Independent Bank (IBCP) 8-K Results of Operations and Financial Condition

Independent Bank Corporation
2nd Quarter 2007 Earnings Conference Call – July 24, 2007

Independent Bank

Overview of 2nd Quarter 2007 Results
Michael M. Magee, President and Chief Executive Officer

Independent Bank

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Safe Harbor Statement

This presentation may contain certain forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Forward-looking statements include expressions such as “expects,” “intends,” “believes” and “should” which are necessarily statements of belief as to expected outcomes of future events. Actual results could materially differ from those contained in, or implied by such statements. Independent Bank Corporation undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this presentation.

Independent Bank

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Financial Overview

	2Q07		1Q07		2Q06		6M '07		6M '06
Income from continuing       operations (millions)		$0.1		$3.9		$10.4		$4.0		$23.5
EPS - continuing operations		$0.00		$0.17		$0.45		$0.17		$1.01
ROA - continuing operations		0.01%		0.48%		1.23%		0.25%		1.40%
ROE - continuing operations		0.17%		6.08%		16.37%		3.14%		18.80%
Total assets (billions) at period end		$3.26		$3.36		$3.44
Stockholders' equity
(millions) at period end		$244.0		$251.8		$256.5
Common shares       outstanding (millions)
at period end		22.64		22.58		22.96

Independent Bank

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2007 – A Year of Challenges

• Michigan economy remains one of the weakest in U.S.

- Decline of manufacturing industry, particularly in Eastern MI

- Job growth remains stagnant

- Deterioration of property values

- Unfavorable business taxes and stringent labor laws

• Impact to the regional banking industry

- Slowing loan growth

- Credit quality

- Credit costs

- Net interest margin pressure

• Competitive community banking landscape

• Flat yield curve

Independent Bank

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Bank Charter Consolidation

• Charter consolidation designed to streamline bank operations. In April 2007, IBCP announced the Company’s plan to consolidate the four existing bank charters into one.

• Net impact to IBCP associates. Excluding employees added with the TCF branch acquisition, at 6/30/07 the total number of employees was down 109 (7.7%) since year-end 2006; this reduced number of employees includes 36 fewer at Mepco due to sale of insurance premium finance business, and 11 fewer at First Home Financial as this business was dissolved at the end of the second quarter.

• Status update. On track to complete this charter consolidation late in the third quarter of 2007.

Independent Bank

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Charter Consolidation –Expected Benefits

• Streamlined operations and legal governance structure

• Stronger risk management processes

• More rapid development and deployment of new products and services

• Improved productivity and resource utilization leading to $4-$5 million in estimated annual cost savings

Independent Bank

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2nd Quarter 2007 Financial Review
Robert N. Shuster, Executive Vice President and CFO

Independent Bank

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2nd Quarter 2007 Recap

• Positive Factors

- Net interest margin increased on a quarter-over-quarter basis

- Experienced continued growth in recurring non-interest income on a quarter-over-quarter and year-over-year basis

- Committed to conservative management of asset quality; strategic hire of new chief lending officer marks important addition to senior team

• Challenges

- Credit costs

- Asset quality diminished by an increase in non-performing loans; largely attributable to non-performing commercial loans and real estate mortgage loans

- Weak Michigan economy has led to slower loan growth

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Tax Equivalent Net Interest Margin

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TE Net Interest Income

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Non-Interest Income

Category ($ in 000's)	2Q07		1Q07		2Q06
Total non-interest income		12,773		10,670		10,845
Service charges - Deposits		6,380		4,888		5,031
VISA check card income		1,292		950		871
Net gains - mortgage loan sales		1,238		1,081		1,188
Mortgage loan servicing fees		712		527		621

Independent Bank

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Non-Interest Expense

Category ($ in 000's)	2Q07		1Q07		2Q06
Total non-interest expense		29,801		27,966		25,540
Salaries(a)		10,776		10,001		9,358
Performance-based compensation		1,153		1,321		315
Amortization of intangible assets		935		570		600
Loan and collection		1,221		1,006		982

(a)     The second quarter of 2007 includes $0.95 million of severance expense.

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Provision for Loan Losses

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Asset Quality Measures – Non-Performing Loans

Non-performing loans by loan type ($ in 000's)	6/30/07		3/31/07		12/31/06
Commercial		32,697		27,537		21,624
Mortgage		18,346		15,691		12,954
Consumer		2,683		2,747		2,496
Finance receivables*		1,164		2,096		2,148
Total		$54,890		$48,071		$39,222
As a % of total loans		2.20%		1.93%		1.58%

*Excludes discontinued operations

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Allowance for Loan Losses

Allocation ($ in 000's)	6/30/07		3/31/07		12/31/06
Specific loan allocations		9,070		4,992		2,631
Adversely rated loans		10,905		9,260		9,303
Historical losses		10,089		8,833		7,482
Other factors/subjective		8,149		7,823		7,463
Total		$38,213		$30,908		$26,879
As a % of portfolio loans		1.53%		1.24%		1.08%

Independent Bank

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Asset Quality Measures –Net Loan Charge-Offs

Net loan charge-offs    by loan type ($ in 000's)	2Q07		1Q07		2Q06
Commercial		5,478		1,900		271
Mortgage		945		760		780
Consumer		917		1,179		598
Finance receivables*		24		121		98
Total		$7,364		$3,960		$1,747
As a % of average loans		1.18%		0.65%		0.29%

*Excludes discontinued operations

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Balance Sheet Overview

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2nd Quarter 2007 Credit Review
Stefanie M. Kimball, Executive Vice President and CLO

Independent Bank

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Commercial Loan Growth

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Internal Watch Credits Continued to Rise in the 2nd Quarter

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Select CRE Segments Have Contributed
Disproportionately to the Level of Watch Credits

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Factors Impacting Current Credit Environment

• Michigan’s economic environment continues to challenge businesses in the State with high exposure to the development, construction and sale of residential real estate

• IBC experienced rapid commercial loan growth in 2004 and 2005, including growth in SE Michigan, as a result of the Midwest Guaranty Bank acquisition (May 2004). A concentration in commercial real estate developed as a result of:

- Established position in the market as a recognized leader in residential lending

- Strong profit margins available in that business at the time

- Management strategy to further the end mortgage business by lending to residential developers

- IBC’s strong retail business created a comfort level with the residential development segment of commercial lending

• The expansion of commercial lending included loans to a select number of larger, more complex borrowers

• Increase in non-performing loans in 2Q07 is due principally to an increase in commercial loans and real estate mortgage loans

- Non-performing commercial loans: Attributable primarily to the addition of several large credits with real estate developers coming past due in the first six months of 2007

- Non-performing real estate mortgage loans: Due to a rise in foreclosures reflecting weak economic conditions and soft real estate values in many parts of Michigan

Independent Bank

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Credit Process Changes

• Despite the apparent challenges within the Michigan economy, we are making strides to proactively improve the operational efficiency and strategic positioning of the bank

• A new organizational structure has been put in place with functional alignment of lending and credit across our markets

• Strategic direction has been focused on the need for more diversification in the commercial loan portfolio to balance thereal estate concentration

• Key consistent credit processes have been put in place to include:

- Further enhancements in the quarterly credit quality review process designed to even better monitor watch credits, ensure appropriate action plans are in place and assess loan loss reserves.

- A Special Assets Group has been assembled and will be augmented to provide consistent and more effective management of our most troubled loans. A select group of law firms support the team providing professional advice and systemic feedback. The team will translate issues discovered in the independent management of these loans into recommendations to enhance credit processes; any additional loans sales will be managed by this team.

- Further utilization of a cross-functional team to assess the loan portfolio for estimated losses, including: input from Senior Lenders, Credit Administration, the Special Assets Group and Loan Review.

Independent Bank

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Commercial Lending Changes

• Our new organizational structure has been designed to:

- Enhance business development efforts toward specified target markets

- Assigned two dedicated Senior Executives for this purpose

- Centralize commercial lending management with Senior Lenders covering our diverse geographic markets

- Realign the Credit Administration function to provide even more upfront credit guidance, policy exception identification, approval recommendations and risk ratings

- Centralize the appraisals, environmental, documentation and credit services to support the commercial lending team

Independent Bank

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Q & A

Michael M. Magee Jr.
President and Chief Executive Officer

Robert N. Shuster
Executive Vice President and
Chief Financial Officer

Stefanie M. Kimball
Executive Vice President and
Chief Lending Officer

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Thank you for participating in the conference call.

Independent Bank