are entitled to vote, (vi) the approval of any amendment to our organizational documents on which our shareholders are entitled to vote, and (vii) the approval of any other matters reasonably incidental to the foregoing as determined by the Treasury.
It is also possible that one or more investors, other than the Treasury, could end up as the owner of a significant portion of our common stock. This could occur, for example, if the Treasury transfers shares of the Series B Convertible Preferred Stock it holds or, upon conversion of such stock, transfers to a third party the common stock issued upon conversion. It also could occur if one or more large investors make a significant investment in any offering of our capital stock that we undertake.
Subject to the voting limitations applicable to the Treasury and its controlled affiliates described above, any such significant shareholder could exercise significant influence on matters submitted to our shareholders for approval, including the election of directors. In addition, having a significant shareholder could make future transactions more difficult or even impossible to complete without the support of such shareholder, whose interests may not coincide with interests of smaller shareholders. These possibilities could have an adverse effect on the market price of our common stock.

Catastrophic events, including, but not limited to, hurricanes, tornadoes, earthquakes, fires and floods, may adversely affect the general economy, financial and capital markets, specific industries, and us.

We have significant operations and a significant customer base in Michigan where natural and other disasters may occur, such as tornadoes and floods. These types of natural catastrophic events at times have disrupted the local economy, our business, and our customers and have posed physical risks to our property. In addition, catastrophic events occurring in other regions of the world may have an impact on our customers and in turn, on us. A significant catastrophic event could materially adversely affect our operating results.

Changes in accounting standards could materially impact our financial statements.

From time to time, changes are made to the foregoing,financial accounting and reporting standards that govern the Series B Convertible Preferred Stock we issued to the Treasury contains a provision providing that, if dividends on the preferred stock have not been paid for an aggregate of six quarterly dividend periods or more, whether consecutive or not, the holders of the preferred stock have the right to elect two additional directors at our next annual meeting of shareholders or at a special meeting of shareholders called for that purpose. These directors would be elected annually and serve until all accrued and unpaid dividends on the Series B Convertible Preferred Stock have been paid. Because we have deferred dividends on the Series B Convertible Preferred Stock for at least six quarterly dividend periods, the Treasury currently has the right to elect two directors to our board.  At this time, in lieu of electing such directors, the Treasury requested us to allow (and we agreed) an observer to attend our Board of Directors meetings beginning in the third quarter of 2011.  The Treasury continues to retain the right to elect two directors as described above.
An offeringpreparation of our common stockfinancial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could trigger an ownership change under federal tax law that will negatively affect our abilitybe required to utilize net operating loss carryforwards and other deferred tax assetsapply a new or revised standard retroactively, resulting in the future.changes to previously reported financial results, or a cumulative charge to retained earnings.

As of December 31, 2011, we had federal loss carryforwards of approximately $75.1 million. Under federal tax law, our abilityOur failure to utilize this carryforward and other deferred tax assets is limited if we are deemed to experience a change of ownership pursuant to Section 382 of the Internal Revenue Code. This wouldappropriately apply certain critical accounting policies could result in our lossmisstatement of our financial results and condition.

Accounting policies and processes are fundamental to how we record and report our financial condition and results of operations. We must exercise judgment in selecting and applying many of these accounting policies and processes so they comply with U.S. GAAP. In some cases, we must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in our reporting materially different results than would have been reported under a different alternative.
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ITEM 1A.
RISK FACTORS (continued)
We have identified certain accounting policies as being critical because they require us to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. We have established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the benefit ofuncertainty surrounding management's judgments and the estimates pertaining to these deferred tax assets. Please seematters, we cannot guarantee that we will not be required to adjust accounting policies or restate prior period financial statements. See note #1, “Accounting Policies” in the more detailed discussion of these tax rules under "Results of Operations - Income Tax Benefit"Notes to Consolidated Financial Statements in our annual report, to be delivered to shareholders includedin connection with the April 22, 2014 Annual Meeting of Shareholders (filed as Exhibitexhibit 13 to this Annual Reportreport on Form 10-K.
10-K).
33

The trading price of our common stock may be subject to continued significant fluctuations and volatility.
 
The market price of our common stock could be subject to significant fluctuations due to, among other things:

·actualvariations in quarterly or anticipated quarterly fluctuations in our operating and financialannual results particularly if such results vary from the expectations of management, securities analysts, and investors, including with respect to further loan losses or vehicle service contract counterparty contingencies expenses we may incur;
·announcements regarding significant transactions in which we may engage, including the initiatives that are part of our Capital Plan;
·market assessments regarding such transactions, including the timing, terms, and likelihood of success of any offering of our common stock;
·developments relating to litigation or other proceedings that involve us;
·changes or perceived changes in our operations or business prospects;
·legislative or regulatory changes affecting our industry generally or our businesses and operations;
·the failure of general market and economic conditions to stabilize and recover, particularly with respect to economic conditionschanges in Michigan, and the pace of any such stabilization and recovery;dividends per share;
·the possible delisting of our common stock from Nasdaq or perceptions regarding the likelihood of such delisting;deterioration in asset quality, including declining real estate values;
·the operating and share price performance of companies that investors consider to be comparable to us;changes in interest rates;
·future offeringssignificant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us of debt, preferred stock, or trust preferred securities, each of which would be senior to our common stock upon liquidation and for purposes of dividend distributions;competitors;
·regulatory actions, including changes to regulatory capital levels, the components of our current shareholders, including future sales of common stock by existing shareholdersregulatory capital and our directors and executive officers; andhow regulatory capital is calculated;
·other changes in U.S.new regulations that limit or global financial markets, economies, and market conditions, such as interestsignificantly change our ability to continue to offer products or foreign exchange rates, stock, commodity, credit or asset valuations or volatility.services;

Stock markets in general, and our common stock in particular, have experienced significant volatility since October 2007 and continue to experience significant price and volume volatility. As a result, the market price of our common stock may continue to be subject to similar market fluctuations that may or may not be related to our operating performance or prospects. Increased volatility could result in a decline in the market price of our common stock.
·volatility of stock market prices and volumes;

·issuance of additional shares of common stock or other debt or equity securities;
·changes in market valuations of similar companies;
·changes in securities analysts' estimates of financial performance or recommendations;
·perceptions in the marketplace regarding the financial services industry, us and/or our competitors; and/or
·the occurrence of any one or more of the risk factors described above.
27
34

ITEM 1B.  
ITEM 1B.
UNRESOLVED STAFF COMMENTS

None.

ITEM 2.     
ITEM 2.
PROPERTIES

We and our bank operate a total of 11289 facilities in Michigan and 1 facility in Chicago, Illinois.  The individual properties are not materially significant to us or our bank's 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.     
ITEM 3.
LEGAL PROCEEDINGS

We are involved in various litigation matters in the ordinary course of business. At the present time, we do not believe any of these matters will have a significant impact on our Consolidated Financial Statements.consolidated financial position or results of operations. The aggregate amount we have accrued for losses we consider probable as a result of these litigation matters is immaterial. However, because of the inherent uncertainty of outcomes from any litigation matter, we believe it is reasonably possible we may incur losses in addition to the amounts we have accrued. However, atAt this time, we are unable to estimate the rangemaximum amount of additional losses that are reasonably possible is approximately $0.5 million. However, because of a number of factors, including the fact that certain of these litigation matters are still in their early stages and involve claims for which, at this point, we believe have little to no merit.merit, this maximum amount may change in the future.

The litigation matters described in the preceding paragraph primarily include claims that have been brought against us for damages, but do not include litigation matters where we seek to collect amounts owed to us by third parties (such as litigation initiated to collect delinquent loans or vehicle service contract counterparty receivables). These excluded, collection-related matters may involve claims or counterclaims by the opposing party or parties, but we have excluded such matters from the disclosure contained in the preceding paragraph in all cases where we believe the possibility of us paying damages to any opposing party is remote. Risks associated with the likelihood that we will not collect the full amount owed to us, net of reserves, are disclosed elsewhere in this report.

ITEM 4.     [REMOVED AND RESERVED.]
ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.
28
35
ADDITIONAL ITEM - EXECUTIVE OFFICERS

Our executive officers are appointed annually by our Board of Directors at the meeting of Directorsdirectors preceding the Annual Meeting of Shareholders.  There are no family relationships among these officers and/or our Directorsdirectors 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 at February 27, 2012.21, 2014.

First elected
as an executive
Name (Age)Positionofficer
Michael M. Magee, Jr. (56)William B. Kessel  (49)President, Chief Executive Officer and Director (1)2004
Michael M. Magee, Jr. (58)Executive Chairman of the Board of Directors and Director (2)1993
Robert N. Shuster (54)(56)Executive Vice President and Chief Financial Officer1999
William B. Kessel  (47)President (1)2004
Stefanie M. Kimball (52)(54)Executive Vice President and Chief LendingRisk Officer (2)2007
David C. Reglin (52)(54)Executive Vice President, Retail Banking1998
Mark L. Collins (54)(56)Executive Vice President, General Counsel (3)2009
Dennis J. Mack (52)Executive Vice President and Chief Lending Officer (4)2012
Richard E. Butler (60)(62)Senior Vice President, Operations1998
Peter R. Graves (54)(56)Senior Vice President, Chief Information Officer1999
James J. Twarozynski (46)(48)Senior Vice President, Controller2002

(1)As previously announced in a Form 8-K filed February 16,Mr. Kessel assumed the role of President as of April 1, 2011, asand assumed the roles of CEO and director starting January 1, 2013.  Prior to being appointed President, Mr. Kessel was Executive Vice President and COO.

(2)As part of a senior management succession plan, Mr. Magee retired from the positionrole of President as of April 1, 2011, and from the role of CEO will be transitioned from Mr. Magee to Mr. Kessel on December 31, 2012.

(2)Prior to being named Executive Vice President and Chief Lending Officer in 2007, Ms. Kimball was a Senior Vice President at Comerica Incorporated since 1998.as of January 1, 2013.

(3)Prior to being named Executive Vice President, General Counsel in 2009, Mr. Collins was a Partner with Varnum LLP, a Grand Rapids, Michigan based law firm, where he specialized in commercial law.

36
PART II.
(4)Prior to being named Executive Vice President and Chief Lending Officer in 2012, Mr. Mack was a Senior Vice President and commercial credit officer since 2009 and a Senior Vice President at Comerica Incorporated since 2001.

29
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 our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

ITEM 6.     
ITEM 6.
SELECTED FINANCIAL DATA

The information set forth under the caption "Selected Consolidated Financial Data" in our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (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
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 our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

ITEM 7A.  
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the caption "Asset/liability management" in our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

37

PART II.

ITEM 8.     
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and the independent auditor's report are set forth in our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and isare incorporated herein by reference.
 
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at December 31, 20112013 and 20102012
Consolidated Statements of Operations for the years ended December 31, 2011, 20102013, 2012 and 20092011
Consolidated Statements of Shareholders' Equity Comprehensive Income (Loss) for the years ended December 31, 2011, 20102013, 2012 and 20092011
Consolidated Statements of Comprehensive Loss Shareholders' Equity for the years ended December 31, 2011, 20102013, 2012 and 20092011
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 20102013, 2012 and 20092011
Notes to Consolidated Financial Statements
30
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The supplementary data required by this item set forth under the caption "Quarterly Financial Data" in our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

The portions of our annual report, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (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.

38
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES
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, 20112013 (the "Evaluation Date"), have concluded that, as of such date, our disclosure controls and procedures were effective.

2.
Internal Control Over Financial Reporting.
The management of Independent Bank Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to us and the board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2011.2013. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 1992 Internal Control — Integrated Framework. Based on our assessment, management has concluded that as of December 31, 2011,2013, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2011,2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in our annual report.
 
/s/Michael M. Magee, Jr.  William B. Kessel.
/s/Robert N. Shuster
President and Chief Executive Officer 
Executive Vice President
and Chief Financial Officer
March 13, 2012 
March 7, 2014

                                                                                                                                                                                                                                                                      
39

PART II.

ITEM 9B.OTHER INFORMATION
ITEM 9B.OTHER INFORMATION

None.

31
PART III.

ITEM 10.   
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS - The information with respect to our Directors,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 24, 201222, 2014 Annual Meeting of Shareholders, is incorporated herein by reference.

EXECUTIVE OFFICERS - Reference is made to the additional item under Part I of this report on Form 10-K.

CODE OF ETHICS - 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.IndependentBank.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.

CORPORATE GOVERNANCE – Information relating to certain functions and the composition of our board committees, set forth under the caption "Board Committees and Functions" in our definitive proxy statement, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders, is incorporated herein by reference.

ITEM 11.   
ITEM 11.
EXECUTIVE COMPENSATION

The information set forth under the captions "Executive Compensation," "Director Compensation," and “Compensation Committee Interlocks and Insider Participation” in our definitive proxy statement, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders, is incorporated herein by reference.

40

PART III.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 24, 201222, 2014 Annual Meeting of Shareholders, is incorporated herein by reference.

We maintain certain equity compensation plans under which our common stock is authorized for issuance to employees and directors, including our Deferred Compensation and Stock Purchase Plan for Non-employee Director Stock Option Plan, Employee Stock Option PlanDirectors and our Long-Term Incentive Plan.

The following sets forth certain information regarding our equity compensation plans as of December 31, 2011.2013.
 
       (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  warrants and rights  in column (a))  
 
 
 
(a)
Number of securities to be issued upon exercise of outstanding options, warrants and rights
  
 
 
 
 
(b)
Weighted-average exercise price of outstanding options, warrants and rights
  
(c)
Number of securities remaining available for
 future issuance under equity compensation
 plans (excluding securities reflected in column (a))
 
          
  
  
 
Equity compensation plans approved by security holders  180,862  $7.98   510,596   320,300  $4.52   493,196 
                        
Equity compensation plan not approved by security holders None      None  None   N/A   250,889 
32
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (continued)

ITEM 13.   The equity compensation plan not approved by security holders referenced above is our Deferred Compensation and Stock Purchase Plan for Non-employee Directors.  This plan allows our non-employee directors to defer payment of all or a part of their director fees and to receive shares of common stock in lieu of cash for these fees. Under the plan, each non-employee director may elect to participate in a Current Stock Purchase Account, a Deferred Cash Investment Account, or a Deferred Stock Account.  A Current Stock Purchase Account is credited with shares of our common stock having a fair market value equal to the fees otherwise payable. A Deferred Cash Investment Account is credited with an amount equal to the fees deferred and on each quarterly credit date with an appreciation factor that may not exceed the prime rate of interest charged by our bank. A Deferred Stock Account is credited with the amount of fees deferred and converted into stock units based on the fair market value of our common stock at the time of the deferral. Amounts in the Deferred Stock Account are credited with cash dividends and other distributions on our common stock. Fees credited to a Deferred Cash Investment Account or a Deferred Stock Account are deferred for income tax purposes. This plan does not provide for distributions of amounts deferred prior to a participant’s termination as a non-employee director. Participants may generally elect either a lump sum or installment distributions.

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forth under the captions "Transactions Involving Management" and "Determination of Independence of Board Members" in our definitive proxy statement, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders, is incorporated herein by reference.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the caption "Disclosure of Fees Paid to our Independent Auditors" in our definitive proxy statement, to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders, is incorporated herein by reference.

33
PART IV.

ITEM 15.   
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)          1.  Financial Statements
(a)1.
Financial Statements
All of our financial statements are incorporated herein by reference as set forth in the annual report to be delivered to shareholders in connection with the April 24, 201222, 2014 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K.)

2.  Exhibits  (Numbered in accordance with Item 601 of Regulation S-K)
2.
Exhibits (Numbered in accordance with Item 601 of Regulation S-K)
The Exhibit Index is located on the final three pages of this report on Form 10-K.

34
41
SIGNATURES

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, dated March 13, 2012.7, 2014.

INDEPENDENT BANK CORPORATION
 
/s/Robert N. Shuster 
Robert N. Shuster, Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  Each director whose signature appears below hereby appoints Michael M. Magee, Jr.William B. Kessel and Robert N. Shuster and each of them severally, as his or her attorney-in-fact, to sign in his or her name and on his or her behalf, as a director, and to file with the Securities and Exchange Commission any and all amendments to this Annual Report on Form 10-K.

Michael M. Magee, Jr.,
William B. Kessel, President, Chief  
Executive Officer, and Director
    (Principal Executive Officer)
s/William B. Kessel
/s/Michael M. Magee Jr.
March 13, 2012
7, 2014
Robert N. Shuster, Executive Vice
President and Chief Financial Officer  (Principal
(Principal Financial Officer)/
s/Robert N. Shuster
March 13, 2012
7, 2014
James J. Twarozynski, Senior Vice
President and Controller (Principal
(Principal Accounting Officer)/
s/James J. Twarozynski
March 7, 2014
March 13, 2012
Donna J. Banks, Director/s/Donna J. BanksMichael M. Magee, Jr., Executive
March 11, 2012
Chairman and Director
s/Michael M. Magee Jr.
March 3, 2014
Jeffrey A. Bratsburg, Director/s/Jeffrey A. Bratsburg
March 7, 2012
William J. Boer, Directors/William J. BoerMarch 3, 2014
Stephen L. Gulis, Jr., Director/
s/Stephen L. Gulis, Jr.
March 12, 2012
3, 2014
Terry L. Haske, Director/s/Terry L. Haske
March 8, 2012
3, 2014
Robert L. Hetzler, Directors/Robert L. HetzlerMarch 3, 2014
Michael M. Magee, Jr., Director/s/Michael M. Magee, Jr.
March 13, 2012
William B. Kessel, Directors/William B. KesselMarch 7, 2014
James E. McCarty, Director/s/James E. McCarty
March 8, 2012
4, 2014
Charles A. Palmer, Director/s/Charles A. Palmer
March 13, 2012
3, 2014
Charles C. Van Loan, Director/
s/Charles C. Van Loan
March 8, 2012
1, 2014

35
42
EXHIBIT INDEX

Exhibit number and description
EXHIBITS FILED HEREWITH

10.1*
First Amendment to Amended and Restated Deferred Compensation and Stock Purchase Plan for Nonemployee Directors, effective March 1, 2012.
13
Annual report, relating to the April 24, 201222, 2014 Annual Meeting of Shareholders.  This annual report will be delivered to our shareholders in compliance with Rule 14(a)-3 of the Securities Exchange Act of 1934, as amended.
10.12*
Form of TSR Performance Share Award Agreement as executed with certain executive officers.
21
List of Subsidiaries.
23
Consent of Independent Registered Public Accounting Firm (Crowe Horwath LLP)
.
24Power of Attorney (included on page 42)36).
31.1
Certificate of the Chief Executive Officer of Independent Bank Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certificate of the Chief Financial Officer of Independent Bank Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certificate of the Chief Executive Officer of Independent Bank Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certificate of the Chief Financial Officer of Independent Bank Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.99.11 
Certification of Chief Executive Officer pursuant to Section 111(b)(4) of the Emergency Economic  Stabilization Act of 2008
2008.
99.2
Certification of Chief Financial Officer pursuant to Section 111(b)(4) of the Emergency Economic Stabilization Act of 20082008.
101.
101.INSINS Instance Document
101.
101.SCHSCH XBRL Taxonomy Extension Schema Document
101.
101.CALCAL XBRL Taxonomy Extension Calculation Linkbase Document
101.
101.DEFDEF XBRL Taxonomy Extension Definition Linkbase Document
101.
101.LABLAB XBRL Taxonomy Extension Label Linkbase Document
101.
101.PREPRE XBRL Taxonomy Extension Presentation Linkbase Document

EXHIBITS INCORPORATED BY REFERENCE

3.1Restated Articles of Incorporation, conformed through May 12, 2009 (incorporated herein by reference to Exhibit 3.1 to our Form S-4 Registration Statement dated January 27, 2010, filed under registration No. 333-164546).
3.1(a)Amendment to Article III of the Articles of Incorporation (incorporated herein by reference to Exhibit 99.1 to our current report on Form 8-K dated February 1, 2010 and filed February 3, 2010).
3.1(b)Amendment to Article III of the Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to our current report on Form 8-K dated April 9, 2010 and filed April 9, 2010).
3.1(c)Certificate of Designations for Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series B, filed as an amendment to the Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to our current report on Form 8-K dated April 16, 2010 and filed April 21, 2010).
3.1(d)Amendment to Article III of the Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to our current report on Form 8-K dated August 31, 2010 and filed August 31, 2010).
43
EXHIBIT INDEX (Continued)

3.1(e)Certificate of Designations for Series C Junior Participating Preferred Stock, filed as an amendment to the Articles of Incorporation (incorporated herein by reference to Exhibit 4.2 to our Registration Statement on Form 8-A dated November 15, 2011 and filed November 15, 2011).
3.2Amended and Restated Bylaws, conformed through December 8, 2008 (incorporated herein by reference to Exhibit 3.2 to our current report on Form 8-K dated December 8, 2008 and filed on December 12, 2008).
4.1CertificateTax Benefits Preservation Plan, including exhibits, dated as of November 15, 2011, by and between Independent Bank Corporation and American Stock Transfer & Trust of IBC Capital Finance II dated February 26, 2003Company, LLC, as Rights Agent (incorporated herein by reference to Exhibit 4.1 to our reportRegistration Statement on Form 10-Q for the quarter ended March 31, 2003)8-A filed November 15, 2011).
4.2Amended and Restated Trust AgreementForm of IBC Capital Finance II dated March 19, 2003Rights Certificate (incorporated hereinin this Exhibit 4.2 by reference to Exhibit 4.2 to our report on Form 10-Q forB of the quarter ended March 31, 2003).
4.3Preferred 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).
4.4Preferred 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).
4.5AgreementTax Benefits Preservation Plan, included 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).
4.6Indenture 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).
4.7First Supplemental Indenture of Independent Bank Corporation issued to IBC Capital Finance II dated as of April 1, 2010 (incorporated herein by reference to Exhibit 4.4 to our Form S-4/A Registration Statement dated April 5, 2010, filed under registration No. 333-164546).
4.88.25% 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).
4.9Cancellation Direction and Release between Independent Bank Corporation, IBC Capital Finance II and U.S. Bank National Association dated as of June 23, 2010 and related Irrevocable Stock Power (incorporated herein by reference to Exhibit 4.9 to our Form S-1 Registration Statement dated July 8, 2010, filed under registration No. 333-168032).

4.10Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series A (incorporated herein by reference to Exhibit 4.1 to our current reportRegistration Statement on Form 8-K dated December 8, 2008 and8-A filed on December 12, 2008)November 15, 2011).
36
4.11Warrant dated December 12, 2008 to purchase shares of Common Stock of Independent Bank Corporation (incorporated herein by reference to Exhibit 4.2 to our current report on Form 8-K dated December 8, 2008 and filed on December 12, 2008).
4.12Certificate for the Fixed Rate Cumulative Mandatorily Convertible Preferred Stock, Series B (incorporated herein by reference to Exhibit 4.1 to our current report on Form 8-K dated April 16, 2010 and filed April 21, 2010).
4.13Amended and Restated Warrant dated April 16, 2010 to purchase shares of Common Stock of Independent Bank Corporation (incorporated herein by reference to Exhibit 4.2 to our current report on Form 8-K dated April 16, 2010 and filed April 21, 2010).
10.1*
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).
44
EXHIBIT INDEX (Continued)

10.2The form of Indemnity Agreement approved by our shareholders at itsthe April 19, 1988 Annual Meeting, as executed with all of the Directorsdirectors of the Registrantregistrant (incorporated herein by reference to Exhibit 10(F) to our report on Form 10-K for the year ended December 31, 1988).
10.3*
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).
10.4*
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).
10.5The 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).
10.6Letter Agreement, dated as of December 12, 2008, between Independent Bank Corporation and the United States Department of the Treasury, and the Securities Purchase Agreement—Standard Terms attached thereto (incorporated herein by reference to Exhibit 10.1 to our current report on Form 8-K dated December 8, 2008 and filed on December 12, 2008).
10.7Form of Letter Agreement executed by each of Michael M. Magee, Jr., Robert N. Shuster, William B. Kessel, Stefanie M. Kimball, and David C. Reglin (incorporated herein by reference to Exhibit 10.2 to our current report on Form 8-K dated December 8, 2008 and filed on December 12, 2008).
10.8Form of waiver executed by each of Michael M. Magee, Jr., Robert N. Shuster, William B. Kessel, Stefanie M. Kimball, and David C. Reglin (incorporated herein by reference to Exhibit 10.3 to our current report on Form 8-K dated December 8, 2008 and filed on December 12, 2008).
10.9Exchange Agreement, dated April 2, 2010, between Independent Bank Corporation and the United States Department of the Treasury (incorporated herein by reference to Exhibit 10.1 to our current report on Form 8-K dated April 2, 2010 and filed on April 2, 2010).

10.10Form of waiver agreement executed by, among other employees, Michael M. Magee (President and Chief Executive Officer), William B. Kessel (Executive Vice President and Chief Operating Officer), Robert N. Shuster (Executive Vice President and Chief Financial Officer), David C. Reglin (Executive Vice President for Retail Banking), Stefanie M. Kimball (Executive Vice President and Chief Lending Officer), and Mark L. Collins (Executive Vice President and General Counsel) (incorporated herein by reference to Exhibit 10.1 to our current report on Form 8-K dated April 16, 2010 and filed on April 21, 2010).
10.1110.4Technology Outsourcing Renewal Agreement, dated as of April 1, 2006, between Independent Bank Corporation and Metavante Corporation (incorporated herein by reference to Exhibit 10 to our report on Form 10-Q for the quarter ended March 31, 2006).
10.1210.5Amendment to Technology Outsourcing Renewal Agreement, dated as of July 8, 2010, between Independent Bank Corporation and Metavante Corporation (incorporated herein by reference to Exhibit 10.1 to our current report on Form 8-K dated July 22, 2010 and filed on July 27, 2010).
10.13*Consulting and Transition Agreement, dated February 16, 2011, by and among Independent Bank Corporation, Independent Bank, and Michael M. Magee, Jr. (incorporated herein by reference to Exhibit 10.1 to our current report on Form 8-K dated February 15, 2011 and filed on February 16, 2011).
10.14*10.6*Long-Term Incentive Plan, as amended through April 26, 2011 (incorporated herein by reference to Appendix A to our proxy statement filed on Schedule 14A on March 17, 2011).
10.7*
10.15*
Amended and Restated Deferred Compensation and Stock Purchase Plan for Nonemployee Directors, as amended through March 8, 2011 (incorporated herein by reference to Exhibit 10.2 to our annual report on Form 10-K filed on March 10, 2011).
10.8*
First Amendment to Amended and Restated Deferred Compensation and Stock Purchase Plan for Nonemployee Directors, effective March 1, 2012 (incorporated herein by reference to Exhibit 10.1 to our annual report on Form 10-K filed March 13, 2012).
10.9Purchase and Assumption Agreement, dated May 23, 2012, between Independent Bank and Chemical Bank (incorporated herein by reference to Exhibit 10.1 to our current report on Form 8-K filed May 30, 2012).
10.10*
Form of Restricted Stock Unit Grant Agreement as executed with certain executive officers (incorporated herein by reference to Exhibit 10.2 to our quarterly report on Form 10-Q filed May 9, 2011).
10.11Securities Purchase Agreement, dated July 26, 2013, between Independent Bank Corporation and the United States Department of the Treasury (incorporated herein by referenced to Exhibit 10.1 to our current report on Form 8-K dated July 26, 2013 and filed on August 1, 2013).

* Represents a compensation plan.
 
 
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