1 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 [Fee Required] for the fiscal year ended December 31, 1995 or / / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the transition period from to -------------- ------------- Commission file Number 0-7818 -------------------------------------------------------- INDEPENDENT BANK CORPORATION - ------------------------------------------------------------------------------ (Exact name of Registrant as specified in its charter) <TABLE> <S> <C> MICHIGAN 38-2032782 - --------------------------------------------- ------------------------------------- (State or other jurisdiction of incorporation) (I.R.S. employer identification no.) </TABLE> 230 W. Main St., P.O. Box 491, Ionia, Michigan 48846 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (616) 527-9450 ---------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Par Value - ------------------------------------------------------------------------------ (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- State the aggregate market value of the voting stock held by non-affiliates of the Registrant. (For this purpose only, the affiliates of the Registrant have been assumed to be the executive officers and directors of the Registrant and their associates.) Common Stock, $1.00 Par Value - $66,474,688 - ------------------------------------------------------------------------------- (Based on $28.00 per common share, the last reported sales price on the Nasdaq National Market System on March 22, 1996. Reference is made to Part II, Item 5 for further information). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common Stock, $1.00 par value - 2,722,722 shares at March 22, 1996 Documents incorporated by reference Portions of the Registrant's definitive proxy statement, and appendix thereto, dated March 15, 1996, relating to its April 16, 1996 Annual Meeting of Shareholders are incorporated by reference into Part II and Part III of this Form 10-K. The Exhibit Index appears on Page 19
2 PART I ITEM 1. BUSINESS Independent Bank Corporation (the "Registrant") was incorporated under the laws of the State of Michigan on September 17, 1973, for the purpose of becoming a bank holding company. The Registrant is registered under the Bank Holding Company Act of 1956, as amended, and owns the outstanding stock of four banks (the "Banks") which are all organized under the laws of the State of Michigan. Aside from the stock of the Banks, the Registrant has no other substantial assets. The Registrant conducts no business except for the provision of certain management and operational services to the Banks, the collection of fees and dividends from the Banks and the payment of dividends to the Registrant's shareholders. Certain employee retirement plans (including an employee stock ownership plan and a deferred compensation plan) as well as health and other insurance programs have been established by the Registrant. The proportional costs of these plans are borne by each of the Banks. The Registrant and the Banks have no material patents, trademarks, licenses or franchises except the corporate franchises of the Banks which permit them to engage in commercial banking pursuant to Michigan law. The following table shows each of the Banks and their total loans and deposits as of December 31, 1995: <TABLE> <CAPTION> Main Office Total Total Bank Location Deposits Loans - ---- -------- ------------ ------------ <S> <C> <C> <C> Independent Bank Ionia $122,497,000 $128,321,000 Independent Bank West Michigan Rockford 115,214,000 144,074,000 Independent Bank South Michigan Leslie 93,691,000 89,624,000 Independent Bank East Michigan Caro 82,867,000 72,072,000 </TABLE> Independent Bank (formerly First Security Bank) affiliated with the Registrant on June 1, 1974. Independent Bank West Michigan is the result of a merger in 1985 of the First State Bank of Newaygo (acquired December 16, 1974), the Western State Bank, Howard City (acquired February 7, 1977), and the Bank of Rockford (organized by the Registrant as a new bank on August 18, 1975). Independent Bank South Michigan is the result of the merger in 1985 of the Peoples Bank of Leslie (acquired February 16, 1981) and the Olivet State Bank (acquired on October 16, 1979). Independent Bank East Michigan is the result of the consolidation of the former American Home Bank (acquired October 8, 1993), Pioneer Bank (acquired October 15, 1993) and The Kingston State Bank (acquired March 7, 1994). The Banks transact business in the single industry segment of commercial banking. Most of the Banks' offices provide full service lobby and drive-in services in the communities which they serve. Automatic teller machines are also provided at most locations. The Banks' activities cover all phases of commercial banking, including checking and savings accounts, commercial and agricultural lending, direct and indirect consumer financing, mortgage lending and deposit box services. The Banks do not offer trust services. The principal markets are the rural and suburban communities across lower Michigan that are served by the banks' branch networks. The local economies of the communities served by the Banks are relatively stable and reasonably diversified. The Banks serve their markets through their four main offices and a total of 31 branch and 5 loan production offices. 1
3 ITEM 1. BUSINESS (Continued) The financial services industry continues to be highly competitive. Banks and bank holding companies compete not only with each other, but with savings and loan associations, money market mutual funds, credit unions, securities dealers, providers of insurance and annuity fund products and investment bankers. Principally located in rural communities, the Banks face limited competition within certain of their primary markets. Within these markets, however, the Banks compete with depository institutions in nearby communities, some of which are affiliated with financial institutions that have significantly greater resources than that of the Registrant. Price (the interest charged on loans and/or paid on deposits) remains a principal means of competition within the financial services industry. The Banks also compete on the basis of service and convenience, utilizing the strengths and benefits of the Registrant's decentralized structure. The principal sources of revenue, on a consolidated basis, are interest and fees on loans, other interest income and non-interest income. The sources of income for the three most recent years are as follows: <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> Interest and fees on loans 76.1% 71.1% 68.3% Other interest income 16.3 21.3 21.5 Non-interest income 7.6 7.6 10.2 ------ ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== </TABLE> As of December 31, 1995, the Registrant and the Banks had 325 full-time employees and 117 part-time employees. Supervision and Regulation Registered under the Bank Holding Company Act, as amended (the "Act"), the Registrant is subject to the supervision of the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As a result, the Registrant is required to file with the Federal Reserve Board annual and quarterly reports and other information regarding its business operations and those of the Banks. The Registrant and the Banks are also subject to examination by the Federal Reserve Board. The Act requires a bank holding company to obtain approval of the Federal Reserve Board before it may acquire more than 5% of the voting stock or before it acquires all or substantially all of the assets of any bank or merge or consolidate with any other bank holding company. If the effect of such a transaction may substantially lessen competition or tend to create a monopoly, the Federal Reserve Board cannot approve the acquisition unless it finds that the anti-competitive effects of the acquisition, merger or consolidation are clearly outweighed by the convenience and needs of the community to be served. The Act also provides that the consummation of any acquisition, merger or consolidation must be delayed at least 15 days following the approval of the Federal Reserve Board and that any action brought under the antitrust laws of the United States during this time will delay the effectiveness of its approval during the pendency of the action unless otherwise ordered by the Board. The Riegle-Neal Interstate Banking and Branching Efficiency Act authorizes adequately capitalized and adequately managed bank holding companies to acquire banks located outside their respective home state, irrespective of state law. This legislation also authorizes, effective June 1, 1997, (subject to individual states rights to accelerate this date or prohibit interstate branching within their borders) banking organizations to branch nationwide by acquisition or consolidation of existing banks in other states. Subject to approval by the Michigan Financial Institutions Bureau, Michigan law authorizes out-of-state banks to acquire and establish branches in Michigan, provided the laws of the state of the out-of-the state institution permit Michigan financial institutions to establish branches in that state. It is reasonable to assume that this legislation could foster further industry consolidation and increase competition. Interstate acquisitions are subject to the approval of various federal and state agencies and subject to other conditions. 2
4 ITEM 1. BUSINESS (Continued) Subject to certain exceptions, a bank holding company is also prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging directly or indirectly in activities unrelated to banking or managing or controlling banks. One of the exceptions to this prohibition permits activities by a bank holding company or its subsidiaries which the Federal Reserve Board has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is a proper incident to banking or managing or controlling banks, the Federal Reserve Board considers whether performance of the activity by an affiliate of a bank holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board has adopted regulations prescribing those activities which it presently regards as permissible for bank holding companies and their subsidiaries. The Act does not place geographic restrictions on the activities of the non-bank subsidiaries of bank holding companies. The Act, the Federal Reserve Act and the Federal Deposit Insurance Act also subject bank holding companies and their subsidiaries to certain restrictions on any extensions of credit by subsidiary banks to the bank holding company or any of its subsidiaries, or investments in the stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower. Further, under the Act and regulations of the Federal Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of any property or furnishing of service. The subsidiary banks are subject to regulation and examination by the Michigan Financial Institutions Bureau. The Banks are also subject to regulation by the Federal Reserve Board and to regulation and examination by the Federal Deposit Insurance Corporation. As amended by the FDIC Improvement Act of 1991, the Federal Deposit Insurance Act ("FDIA") provides for regulatory intervention should a bank's capital deteriorate, limits certain real estate lending and increases audit requirements. The FDIA defines a reserve ratio at which the Bank Insurance Fund ("BIF") is to be maintained through FDIC semi-annual assessment rates on the BIF member banks. The FDIC has also established a system of risk-based insurance premiums under the FDIA. This system established four levels of premium rates based on the risk classification of the institution. Given the designation of the Registrant's Banks as well managed and well capitalized institutions, the Banks pay the lowest assessment rate possible to BIF. Since the BIF reserves have reached the legally mandated level of 1.25% of insured deposits, the Banks, in general, will pay only a membership fee until the BIF fund again drops below the mandated level. Applicable regulations restrict transactions by the Banks owned by the Registrant, including loans to and certain purchases from the Registrant, principal shareholders, officers, directors and their affiliates and, in some cases, investments by the Banks in the shares or securities of the Registrant (or any other non-bank affiliates), and acceptance of such shares or securities as collateral security for loans to any borrower. The Federal Reserve Board and other bank regulators review payments, such as management fees made by the Banks to affiliated companies. As a Michigan business corporation, the Registrant may generally declare and pay dividends, provided the Registrant is not insolvent and that the payment of dividends would not render it insolvent, and, after giving effect to the distribution, that the Registrant's total assets would equal or exceed its total liabilities plus the dissolution preference of any senior equity securities. The payment of dividends to its shareholders is limited by the Registrant's ability to obtain funds from the Banks and by regulatory capital guidelines. The Banks are subject to legal limitations on the frequency and amounts of dividends that can be paid to the Registrant. The Banks may not declare a cash dividend or a dividend in kind except out of net profits and unless it will have a surplus amounting to not less than 20% of its capital after the payment of the dividend. In addition, the Federal Deposit Insurance Corporation could take the position that it has the power to prohibit insured state banks from paying dividends if such payments would constitute unsafe or unsound banking practices under the circumstances. These regulations and restrictions may potentially limit the Registrants' ability to obtain funds from the Banks for its cash needs, including funds for acquisitions, payment of dividends and the payment of operating expenses. 3
5 ITEM 1. BUSINESS (Continued) Various aspects of the banking business, including permissible types and amounts of loans, investments and other activities, capital adequacy (by requiring minimum capital-to-asset ratios), branching, interest rates on loans and on deposits and the safety and soundness of the banking practices are extensively regulated by federal and state law. In addition, reserve requirements are imposed by the Federal Reserve Board. These regulations are intended primarily for the protection of the depositors and customers of the Banks, rather than the shareholders of the Registrant. In addition to the authorization of interstate banking discussed above, Michigan law permits Banks to consolidate on a state-wide basis and to operate the offices of merged banks as branches of a surviving bank. Also, with the written approval of the Financial Institutions Bureau, the Banks may relocate their main office to any location in the state, establish and operate branch banks anywhere in the state and contract with other banks to act as branches thereof. To better serve their customers, the Banks have entered into an interbank branching agreement, whereby each of the Banks may act as a branch of the other three banks. 4
6 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE I. (A) DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; (B) INTEREST RATES AND INTEREST DIFFERENTIAL The following table sets forth average balances for major categories of interest earning assets and interest bearing liabilities, the interest earned (on a tax equivalent basis) or paid on such amounts, and the average interest rates earned or paid thereon. <TABLE> <CAPTION> 1995 1994 1993 ------------------------- -------------------------- --------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate ------- -------- ---- ------- -------- ------ ------- -------- ------ ASSETS (dollars in thousands) - ------ <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Loans--all domestic (1,2) $382,644 $37,654 9.84% $294,968 $28,936 9.81% $259,334 $26,001 10.03% Taxable securities 93,064 5,919 6.36 108,905 6,537 6.00 88,869 5,976 6.73 Tax-exempt securities (2) 31,516 2,914 9.25 29,763 2,857 9.60 28,881 2,761 9.56 Other investments 6,153 421 6.84 12,335 460 3.73 15,359 535 3.48 -------- -------- -------- -------- -------- -------- Interest earning assets 513,377 46,908 9.14 445,971 38,790 8.70 392,443 35,273 8.99 -------- -------- -------- Cash and due from banks 16,091 14,359 13,996 Other assets, net 14,115 21,491 16,226 -------- -------- -------- Total assets $543,583 $481,821 $422,665 ======== ======== ======== LIABILITIES - ----------- Savings and NOW $217,721 5,515 2.53 $213,590 4,819 2.26 $185,419 4,887 2.64 Time deposits 141,292 6,955 4.92 150,036 6,273 4.18 150,536 7,140 4.74 Long-term debt 2,195 120 5.47 525 28 5.33 Other borrowings 89,048 5,430 6.10 28,481 1,373 4.82 8,010 250 3.12 -------- -------- -------- -------- -------- -------- Interest bearing liabilities 448,061 17,900 4.00 394,302 12,585 3.19 344,490 12,305 3.57 -------- -------- -------- Demand deposits 46,539 41,910 37,426 Other liabilities 5,296 5,989 3,900 Shareholders' equity 43,687 39,620 36,849 -------- -------- -------- Total liabilities and shareholders' equity $543,583 $481,821 $422,665 ======== ======== ======== Net interest income $29,008 $26,205 $22,968 ======== ======== ======== Net interest income as a percent of earning assets 5.65% 5.88% 5.85% ===== ===== ===== </TABLE> (1) Average loans outstanding includes the daily average balance of non-performing loans. Interest on loans does not include additional interest of approximately $199,000, $157,000 and $118,000 for 1995, 1994 and 1993, respectively, which would have been accrued based on the original terms of such non-performing loans compared with the interest that was actually recorded. Interest income on loans includes net origination fees of $2,702,000 in 1995, $2,590,000 in 1994 and $2,214,000 in 1993. (2) Interest on tax-exempt securities has been adjusted to reflect preferential taxation. The adjustment assumes a marginal tax rate of 34% for each of the three years. For purposes of this analysis, tax-exempt loans are included in tax-exempt securities. 5
7 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) I. (C) INTEREST RATES AND DIFFERENTIAL The following table summarizes the changes in interest income (on a tax equivalent basis) and interest expense resulting from changes in volume and changes in rates: <TABLE> <CAPTION> 1995 Compared to 1994 1994 Compared to 1993 --------------------------------- ------------------------------- Volume Rate Net Volume Rate Net ------ ---- ---- ------ ---- ---- (in thousands) Increase (decrease) in interest income (1) - ------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Loans--all domestic $8,627 $ 91 $8,718 $3,506 $(571) $2,935 Taxable securities (991) 373 (618) 1,255 (694) 561 Tax-exempt securities (2) 165 (108) 57 85 11 96 Other investments (303) 264 (39) (111) 36 (75) ------ ------- ------ ------ ------ ------ Total interest income 7,498 620 8,118 4,735 (1,218) 3,517 ------ ------- ------ ------ ------ ------ Increase (decrease) in interest expense (1) - ------------------------------------------- Savings and NOW 95 601 696 688 (756) (68) Time deposits (382) 1,064 682 (24) (843) (867) Long-term debt (120) (120) 91 1 92 Other borrowings 3,594 463 4,057 930 193 1,123 ------ ------- ------ ------ ------ ------ Total interest expense 3,187 2,128 5,315 1,685 (1,405) 280 ------ ------- ------ ------ ------ ------ Net interest income $4,311 $(1,508) $2,803 $3,050 $187 $3,237 ====== ======= ====== ====== ====== ====== </TABLE> (1) The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. (2) Interest on tax-exempt securities has been adjusted to reflect preferential taxation. The adjustment assumes a marginal tax rate of 34% for each of the three years. II. INVESTMENT PORTFOLIO (A) The following table sets forth the book value of securities at December 31: <TABLE> <CAPTION> 1995 1994 1993 -------- -------- -------- (in thousands) Held to maturity - ---------------- <S> <C> <C> <C> U.S. Treasury $ 5,738 $ 29,385 U.S. Government agencies $ 2,559 11,004 6,601 States and political subdivisions 20,142 27,240 27,241 Mortgage-backed securities 4,487 26,545 35,295 Other securities 718 7,194 7,295 ------- ------- -------- Total $27,906 $77,721 $105,817 ======= ======= ======== Available for sale - ------------------ U.S. Treasury $23,272 $34,724 $ 30,330 U.S. Government agencies 6,623 States and political subdivisions 9,290 Mortgage-backed securities 37,722 11,684 Other securities 10,646 6,348 ------- ------- -------- Total $87,553 $52,756 $ 30,330 ======= ======= ======== </TABLE> 6
8 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) II. INVESTMENT PORTFOLIO (Continued) (B) The following table sets forth contractual maturities of securities at December 31, 1995 and the weighted average yield of such securities: <TABLE> <CAPTION> Maturing Maturing Maturing After One After Five Maturing Within But Within But Within After One Year Five Years Ten Years Ten Years ------------------ ------------------- ----------------- ---------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ------ ----- ------ ----- (dollars in thousands) Held to maturity - ----------------- <S> <C> <C> <C> <C> <C> <C> <C> <C> U.S. Government agencies $ 1,075 6.99% $ 1,484 7.85% States and political subdivisions $ 475 8.98% $ 9,028 8.68% 9,532 9.72 1,107 9.31 Mortgage-backed securities guaranteed or issued by U.S. Government agencies 413 8.05 4,074 7.66 Other securities 718 4.82 ------- ------- ------- ------- Total $ 1,193 6.48% $ 9,441 8.65% $14,681 8.95% $ 2,591 8.47% ======= ======= ======= ======= Tax equivalent adjustment for calculations of yield $ 15 $ 266 $ 315 $ 35 ======= ======= ======= ======= Available for sale - ------------------ U.S. Treasury $11,534 4.60% $11,738 5.99% U.S. Government agencies 2,041 4.83 $ 4,582 6.85% States and political subdivisions 3,426 9.64 5,864 10.21 Mortgage backed securities Guaranteed or issued by U.S. Government agencies 121 7.01 5,337 6.73 2,038 6.76 $29,179 7.60% Other mortgage-backed securities 1,047 7.38 Other securities 1,405 5.08 2,490 5.82 6,751 6.23 ------- ------- ------- ------- Total $13,060 4.67% $26,079 6.57% $12,484 8.41% $35,930 7.34% ======= ======= ======= ======= Tax equivalent adjustment for calculations of yield $ 0 $ 112 $ 203 $ 0 ======= ======= ======= ======= </TABLE> The rates set forth in the tables above for obligations of state and political subdivisions have been restated on a fully tax equivalent basis assuming a 34% marginal tax rate. The amount of the adjustment is as follows: <TABLE> <CAPTION> Tax-Exempt Rate on Tax Held to maturity Rate Adjustment Equivalent Basis - ---------------- ---------- ---------- ---------------- <S> <C> <C> <C> Under 1 year 5.93% 3.05% 8.98% 1-5 years 5.73 2.95 8.68 5-10 years 6.42 3.30 9.72 After 10 years 6.15 3.16 9.31 Available for sale - ------------------ 1-5 years 6.36 3.28 9.64 5-10 years 6.74 3.47 10.21 </TABLE> 7
9 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) III. LOAN PORTFOLIO (A) The following table sets forth loans outstanding at December 31: <TABLE> <CAPTION> 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (in thousands) <S> <C> <C> <C> <C> <C> Loans held for sale $ 16,047 $ 5,933 $ 6,376 $ 6,400 Real estate mortgage 225,900 166,794 136,579 133,486 $150,033 Commercial and agricultural 108,879 103,984 91,655 70,360 72,430 Installment 83,265 65,947 54,033 51,388 52,681 -------- -------- -------- -------- -------- Total $434,091 $342,658 $288,643 $261,634 $275,144 ======== ======== ======== ======== ======== Agricultural loans included in commercial and agricultural and in real estate mortgage loans above $ 12,394 $ 15,855 $ 17,096 $ 8,179 $ 11,972 ======== ======== ======== ======== ======== </TABLE> The loan portfolio is periodically and systematically reviewed and the results of these reviews are reported to the Boards of Directors of the Registrant and the Banks. The purpose of these reviews is to assist in assuring proper loan documentation, to 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, 1995: <TABLE> <CAPTION> Due Due After One Due Within But Within After One Year Five Years Five Years Total ------- ---------- ---------- ----- (in thousands) <S> <C> <C> <C> <C> Real estate mortgage $ 8,973 $15,131 $14,310 $ 38,414 Commercial and agricultural 54,222 50,255 4,402 108,879 ------- ------- ------- -------- Total $63,195 $65,386 $18,712 $147,293 ======= ======= ======= ======== </TABLE> 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, 1995: <TABLE> <CAPTION> Fixed Variable Rate Rate Total ---- ---- ----- (in thousands) <S> <C> <C> <C> Due after one but within five years $53,061 $12,325 $65,386 Due after five years 15,718 2,994 18,712 ------- -------- ------- Total $68,779 $15,319 $84,098 ======= ======== ======= </TABLE> 8
10 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) III. LOAN PORTFOLIO (Continued) (C) The following table sets forth non-performing loans at December 31: <TABLE> <CAPTION> 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ (in thousands) <S> <C> <C> <C> <C> <C> (a) Loans accounted for on a non-accrual basis (1, 2) $1,886 $2,052 $1,707 $1,581 $1,486 (b) Aggregate amount of loans ninety days or more past due (excludes loans in (a) above) 427 254 408 380 1,466 (c) Loans not included above which are "troubled debt restruc- turings" as defined in State- ment of Financial Accounting Standards No. 15 (2) 247 528 1,098 1,213 1,844 ------ ------ ------ ------ ------ Total non-performing loans $2,560 $2,834 $3,213 $3,174 $4,796 ====== ====== ====== ====== ====== </TABLE> (1) The accrual of interest income is discontinued when a loan becomes 90 days past due and/or 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 $263,000 would have been earned in 1995 had loans in categories (a) and (c) remained at their original terms, however, only $64,000 was included in interest income for the year with respect to these loans. Other loans of concern identified by the loan review department which are not included as non-performing totaled approximately $3,200,000 at December 31, 1995. These loans involve circumstances which have caused management to place increased scrutiny on the credits and may, in some instances, represent an increased risk of loss to the Banks. At December 31, 1995, 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, 1995, that would be required to be disclosed above (Item III(C)), if such assets were loans. There were no foreign loans outstanding at December 31, 1995. 9
11 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: <TABLE> <CAPTION> 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (dollars in thousands) <S> <C> <C> <C> <C> <C> Loans outstanding at the end of the year (net of unearned fees) $434,091 $342,658 $288,643 $261,634 $275,144 ======== ======== ======== ======== ======== Average loans outstanding for the year (net of unearned fees) $382,644 $294,968 $259,334 $267,801 $260,594 ======== ======== ======== ======== ======== Balance of allowances for loan losses at beginning of year $ 5,054 $ 5,053 $ 4,023 $ 3,784 $ 3,541 -------- -------- -------- -------- -------- Loans charged-off Real estate 24 14 38 69 51 Commercial and agricultural 113 311 306 566 421 Installment 575 546 370 581 613 -------- -------- -------- -------- -------- Total loans charged-off 712 871 714 1,216 1,085 -------- -------- -------- -------- -------- Recoveries of loans previously charged-off Real estate 28 6 11 26 3 Commercial and agricultural 115 151 156 91 123 Installment 122 242 164 113 189 -------- -------- -------- -------- -------- Total recoveries 265 399 331 230 315 -------- -------- -------- -------- -------- Net loans charged-off 447 472 383 986 770 Additions to allowance charged to operating expense 636 473 657 1,225 1,013 Allowance on loans acquired 756 -------- -------- -------- -------- -------- Balance at end of year $ 5,243 $ 5,054 $ 5,053 $ 4,023 $ 3,784 ======== ======== ======== ======== ======== Net loans charged-off as a percent of average loans outstanding for the year 0.12% 0.16% 0.15% 0.37% 0.30% Allowance for loan losses as a percent of loans outstanding at the end of the year 1.21 1.48 1.75 1.54 1.38 </TABLE> The allowance for loan losses reflected above is a valuation allowance in its entirety and the only allowance available to absorb future loan losses. Further discussion of the provision and allowance for loan losses as well as non-performing loans is presented in Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated herein by reference in Item 7, Part II of this report. 10
12 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) IV. SUMMARY OF LOAN LOSS EXPERIENCE (Continued) (B) The Banks have allocated the allowance for loan losses to provide for the possibility of losses being incurred within the categories of loans set forth in the table below. The amount of the allowance that is allocated and the ratio of loans within each category to total loans at December 31, follows: <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- Percent Percent Percent Allowance of Loans to Allowance of Loans to Allowance of Loans to Amount Total Loans Amount Total Loans Amount Total Loans --------- ----------- --------- ----------- --------- ----------- (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Commercial and agricultural $1,612 25.8% $1,655 30.3% $2,222 31.8% Real estate mortgage 162 55.0 177 50.4 270 49.5 Installment 597 19.2 474 19.3 464 18.7 Unallocated 2,872 2,748 2,097 ------ ----- ------ ----- ------ ----- Total $5,243 100.0% $5,054 100.0% $5,053 100.0% ====== ===== ====== ===== ====== ===== <CAPTION> 1992 1991 ---- ---- Percent Percent Allowance of Loans to Allowance of Loans to Amount Total Loans Amount Total Loans ----------- ----------- --------- ----------- (dollars in thousands) <S> <C> <C> <C> <C> Commercial and agricultural $1,971 26.9% $1,452 26.3% Real estate mortgage 255 53.5 237 54.5 Installment 434 19.6 478 19.2 Unallocated 1,363 1,617 ------ ----- ------ ----- Total $4,023 100.0% $3,784 100.0% ====== ===== ====== ===== </TABLE> V. DEPOSITS The following table sets forth average deposit balances and the weighted-average rates paid thereon for the years ended December 31: <TABLE> <CAPTION> 1995 1994 1993 ---------------- ---------------- ---------------- Average Average Average Balance Rate Balance Rate Balance Rate --------- ----- --------- ----- --------- ----- (dollars in thousands) <S> <C> <C> <C> <C> <C> <C> Non-interest bearing demand $ 46,539 $ 41,910 $ 37,426 Savings and NOW 217,721 2.53% 213,590 2.26% 185,419 2.64% Time deposits 141,292 4.92 150,036 4.18 150,536 4.74 -------- -------- -------- Total $405,552 3.08% $405,536 2.74% $373,381 3.22% ======== ======== ======== </TABLE> The following table summarizes time deposits in amounts of $100,000 or more by time remaining until maturity as of December 31, 1995: <TABLE> <CAPTION> (in thousands) <S> <C> Three month or less $ 6,278 Over three through six months 4,866 Over six months through one year 4,148 Over one year 4,205 ------- Total $19,497 ======= </TABLE> 11
13 ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued) VI. RETURN ON EQUITY AND ASSETS The ratio of net income to average shareholders' equity and to average total assets, and certain other ratios, for the years ended December 31, follow: <TABLE> <CAPTION> 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> Net income as a percent of Average common equity 15.59% 15.22% 15.21% 15.88% 13.56% Average total assets 1.25 1.25 1.33 1.26 1.00 Dividends declared per common share as a percent of net income per share 37.20 34.78 25.58 24.37 26.53 Average shareholders' equity as a percent of average total assets 8.04 8.22 8.72 7.94 6.82 </TABLE> Additional performance ratios are set forth in Selected Consolidated Financial Data, incorporated herein by reference in Item 6, Part II of this report. Any significant changes in the current trend of the above ratios are reviewed in Management's Discussion and Analysis of Financial Condition and Results of Operations, incorporated herein by reference in Item 7, Part II of this report. VII. SHORT-TERM BORROWINGS Short-term borrowings are discussed in note 9 to the consolidated financial statements incorporated herein by reference in Item 8, Part II of this report. 12
14 ITEM 2. PROPERTIES The Registrant and the Banks operate a total of 43 facilities in Michigan. The individual properties are not materially significant to the Registrants' or the Banks' business or to the consolidated financial statements. With the exception of the potential remodeling of certain facilities to provide for the efficient use of work space or to maintain an appropriate appearance, each property is considered reasonably adequate for current and anticipated needs. ITEM 3. LEGAL PROCEEDINGS Due to the nature of their business, the Banks are often subject to numerous legal actions. These legal actions, whether pending or threatened, arise through the normal course of business and are not considered unusual or material. Currently, no material legal procedures are pending which involve the Registrant or the Banks. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 13
15 ADDITIONAL ITEM - EXECUTIVE OFFICERS Executive officers of the Registrant are appointed annually by the Board of Directors at the organizational meeting of Directors following the Annual Meeting of Shareholders. There are no family relationships among these officers and/or the Directors of the Registrant nor any arrangement or understanding between any officer and any other person pursuant to which the officer was elected. The following sets forth certain information with respect to the Registrant's executive officers and certain key officers of its subsidiaries (included for information purposes only) as of December 31, 1995. <TABLE> <CAPTION> First elected as an officer of Name (Age) Position with Registrant the registrant - ---------- ------------------------ ---------------- <S> <C> <C> Charles C. Van Loan (48) President, Chief Executive December, 1984 Officer and Director William R. Kohls (38) Executive Vice President and Chief Financial Officer May, 1985 Jeffrey A. Bratsburg (52) President and Chief Executive Officer - Independent Bank West Michigan Edward B. Swanson (42) President and Chief Executive Officer - Independent Bank South Michigan Michael M. Magee, Jr. (40) President and Chief Executive Officer - Independent Bank Ronald L. Long (36) President and Chief Executive Officer - Independent Bank East Michigan </TABLE> Prior to being named President and Chief Executive Officer in 1993, Mr. Magee was Executive Vice President of Independent Bank. Prior to being named President and Chief Executive Officer in 1993, Mr. Long was Vice President and Controller of the Registrant. Prior to joining the Registrant in 1990, he was an audit manager at Ernst & Young. The President and Chief Executive Officers of the Registrant's subsidiary banks serve as members of various committees of the Registrant. 14
16 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Quarterly Summary " on Page A-28 of the Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders (as filed with the commission and as filed as exhibit 13 to this report on Form 10-K) is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Consolidated Financial Data" on Page A-10 of the Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders (as filed with the commission and as filed as exhibit 13 to this report on Form 10-K) is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages A-2 through A-9 of the Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders (as filed with the commission and as filed as exhibit 13 to this report on Form 10-K) is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant and the auditors' report are set forth on pages A-11 through A-27 of the Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders (as filed with the commission and as filed as exhibit 13 to this report on Form 10-K) is incorporated herein by reference. Consolidated Statements of Financial Condition at December 31, 1995 and 1994 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Independent Auditors Report The supplementary data required by this item set forth under the caption "Quarterly Financial Data" on page A-28 of the Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders (as filed with the commission and as filed as exhibit 13 to this report on Form 10-K) is incorporated herein by reference. 15
17 PART II. ITEM 8. (Continued) The portions of the Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders (as filed with the commission and as filed as exhibit 13 to this report on Form 10-K) which are not specifically incorporated by reference as part of this Form 10-K are not deemed to be a part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS - The information with respect to Directors of the Registrant, set forth under the caption "Election of Directors" on pages 3 through 5 of the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders, (as filed with the commission) is incorporated herein by reference. EXECUTIVE OFFICERS - Reference is made to additional item under Part I of this report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the captions "Summary Compensation Table", "Option Grants in 1995" and "Aggregated Stock Option Exercises in 1995 and Year End Option Values" on pages 8 through 9 of the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders, (as filed with the commission) is incorporated herein by reference. Information under the caption "Committee Report on Executive Compensation" on pages 6 through 7 of the definitive proxy statement is not incorporated by reference herein and is not deemed to be filed with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the captions "Voting Securities and Record Date", "Election of Directors" and "Securities Ownership of Management" on pages 2, 3 and 8, respectively, of the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders, (as filed with the commission) is incorporated herein by reference. Information under the captions "Shareholder Return Performance Graph" and "Committee Report on Executive Compensation" on pages 5 through 7 of the definitive proxy statement is not incorporated by reference herein and is not deemed to be filed with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Transactions Involving Management" on page 10 of the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders, (as filed with the commission) is incorporated herein by reference. 16
18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements All financial statements of the Registrant are incorporated herein by reference as set forth in the Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K.) 2. Financial Statement Schedules Not applicable 3. Exhibits (Numbered in accordance with Item 601 of Regulation S-K) The Exhibit Index is located on the final page of this report on Form 10-K. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1995. 17
19 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 22, 1996. INDEPENDENT BANK CORPORATION s/Charles C. Van Loan Charles C. Van Loan, President and Chief - ----------------------------------- Executive Officer (Principal Executive Officer) s/William R. Kohls William R. Kohls, Executive Vice - ----------------------------------- President and Chief Financial Officer (Principal Financial Officer) s/James J. Twarozynski James J. Twarozynski, Vice President and - ----------------------------------- Controller (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each director of the Registrant, who's signature appears below hereby appoints Charles C. Van Loan and William R. Kohls and each of them severally, as his attorney-in-fact, to sign in his name and on his behalf, as a director of the Registrant, and to file with the Commission any and all Amendments to this Report on Form 10-K. William F. Ehinger, Director s/William F. Ehinger ---------------------- Thomas F. Kohn, Director s/Thomas F. Kohn ---------------------- Robert J. Leppink, Director s/Robert J. Leppink ---------------------- Rex P. O'Connor, Director s/Rex P. O'Connor ---------------------- Charles A. Palmer, Director ---------------------- Charles C. Van Loan, Director s/Charles C. Van Loan ---------------------- Arch V. Wright, Jr., Director s/Arch V. Wright, Jr. ---------------------- 18
20 EXHIBIT INDEX Exhibit number and description EXHIBITS FILED HEREWITH 13 Appendix to the Registrant's definitive proxy statement, dated March 15, 1996, relating to the April 16, 1996 Annual Meeting of Shareholders. This appendix was filed with the Commission as part of the Company's proxy statement and was delivered to the Company's shareholders in compliance with Rule 14(a)-3 of the Securities Exchange Act of 1934, as amended. 21 List of Subsidiaries. 23 Consent of Independent Accountants 24 Power of Attorney (Included on page 18). 27 Financial Data Schedule EXHIBITS INCORPORATED BY REFERENCE 3(A) Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3(i) to the Registrant's report on Form 10-Q for the quarter ended June 30, 1994). 3(B) Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3(ii) to the Registrant's report on Form 10-Q for the quarter ended June 30, 1994). 4(A) Automatic Dividend Reinvestment and Stock Purchase Plan, as amended (incorporated herein by reference to the Registrant's Form S-3 Registration Statement dated June 13, 1994, filed under Registration No. 33-80088). 10(A) Deferred Benefit Plan for Directors (incorporated herein by reference to Exhibit 10(C) to the Registrant's report on Form 10-K for the year ended December 31, 1984). 10(B) The form of Indemnity Agreement approved by the Registrant's shareholders at its April 19, 1988 Annual Meeting, as executed with all of the Directors of the Registrant (incorporated herein by reference to Exhibit 10(F) to the Registrant's report on Form 10-K for the year ended December 31, 1988). 10(C) Incentive Share Grant Plan, as amended, approved by the Registrant's shareholders at its April 21, 1992 Annual Meeting (incorporated herein by reference to Exhibit 10 to the Registrant's report on Form 10-K for the year ended December 31, 1992). 10(D) Non-Employee Director Stock Option Plan, approved by the Registrant's shareholders at its April 21, 1992 Annual Meeting (incorporated herein by reference to Exhibit 28 to the Registrant's Form S-8 Registration Statement dated April 23, 1993, filed under registration No. 33-62086). 10(E) Employee Stock Option Plan, approved by the Registrant's shareholders at its April 21, 1992 Annual Meeting (incorporated herein by reference to Exhibit 28 to the Registrant's Form S-8 Registration Statement dated April 30, 1993, filed under registration No. 33-62090). 19