10-K

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, 2014 or

/   / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________________ to _________________

Commission file number    0-7818

INDEPENDENT BANK CORPORATION

(Exact name of Registrant as specified in its charter)

MICHIGAN	38-2032782
(State or other jurisdiction of incorporation)	(I.R.S. employer identification no.)
230 W. Main St., P.O. Box 491, Ionia, Michigan	48846
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (616)  527-5820

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, No Par Value	NASDAQ
(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         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         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 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 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    X    No        

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.        

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large accelerated filer         Accelerated filer    X    Non-accelerated filer         Smaller reporting company        

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b of the Act).

Yes       No    X   

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2014, was $288,335,749.

The number of shares outstanding of the registrant’s common stock as of March 5, 2015 was 23,001,804.

Documents incorporated by reference: Portions of our definitive proxy statement and annual report, to be delivered to shareholders in connection with the April 21, 2015 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 35-36

FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K that are not statements of historical fact, including statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “forecast,” “anticipate,” “estimate,” “project,” “intend,” “likely,” “optimistic” and “plan” and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions, 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; statements about our business and 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 goals. They are based on assumptions, estimates, and forecasts that, although believed to be reasonable, may turn out to be incorrect. Actual results could differ materially from those discussed in the forward-looking statements for a variety of reasons, including:

· economic, market, operational, liquidity, credit, and interest rate risks associated with our 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 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;

· increased competition in the financial services industry, either nationally or regionally;

· our ability to achieve loan and deposit growth;

· volatility and direction of market interest rates;

· the continued services of our management team; and

· implementation of new legislation, which may have significant effects on us and the financial services 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. 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

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. We have established certain employee retirement plans, including an employee stock ownership plan (ESOP) and deferred compensation plans, as well as health and other insurance programs, the cost of which is borne by our subsidiaries. We have no material patents, trademarks, licenses or franchises except the corporate charter of our bank, which permits it to engage in commercial banking pursuant to Michigan law.

Our bank transacts business in the single industry of commercial banking. It offers a broad range of banking services to individuals and businesses, including checking and savings accounts, commercial lending, direct and indirect consumer financing, mortgage lending, and safe deposit box services. Our bank does not offer trust services. Our principal markets are the rural and suburban communities across lower Michigan, which are served by the bank’s main office in Ionia, Michigan, and a total of 70 branches, 2 drive-thru facilities, and 7 loan production offices. Most of our bank’s branches provide full-service lobby and 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 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, 2014, our bank had total loans (excluding loans held for sale) of $1.410 billion and total deposits of $1.924 billion. As of December 31, 2014, we had 700 full-time employees and 176 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.

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ITEM 1. BUSINESS (continued)

On a consolidated basis, our principal sources of revenue 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:

	2014			2013			2012
Interest and fees on loans		60.2	%		61.1	%		57.5	%
Other interest income		7.3			4.9			3.5
Non-interest income		32.5			34.0			39.0
		100.0	%		100.0	%		100.0	%

Recent Developments

In January 2015, we adopted a plan to consolidate certain branch offices. This consolidation reflects our ongoing cost reduction initiatives and undertakings to further improve the overall efficiency of our operations.  The consolidation will result in the closing of six of our branch offices.  It is expected that the aggregate, annual reduction in non-interest expenses resulting from this consolidation will amount to approximately $1.6 million. We also estimate a potential annual loss of revenue of approximately $0.3 million to $0.4 million due to possible customer attrition.  We expect that the consolidation will be completed not later than April 30, 2015. We also undertook certain additional staffing reductions related to our retail banking operations. In connection with the consolidation, we expect to incur one-time expenses and charges of approximately $0.3 million in the first four months of 2015, which consist primarily of severance and certain other costs. We do not expect any material loss related to the sale or disposition of real property or other fixed assets that are not otherwise deployed.

In 2013, we successfully completed the implementation of a capital plan we had adopted to restore and improve our capital position.  In particular, during the last half of 2013, we completed the following:

· On July 26, 2013, we executed a Securities Purchase Agreement with the United States Department of the Treasury (“UST”), pursuant to which we agreed to purchase from the UST for $81.0 million in cash 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 Preferred Stock”), including any and all accrued and unpaid dividends; and (ii) the Amended and Restated Warrant to purchase up to 346,154 shares of our common stock at an exercise price of $7.234 per share and expiring on December 12, 2018 (the “Amended Warrant”);

· In the third quarter of 2013, we sold a total of 13.225 million shares of our common stock in a public offering for total 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 underwriting 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 subordinated debentures and trust preferred securities;

· On August 30, 2013, we completed the redemption of the Series B Preferred Stock and Amended Warrant from the UST pursuant to the terms of the Securities Purchase Agreement described above, which resulted in our exit from the Troubled Asset Relief Program (TARP); and

· On October 11, 2013, we redeemed all of the 8.25% trust preferred securities (with an aggregate liquidation amount of $9.2 million) issued by IBC Capital Finance II.

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 Deposit Insurance Corporation (“FDIC”), the Michigan Department of Insurance and Financial Services (“Michigan DIFS”), 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 fund, our depositors, and the public, rather than our shareholders.

Regulatory Developments

Homeowner Affordability and Stability 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 borrowers can continue to pay off their mortgages through the following elements:

· access to low-cost refinancing for responsible homeowners suffering from falling home prices;

· a $75 billion homeowner stability initiative to prevent foreclosure and help responsible families stay in their homes; and

· support 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 (the “Dodd-Frank Act”) into law. This federal law includes the following:

· the creation of the 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.

The CFPB has issued new consumer protection regulations, including regulations that impact residential mortgage lending and servicing. 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 result of the Dodd-Frank Act have had, and we expect will continue to have, a significant impact on the banking industry, including our organization.

4

ITEM 1. BUSINESS (continued)

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 implements 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. In general, under the New Capital Rules, minimum requirements have increased 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 applies 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 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 became 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 a material impact on our business as we believe our investment activity will involve only investments exempt from the Volcker Rule.

Future Legislation. Various other legislative and regulatory initiatives, including proposals to overhaul the bank 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 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.

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 Michigan DIFS deems a bank’s capital to be impaired, it may require a bank to restore its capital by special assessment upon the 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.

5

ITEM 1. BUSINESS (continued)

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.

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 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 Michigan DIFS under Michigan banking laws, may be required.

With certain limited exceptions, the BHCA prohibits any bank holding company from engaging, either directly or indirectly through a subsidiary, in any activity other than managing or controlling banks unless the proposed non-banking activity is one 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.

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 non-banking activities, including securities and insurance activities and any other activity 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-rated companies with minimum requirements of 4% to 5% for all others. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital. The risk-based and leverage standards presently used by the Federal Reserve are minimum requirements, and higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. The federal 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.

6

ITEM 1. BUSINESS (continued)

Our Tier 1 capital as of December 31, 2014, includes $34.5 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 became subject to the New Capital Rules described above on January 1, 2015. The 2.5% 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 capital. We believe that we currently exceed all of the capital ratio requirements of the New Capital Rules.

Dividends. Historically, most of our revenues have 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 the Michigan DIFS. Thus, our ability to pay dividends to our shareholders is indirectly limited by restrictions on the ability of our bank to pay dividends or return capital to us, as described 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 that can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing. The Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. The “prompt corrective action” provisions of federal law and regulation authorize the Federal Reserve to restrict the amount of dividends that can be paid by an insured bank that fails to meet specified capital levels.

In addition to the restrictions on dividends imposed by the Federal Reserve, the Michigan Business Corporation Act provides that dividends may be legally declared or paid only if, after the distribution, the 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.

Change in Control Limitations. 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. 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.

Independent Bank

Independent Bank is a Michigan banking corporation and a member of the Federal Reserve System, and its deposit accounts are insured by the FDIC’s Deposit Insurance Fund (“DIF”). As a member of the Federal Reserve System and a Michigan-chartered bank, our bank is subject to the examination, supervision, reporting and enforcement requirements of the Federal Reserve as its primary federal regulator and the 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.

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ITEM 1. BUSINESS (continued)

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, for purposes of determining the institution’s assessment rate. Deposit insurance premium assessments are generally based on an institution’s total assets minus its tangible equity.

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 0.006% of average tangible assets.

Michigan DIFS Assessments. Michigan banks are required to pay supervisory fees to the Michigan 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.

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 capitalized	10% or above	6% or above	5% or above
Adequately capitalized	8% or above	4% or above	4% or above
Undercapitalized	Less than 8%	Less than 4%	Less than 4%
Significantly undercapitalized	Less than 6%	Less than 3%	Less than 3%
Critically undercapitalized	—	—	A ratio of tangible equity
			to total assets of 2% or less

At December 31, 2014, our bank’s ratios exceeded minimum requirements for the well-capitalized category.

Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest 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.

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ITEM 1. BUSINESS (continued)

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.

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. In addition, a Michigan bank may not declare or pay a dividend unless the bank will have a surplus amounting to at least 20 percent of its capital after the payment of the dividend.

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.

At December 31, 2014, our bank had negative retained earnings of approximately $31.1 million and therefore cannot pay dividends to the holding company. In lieu of the payment of dividends, we intend to make periodic requests to the Federal Reserve and the Michigan DIFS to approve a return of capital from our bank. In August 2013 and April 2014, pursuant to requests approved by the Michigan DIFS, our bank made returns of capital to our holding company in the amounts of $7.5 million and $15.0 million, respectively. On February 13, 2015, the Michigan DIFS approved an $18.5 million return of capital. The bank paid this return of capital to us on February 17, 2015.

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 holding company, the bank, and the subsidiaries of the bank; to the principal shareholders of the 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-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.

9

ITEM 1. BUSINESS (continued)

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 other 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, 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.

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 Michigan 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.

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.

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 Securities and Exchange Commission (SEC).

10

ITEM 1.		BUSINESS -- STATISTICAL DISCLOSURE
I.	(A)	DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY;
	(B)	INTEREST RATES AND INTEREST DIFFERENTIAL
	(C)	INTEREST RATES AND DIFFERENTIAL

The information set forth in the tables captioned “Average Balances and Rates” and “Change in Net Interest Income” of our annual report, to be delivered to shareholders in connection with the April 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

II. INVESTMENT PORTFOLIO

(A)  The following table sets forth the book value of securities at December 31:

	2014		2013		2012
	(in thousands)
Trading - preferred stock	$	203	$	498	$	110
Available for sale
U.S. agency residential mortgage-backed	$	257,558	$	203,460	$	127,412
States and political subdivisions		143,415		153,678		39,051
U.S. agency		35,006		31,808		30,667
U.S. agency commercial mortgage-backed		33,728		—		—
Other asset backed		32,353		45,185		—
Corporate		22,664		19,137		—
Private label residential mortgage-backed		6,013		6,788		8,194
Trust preferred		2,441		2,425		3,089
Total	$	533,178	$	462,481	$	208,413

11

ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)

(B)  The following table sets forth contractual maturities of securities at December 31, 2014 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																$	203		0.00	%
Tax equivalent adjustment
for calculation of yield																$	—
Available for sale
U.S. agency residential
mortgage-backed	$	3		7.78	%	$	127,430		1.17	%	$	77,251		1.47	%	$	52,874		1.94	%
States and political
subdivisions		20,612		1.30			42,860		2.06			15,366		4.09			64,577		3.32
U.S. agency		10		0.67			8,989		0.96			23,424		1.79			2,583		0.77
U.S. agency commercial
mortgage-backed		501		1.89			29,898		1.22			3,329		2.92			—
Other asset backed		2,124		0.50			22,409		0.91			7,820		0.88			—
Corporate		4,857		1.18			14,817		1.20			2,990		1.36			—
Private label residential
mortgage-backed		—					98		5.97			3,021		4.23			2,894		5.28
Trust preferred																	2,441		1.57
Total	$	28,107		1.23	%	$	246,501		1.30	%	$	133,201		1.89	%	$	125,369		2.70	%
Tax equivalent adjustment
for calculation of yield	$	58				$	163				$	144				$	133

The rates set forth in the tables above for those obligations of state and political subdivisions that are tax exempt have been restated on a tax equivalent basis assuming a marginal tax rate of 35%. The amount of the adjustment is as follows.

					Rate on Tax
	Tax-Exempt				Equivalent
Available for sale	Rate		Adjustment		Basis
Under 1 year	1.13	%	0.61	%	1.74	%
1-5 years	2.38		1.28		3.66
5-10 years	3.44		1.85		5.29
After 10 years	4.06		2.19		6.25

12

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

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

		2014		2013		2012		2011		2010
		(in thousands)
Loans held for sale	$	23,662	$	20,390	$	50,779	$	44,801	$	50,098
Mortgage		472,628		486,633		527,340		590,876		658,679
Commercial		690,955		635,234		617,258		651,155		707,530
Installment		206,378		192,065		189,849		219,559		245,644
Payment plan receivables		40,001		60,638		84,692		115,018		201,263
Total Loans	$	1,433,624	$	1,394,960	$	1,469,918	$	1,621,409	$	1,863,214

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 applicable 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, 2014: 

	Due Within One Year		Due After One But Within Five Years		Due After Five Years		Total
	(in thousands)
Mortgage	$	2	$	151	$	47,928	$	48,081
Commercial		209,107		418,819		63,029		690,955
Payment plan receivables		13,115		26,886		—		40,001
Total	$	222,224	$	445,856	$	110,957	$	779,037

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, 2014:

	Fixed Rate		Variable Rate		Total
	(in thousands)
Due after one but within five years	$	321,769	$	124,087	$	445,856
Due after five years		46,243		64,714		110,957
Total	$	368,012	$	188,801	$	556,813

13

ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (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:

	2014		2013		2012		2011		2010
	(in thousands)
(a)  Loans accounted for on a
non-accrual basis (1, 2)	$	15,231	$	17,905	$	32,929	$	59,309	$	66,652
(b)  Aggregate amount of loans
ninety days or more past due
(excludes loans in (a) above)		7		—		7		574		928
(c)  Loans not included above which
are “troubled debt restructurings”
as defined by accounting guidance		102,971		114,887		126,730		116,569		113,812
Total	$	118,209	$	132,792	$	159,666	$	176,452	$	181,392

(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 $6.54 million would have been earned in 2014 had loans in categories (a) and (c) remained at their original terms; however, only $4.69 million 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, 2014.

At December 31, 2014, 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, 2014, that would be required to be disclosed above (Item III(C)), if such assets were loans.

There were no foreign loans at December 31, 2014, 2013, 2012 and 2011. Total loans in 2010 include $0.1 million of payment plan receivables from customers domiciled in Canada. There were no other foreign loans outstanding prior to that time.

14

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:

	2014		2013		2012
	(dollars in thousands)
Total loans outstanding at the end of
the year (net of unearned fees)	$	1,433,624	$	1,394,960	$	1,469,918
Average total loans outstanding for
the year (net of unearned fees)	$	1,388,772	$	1,413,796	$	1,550,456

				Unfunded					Unfunded						Unfunded
	Loan			Commit-		Loan			Commit-			Loan			Commit-
	Losses			ments		Losses			ments			Losses			ments
Balance at beginning of year	$	32,325		$	508	$	44,275		$	598		$	58,884		$	1,286
Loans charged-off
Mortgage		4,119					6,319						10,741
Commercial		4,613					7,358						12,588
Installment		1,885					2,520						4,009
Payment plan receivables		2					35						70
Total loans charged-off		10,619					16,232						27,408
Recoveries of loans previously
charged-off
Mortgage		1,397					1,996						1,581
Commercial		4,914					5,119						3,610
Installment		1,104					1,074						1,311
Payment plan receivables		5					81						20
Total recoveries		7,420					8,270						6,522
Net loans charged-off		3,199					7,962						20,886
Reclassification to loans held for sale													610
Additions (deductions) included in
operations		(3,136	)		31		(3,988	)		(90	)		6,887			(688	)
Balance at end of year	$	25,990		$	539	$	32,325		$	508		$	44,275		$	598
Net loans charged-off as a percent of
average loans outstanding (includes
loans held for sale) for the year		0.23	%				0.56	%					1.35	%
Allowance for loan losses as a
percent of loans outstanding (includes
loans held for sale) at the end of the year		1.81					2.32						3.01

15

ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (Continued)

	2011		2010
	(dollars in thousands)
Total loans outstanding at the end of
the year (net of unearned fees)	$	1,621,409	$	1,863,214
Average total loans outstanding for
the year (net of unearned fees)	$	1,711,948	$	2,082,117

				Unfunded						Unfunded
	Loan			Commit-			Loan			Commit-
	Losses			ments			Losses			ments
Balance at beginning of year	$	67,915		$	1,322		$	81,717		$	1,858
Loans charged-off
Mortgage		15,608						20,263
Commercial		20,491						36,108
Installment		5,439						7,726
Payment plan receivables		186						82
Total loans charged-off		41,724						64,179
Recoveries of loans previously
charged-off
Mortgage		1,441						1,155
Commercial		1,850						969
Installment		1,451						1,475
Payment plan receivables		5						13
Total recoveries		4,747						3,612
Net loans charged-off		36,977						60,567
Additions (deductions) included in
operations		27,946			(36	)		46,765			(536	)
Balance at end of year	$	58,884		$	1,286		$	67,915		$	1,322
Net loans charged-off as a percent of
average loans outstanding (includes loans
held for sale) for the year		2.16	%					2.91	%
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

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 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and is incorporated herein by reference.

16

ITEM 1.	BUSINESS -- STATISTICAL DISCLOSURE (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:

	2014					2013					2012
			Percent					Percent					Percent
	Allowance		of Loans to			Allowance		of Loans to			Allowance		of Loans to
	Amount		Total Loans			Amount		Total Loans			Amount		Total Loans
	(dollars in thousands)
Commercial	$	5,445		48.2	%	$	6,827		45.5	%	$	11,402		42.2	%
Mortgage		13,444		34.6			17,195		36.3			21,447		39.1
Installment		1,814		14.4			2,246		13.8			3,378		12.9
Payment plan receivables		64		2.8			97		4.4			144		5.8
Unallocated		5,223					5,960					7,904
Total	$	25,990		100.0	%	$	32,325		100.0	%	$	44,275		100.0	%
	2011					2010
			Percent					Percent
	Allowance		of Loans to			Allowance		of Loans to
	Amount		Total Loans			Amount		Total Loans
	(dollars in thousands)
Commercial	$	18,183		40.2	%	$	23,836		38.0	%
Mortgage		22,885		39.2			22,642		38.0
Installment		6,146		13.5			6,769		13.2
Payment plan receivables		197		7.1			389		10.8
Unallocated		11,473					14,279
Total	$	58,884		100.0	%	$	67,915		100.0	%

17

ITEM 1.	BUSINESS -- STATISTICAL DISCLOSURE (Continued)
V.	DEPOSITS

The following table sets forth average deposit balances and the weighted-average rates paid thereon for the years ended December 31:

	2014					2013					2012
	Average					Average					Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(dollars in thousands)
Non-interest bearing demand	$	540,107				$	500,673				$	523,926
Savings and NOW		951,745		0.11	%		908,740		0.12	%		1,060,882		0.17	%
Time deposits		413,729		0.94			423,291		1.08			552,903		1.28
Total	$	1,905,581		0.26	%	$	1,832,704		0.31	%	$	2,137,711		0.42	%

The following table summarizes time deposits in amounts of $100,000 or more by time remaining until maturity at December 31, 2014:

	(in thousands)
Three months or less	$	41,113
Over three through six months		19,913
Over six months through one year		43,387
Over one year		61,206
Total	$	165,619

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:

	2014			2013			2012			2011			2010
Net income (loss) as a percent of (1)
Average common equity		7.43	%		64.22	%		68.29	%		(68.44	)%		(54.38	)%
Average total assets		0.80			3.87			0.92			(1.02	)		(0.75	)
Dividends declared per share as a
percent of diluted net income per share		23.38			0.00			0.00			0.00			0.00
Average shareholders’ equity as a percent
of average total assets		10.83			8.69			4.82			4.76			3.92

⁽¹⁾These amounts are calculated using net income (loss) applicable to common stock.

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 21, 2015 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 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and is incorporated herein by reference.

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 of this report.

18

ITEM 1A. RISK FACTORS

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

General 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 results of operations.

Global capital and credit markets are sometimes subject to periods of extreme volatility and disruption. Disruptions, uncertainty or volatility in the capital and credit markets may limit our ability to access capital and manage liquidity, which may 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 actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the 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 liquidated at prices not sufficient to recover the full 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 we 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.

19

ITEM 1A. RISK FACTORS (continued)

In particular, Congress and other regulators have increased their focus on the regulation of the financial services industry in recent years. The effects on us of recent legislation and regulatory actions cannot reliably be fully determined at this time. Moreover, as some of the legislation and regulatory actions previously implemented in response to the recent financial crisis expire, the impact of the conclusion of these programs on the financial sector and on the economic recovery is unknown. Any delay in the economic recovery or a worsening of current financial 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 determined at this time, and such impact may adversely affect us.

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 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 $15.2 million and $17.9 million at December 31, 2014 and December 31, 2013, respectively. Our allowance coverage ratio of non-performing loans was 170.6% and 180.5% at December 31, 2014 and December 31, 2013, 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.

Although we perform periodic internal 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. 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 analysis that has been performed. Any increase in our allowance for loan losses or loan charge-offs required by these regulatory agencies could have a material adverse effect on our results of operations and 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 $3.1 million as of December 31, 2014 (compared to approximately $7.0 million as of December 31, 2013). 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.

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, 2014, 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 $7.2 million. This compares to a balance of $7.7 million and $18.4 million at December 31, 2013, and December 31, 2012, respectively.

20

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.

Prior to 2009, 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 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 did not historically have 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 worked 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 certain of its counterparties to enforce Mepco’s rights to collect refunds owing from those counterparties. We may need to initiate additional lawsuits against other counterparties that do not pay their obligations to Mepco.

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 service contract counterparty contingencies expense” in our Consolidated Statements of Operations) was $0.2 million, $4.8 million and $1.6 million in 2014, 2013 and 2012, 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.

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. As of December 31, 2014, Mepco had total assets of $63.4 million, which amounts to 2.8 percent of our consolidated assets.

21

ITEM 1A. RISK FACTORS (continued)

Our mortgage-banking revenues are susceptible to substantial variations, due in part to factors we do not control, such as market interest rates.

A portion of our revenues are derived from gains on mortgage loans. 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 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 $5.6 million on mortgage loans during 2014 compared to $10.0 million during 2013 and $17.3 million during 2012.

We 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 made requests for returns of capital from the bank to our parent company. A return of capital request requires approval by our state bank regulators. While we have received approval for the three requests made to date, there is no assurance that we will obtain any further approval in the future. 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 have been substantially revised in connection with Basel III and the requirements of the Financial Reform Act. These more stringent capital requirements, and any other new regulations, could adversely affect our ability to pay dividends in the future, 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.

22

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.

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.

23

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 adversely affect our net interest income and financial condition.

The operations of financial institutions such as us are dependent to a large degree on net interest income, which is the difference between interest income from loans and investments and interest expense on deposits and borrowings. Prevailing economic conditions, the trade, fiscal and monetary policies of the federal government and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, 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 very competitive environment, which is characterized by competition from a number of other financial institutions in each market in which we operate. We compete with large national and regional financial institutions and with smaller financial institutions in terms of products and pricing. If we are unable to compete effectively in products and pricing in our markets, business could decline, which 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 results of operations.

We 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 factors 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 ability to anticipate business needs and meet regulatory requirements.

Further, 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 others in the financial institutions industry.

Our ability to maintain and expand 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 relationships, 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 to maintain and expand existing customer relationships to the extent 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 our executive officers and key personnel. Our future operating results also depend in significant part upon our ability to attract 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 requisite skills to serve in these positions, and it may be increasingly difficult for us to hire personnel over time.

24

ITEM 1A. RISK FACTORS (continued)

Further, our ability to retain key officers and employees may be impacted by legislation and regulation affecting the financial services industry. Our 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 proceedings 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 proceedings. It is inherently difficult to assess the outcome of these matters, and there 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 efforts, which by itself could have a material adverse effect on our financial condition and operating results. Further, adverse determinations in such matters could result in actions by our regulators that could materially adversely affect our business, financial condition or results of operations.

Methods of reducing risk exposures might not be effective.

Instruments, systems and strategies used to hedge or otherwise manage exposure to various types of credit, market and liquidity, operational, compliance, business risks and enterprise-wide risk could be less effective than anticipated. As a result, we may not be able to effectively mitigate our risk exposures in particular market environments or against particular types of risk, which could have a material adverse impact on our business, financial condition or results of operations.

Terrorist 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 general 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 impact on our operating results, revenues and costs and may result in increased volatility in 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 financial accounting and reporting standards that govern the preparation of our financial 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 be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings.

Our failure to appropriately apply certain critical accounting policies could result in our misstatement 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.

25

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 uncertainty surrounding management’s judgments and the estimates pertaining to these matters, 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 Notes to Consolidated Financial Statements in our annual report, to be delivered to shareholders in connection with the April 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K).

The trading price of our common stock may be subject to significant fluctuations and volatility.

The market price of our common stock could be subject to significant fluctuations due to, among other things:

· variations in quarterly or annual results of operations;

· changes in dividends per share;

· deterioration in asset quality, including declining real estate values;

· changes in interest rates;

· significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors;

· regulatory actions, including changes to regulatory capital levels, the components of regulatory capital and how regulatory capital is calculated;

· new regulations that limit or significantly change our ability to continue to offer products or services;

· 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.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We and our bank operate a total of 87 facilities in Michigan and 1 facility in Chicago, Illinois.

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

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 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. At this time, we estimate the maximum 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, 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. MINE SAFETY DISCLOSURES

Not applicable.

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ADDITIONAL ITEM - EXECUTIVE OFFICERS

Our executive officers are appointed annually by our Board of Directors at the meeting of directors preceding the Annual Meeting of Shareholders. There are no family relationships among these officers and/or our directors nor any arrangement or understanding between any officer and any other person pursuant to which the officer was elected.

The following sets forth certain information with respect to our executive officers at February 20, 2015.

		First elected
		as an executive
Name (Age)	Position	officer
William B. Kessel  (50)	President, Chief Executive Officer and Director (1)	2004
Robert N. Shuster (57)	Executive Vice President and Chief Financial Officer	1999
Stefanie M. Kimball (55)	Executive Vice President and Chief Risk Officer	2007
David C. Reglin (55)	Executive Vice President, Retail Banking	1998
Mark L. Collins (57)	Executive Vice President, General Counsel	2009
Dennis J. Mack (53)	Executive Vice President and Chief Lending Officer (2)	2012
Richard E. Butler (63)	Senior Vice President, Operations	1998
Peter R. Graves (57)	Senior Vice President, Chief Information Officer	1999
James J. Twarozynski (49)	Senior Vice President, Controller	2002

(1) Mr. Kessel assumed the role of President as of April 1, 2011, and 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) 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.

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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 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

We maintain a Deferred Compensation and Stock Purchase Plan for Non-Employee Directors (the “Plan”) pursuant to which non-employee directors can elect to receive shares of our common stock in lieu of fees otherwise payable to the director for his or her service as a director.  A director can elect to receive shares on a current basis or to defer receipt of the shares, in which case the shares are issued to a trust to be held for the account of the director and then generally distributed to the director after his or her retirement from the Board.  Pursuant to this Plan, during the fourth quarter of 2014, we issued 2,707 shares of common stock to non-employee directors on a current basis and 1,180 shares of common stock to the trust for distribution to directors on a deferred basis.  The shares were issued on October 1, 2014, at a price of $11.92 per share, representing aggregate fees of $0.05 million.   The price per share was the consolidated closing bid price per share of our common stock as of the date of issuance, as determined in accordance with NASDAQ Marketplace Rules.  We issued the shares pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933 due to the fact that the issuance of the shares was made on a private basis pursuant to the Plan.

The following table shows certain information relating to purchases of common stock for the three-months ended December 31, 2014:

			Total Number of	Remaining
			Shares Purchased	Number of
			as Part of a	Shares Authorized
	Total Number of	Average Price	Publicly	for Purchase
Period	Shares Purchased	Paid Per Share	Announced Plan	Under the Plan
October 2014	—	$     —	—	NA
November 2014	552	11.93	—	NA
December 2014	—	—	—	NA
Total	552	$11.93	—	NA

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 21, 2015 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

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 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth in “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 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

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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 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and are incorporated herein by reference. 

Management’s Annual Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition at
December 31, 2014 and 2013

Consolidated Statements of Operations for the years ended
December 31, 2014, 2013 and 2012

Consolidated Statements of Comprehensive Income
for the years ended December 31, 2014, 2013 and 2012

Consolidated Statements of Shareholders’ Equity
for the years ended December 31, 2014, 2013 and 2012

Consolidated Statements of Cash Flows for the years ended
December 31, 2014, 2013 and 2012

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The supplementary data required by this item set forth under the caption “Quarterly Financial Data (Unaudited)” in our annual report, to be delivered to shareholders in connection with the April 21, 2015 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 21, 2015 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.

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

None

ITEM 9A. CONTROLS AND PROCEDURES

1. Evaluation of Disclosure Controls and Procedures. With the participation of management, our chief executive officer and chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15e and 15d – 15e) as of the year ended December 31, 2014 (the “Evaluation Date”), have concluded that, as of such date, our disclosure controls and procedures were effective.

2. Internal Control Over Financial Reporting. “Management’s Annual Report on Internal Control Over Financial Reporting” and our independent registered public accounting firm’s attestation of such report included within the “Report of Independent Registered Public Accounting Firm,” each as set forth in our annual report, to be delivered to shareholders in connection with the April 21, 2015 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K) are incorporated herein by reference.

ITEM 9B. OTHER INFORMATION

None.

30

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS - The information with respect to our directors set forth under the caption “Proposal I Submitted for Your Vote -- Election of Directors” in our definitive proxy statement, to be delivered to shareholders in connection with the April 21, 2015 Annual Meeting of Shareholders, is incorporated herein by reference.

BENEFICIAL OWNERSHIP REPORTING – The information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement, to be delivered to shareholders in connection with the April 21, 2015 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 our audit committee, set forth under the caption “Board Committees and Functions” in our definitive proxy statement, to be delivered to shareholders in connection with the April 21, 2015 Annual Meeting of Shareholders, is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the captions “Executive Compensation,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in our definitive proxy statement, to be delivered to shareholders in connection with the April 21, 2015 Annual Meeting of Shareholders, is incorporated herein by reference.

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”, “Proposal I Submitted for Your Vote -- Election of Directors” and “Securities Ownership of Management” in our definitive proxy statement, to be delivered to shareholders in connection with the April 21, 2015 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 Directors and our Long-Term Incentive Plan.

The following sets forth certain information regarding our equity compensation plans as of December 31, 2014.

			(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))
Equity compensation plans
approved by security holders	281,820	$4.69	393,156
Equity compensation plan
not approved by security holders	None	N/A	234,361

31

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

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 distribution.

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 21, 2015 Annual Meeting of Shareholders, is incorporated herein by reference.

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 21, 2015 Annual Meeting of Shareholders, is incorporated herein by reference.

32

PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)         1.       Financial Statements

All of our financial statements are incorporated herein by reference as set forth in the annual report to be delivered to shareholders in connection with the April 21, 2015 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)

The Exhibit Index is located on the final three pages of this report on Form 10-K.

33

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 4, 2015.

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 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.

William B. Kessel, President, Chief
Executive Officer, and Director
(Principal Executive Officer)	s/William B. Kessel	March 4, 2015
Robert N. Shuster, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)	s/Robert N. Shuster	March 4, 2015
James J. Twarozynski, Senior Vice
President and Controller
(Principal Accounting Officer)	s/James J. Twarozynski	March 4, 2015
Michael M. Magee, Jr.,
Chairman and Director	s/Michael M. Magee Jr.	March 2, 2015
William J. Boer, Director	s/William J. Boer	March 2, 2015
Stephen L. Gulis, Jr., Director	s/Stephen L. Gulis, Jr.	March 4, 2015
Terry L. Haske, Director	s/Terry L. Haske	March 2, 2015
Robert L. Hetzler, Director	s/Robert L. Hetzler	March 2, 2015
William B. Kessel, Director	s/William B. Kessel	March 4, 2015
Matthew J. Missad, Director	s/Matthew J. Missad	March 2, 2015
James E. McCarty, Director	s/James E. McCarty	March 2, 2015
Charles A. Palmer, Director	s/Charles A. Palmer	March 3, 2015
Charles C. Van Loan, Director	s/Charles C. Van Loan	March 4, 2015

34

EXHIBIT INDEX

Exhibit number and description

EXHIBITS FILED HEREWITH

10.10* Summary of Independent Bank Corporation Management Incentive Compensation Plan.

13 Annual report, relating to the April 21, 2015 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.

21 List of Subsidiaries.

23 Consent of Independent Registered Public Accounting Firm (Crowe Horwath LLP).

24 Power of Attorney (included on page 34).

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.

101.INS Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

EXHIBITS INCORPORATED BY REFERENCE

3.1 Restated 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).

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).

3.2 Amended 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).

4.1 Tax Benefits Preservation Plan, including exhibits, dated as of November 15, 2011, by and between Independent Bank Corporation and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated herein by reference to Exhibit 4.1 to our Registration Statement on Form 8-A filed November 15, 2011).

4.2 Form of Rights Certificate (incorporated in this Exhibit 4.2 by reference to Exhibit B of the Tax Benefits Preservation Plan, included as Exhibit 4.1 to our Registration Statement on Form 8-A filed November 15, 2011).

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).

35

10.2 The form of Indemnity Agreement approved by our shareholders at the April 19, 1988 Annual Meeting, as executed with all of the directors of the registrant (incorporated herein by reference to Exhibit 10(F) to our report on Form 10-K for the year ended December 31, 1988).

10.3 The form of Management Continuity Agreement as executed with executive officers and certain senior managers (incorporated herein by reference to Exhibit 10 to our report on Form 10-K for the year ended December 31, 1998).

10.4* Long-Term Incentive Plan, as amended through April 23, 2013 (incorporated herein by reference to Appendix A to our proxy statement filed on Schedule 14A on March 13, 2013).

10.5* 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 March 10, 2011).

10.6* 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).

10.7* 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).

10.8 Securities 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).

10.9* Form of TSR Performance Share Award Agreement as executed with certain executive officers (incorporated herein by reference to Exhibit 10.12 to our annual report on Form 10-K filed March 7, 2014).

* Represents a compensation plan.

36

EX-10.10

EXHIBIT 10.10

Summary of Independent Bank Corporation

Management Incentive Compensation Plan

This document summarizes the Management Incentive Compensation Plan (the “Plan”) of Independent Bank Corporation, a Michigan corporation (the “Company”). The Plan covers all management employees, including the Company's Named Executives.

The Plan provides for annual cash incentives to Plan participants based on the extent to which Company and individual performance objectives are met or exceeded. The Plan has three annual performance levels: (1) threshold represents the performance level that must be achieved before any incentive awards are payable; (2) target performance is defined as a desired level of performance in view of all relevant factors; and (3) the maximum represents that which reflects outstanding performance. Target performance under the Plan is intended to provide for aggregate annual cash compensation (salary and bonus) that approximates peer level compensation. Threshold performance would result in earning 50% of the target incentive, target would be 100%, and maximum would be 200%, with compensation prorated between these award levels.

The target bonus levels generally range from 10% of base salary (for lower level Plan participants), up to 50% of base salary for the Company's Chief Executive Officer. Plan participants are generally eligible to receive incentive compensation based on the achievement of certain Company performance objectives (weighted at 60% to 80%) as well as predetermined individual goals (weighted at 20% to 40%).

The Company performance objectives are established by the Compensation Committee and approved by the Board each year and may include (but are not necessarily limited to) goals related to earnings per share, non-performing assets to total assets, organic deposit growth, and the Bank's efficiency ratio. The performance objectives for a particular year are generally established during the first quarter of such year, and any bonuses payable as a result of the achievement of such objectives are generally paid in the first quarter of the following fiscal year. Amounts earned under the Plan are payable in full following finalization of the Company's financial results for the performance period. In addition, the Board may condition the payment of any bonuses under the Plan by the achievement of any one or more of the performance objectives.

EX-13

EXHIBIT 13

Performance Graph	6
Selected Consolidated Financial Data	7
Management’s Discussion and Analysis	8
Management’s Annual Report on Internal Control Over Financial Reporting	35
Report of Independent Registered Public Accounting Firm	36
Consolidated Financial Statements	37
Notes to Consolidated Financial Statements	42
Quarterly Data	103

5

PERFORMANCE GRAPH

The graph below compares the total returns (assuming reinvestment of dividends) of Independent Bank Corporation common stock, the NASDAQ Composite Index and the NASDAQ Bank Stock Index. The graph assumes $100 invested in Independent Bank Corporation common stock (returns based on stock prices per the NASDAQ) and each of the indices on December 31, 2009 and the reinvestment of all dividends during the periods presented. The performance shown on the graph is not necessarily indicative of future performance.

 

	Period Ending
Index	12/31/09		12/31/10		12/31/11		12/31/12		12/31/13		12/31/14
Independent Bank Corporation	$	100.00	$	18.06	$	18.47	$	48.61	$	166.67	$	183.95
NASDAQ Composite		100.00		118.02		117.04		137.47		192.62		221.02
NASDAQ Bank		100.00		111.35		83.04		111.88		152.85		170.93

6

SELECTED CONSOLIDATED FINANCIAL DATA (1)

	Year Ended December 31,
	2014			2013			2012			2011			2010
	(Dollars in thousands, except per share amounts)
SUMMARY OF OPERATIONS
Interest income	$	80,555		$	87,121		$	99,398		$	114,762		$	148,851
Interest expense		7,299			9,162			13,143			20,193			37,198
Net interest income		73,256			77,959			86,255			94,569			111,653
Provision for loan losses		(3,136	)		(3,988	)		6,887			27,946			46,765
Net gains (losses) on securities		320			369			887			(511	)		1,177
Gain on extinguishment of debt		500			—			—			—			18,066
Net gain on branch sale		—			—			5,402			—			—
Other non-interest income		37,955			44,460			57,276			47,424			52,570
Non-interest expenses		89,951			104,118			116,735			133,948			155,000
Income (loss) before income tax		25,216			22,658			26,198			(20,412	)		(18,299	)
Income tax expense (benefit)		7,195			(54,851	)		—			(212	)		(1,590	)
Net income (loss)	$	18,021		$	77,509		$	26,198		$	(20,200	)	$	(16,709	)
Preferred Stock Dividends		—			(3,001	)		(4,347	)		(4,157	)		(4,095	)
Preferred Stock Discount		—			7,554			—			—			—
Net income (loss) applicable to common stock	$	18,021		$	82,062		$	21,851		$	(24,357	)	$	(20,804	)
PER COMMON SHARE DATA (2)
Net income (loss) per common share
Basic	$	0.79		$	5.87		$	2.51		$	(2.94	)	$	(4.09	)
Diluted		0.77			3.55			0.80			(2.94	)		(4.09	)
Cash dividends declared		0.18			0.00			0.00			0.00			0.00
Book value		10.91			10.15			5.58			2.68			5.52
SELECTED BALANCES
Assets	$	2,248,730		$	2,209,943		$	2,023,867		$	2,307,406		$	2,535,248
Loans		1,409,962			1,374,570			1,419,139			1,576,608			1,813,116
Allowance for loan losses		25,990			32,325			44,275			58,884			67,915
Deposits		1,924,302			1,884,806			1,779,537			2,086,125			2,251,838
Shareholders’ equity		250,371			231,581			134,975			102,627			119,085
Long-term debt - FHLB advances		12,470			17,188			17,622			33,384			71,022
Subordinated debentures		35,569			40,723			50,175			50,175			50,175
SELECTED RATIOS
Net interest income to average interest earning assets		3.67	%		4.11	%		4.04	%		4.46	%		4.41	%
Net income (loss) to (3)
Average common equity		7.43			64.22			68.29			(68.44	)		(54.38	)
Average assets		0.80			3.87			0.92			(1.02	)		(0.75	)
Average shareholders’ equity to average assets		10.83			8.69			4.82			4.76			3.92
Tier 1 capital to average assets		11.18			10.61			8.08			6.25			6.35
Non-performing loans to Portfolio Loans		1.08			1.30			2.32			3.80			3.73

(1) The significant variations in the results of operations for the five years presented above is a result of a number of factors, including asset quality challenges, our consolidation, closing or sale of 36 branches in 2012, our exit from the Troubled Asset Relief Program in 2013, and a significant income tax benefit realized in 2013. Please read “Management's Discussion and Analysis of Financial Condition and Results of Operations” below for more information regarding these factors and others.

(2) Per share data has been adjusted for a 1 for 10 reverse stock split in 2010.

(3) These amounts are calculated using net income (loss) applicable to common stock.

7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclaimer Regarding Forward-Looking Statements. Statements in this report that are not statements of historical fact, including statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “forecast,” “anticipate,” “estimate,” “project,” “intend,” “likely,” “optimistic” and “plan” and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions, 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; statements about our business and 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 goals. They are based on assumptions, estimates, and forecasts that, although believed to be reasonable, may turn out to be incorrect. Actual results could differ materially from those discussed in the forward-looking statements for a variety of reasons, including:

• economic, market, operational, liquidity, credit, and interest rate risks associated with our 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 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;

• increased competition in the financial services industry, either nationally or regionally;

• our ability to achieve loan and deposit growth;

• volatility and direction of market interest rates;

• the continued services of our management team; and

• implementation of new legislation, which may have significant effects on us and the financial services industry.

This list provides examples of factors that could affect the results described by forward-looking statements contained in this report, but the list is not intended to be all-inclusive. The risk factors disclosed in Part I – Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014, as updated by any new or modified risk factors disclosed in Part II – Item 1A of any subsequently filed Quarterly Report on Form 10-Q, 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.

Introduction. The following section presents additional information to assess the financial condition and results of operations of Independent Bank Corporation, its wholly-owned bank, Independent Bank (the “Bank”), and their subsidiaries. This section should be read in conjunction with the consolidated financial statements and the supplemental financial data contained elsewhere in this annual report. We also encourage you to read our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”). That report includes a list of risk factors that you should consider in connection with any decision to buy or sell our securities.

8

Overview. We provide banking services to customers located primarily in Michigan’s Lower Peninsula. As a result, our success depends to a great extent upon the economic conditions in Michigan’s Lower Peninsula. We have in general experienced a difficult economy in Michigan since 2001, which has had significant adverse effects on our performance. As a result of the recession, we incurred net losses from 2008 through 2011 and found it necessary to take certain steps to preserve capital and maintain our regulatory capital ratios.

Economic conditions in Michigan began to show signs of improvement during 2010. Generally, these improvements have continued into 2014, albeit at an uneven pace. There has been an overall decline in the unemployment rate, although Michigan’s unemployment rate has been consistently above the national average. In addition, housing prices and other related statistics (such as home sales and new building permits) have generally been improving. In addition, since early- to mid-2009, we have seen an improvement in asset quality metrics. In particular, since early 2012, we have generally experienced a decline in non-performing assets, reduced levels of new loan defaults, and reduced levels of loan net charge-offs. As a result of the foregoing factors and others, we returned to profitability in 2012 and have now been profitable for 12 consecutive quarters. In addition, we have completed various transactions to improve our capital structure, as described below.

Recent Developments. In January 2015, we adopted a plan to consolidate certain branch offices. This consolidation reflects our ongoing cost reduction initiatives and undertakings to further improve the overall efficiency of our operations. The consolidation will result in the closing of six of our branch offices. It is expected that the aggregate, annual reduction in non-interest expenses resulting from this consolidation will amount to approximately $1.6 million. We also estimate a potential annual loss of revenue of approximately $0.3 million to $0.4 million due to possible customer attrition. We expect that the consolidation will be completed no later than April 30, 2015. We also undertook certain additional staffing reductions related to our retail banking operations. In connection with the consolidation, we expect to incur one-time expenses and charges of approximately $0.3 million in the first four months of 2015, which consist primarily of severance and certain other costs. We do not expect any material loss related to the sale or disposition of real property or other fixed assets.

In 2013, we successfully completed the implementation of a capital plan we had adopted to restore and improve our capital position. In particular, during the last half of 2013, we completed the following:

• On July 26, 2013, we executed a Securities Purchase Agreement with the United States Department of the Treasury (“UST”), pursuant to which we agreed to purchase from the UST for $81.0 million in cash 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 Preferred Stock”), including all accrued and unpaid dividends; and (ii) the Amended and Restated Warrant to purchase up to 346,154 shares of our common stock at an exercise price of $7.234 per share and expiring on December 12, 2018 (the “Amended Warrant”);

• In the third quarter of 2013, we sold a total of 13.225 million shares of our common stock in a public offering for total 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 underwriting 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 subordinated debentures and trust preferred securities;

• On August 30, 2013, we completed the redemption of the Series B Preferred Stock and Amended Warrant from the UST pursuant to the terms of the Securities Purchase Agreement described above, which resulted in our exit from the Troubled Asset Relief Program (TARP); and

• On October 11, 2013, we redeemed all of the 8.25% trust preferred securities (with an aggregate liquidation amount of $9.2 million) issued by IBC Capital Finance II.

Regulation. On July 2, 2013, the Federal Reserve Board (the “FRB”) approved a final rule that establishes an integrated regulatory capital framework (the “New Capital Rules”). The rule implements in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). In general,

9

under the New Capital Rules, minimum requirements have increased 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 applies 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. We are subject to the New Capital Rules beginning on January 1, 2015. The 2.5% capital conservation buffer is being phased in over a four-year period beginning in 2016. Under the New Capital Rules our existing trust preferred securities are grandfathered as qualifying regulatory capital. We believe that we currently exceed all of the capital ratio requirements of the New Capital Rules.

It is against this backdrop that we discuss our results of operations and financial condition in 2014 as compared to earlier periods.

RESULTS OF OPERATIONS

Summary. We recorded net income applicable to common stock of $18.0 million, or $0.77 per diluted share, in 2014, as compared to net income applicable to common stock of $82.1 million, or $3.55 per diluted share, in 2013, and net income applicable to common stock of $21.9 million, or $0.80 per share, in 2012. The significantly higher earnings in 2013, as compared to 2014 or 2012, primarily reflects the income tax benefit associated with the reversal of substantially all of the valuation allowance on our deferred tax assets (see “Income tax benefit”) and the discount on our redemption of our outstanding preferred stock.

2012 also included a net gain on the sale of branches. 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. In addition to the Branch Sale, we also closed or consolidated a total of 15 other branch locations during 2012.

KEY PERFORMANCE RATIOS   

	Year Ended December 31,
	2014			2013			2012
Net income to
Average common equity		7.43	%		64.22	%		68.29	%
Average assets		0.80			3.87			0.92
Net income per common share
Basic	$	0.79		$	5.87		$	2.51
Diluted		0.77			3.55			0.80

Net interest income. Net interest income is the most important source of our earnings and thus is critical in evaluating our results of operations. Changes in our net interest income are primarily influenced by our level of interest-earning assets and the income or yield that we earn on those assets and the manner and cost of funding our interest-earning assets. Certain macro-economic factors can also influence our net interest income such as the level and direction of interest rates, the difference between short-term and long-term interest rates (the steepness of the yield curve) and the general strength of the economies in which we are doing business. Finally, risk management plays an important role in our level of net interest income. The ineffective management of credit risk and interest-rate risk in particular can adversely impact our net interest income.

Net interest income totaled $73.3 million during 2014, compared to $78.0 million and $86.3 million during 2013 and 2012, respectively. The decrease in net interest income in 2014 compared to 2013 primarily reflects a 44 basis point decrease in our tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) that was partially offset by a $100.3 million increase in average interest-earning assets.

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The decline in our net interest margin is primarily due to the prolonged low interest rate environment that has pushed our average yield on loans lower. In addition, the growth in average interest-earning assets has been in lower yielding investment securities.

Interest rates have generally been at extremely low levels over the past five to six years due primarily to the FRB’s monetary policies and its efforts to stimulate the U.S. economy. This very low interest rate environment has had an adverse impact on our interest income and net interest income. Based on recent announcements by the FRB, short-term interest rates are expected to remain extremely low until at least mid- to late-2015. Given the repricing characteristics of our interest-earning assets and interest-bearing liabilities (and our level of non-interest bearing demand deposits), we would expect that our net interest margin will generally benefit on a long-term basis from rising interest rates.

The decrease in net interest income in 2013 compared to 2012 primarily reflects a $238.8 million decrease in average interest-earning assets that was partially offset by a seven basis point increase in our net interest margin. The decline in average interest-earning assets was primarily a result of the Branch Sale. The increase in the net interest margin was due primarily to a reduction in our cost of funds.

Our net interest income is also impacted by our level of non-accrual loans. Average non-accrual loans totaled $17.9 million, $24.1 million and $45.5 million in 2014, 2013 and 2012, respectively.

AVERAGE BALANCES AND RATES

	2014							2013							2012
	Average Balance		Interest		Rate			Average Balance		Interest		Rate			Average Balance		Interest		Rate
	(Dollars in thousands)
ASSETS (1)
Taxable loans	$	1,383,883	$	71,621		5.18	%	$	1,408,305	$	80,434		5.71	%	$	1,543,592	$	93,494		6.06	%
Tax-exempt loans (2)		4,889		310		6.34			5,491		354		6.45			6,864		440		6.41
Taxable securities		475,917		6,341		1.33			305,468		4,059		1.33			216,355		2,934		1.36
Tax-exempt securities (2)		40,200		1,510		3.76			32,051		1,680		5.24			26,111		1,593		6.10
Interest bearing cash and repurchase agreement		84,244		282		0.33			139,082		396		0.28			337,311		858		0.25
Other investments		23,252		1,118		4.81			21,673		901		4.16			20,645		782		3.79
Interest earning assets		2,012,385		81,182		4.03			1,912,070		87,824		4.59			2,150,878		100,101		4.65
Cash and due from banks		45,213							44,745							53,926
Other assets, net		182,099							164,281							159,925
Total assets	$	2,239,697						$	2,121,096						$	2,364,729
LIABILITIES
Savings and interest-bearing checking	$	951,745		1,064		0.11		$	908,740		1,131		0.12		$	1,060,882		1,830		0.17
Time deposits		413,729		3,903		0.94			423,291		4,575		1.08			552,903		7,083		1.28
Other borrowings		60,225		2,332		3.87			65,517		3,456		5.27			72,240		4,230		5.86
Interest bearing liabilities		1,425,699		7,299		0.51			1,397,548		9,162		0.66			1,686,025		13,143		0.78
Non-interest bearing deposits		540,107							500,673							523,926
Other liabilities		31,247							38,462							40,719
Shareholders’ equity		242,644							184,413							114,059
Total liabilities and shareholders’ equity	$	2,239,697						$	2,121,096						$	2,364,729
Net interest income			$	73,883						$	78,662						$	86,958
Net interest income as a percent of average interest earning assets						3.67	%						4.11	%						4.04	%

(1) All domestic.

(2) Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 35%.

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CHANGE IN NET INTEREST INCOME

	2014 compared to 2013									2013 compared to 2012
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Increase (decrease) in interest income (1, 2)
Taxable loans	$	(1,374	)	$	(7,439	)	$	(8,813	)	$	(7,911	)	$	(5,149	)	$	(13,060	)
Tax-exempt loans (3)		(38	)		(6	)		(44	)		(89	)		3			(86	)
Taxable securities		2,271			11			2,282			1,185			(60	)		1,125
Tax-exempt securities (3)		370			(540	)		(170	)		331			(244	)		87
Interest bearing cash and repurchase agreement		(175	)		61			(114	)		(554	)		92			(462	)
Other investments		69			148			217			40			79			119
Total interest income		1,123			(7,765	)		(6,642	)		(6,998	)		(5,279	)		(12,277	)
Increase (decrease) in interest expense (1)
Savings and interest bearing checking		52			(119	)		(67	)		(238	)		(461	)		(699	)
Time deposits		(101	)		(571	)		(672	)		(1,505	)		(1,003	)		(2,508	)
Other borrowings		(262	)		(862	)		(1,124	)		(375	)		(399	)		(774	)
Total interest expense		(311	)		(1,552	)		(1,863	)		(2,118	)		(1,863	)		(3,981	)
Net interest income	$	1,434		$	(6,213	)	$	(4,779	)	$	(4,880	)	$	(3,416	)	$	(8,296	)

(1) The change in interest due to changes in both balance and rate has been allocated to change due to balance and change due to rate in proportion to the relationship of the absolute dollar amounts of change in each.

(2) All domestic.

(3) Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 35%.

COMPOSITION OF AVERAGE INTEREST EARNING ASSETS AND INTEREST BEARING LIABILITIES   

	Year Ended December 31,
	2014			2013			2012
As a percent of average interest earning assets
Loans (1)		69.0	%		73.9	%		72.1	%
Other interest earning assets		31.0			26.1			27.9
Average interest earning assets		100.0	%		100.0	%		100.0	%
Savings and NOW		47.3	%		47.5	%		49.3	%
Time deposits		19.9			21.4			25.0
Brokered CDs		0.6			0.8			0.7
Other borrowings and long-term debt		3.0			3.4			3.4
Average interest bearing liabilities		70.8	%		73.1	%		78.4	%
Earning asset ratio		89.9	%		90.1	%		91.0	%
Free-funds ratio (2)		29.2			26.9			21.6

(1) All domestic.

(2) Average interest earning assets less average interest bearing liabilities.

Provision for loan losses. The provision for loan losses was a credit of $3.1 million and a credit of $4.0 million during 2014 and 2013, respectively, compared to an expense of $6.9 million during 2012. The provision reflects our assessment of the allowance for loan losses taking into consideration factors such as loan mix, levels of non- performing and classified loans and loan net charge-offs. While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer

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circumstances and other credit risk factors. The decrease in the provision for loan losses over the past two years primarily reflects reduced levels of loan defaults, non-performing loans and loan net charge-offs. See “Portfolio Loans and asset quality” for a discussion of the various components of the allowance for loan losses and their impact on the provision for loan losses.

Non-interest income. Non-interest income is a significant element in assessing our results of operations. We regard net gains on mortgage loans as a core recurring source of revenue but they are quite cyclical and thus can be volatile. We regard net gains (losses) on securities as a “non-operating” component of non-interest income.

Non-interest income totaled $38.8 million during 2014 compared to $44.8 million and $63.6 million during 2013 and 2012, respectively. Non-interest income for 2012 included a $5.4 million net gain on the Branch Sale.

NON-INTEREST INCOME   

	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Service charges on deposit accounts	$	13,446		$	14,076		$	17,887
Interchange income		8,164			7,362			9,188
Net gains (losses) on assets
Mortgage loans		5,628			10,022			17,323
Securities		329			395			1,226
Other than temporary impairment loss on securities:
Total impairment loss		(9	)		(26	)		(339	)
Loss recognized in other comprehensive loss		—			—			—
Net impairment loss recognized in earnings		(9	)		(26	)		(339	)
Mortgage loan servicing		791			3,806			166
Investment and insurance commissions		1,814			1,709			2,146
Bank owned life insurance		1,371			1,363			1,622
Title insurance fees		995			1,682			1,963
Gain on extinguishment of debt		500			—			—
(Increase) decrease in fair value of U.S. Treasury warrant		—			(1,025	)		(285	)
Net gain on branch sale		—			—			5,402
Other		5,746			5,465			7,266
Total non-interest income	$	38,775		$	44,829		$	63,565

Service charges on deposit accounts totaled $13.4 million during 2014, compared to $14.1 million and $17.9 million during 2013 and 2012, respectively. The decrease in such service charges in 2014 as compared to 2013 principally reflects a decline in non-sufficient funds (“NSF”) occurrences and related NSF fees. We believe the decline in NSF occurrences is primarily due to our customers managing their finances more closely in order to reduce NSF activity and avoid the associated fees. The decrease in 2013 as compared to 2012 principally results from the Branch Sale.

Interchange income totaled $8.2 million in 2014, compared to $7.4 million in 2013 and $9.2 million in 2012. The increase in interchange income in 2014 as compared to 2013 primarily results from a new Debit Brand Agreement with MasterCard (which replaces our former agreement with VISA) that we executed in January 2014. We began converting our debit card base to MasterCard in June 2014 and completed the conversion in September 2014. The decrease in interchange income in 2013 as compared to 2012 primarily results from the Branch Sale.

The Dodd-Frank Act includes a provision under which interchange fees for debit cards are set by the FRB under a restrictive “reasonable and proportional cost” per transaction standard. On June 29, 2011, the FRB issued final rules (that were effective October 1, 2011) on interchange fees for debit cards. Overall, these final rules established price caps for debit card interchange fees that were significantly lower than previous averages. However, debit card issuers

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with less than $10 billion in total assets (like us) are exempt from this rule. On a long-term basis, it is not clear how competitive market factors may impact debit card issuers who are exempt from the rule. However, we have been experiencing some reduction in per transaction interchange revenue due to certain transaction routing changes, particularly at large merchants.

We realized net gains of $5.6 million on mortgage loans during 2014, compared to $10.0 million and $17.3 million during 2013 and 2012 respectively. The volume of loans sold is dependent upon our ability to originate mortgage loans as well as the demand for fixed-rate obligations and other loans that we choose to not put into our portfolio because of our established interest-rate risk parameters. (See “Portfolio Loans and asset quality.”) Net gains on mortgage loans are also dependent upon economic and competitive factors as well as our ability to effectively manage exposure to changes in interest rates and thus can often be a volatile part of our overall revenues.

MORTGAGE LOAN ACTIVITY

	Year Ended December 31,
	2014			2013			2012
	(Dollars in thousands)
Mortgage loans originated	$	265,494		$	419,494		$	538,717
Mortgage loans sold		223,580			407,235			510,488
Mortgage loans sold with servicing rights released		37,476			57,099			83,296
Net gains on the sale of mortgage loans		5,628			10,022			17,323
Net gains as a percent of mortgage loans sold (“Loan Sales Margin”)		2.52	%		2.46	%		3.39	%
Fair value adjustments included in the Loan Sales Margin		0.01			(0.55	)		0.28

Net gains on mortgage loans declined in 2014 as compared to 2013 due primarily to decreases in mortgage loan originations and sales. The declines in mortgage loan originations and sales are due primarily to significantly lower mortgage loan refinance volumes. Net gains on mortgage loans in 2012 were elevated due primarily to low interest rates during that year that spurred heavy refinance volume. In addition, changes in the Loan Sales Margin (as described below) impacted the level of net gains.

Net gains as a percentage of mortgage loans sold (our “Loan Sales Margin”) are impacted by several factors including competition and the manner in which the loan is sold (with servicing rights retained or released). Our decision to sell or retain mortgage loan servicing rights is primarily influenced by an evaluation of the price being paid for mortgage loan servicing by outside third parties compared to our calculation of the economic value of retaining such servicing. Gains on mortgage loans are also impacted by recording fair value accounting adjustments. Excluding these fair value accounting adjustments, the Loan Sales Margin would have been 2.51% in 2014, 3.01% in 2013 and 3.11% in 2012. The lower Loan Sales Margin in 2014, as compared to 2013 and 2012, was principally due to less favorable competitive conditions including narrower primary-to-secondary market pricing spreads. In general, as overall industry-wide mortgage loan origination levels drop, pricing becomes more competitive. The changes in the fair value accounting adjustments are primarily due to changes in the amount of commitments to originate mortgage loans for sale during each period.

We generated securities net gains of $0.3 million in 2014, and $0.4 million and $1.2 million in 2013 and 2012, respectively. The 2014 securities net gains were primarily due to the sales of U.S. Government agency securities and municipal securities as well as fair value adjustments on a U.S. treasury short sale position that were partially offset by a $0.3 million decline in the fair value of trading securities. The 2013 securities net gains were due to a $0.4 million increase in the fair value of trading securities. The 2012 securities net gains were principally due to the sale of residential mortgage-backed securities.

We also recorded net impairment losses of $0.01 million, $0.03 million and $0.3 million in 2014, 2013 and 2012, respectively, related to other than temporary impairment of securities available for sale. These impairment charges related to private label residential mortgage-backed securities.

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GAINS AND LOSSES ON SECURITIES

	Year Ended December 31,
	Proceeds		Gains (1)		Losses (2)		Net
	(In thousands)
2014	$	14,633	$	624	$	304	$	320
2013		2,940		402		33		369
2012		37,176		1,226		339		887

(1) Gains in 2014 include $0.295 million relating to a U.S. Treasury short position and gains in 2013 and 2012 include $0.388 million and $0.033 million, respectively, related to an increase in the fair value of trading securities.

(2) Losses in 2014, 2013 and 2012 include $0.009 million, $0.026 million and $0.339 million, respectively of other than temporary impairment charges and 2014 includes $0.295 million related to a decrease in the fair value of trading securities.

Mortgage loan servicing generated net earnings of $0.8 million, $3.8 million and $0.2 million in 2014, 2013 and 2012, respectively. These yearly comparative variances are primarily due to changes in the valuation allowance on capitalized mortgage loan servicing rights and the level of amortization of this asset. The period end valuation allowance is based on the valuation of the mortgage loan servicing portfolio and the amortization is primarily impacted by prepayment activity. The changes in the valuation allowance are principally due to changes in the estimated future prepayment rates being used in the period end valuations.

CAPITALIZED MORTGAGE LOAN SERVICING RIGHTS

	2014			2013			2012
	(In thousands)
Balance at January 1,	$	13,710		$	11,013		$	11,229
Originated servicing rights capitalized		1,823			3,210			4,006
Amortization		(2,509	)		(3,745	)		(4,679	)
Change in valuation allowance		(918	)		3,232			457
Balance at December 31,	$	12,106		$	13,710		$	11,013
Valuation allowance at December 31,	$	3,773		$	2,855		$	6,087

At December 31, 2014, we were servicing approximately $1.66 billion in mortgage loans for others on which servicing rights have been capitalized. This servicing portfolio had a weighted average coupon rate of 4.44% and a weighted average service fee of approximately 25.3 basis points. Remaining capitalized mortgage loan servicing rights at December 31, 2014 totaled $12.1 million, representing approximately 73 basis points on the related amount of mortgage loans serviced for others. The capitalized mortgage loan servicing rights had an estimated fair market value of $12.6 million at December 31, 2014.

Investment and insurance commissions totaled $1.8 million, $1.7 million and $2.1 million in 2014, 2013 and 2012, respectively. These changes primarily reflect the sales volumes of such products. The decline in sales volumes compared to 2012 is primarily due to the impact of the Branch Sale.

We earned $1.4 million, $1.4 million and $1.6 million in 2014, 2013 and 2012, respectively, on our separate account bank owned life insurance principally as a result of increases in the cash surrender value. Our separate account is primarily invested in agency mortgage-backed securities and managed by PIMCO. The crediting rate (on which the earnings are based) reflects the performance of the separate account. The total cash surrender value of our bank owned life insurance was $53.6 million and $52.3 million at December 31, 2014 and 2013, respectively.

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Title insurance fees totaled $1.0 million in 2014, $1.7 million in 2013 and $2.0 million in 2012. The fluctuation in title insurance fees is primarily a function of the level of mortgage loans that we originated.

On December 1, 2014, we entered into a Securities Purchase Agreement with EJF Capital LLC. Under the terms of this agreement, we purchased 5,000 shares of trust preferred securities (liquidation amount of $1,000 per security) that were issued by IBC Capital Finance IV, a special purpose entity whose common stock we own. The trust preferred securities have been retired along with certain related common stock issued by IBC Capital Finance IV and subordinated debentures issued by us. We paid $4.5 million for the trust preferred securities that had a par value of $5.0 million, as well as $0.033 million in accrued and unpaid interest. We recorded a gain on the extinguishment of debt of $0.5 million in the fourth quarter of 2014. Additionally, we expect this transaction to improve our net interest income by approximately $0.143 million annually.

Changes in the fair value of the Amended Warrant issued to the UST in April 2010 had been recorded as a component of non-interest income. Up until April 16, 2013, the fair value of this Amended Warrant was included in accrued expenses and other liabilities in our Condensed Consolidated Statements of Financial Condition. The provision in the Amended Warrant which caused it to be accounted for as a derivative and included in accrued expenses and other liabilities expired on April 16, 2013. As a result, the Amended Warrant was reclassified into shareholders’ equity on that date at its then fair value (which was approximately $1.5 million). (See “Liquidity and capital resources.”) We purchased (and subsequently cancelled) the Amended Warrant from the UST on August 30, 2013.

Two significant inputs in the valuation model for the Amended Warrant were our common stock price and the probability of triggering anti-dilution provisions in this instrument related to certain equity transactions. The fair value of the Amended Warrant increased by $1.0 million in 2013 (through April 16) and by $0.3 million in 2012, respectively, due primarily to a rise in our common stock price during the relevant periods.

In the fourth quarter of 2012, we recorded a $5.4 million gain on the Branch Sale as described above.

Other non-interest income totaled $5.7 million, $5.5 million and $7.3 million in 2014, 2013 and 2012, respectively. The increase in 2014 compared to 2013 is primarily due to the change in results of our private mortgage insurance (“PMI”) reinsurance captive ($0.1 million of income in 2014 as compared to a $0.2 million loss in 2013). Our PMI reinsurance captive (which we originally formed in 2002) was placed into run-off during 2013. The decrease in other non-interest income in 2013 compared to 2012 is in part due to declines in certain revenue categories (ATM fees, check charges, money order fees, and safe deposit box rental) totaling $0.8 million primarily as a result of the Branch Sale. In addition, in 2013, Other Real Estate (“ORE”) rental income declined $0.3 million (due primarily to a reduction in the number of properties owned), gain on sale of fixed assets declined $0.2 million (2012 included a gain on the sale of some branch facilities) and we incurred a net loss in our PMI reinsurance captive of $0.2 million (compared to net income of $0.2 million in 2012).

Non-interest expense. Non-interest expense is an important component of our results of operations. We strive to efficiently manage our cost structure and management is focused on a number of initiatives to reduce and contain non-interest expenses.

Non-interest expense totaled $90.0 million in 2014, $104.1 million in 2013, and $116.7 million in 2012. Most categories of non-interest expense have declined since 2012 due to the Branch Sale and the closing or consolidation of 15 other branch locations, as well as our cost reduction initiatives. In addition, credit related expenses (loan and collection expenses, net (gains) losses on ORE and repossessed assets, the provision for loss reimbursement on sold loans, and vehicle service contract counterparty contingencies expense) declined significantly in 2014 as compared to the prior two years.

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NON-INTEREST EXPENSE

	Year ended December 31,
	2014			2013			2012
	(In thousands)
Compensation	$	33,833		$	33,515		$	39,002
Performance-based compensation		5,154			6,507			5,672
Payroll taxes and employee benefits		8,234			7,902			9,309
Compensation and employee benefits		47,221			47,924			53,983
Occupancy, net		8,912			8,845			10,104
Data processing		7,532			8,019			8,009
Loan and collection		5,392			6,886			9,965
Furniture, fixtures and equipment		4,137			4,293			4,635
Communications		2,926			2,919			3,677
Advertising		2,193			2,433			2,494
Legal and professional		1,969			2,459			4,175
FDIC deposit insurance		1,567			2,435			3,306
Interchange expense		1,291			1,645			1,799
Supplies		993			1,028			1,281
Credit card and bank service fees		946			1,263			2,091
Amortization of intangible assets		536			812			1,065
Vehicle service contract counterparty contingencies		199			4,837			1,629
(Costs) recoveries related to unfunded lending commitments		31			(90	)		(688	)
Write down of property and equipment held for sale		—			—			860
Provision for loss reimbursement on sold loans		(466	)		2,152			1,112
Net (gains) losses on other real estate and repossessed assets		(500	)		1,237			2,854
Other		5,072			5,021			4,384
Total non-interest expense	$	89,951		$	104,118		$	116,735

Compensation expense, which is primarily salaries, totaled $33.8 million, $33.5 million and $39.0 million in 2014, 2013 and 2012, respectively. The increase in 2014 as compared to 2013 is due to a $0.6 million decline in the amount of compensation that was deferred as direct loan origination costs principally resulting from the reduced levels of new mortgage loan volume in 2014. The decline in 2013 as compared to 2012 was due principally to staffing decreases primarily related to the Branch Sale and the closing or consolidation of certain locations during 2012, as well as our cost reduction initiatives. 2014 average total full time equivalent employee levels have fallen by 3.8% compared to 2013 and by 20.9% compared to 2012.

Performance-based compensation expense totaled $5.2 million, $6.5 million and $5.7 million in 2014, 2013 and 2012, respectively. The decrease in 2014 as compared to 2013 is primarily related to a decline in compensation of $0.7 million under our Management Incentive Compensation Plan based on our actual 2014 financial performance relative to plan targets, a decline in loan production related compensation of $0.3 million due to reduced levels of new mortgage loan volume, and a decline of $0.3 million in the estimated employee stock ownership plan (“ESOP”) contribution. During 2014, we decreased our ESOP contribution from 3% to 2% of eligible compensation and increased our 401(k) plan match from 1% to 2% of eligible compensation. The increase in 2013 as compared to 2012 is primarily due to higher incentive compensation based on our actual 2013 financial performance relative to plan targets.

We maintain performance-based compensation plans. In addition to commissions and cash incentive awards, such plans include an ESOP and a long-term equity based incentive plan. The amount of expense recognized in 2014, 2013 and 2012 for share-based awards under our long-term equity based incentive plan was $1.0 million, $0.9 million and $0.3 million, respectively. In 2014, there were new grants of restricted stock and performance share awards. In 2013 and 2012, there were new grants of restricted stock units, stock options and salary stock.

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Payroll taxes and employee benefits expense totaled $8.2 million, $7.9 million and $9.3 million in 2014, 2013 and 2012, respectively. The increase in 2014 as compared to 2013 is primarily due to a $0.2 million increase in health insurance costs and a $0.1 million increase in the 401(k) plan match. The decrease in 2013 as compared to 2012 was primarily due to lower payroll taxes and health insurance costs due to the staffing decreases described above.

Occupancy expenses, net, totaled $8.9 million, $8.8 million and $10.1 million in 2014, 2013 and 2012, respectively. The slight increase in 2014 as compared to 2013 is primarily due to higher snow removal costs associated with a harsh Michigan winter in 2014. The decline in 2013 as compared to 2012 was primarily due to a reduction in the number of branch offices resulting from the Branch Sale and the closing or consolidation of certain locations during 2012.

Data processing expenses totaled $7.5 million, $8.0 million, and $8.0 million in 2014, 2013 and 2012, respectively. The decline in 2014 as compared to 2013 and 2012 is due primarily to the impact of a new seven-year core data processing contract that we executed in March 2014. Under the terms of the new contract, we have reduced core data processing and interchange costs by approximately $1 million annually.

Loan and collection expenses primarily reflect costs related to the management and collection of non-performing loans and other problem credits. These expenses have declined significantly during the past two years primarily due to decreases in non-performing loans, new loan defaults and commercial watch credits. 2014, 2013 and 2012 also included $0.5 million, $0.7 million and $0.5 million, respectively, of collection related costs at Mepco Finance Corporation (“Mepco”) primarily associated with the acquisition and management of collateral that related to receivables from vehicle service contract counterparties.

Furniture, fixtures and equipment expense declined by $0.2 million in 2014 from 2013 and declined by $0.3 million in 2013 from 2012. These declines are due primarily to our cost reduction initiatives, the Branch Sale, and the closing or consolidation of certain branch offices. A portion of these expense reductions were offset by additional depreciation expense related to the replacement of substantially all of our ATMs during 2013 to meet applicable Americans with Disabilities Act requirements.

Communications expense was relatively unchanged in 2014 and declined by $0.8 million in 2013, respectively, compared to each prior year. The 2013 decline primarily reflects the impact of the Branch Sale and branch closings or consolidations that occurred in 2012, decreases in mailing costs at Mepco associated with a reduction in the volume of payment plan receivables, and a decrease in telephone and data line expenses due to the renegotiation of some supplier contracts.

Advertising expense declined by $0.2 million in 2014 and was relatively unchanged in 2013, respectively, compared to each prior year. The 2014 decline was due to a reduction in direct mail costs.

Legal and professional fees totaled $2.0 million, $2.5 million, and $4.2 million in 2014, 2013 and 2012, respectively. The substantial reduction in these expenses during 2013 as compared to 2012 was primarily due to lower costs at Mepco because of reduced litigation activities, and 2012 also included approximately $1.0 million of professional fees at the Bank associated with a consulting firm that was engaged to assist us in identifying and implementing revenue enhancement, expense reduction and process improvement initiatives.

FDIC deposit insurance expense totaled $1.6 million, $2.4 million, and $3.3 million in 2014, 2013 and 2012, respectively. The decline in 2014 as compared to 2013 reflects a full-year reduction in the Bank’s risk based premium rate due to our improved financial metrics. The decline in 2013 as compared to 2012 principally reflects the decrease in total assets due primarily to the Branch Sale as well as a reduction in the Bank’s risk based premium rate in the fourth quarter of 2013 due to our improved financial metrics.

Interchange expense primarily represents fees paid to our core information systems processor and debit card licensor related to debit card and ATM transactions. The decrease in this expense in 2014 as compared to 2013 is primarily due to the impact of our new seven-year core data processing contract that we executed in March 2014. The decrease in this expense in 2013 as compared to 2012 was due primarily to the Branch Sale that resulted in reduced debit card and ATM transaction volumes.

Supplies expense has declined over the past two years consistent with our cost reduction initiatives and the smaller size of the organization resulting from the Branch Sale and the closing or consolidation of branches.

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The decline in credit card and bank service fees is primarily due to a decrease in the number of payment plans being administered by Mepco. In addition, in the third quarter of 2012, Mepco entered into a new contract with a different vendor for credit card processing services that has a lower fee structure.

The amortization of intangible assets primarily relates to branch acquisitions and the amortization of the deposit customer relationship value, including core deposit value, which was acquired in connection with those acquisitions. We had remaining unamortized intangible assets of $2.6 million and $3.2 million at December 31, 2014 and 2013, respectively. See note #7 to the Consolidated Financial Statements for a schedule of future amortization of intangible assets.

We record estimated incurred losses associated with Mepco’s vehicle service contract payment plan receivables in our provision for loan losses and establish a related allowance for loan losses. (See “Portfolio Loans and asset quality.”) We record estimated incurred losses associated with defaults by Mepco’s counterparties as “vehicle service contract counterparty contingencies expense,” which is included in non-interest expenses in our Consolidated Statements of Operations. Such expenses totaled $0.2 million, $4.8 million and $1.6 million in 2014, 2013 and 2012, respectively. The higher levels of expense in 2013 and 2012 were due to write-downs of or additional reserves on vehicle service contract counterparty receivables. We reached settlements in certain litigation to collect these receivables. Given the costs and uncertainty of continued litigation, we determined it was in our best interest to resolve these matters.

Our estimate of probable incurred losses from vehicle service contract counterparty contingencies 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, our evaluation of collateral that may be available to recover funds due from our counterparties, and our assessment of the amount that may ultimately be collected from counterparties in connection with their contractual obligations. We apply a rigorous process, based upon historical payment plan activity and past experience, to estimate probable incurred losses and quantify the necessary reserves for our vehicle service contract counterparty contingencies, but there can be no assurance that our modeling process will successfully identify all such losses. We believe our assumptions regarding the collection of vehicle service contract counterparty receivables are reasonable, and we based them on our good faith judgments using data currently available. We also believe the current amount of reserves we have established and the vehicle service contract counterparty contingencies expense that we have recorded are appropriate given our estimate of probable incurred losses at the applicable Statement of Financial Condition date. However, because of the uncertainty surrounding the numerous and complex assumptions made, actual losses could exceed the charges we have taken to date.

Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected. These amounts represent funds due to Mepco from its counterparties for cancelled service contracts. At December 31, 2014, 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 contingency expense, totaled $7.2 million. This compares to a balance of $7.7 million at December 31, 2013.

We face continued risk with respect to certain counterparties defaulting in their contractual obligations to Mepco which could result in additional charges for losses if these counterparties go out of business. Further, Mepco has incurred elevated legal and collection expenses, in general, in dealing with defaults by its counterparties in recent years. In particular, Mepco has had to initiate litigation against certain counterparties to collect amounts owed to Mepco as a result of those parties’ dispute of their contractual obligations. Net payment plan receivables declined to $40.0 million (or approximately 1.8% of total assets) at December 31, 2014 from $60.6 million (or approximately 2.7% of total assets) at December 31, 2013, due primarily to a planned reduction in such balances. This decline in payment plan receivables has adversely impacted our net interest income. In addition, see note #11 to the Consolidated Financial Statements included within this report for more information about Mepco’s business, certain risks and difficulties we currently face with respect to that business, and reserves we have established (through vehicle service contract counterparty contingencies expense) for losses related to the business.

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The changes in costs (recoveries) related to unfunded lending commitments are primarily impacted by changes in the amounts of such commitments to originate portfolio loans as well as (for commercial loan commitments) the grade (pursuant to our loan rating system) of such commitments.

The provision for loss reimbursement on sold loans was a credit of $0.5 million in 2014 and an expense of $2.2 million and $1.1 million in 2013 and 2012, respectively, and represents our estimate of incurred losses related to mortgage loans that we have sold to investors (primarily Fannie Mae and Freddie Mac). The credit provision in 2014 is due primarily to the rescission of certain loss reimbursement requests by Freddie Mac that had been pending and accrued for at the end of 2013. Since we sell mortgage loans without recourse, loss reimbursements only occur in those instances where we have breached a representation or warranty or other contractual requirement related to the loan sale. Historically, loss reimbursements on mortgage loans sold without recourse were rare. In 2009, we had only one actual loss reimbursement (for $0.06 million). Prior to 2009, we had years in which we incurred no such loss reimbursements. However, our loss reimbursements increased from 2010 to 2013 as Fannie Mae and Freddie Mac, in particular, were doing more reviews of mortgage loans where they had incurred or expected to incur a loss and were more aggressive in pursuing loss reimbursements from the sellers of such mortgage loans. In November 2013, we executed a Resolution Agreement with Fannie Mae to resolve our existing and future repurchase and make whole obligations (collectively “Repurchase Obligations”) related to mortgage loans originated between January 1, 2000 and December 31, 2008 and delivered to them by January 31, 2009. Under the terms of the Resolution Agreement, we paid Fannie Mae approximately $1.5 million in November 2013 with respect to the Repurchase Obligations. We believe that it was in our best interest to execute the Resolution Agreement in order to bring finality to the loss reimbursement exposure with Fannie Mae for these years and reduce the resources spent on individual file reviews and defending loss reimbursement requests. In addition, we were notified by Freddie Mac in January 2014 that they had completed their review of mortgage loans that we originated between January 1, 2000 and December 31, 2008 and delivered to them. The reserve for loss reimbursements on sold mortgage loans totaled $0.7 million and $1.4 million at December 31, 2014 and 2013, respectively. This reserve is included in accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. This reserve is based on an analysis of mortgage loans that we have sold which are further categorized by delinquency status, loan to value, and year of origination. The calculation includes factors such as probability of default, probability of loss reimbursement (breach of representation or warranty) and estimated loss severity. The reserve levels at December 31, 2014 and 2013 also reflect the resolution of the mortgage loan origination years of 2000 to 2008 with Fannie Mae and Freddie Mac. We believe that the amounts that we have accrued for incurred losses on sold mortgage loans are appropriate given our analyses. However, future losses could exceed our current estimate.

Net (gains) losses on ORE and repossessed assets represent the gain or loss on the sale or additional write downs on these assets subsequent to the transfer of the asset from our loan portfolio. This transfer occurs at the time we acquire the collateral that secured the loan. At the time of acquisition, the other real estate or repossessed asset is valued at fair value, less estimated costs to sell, which becomes the new basis for the asset. Any write-downs at the time of acquisition are charged to the allowance for loan losses. The net gain of $0.5 million in 2014 (as compared to net losses of $1.2 million and $2.9 million recorded in 2013 and 2012, respectively) primarily reflects greater stability in real estate prices during the last twelve months, with many markets even experiencing price increases.

During the third quarter of 2012, we adopted a plan to close or consolidate nine branch offices. Seven of the nine branch offices were closed in November 2012. The remaining two branch offices were closed during 2013. We recorded a $0.9 million write-down of property and equipment in the third quarter of 2012 based on the expected disposal price of these branch offices. As of yearend 2014, eight of the nine branch offices had been sold (or otherwise disposed).

Other non-interest expenses totaled $5.1 million in 2014, compared to $5.0 million in 2013, and $4.4 million in 2012. The lower level of these expenses in 2012, as compared to 2014 and 2013, principally reflects the first quarter 2012 reversal of a previously established accrual at Mepco for $1.4 million that was determined to no longer be necessary. This was partially offset by $0.4 million of expense during 2012 related to the settlement of various legal matters. Also in 2014 and 2013, certain expense categories (express mail and freight and insurance) declined primarily due to the Branch Sale and branch closings and consolidations that occurred in 2012.

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We are subject to an industry-specific tax based on net capital (the Michigan Business Tax [“MBT”]). The MBT is recorded in other non-interest expenses. Our MBT expense was $0.3 million, $0.2 million and $0.2 million in 2014, 2013 and 2012, respectively.

Income tax expense (benefit). We recorded an income tax expense of $7.2 million in 2014 as compared to an income tax benefit of $54.9 in 2013. We recorded no income tax expense or benefit in 2012. Prior to the second quarter of 2013, we had established a deferred tax asset valuation allowance against all of our net deferred tax assets.

We assess whether a valuation allowance on our deferred tax assets is necessary each quarter. Reversing or reducing the valuation allowance requires us to conclude that the realization of the deferred tax assets is “more likely than not.” The ultimate realization of this asset is primarily based on generating future income. As of June 30, 2013, we concluded that the realization of substantially all of our deferred tax assets was more likely than not. That conclusion was primarily based upon the following factors:

• Achieving a sixth consecutive quarter of profitability;

• A forecast of future profitability that supported the conclusion that the realization of the deferred tax assets was more likely than not; and

• A forecast that future asset quality continued to be stable to improving and that other factors did not exist that could cause a significant adverse impact on future profitability.

The reversal of substantially all of the valuation allowance on our deferred tax assets resulted in our recording an income tax benefit of $57.6 million in the second quarter of 2013. In addition, during the second quarter of 2013, we recorded $1.4 million of income tax expense to clear from accumulated other comprehensive loss (“AOCL”) the disproportionate tax effects from cash flow hedges. These disproportionate tax effects had been charged to other comprehensive income and credited to income tax expense due to our valuation allowance on deferred tax assets as more fully discussed in Note #13 to the Consolidated Financial Statements.

We have also concluded subsequent to June 30, 2013, that the realization of substantially all of our deferred tax assets continues to be more likely than not for substantially the same reasons as enumerated above, including six additional profitable quarters since the second quarter of 2013.

The valuation allowance against our deferred tax assets totaled approximately $1.0 million and $1.1 million at December 31, 2014 and 2013, respectively. The portion of the valuation allowance on our deferred tax assets that we did not reverse in 2013 primarily relates to state income taxes at our Mepco segment. In this instance, we determined that the future realization of these particular deferred tax assets was not more likely than not. This conclusion was primarily based on the uncertainty of Mepco’s future earnings attributable to particular states (given the various apportionment criteria) and the significant reduction in the size of Mepco’s business over the past several years.

Because of our net operating loss and tax credit carryforwards, we are still subject to the rules of Section 382 of the Internal Revenue Code of 1986, as amended. An ownership change, as defined by these rules, would negatively affect our ability to utilize our net operating loss carryforwards and other deferred tax assets in the future. If such an ownership change were to occur, we may suffer higher-than-anticipated tax expense, and consequently lower net income and cash flow, in those future years. Although we cannot control market purchases or sales of our common stock, we have in place a Tax Benefits Preservation Plan to dissuade any movement in our stock that would trigger an ownership change, and we limited the size of our common stock offering in 2013 to avoid triggering any Section 382 limitations.

Our actual federal income tax expense (benefit) is different than the amount computed by applying our statutory federal income tax rate to our pre-tax income (loss) primarily due to tax-exempt interest income and tax-exempt income from the increase in the cash surrender value on life insurance and also, for 2013 and 2012, the impact of changes in the deferred tax asset valuation allowance. In addition, 2014 income tax expense was reduced by a credit of approximately $0.7 million due to a true-up of the amount of unrecognized tax benefits relative to certain net operating loss carryforwards and the reversal of the valuation allowance on our capital loss carryforward that we now believe is more likely than not to be realized due to the generation of certain capital gains during 2014.

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The income tax benefit in the Consolidated Statements of Operations also includes income taxes in a variety of other states due primarily to Mepco’s operations. The amounts of such state income taxes were an expense (benefit) of $0.005 million, $(0.2) million and zero in 2014, 2013 and 2012, respectively.

Business segments. Our reportable segments are based upon legal entities. We currently have two reportable segments: Independent Bank and Mepco. These business segments are also differentiated based on the products and services provided. We evaluate performance based principally on net income (loss) of the respective reportable segments.

The following table presents net income (loss) by business segment.

BUSINESS SEGMENTS

	Year ended December 31,
	2014			2013			2012
	(In thousands)
Independent Bank	$	18,550		$	74,313		$	28,260
Mepco		366			(1,801	)		1,710
Other (1)		(712	)		5,092			(3,677	)
Elimination		(183	)		(95	)		(95	)
Net income	$	18,021		$	77,509		$	26,198

(1) Includes amounts relating to our parent company and certain insignificant operations.

The substantial change in the Bank’s results in 2014 compared to 2013 is primarily due to the change in income tax expense (benefit) as 2013 included the reversal of the valuation allowance on deferred tax assets resulting in the recording of a significant income tax benefit that year. In addition, declines in net interest income and non-interest income in 2014 were only partially offset by a decline in non-interest expense. The significant improvement in the Bank’s results in 2013 compared to 2012 is primarily due to the aforementioned reversal of the valuation allowance on deferred tax assets, a lower provision for loan losses and a decrease in non-interest expenses partially offset by a decline in net interest income and non-interest income. The Bank’s 2012 results also included a $5.4 million net gain on the Branch Sale. (See “Net interest income,” “Provision for loan losses,” “Non-interest income,” “Non-interest expense,” “Income tax expense (benefit),” and “Portfolio Loans and asset quality.”)

The changes in Mepco’s results are due primarily to changes in the level of vehicle service contract counterparty contingencies expense (see “Non-interest expense”) as well as changes in its level of net interest income. All of Mepco’s funding is provided by its parent company (Independent Bank) through an intercompany loan (that is eliminated in consolidation). The rate on this intercompany loan is based on the Prime Rate (currently 3.25%). Mepco might not be able to obtain such favorable funding costs on its own in the open market. Mepco’s 2014 results also included a $0.3 million gain on the sale of ORE and repossessed assets compared to a loss of $0.5 million in 2013.

“Other” is essentially our parent company only results. The change between the various periods is primarily due to the change in the amount of income tax benefit recorded in each year, as 2013 included the reversal of the valuation allowance on deferred tax assets resulting in recording a significant income tax benefit at the parent company. (See “Income tax expense (benefit).”) Interest expense at the parent company has declined in 2014 and 2013 as compared to 2012 due to the reduction in the balance of subordinated debentures. “Other” in 2014 also includes a $0.5 million gain on the extinguishment of debt. In addition, 2013 and 2012 included $1.0 million and $0.3 million, respectively, of increases (which reduce income before income taxes) in the fair value of the Amended Warrant issued to the UST. (See “Non-interest income.”)

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FINANCIAL CONDITION

Summary. Our total assets increased to $2.25 billion at December 31, 2014, compared to $2.21 billion at December 31, 2013, primarily due to increases in securities available for sale and loans, which were partially offset by a decline in cash and cash equivalents. Loans, excluding loans held for sale (“Portfolio Loans”), totaled $1.41 billion at December 31, 2014, an increase of 2.6% from $1.37 billion at December 31, 2013. (See “Portfolio Loans and asset quality”).

Deposits totaled $1.92 billion at December 31, 2014, compared to $1.88 billion at December 31, 2013. The increase in deposits during 2014 is primarily due to growth in checking and savings account balances.

Securities. We maintain diversified securities portfolios, which include obligations of U.S. government-sponsored agencies, securities issued by states and political subdivisions, residential and commercial mortgage-backed securities, asset-backed securities, corporate securities and trust preferred securities. We regularly evaluate asset/liability management needs and attempt to maintain a portfolio structure that provides sufficient liquidity and cash flow. Except as discussed below, we believe that the unrealized losses on securities available for sale are temporary in nature and are expected to be recovered within a reasonable time period. We believe that we have the ability to hold securities with unrealized losses to maturity or until such time as the unrealized losses reverse. (See “Asset/liability management.”)

Securities available for sale increased during 2014 due primarily to the purchase of U.S. government-sponsored agency securities, mortgage-backed securities, and corporate securities. The securities were purchased to utilize cash and cash equivalents as well as to utilize funds generated from the increase in total deposits. (See “Deposits” and “Liquidity and capital resources.”)

Our portfolio of available-for-sale securities is reviewed quarterly for impairment in value. In performing this review, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet these recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss.

We recorded net impairment losses related to other than temporary impairment on securities available for sale of $0.009 million, $0.026 million, and $0.3 million in 2014, 2013, and 2012, respectively. These net other than temporary impairment charges are all related to private label residential mortgage-backed securities. In these instances, we believe that the decline in value is directly due to matters other than changes in interest rates, are not expected to be recovered within a reasonable timeframe based upon available information and are therefore other than temporary in nature. (See “Non-interest income” and “Asset/liability management.”)

SECURITIES

			Unrealized
	Amortized Cost		Gains		Losses		Fair Value
	(In thousands)
Securities available for sale
December 31, 2014	$	532,930	$	3,317	$	3,069	$	533,178
December 31, 2013		467,406		2,048		6,973		462,481

Portfolio Loans and asset quality. In addition to the communities served by our Bank branch network, our principal lending markets also include nearby communities and metropolitan areas. Subject to established underwriting criteria, we also may participate in commercial lending transactions with certain non-affiliated banks.

The senior management and board of directors of our Bank retain authority and responsibility for credit decisions and we have adopted uniform underwriting standards. Our loan committee structure and the loan review process attempt to provide requisite controls and promote compliance with such established underwriting standards.

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However, there can be no assurance that our lending procedures and the use of uniform underwriting standards will prevent us from incurring significant credit losses in our lending activities.

We generally retain loans that may be profitably funded within established risk parameters. (See “Asset/liability management.”) As a result, we may hold adjustable-rate mortgage loans as Portfolio Loans, while 15- and 30-year, fixed-rate obligations are generally sold to mitigate exposure to changes in interest rates. (See “Non-interest income.”)

LOAN PORTFOLIO COMPOSITION

	2014		2013
	(In thousands)
Real estate (1)
Residential first mortgages	$	411,423	$	431,812
Residential home equity and other junior mortgages		108,162		113,703
Construction and land development		54,644		50,290
Other (2)		447,837		440,348
Commercial		186,875		146,954
Consumer		154,591		126,443
Payment plan receivables		40,001		60,638
Agricultural		6,429		4,382
Total loans	$	1,409,962	$	1,374,570

(1) Includes both residential and non-residential commercial loans secured by real estate.

(2) Includes loans secured by multi-family residential and non-farm, non-residential property.

Future growth of overall Portfolio Loans is dependent upon a number of competitive and economic factors. Further, it is our desire to reduce or restrict certain loan categories for risk management reasons.

NON-PERFORMING ASSETS (1)

	December 31,
	2014			2013			2012
	(Dollars in thousands)
Non-accrual loans	$	15,231		$	17,905		$	32,929
Loans 90 days or more past due and still accruing interest		7			—			7
Total non-performing loans		15,238			17,905			32,936
Other real estate and repossessed assets		6,454			18,282			26,133
Total non-performing assets	$	21,692		$	36,187		$	59,069
As a percent of Portfolio Loans
Non-performing loans		1.08	%		1.30	%		2.32	%
Allowance for loan losses		1.84			2.35			3.12
Non-performing assets to total assets		0.96			1.64			2.92
Allowance for loan losses as a percent of non-performing loans		170.56			180.54			134.43

(1) Excludes loans classified as “troubled debt restructured” that are performing and vehicle service contract counterparty receivables, net.

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TROUBLED DEBT RESTRUCTURINGS

	December 31, 2014
	Commercial		Retail			Total
	(In thousands)
Performing TDR’s	$	29,475	$	73,496		$	102,971
Non-performing TDR's (1)		1,978		5,225	(2)		7,203
Total	$	31,453	$	78,721		$	110,174

	December 31, 2013
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	35,134	$	79,753		$	114,887
Non-performing TDR's (1)		4,347		4,988	(2)		9,335
Total	$	39,481	$	84,741		$	124,222

(1) Included in non-performing assets table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

Non-performing loans declined by $2.7 million, or 14.9%, in 2014 and by $15.0 million, or 45.6%, in 2013 due principally to declines in non-performing commercial loans and residential mortgage loans. These declines primarily reflect reduced levels of new loan defaults as well as loan charge-offs, pay-offs, negotiated transactions, and the migration of loans into ORE. In general, improving economic conditions in our market areas, as well as our collection and resolution efforts, have resulted in a downward trend in non-performing loans. However, we are still experiencing some loan defaults, particularly related to commercial loans secured by income-producing property and mortgage loans secured by resort/vacation property.

Non-performing loans exclude performing loans that are classified as troubled debt restructurings (“TDRs”). Performing TDRs totaled $103.0 million, or 7.3% of total Portfolio Loans, and $114.9 million, or 8.4% of total Portfolio Loans, at December 31, 2014 and 2013, respectively. The decrease in the amount of performing TDRs during 2014 reflects declines in both commercial loan and retail loan TDRs.

ORE and repossessed assets totaled $6.5 million at December 31, 2014, compared to $18.3 million at December 31, 2013. This decrease is primarily the result of sales of ORE being in excess of the migration of non-performing loans secured by real estate into ORE as the foreclosure process is completed. In particular, the significant decline in ORE during 2014 primarily reflects the sale of four large properties during the last six months of the year.

We will place a loan that is 90 days or more past due on non-accrual, unless we believe the loan is both well secured and in the process of collection. Accordingly, we have determined that the collection of the accrued and unpaid interest on any loans that are 90 days or more past due and still accruing interest is probable.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

	December 31,
	2014		2013		2012
	(In thousands)
Specific allocations	$	13,233	$	15,158	$	21,009
Other adversely rated commercial loans		761		1,358		2,419
Historical loss allocations		6,773		9,849		12,943
Additional allocations based on subjective factors		5,223		5,960		7,904
Total	$	25,990	$	32,325	$	44,275

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Some loans will not be repaid in full. Therefore, an allowance for loan losses (“AFLL”) is maintained at a level which represents our best estimate of losses incurred. In determining the AFLL and the related provision for loan losses, we consider four principal elements: (i) specific allocations based upon probable losses identified during the review of the loan portfolio, (ii) allocations established for other adversely rated commercial loans, (iii) allocations based principally on historical loan loss experience, and (iv) additional allowances based on subjective factors, including local and general economic business factors and trends, portfolio concentrations and changes in the size and/or the general terms of the loan portfolios.

The first AFLL element (specific allocations) reflects our estimate of probable incurred losses based upon our systematic review of specific loans. These estimates are based upon a number of factors, such as payment history, financial condition of the borrower, discounted collateral exposure and discounted cash flow analysis. Impaired commercial, mortgage and installment loans are allocated allowance amounts using this first element. The second AFLL element (other adversely rated commercial loans) reflects the application of our commercial loan rating system. This rating system is similar to those employed by state and federal banking regulators. Commercial loans that are rated below a certain predetermined classification are assigned a loss allocation factor for each loan classification category that is based upon a historical analysis of both the probability of default and the expected loss rate (“loss given default”). The lower the rating assigned to a loan or category, the greater the allocation percentage that is applied. The third AFLL element (historical loss allocations) is determined by assigning allocations to higher rated (“non-watch credit”) commercial loans using a probability of default and loss given default similar to the second AFLL element and to homogenous mortgage and installment loan groups based upon borrower credit score and portfolio segment. For homogenous mortgage and installment loans, a probability of default for each homogenous pool is calculated by way of credit score migration. Historical loss data for each homogenous pool coupled with the associated probability of default is utilized to calculate an expected loss allocation rate. The fourth AFLL element (additional allocations based on subjective factors) is based on factors that cannot be associated with a specific credit or loan category and reflects our attempt to ensure that the overall allowance for loan losses appropriately reflects a margin for the imprecision necessarily inherent in the estimates of expected credit losses. We consider a number of subjective factors when determining this fourth element, including local and general economic business factors and trends, portfolio concentrations and changes in the size, mix and the general terms of the overall loan portfolio.

Increases in the AFLL are recorded by a provision for loan losses charged to expense. Although we periodically allocate portions of the AFLL to specific loans and loan portfolios, the entire AFLL is available for incurred losses. We generally charge-off commercial, homogenous residential mortgage and installment loans and payment plan receivables when they are deemed uncollectible or reach a predetermined number of days past due based on product, industry practice and other factors. Collection efforts may continue and recoveries may occur after a loan is charged against the allowance.

While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors.

Mepco’s allowance for losses is determined in a similar manner as discussed above, and primarily takes into account historical loss experience and other subjective factors deemed relevant to Mepco’s payment plan business. Estimated incurred losses associated with Mepco’s outstanding vehicle service contract payment plans are included in the provision for loan losses. Mepco recorded credits of $0.038 million, $0.1 million and $0.008 million for its provision for loan losses in 2014, 2013 and 2012, respectively, due primarily to significant declines in the balance of payment plan receivables ($20.6 million, or 34.0%, $24.1 million, or 28.4%, and $30.3 million, or 26.4%, in 2014, 2013 and 2012, respectively). Mepco’s allowance for loan losses totaled $0.072 million and $0.1 million at December 31, 2014 and 2013, respectively. Mepco has established procedures for vehicle service contract payment plan servicing, administration and collections, including the timely cancellation of the vehicle service contract, in order to protect our position in the event of payment default or voluntary cancellation by the customer. Mepco has also established procedures to attempt to prevent and detect fraud since the payment plan origination activities and initial customer contacts are done entirely through unrelated third parties (vehicle service contract administrators and sellers or automobile dealerships). However, there can be no assurance these risk management policies and

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procedures will prevent us from incurring significant credit or fraud related losses in this business segment. The estimated incurred losses described in this paragraph should be distinguished from the possible losses we may incur from counterparties failing to pay their obligations to Mepco. (See note #11 to the Consolidated Financial Statements included within this report.)

The AFLL decreased $6.3 million to $26.0 million at December 31, 2014 from $32.3 million at December 31, 2013 and was equal to 1.84% of total Portfolio Loans at December 31, 2014 compared to 2.35% at December 31, 2013. All four components of the allowance for loan losses outlined above declined during 2014. The allowance for loan losses related to specific loans decreased $1.9 million in 2014 due primarily to a $12.5 million, or 10.0%, decline in the balance of individually impaired loans as well as charge-offs. The allowance for loan losses related to other adversely rated commercial loans decreased $0.6 million in 2014 primarily due to lower expected loss given default rates. The total balance of such loans included in this component also decreased to $30.6 million at December 31, 2014, from $39.4 million at December 31, 2013. In addition, the mix improved, with the balance of loans with more adverse ratings declining to $12.7 million at December 31, 2014, from $18.1 million at December 31, 2013. The allowance for loan losses related to historical losses decreased $3.1 million during 2014 due principally to the use of a lower estimated probability of default for homogenous mortgage and installment loans (resulting from lower loan net charge-offs and reduced levels of new defaults on loans). The allowance for loan losses related to subjective factors decreased $0.7 million during 2014 primarily due to the improvement of various economic indicators used in computing this portion of the allowance.

All four of the components of the AFLL outlined above also declined in 2013 as compared to 2012. The AFLL related to specific loans decreased $5.9 million in 2013 primarily because of a decline in loss allocations on individual commercial and mortgage loans due to a decline in the balance of such loans as well as lower loss given default rates. The AFLL related to other adversely rated commercial loans decreased $1.1 million in 2013 due to a decrease in the balance of such loans included in this component ($39.4 million at December 31, 2013, as compared to $52.8 million at December 31, 2012) and due to lower loss given default rates. The AFLL related to historical losses decreased $3.1 million in 2013 due primarily to lower loss given default rates. The lower loss given default rates in 2013 reflect both a reduced level of loan defaults and a reduced loss severity. The AFLL related to subjective factors decreased $1.9 million in 2013 primarily due to the improvement of various economic indicators used in computing this portion of the allowance as well as an overall reduction in total Portfolio Loans.

ALLOWANCE FOR LOSSES ON LOANS AND UNFUNDED COMMITMENTS

	2014					2013						2012
	Loan Losses			Unfunded Commitments		Loan Losses			Unfunded Commitments			Loan Losses			Unfunded Commitments
	(Dollars in thousands)
Balance at beginning of year	$	32,325		$	508	$	44,275		$	598		$	58,884		$	1,286
Additions (deductions)
Provision for loan losses		(3,136	)		—		(3,988	)		—			6,887			—
Recoveries credited to allowance		7,420			—		8,270			—			6,522			—
Loans charged against the allowance		(10,619	)		—		(16,232	)		—			(27,408	)		—
Reclassification to loans held for sale		—			—		—			—			(610	)		—
Additions (deductions) included in non-interest expense		—			31		—			(90	)		—			(688	)
Balance at end of year	$	25,990		$	539	$	32,325		$	508		$	44,275		$	598
Net loans charged against the allowance to average Portfolio Loans		0.23	%				0.58	%					1.39	%

The ratio of loan net charge-offs to average loans was 0.23% in 2014 (or $3.2 million) compared to 0.58% in 2013 (or $8.0 million) and 1.39% in 2012 (or $20.9 million). The decreases in loan net charge-offs occurred across all loan categories. These decreases primarily reflect reduced levels of non-performing loans and improvement in collateral liquidation values.

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Deposits and borrowings. Historically, the loyalty of our customer base has allowed us to price deposits competitively, contributing to a net interest margin that compares favorably to our peers. However, we still face a significant amount of competition for deposits within many of the markets served by our branch network, which limits our ability to materially increase deposits without adversely impacting the weighted-average cost of core deposits.

To attract new core deposits, we have implemented various account acquisition strategies as well as branch staff sales training. Account acquisition initiatives have historically generated increases in customer relationships. Over the past several years, we have also expanded our treasury management products and services for commercial businesses and municipalities or other governmental units and have also increased our sales calling efforts in order to attract additional deposit relationships from these sectors. We view long-term core deposit growth as an important objective. Core deposits generally provide a more stable and lower cost source of funds than alternative sources such as short-term borrowings. (See “Liquidity and capital resources.”)

Deposits totaled $1.92 billion and $1.88 billion at December 31, 2014 and 2013, respectively. The $39.5 million increase in deposits in 2014 is due to growth in checking and savings deposit account balances. Reciprocal deposits totaled $53.7 million and $83.5 million at December 31, 2014 and 2013, respectively. These deposits represent demand, money market and time deposits from our customers that have been placed through Promontory Interfinancial Network’s Insured Cash Sweep^® service and Certificate of Deposit Account Registry Service^®. These services allow our customers to access multi-million dollar FDIC deposit insurance on deposit balances greater than the standard FDIC insurance maximum.

We cannot be sure that we will be able to maintain our current level of core deposits. In particular, those deposits that are uninsured may be susceptible to outflow. At December 31, 2014, we had approximately $372.6 million of uninsured deposits. A reduction in core deposits would likely increase our need to rely on wholesale funding sources.

We have also implemented strategies that incorporate using federal funds purchased, other borrowings and Brokered CDs to fund a portion of our interest-earning assets. The use of such alternate sources of funds supplements our core deposits and is also an integral part of our asset/liability management efforts.

Other borrowings, comprised almost entirely of advances from the Federal Home Loan Bank (the “FHLB”), totaled $12.5 million and $17.2 million at December 31, 2014 and 2013, respectively.

As described above, we utilize wholesale funding, including FHLB borrowings and Brokered CDs to augment our core deposits and fund a portion of our assets. At December 31, 2014, our use of such wholesale funding sources (including reciprocal deposits) amounted to approximately $77.4 million, or 4.0% of total funding (deposits and total borrowings, excluding subordinated debentures). Because wholesale funding sources are affected by general market conditions, the availability of such funding may be dependent on the confidence these sources have in our financial condition and operations. The continued availability to us of these funding sources is not certain, and Brokered CDs may be difficult for us to retain or replace at attractive rates as they mature. Our liquidity may 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. Our financial performance could also be affected if we are unable to maintain our access to funding sources 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 could be adversely affected.

We historically employed derivative financial instruments to manage our exposure to changes in interest rates. We discontinued the active use of derivative financial instruments during 2008. In June 2013, we terminated our last remaining interest-rate swap, which had an aggregate notional amount of $10.0 million. We have begun to again utilize interest-rate swaps in 2014, relating to our commercial lending activities. During 2014, we entered into $3.3 million (aggregate notional amount) of interest rate swaps with commercial loan customers, which were offset with interest rate swaps that the Bank entered into with a broker-dealer. We recorded $0.070 million of fee income related to these transactions during 2014.

Liquidity and capital resources. Liquidity risk is the risk of being unable to timely meet obligations as they come due at a reasonable funding cost or without incurring unacceptable losses. Our liquidity management involves the measurement and monitoring of a variety of sources and uses of funds. Our Consolidated Statements of Cash Flows categorize these sources and uses into operating, investing and financing activities. We primarily focus our liquidity

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management on maintaining adequate levels of liquid assets (primarily funds on deposit with the FRB and certain investment securities) as well as developing access to a variety of borrowing sources to supplement our deposit gathering activities and provide funds for purchasing investment securities or originating Portfolio Loans as well as to be able to respond to unforeseen liquidity needs.

Our primary sources of funds include our deposit base, secured advances from the FHLB, a federal funds purchased borrowing facility with another commercial bank, and access to the capital markets (for Brokered CDs).

At December 31, 2014, we had $239.9 million of time deposits that mature in the next 12 months. Historically, a majority of these maturing time deposits are renewed by our customers. Additionally, $1.53 billion of our deposits at December 31, 2014, were in account types from which the customer could withdraw the funds on demand. Changes in the balances of deposits that can be withdrawn upon demand are usually predictable and the total balances of these accounts have generally grown (excluding the Branch Sale) or have been stable over time as a result of our marketing and promotional activities. However, there can be no assurance that historical patterns of renewing time deposits or overall growth or stability in deposits will continue in the future.

We have developed contingency funding plans that stress test our liquidity needs that may arise from certain events such as an adverse change in our financial metrics (for example, credit quality or regulatory capital ratios). Our liquidity management also includes periodic monitoring that measures quick assets (defined generally as short-term assets with maturities less than 30 days and loans held for sale) to total assets, short-term liability dependence and basic surplus (defined as quick assets compared to short-term liabilities). Policy limits have been established for our various liquidity measurements and are monitored on a monthly basis. In addition, we also prepare cash flow forecasts that include a variety of different scenarios.

We believe that we currently have adequate liquidity at our Bank because of our cash and cash equivalents, our portfolio of securities available for sale, our access to secured advances from the FHLB, our ability to issue Brokered CDs and our improved financial metrics.

We also believe that the available cash on hand at the parent company (including time deposits) of approximately $17.7 million as of December 31, 2014 provides sufficient liquidity resources at the parent company to meet operating expenses, to make interest payments on the subordinated debentures and to pay a cash dividend on our common stock for the foreseeable future.

In the normal course of business, we enter into certain contractual obligations. Such obligations include requirements to make future payments on debt and lease arrangements, contractual commitments for capital expenditures, and service contracts. The table below summarizes our significant contractual obligations at December 31, 2014.

CONTRACTUAL COMMITMENTS (1)

	1 Year or Less		1-3 Years		3-5 Years		After 5 Years		Total
	(In thousands)
Time deposit maturities	$	239,914	$	110,692	$	38,449	$	1,072	$	390,127
Other borrowings		521		4,108		5,185		2,656		12,470
Subordinated debentures		—		—		—		35,569		35,569
Operating lease obligations		1,254		1,453		1,213		783		4,703
Purchase obligations (2)		1,250		2,500		2,500		1,563		7,813
Total	$	242,939	$	118,753	$	47,347	$	41,643	$	450,682

(1) Excludes approximately $0.7 million of accrued tax and interest relative to uncertain tax benefits due to the high degree of uncertainty as to when, or if, those amounts would be paid.

(2) Includes contracts with a minimum annual payment of $1.0 million and are not cancellable within one year.

Effective management of capital resources is critical to our mission to create value for our shareholders. In addition to common stock, our capital structure also currently includes cumulative trust preferred securities.

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CAPITALIZATION

	December 31,
	2014			2013
	(In thousands)
Subordinated debentures	$	35,569		$	40,723
Amount not qualifying as regulatory capital		(1,069	)		(1,223	)
Amount qualifying as regulatory capital		34,500			39,500
Shareholders’ equity
Common stock		352,462			351,173
Accumulated deficit		(96,455	)		(110,347	)
Accumulated other comprehensive loss		(5,636	)		(9,245	)
Total shareholders’ equity		250,371			231,581
Total capitalization	$	284,871		$	271,081

We currently have three special purpose entities that originally issued $39.5 million of cumulative trust preferred securities. These special purpose entities issued common securities and provided cash to our parent company that in turn issued subordinated debentures to these special purpose entities equal to the trust preferred securities and common securities. The subordinated debentures represent the sole asset of the special purpose entities. The common securities and subordinated debentures are included in our Consolidated Statements of Financial Condition.

On December 1, 2014, we purchased 5,000 shares of trust preferred securities (liquidation amount of $1,000 per security, representing a total of $5.0 million) that were issued by IBC Capital Finance IV. The trust preferred securities have been retired along with certain related common stock issued by IBC Capital Finance IV and subordinated debentures issued by us.

On October 11, 2013, we redeemed all ($9.2 million in aggregate liquidation amount) of the outstanding trust preferred securities remaining issued by IBC Capital Finance II and liquidated this entity shortly thereafter. The trust preferred securities issued by IBC Capital Finance II had an interest rate of 8.25%.

At December 31, 2014 and 2013, we had $34.5 million and $39.5 million, respectively, of cumulative trust preferred securities remaining outstanding.

The FRB 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) are 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 can be included in Tier 2 capital, subject to restrictions. At the parent company, all of these securities qualified as Tier 1 capital at December 31, 2014 and 2013. Although the Dodd-Frank Act further limited Tier 1 treatment for trust preferred securities, those new limits did not apply to our outstanding trust preferred securities. Further, the New Capital Rules grandfathered the treatment of our trust preferred securities as qualifying regulatory capital.

On August 30, 2013, we redeemed the Series B Preferred Stock and the Amended Warrant from the UST and exited TARP by making an $81.0 million payment to the UST. See note #12 to the Consolidated Financial Statements included within this report for additional information about the Series B Preferred Stock and the Amended Warrant.

Common shareholders’ equity increased to $250.4 million at December 31, 2014 from $231.6 million at December 31, 2013 due primarily to our net income in 2014 as well as a decline in our accumulated other comprehensive loss. Our tangible common equity (“TCE”) totaled $247.7 million and $228.4 million, respectively, at those same dates. Our ratio of TCE to tangible assets was 11.03% and 10.35% at December 31, 2014 and 2013, respectively.

Because the Bank currently has negative “undivided profits” (i.e. a retained deficit) of $31.1 million at December 31, 2014, under Michigan banking regulations, the Bank is not currently permitted to pay a dividend. We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarter of 2014, we requested regulatory approval for a $15.0 million return of capital from the Bank to the parent company. This return of capital request was approved by our banking regulators on March 28, 2014, and the Bank returned

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$15.0 million of capital to the parent company on April 9, 2014. During January of 2015, we requested regulatory approval for an additional $18.5 million return of capital from the Bank to the parent company. This return of capital request was approved by our banking regulators on February 13, 2015, and the Bank returned $18.5 million of capital to the parent company on February 17, 2015. Also see note #20 to the Consolidated Financial Statements included within this report.

In May 2014, we resumed a quarterly cash dividend on our common stock of six cents per share. This was our first dividend payment since the third quarter of 2009. We paid subsequent six cent per share dividends in August and November 2014.

As of December 31, 2014 and 2013, our Bank (and holding company) continued to meet the requirements to be considered “well-capitalized” under federal regulatory standards (also see note #20 to the Consolidated Financial Statements included within this report).

Asset/liability management. Interest-rate risk is created by differences in the cash flow characteristics of our assets and liabilities. Options embedded in certain financial instruments, including caps on adjustable-rate loans as well as borrowers’ rights to prepay fixed-rate loans, also create interest-rate risk.

Our asset/liability management efforts identify and evaluate opportunities to structure our statement of financial condition in a manner that is consistent with our mission to maintain profitable financial leverage within established risk parameters. We evaluate various opportunities and alternate asset/liability management strategies carefully and consider the likely impact on our risk profile as well as the anticipated contribution to earnings. The marginal cost of funds is a principal consideration in the implementation of our asset/liability management strategies, but such evaluations further consider interest-rate and liquidity risk as well as other pertinent factors. We have established parameters for interest-rate risk. We regularly monitor our interest-rate risk and report at least quarterly to our board of directors.

We employ simulation analyses to monitor our interest-rate risk profile and evaluate potential changes in our net interest income and market value of portfolio equity that result from changes in interest rates. The purpose of these simulations is to identify sources of interest-rate risk inherent in our Statement of Financial Condition. The simulations do not anticipate any actions that we might initiate in response to changes in interest rates and, accordingly, the simulations do not provide a reliable forecast of anticipated results. The simulations are predicated on immediate, permanent and parallel shifts in interest rates and generally assume that current loan and deposit pricing relationships remain constant. The simulations further incorporate assumptions relating to changes in customer behavior, including changes in prepayment rates on certain assets and liabilities.

CHANGES IN MARKET VALUE OF PORTFOLIO EQUITY AND NET INTEREST INCOME

Change in Interest Rates	Market Value of Portfolio Equity (1)		Percent Change			Net Interest Income (2)		Percent Change
	(Dollars in thousands)
December 31, 2014
200 basis point rise	$	421,700		9.56	%	$	75,600		6.03	%
100 basis point rise		406,800		5.69			73,600		3.23
Base-rate scenario		384,900		—			71,300		—
100 basis point decline		355,000		(7.77	)		69,200		(2.95	)
December 31, 2013
200 basis point rise	$	412,200		8.33	%	$	77,800		5.56	%
100 basis point rise		398,200		4.65			75,300		2.17
Base-rate scenario		380,500		—			73,700		—
100 basis point decline		356,400		(6.33	)		72,500		(1.63	)

(1) Simulation analyses calculate the change in the net present value of our assets and liabilities, including debt and related financial derivative instruments, under parallel shifts in interest rates by discounting the estimated future cash flows using a market-based discount rate. Cash flow estimates incorporate anticipated changes in prepayment speeds and other embedded options.

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(2) Simulation analyses calculate the change in net interest income under immediate parallel shifts in interest rates over the next twelve months, based upon a static Statement of Financial Condition, which includes debt and related financial derivative instruments, and do not consider loan fees.

Accounting Standards Update. See note #1 to the Consolidated Financial Statements included elsewhere in this report for details on recently issued accounting pronouncements and their impact on our financial statements.

FAIR VALUATION OF FINANCIAL INSTRUMENTS

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) topic 820 - “Fair Value Measurements and Disclosures” (“FASB ASC topic 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

We utilize fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures. FASB ASC topic 820 differentiates between those assets and liabilities required to be carried at fair value at every reporting period (“recurring”) and those assets and liabilities that are only required to be adjusted to fair value under certain circumstances (“nonrecurring”). Trading securities, securities available-for-sale, loans held for sale, and derivatives are financial instruments recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other financial assets on a nonrecurring basis, such as loans held for investment, capitalized mortgage loan servicing rights and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. See note #21 to the Consolidated Financial Statements for a complete discussion on our use of fair valuation of financial instruments and the related measurement techniques.

LITIGATION MATTERS

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 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. At this time, we estimate the maximum 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, 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.

CRITICAL ACCOUNTING POLICIES

Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. Accounting and reporting policies for other than temporary impairment of investment securities, the allowance for loan losses, originated mortgage loan servicing rights, vehicle service contract payment plan counterparty contingencies, and income taxes are deemed critical since they involve the use of estimates and require significant management judgments. Application of assumptions different than those that we have used could result in material changes in our financial position or results of operations.

We are required to assess our investment securities for “other than temporary impairment” on a periodic basis. The determination of other than temporary impairment for an investment security requires judgment as to the cause of the impairment, the likelihood of recovery and the projected timing of the recovery. On January 12, 2009, the

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FASB issued ASC 325-40-65-1 (formerly Staff Position No. EITF 99-20-1 — “Amendments to the Impairment Guidance of EITF Issue No. 99-20.”) This standard has been applicable to our financial statements since December 31, 2008. In particular, this standard struck the language that required the use of market participant assumptions about future cash flows from previous guidance. This change now permits the use of reasonable management judgment about whether it is probable that all previously projected cash flows will not be collected in determining other than temporary impairment. Our assessment process resulted in recording net other than temporary impairment charges on securities of $0.009 million, $0.03 million, and $0.3 million in 2014, 2013 and 2012, respectively. We believe that our assumptions and judgments in assessing other than temporary impairment for our investment securities are reasonable and conform to general industry practices. Prices for investment securities are largely provided by a pricing service. These prices consider benchmark yields, reported trades, broker / dealer quotes and issuer spreads. Furthermore, prices for mortgage-backed securities consider: TBA prices, monthly payment information and collateral performance. At December 31, 2014, the estimated fair value of our investment securities classified as available for sale exceeded their cost basis at that same date by $0.2 million. At December 31, 2013 the estimated fair value of our investment securities classified as available for sale was less than their cost basis at that same date by $4.9 million. These amounts are included in the accumulated other comprehensive loss section of shareholders’ equity.

Our methodology for determining the allowance and related provision for loan losses is described above in “Portfolio Loans and asset quality.” In particular, this area of accounting requires a significant amount of judgment because a multitude of factors can influence the ultimate collection of a loan or other type of credit. It is extremely difficult to precisely measure the amount of probable incurred losses in our loan portfolio. We use a rigorous process to attempt to accurately quantify the necessary allowance and related provision for loan losses, but there can be no assurance that our modeling process will successfully identify all of the probable incurred losses in our loan portfolio. As a result, we could record future provisions for loan losses that may be significantly different than the levels that we recorded in prior periods.

At December 31, 2014 and 2013, we had approximately $12.1 million and $13.7 million, respectively, of mortgage loan servicing rights capitalized on our Consolidated Statements of Financial Condition. There are several critical assumptions involved in establishing the value of this asset including estimated future prepayment speeds on the underlying mortgage loans, the interest rate used to discount the net cash flows from the mortgage loan servicing, the estimated amount of ancillary income that will be received in the future (such as late fees) and the estimated cost to service the mortgage loans. We believe the assumptions that we utilize in our valuation are reasonable based upon accepted industry practices for valuing mortgage loan servicing rights and represent neither the most conservative or aggressive assumptions. We recorded an increase in the valuation allowance on capitalized mortgage loan servicing rights of $0.9 million in 2014 compared to decreases of $3.2 million and $0.5 million in 2013 and 2012, respectively.

Mepco purchases payment plans from companies (which we refer to as Mepco’s “counterparties”) that provide vehicle service contracts and similar products 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 in vehicle service contract counterparty contingencies expense, included in non-interest expenses, for estimated defaults by these counterparties in their obligations to Mepco. These losses (which totaled $0.2 million, $4.8 million and $1.6 million in 2014, 2013 and 2012, respectively) are titled “vehicle service contract counterparty contingencies” in our Consolidated Statements of Operations. This area of accounting 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, our evaluation of collateral that may be available to recover funds due from our counterparties, and our assessment of the amount that may ultimately be collected from counterparties in connection with their contractual obligations. We apply a rigorous process, based upon historical payment plan activity and past experience, to estimate probable incurred losses and quantify the necessary reserves for our vehicle service contract counterparty

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contingencies, but there can be no assurance that our modeling process will successfully identify all such losses. As a result, we could record future losses associated with vehicle service contract counterparty contingencies that may be materially different than the levels that we recorded in prior periods.

Our accounting for income taxes involves the valuation of deferred tax assets and liabilities primarily associated with net operating loss carryforwards and differences in the timing of the recognition of revenues and expenses for financial reporting and tax purposes. At December 31, 2014 we had gross deferred tax assets of $54.6 million, gross deferred tax liabilities of $4.9 million and a valuation allowance of $1.0 million. This compares to gross deferred tax assets of $64.1 million, gross deferred tax liabilities of $5.4 million and a valuation allowance of $1.1 million at December 31, 2013. We are required to assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In 2008, we first established a valuation allowance against substantially all of our net deferred tax assets due to a number of factors, including our then declining operating performance, overall negative trends in the banking industry and our expectation that our operating results would continue to be negatively affected by the overall economic environment. During 2012, 2011, 2010 and 2009, we concluded that we needed to continue to carry a valuation allowance based on similar factors. However, at June 30, 2013, we concluded that the realization of substantially all of our deferred tax assets was more likely than not. Subsequent to June 30, 2013, we concluded that the realization of substantially all of our deferred tax assets continues to be more likely than not [see “Income tax expense (benefit).”]. We will continue to evaluate the realization of our net deferred tax assets in future periods. In making such judgments, significant weight will be given to evidence that can be objectively verified. We will analyze changes in near-term market conditions and consider both positive and negative evidence as well as other factors which may impact future operating results in making any decision to adjust our valuation allowance. In addition, changes in tax laws and changes in tax rates as well as our future level of earnings can impact the ultimate realization of our net deferred tax asset as well as the valuation allowance that we have established.

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MANAGEMENT’S ANNUAL REPORT ON 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, 2014. In making this assessment, we used the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, management has concluded that as of December 31, 2014, 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, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our independent registered public accounting firm has issued an audit report on our assessment of the Company’s internal control over financial reporting. Their report immediately follows our report.

William B. Kessel President and Chief Executive Officer	Robert N. Shuster Executive Vice President and Chief Financial Officer

Independent Bank Corporation
March 6, 2015

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Independent Bank Corporation
Ionia, Michigan

We have audited the accompanying consolidated statements of financial condition of Independent Bank Corporation as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014. We also have audited Independent Bank Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Independent Bank Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Independent Bank Corporation as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Independent Bank Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

Grand Rapids, Michigan
March 6, 2015

36

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2014			2013
	(In thousands, except share amounts)
ASSETS
Cash and due from banks	$	48,326		$	48,156
Interest bearing deposits		25,690			70,925
Cash and Cash Equivalents		74,016			119,081
Interest bearing deposits - time		13,561			17,999
Trading securities		203			498
Securities available for sale		533,178			462,481
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		19,919			23,419
Loans held for sale, carried at fair value		23,662			20,390
Loans
Commercial		690,955			635,234
Mortgage		472,628			486,633
Installment		206,378			192,065
Payment plan receivables		40,001			60,638
Total Loans		1,409,962			1,374,570
Allowance for loan losses		(25,990	)		(32,325	)
Net Loans		1,383,972			1,342,245
Other real estate and repossessed assets		6,454			18,282
Property and equipment, net		45,948			48,594
Bank-owned life insurance		53,625			52,253
Deferred tax assets, net		48,632			57,550
Capitalized mortgage loan servicing rights		12,106			13,710
Vehicle service contract counterparty receivables, net		7,237			7,716
Other intangibles		2,627			3,163
Accrued income and other assets		23,590			22,562
Total Assets	$	2,248,730		$	2,209,943
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	576,882		$	518,658
Savings and interest-bearing checking		943,734			910,352
Reciprocal		53,668			83,527
Retail time		338,720			358,800
Brokered time		11,298			13,469
Total Deposits		1,924,302			1,884,806
Other borrowings		12,470			17,188
Subordinated debentures		35,569			40,723
Vehicle service contract counterparty payables		1,977			4,089
Accrued expenses and other liabilities		24,041			31,556
Total Liabilities		1,998,359			1,978,362
Commitments and contingent liabilities
Shareholders’ Equity
Preferred stock, no par value, 200,000 shares authorized; none issued or outstanding		—			—
Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 22,957,323 shares at December 31, 2014 and 22,819,136 shares at December 31, 2013		352,462			351,173
Accumulated deficit		(96,455	)		(110,347	)
Accumulated other comprehensive loss		(5,636	)		(9,245	)
Total Shareholders’ Equity		250,371			231,581
Total Liabilities and Shareholders’ Equity	$	2,248,730		$	2,209,943

See accompanying notes to consolidated financial statements

37

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2014			2013			2012
	(In thousands, except per share amounts)
INTEREST INCOME
Interest and fees on loans	$	71,823		$	80,664		$	93,780
Interest on securities
Taxable		6,341			4,059			2,934
Tax-exempt		991			1,101			1,044
Other investments		1,400			1,297			1,640
Total Interest Income		80,555			87,121			99,398
INTEREST EXPENSE
Deposits		4,967			5,706			8,913
Other borrowings		2,332			3,456			4,230
Total Interest Expense		7,299			9,162			13,143
Net Interest Income		73,256			77,959			86,255
Provision for loan losses		(3,136	)		(3,988	)		6,887
Net Interest Income After Provision for Loan Losses		76,392			81,947			79,368
NON-INTEREST INCOME
Service charges on deposit accounts		13,446			14,076			17,887
Interchange income		8,164			7,362			9,188
Net gains (losses) on assets
Mortgage loans		5,628			10,022			17,323
Securities		329			395			1,226
Other than temporary impairment loss on securities
Total impairment loss		(9	)		(26	)		(339	)
Loss recognized in other comprehensive income (loss)		—			—			—
Net impairment loss recognized in earnings		(9	)		(26	)		(339	)
Mortgage loan servicing		791			3,806			166
Title insurance fees		995			1,682			1,963
Gain on extinguishment of debt		500			—			—
Increase in fair value of U.S. Treasury warrant		—			(1,025	)		(285	)
Net gain on branch sale		—			—			5,402
Other		8,931			8,537			11,034
Total Non-interest Income		38,775			44,829			63,565
NON-INTEREST EXPENSE
Compensation and employee benefits		47,221			47,924			53,983
Occupancy, net		8,912			8,845			10,104
Data processing		7,532			8,019			8,009
Loan and collection		5,392			6,886			9,965
Furniture, fixtures and equipment		4,137			4,293			4,635
Communications		2,926			2,919			3,677
Advertising		2,193			2,433			2,494
Legal and professional		1,969			2,459			4,175
FDIC deposit insurance		1,567			2,435			3,306
Interchange expense		1,291			1,645			1,799
Credit card and bank service fees		946			1,263			2,091
Vehicle service contract counterparty contingencies		199			4,837			1,629
Costs (recoveries) related to unfunded lending commitments		31			(90	)		(688	)
Write-down of property and equipment held for sale		—			—			860
Provision for loss reimbursement on sold loans		(466	)		2,152			1,112
Net (gains) losses on other real estate and repossessed assets		(500	)		1,237			2,854
Other		6,601			6,861			6,730
Total Non-interest Expense		89,951			104,118			116,735
Income Before Income Tax		25,216			22,658			26,198
Income tax expense (benefit)		7,195			(54,851	)		—
Net Income	$	18,021		$	77,509		$	26,198
Preferred stock dividends and discount accretion		—			(3,001	)		(4,347	)
Preferred stock discount		—			7,554			—
Net Income Applicable to Common Stock	$	18,021		$	82,062		$	21,851
Net income per common share
Basic	$	0.79		$	5.87		$	2.51
Diluted	$	0.77		$	3.55		$	0.80
Cash dividends declared per common share	$	0.18		$	—		$	—

See accompanying notes to consolidated financial statements

38

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Net income	$	18,021		$	77,509		$	26,198
Other comprehensive income (loss), before tax
Available for sale securities
Unrealized gain (loss) arising during period		5,095			(4,698	)		2,757
Change in unrealized losses for which a portion of other than temporary impairment has been recognized in earnings		398			270			1,160
Reclassification adjustment for other than temporary impairment included in earnings		9			26			339
Reclassification adjustments for (gains) included in earnings		(329	)		(7	)		(1,193	)
Unrealized gains (losses) recognized in other comprehensive income (loss) on available for sale securities		5,173			(4,409	)		3,063
Income tax expense (benefit)		1,811			(1,544	)		—
Unrealized gains (losses) recognized in other comprehensive income (loss) on available for sale securities, net of tax		3,362			(2,865	)		3,063
Derivative instruments
Unrealized loss arising during period		—			(37	)		(127	)
Reclassification adjustment for expense recognized in earnings		—			208			491
Reclassification adjustment for accretion on settled derivatives		380			189			436
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments		380			360			800
Income tax expense (benefit)		133			(1,318	)		—
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments, net of tax		247			1,678			800
Other comprehensive income (loss)		3,609			(1,187	)		3,863
Comprehensive income	$	21,630		$	76,322		$	30,061

See accompanying notes to consolidated financial statements

39

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Preferred Stock			Common Stock			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	(In thousands)
Balances at January 1, 2012	$	79,857		$	248,950		$	(214,259	)	$	(11,921	)	$	102,627
Net income for 2012		—			—			26,198			—			26,198
Dividends on Preferred, 5%		4,128			—			(4,128	)		—			—
Issuance of 454,842 shares of common stock		—			1,418			—			—			1,418
Share based compensation (issuance of 147,364 shares of common stock)		—			869			—			—			869
Accretion of preferred stock discount		219			—			(219	)		—			—
Other comprehensive income		—			—			—			3,863			3,863
Balances at December 31, 2012		84,204			251,237			(192,408	)		(8,058	)		134,975
Net income for 2013		—			—			77,509			—			77,509
Dividends on Preferred, 5%		2,856			—			(2,856	)		—			—
Issuance of 13,604,963 shares of common stock		—			99,075			—			—			99,075
Share based compensation (issuance of 175,789 shares of common stock)		—			1,238			—			—			1,238
Share based compensation withholding obligation (withholding of 55,348 shares of common stock)		—			(513	)		—			—			(513	)
Accretion of preferred stock discount		146			—			(146	)		—			—
Common stock warrant		—			1,484			—			—			1,484
Redemption of convertible preferred stock and common stock warrant		(87,206	)		(1,348	)		7,554			—			(81,000	)
Other comprehensive loss		—			—			—			(1,187	)		(1,187	)
Balances at December 31, 2013		—			351,173			(110,347	)		(9,245	)		231,581
Net income for 2014		—			—			18,021			—			18,021
Cash dividends declared, $.18 per share		—			—			(4,129	)		—			(4,129	)
Issuance of 30,828 shares of common stock		—			97			—			—			97
Share based compensation (issuance of 107,359 shares of common stock)		—			1,192			—			—			1,192
Other comprehensive income		—			—			—			3,609			3,609
Balances at December 31, 2014	$	—		$	352,462		$	(96,455	)	$	(5,636	)	$	250,371

See accompanying notes to consolidated financial statements

40

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Net Income	$	18,021		$	77,509		$	26,198
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
Proceeds from sales of loans held for sale		228,906			415,442			527,371
Disbursements for loans held for sale		(226,550	)		(378,323	)		(512,734	)
Provision for loan losses		(3,136	)		(3,988	)		6,887
Deferred federal income tax expense (benefit)		8,918			(57,550	)		—
Deferred loan fees		(753	)		17			(392	)
Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities and loans		3,014			(2,197	)		(4,718	)
Write-down of property and equipment held for sale		—			—			860
Net gains on mortgage loans		(5,628	)		(10,022	)		(17,323	)
Net gains on securities		(329	)		(395	)		(1,226	)
Securities impairment recognized in earnings		9			26			339
Net (gains) losses on other real estate and repossessed assets		(500	)		1,237			2,854
Vehicle service contract counterparty contingencies		199			4,837			1,629
Share based compensation		1,192			1,238			869
Gain on extinguishment of debt		(500	)		—			—
Net gain on branch sale		—			—			(5,402	)
(Increase) decrease in accrued income and other assets		(2,579	)		7,747			(2,425	)
Increase (decrease) in accrued expenses and other liabilities		(7,213	)		(3,508	)		6,606
Total Adjustments		(4,950	)		(25,439	)		3,195
Net Cash From Operating Activities		13,071			52,070			29,393
CASH FLOW USED IN INVESTING ACTIVITIES
Proceeds from the sale of securities available for sale		14,633			2,940			37,176
Proceeds from the maturity of securities available for sale		58,220			29,866			83,190
Principal payments received on securities available for sale		84,487			43,702			23,765
Purchases of securities available for sale		(224,946	)		(332,060	)		(192,726	)
Purchases of interest bearing deposits		(2,401	)		(20,260	)		—
Proceeds from the maturity of interest bearing deposits		6,719			2,142			—
Redemption of Federal Home Loan Bank and Federal Reserve Bank stock		3,814			—			334
Purchase of Federal Reserve Bank stock		(314	)		(2,581	)		—
Net (increase) decrease in portfolio loans (loans originated, net of principal payments)		(37,195	)		33,192			90,952
Net proceeds from sale of watch, substandard and non-performing loans		—			6,721			—
Net cash from (paid for) branch sale		—			3,292			(339,995	)
Proceeds from the collection of vehicle service contract counterparty receivables		385			6,751			7,413
Proceeds from the sale of other real estate and repossessed assets		18,471			13,546			19,331
Proceeds from the sale of property and equipment		309			52			1,958
Capital expenditures		(4,298	)		(8,371	)		(5,293	)
Net Cash Used in Investing Activities		(82,116	)		(221,068	)		(273,895	)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in total deposits		39,496			105,269			96,428
Net increase (decrease) in other borrowings		(1	)		4			—
Proceeds from Federal Home Loan Bank advances		100			100			12,000
Payments of Federal Home Loan Bank advances		(4,817	)		(541	)		(27,762	)
Net increase (decrease) in vehicle service contract counterparty payables		(2,112	)		(3,636	)		1,092
Dividends paid		(4,129	)		—			—
Proceeds from issuance of common stock		97			98,066			1,418
Redemption of subordinated debt		(4,654	)		(9,452	)		—
Redemption of convertible preferred stock and common stock warrant		—			(81,000	)		—
Share based compensation withholding obligation		—			(513	)		—
Net Cash From Financing Activities		23,980			108,297			83,176
Net Decrease in Cash and Cash Equivalents		(45,065	)		(60,701	)		(161,326	)
Cash and Cash Equivalents at Beginning of Year		119,081			179,782			341,108
Cash and Cash Equivalents at End of Year	$	74,016		$	119,081		$	179,782
Cash paid during the year for
Interest	$	7,365		$	15,914		$	11,052
Income taxes		216			43			292
Transfers to other real estate and repossessed assets		6,143			6,932			14,276
Transfer of payment plan receivables to vehicle service contract counterparty receivables		180			792			1,469
Purchase of securities available for sale and interest bearing deposits - time not yet settled		265			4,146			—
Transfers to loans held for sale		—			—			47,954
Transfers to property and equipment held for sale		—			—			13,033
Transfers to deposits held for sale		—			—			403,089

See accompanying notes to consolidated financial statements

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 − ACCOUNTING POLICIES

The accounting and reporting policies and practices of Independent Bank Corporation and subsidiaries conform to accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. Our critical accounting policies include the assessment for other than temporary impairment (“OTTI”) on investment securities, the determination of the allowance for loan losses, the determination of vehicle service contract counterparty contingencies, the valuation of originated mortgage loan servicing rights and the valuation of deferred tax assets. We are required to make material estimates and assumptions that are particularly susceptible to changes in the near term as we prepare the consolidated financial statements and report amounts for each of these items. Actual results may vary from these estimates.

Our subsidiary Independent Bank (“Bank”) transacts business in the single industry of commercial banking. Our Bank’s activities cover traditional phases of commercial banking, including checking and savings accounts, commercial lending, direct and indirect consumer financing and mortgage lending. Our principal markets are the rural and suburban communities across Lower Michigan that are served by our Bank’s branches and loan production offices. We also purchase payment plans from companies (which we refer to as “counterparties”) that provide vehicle service contracts and similar products to consumers, through our wholly owned subsidiary, Mepco Finance Corporation (“Mepco”). At December 31, 2014, 72.5% of our Bank’s loan portfolio was secured by real estate.

PRINCIPLES OF CONSOLIDATION — The consolidated financial statements include the accounts of Independent Bank Corporation and its subsidiaries. The income, expenses, assets and liabilities of the subsidiaries are included in the respective accounts of the consolidated financial statements, after elimination of all material intercompany accounts and transactions.

STATEMENTS OF CASH FLOWS — For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits and federal funds sold. Generally, federal funds are sold for one-day periods. We report net cash flows for customer loan and deposit transactions, for short-term borrowings and for vehicle service contract counterparty payables.

INTEREST BEARING DEPOSITS — Interest bearing deposits consist of overnight deposits with the Federal Reserve Bank.

INTEREST BEARING DEPOSITS - TIME — Interest bearing deposits - time consist of deposits with original maturities of 3 months or more.

LOANS HELD FOR SALE — Mortgage loans originated and intended for sale in the secondary market are carried at fair value. Fair value adjustments, as well as realized gains and losses, are recorded in current earnings.

MORTGAGE LOAN SERVICING RIGHTS — We recognize as separate assets the rights to service mortgage loans for others. The fair value of originated mortgage loan servicing rights has been determined based upon fair value indications for similar servicing. The mortgage loan servicing rights are amortized in proportion to and over the period of estimated net loan servicing income. We assess mortgage loan servicing rights for impairment based on the fair value of those rights. For purposes of measuring impairment, the characteristics used include interest rate, term and type. Amortization of and changes in the impairment reserve on originated mortgage loan servicing rights are included in mortgage loan servicing in the Consolidated Statements of Operations. The fair values of mortgage loan servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Mortgage loan servicing income is recorded for fees earned for servicing loans previously sold. The fees are generally based on a contractual percentage of the outstanding principal and are recorded as income when earned. Mortgage loan servicing fees, excluding amortization of and changes in the impairment reserve on originated mortgage loan servicing rights, totaled $4.2 million, $4.3 million and $4.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. Late fees and ancillary fees related to loan servicing are not material.

TRANSFERS OF FINANCIAL ASSETS — Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

have been isolated from us, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

SECURITIES — We classify our securities as trading, held to maturity or available for sale. Trading securities are bought and held principally for the purpose of selling them in the near term and are reported at fair value with realized and unrealized gains and losses included in earnings. Securities held to maturity represent those securities for which we have the positive intent and ability to hold until maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts computed on the level-yield method. We did not have any securities held to maturity at December 31, 2014 and 2013. Securities available for sale represent those securities not classified as trading or held to maturity and are reported at fair value with unrealized gains and losses, net of applicable income taxes reported in other comprehensive income (loss).

We evaluate securities for OTTI at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. In performing this evaluation, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Gains and losses realized on the sale of securities available for sale are determined using the specific identification method and are recognized on a trade-date basis. Premiums and discounts are recognized in interest income computed on the level-yield method.

FEDERAL HOME LOAN BANK (“FHLB”) STOCK — Our Bank subsidiary is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

FEDERAL RESERVE BANK (“FRB”) STOCK — Our Bank subsidiary is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

LOAN REVENUE RECOGNITION — Interest on loans is accrued based on the principal amounts outstanding. In general, the accrual of interest income is discontinued when a loan becomes 90 days past due for commercial loans and installment loans and when a loan misses four consecutive payments for mortgage loans and the borrower’s capacity to repay the loan and collateral values appear insufficient for each loan class. However, loans may be placed on non-accrual status regardless of whether or not such loans are considered past due if, in management’s opinion, the borrower is unable to meet payment obligations as they become due or as required by regulatory provisions. All interest accrued but not received for all loans placed on non-accrual is reversed from interest income. Payments on such loans are generally applied to the principal balance until qualifying to be returned to accrual status. A non-accrual loan may be restored to accrual status when interest and principal payments are current and the loan appears otherwise collectible. Delinquency status for all classes in the commercial and installment loan segments is based on the actual number of days past due as required by the contractual terms of the loan agreement while delinquency status for mortgage loan segment classes is based on the number of payments past due.

Certain loan fees and direct loan origination costs are deferred and recognized as an adjustment of yield generally over the contractual life of the related loan. Fees received in connection with loan commitments are deferred until the loan is advanced and are then recognized generally over the contractual life of the loan as an adjustment of yield. Fees on commitments that expire unused are recognized at expiration. Fees received for letters of credit are recognized as revenue over the life of the commitment.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

PAYMENT PLAN RECEIVABLE REVENUE RECOGNITION — Payment plan receivables are acquired by our Mepco segment at a discount and reported net of this discount in the Consolidated Statements of Financial Condition. This discount is accreted into interest and fees on loans over the life of the receivable computed on a level-yield method. All classes of payment plan receivables that have been canceled and are 90 days or more past due as required by the contractual terms of the payment plan are classified as non-accrual.

ALLOWANCE FOR LOAN LOSSES — Portfolios are disaggregated into segments for purposes of determining the allowance for loan losses (“AFLL”) which include commercial, mortgage and installment loans and payment plan receivables. These segments are further disaggregated into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. Classes within the commercial loan segment include (i) income producing – real estate, (ii) land, land development and construction – real estate and (iii) commercial and industrial. Classes within the mortgage loan segment include (i) 1-4 family, (ii) resort lending, (iii) home equity – 1st lien and (iv) home equity – 2nd lien. Classes within the installment loan segment include (i) home equity – 1st lien, (ii) home equity – 2nd lien, (iii) loans not secured by real estate and (iv) other. Classes within the payment plan receivables segment include (i) full refund, (ii) partial refund and (iii) other. Commercial loans are subject to adverse market conditions which may impact the borrower’s ability to make repayment on the loan or could cause a decline in the value of the collateral that secures the loan. Mortgage and installment loans and payment plan receivables are subject to adverse employment conditions in the local economy which could increase default rates. In addition, mortgage loans and real estate based installment loans are subject to adverse market conditions which could cause a decline in the value of collateral that secures the loan. For an analysis of the AFLL by portfolio segment and credit quality information by class, see note #4.

Some loans will not be repaid in full. Therefore, an AFLL is maintained at a level which represents our best estimate of losses incurred. In determining the allowance and the related provision for loan losses, we consider four principal elements: (i) specific allocations based upon probable losses identified during the review of the loan portfolio, (ii) allocations established for other adversely rated commercial loans, (iii) allocations based principally on historical loan loss experience, and (iv) additional allocations based on subjective factors, including local and general economic business factors and trends, portfolio concentrations and changes in the size and/or the general terms of the loan portfolios.

The first AFLL element (specific allocations) reflects our estimate of probable incurred losses based upon our systematic review of specific loans. These estimates are based upon a number of objective factors, such as payment history, financial condition of the borrower, discounted collateral exposure and discounted cash flow analysis. Impaired commercial, mortgage and installment loans are allocated allowance amounts using this first element. The second AFLL element (other adversely rated commercial loans) reflects the application of our loan rating system. This rating system is similar to those employed by state and federal banking regulators. Commercial loans that are rated below a certain predetermined classification are assigned a loss allocation factor for each loan classification category that is based upon a historical analysis of both the probability of default and the expected loss rate (“loss given default”). The lower the rating assigned to a loan or category, the greater the allocation percentage that is applied. The third AFLL element (historical loss allocations) is determined by assigning allocations to higher rated (“non-watch credit”) commercial loans using a probability of default and loss given default similar to the second AFLL element and to homogenous mortgage and installment loan groups based upon borrower credit score and portfolio segment. For homogenous mortgage and installment loans a probability of default for each homogenous pool is calculated by way of credit score migration. Historical loss data for each homogenous pool coupled with the associated probability of default is utilized to calculate an expected loss allocation rate. The fourth AFLL element (additional allocations based on subjective factors) is based on factors that cannot be associated with a specific credit or loan category and reflects our attempt to ensure that the overall allowance for loan losses appropriately reflects a margin for the imprecision necessarily inherent in the estimates of expected credit losses. We consider a number of subjective factors when determining this fourth element, including local and general economic business factors and trends, portfolio concentrations and changes in the size, mix and the general terms of the overall loan portfolio.

Increases in the AFLL are recorded by a provision for loan losses charged to expense. Although we periodically allocate portions of the AFLL to specific loans and loan portfolios, the entire AFLL is available for incurred losses.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We generally charge-off commercial, homogenous residential mortgage and installment loans and payment plan receivables when they are deemed uncollectible or reach a predetermined number of days past due based on loan product, industry practice and other factors. Collection efforts may continue and recoveries may occur after a loan is charged against the AFLL.

While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors.

A loan is impaired when full payment under the loan terms is not expected. Generally, those loans included in each commercial loan class that are rated substandard, classified as non-performing or were classified as non-performing in the preceding quarter, are evaluated for impairment. Those loans included in each mortgage loan or installment class whose terms have been modified and considered a troubled debt restructuring are also impaired. Loans which have been modified resulting in a concession, and which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDR”) and classified as impaired. We measure our investment in an impaired loan based on one of three methods: the loan’s observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. Large groups of smaller balance homogeneous loans, such as those loans included in each installment and mortgage loan class and each payment plan receivable class, are collectively evaluated for impairment and accordingly, they are not separately identified for impairment disclosures. TDR loans are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception of the loan. If a TDR is considered to be a collateral dependent loan, the loan is reported net, at the fair value of collateral.

PROPERTY AND EQUIPMENT — Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using both straight-line and accelerated methods over the estimated useful lives of the related assets. Buildings are generally depreciated over a period not exceeding 39 years and equipment is generally depreciated over periods not exceeding 7 years. Leasehold improvements are depreciated over the shorter of their estimated useful life or lease period.

BANK OWNED LIFE INSURANCE — We have purchased a group flexible premium non-participating variable life insurance contract on approximately 270 lives (who were salaried employees at the time we purchased the contract) in order to recover the cost of providing certain employee benefits. Bank owned life insurance is recorded at its cash surrender value or the amount that can be currently realized.

OTHER REAL ESTATE AND REPOSSESSED ASSETS — Other real estate at the time of acquisition is recorded at fair value, less estimated costs to sell, which becomes the property’s new basis. Fair value is typically determined by a third party appraisal of the property. Any write-downs at date of acquisition are charged to the allowance for loan losses. Expense incurred in maintaining assets and subsequent write-downs to reflect declines in value and gains or losses on the sale of other real estate are recorded in the Consolidated Statements of Operations. Non-real estate repossessed assets are treated in a similar manner.

OTHER INTANGIBLE ASSETS — Other intangible assets consist of core deposits. They are initially measured at fair value and then are amortized on both straight-line and accelerated methods over their estimated useful lives, which range from 10 to 15 years.

VEHICLE SERVICE CONTRACT COUNTERPARTY RECEIVABLES, NET — These amounts represent funds due to Mepco from its counterparties for cancelled service contracts. Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected.

INCOME TAXES — We employ the asset and liability method of accounting for income taxes. This method establishes deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates expected to be in effect when such amounts are realized or settled. Under this method, the effect of a change in tax rates is recognized in the period that includes the enactment date. The deferred tax asset is subject to a valuation allowance for that portion of the asset for which it is more likely than not that it will not be realized.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

We recognize interest and/or penalties related to income tax matters in income tax expense.

We file a consolidated federal income tax return. Intercompany tax liabilities are settled as if each subsidiary filed a separate return.

VEHICLE SERVICE CONTRACT COUNTERPARTY PAYABLES — Vehicle service contract counterparty payables represent amounts owed to insurance companies or other counterparties for vehicle service contract payment plans purchased by us. The vehicle service contract counterparty payable becomes due in accordance with the terms of the specific contract between Mepco and the counterparty. Typically these terms require payment after Mepco has received one or two payments from the consumer on the payment plan receivable.

COMMITMENTS TO EXTEND CREDIT AND RELATED FINANCIAL INSTRUMENTS — Financial instruments may include commitments to extend credit and standby letters of credit. Financial instruments involve varying degrees of credit and interest-rate risk in excess of amounts reflected in the Consolidated Statements of Financial Condition. Exposure to credit risk in the event of non-performance by the counterparties to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of those instruments. In general, we use a similar methodology to estimate our liability for these off-balance sheet credit exposures as we do for our allowance for loan losses. For commercial related commitments, we estimate liability using our loan rating system and for mortgage and installment commitments we estimate liability principally upon historical loss experience. Our estimated liability for off balance sheet commitments is included in accrued expenses and other liabilities in our Consolidated Statements of Financial Condition and any charge or recovery is recorded in non-interest expenses in our Consolidated Statements of Operations.

DERIVATIVE FINANCIAL INSTRUMENTS — We record derivatives on our Consolidated Statement of Financial Condition as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

At the inception of the derivative we designate the derivative as one of three types based on our intention and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“Fair Value Hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“Cash Flow Hedge”), or (3) an instrument with no hedging designation. For a Fair Value Hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a Cash Flow Hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. We did not have any Fair Value Hedges or Cash Flow Hedges at December 31, 2014 or 2013. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. For instruments with no hedging designation, the gain or loss on the derivative is reported currently in earnings. These free standing instruments currently consist of (i) mortgage banking related derivatives and include rate-lock loan commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and mandatory forward commitments for the future delivery of these mortgage loans and (ii) certain pay-fixed and pay-variable interest rate swap agreements. Fair values of the mortgage derivatives are estimated based on mortgage backed security pricing for comparable assets. We enter into mandatory forward commitments for the future delivery of mortgage loans generally when interest rate locks are entered into in order to hedge the change in interest rates resulting from our commitments to fund the loans. Changes in the fair values of these derivatives are included in net gains on mortgage loans. Fair values of the pay-fixed and pay-variable interest rate swap agreements are based on discounted cash flow analyses and are included in net interest income.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest expense. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income (mortgage banking related derivatives) or net interest income (interest rate swap agreements). Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

We formally document the relationship between derivatives and hedged items, as well as the risk- management objective and the strategy for undertaking hedge transactions, at the inception of the hedging relationship. This documentation includes linking Fair Value or Cash Flow Hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. We discontinue hedge accounting when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded currently in earnings. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive loss are amortized into earnings over the same periods which the hedged transactions will affect earnings.

COMPREHENSIVE INCOME — Comprehensive income consists of net income, unrealized gains and losses on securities available for sale and derivative instruments classified as cash flow hedges.

INCOME PER COMMON SHARE — Basic income per common share is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period and participating share awards. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. For diluted income per common share, net income is divided by the weighted average number of common shares outstanding during the period plus the dilutive effects of the assumed conversion of convertible preferred stock, assumed exercise of common stock warrants, assumed exercise of stock options, restricted stock units and stock units for a deferred compensation plan for non-employee directors.

SHARE BASED COMPENSATION — Cost is recognized for stock options and non-vested share awards issued to employees based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, a simulation analysis which considers potential outcomes for a large number of independent scenarios is utilized to estimate the fair value of performance share units and the market price of our common stock at the date of grant is used for other non-vested share awards. Cost is recognized over the required service period, generally defined as the vesting period. Cost is also recognized for salary stock issued to employees and stock issued to non-employee directors. These shares vest immediately and cost is recognized during the period they are issued.

COMMON STOCK — At December 31, 2014, 0.1 million shares of common stock were reserved for issuance under the dividend reinvestment plan and 0.7 million shares of common stock were reserved for issuance under our long-term incentive plans.

RECLASSIFICATION — Certain amounts in the 2013 and 2012 consolidated financial statements have been reclassified to conform to the 2014 presentation.

ADOPTION OF NEW ACCOUNTING STANDARDS — In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, “Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. This ASU amends existing guidance so that an unrecognized tax benefit, or a portion thereof, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. This amended guidance became effective for us on January 1, 2014, and did not have a material impact on our consolidated operating results or financial condition.

In January 2014, the FASB issued ASU 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption and retrospective or prospective application permitted. This amendment is not expected to have a material impact on our consolidated operating results or financial condition.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, this ASU specifies the accounting for some costs to obtain or fulfill a contract with a customer. This amended guidance is effective for us on January 1, 2017, and is not expected to have a material impact on our consolidated operating results or financial condition.

In June 2014, the FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period”. This ASU amends existing guidance related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. These amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This amended guidance is effective for us on January 1, 2016, and is not expected to have a material impact on our consolidated operating results or financial condition.

NOTE 2 − RESTRICTIONS ON CASH AND DUE FROM BANKS

Our Bank is required to maintain reserve balances in the form of vault cash and non-interest earning balances with the FRB. The average reserve balances to be maintained during 2014 and 2013 were $15.3 million and $24.5 million, respectively. We do not maintain compensating balances with correspondent banks. We are also required to maintain reserve balances related primarily to our merchant payment processing operations and for certain investment security transactions. These balances are held at unrelated financial institutions and totaled $2.8 million and $2.4 million at December 31, 2014 and 2013, respectively.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 3 − SECURITIES

Securities available for sale consist of the following at December 31:

	Amortized Cost		Unrealized
			Gains		Losses		Fair Value
	(In thousands)
2014
U.S. agency	$	34,936	$	133	$	63	$	35,006
U.S. agency residential mortgage-backed		256,387		1,838		667		257,558
U.S. agency commercial mortgage-backed		33,779		68		119		33,728
Private label residential mortgage-backed		6,216		187		390		6,013
Other asset backed		32,314		77		38		32,353
Obligations of states and political subdivisions		143,698		961		1,244		143,415
Corporate		22,690		53		79		22,664
Trust preferred		2,910		—		469		2,441
Total	$	532,930	$	3,317	$	3,069	$	533,178
2013
U.S. agency	$	32,106	$	44	$	342	$	31,808
U.S. agency residential mortgage-backed		202,649		1,343		532		203,460
Private label residential mortgage-backed		7,294		112		618		6,788
Other asset backed		45,369		10		194		45,185
Obligations of states and political subdivisions		157,966		496		4,784		153,678
Corporate		19,120		43		26		19,137
Trust preferred		2,902		—		477		2,425
Total	$	467,406	$	2,048	$	6,973	$	462,481

Total OTTI recognized in accumulated other comprehensive loss for securities available for sale was zero and $0.2 million at December 31, 2014 and 2013, respectively.

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position, at December 31 follows:

	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
2014
U.S. agency	$	12,851	$	58	$	606	$	5	$	13,457	$	63
U.S. agency residential mortgage-backed		89,547		531		15,793		136		105,340		667
U.S. agency commercial mortgage-backed		21,325		119		—		—		21,325		119
Private label residential mortgage-backed		208		1		4,013		389		4,221		390
Other asset backed		2,960		15		8,729		23		11,689		38
Obligations of states and political subdivisions		28,114		106		37,540		1,138		65,654		1,244
Corporate		8,660		79		—		—		8,660		79
Trust preferred		—		—		2,441		469		2,441		469
Total	$	163,665	$	909	$	69,122	$	2,160	$	232,787	$	3,069

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Less Than Twelve Months				Twelve Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
2013
U.S. agency	$	16,715	$	342	$	—	$	—	$	16,715	$	342
U.S. agency residential mortgage-backed		78,256		532		—		—		78,256		532
Private label residential mortgage-backed		407		6		4,602		612		5,009		618
Other asset backed		33,862		194		—		—		33,862		194
Obligations of states and political subdivisions		103,942		4,645		4,805		139		108,747		4,784
Corporate		7,105		26		—		—		7,105		26
Trust preferred		—		—		2,425		477		2,425		477
Total	$	240,287	$	5,745	$	11,832	$	1,228	$	252,119	$	6,973

Our portfolio of available-for-sale securities is reviewed quarterly for impairment in value. In performing this review, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss.

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at December 31, 2014, we had 17 U.S. agency, 72 U.S. agency residential mortgage-backed and 19 U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to rises in term interest rates and widening spreads to Treasury bonds. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Private label residential mortgage backed securities — at December 31, 2014, we had five of this type of security whose fair value is less than amortized cost. Two of the five issues are rated by a major rating agency as investment grade, two are rated below investment grade and one is split rated. Two of these bonds have an impairment in excess of 10% and four of these holdings have been impaired for more than 12 months. The unrealized losses are largely attributable to credit spread widening on these securities since their acquisition.

All of these securities are receiving principal and interest payments. Most of these transactions are pass-through structures, receiving pro rata principal and interest payments from a dedicated collateral pool. The nonreceipt of interest cash flows is not expected and thus not presently considered in our discounted cash flow methodology discussed below.

All private label residential mortgage-backed securities are reviewed for OTTI utilizing a cash flow projection. The cash flow analysis forecasts cash flow from the underlying loans in each transaction and then applies these cash flows to the bonds in the securitization. Our cash flow analysis forecasts complete recovery of our cost basis for four of the five securities whose fair value is less than amortized cost while the fifth security had credit related OTTI and is discussed in further detail below.

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no other declines discussed above are deemed to be other than temporary.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other asset backed — at December 31, 2014, we had nine other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to widening discount margins. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Obligations of states and political subdivisions — at December 31, 2014, we had 96 municipal securities whose fair value is less than amortized cost. The unrealized losses are primarily due to increases in interest rates since acquisition. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Corporate — at December 31, 2014, we had 11 corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Trust preferred securities — at December 31, 2014, we had three trust preferred securities whose fair value is less than amortized cost. All of our trust preferred securities are single issue securities issued by a trust subsidiary of a bank holding company. The pricing of trust preferred securities over the past several years has suffered from credit spread widening fueled by uncertainty regarding potential losses of financial companies and repricing of risk related to these hybrid capital securities.

One of the three securities is rated by two major rating agencies as investment grade, while one (a Bank of America issuance) is rated below investment grade by two major rating agencies and the other one is non-rated. The non-rated issue is a relatively small bank and was never rated. The issuer of this non-rated trust preferred security, which had a total amortized cost of $1.0 million and total fair value of $0.8 million as of December 31, 2014, continues to have satisfactory credit metrics and make interest payments.

The following table breaks out our trust preferred securities in further detail as of December 31:

	2014					2013
	Fair Value		Net Unrealized Loss			Fair Value		Net Unrealized Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,643	$	(267	)	$	1,600	$	(302	)
Unrated issues		798		(202	)		825		(175	)

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

During 2014, 2013 and 2012, we recorded in earnings credit related OTTI charges on securities available for sale of $0.01 million, $0.03 million and $0.3 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2014, three private label residential mortgage-backed securities had credit related OTTI and are summarized as follows:

	Senior Security		Super Senior Security		Senior Support Security		Total
	(In thousands)
As of December 31, 2014
Fair value	$	2,164	$	1,566	$	97	$	3,827
Amortized cost		2,207		1,476		—		3,683
Non-credit unrealized loss		43		—		—		43
Unrealized gain		—		90		97		187
Cumulative credit related OTTI		757		457		380		1,594
Credit related OTTI recognized in our Consolidated Statements of Operations
For the years ended December 31,
2014	$	9	$	—	$	—	$	9
2013		26		—		—		26
2012		247		32		60		339

Each of these securities is receiving principal and interest payments similar to principal reductions in the underlying collateral. Two of these securities have unrealized gains and one has an unrealized loss at December 31, 2014. Prior to the second quarter of 2013, all three of these securities had an unrealized loss. The original amortized cost for each of these securities has been permanently adjusted downward for previously recorded credit related OTTI. The unrealized loss (based on original amortized cost) for two of these securities is now less than previously recorded credit related OTTI amounts. The remaining non-credit related unrealized loss in the senior security is attributed to other factors and is reflected in other comprehensive income during those same periods.

A roll forward of credit losses recognized in earnings on securities available for sale for the years ending December 31 follow:

	2014		2013		2012
	(In thousands)
Balance at beginning of year	$	1,835	$	1,809	$	1,470
Additions to credit losses on securities for which no previous OTTI was recognized		—		—		—
Increases to credit losses on securities for which OTTI was previously recognized		9		26		339
Total	$	1,844	$	1,835	$	1,809

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The amortized cost and fair value of securities available for sale at December 31, 2014, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	25,427	$	25,479
Maturing after one year but within five years		66,532		66,666
Maturing after five years but within ten years		41,651		41,780
Maturing after ten years		70,624		69,601
		204,234		203,526
U.S. agency residential mortgage-backed		256,387		257,558
U.S. agency commercial mortgage-backed		33,779		33,728
Private label residential mortgage-backed		6,216		6,013
Other asset backed		32,314		32,353
Total	$	532,930	$	533,178

The actual maturity may differ from the contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

A summary of proceeds from the sale of securities available for sale and gains and losses for the years ended December 31 follow:

	Proceeds		Realized Gains (1)		Losses (2)
	(In thousands)
2014	$	14,633	$	329	$	—
2013		2,940		15		8
2012		37,176		1,193		—

(1) Gains in 2014 exclude $0.3 million of realized gain related to a U.S. Treasury short position.

(2) Losses in 2014, 2013 and 2012 exclude $0.01 million, $0.03 million and $0.3 million, respectively of credit related OTTI recognized in earnings.

During 2014, 2013 and 2012, our trading securities consisted of various preferred stocks. During each of those years, we recognized gains (losses) on trading securities of $(0.30) million, $0.39 million and $0.03 million, respectively, that are included in net gains on securities in the Consolidated Statements of Operations. All of these amounts relate to gains (losses) recognized on trading securities still held at December 31, 2014 and 2013.

Securities with a book value of $1.1 million and $10.7 million at December 31, 2014 and 2013, respectively, were pledged to secure borrowings, derivatives, public deposits and for other purposes as required by law. There were no investment obligations of state and political subdivisions that were payable from or secured by the same source of revenue or taxing authority that exceeded 10% of consolidated shareholders’ equity at December 31, 2014 or 2013.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 − LOANS AND PAYMENT PLAN RECEIVABLES

Our loan portfolios at December 31 follow:

	2014		2013
	(In thousands)
Real estate(1)
Residential first mortgages	$	411,423	$	431,812
Residential home equity and other junior mortgages		108,162		113,703
Construction and land development		54,644		50,290
Other(2)		447,837		440,348
Commercial		186,875		146,954
Consumer		154,591		126,443
Payment plan receivables		40,001		60,638
Agricultural		6,429		4,382
Total loans	$	1,409,962	$	1,374,570

(1) Includes both residential and non-residential commercial loans secured by real estate.

(2) Includes loans secured by multi-family residential and non-farm, non-residential property.

Loans include net deferred loan costs of $1.0 million and $0.2 million at December 31, 2014 and 2013, respectively. Payment plan receivables totaling $42.6 million and $64.7 million at December 31, 2014 and 2013, respectively, are presented net of unamortized discount of $2.6 million and $4.1 million at December 31, 2014 and 2013, respectively. These payment plan receivables had effective yields of 14% and 15% at December 31, 2014 and 2013, respectively. These receivables have various due dates through December 2016.

An analysis of the allowance for loan losses by portfolio segment for the years ended December 31 follows:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Unallocated			Total
	(In thousands)
2014
Balance at beginning of period	$	6,827		$	17,195		$	2,246		$	97		$	5,960		$	32,325
Additions (deductions)
Provision for loan losses		(1,683	)		(1,029	)		349			(36	)		(737	)		(3,136	)
Recoveries credited to allowance		4,914			1,397			1,104			5			—			7,420
Loans charged against the allowance		(4,613	)		(4,119	)		(1,885	)		(2	)		—			(10,619	)
Balance at end of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
2013
Balance at beginning of period	$	11,402		$	21,447		$	3,378		$	144		$	7,904		$	44,275
Additions (deductions)
Provision for loan losses		(2,336	)		71			314			(93	)		(1,944	)		(3,988	)
Recoveries credited to allowance		5,119			1,996			1,074			81			—			8,270
Loans charged against the allowance		(7,358	)		(6,319	)		(2,520	)		(35	)		—			(16,232	)
Balance at end of period	$	6,827		$	17,195		$	2,246		$	97		$	5,960		$	32,325

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Commercial			Mortgage			Installment			Payment Plan Receivables			Unallocated			Total
	(In thousands)
2012
Balance at beginning of period	$	18,183		$	22,885		$	6,146		$	197		$	11,473		$	58,884
Additions (deductions)
Provision for loan losses		2,351			7,778			15			(3	)		(3,254	)		6,887
Recoveries credited to allowance		3,610			1,581			1,311			20			—			6,522
Loans charged against the allowance		(12,588	)		(10,741	)		(4,009	)		(70	)		—			(27,408	)
Reclassification to loans held for sale		(154	)		(56	)		(85	)		—			(315	)		(610	)
Balance at end of period	$	11,402		$	21,447		$	3,378		$	144		$	7,904		$	44,275

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

	Commercial		Mortgage		Installment		Payment Plan Receivables		Unallocated		Total
	(In thousands)
2014
Allowance for loan losses:
Individually evaluated for impairment	$	3,194	$	9,311	$	728	$	—	$	—	$	13,233
Collectively evaluated for impairment		2,251		4,133		1,086		64		5,223		12,757
Total ending allowance balance	$	5,445	$	13,444	$	1,814	$	64	$	5,223	$	25,990
Loans
Individually evaluated for impairment	$	34,147	$	72,340	$	6,679	$	—			$	113,166
Collectively evaluated for impairment		658,423		402,458		200,368		40,001				1,301,250
Total loans recorded investment		692,570		474,798		207,047		40,001				1,414,416
Accrued interest included in recorded investment		1,615		2,170		669		—				4,454
Total loans	$	690,955	$	472,628	$	206,378	$	40,001			$	1,409,962
2013
Allowance for loan losses:
Individually evaluated for impairment	$	3,878	$	10,488	$	792	$	—	$	—	$	15,158
Collectively evaluated for impairment		2,949		6,707		1,454		97		5,960		17,167
Total ending allowance balance	$	6,827	$	17,195	$	2,246	$	97	$	5,960	$	32,325
Loans
Individually evaluated for impairment	$	40,623	$	78,022	$	7,068	$	—			$	125,713
Collectively evaluated for impairment		596,235		410,887		185,676		60,638				1,253,436
Total loans recorded investment		636,858		488,909		192,744		60,638				1,379,149
Accrued interest included in recorded investment		1,624		2,276		679		—				4,579
Total loans	$	635,234	$	486,633	$	192,065	$	60,638			$	1,374,570

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. If these loans had continued to accrue interest in accordance with their original terms, approximately $0.8 million, $1.2 million, and $2.3 million of interest income would have been recognized in 2014, 2013 and 2012, respectively. Interest income recorded on these loans was approximately zero during the year ended 2014 and $0.1 million in each of the years ended 2013 and 2012, respectively.

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) at December 31 follow:

	90+ and Still Accruing		Non- Accrual		Total Non- Performing Loans
	(In thousands)
2014
Commercial
Income producing - real estate	$	—	$	1,233	$	1,233
Land, land development and construction - real estate		—		594		594
Commercial and industrial		—		2,746		2,746
Mortgage
1-4 family		7		5,945		5,952
Resort lending		—		2,168		2,168
Home equity - 1st lien		—		331		331
Home equity - 2nd lien		—		605		605
Installment
Home equity - 1st lien		—		576		576
Home equity - 2nd lien		—		517		517
Loans not secured by real estate		—		454		454
Other		—		48		48
Payment plan receivables
Full refund		—		2		2
Partial refund		—		12		12
Other		—		—		—
Total recorded investment	$	7	$	15,231	$	15,238
Accrued interest included in recorded investment	$	—	$	—	$	—
2013
Commercial
Income producing - real estate	$	—	$	1,899	$	1,899
Land, land development and construction - real estate		—		1,036		1,036
Commercial and industrial		—		2,434		2,434
Mortgage
1-4 family		—		6,594		6,594
Resort lending		—		2,668		2,668
Home equity - 1st lien		—		415		415
Home equity - 2nd lien		—		689		689
Installment
Home equity - 1st lien		—		938		938
Home equity - 2nd lien		—		571		571
Loans not secured by real estate		—		638		638
Other		—		—		—
Payment plan receivables
Full refund		—		20		20
Partial refund		—		3		3
Other		—		—		—
Total recorded investment	$	—	$	17,905	$	17,905
Accrued interest included in recorded investment	$	—	$	—	$	—

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

An aging analysis of loans by class at December 31 follows:

	Loans Past Due								Loans not Past Due		Total Loans
	30-59 days		60-89 days		90+ days		Total
	(In thousands)
2014
Commercial
Income producing - real estate	$	89	$	—	$	214	$	303	$	252,763	$	253,066
Land, land development and construction - real estate		131		—		223		354		33,984		34,338
Commercial and industrial		2,391		279		209		2,879		402,287		405,166
Mortgage
1-4 family		1,877		1,638		5,952		9,467		269,719		279,186
Resort lending		226		—		2,168		2,394		126,342		128,736
Home equity - 1st lien		39		50		331		420		19,782		20,202
Home equity - 2nd lien		711		89		605		1,405		45,269		46,674
Installment
Home equity - 1st lien		466		37		576		1,079		20,995		22,074
Home equity - 2nd lien		369		81		517		967		28,125		29,092
Loans not secured by real estate		589		231		454		1,274		152,115		153,389
Other		15		3		48		66		2,426		2,492
Payment plan receivables
Full refund		838		214		2		1,054		26,799		27,853
Partial refund		409		123		12		544		6,550		7,094
Other		96		24		—		120		4,934		5,054
Total recorded investment	$	8,246	$	2,769	$	11,311	$	22,326	$	1,392,090	$	1,414,416
Accrued interest included in recorded investment	$	55	$	29	$	—	$	84	$	4,370	$	4,454
2013
Commercial
Income producing - real estate	$	1,014	$	428	$	878	$	2,320	$	249,313	$	251,633
Land, land development and construction - real estate		781		129		256		1,166		30,670		31,836
Commercial and industrial		1,155		1,665		318		3,138		350,251		353,389
Mortgage
1-4 family		3,750		224		6,594		10,568		270,855		281,423
Resort lending		698		234		2,668		3,600		142,356		145,956
Home equity - 1st lien		172		—		415		587		18,214		18,801
Home equity - 2nd lien		663		73		689		1,425		41,304		42,729
Installment
Home equity - 1st lien		557		134		938		1,629		25,513		27,142
Home equity - 2nd lien		536		136		571		1,243		36,701		37,944
Loans not secured by real estate		833		281		638		1,752		123,295		125,047
Other		22		12		—		34		2,577		2,611
Payment plan receivables
Full refund		1,364		349		20		1,733		46,344		48,077
Partial refund		190		20		3		213		4,840		5,053
Other		122		4		—		126		7,382		7,508
Total recorded investment	$	11,857	$	3,689	$	13,988	$	29,534	$	1,349,615	$	1,379,149
Accrued interest included in recorded investment	$	100	$	26	$	—	$	126	$	4,453	$	4,579

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Impaired loans are as follows :

	December 31,
	2014		2013
	(In thousands)
Impaired loans with no allocated allowance
TDR	$	9,325	$	13,006
Non - TDR		299		334
Impaired loans with an allocated allowance
TDR - allowance based on collateral		5,879		10,085
TDR - allowance based on present value cash flow		94,970		101,131
Non - TDR - allowance based on collateral		2,296		688
Non - TDR - allowance based on present value cash flow		—		—
Total impaired loans	$	112,769	$	125,244
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,025	$	3,127
TDR - allowance based on present value cash flow		10,188		11,777
Non - TDR - allowance based on collateral		1,020		254
Non - TDR - allowance based on present value cash flow		—		—
Total amount of allowance for loan losses allocated	$	13,233	$	15,158

During the second quarter of 2013, we sold certain commercial watch, substandard and non-performing loans as follows:

	(In thousands)
Income producing - real estate	$	4,570
Land, land development and construction - real estate		401
Commercial and industrial		3,630
Total	$	8,601

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Impaired loans by class as of December 31 are as follows (1):

	2014						2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
With no related allowance recorded:
Commercial
Income producing - real estate	$	5,868	$	6,077	$	—	$	7,042	$	7,178	$	—
Land, land development & construction-real estate		1,051		1,606		—		2,185		3,217		—
Commercial and industrial		2,685		2,667		—		4,110		4,087		—
Mortgage
1-4 family		—		49		—		8		8		—
Resort lending		48		397		—		35		163		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		40		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Loans not secured by real estate		—		—		—		—		—		—
Other		—		—		—		—		—		—
		9,652		10,836		—		13,380		14,653		—
With an allowance recorded:
Commercial
Income producing - real estate		12,836		13,797		689		14,538		15,631		1,161
Land, land development & construction-real estate		3,456		3,528		499		3,366		4,130		686
Commercial and industrial		8,251		8,486		2,006		9,382		9,529		2,031
Mortgage
1-4 family		53,206		56,063		6,195		57,612		60,768		7,236
Resort lending		18,799		18,963		3,075		20,171		20,608		3,221
Home equity - 1st lien		162		177		14		154		164		11
Home equity - 2nd lien		125		205		27		42		118		20
Installment
Home equity - 1st lien		2,744		2,930		219		2,959		3,115		254
Home equity - 2nd lien		3,212		3,215		419		3,352		3,347		462
Loans not secured by real estate		711		835		89		741		902		75
Other		12		12		1		16		16		1
		103,514		108,211		13,233		112,333		118,328		15,158
Total
Commercial
Income producing - real estate		18,704		19,874		689		21,580		22,809		1,161
Land, land development & construction-real estate		4,507		5,134		499		5,551		7,347		686
Commercial and industrial		10,936		11,153		2,006		13,492		13,616		2,031
Mortgage
1-4 family		53,206		56,112		6,195		57,620		60,776		7,236
Resort lending		18,847		19,360		3,075		20,206		20,771		3,221
Home equity - 1st lien		162		177		14		154		164		11
Home equity - 2nd lien		125		205		27		42		118		20
Installment
Home equity - 1st lien		2,744		2,970		219		2,959		3,115		254
Home equity - 2nd lien		3,212		3,215		419		3,352		3,347		462
Loans not secured by real estate		711		835		89		741		902		75
Other		12		12		1		16		16		1
Total	$	113,166	$	119,047	$	13,233	$	125,713	$	132,981	$	15,158
Accrued interest included in recorded investment	$	397					$	469

(1) There were no impaired payment plan receivables at December 31, 2014 or 2013.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Average recorded investment in and interest income earned on impaired loans by class for the years ended December 31 follows (1):

	2014				2013				2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no related allowance recorded:
Commercial
Income producing - real estate	$	7,660	$	250	$	5,765	$	340	$	2,981	$	166
Land, land development & construction-real estate		1,145		64		3,092		240		2,549		150
Commercial and industrial		3,351		152		3,980		226		3,526		246
Mortgage
1-4 family		29		—		5		11		290		—
Resort lending		40		1		28		—		222		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		2		1,604		83		1,961		97
Home equity - 2nd lien		—		—		1,841		96		2,093		111
Loans not secured by real estate		—		—		470		23		549		30
Other		—		—		15		1		22		2
		12,225		469		16,800		1,020		14,193		802
With an allowance recorded:
Commercial
Income producing - real estate		12,772		677		18,164		587		23,508		571
Land, land development & construction-real estate		3,939		149		6,186		149		10,305		183
Commercial and industrial		8,500		294		11,795		457		17,828		467
Mortgage
1-4 family		55,877		2,286		60,858		2,622		66,195		2,852
Resort lending		19,458		753		21,708		836		24,286		1,000
Home equity - 1st lien		160		6		136		4		65		2
Home equity - 2nd lien		57		2		42		2		81		3
Installment
Home equity - 1st lien		2,837		174		1,448		85		1,432		50
Home equity - 2nd lien		3,359		188		1,546		86		1,325		51
Loans not secured by real estate		719		35		314		17		221		10
Other		14		1		3		1		—		—
		107,692		4,565		122,200		4,846		145,246		5,189
Total
Commercial
Income producing - real estate		20,432		927		23,929		927		26,489		737
Land, land development & construction-real estate		5,084		213		9,278		389		12,854		333
Commercial and industrial		11,851		446		15,775		683		21,354		713
Mortgage
1-4 family		55,906		2,286		60,863		2,633		66,485		2,852
Resort lending		19,498		754		21,736		836		24,508		1,000
Home equity - 1st lien		160		6		136		4		65		2
Home equity - 2nd lien		57		2		42		2		81		3
Installment
Home equity - 1st lien		2,837		176		3,052		168		3,393		147
Home equity - 2nd lien		3,359		188		3,387		182		3,418		162
Loans not secured by real estate		719		35		784		40		770		40
Other		14		1		18		2		22		2
Total	$	119,917	$	5,034	$	139,000	$	5,866	$	159,439	$	5,991

(1) There were no impaired payment plan receivables during the years ending December 31, 2014, 2013 and 2012.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our average investment in impaired loans was approximately $119.9 million, $139.0 million and $159.4 million in 2014, 2013 and 2012, respectively. Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance. Interest income recognized on impaired loans was approximately $5.0 million, $5.9 million and $6.0 million in 2014, 2013 and 2012, respectively, of which the majority of these amounts were received in cash.

Troubled debt restructurings at December 31 follow:

	2014
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	29,475	$	73,496		$	102,971
Non-performing TDR's (1)		1,978		5,225	(2)		7,203
Total	$	31,453	$	78,721		$	110,174

	2013
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	35,134	$	79,753		$	114,887
Non-performing TDR's (1)		4,347		4,988	(2)		9,335
Total	$	39,481	$	84,741		$	124,222

(1) Included in non-performing loans table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

We have allocated $12.2 million and $14.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2014 and 2013, respectively. We have committed to lend additional amounts totaling up to $0.04 million and $0.17 million as of December 31, 2014 and 2013, respectively, to customers with outstanding loans that are classified as troubled debt restructurings.

The terms of certain loans were modified as troubled debt restructurings and generally included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan have generally been for periods ranging from 9 months to 60 months but have extended to as much as 480 months in certain circumstances. Modifications involving an extension of the maturity date have generally been for periods ranging from 1 month to 70 months but have extended to as much as 240 months in certain circumstances.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans that have been classified as troubled debt restructurings during the three years ended December 31 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2014
Commercial
Income producing - real estate		4	$	426	$	389
Land, land development & construction-real estate		2		55		44
Commercial and industrial		13		2,236		1,606
Mortgage
1-4 family		15		1,576		1,570
Resort lending		6		1,583		1,572
Home equity - 1st lien		1		17		14
Home equity - 2nd lien		1		85		84
Installment
Home equity - 1st lien		13		631		523
Home equity - 2nd lien		9		400		400
Loans not secured by real estate		6		114		106
Other		—		—		—
Total		70	$	7,123	$	6,308
2013
Commercial
Income producing - real estate		6	$	4,798	$	3,869
Land, land development & construction-real estate		1		16		—
Commercial and industrial		23		2,522		1,901
Mortgage
1-4 family		20		1,968		1,995
Resort lending		5		1,240		1,231
Home equity - 1st lien		1		95		97
Home equity - 2nd lien		—		—		—
Installment
Home equity - 1st lien		25		659		657
Home equity - 2nd lien		16		508		508
Loans not secured by real estate		5		149		110
Other		—		—		—
Total		102	$	11,955	$	10,368
2012
Commercial
Income producing - real estate		20	$	9,464	$	8,568
Land, land development & construction-real estate		9		4,800		4,858
Commercial and industrial		50		9,951		7,905
Mortgage
1-4 family		66		8,900		8,488
Resort lending		31		7,750		7,514
Home equity - 1st lien		1		15		—
Home equity - 2nd lien		—		—		—
Installment
Home equity - 1st lien		18		666		632
Home equity - 2nd lien		24		784		768
Loans not secured by real estate		13		325		304
Other		—		—		—
Total		232	$	42,655	$	39,037

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The troubled debt restructurings described above increased (decreased) the allowance for loan losses by $0.2 million, $(0.3) million and $1.6 million during the years ended December 31, 2014, 2013 and 2012, respectively and resulted in charge offs of $0.04 million, $0.5 million and $1.0 million during the years ended December 31, 2014, 2013 and 2012, respectively.

Loans that have been classified as troubled debt restructured during the past twelve months and that have subsequently defaulted during the years ended December 31 follows:

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2014
Commercial
Income producing - real estate		—	$	—
Land, land development & construction-real estate		—		—
Commercial and industrial		2		319
Mortgage
1-4 family		1		125
Resort lending		—		—
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Installment
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Loans not secured by real estate		—		—
Other		—		—
Total		3	$	444
2013
Commercial
Income producing - real estate		1	$	693
Land, land development & construction-real estate		1		334
Commercial and industrial		2		143
Mortgage
1-4 family		1		106
Resort lending		1		156
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Installment
Home equity - 1st lien		2		32
Home equity - 2nd lien		1		22
Loans not secured by real estate		—		—
Other		—		—
Total		9	$	1,486

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
2012
Commercial
Income producing - real estate		2	$	827
Land, land development & construction-real estate		—		—
Commercial and industrial		5		230
Mortgage
1-4 family		2		148
Resort lending		4		887
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Installment
Home equity - 1st lien		2		234
Home equity - 2nd lien		1		20
Loans not secured by real estate		—		—
Other		—		—
Total		16	$	2,346

A loan is generally considered to be in payment default once it is 90 days contractually past due under the modified terms for commercial loans and installment loans and when four consecutive payments are missed for mortgage loans.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0.02 million, zero, and $0.3 million during the years ended December 31, 2014, 2013 and 2012, respectively and resulted in charge offs of zero, $0.2 million and $0.8 million during the years ended December 31, 2014, 2013 and 2012, respectively.

The terms of certain other loans were modified during the years ending December 31, 2014, 2013 and 2012 that did not meet the definition of a troubled debt restructuring. The modification of these loans could have included modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, we perform an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

Credit Quality Indicators – As part of our on-going monitoring of the credit quality of our loan portfolios, we track certain credit quality indicators including (a) weighted-average risk grade of commercial loans, (b) the level of classified commercial loans (c) credit scores of mortgage and installment loan borrowers (d) insurance industry ratings of certain counterparties for payment plan receivables and (e) delinquency history and non-performing loans.

For commercial loans we use a loan rating system that is similar to those employed by state and federal banking regulators. Loans are graded on a scale of 1 to 12. A description of the general characteristics of the ratings follows:

Rating 1 through 6:   These loans are generally referred to as our “non-watch” commercial credits that include very high or exceptional credit fundamentals through acceptable credit fundamentals.

Rating 7 and 8:   These loans are generally referred to as our “watch” commercial credits. This rating includes loans to borrowers that exhibit potential credit weakness or downward trends. If not checked or cured these trends could weaken our asset or credit position. While potentially weak, no loss of principal or interest is envisioned with these ratings.

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Rating 9:   These loans are generally referred to as our “substandard accruing” commercial credits. This rating includes loans to borrowers that exhibit a well-defined weakness where payment default is probable and loss is possible if deficiencies are not corrected. Generally, loans with this rating are considered collectible as to both principal and interest primarily due to collateral coverage.

Rating 10 and 11:   These loans are generally referred to as our “substandard - non-accrual” and “doubtful” commercial credits. This rating includes loans to borrowers with weaknesses that make collection of debt in full, on the basis of current facts, conditions and values, at best questionable and at worst improbable. All of these loans are placed in non-accrual.

Rating 12:   These loans are generally referred to as our “loss” commercial credits. This rating includes loans to borrowers that are deemed incapable of repayment and are charged-off.

The following table summarizes loan ratings by loan class for our commercial loan segment:

	Commercial
	Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11		Total
	(In thousands)
2014
Income producing - real estate	$	241,266	$	8,649	$	1,918	$	1,233	$	253,066
Land, land development and construction - real estate		30,869		2,485		390		594		34,338
Commercial and industrial		372,947		23,475		5,998		2,746		405,166
Total	$	645,082	$	34,609	$	8,306	$	4,573	$	692,570
Accrued interest included in total	$	1,479	$	111	$	25	$	—	$	1,615
2013
Income producing - real estate	$	227,957	$	17,882	$	3,895	$	1,899	$	251,633
Land, land development and construction - real estate		25,654		4,829		317		1,036		31,836
Commercial and industrial		318,183		26,303		6,469		2,434		353,389
Total	$	571,794	$	49,014	$	10,681	$	5,369	$	636,858
Accrued interest included in total	$	1,433	$	147	$	44	$	—	$	1,624

For each of our mortgage and installment segment classes we generally monitor credit quality based on the credit scores of the borrowers. These credit scores are generally updated at least annually. The following tables summarize credit scores by loan class for our mortgage and installment loan segments at December 31:

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Total
	(In thousands)
2014
800 and above	$	27,918	$	14,484	$	3,863	$	6,225	$	52,490
750-799		72,674		45,950		6,128		14,323		139,075
700-749		52,843		32,660		3,054		9,642		98,199
650-699		51,664		20,250		3,257		8,194		83,365
600-649		27,770		6,538		1,704		3,862		39,874
550-599		21,361		3,639		994		1,721		27,715
500-549		14,575		2,156		699		1,401		18,831
Under 500		6,306		875		261		632		8,074
Unknown		4,075		2,184		242		674		7,175
Total	$	279,186	$	128,736	$	20,202	$	46,674	$	474,798
Accrued interest included in total	$	1,311	$	562	$	88	$	209	$	2,170

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Total
	(In thousands)
2013
800 and above	$	23,924	$	13,487	$	3,650	$	5,354	$	46,415
750-799		60,728		56,880		4,560		11,809		133,977
700-749		58,269		35,767		3,289		8,628		105,953
650-699		49,771		21,696		2,316		7,145		80,928
600-649		34,991		8,555		2,621		5,141		51,308
550-599		24,616		3,261		1,165		2,485		31,527
500-549		14,823		2,271		644		1,560		19,298
Under 500		9,492		1,160		323		360		11,335
Unknown		4,809		2,879		233		247		8,168
Total	$	281,423	$	145,956	$	18,801	$	42,729	$	488,909
Accrued interest included in total	$	1,300	$	650	$	97	$	229	$	2,276

(1) Credit scores have been updated within the last twelve months.

	Installment (1)
	Home Equity 1st Lien		Home Equity 2nd Lien		Loans not Secured by Real Estate		Other		Total
	(In thousands)
2014
800 and above	$	2,272	$	2,835	$	31,507	$	60	$	36,674
750-799		5,677		8,557		66,558		583		81,375
700-749		3,111		6,358		28,179		689		38,337
650-699		3,963		5,477		16,152		615		26,207
600-649		3,434		2,408		5,128		255		11,225
550-599		2,019		1,913		1,896		134		5,962
500-549		1,128		1,036		1,672		84		3,920
Under 500		393		427		455		28		1,303
Unknown		77		81		1,842		44		2,044
Total	$	22,074	$	29,092	$	153,389	$	2,492	$	207,047
Accrued interest included in total	$	93	$	112	$	445	$	19	$	669
2013
800 and above	$	2,977	$	3,062	$	23,649	$	53	$	29,741
750-799		6,585		11,197		48,585		557		66,924
700-749		4,353		9,487		25,343		683		39,866
650-699		4,815		6,832		15,256		646		27,549
600-649		3,173		2,824		5,289		258		11,544
550-599		2,843		2,084		2,785		213		7,925
500-549		1,483		1,715		1,732		130		5,060
Under 500		751		663		516		29		1,959
Unknown		162		80		1,892		42		2,176
Total	$	27,142	$	37,944	$	125,047	$	2,611	$	192,744
Accrued interest included in total	$	114	$	144	$	399	$	22	$	679

(1) Credit scores have been updated within the last twelve months.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Mepco is a wholly-owned subsidiary of our Bank that operates a vehicle service contract payment plan business throughout the United States. See note #11 for more information about Mepco’s business. As of December 31, 2014, approximately 69.6% of Mepco’s outstanding payment plan receivables relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the full refund owing upon cancellation of the related service contract (including with respect to both the portion funded to the service contract seller and the portion funded to the administrator). These receivables are shown as “Full Refund” in the table below. Another approximately 17.7% of Mepco’s outstanding payment plan receivables as of December 31, 2014, relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the refund owing upon cancellation only with respect to the unearned portion previously funded by Mepco to the administrator (but not to the service contract seller). These receivables are shown as “Partial Refund” in the table below. The balance of Mepco’s outstanding payment plan receivables relate to programs in which there is no insurer or risk retention group that has any contractual liability to Mepco for any portion of the refund amount. These receivables are shown as “Other” in the table below. For each class of our payment plan receivables we monitor financial information on the counterparties as we evaluate the credit quality of this portfolio.

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable at December 31:

	Payment Plan Receivables
	Full Refund		Partial Refund		Other		Total
	(In thousands)
2014
AM Best rating
A+	$	—	$	43	$	—	$	43
A		10,007		6,190		—		16,197
A-		1,989		685		5,054		7,728
Not rated		15,857		176		—		16,033
Total	$	27,853	$	7,094	$	5,054	$	40,001
2013
AM Best rating
A	$	20,203	$	4,221	$	—	$	24,424
A-		4,058		832		7,496		12,386
Not rated		23,816		—		12		23,828
Total	$	48,077	$	5,053	$	7,508	$	60,638

Although Mepco has contractual recourse against various counterparties for refunds owing upon cancellation of vehicle service contracts, see Note #11 below regarding certain risks and difficulties associated with collecting these refunds.

Mortgage loans serviced for others are not reported as assets on the Consolidated Statements of Financial Condition. The principal balances of these loans at December 31 follow:

	2014		2013
	(In thousands)
Mortgage loans serviced for:
Fannie Mae	$	913,863	$	981,031
Freddie Mac		748,833		753,143
Other		104		111
Total	$	1,662,800	$	1,734,285

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Custodial deposit accounts maintained in connection with mortgage loans serviced for others totaled $20.9 million and $20.3 million, at December 31, 2014 and 2013, respectively.

If we do not remain well capitalized for regulatory purposes (see note #20), 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 these investors. This could impact our ability to generate gains on the sale 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 regulatory purposes. 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.

An analysis of capitalized mortgage loan servicing rights for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	13,710		$	11,013		$	11,229
Originated servicing rights capitalized		1,823			3,210			4,006
Amortization		(2,509	)		(3,745	)		(4,679	)
Change in valuation allowance		(918	)		3,232			457
Balance at end of year	$	12,106		$	13,710		$	11,013
Valuation allowance	$	3,773		$	2,855		$	6,087
Loans sold and serviced that have had servicing rights capitalized	$	1,661,269		$	1,732,476		$	1,751,960

NOTE 5 − OTHER REAL ESTATE OWNED

During 2014 and 2013, we foreclosed on certain loans secured by real estate and transferred approximately $6.1 million and $6.9 million to other real estate in each of those years, respectively. At the time of acquisition amounts were charged-off against the allowance for loan losses to bring the carrying amount of these properties to their estimated fair values, less estimated costs to sell. During 2014 and 2013, we sold other real estate with book balances of approximately $17.2 million and $12.0 million, respectively. Gains or losses on the sale of other real estate are included in non-interest expense on the Consolidated Statements of Operations.

We periodically review our real estate owned properties and establish valuation allowances on these properties if values have declined since the date of acquisition. An analysis of our valuation allowance for other real estate owned follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	4,047		$	5,958		$	14,655
Additions charged to expense		663			2,598			3,769
Direct write-downs upon sale		(2,199	)		(4,509	)		(12,466	)
Balance at end of year	$	2,511		$	4,047		$	5,958

Other real estate and repossessed assets totaling $6.5 million and $18.3 million at December 31, 2014 and 2013, respectively, are presented net of valuation allowance.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 6 – PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31 follows:

	2014			2013
	(In thousands)
Land	$	14,904		$	14,817
Buildings		59,486			58,798
Equipment		79,809			77,452
		154,199			151,067
Accumulated depreciation and amortization		(108,251	)		(102,473	)
Property and equipment, net	$	45,948		$	48,594

Depreciation expense was $6.7 million, $6.7 million and $7.6 million in 2014, 2013 and 2012, respectively.

NOTE 7 – INTANGIBLE ASSETS

Intangible assets, net of amortization, at December 31 follows:

	2014				2013
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	3,491	$	11,037	$	7,874

Intangible amortization expense was $0.5 million, $0.8 million and $1.1 million in 2014, 2013 and 2012, respectively. During 2014, a core deposit intangible acquired in 2004 with an original balance of $4.9 million became fully amortized and was removed from the table above. In addition, $12.7 million of core deposit balances at December 31, 2013 that had been fully amortized at that date have been removed from the table above.

A summary of estimated core deposit intangible amortization at December 31, 2014, follows:

	(In thousands)
2015	$	347
2016		347
2017		346
2018		346
2019		346
2020 and thereafter		895
Total	$	2,627

NOTE 8 – DEPOSITS

A summary of interest expense on deposits for the years ended December 31 follows:

	2014		2013		2012
	(In thousands)
Savings and interest bearing checking	$	1,064	$	1,131	$	1,830
Time deposits under $100,000		2,467		2,995		4,838
Time deposits of $100,000 or more		1,436		1,580		2,245
Total	$	4,967	$	5,706	$	8,913

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Aggregate time deposits in denominations of $250,000 or more amounted to $42.8 million and $32.7 million at December 31, 2014 and 2013, respectively.

A summary of the maturity of time deposits at December 31, 2014, follows:

	(In thousands)
2015	$	239,914
2016		88,123
2017		22,569
2018		22,952
2019		15,497
2020 and thereafter		1,072
Total	$	390,127

Time deposits acquired through broker relationships totaled $11.3 million and $13.5 million at December 31, 2014 and 2013, respectively.

Reciprocal deposits totaled $53.7 million and $83.5 million at December 31, 2014 and 2013, respectively. These deposits represent demand, money market and time deposits from our customers that have been placed through Promontory Interfinancial Network’s Insured Cash Sweep® service and Certificate of Deposit Account Registry Service®. These services allow our customers to access multi-million dollar FDIC deposit insurance on deposit balances greater than the standard FDIC insurance maximum.

A summary of reciprocal deposits at December 31 follows:

	2014		2013
	(In thousands)
Demand	$	5,867	$	7,018
Money market		7,692		4,197
Time		40,109		72,312
Total	$	53,668	$	83,527

NOTE 9 – OTHER BORROWINGS

A summary of other borrowings at December 31 follows:

	2014		2013
	(In thousands)
Advances from the FHLB	$	12,464	$	17,181
Other		6		7
Total	$	12,470	$	17,188

Advances from the FHLB are secured by unencumbered qualifying mortgage and home equity loans with a market value equal to at least 135% to 159%, respectively, of outstanding advances. Advances are also secured by FHLB stock that we own, which totaled $12.3 million at December 31, 2014. Unused borrowing capacity with the FHLB (subject to the FHLB’s credit requirements and policies) was $170.4 million at December 31, 2014. Interest expense on advances amounted to $0.9 million, $1.1 million and $1.2 million for the years ended December 31, 2014, 2013 and 2012, respectively. During 2012, FHLB advances totaling $3.0 million were terminated with no realized gain or loss. No FHLB advances were terminated during 2014 or 2013.

As a member of the FHLB, we must own FHLB stock equal to the greater of 1.0% of the unpaid principal balance of residential mortgage loans or 5.0% of our outstanding advances. At December 31, 2014, we were in compliance with the FHLB stock ownership requirements.

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The maturity dates and weighted average interest rates of FHLB advances at December 31 follow:

	2014					2013
	Amount		Rate			Amount		Rate
	(Dollars in thousands)
Fixed-rate advances
2014						$	4,240		5.73	%
2016	$	2,205		6.55	%		2,313		6.55
2017		1,320		7.04			1,377		7.04
2018		5,671		5.99			5,888		5.99
2019		—					—
2020 and thereafter		3,268		7.49			3,363		7.49
Total advances	$	12,464		6.59	%	$	17,181		6.38	%

A summary of repayments of FHLB Advances at December 31, 2014, follows:

	(In thousands)
2015	$	515
2016		2,521
2017		1,587
2018		5,042
2019		143
2020 and thereafter		2,656
Total	$	12,464

We had no borrowings outstanding with the FRB during the years ended or at December 31, 2014, 2013 or 2012. We had unused borrowing capacity with the FRB (subject to the FRB’s credit requirements and policies) of $320.0 million at December 31, 2014. Collateral for FRB borrowings are certain commercial loans.

Assets, consisting of FHLB stock and loans, pledged to secure other borrowings and unused borrowing capacity totaled $753.4 million at December 31, 2014.

NOTE 10 – SUBORDINATED DEBENTURES

We have formed various special purpose entities (the “trusts”) for the purpose of issuing trust preferred securities in either public or pooled offerings or in private placements. Independent Bank Corporation owns all of the common stock of each trust and has issued subordinated debentures to each trust in exchange for all of the proceeds from the issuance of the common stock and the trust preferred securities. Trust preferred securities totaling $34.5 million and $39.5 million at December 31, 2014 and 2013, respectively, qualified as Tier 1 regulatory capital.

These trusts are not consolidated with Independent Bank Corporation and accordingly, we report the common securities of the trusts held by us in accrued income and other assets and the subordinated debentures that we have issued to the trusts in the liability section of our Consolidated Statements of Financial Condition.

Summary information regarding subordinated debentures as of December 31 follows:

		2014
Entity Name	Issue Date	Subordinated Debentures		Trust Preferred Securities Issued		Common Stock Issued
		(In thousands)
IBC Capital Finance III	May 2007	$	12,372	$	12,000	$	372
IBC Capital Finance IV	September 2007		15,465		15,000		465
Midwest Guaranty Trust I	November 2002		7,732		7,500		232
		$	35,569	$	34,500	$	1,069

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		2013
Entity Name	Issue Date	Subordinated Debentures		Trust Preferred Securities Issued		Common Stock Issued
		(In thousands)
IBC Capital Finance III	May 2007	$	12,372	$	12,000	$	372
IBC Capital Finance IV	September 2007		20,619		20,000		619
Midwest Guaranty Trust I	November 2002		7,732		7,500		232
		$	40,723	$	39,500	$	1,223

Other key terms for the subordinated debentures and trust preferred securities that were outstanding at December 31, 2014 follow:

Entity Name	Maturity Date	Interest Rate	First Permitted Redemption Date
IBC Capital Finance III	July 30, 2037	3 month LIBOR plus 1.60%	July 30, 2012
IBC Capital Finance IV	September 15, 2037	3 month LIBOR plus 2.85%	September 15, 2012
Midwest Guaranty Trust I	November 7, 2032	3 month LIBOR plus 3.45%	November 7, 2007

In the fourth quarter of 2009, we elected to defer distributions (payment of interest) on each of the subordinated debentures and trust preferred securities. The subordinated debentures and trust preferred securities are cumulative and have a feature that permits us to defer distributions (payment of interest) from time to time for a period not to exceed 20 consecutive quarters. On August 29, 2013, we brought current the interest payments that we had previously been deferring on each of the subordinated debentures which permitted the resumption of interest payments on the trust preferred securities.

We have the right to redeem the subordinated debentures and trust preferred securities (at par) in whole or in part from time to time on or after the first permitted redemption date specified above or upon the occurrence of specific events defined within the trust indenture agreements. During 2014, we redeemed trust preferred securities issued by IBC Capital Finance IV with a par value of $5.0 million. These trust preferred securities were redeemed at a discount of $0.5 million and we recognized a gain on extinguishment of debt in our Consolidated Statements of Operations for this same amount. During 2013, we redeemed, at par, trust preferred securities issued by IBC Capital Finance II with a par value of $9.2 million.

Issuance costs have been capitalized and are being amortized on a straight- line basis over a period not exceeding 30 years and are included in interest expense in the Consolidated Statements of Operations. Distributions (payment of interest) on the trust preferred securities are also included in interest expense in the Consolidated Statements of Operations.

NOTE 11 – COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of business, we enter into financial instruments with off-balance sheet risk to meet the financing needs of customers or to reduce exposure to fluctuations in interest rates. These financial instruments may include commitments to extend credit and standby letters of credit. Financial instruments involve varying degrees of credit and interest-rate risk in excess of amounts reflected in the Consolidated Statements of Financial Condition. Exposure to credit risk in the event of non-performance by the counterparties to the financial instruments for loan commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. We do not, however, anticipate material losses as a result of these financial instruments.

A summary of financial instruments with off-balance sheet risk at December 31 follows:

	2014		2013
	(In thousands)
Financial instruments whose risk is represented by contract amounts
Commitments to extend credit	$	204,827	$	180,829
Standby letters of credit		2,757		4,262

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and generally require payment of a fee. Since commitments may expire without being drawn upon, the commitment amounts do not represent future cash requirements. Commitments are issued subject to similar underwriting standards, including collateral requirements, as are generally involved in the extension of credit facilities.

Standby letters of credit are written conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in such transactions is essentially the same as that involved in extending loan facilities and, accordingly, standby letters of credit are issued subject to similar underwriting standards, including collateral requirements, as are generally involved in the extension of credit facilities. The majority of the standby letters of credit are to corporations, have variable rates that range from 2.5% to 8.25% and mature through 2018.

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 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. At this time, we estimate the maximum 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, 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.

Our Mepco segment conducts its payment plan business activities across the United States. Mepco acquires the payment plans from companies (which we refer to as Mepco’s “counterparties”) at a discount from the face amount of the payment plan. Each payment plan (which are classified as payment plan receivables in our Consolidated Statements of Financial Condition) permits a consumer to purchase a vehicle 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 thereafter collects the payments from consumers. In acquiring the payment plan, Mepco generally funds a portion of the cost to the seller of the service contract and a portion of the cost to the administrator of the service contract. The administrator, in turn, pays the necessary contractual liability insurance policy (“CLIP”) premium to the insurer or risk retention group.

Consumers are allowed to voluntarily cancel the service contract at any time and are generally entitled to receive a refund from the administrator of the unearned portion of the service contract at the time of cancellation. As a result, while Mepco does not owe any refund to the consumer, it also does not have any recourse against the consumer for nonpayment of a payment plan and therefore does not evaluate the creditworthiness of the individual consumer. If a consumer stops making payments on a payment plan or exercises the right to voluntarily cancel the service contract, the service contract seller and administrator are each obligated to refund to Mepco the amount necessary to make Mepco whole as a result of its funding of the service contract. In addition, the insurer or risk retention group that issued the CLIP for the service contract often guarantees all or a portion of the refund to Mepco. See note #4 above for a breakdown of Mepco’s payment plan receivables by the level of recourse Mepco has against various counterparties.

Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected. These amounts represent funds actually due to Mepco from its counterparties for cancelled service contracts. At December 31, 2014, the aggregate amount of such obligations owing to Mepco by

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

counterparties, net of write-downs and reserves made through the recognition of vehicle service contract counterparty contingencies expense, totaled $7.2 million. This compares to a balance of $7.7 million at December 31, 2013. Mepco is currently in the process of working to recover these receivables, primarily through litigation against counterparties.

In some cases, Mepco requires collateral or guaranties by the principals of the counterparties to secure these refund obligations; however, this is generally only the case when no rated insurance company is involved to guarantee the repayment obligation of the seller and administrator counterparties. 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 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. The sudden failure of one of Mepco’s major counterparties (an insurance company, administrator, or seller/dealer) could expose us to significant losses.

When counterparties do not honor their contractual obligations to Mepco to repay funds, we recognize estimated losses. Mepco pursues collection (including commencing legal action if necessary) of funds due to it under its various contracts with counterparties. Mepco has had to initiate litigation against certain counterparties, including third party insurers, to collect amounts owed to Mepco as a result of those parties' dispute of their contractual obligations to Mepco. For 2014, 2013 and 2012, non-interest expenses include $0.2 million, $4.8 million and $1.6 million, respectively, of charges related to estimated losses for vehicle service contract counterparty contingencies. The significant decrease in this expense in 2014 (from 2013) is due to 2013 including write-downs of vehicle service contract counterparty receivables related to settlements of certain litigation to collect these receivables. Given the costs and uncertainty of continued litigation, we determined it was in our best interest to resolve these matters. These charges are being classified in non-interest expense because they are associated with a default or potential default of a contractual obligation under our counterparty contracts as opposed to loss on the administration of the payment plan itself.

Our estimate of probable incurred losses from vehicle service contract counterparty contingencies 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, our evaluation of collateral that may be available to recover funds due from our counterparties, and our assessment of the amount that may ultimately be collected from counterparties in connection with their contractual obligations. We apply a rigorous process, based upon historical payment plan activity and past experience, to estimate probable incurred losses and quantify the necessary reserves for our vehicle service contract counterparty contingencies, but there can be no assurance that our modeling process will successfully identify all such losses.

We believe our assumptions regarding the collection of vehicle service contract counterparty receivables are reasonable, and we based them on our good faith judgments using data currently available. We also believe the current amount of reserves we have established and the vehicle service contract counterparty contingencies expense that we have recorded are appropriate given our estimate of probable incurred losses at the applicable Consolidated Statement of Financial Condition date. However, because of the uncertainty surrounding the numerous and complex assumptions made, actual losses could exceed the charges we have taken to date.

An analysis of our vehicle service contract counterparty receivable, net follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year, net of reserve	$	7,716		$	18,449		$	29,298
Transfers in from payment plan receivables		180			792			1,469
Reserves established and charge-offs recorded to expense		(199	)		(4,837	)		(1,629	)
Transferred to (from) contingency reserves		(75	)		63			(108	)
Cash received		(385	)		(6,751	)		(7,413	)
Collateral received (other real estate and repossessed assets) in partial satisfaction of debt		—			—			(3,168	)
Balance at end of year, net of reserve	$	7,237		$	7,716		$	18,449
Reserve at end of year	$	1,370		$	1,300		$	2,000

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

An analysis of our vehicle service contract counterparty reserve follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	1,375		$	2,012		$	32,570
Additions charged to expense		199			4,837			1,629
Charge-offs, net		(204	)		(5,474	)		(32,187	)
Balance at end of year	$	1,370		$	1,375		$	2,012
Reserves recorded in VSC counterparty receivables, net	$	1,370		$	1,300		$	2,000
Reserves recorded in accrued expenses and other liabilities		—			75			12
Total at end of year	$	1,370		$	1,375		$	2,012

The provision for loss reimbursement on sold loans represents our estimate of incurred losses related to mortgage loans that we have sold to investors (primarily Fannie Mae and Freddie Mac). Since we sell mortgage loans without recourse, loss reimbursements only occur in those instances where we have breached a representation or warranty or other contractual requirement related to the loan sale. Historically, loss reimbursements on mortgage loans sold without recourse were rare. In 2009, we had only one actual loss reimbursement (for $0.06 million). Prior to 2009, we had years in which we incurred no such loss reimbursements. However, our loss reimbursements increased from 2010 to 2013 as Fannie Mae and Freddie Mac, in particular, were doing more reviews of mortgage loans where they had incurred or expected to incur a loss and were more aggressive in pursuing loss reimbursements from the sellers of such mortgage loans. In November 2013, we executed a Resolution Agreement with Fannie Mae to resolve our existing and future repurchase and make whole obligations (collectively “Repurchase Obligations”) related to mortgage loans originated between January 1, 2000 and December 31, 2008 and delivered to them by January 31, 2009. Under the terms of the Resolution Agreement, we paid Fannie Mae approximately $1.5 million in November 2013 with respect to the Repurchase Obligations. We believe that it was in our best interest to execute the Resolution Agreement in order to bring finality to the loss reimbursement exposure with Fannie Mae for these years and reduce the resources spent on individual file reviews and defending loss reimbursement requests. In addition, we were notified by Freddie Mac in January 2014 that they had completed their review of mortgage loans that we originated between January 1, 2000 and December 31, 2008 and delivered to them. The reserve for loss reimbursements on sold mortgage loans totaled $0.7 million and $1.4 million at December 31, 2014 and 2013, respectively. This reserve is included in accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. This reserve is based on an analysis of mortgage loans that we have sold which are further categorized by delinquency status, loan to value, and year of origination. The calculation includes factors such as probability of default, probability of loss reimbursement (breach of representation or warranty) and estimated loss severity. The reserve levels at December 31, 2014 and 2013 also reflect the resolution of the mortgage loan origination years of 2000 to 2008 with Fannie Mae and Freddie Mac. We believe that the amounts that we have accrued for incurred losses on sold mortgage loans are appropriate given our analyses. However, future losses could exceed our current estimate.

NOTE 12 – SHAREHOLDERS’ EQUITY AND INCOME PER COMMON SHARE

On July 26, 2013, we executed a Securities Purchase Agreement (“SPA”) with the U.S. Department of the Treasury (“UST”). Under the terms of the SPA, we agreed to purchase from the UST for $81.0 million in cash 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 Preferred Stock”), including all accrued and unpaid dividends; and (ii) the Amended and Restated Warrant to purchase 346,154 shares of our common stock at an exercise price of $7.234 per share and expiring on December 12, 2018 (the “Amended Warrant”). On August 30, 2013, we closed the SPA transaction with the UST and we exited the Troubled Asset Relief Program (“TARP”). On that date, the Series B Preferred Stock and Amended Warrant had book balances of $87.2 million (including accrued dividends) and $1.5 million, respectively. This transaction resulted in a discount of $7.7 million, of which $7.6 million was allocated to the Series B Preferred Stock and included in net income applicable to common stock and $0.1 million was allocated to the Amended Warrant and recorded to common stock.

On August 28, 2013, we sold 11.5 million shares of our common stock for gross proceeds of $89.1 million in a public offering and on September 10, 2013, we sold an additional 1.725 million shares of our common stock for

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

gross proceeds of $13.4 million pursuant to the underwriters’ overallotment option (collectively, the “Common Stock Offering”). The net proceeds from the Common Stock Offering were approximately $97.1 million.

On November 15, 2011, we entered into a Tax Benefits Preservation Plan (the “Preservation Plan”) with our stock transfer agent, American Stock Transfer & Trust Company. Our Board of Directors adopted the Preservation Plan in an effort to protect the value to our shareholders of our ability to use deferred tax assets, such as net operating loss carry forwards, to reduce potential future federal income tax obligations. Under federal tax rules, this value could be lost in the event we experienced an “ownership change,” as defined in Section 382 of the federal Internal Revenue Code. The Preservation Plan attempts to protect this value by reducing the likelihood that we will experience such an ownership change by discouraging any person who is not already a 5% shareholder from becoming a 5% shareholder (with certain limited exceptions).

On November 15, 2011, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of our common stock under the terms of the Preservation Plan. The dividend is payable to the holders of common stock outstanding as of the close of business on November 15, 2011, or outstanding at any time thereafter but before the earlier of a “Distribution Date” and the date the Preservation Plan terminates. Each Right entitles the registered holder to purchase from us 1/1000 of a share of our Series C Junior Participating Preferred Stock, no par value per share (“Series C Preferred Stock”). Each 1/1000 of a share of Series C Preferred Stock has economic and voting terms similar to those of one whole share of common stock. The Rights are not exercisable and generally do not become exercisable until a person or group has acquired, subject to certain exceptions and conditions, beneficial ownership of 4.99% or more of the outstanding shares of common stock. At that time, each Right will generally entitle its holder to purchase securities of the Company at a discount of 50% to the current market price of the common stock. However, the Rights owned by the person acquiring beneficial ownership of 4.99% or more of the outstanding shares of common stock would automatically be void. The significant dilution that would result is expected to deter any person from acquiring beneficial ownership of 4.99% or more and thereby triggering the Rights.

To date, none of the Rights have been exercised or have become exercisable because no unpermitted 4.99% or more change in the beneficial ownership of the outstanding common stock has occurred. The Rights will generally expire on the earlier to occur of the close of business on November 15, 2016 and certain other events described in the Preservation Plan, including such date as our Board of Directors determines that the Preservation Plan is no longer necessary for its intended purposes.

A reconciliation of basic and diluted net income per common share for the years ended December 31 follows:

	2014		2013			2012
	(In thousands, except per share amounts)
Net income applicable to common stock	$	18,021	$	82,062		$	21,851
Convertible preferred stock dividends		—		3,001			4,347
Preferred stock discount		—		(7,554	)		—
Net income applicable to common stock for calculation of diluted earnings per share	$	18,021	$	77,509		$	26,198
Weighted average shares outstanding (1)		22,927		13,970			8,709
Restricted stock units		306		363			216
Effect of stock options		124		92			2
Stock units for deferred compensation plan for non-employee directors		114		125			66
Effect of convertible preferred stock		—		7,314			23,892
Weighted average shares outstanding for calculation of diluted earnings per share		23,471		21,864			32,885
Net income per common share
Basic (1)	$	0.79	$	5.87		$	2.51
Diluted	$	0.77	$	3.55		$	0.80

(1) Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Weighted average stock options outstanding that were not considered in computing diluted net income per common share because they were anti-dilutive totaled 0.03 million, 0.1 million and 0.1 million for 2014, 2013 and 2012, respectively. The Amended Warrant issued to the UST to purchase 346,154 shares of our common stock was also not considered in computing the diluted net income per common share in 2013 and 2012 as it was anti-dilutive.

NOTE 13 – INCOME TAX

The composition of income tax expense (benefit) for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Current	$	(359	)	$	(277	)	$	—
Deferred		7,672			—			—
Disproportionate tax effect		—			1,444			—
Valuation allowance-change in estimate		(118	)		(56,018	)		—
Income tax expense (benefit)	$	7,195		$	(54,851	)	$	—

Income tax expense (benefit) was $7.2 million, $(54.9) million and zero during the years ended December 31, 2014, 2013 and 2012. Prior to the second quarter of 2013, we had established a deferred tax asset valuation allowance against all of our net deferred tax assets. The reversal of substantially all of this valuation allowance on our deferred tax assets during the second quarter of 2013 resulted in our recording an income tax benefit of $57.6 million. In addition, during the second quarter of 2013, we recorded $1.4 million of income tax expense to clear from accumulated other comprehensive loss (“AOCL”) the disproportionate tax effects from cash flow hedges. These disproportionate tax effects had been charged to other comprehensive income and credited to income tax expense due to our valuation allowance on deferred tax assets as more fully discussed in note #24 to the Consolidated Financial Statements. Because we terminated our last remaining cash flow hedge in the second quarter of 2013, it was appropriate to clear these disproportionate tax effects from AOCL. During 2012, income tax expense related to income before income tax was largely offset by the change in the deferred tax valuation allowance. As a result, we recorded no income tax expense or benefit in 2012.

The income tax expense (benefit) in the Consolidated Statements of Operations also includes income taxes in a variety of other states due primarily to Mepco’s operations. The amounts of such state income taxes were an expense (benefit) of zero, $(0.2) million, and zero in 2014, 2013 and 2012, respectively.

The deferred income tax expense of $7.7 million during 2014 can be primarily attributed to tax effects of temporary differences. The deferred income tax benefit of $56.0 million during 2013 is attributed to the reversal of our deferred tax valuation allowance on primarily all of our deferred tax assets.

A reconciliation of income tax benefit to the amount computed by applying the statutory federal income tax rate of 35% in each year presented to the income before income tax for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Statutory rate applied to income before income tax	$	8,826		$	7,930		$	9,169
Unrecognized tax benefit		(595	)		(186	)		—
Tax-exempt income		(522	)		(402	)		(453	)
Bank owned life insurance		(480	)		(477	)		(568	)
Net change in valuation allowance		(118	)		(63,980	)		(8,730	)
Non-deductible meals, entertainment and memberships		53			55			55
Disproportionate tax effect		—			1,444			—
U.S. Treasury warrant		—			359			100
Share-based compensation		—			8			258
Other, net		31			398			169
Income tax expense (benefit)	$	7,195		$	(54,851	)	$	—

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 follow:

	2014			2013
	(In thousands)
Deferred tax assets
Loss carryforwards	$	32,933		$	38,027
Allowance for loan losses		9,099			11,317
Fixed assets		3,239			3,081
Alternative minimum tax credit carry forward		3,037			2,672
Purchase premiums, net		2,050			2,280
Valuation allowance on other real estate owned		879			1,431
Share based payments		684			402
Unrealized loss on trading securities		559			456
Vehicle service contract counterparty contingency reserve		521			523
Deferred compensation		448			523
Other than temporary impairment charge on securities available for sale		436			466
Non accrual loan interest income		244			325
Loss reimbursement on sold loans reserve		242			492
Reserve for unfunded lending commitments		189			178
Unrealized loss on derivative financial instruments		—			133
Unrealized loss on securities available for sale		—			1,723
Other		—			40
Gross deferred tax assets		54,560			64,069
Valuation allowance		(1,019	)		(1,137	)
Total net deferred tax assets		53,541			62,932
Deferred tax liabilities
Mortgage servicing rights		4,237			4,799
Deferred loan fees		260			265
Federal Home Loan Bank stock		196			318
Unrealized gain on securities available for sale		87			—
Other		129			—
Gross deferred tax liabilities		4,909			5,382
Net deferred tax assets	$	48,632		$	57,550

We assess whether a valuation allowance on our deferred tax assets is necessary each quarter. Reversing or reducing the valuation allowance requires us to conclude that the realization of the deferred tax assets is “more likely than not.” The ultimate realization of this asset is primarily based on generating future income. As of June 30, 2013, we concluded that the realization of substantially all of our deferred tax assets was now more likely than not. This conclusion was primarily based upon the following factors:

• Achieving a sixth consecutive quarter of profitability;

• A forecast of future profitability that supported that the realization of the deferred tax assets is more likely than not; and

• A forecast that future asset quality continued to be stable to improving and that other factors did not exist that could cause a significant adverse impact on future profitability.

We have also concluded subsequent to June 30, 2013, that the realization of substantially all of our deferred tax assets continues to be more likely than not for substantially the same reasons as enumerated above, including six additional profitable quarters since June 30, 2013.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The valuation allowance against our deferred tax assets totaled $1.0 million and $1.1 million at December 31, 2014 and 2013, respectively. The valuation allowance against our deferred tax assets at December 31, 2014 primarily relates to state income taxes from our Mepco segment. In this instance, we determined that the future realization of these particular deferred tax assets was not more likely than not. This conclusion was primarily based on the uncertainty of Mepco’s future earnings attributable to particular states (given the various apportionment criteria) and the significant reduction in the size of Mepco’s business over the past three years.

Because of our net operating loss and tax credit carryforwards, we are still subject to the rules of Section 382 of the Internal Revenue Code of 1986, as amended. An ownership change, as defined by these rules, would negatively affect our ability to utilize our net operating loss carryforwards and other deferred tax assets in the future. If such an ownership change were to occur, we may suffer higher-than-anticipated tax expense, and consequently lower net income and cash flow, in those future years. Although we cannot control our shareholders’ activities in buying and selling our common stock, we do have in place a Tax Benefits Preservation Plan to dissuade any movement in our stock that would trigger an ownership change, and we limited the size of our Common Stock Offering to avoid triggering any Section 382 limitations.

At December 31, 2014, we had federal net operating loss (“NOL”) carryforwards of approximately $92.4 million which, if not used against taxable income, will expire as follows:

	(In thousands)
2029	$	11,285
2030		26,254
2031		17,170
2032		37,739
Total	$	92,448

$1.2 million of NOL carryforwards in the table above relate to unrealized excess benefits on share based compensation for which a benefit will be recorded to additional paid in capital (common stock) when realized. We also had a minor amount of state NOL carryforwards in certain states where Mepco operates. In addition, we had $3.0 million of alternative minimum tax credit carryforwards with indefinite lives at December 31, 2014.

Changes in unrecognized tax benefits for the years ended December 31 follow:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	1,672		$	1,871		$	2,139
Additions based on tax positions related to the current year		18			11			15
Reductions due to the statute of limitations		(595	)		(186	)		(56	)
Reductions due to settlements		(4	)		(24	)		(227	)
Balance at end of year	$	1,091		$	1,672		$	1,871

If recognized, the entire amount of unrecognized tax benefits, net of $0.4 million of federal tax on state benefits, would affect our effective tax rate. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. No amounts were expensed for interest and penalties for the years ended December 31, 2014, 2013 and 2012. No amounts were accrued for interest and penalties at December 31, 2014, 2013 or 2012. At December 31, 2014, U.S. Federal tax years 2011 through the present remain open to examination.

NOTE 14 – SHARE BASED COMPENSATION AND BENEFIT PLANS

We maintain share based payment plans that include a non-employee director stock purchase plan and a long-term incentive plan that permits the issuance of share based compensation, including stock options and non-vested share awards. The long-term incentive plan, which is shareholder approved, permits the grant of additional share based awards for up to 0.4 million shares of common stock as of December 31, 2014. The non-employee director stock purchase plan permits the grant of additional share based payments for up to 0.2 million

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

shares of common stock as of December 31, 2014. Share based awards and payments are measured at fair value at the date of grant and are expensed over the requisite service period. Common shares issued upon exercise of stock options come from currently authorized but unissued shares.

During 2014, pursuant to our long-term incentive plan, we granted 0.1 million shares of restricted stock and 0.03 million performance stock units (“PSUs”) to certain officers. The shares of restricted stock vest ratably over three years and the PSUs cliff vest after a period of three years. The performance feature of the PSUs is based on a comparison of our total shareholder return over the three year period starting on the grant date to the total shareholder return over that period for a banking index of our peers.

We issued 0.1 million and 0.2 million restricted stock units to certain of our executive officers during 2013 and 2012, respectively. These restricted stock units do not vest for a minimum of three years. We use the market value of the common stock on the date of grant to measure compensation cost for non-vested share awards.

During 2013 and 2012, pursuant to our performance-based compensation plans, we granted 0.1 million stock options in each period to certain officers. The stock options have an exercise price equal to the market value on the date of grant, vest ratably over a three year period and expire 10 years from date of grant. We use the Black Scholes option pricing model to measure compensation cost for stock options. We also estimate expected forfeitures over the vesting period.

Our directors may elect to receive at least a portion of their quarterly cash retainer fees in the form of common stock (either on a current basis or on a deferred basis) pursuant to the non-employee director stock purchase plan referenced above. Shares equal in value to that portion of each director’s fees that he or she has elected to receive in stock are issued each quarter and vest immediately. We issued 0.01 million shares, 0.06 million shares and 0.21 million shares to directors during 2014, 2013 and 2012, respectively, and expensed their value during those same periods.

During 2013 and 2012, a portion of our president’s annual salary was paid in the form of common stock. The annual amount paid in common stock (also referred to as “salary stock”) was $0.020 million and $0.015 million for 2013 and 2012, respectively. During 2012, pursuant to a management transition plan, $0.2 million of our former chief executive officer’s annual salary was paid in the form of salary stock. These shares were issued each pay period and vested immediately. No salary stock was paid during 2014.

Total compensation expense recognized for grants pursuant to our long-term incentive plan was $1.0 million, $0.9 million and $0.4 million in 2014, 2013 and 2012, respectively. The corresponding tax benefit relating to this expense was $0.4 million in 2014 and zero in both 2013 and 2012. Total expense recognized for non-employee director share based payments was $0.2 million, $0.3 million and $0.4 million in 2014, 2013 and 2012, respectively. The corresponding tax benefit relating to this expense was $0.1 million in 2014 and zero in both 2013 and 2012.

At December 31, 2014, the total expected compensation cost related to non-vested stock options, restricted stock, PSUs and restricted stock unit awards not yet recognized was $1.6 million. The weighted-average period over which this amount will be recognized is 1.7 years.

A summary of outstanding stock option grants and related transactions follows:

	Number of Shares			Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregated Intrinsic Value
								(In thousands)
Outstanding at January 1, 2014		320,300		$	4.52
Granted		—
Exercised		(32,896	)		2.93
Forfeited		(5,300	)		5.22
Expired		(284	)		3.46
Outstanding at December 31, 2014		281,820		$	4.69		7.10	$	2,431
Vested and expected to vest at December 31, 2014		277,216		$	4.69		7.08	$	2,394
Exercisable at December 31, 2014		198,884		$	4.62		6.68	$	1,752

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of outstanding non-vested stock and related transactions follows:

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2014		303,980		$	3.77
Granted		105,624			13.79
Vested		—
Forfeited		(2,474	)		13.34
Outstanding at December 31, 2014		407,130		$	6.31

A summary of the weighted-average assumptions used in the Black-Scholes option pricing model for grants of stock options follows (no stock options were granted in 2014):

	2013			2012
Expected dividend yield		0.31	%		0.74	%
Risk-free interest rate		1.12			0.88
Expected life (in years)		6.00			6.00
Expected volatility		101.30	%		100.01	%
Per share weighted-average grant date fair value	$	4.98		$	2.04

The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life was obtained using a simplified method that, in general, averaged the vesting term and original contractual term of the stock option. This method was used as relevant historical data of actual exercise activity was very limited. The expected volatility was based on historical volatility of our common stock.

Certain information regarding options exercised during the periods ending December 31 follows:

	2014		2013		2012
	(In thousands)
Intrinsic value	$	321	$	117	$	3
Cash proceeds received	$	96	$	39	$	4
Tax benefit realized	$	112	$	—	$	—

We maintain 401(k) and employee stock ownership plans covering substantially all of our full-time employees. We have historically matched employee contributions to the 401(k) plan up to a maximum of 3% of participating employees’ eligible wages. The match of employee contributions was 2% in 2014, 1% in 2013 and zero in 2012. Contributions to the employee stock ownership plan are determined annually and require approval of our Board of Directors. The maximum contribution is 6% of employees’ eligible wages. Contributions to the employee stock ownership plan were 2% for 2014 and 3% for 2013 and 2012. Amounts expensed for these retirement plans were $1.0 million, $1.2 million, and $1.0 million in 2014, 2013 and 2012, respectively.

Our officers participate in various performance-based compensation plans. Amounts expensed for all incentive plans totaled $4.2 million, $5.0 million and $4.0 million, in 2014, 2013 and 2012, respectively.

We also provide certain health care and life insurance programs to substantially all full-time employees. Amounts expensed for these programs totaled $3.9 million, $3.8 million and $4.9 million in 2014, 2013 and 2012 respectively. These insurance programs are also available to retired employees at their own expense.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 15 – OTHER NON-INTEREST INCOME

Other non-interest income for the years ended December 31 follows:

	2014		2013		2012
	(In thousands)
Investment and insurance commissions	$	1,814	$	1,709	$	2,146
ATM fees		1,599		1,661		2,140
Bank owned life insurance		1,371		1,363		1,622
Other real estate rental income		1,295		1,471		1,773
Other		2,852		2,333		3,353
Total other non-interest income	$	8,931	$	8,537	$	11,034

NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS

We are required to record derivatives on our Consolidated Statements of Financial Condition as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

Our derivative financial instruments according to the type of hedge in which they are designated at December 31 follow:

	2014
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	16,759		0.1	$	437
Mandatory commitments to sell mortgage loans		38,600		0.1		(184	)
Pay-fixed interest rate swap agreements		3,300		9.4		(182	)
Pay-variable interest rate swap agreements		3,300		9.4		182
Total	$	61,959		1.1	$	253

	2013
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	15,754		0.1	$	366
Mandatory commitments to sell mortgage loans		35,412		0.1		128
Total	$	51,166		0.1	$	494

We have established management objectives and strategies that include interest-rate risk parameters for maximum fluctuations in net interest income and market value of portfolio equity. We monitor our interest rate risk position via simulation modeling reports. The goal of our asset/liability management efforts is to maintain profitable financial leverage within established risk parameters.

To meet our asset/liability management objectives, we may periodically enter into derivative financial instruments to mitigate exposure to fluctuations in cash flows resulting from changes in interest rates (“Cash Flow Hedges”). Cash Flow Hedges during 2013 and 2012 included certain pay-fixed interest rate swaps which converted the variable-rate cash flows on debt obligations to fixed-rates. During the second quarter of 2013 we terminated our

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

last Cash Flow Hedge pay-fixed interest rate swap and paid a termination fee of $0.6 million. The remaining unrealized loss on the terminated pay-fixed interest rate swap which was equal to this termination fee is included in accumulated other comprehensive income and is being amortized into earnings over the remaining original life of the pay-fixed interest rate swap.

Through certain special purposes entities (see note #10) we issued trust preferred securities as part of our capital management strategy. Certain of these trust preferred securities are variable rate which exposes us to variability in cash flows. To mitigate our exposure to fluctuations in cash flows resulting from changes in interest rates, on approximately $20.0 million of variable rate trust preferred securities, we entered into a pay-fixed interest rate swap agreement in September, 2007. During the fourth quarter of 2009, we elected to defer payment of interest on these variable rate trust preferred securities. As a result, this pay-fixed interest rate swap was transferred to a no hedge designation and the $1.6 million unrealized loss, which was included as a component of accumulated other comprehensive loss at the time of the transfer, was reclassified into earnings through September 2012, which was the remaining life of this pay-fixed interest rate swap.

Certain derivative financial instruments have not been designated as hedges. The fair value of these derivative financial instruments has been recorded on our Consolidated Statements of Financial Condition and is adjusted on an ongoing basis to reflect their then current fair value. The changes in fair value of derivative financial instruments not designated as hedges are recognized in earnings.

In the ordinary course of business, we enter into rate-lock mortgage loan commitments with customers (“Rate-Lock Commitments”). These commitments expose us to interest rate risk. We also enter into mandatory commitments to sell mortgage loans (“Mandatory Commitments”) to reduce the impact of price fluctuations of mortgage loans held for sale and Rate-Lock Commitments. Mandatory Commitments help protect our loan sale profit margin from fluctuations in interest rates. The changes in the fair value of Rate Lock Commitments and Mandatory Commitments are recognized currently as part of net gains on mortgage loans. We obtain market prices on Mandatory Commitments and Rate-Lock Commitments. Net gains on mortgage loans, as well as net income, may be more volatile as a result of these derivative instruments, which are not designated as hedges.

During 2014, we began a program that allows commercial loan customers to lock in a fixed rate for a longer period of time than we would normally offer for interest rate risk reasons. We will enter into a variable rate commercial loan and an interest rate swap agreement with a customer and then enter into an offsetting interest rate swap agreement with an unrelated party. The interest rate swap agreement fair values will generally move in opposite directions resulting in little or no net impact on our Consolidated Statements of Operations. All of the interest rate swap agreements in the table above relate to this program.

During the second quarter of 2014, we completed a securities trade in which we shorted a $13 million UST security. This UST short was terminated during the fourth quarter of 2014 and the change in the fair value of the short position from the inception date to the termination date has been recorded in gain on securities in our Consolidated Statements of Operations.

During 2010, we entered into an amended and restated warrant with the UST that would allow them to purchase our common stock at a fixed price (see Note #12). Because of certain anti-dilution features included in the Amended Warrant, it was not considered to have been indexed to our common stock and was therefore accounted for as a derivative instrument and recorded as a liability. Any change in value of the Amended Warrant while it was accounted for as a derivative was recorded in other income in our Consolidated Statements of Operations. However, the anti-dilution features in the Amended Warrant which caused it to be accounted for as a derivative and included in accrued expenses and other liabilities expired on April 16, 2013. As a result, the Amended Warrant was reclassified into shareholders’ equity on that date at its then fair value which totaled $1.5 million. During the third quarter of 2013, we repurchased the Amended Warrant from the UST (see Note #12).

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables illustrate the impact that the derivative financial instruments discussed above have on individual line items in the Consolidated Statements of Financial Condition for the periods presented:

Fair Values of Derivative Instruments

	Asset Derivatives						Liability Derivatives
	December 31,						December 31,
	2014			2013			2014			2013
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Derivatives not designated as hedging instruments
Rate-lock mortgage loan commitments	Other assets	$	437	Other assets	$	366	Other liabilities	$	—	Other liabilities	$	—
Mandatory commitments to sell mortgage loans	Other assets		—	Other assets		128	Other liabilities		184	Other liabilities		—
Pay-fixed interest rate swap agreements	Other assets		—	Other assets		—	Other liabilities		182	Other liabilities		—
Pay-variable interest rate swap agreements	Other assets		182	Other assets		—	Other liabilities		—	Other liabilities		—
Total derivatives		$	619		$	494		$	366		$	—

The effect of derivative financial instruments on the Consolidated Statements of Operations follows:

	Year Ended December 31,
	Gain (Loss) Recognized in Other Comprehensive Income (Loss) (Effective Portion)								Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Effective Portion)		Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)									Location of Gain (Loss) Recognized in Income (1)	Gain (Loss) Recognized into Income (1)
	2014		2013			2012					2014			2013			2012				2014			2013			2012
	(In thousands)
Cash Flow Hedges
Pay-fixed interest rate swap agreements	$	—	$	(37	)	$	(127	)		Interest expense	$	(380	)	$	(397	)	$	(927	)	Interest expense	$	—		$	—		$	—
Total	$	—	$	(37	)	$	(127	)			$	(380	)	$	(397	)	$	(927	)		$	—		$	—		$	—
No hedge designation
Rate-lock mortgage loan commitments																				Mortgage loan    gains	$	71		$	(1,002	)	$	511
Mandatory commitments to sell mortgage loans																				Mortgage loan    gains		(312	)		250			484
Pay-fixed interest rate swap agreements																				Interest    income		(182	)		—			—
Pay-variable interest rate swap agreements																				Interest    income		182			—			—
UST short position																				Gain on    securities		295			—			—
Amended Warrant																				Decrease in    fair value of    U.S. Treasury    warrant		—			(1,025	)		(285	)
Total																					$	54		$	(1,777	)	$	710

(1) For cash flow hedges, this location and amount refers to the ineffective portion.

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 17 – RELATED PARTY TRANSACTIONS

Certain of our directors and executive officers, including companies in which they are officers or have significant ownership, were loan and deposit customers during 2014 and 2013.

A summary of loans to our directors and executive officers whose borrowing relationship (which includes loans to entities in which the individual owns a 10% or more voting interest) exceeds $60,000 for the years ended December 31 follows:

	2014			2013
	(In thousands)
Balance at beginning of year	$	351		$	208
New loans and advances		−			240
Repayments		(135	)		(97	)
Balance at end of year	$	216		$	351

Deposits held by us for directors and executive officers totaled $1.0 million and $0.8 million at December 31, 2014 and 2013, respectively.

NOTE 18 – LEASES

We have non-cancelable operating leases for certain office facilities, some of which include renewal options and escalation clauses.

A summary of future minimum lease payments under non-cancelable operating leases at December 31, 2014, follows:

	(In thousands)
2015	$	1,254
2016		767
2017		686
2018		652
2019		561
2020 and thereafter		783
Total	$	4,703

Rental expense on operating leases totaled $1.3 million, $1.2 million and $1.2 million in 2014, 2013 and 2012, respectively.

NOTE 19 – CONCENTRATIONS OF CREDIT RISK

Credit risk is the risk to earnings and capital arising from an obligor’s failure to meet the terms of any contract with our organization or otherwise fail to perform as agreed. Credit risk can occur outside of our traditional lending activities and can exist in any activity where success depends on counterparty, issuer or borrower performance. Concentrations of credit risk (whether on- or off-balance sheet) arising from financial instruments can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries or certain geographic regions. Credit risk associated with these concentrations could arise when a significant amount of loans or other financial instruments, related by similar characteristics, are simultaneously impacted by changes in economic or other conditions that cause their probability of repayment or other type of settlement to be adversely affected. Our major concentrations of credit risk arise by collateral type and by industry. The significant concentrations by collateral type at December 31, 2014, include $519.6 million of loans secured by residential real estate and $54.6 million of construction and development loans. In addition, we have a concentration of credit within the vehicle service contract industry. At December 31, 2014, we had $40.0 million of payment plan receivables. Our recourse for nonpayment of these payment plan receivables is against our counterparties operating within the vehicle service contract industry.

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Additionally, within our commercial real estate and commercial loan portfolio, we had significant standard industry classification concentrations in the following categories as of December 31, 2014: Lessors of Nonresidential Real Estate ($222.8 million); Lessors of Residential Real Estate ($66.4 million); Health Care and Social Assistance ($65.9 million) and Construction General Contractors and Land Development ($59.3 million). A geographic concentration arises because we primarily conduct our lending activities in the State of Michigan.

Our concentration of credit within the vehicle service contract industry relates to the business operated by our subsidiary, Mepco. This business and certain risks associated with this business are described in note #11 above. In addition, see note #4 above for a breakdown of Mepco’s payment plan receivables by the level of recourse Mepco has against various counterparties. Mepco monitors counterparty concentrations in order to attempt to manage our exposure for contractual obligations from its counterparties. In addition, even where an insurance company or risk retention group does not have a guarantee obligation to Mepco, the failure of the insurance company or risk retention group could result in a mass cancellation of the vehicle service contracts (and the related payment plans) insured by such entity. Such a mass cancellation would trigger and accelerate the contractual obligations of the counterparties that did have such obligations to Mepco. The counterparty concentration levels are managed based on the AM Best rating and statutory surplus level for an insurance company and on other factors including financial evaluation, collateral, funding holdbacks, guarantees, and distribution of concentrations for vehicle service contract administrators and vehicle service contract sellers/dealers.

The five largest concentrations by insurance company, risk retention group or other party backing the service contract represents approximately 27.1%, 25.0%, 17.2%, 15.5% and 12.5%, respectively, of Mepco’s payment plan receivables at December 31, 2014. These companies have provided the insurance coverage for the vehicle service contracts underlying the payment plan receivables; however, these companies are not all obligated to Mepco for the repayment of the payment plan receivables upon cancellation of the underlying vehicle service contracts and payment plans. Mepco has varying levels of recourse against such companies. Still, the failure of any insurer backing service contracts related to Mepco’s payment plan receivables could have an adverse effect on Mepco’s collection of those receivables.

The top five vehicle service contract sellers from which Mepco purchases payment plans represent approximately 35.7%, 12.9%, 10.9%, 10.4% and 8.8%, respectively of Mepco’s payment plan receivables at December 31, 2014. See note #11 for additional information on Mepco counterparties.

NOTE 20 – REGULATORY MATTERS

Capital guidelines adopted by federal and state regulatory agencies and restrictions imposed by law limit the amount of cash dividends our Bank can pay to us. Under these guidelines, the amount of dividends that may be paid in any calendar year is limited to the Bank’s current year’s net profits, combined with the retained net profits of the preceding two years. Further, the Bank cannot pay a dividend at any time that it has negative undivided profits. As of December 31, 2014, the Bank had negative undivided profits of $31.1 million. We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarter of 2014, we requested regulatory approval for a $15.0 million return of capital from the Bank to the parent company. This return of capital request was approved by our banking regulators on March 28, 2014 and the Bank returned $15.0 million of capital to the parent company on April 9, 2014. During January of 2015, we requested regulatory approval for an additional $18.5 million return of capital from the Bank to the parent company. This return of capital request was approved by our banking regulators on February 13, 2015, and the Bank returned $18.5 million of capital to the parent company on February 17, 2015. It is not our intent to have dividends paid in amounts that would reduce the capital of our Bank to levels below those which we consider prudent and in accordance with guidelines of regulatory authorities.

We are also subject to various regulatory capital requirements. The prompt corrective action regulations establish quantitative measures to ensure capital adequacy and require minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that could have a material effect on our consolidated financial statements. Under capital adequacy guidelines, we must meet specific

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

capital requirements that involve quantitative measures as well as qualitative judgments by the regulators. The most recent regulatory filings as of December 31, 2014 and 2013 categorized our Bank as well capitalized. Management is not aware of any conditions or events that would have changed the most recent Federal Deposit Insurance Corporation (“FDIC”) categorization.

Our actual capital amounts and ratios at December 31 follow:

	Actual					Minimum for Adequately Capitalized Institutions					Minimum for Well-Capitalized Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
2014
Total capital to risk-weighted assets
Consolidated	$	265,163		18.06	%	$	117,427		8.00	%	NA		NA
Independent Bank		247,883		16.90			117,374		8.00		$	146,718		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	246,628		16.80	%	$	58,714		4.00	%	NA		NA
Independent Bank		229,361		15.63			58,687		4.00		$	88,031		6.00	%
Tier 1 capital to average assets
Consolidated	$	246,628		11.18	%	$	88,206		4.00	%	NA		NA
Independent Bank		229,361		10.46			87,687		4.00		$	109,609		5.00	%
2013
Total capital to risk-weighted assets
Consolidated	$	245,284		17.35	%	$	113,086		8.00	%	NA		NA
Independent Bank		234,078		16.57			113,013		8.00		$	141,267		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	227,338		16.08	%	$	56,543		4.00	%	NA		NA
Independent Bank		216,146		15.30			56,507		4.00		$	84,760		6.00	%
Tier 1 capital to average assets
Consolidated	$	227,338		10.61	%	$	85,729		4.00	%	NA		NA
Independent Bank		216,146		10.09			85,681		4.00		$	107,101		5.00	%

NA — Not applicable

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2014			2013			2014			2013
	(In thousands)
Total shareholders' equity	$	250,371		$	231,581		$	257,832		$	250,306
Add (deduct)
Qualifying trust preferred securities		34,500			39,500			—			—
Accumulated other comprehensive loss		5,636			9,245			5,636			9,245
Intangible assets		(2,627	)		(3,163	)		(2,627	)		(3,163	)
Disallowed deferred tax assets		(40,500	)		(49,609	)		(30,728	)		(40,026	)
Disallowed capitalized mortgage loan servicing rights		(752	)		(216	)		(752	)		(216	)
Tier 1 capital		246,628			227,338			229,361			216,146
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		18,535			17,946			18,522			17,932
Total risk-based capital	$	265,163		$	245,284		$	247,883		$	234,078

NOTE 21 – FAIR VALUE DISCLOSURES

FASB ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

Level 1:    Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange, as well as U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.

Level 2:    Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 instruments include securities traded in less active dealer or broker markets.

Level 3:    Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We used the following methods and significant assumptions to estimate fair value:

Securities:    Where quoted market prices are available in an active market, securities (trading or available for sale) are classified as Level 1 of the valuation hierarchy. Level 1 securities include certain preferred stocks included in our trading portfolio for which there are quoted prices in active markets. If quoted market prices are not available for the specific security, then fair values are estimated by (1) using quoted market prices of securities with similar characteristics, (2) matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or (3) a discounted cash flow analysis whose significant fair value inputs can generally be verified and do not typically involve judgment by management. These securities are classified as Level 2 of the valuation hierarchy and include agency securities, private label residential mortgage-backed securities, other asset backed securities, municipal securities, trust preferred securities and corporate securities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans held for sale:    The fair value of mortgage loans held for sale is based on mortgage backed security pricing for comparable assets (recurring Level 2).

Impaired loans with specific loss allocations based on collateral value:    From time to time, certain loans are considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. We measure our investment in an impaired loan based on one of three methods: the loan’s observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2014 and 2013, all of our total impaired loans were evaluated based on either the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. When the fair value of the collateral is based on an appraised value or when an appraised value is not available we record the impaired loan as nonrecurring Level 3. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and thus will typically result in a Level 3 classification of the inputs for determining fair value.

Other real estate:    At the time of acquisition, other real estate is recorded at fair value, less estimated costs to sell, which becomes the property’s new basis. Subsequent write-downs to reflect declines in value since the time of acquisition may occur from time to time and are recorded in net (gains) losses on other real estate and repossessed assets in the Consolidated Statements of Operations. The fair value of the property used at and subsequent to the time of acquisition is typically determined by a third party appraisal of the property. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by us. Once received, an independent third party (for commercial properties over $0.25 million) or a member of our Collateral Evaluation Department (for commercial properties under $0.25 million) or a member of our Special Assets Group (for retail properties) reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. We compare the actual selling price of collateral that has been sold to the most recent appraised value of our properties to determine what additional adjustment, if any, should be made to the appraisal value to arrive at fair value. For commercial and retail properties we typically discount an appraisal to account for various factors that the appraisal excludes in its assumptions. These additional discounts generally do not result in material adjustments to the appraised value. In addition, we will adjust the appraised values for expected liquidation costs including sales commissions and transfer taxes.

Capitalized mortgage loan servicing rights:    The fair value of capitalized mortgage loan servicing rights is based on a valuation model used by an independent third party that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. Certain model assumptions are generally unobservable and are based upon the best information available including data relating to our own servicing portfolio, reviews of mortgage servicing assumption and valuation surveys and input from various mortgage servicers and, therefore, are recorded as nonrecurring Level 3. Management evaluates the third party valuation for reasonableness each quarter as part of our financial reporting control processes.

Derivatives:    The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets (recurring Level 2). The fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management (recurring Level 2).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Assets and liabilities measured at fair value, including financial assets for which we have elected the fair value option, were as follows:

			Fair Value Measurements Using
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2014:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	203	$	203	$	—	$	—
Securities available for sale
U.S. agency		35,006		—		35,006		—
U.S. agency residential mortgage-backed		257,558		—		257,558		—
U.S. agency commercial mortgage-backed		33,728		—		33,728		—
Private label residential mortgage-backed		6,013		—		6,013		—
Other asset backed		32,353		—		32,353		—
Obligations of states and political subdivisions		143,415		—		143,415		—
Corporate		22,664		—		22,664		—
Trust preferred		2,441		—		2,441		—
Loans held for sale		23,662		—		23,662		—
Derivatives (1)		619		—		619		—
Liabilities
Derivatives (2)		366		—		366		—
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		9,197		—		—		9,197
Impaired loans (4)
Commercial
Income producing - real estate		869		—		—		869
Land, land development & construction-real estate		354		—		—		354
Commercial and industrial		2,601		—		—		2,601
Mortgage
1-4 Family		1,306		—		—		1,306
Other real estate (5)
Commercial
Income producing - real estate		479		—		—		479
Land, land development & construction-real estate		737		—		—		737
Mortgage
1-4 Family		102		—		—		102
Resort Lending		575		—		—		575
Installment
Home equity - 1st lien		13		—		—		13

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			Fair Value Measurements Using
	Fair Value Measurements		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2013:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	498	$	498	$	—	$	—
Securities available for sale
U.S. agency		31,808		—		31,808		—
U.S. agency residential mortgage-backed		203,460		—		203,460		—
Private label residential mortgage-backed		6,788		—		6,788		—
Other asset backed		45,185		—		45,185		—
Obligations of states and political subdivisions		153,678		—		153,678		—
Corporate		19,137		—		19,137		—
Trust preferred		2,425		—		2,425		—
Loans held for sale		20,390		—		20,390		—
Derivatives (1)		494		—		494		—
Liabilities
Derivatives (2)		—		—		—		—
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		7,773		—		—		7,773
Impaired loans (4)
Commercial
Income producing - real estate		1,997		—		—		1,997
Land, land development & construction-real estate		673		—		—		673
Commercial and industrial		2,927		—		—		2,927
Mortgage
1-4 Family		1,455		—		—		1,455
Resort Lending		340		—		—		340
Other real estate (5)
Commercial
Income producing - real estate		559		—		—		559
Land, land development & construction-real estate		1,047		—		—		1,047
Mortgage
1-4 Family		337		—		—		337
Resort Lending		1,257		—		—		1,257
Installment
Home equity - 1st lien		29		—		—		29
Payment plan receivables
Full refund/partial refund		2,668		—		—		2,668

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2014 and 2013.

Changes in fair values of financial assets for which we have elected the fair value option for the years ended December 31 were as follows:

	Net Gains (Losses) on Assets						Total Change in Fair Values Included in Current Period Earnings
	Securities			Loans
	(In thousands)
2014
Trading securities	$	(295	)	$	—		$	(295	)
Loans held for sale		—			258			258
2013
Trading securities	$	388		$	—		$	388
Loans held for sale		—			(1,477	)		(1,477	)
2012
Trading securities	$	33		$	—		$	33
Loans held for sale		—			440			440

For those items measured at fair value pursuant to our election of the fair value option, interest income is recorded within the Consolidated Statements of Operations based on the contractual amount of interest income earned on these financial assets and dividend income is recorded based on cash dividends.

The following represent impairment charges recognized during the years ended December 31, 2014, 2013 and 2012 relating to assets measured at fair value on a non-recurring basis:

• Capitalized mortgage loan servicing rights, whose individual strata are measured at fair value, had a carrying amount of $9.2 million, which is net of a valuation allowance of $3.8 million, at December 31, 2014, and had a carrying amount of $7.8 million, which is net of a valuation allowance of $2.9 million, at December 31, 2013. A recovery (charge) of $(0.9) million, $3.2 million and $0.5 million was included in our results of operations for the years ending December 31, 2014, 2013 and 2012, respectively.

• Loans which are measured for impairment using the fair value of collateral for collateral dependent loans had a carrying amount of $8.2 million, with a valuation allowance of $3.1 million at December 31, 2014, and had a carrying amount of $10.8 million, with a valuation allowance of $3.4 million at December 31, 2013. An additional provision for loan losses relating to impaired loans of $2.1 million, $1.5 million and $2.0 million was included in our results of operations for the years ending December 31, 2014, 2013 and 2012, respectively.

• Other real estate, which is measured using the fair value of the property, had a carrying amount of $1.9 million which is net of a valuation allowance of $2.5 million at December 31, 2014, and a carrying amount of $5.9 million, which is net of a valuation allowance of $4.0 million, at December 31, 2013. An additional charge relating to ORE measured at fair value of $0.3 million, $1.6 million and $1.5 million was included in our results of operations during the years ended December 31, 2014, 2013 and 2012, respectively.

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A reconciliation for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31 follows:

	(Liability)
	Amended Warrant
	2014		2013
	(In thousands)
Beginning balance	$	—	$	(459	)
Total gains (losses) realized and unrealized:
Included in results of operations		—		(1,025	)
Included in other comprehensive income		—		—
Purchases, issuances, settlements, maturities and calls		—		—
Reclassification to shareholders' equity		—		1,484
Transfers in and/or out of Level 3		—		—
Ending balance	$	—	$	—
Amount of total gains (losses) for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31	$	—	$	—

Because of certain anti-dilution features included in the Amended Warrant, it was not considered to be indexed to our common stock and was therefore accounted for as a derivative instrument (see note #16). Any change in value of this warrant was recorded in other income in our Consolidated Statements of Operations. However, the anti-dilution features in the Amended Warrant which caused it to be accounted for as a derivative and included in accrued expenses and other liabilities expired on April 16, 2013. As a result, the Amended Warrant was reclassified into shareholders’ equity on that date at its then fair value which totaled $1.5 million. During the third quarter of 2013, we repurchased the Amended Warrant from the UST (see note #12).

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis follows:

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
2014
Capitalized mortgage loan servicing rights	$	9,197	Present value of net	Discount rate		10.07	%
			servicing revenue	Cost to service	$	82
				Ancillary income		25
				Float rate		1.77	%
Impaired loans Commercial(1)		2,751	Sales comparison	Adjustment for differences
			approach	between comparable sales		(3.8	)%
			Income approach	Capitalization rate		9.3
Mortgage		1,306	Sales comparison	Adjustment for differences
			approach	between comparable sales		8.6
Other real estate Commercial		1,216	Sales comparison	Adjustment for differences
			approach	between comparable sales		(9.0	)
Mortgage and installment		690	Sales comparison	Adjustment for differences
			approach	between comparable sales		34.3

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Asset (Liability) Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
2013
Capitalized mortgage loan servicing rights	$	7,773	Present value of net	Discount rate		10.09	%
			servicing revenue	Cost to service	$	81
				Ancillary income		29
				Float rate		1.79	%
Impaired loans Commercial		5,597	Sales comparison	Adjustment for differences
			approach	between comparable sales		(1.9	)%
			Income approach	Capitalization rate		9.3
Mortgage		1,795	Sales comparison	Adjustment for differences
			approach	between comparable sales		3.2
Other real estate Commercial		1,606	Sales comparison	Adjustment for differences
			approach	between comparable sales		(5.7	)
Mortgage and installment		1,623	Sales comparison	Adjustment for differences
			approach	between comparable sales		55.7
Payment plan receivables		2,668	Sales comparison	Adjustment for differences
			approach	between comparable sales		10.4

(1) In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2014 we had an impaired collateral dependent commercial relationship that totaled $1.1 million that was primarily secured by collateral other than real estate. Collateral securing this relationship primarily included machinery and equipment, accounts receivable, inventory and company stock. Valuation techniques included discounting cost and financial statement value approaches based on estimates of value recovery of each particular asset type. Discount rates used ranged from 35% to 100% of stated values.

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding for loans held for sale for which the fair value option has been elected at December 31.

	Aggregate Fair Value		Difference		Contractual Principal
	(In thousands)
Loans held for sale
2014	$	23,662	$	624	$	23,038
2013		20,390		366		20,024
2012		47,487		1,843		45,644

NOTE 22 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Most of our assets and liabilities are considered financial instruments. Many of these financial instruments lack an available trading market and it is our general practice and intent to hold the majority of our financial instruments to maturity. Significant estimates and assumptions were used to determine the fair value of financial instruments. These estimates are subjective in nature, involving uncertainties and matters of judgment, and therefore, fair values cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Estimated fair values have been determined using available data and methodologies that are considered suitable for each category of financial instrument. For instruments with adjustable-interest rates which reprice frequently and without significant credit risk, it is presumed that estimated fair values approximate the recorded book balances.

Cash and due from banks and interest bearing deposits:   The recorded book balance of cash and due from banks and interest bearing deposits approximate fair value and are classified as Level 1.

Interest bearing deposits - time:   Interest bearing deposits - time have been valued based on a model using a benchmark yield curve plus a base spread and are classified as Level 2.

Securities:   Financial instrument assets actively traded in a secondary market have been valued using quoted market prices. Trading securities are classified as Level 1 while securities available for sale are classified as Level 2 as described in note #21.

Federal Home Loan Bank and Federal Reserve Bank Stock:   It is not practicable to determine the fair value of FHLB and FRB Stock due to restrictions placed on transferability.

Net loans and loans held for sale:   The fair value of loans is calculated by discounting estimated future cash flows using estimated market discount rates that reflect credit and interest-rate risk inherent in the loans resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described in Note #21. Loans held for sale are classified as Level 2 as described in Note #21.

Accrued interest receivable and payable:   The recorded book balance of accrued interest receivable and payable approximate fair value and are classified at the same Level as the asset and liability they are associated with.

Derivative financial instruments:   The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets, while the fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management. Each of these instruments has been classified as Level 2 as described in note #21.

Deposits:   Deposits without a stated maturity, including demand deposits, savings, NOW and money market accounts, have a fair value equal to the amount payable on demand. Each of these instruments is classified as Level 1. Deposits with a stated maturity, such as certificates of deposit, have generally been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Other borrowings:   FHLB advances have been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Subordinated debentures:   Subordinated debentures have generally been valued based on a quoted market price of similar instruments resulting in a Level 2 classification.

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated recorded book balances and fair values follow:

					Fair Value Using
	Recorded Book Balance		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Un observable Inputs (Level 3)
	(In thousands)
2014
Assets
Cash and due from banks	$	48,326	$	48,326	$	48,326	$	—	$	—
Interest bearing deposits		25,690		25,690		25,690		—		—
Interest bearing deposits - time		13,561		13,585		—		13,585		—
Trading securities		203		203		203		—		—
Securities available for sale		533,178		533,178		—		533,178		—
Federal Home Loan Bank and Federal Reserve Bank Stock		19,919		NA		NA		NA		NA
Net loans and loans held for sale		1,407,634		1,394,424		—		23,662		1,370,762
Accrued interest receivable		5,995		5,995		2		1,599		4,394
Derivative financial instruments		619		619		—		619		—
Liabilities
Deposits with no stated maturity (1)	$	1,534,175	$	1,534,175	$	1,534,175	$	—	$	—
Deposits with stated maturity (1)		390,127		389,139		—		389,139		—
Other borrowings		12,470		14,560		—		14,560		—
Subordinated debentures		35,569		23,328		—		23,328		—
Accrued interest payable		380		380		21		359		—
Derivative financial instruments		366		366		—		366		—
2013
Assets
Cash and due from banks	$	48,156	$	48,156	$	48,156	$	—	$	—
Interest bearing deposits		70,925		70,925		70,925		—		—
Interest bearing deposits - time		17,999		18,000		—		18,000		—
Trading securities		498		498		498		—		—
Securities available for sale		462,481		462,481		—		462,481		—
Federal Home Loan Bank and Federal Reserve Bank Stock		23,419		NA		NA		NA		NA
Net loans and loans held for sale		1,362,635		1,333,229		—		20,390		1,312,839
Accrued interest receivable		5,948		5,948		1		1,426		4,521
Derivative financial instruments		494		494		—		494		—
Liabilities
Deposits with no stated maturity (1)	$	1,440,225	$	1,440,225	$	1,440,225	$	—	$	—
Deposits with stated maturity (1)		444,581		446,366		—		446,366		—
Other borrowings		17,188		19,726		—		19,726		—
Subordinated debentures		40,723		27,871		—		27,871		—
Accrued interest payable		445		445		20		425		—
Derivative financial instruments		—		—		—		—		—

(1) Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $13.6 million and $11.2 million at December 31, 2014 and 2013, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $40.1 million and $72.3 million at December 31, 2014 and 2013, respectively.

96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair values for commitments to extend credit and standby letters of credit are estimated to approximate their aggregate book balance, which is nominal, and therefore are not disclosed.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale the entire holdings of a particular financial instrument.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, the value of future earnings attributable to off-balance sheet activities and the value of assets and liabilities that are not considered financial instruments.

Fair value estimates for deposit accounts do not include the value of the core deposit intangible asset resulting from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

NOTE 23 – OPERATING SEGMENTS

Our reportable segments are based upon legal entities. We currently have two reportable segments: Independent Bank (“IB” or “Bank”) and Mepco. These business segments are also differentiated based on the products and services provided. We evaluate performance based principally on net income (loss) of the respective reportable segments.

In the normal course of business, our IB segment provides funding to our Mepco segment through an intercompany line of credit priced at the prime rate of interest as published in the Wall Street Journal. Our IB segment also provides certain administrative services to our Mepco segment which are reimbursed at an agreed upon rate. These intercompany transactions are eliminated upon consolidation. The only other material intersegment balances and transactions are investments in subsidiaries at the parent entities and cash balances on deposit at our IB segment.

A summary of selected financial information for our reportable segments follows:

	IB			Mepco			Other (1)(2)			Elimination (3)			Total
	(In thousands)
2014
Total assets	$	2,174,536		$	63,378		$	286,158		$	(275,342	)	$	2,248,730
Interest income		73,551			7,004			64			(64	)		80,555
Net interest income		68,948			5,706			(1,398	)		—			73,256
Provision for loan losses		(3,098	)		(38	)		—			—			(3,136	)
Income (loss) before income tax		25,845			561			(1,095	)		(95	)		25,216
Net income (loss)		18,550			366			(712	)		(183	)		18,021
2013
Total assets	$	2,104,550		$	94,648		$	272,348		$	(261,603	)	$	2,209,943
Interest income		76,018			11,103			—			—			87,121
Net interest income		71,496			8,780			(2,317	)		—			77,959
Provision for loan losses		(3,891	)		(97	)		—			—			(3,988	)
Income (loss) before income tax		29,605			(2,891	)		(3,961	)		(95	)		22,658
Net income (loss)		74,313			(1,801	)		5,092			(95	)		77,509
2012
Total assets	$	1,885,807		$	135,447		$	192,343		$	(189,730	)	$	2,023,867
Interest income		84,760			14,638			—			—			99,398
Net interest income		77,919			11,115			(2,779	)		—			86,255
Provision for loan losses		6,895			(8	)		—			—			6,887
Income (loss) before income tax		27,379			2,591			(3,677	)		(95	)		26,198
Net income (loss)		28,260			1,710			(3,677	)		(95	)		26,198

(1) During 2013 IB and Other (parent company) include $47.1 million and $9.0 million, respectively of income tax benefit related to the reversal of the valuation allowance on our net deferred tax assets (see note #13).

(2) Includes amounts relating to our parent company and certain insignificant operations.

(3) Includes parent company’s investment in subsidiaries and cash balances maintained at subsidiary.

97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 24 – ACCUMULATED OTHER COMPREHENSIVE LOSS

A summary of changes in accumulated other comprehensive loss (“AOCL”) during the years ended December 31 follows (1):

	Unrealized Losses on Available for Sale Securities			Disproportionate Tax Effects from Securites Available for Sale			Unrealized Losses on Cash Flow Hedges			Unrealized Losses on Settled Derivatives			Disproportionate Tax Effects from Cash Flow Hedges			Total
	(In thousands)
2014
Balances at beginning of period	$	(3,200	)	$	(5,798	)	$	—		$	(247	)	$	—		$	(9,245	)
Other comprehensive income before reclassifications		3,570			—			—			—			—			3,570
Amounts reclassified from AOCL		(208	)		—			—			247			—			39
Net current period other comprehensive income		3,362			—			—			247			—			3,609
Balances at end of period	$	162		$	(5,798	)	$	—		$	—		$	—		$	(5,636	)
2013
Balances at beginning of period	$	(516	)	$	(5,617	)	$	(739	)	$	—		$	(1,186	)	$	(8,058	)
Income tax		181			(181	)		258			—			(258	)		—
Balances at beginning of period, net of tax		(335	)		(5,798	)		(481	)		—			(1,444	)		(8,058	)
Terminated cash flow hedge		—			—			370			(370	)		—			—
Other comprehensive income before reclassifications		(2,877	)		—			(24	)		—			—			(2,901	)
Amounts reclassified from AOCL		12			—			135			123			1,444			1,714
Net current period other comprehensive income (loss)		(2,865	)		—			111			123			1,444			(1,187	)
Balances at end of period	$	(3,200	)	$	(5,798	)	$	—		$	(247	)	$	—		$	(9,245	)
2012
Balances at beginning of period	$	(3,579	)	$	(5,617	)	$	(1,103	)	$	(436	)	$	(1,186	)	$	(11,921	)
Other comprehensive income (loss) before reclassifications		3,917			—			(127	)		—			—			3,790
Amounts reclassified from AOCL		(854	)		—			491			436			—			73
Net current period other comprehensive income		3,063			—			364			436			—			3,863
Balances at end of period	$	(516	)	$	(5,617	)	$	(739	)	$	—		$	(1,186	)	$	(8,058	)

(1) 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

The disproportionate tax effects from securities available for sale and cash flow hedges arose due to tax effects of other comprehensive income (“OCI”) in the presence of a valuation allowance against our deferred tax assets and a pretax loss from operations. Generally, the amount of income tax expense or benefit allocated to operations is determined without regard to the tax effects of other categories of income or loss, such as OCI. However, an exception to the general rule is provided when, in the presence of a valuation allowance against deferred tax assets, there is a pretax loss from operations and pretax income from other categories in the current period. In such instances, income from other categories must offset the current loss from operations, the tax benefit of such offset being reflected in operations. During the second quarter of 2013, we terminated our last remaining cash flow hedge and cleared the disproportionate tax effects relating to cash flow hedges from accumulated other comprehensive income (see note #13).

98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of reclassifications out of each component of AOCL for the years ended December 31 follows:

AOCL Component	Reclassified From AOCL			Affected Line Item in Consolidated Statements of Operations
	(In thousands)
2014
Unrealized losses on available for sale securities
	$	329		Net gains on securities
		(9	)	Net impairment loss recognized in earnings
		320		Total reclassifications before tax
		112		Tax expense (benefit)
	$	208		Reclassifications, net of tax
Unrealized losses on settled derivatives
	$	(380	)	Interest expense
		(133	)	Tax expense (benefit)
	$	(247	)	Reclassification, net of tax
	$	(39	)	Total reclassifications for the period, net of tax
2013
Unrealized losses on available for sale securities
	$	7		Net gains on securities
		(26	)	Net impairment loss recognized in earnings
		(19	)	Total reclassifications before tax
		(7	)	Tax expense (benefit)
	$	(12	)	Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(208	)	Interest expense
		(73	)	Tax expense (benefit)
	$	(135	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(189	)	Interest expense
		(66	)	Tax expense (benefit)
	$	(123	)	Reclassification, net of tax
Disproportionate tax effects from cash flow hedges	$	1,444		Tax expense (benefit)
	$	(1,714	)	Total reclassifications for the period, net of tax

99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AOCL Component	Reclassified From AOCL			Affected Line Item in Consolidated Statements of Operations
	(In thousands)
2012
Unrealized losses on available for sale securities
	$	1,193		Net gains on securities
		(339	)	Net impairment loss recognized in earnings
		854		Total reclassifications before tax
		—		Tax expense (benefit)
	$	854		Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(491	)	Interest expense
		—		Tax expense (benefit)
	$	(491	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(436	)	Interest expense
		—		Tax expense (benefit)
	$	(436	)	Reclassification, net of tax
	$	(73	)	Total reclassifications for the period, net of tax

100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 25 – INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION

Presented below are condensed financial statements for our parent company.

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2014		2013
	(In thousands)
ASSETS
Cash and due from banks	$	5,174	$	11,654
Interest bearing deposits - time		12,500		—
Investment in subsidiaries		258,901		251,529
Other assets		9,583		9,165
Total Assets	$	286,158	$	272,348
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures	$	35,569	$	40,723
Other liabilities		382		391
Shareholders’ equity		250,207		231,234
Total Liabilities and Shareholders’ Equity	$	286,158	$	272,348

CONDENSED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2014			2013			2012
	(In thousands)
OPERATING INCOME (LOSS)
Gain on extinguishment of debt	$	500		$	—		$	—
Gain on securities		295			—			—
Interest income		64			—			—
Increase in fair value of U.S. Treasury warrant		—			(1,025	)		(285	)
Other income		35			63			70
Total Operating Income (Loss)		894			(962	)		(215	)
OPERATING EXPENSES
Interest expense		1,462			2,317			2,779
Administrative and other expenses		527			682			683
Total Operating Expenses		1,989			2,999			3,462
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		(1,095	)		(3,961	)		(3,677	)
Income tax benefit		(383	)		(9,053	)		—
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries		(712	)		5,092			(3,677	)
Equity in undistributed net income of subsidiaries		18,733			72,417			29,875
Net Income	$	18,021		$	77,509		$	26,198

101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Net Income	$	18,021		$	77,509		$	26,198
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes		(383	)		(8,955	)		—
Gain on extinguishment of debt		(500	)		—			—
Gain on securities		(295	)		—			—
Share based compensation		46			84			184
(Increase) decrease in other assets		118			738			(46	)
Increase (decrease) in other liabilities		287			(5,858	)		2,945
Equity in undistributed net income of subsidiaries operations		(18,733	)		(72,417	)		(29,875	)
Total Adjustments		(19,460	)		(86,408	)		(26,792	)
Net Cash Used in Operating Activities		(1,439	)		(8,899	)		(594	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits		(17,500	)		—			—
Maturity of interest bearing deposits		5,000			—			—
Return of capital from subsidiary		15,000			7,500			—
Net Cash From Investing Activities		2,500			7,500			—
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid		(4,129	)		—			—
Proceeds from issuance of common stock		1,242			100,230			2,244
Redemption of subordinated debt		(4,654	)		(9,452	)		—
Redemption of convertible preferred stock and common stock warrant		—			(81,000	)		—
Share based compensation withholding obligation		—			(513	)		—
Net Cash From (Used in) Financing Activities		(7,541	)		9,265			2,244
Net Increase (Decrease) in Cash and Cash Equivalents		(6,480	)		7,866			1,650
Cash and Cash Equivalents at Beginning of Year		11,654			3,788			2,138
Cash and Cash Equivalents at End of Year	$	5,174		$	11,654		$	3,788

NOTE 26 – BRANCH SALE

On December 7, 2012 we sold 21 branches to another financial institution (the “Branch Sale”). The branches sold included six branch locations in the Battle Creek, Michigan market area and 15 branch locations 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. We also sold approximately $48.0 million of loans at a discount of 1.75% and premises and equipment totaling approximately $8.1 million. The Branch Sale also resulted in 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. This gain is net of an allocation of $2.6 million of existing core deposit intangibles, a $2.5 million loss on the sale of premises and equipment, a $0.2 million loss on the sale of loans and $0.8 million in transaction and other related net costs.

102

QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of selected quarterly results of operations for the years ended December 31 follows:

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
	(In thousands, except per share amounts)
2014
Interest income	$	20,283		$	20,357		$	20,068		$	19,847
Net interest income		18,478			18,538			18,183			18,057
Provision for loan losses		428			(1,845	)		(632	)		(1,087	)
Income before income tax		4,605			7,899			7,274			5,438
Net income		3,138			6,052			4,929			3,902
Net income applicable to common stock		3,138			6,052			4,929			3,902
Income per common share
Basic		0.14			0.26			0.21			0.17
Diluted		0.13			0.26			0.21			0.17
2013
Interest income	$	21,950		$	21,862		$	21,784		$	21,525
Net interest income		19,556			19,523			19,529			19,351
Provision for loan losses		(691	)		(2,107	)		(355	)		(835	)
Income before income tax		5,842			6,899			3,787			6,130
Net income		5,807			63,388			3,505			4,809
Net income applicable to common stock		4,712			62,231			10,310			4,809
Income per common share
Basic		0.51			6.56			0.73			0.21
Diluted		0.27			2.64			0.17			0.21

During the fourth quarter of 2014, we recognized an additional impairment on our capitalized mortgage loan servicing rights of $1.0 million (see note #4) and a gain on the extinguishment of debt of $0.5 million (see note #10). During the fourth quarter of 2013, we recognized a $1.4 million expense for vehicle service contract counterparty contingencies expense (see note #11) and a recovery on our capitalized mortgage loan servicing rights of $0.7 million (see note #4).

QUARTERLY SUMMARY

	Reported Sales Prices of Common Shares												Cash Dividends Declared
	2014						2013
	High		Low		Close		High		Low		Close		2014		2013
First quarter	$	14.25	$	11.78	$	12.98	$	8.49	$	3.44	$	8.46	$	—	$	—
Second quarter		13.88		12.45		12.87		9.00		5.88		6.29		0.06		—
Third quarter		13.47		11.77		11.92		10.23		5.51		10.00		0.06		—
Fourth quarter		13.20		11.47		13.05		12.45		8.66		12.00		0.06		—

We have approximately 1,700 holders of record of our common stock. Our common stock trades on the Nasdaq Global Select Market System under the symbol “IBCP.” The prices shown above are supplied by Nasdaq and reflect the inter-dealer prices and may not include retail markups, markdowns or commissions. There may have been transactions or quotations at higher or lower prices of which we are not aware.

In addition to limitations imposed by the provisions of the Michigan Business Corporation Act (which, among other things, limits us from paying dividends to the extent we are insolvent), our ability to pay dividends is limited by our ability to obtain funds from our Bank and by regulatory capital guidelines applicable to us (see note #20).

103

(THIS PAGE INTENTIONALLY LEFT BLANK)

EX-21

EXHIBIT 21

INDEPENDENT BANK CORPORATION
Subsidiaries of the Registrant
	State of Incorporation
IBC Capital Finance III
Ionia, Michigan	Delaware
IBC Capital Finance IV
Ionia, Michigan	Delaware
Midwest Guaranty Trust I
Ionia, Michigan	Delaware
Independent Bank
Ionia, Michigan	Michigan
IBC Financial Services, Inc., Grand Rapids, Michigan
(a subsidiary of Independent Bank)	Michigan
Independent Title Services, Inc., Grand Rapids, Michigan
(a subsidiary of Independent Bank)	Michigan
Mepco Finance Corporation ("Mepco"), Chicago, Illinois
(a subsidiary of Independent Bank)	Michigan
Mepco Acceptance Corp., Chicago, Illinois
(a subsidiary of Mepco)	California
Independent Life Insurance Trust, Ionia, Michigan
(a subsidiary of Independent Bank)	Michigan

Note: Table excludes insignificant subsidiaries, such as single-member limited liability companies formed solely to hold other real estate.

1

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Nos. 333-89072, 333-125484 and 333-189437) on Forms S-8 of Independent Bank Corporation of our report dated March 6, 2015 with respect to the consolidated financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K for the year ended December 31, 2014.

/s/ Crowe Horwath LLP

Grand Rapids, Michigan

March 6, 2015

1

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, William B. Kessel, certify that:

1. I have reviewed this annual report on Form 10-K of Independent Bank Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15.15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 6, 2015   /s/ William B. Kessel      William B. Kessel      President and Chief Executive Officer  

1

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Robert N. Shuster, certify that:

1. I have reviewed this annual report on Form 10-K of Independent Bank Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15.15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 6, 2015   /s/ Robert N. Shuster      Robert N. Shuster      Chief Financial Officer  

1

EX-32.1

EXHIBIT 32.1

Certificate of the

Chief Executive Officer of

INDEPENDENT BANK CORPORATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:

I, William B. Kessel, President and Chief Executive Officer of Independent Bank Corporation, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1) The annual report on Form 10-K for the annual period ended December 31, 2014, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;

(2) The information contained in this annual report on Form 10-K for the annual period ended December 31, 2014, fairly presents, in all material respects, the financial condition and results of operations of Independent Bank Corporation.

Date: March 6, 2015   /s/ William B. Kessel      William B. Kessel      President and Chief Executive Officer

The signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Independent Bank Corporation and will be retained by Independent Bank Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

1

EX-32.2

EXHIBIT 32.2

Certificate of the

Chief FINANCIAL Officer of

INDEPENDENT BANK CORPORATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002:

I, Robert N. Shuster, Chief Financial Officer of Independent Bank Corporation, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1) The annual report on Form 10-K for the annual period ended December 31, 2014, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;

(2) The information contained in this annual report on Form 10-K for the annual period ended December 31, 2014, fairly presents, in all material respects, the financial condition and results of operations of Independent Bank Corporation.

Date: March 6, 2015   /s/ Robert N. Shuster      Robert N. Shuster      Chief Financial Officer

The signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Independent Bank Corporation and will be retained by Independent Bank Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

1

XML

PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2014

PROPERTY AND EQUIPMENT [Abstract]

Summary of property and equipment

A summary of property and equipment at December 31 follows:

	2014			2013
	(In thousands)
Land	$	14,904		$	14,817
Buildings		59,486			58,798
Equipment		79,809			77,452
		154,199			151,067
Accumulated depreciation and amortization		(108,251	)		(102,473	)
Property and equipment, net	$	45,948		$	48,594

XML

FAIR VALUES OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2014

Fair Values of Financial Instruments [Abstract]

Estimated fair values and recorded book balances

The estimated recorded book balances and fair values follow:

					Fair Value Using
					Quoted
					Prices
					in Active
					Markets		Significant		Significant
					for		Other		Un-
	Recorded				Identical		Observable		observable
	Book				Assets		Inputs		Inputs
	Balance		Fair Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
2014
Assets
Cash and due from banks	$	48,326	$	48,326	$	48,326	$	-	$	-
Interest bearing deposits		25,690		25,690		25,690		-		-
Interest bearing deposits - time		13,561		13,585		-		13,585		-
Trading securities		203		203		203		-		-
Securities available for sale		533,178		533,178		-		533,178		-
Federal Home Loan Bank and Federal Reserve Bank Stock		19,919	NA		NA		NA		NA
Net loans and loans held for sale		1,407,634		1,394,424		-		23,662		1,370,762
Accrued interest receivable		5,995		5,995		2		1,599		4,394
Derivative financial instruments		619		619		-		619		-
Liabilities
Deposits with no stated maturity (1)	$	1,534,175	$	1,534,175	$	1,534,175	$	-	$	-
Deposits with stated maturity (1)		390,127		389,139		-		389,139		-
Other borrowings		12,470		14,560		-		14,560		-
Subordinated debentures		35,569		23,328		-		23,328		-
Accrued interest payable		380		380		21		359		-
Derivative financial instruments		366		366		-		366		-
2013
Assets
Cash and due from banks	$	48,156	$	48,156	$	48,156	$	-	$	-
Interest bearing deposits		70,925		70,925		70,925		-		-
Interest bearing deposits - time		17,999		18,000		-		18,000		-
Trading securities		498		498		498		-		-
Securities available for sale		462,481		462,481		-		462,481		-
Federal Home Loan Bank and Federal Reserve Bank Stock		23,419	NA		NA		NA		NA
Net loans and loans held for sale		1,362,635		1,333,229		-		20,390		1,312,839
Accrued interest receivable		5,948		5,948		1		1,426		4,521
Derivative financial instruments		494		494		-		494		-
Liabilities
Deposits with no stated maturity (1)	$	1,440,225	$	1,440,225	$	1,440,225	$	-	$	-
Deposits with stated maturity (1)		444,581		446,366		-		446,366		-
Other borrowings		17,188		19,726		-		19,726		-
Subordinated debentures		40,723		27,871		-		27,871		-
Accrued interest payable		445		445		20		425		-
Derivative financial instruments		-		-		-		-		-

______________________

(1)Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $13.6 million and $11.2 million at December 31, 2014 and 2013, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $40.1 million and $72.3 million at December 31, 2014 and 2013, respectively.

XML

OTHER NON-INTEREST INCOME (Tables)

12 Months Ended

Dec. 31, 2014

Other Non-Interest Income [Abstract]

Schedule of other non-interest income

Other non-interest income for the years ended December 31 follows:

	2014		2013		2012
	(In thousands)
Investment and insurance commissions		1,814		1,709		2,146
ATM fees		1,599		1,661		2,140
Bank owned life insurance		1,371		1,363		1,622
Other real estate rental income		1,295		1,471		1,773
Other		2,852		2,333		3,353
Total other non-interest income	$	8,931	$	8,537	$	11,034

XML

INTANGIBLE ASSETS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Intangible assets, net of amortization [Abstract]
Intangible amortization expense	$ 500,000	$ 800,000	$ 1,100,000
Core Deposits [Member]
Intangible assets, net of amortization [Abstract]
Gross Carrying Amount	6,118,000	11,037,000
Accumulated Amortization	3,491,000	7,874,000
Intangible assets acquired and fully amortized	4,900,000	12,700,000
Summary of estimated core deposit intangible amortization [Abstract]
2015	347,000
2016	347,000
2017	346,000
2018	346,000
2019	346,000
2020 and thereafter	895,000
Total	$ 2,627,000

XML

OPERATING SEGMENTS (Tables)

12 Months Ended

Dec. 31, 2014

OPERATING SEGMENTS [Abstract]

Summary of selected financial information for reportable segments

A summary of selected financial information for our reportable segments follows:

	IB			Mepco			Other(1)(2)			Elimination(3)			Total
	(In thousands)
2014
Total assets	$	2,174,536		$	63,378		$	286,158		$	(275,342	)	$	2,248,730
Interest income		73,551			7,004			64			(64	)		80,555
Net interest income		68,948			5,706			(1,398	)		-			73,256
Provision for loan losses		(3,098	)		(38	)		-			-			(3,136	)
Income (loss) before income tax		25,845			561			(1,095	)		(95	)		25,216
Net income (loss)		18,550			366			(712	)		(183	)		18,021
2013
Total assets	$	2,104,550		$	94,648		$	272,348		$	(261,603	)	$	2,209,943
Interest income		76,018			11,103			-			-			87,121
Net interest income		71,496			8,780			(2,317	)		-			77,959
Provision for loan losses		(3,891	)		(97	)		-			-			(3,988	)
Income (loss) before income tax		29,605			(2,891	)		(3,961	)		(95	)		22,658
Net income (loss)		74,313			(1,801	)		5,092			(95	)		77,509
2012
Total assets	$	1,885,807		$	135,447		$	192,343		$	(189,730	)	$	2,023,867
Interest income		84,760			14,638			-			-			99,398
Net interest income		77,919			11,115			(2,779	)		-			86,255
Provision for loan losses		6,895			(8	)		-			-			6,887
Income (loss) before income tax		27,379			2,591			(3,677	)		(95	)		26,198
Net income (loss)		28,260			1,710			(3,677	)		(95	)		26,198

_______________________

(1) During 2013 IB and Other (parent company) include $47.1 million and $9.0 million, respectively of income tax benefit related to the reversal of the valuation allowance on our net deferred tax assets (see note #13).

(2) Includes amounts relating to our parent company and certain insignificant operations.

(3) Includes parent company’s investment in subsidiaries and cash balances maintained at subsidiary.

XML

OTHER NON-INTEREST INCOME (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Other Non-Interest Income [Abstract]
Investment and insurance commissions	$ 1,814	$ 1,709	$ 2,146
ATM fees	1,599	1,661	2,140
Bank owned life insurance	1,371	1,363	1,622
Other real estate rental income	1,295	1,471	1,773
Other	2,852	2,333	3,353
Total other non-interest income	$ 8,931	$ 8,537	$ 11,034

XML

INCOME TAX (Tables)

12 Months Ended

Dec. 31, 2014

INCOME TAX [Abstract]

Composition of income tax expense (benefit)

The composition of income tax expense (benefit) for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Current	$	(359	)	$	(277	)	$	-
Deferred		7,672			-			-
Disproportionate tax effect		-			1,444			-
Valuation allowance - change in estimate		(118	)		(56,018	)		-
Income tax expense (benefit)	$	7,195		$	(54,851	)	$	-

Reconciliation of income tax benefit computed by applying the statutory federal income tax rate

A reconciliation of income tax benefit to the amount computed by applying the statutory federal income tax rate of 35% in each year presented to the income before income tax for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Statutory rate applied to income before income tax	$	8,826		$	7,930		$	9,169
Unrecognized tax benefit		(595	)		(186	)		-
Tax-exempt income		(522	)		(402	)		(453	)
Bank owned life insurance		(480	)		(477	)		(568	)
Net change in valuation allowance		(118	)		(63,980	)		(8,730	)
Non-deductible meals, entertainment and memberships		53			55			55
Disproportionate tax effect		-			1,444			-
U.S. Treasury warrant		-			359			100
Share-based compensation		-			8			258
Other, net		31			398			169
Income tax expense (benefit)	$	7,195		$	(54,851	)	$	-

Summary of deferred tax assets and deferred tax liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 follow:

	2014			2013
	(In thousands)
Deferred tax assets
Loss carryforwards	$	32,933		$	38,027
Allowance for loan losses		9,099			11,317
Fixed assets		3,239			3,081
Alternative minimum tax credit carry forward		3,037			2,672
Purchase premiums, net		2,050			2,280
Valuation allowance on other real estate owned		879			1,431
Share based payments		684			402
Unrealized loss on trading securities		559			456
Vehicle service contract counterparty contingency reserve		521			523
Deferred compensation		448			523
Other than temporary impairment charge on securities available for sale		436			466
Non accrual loan interest income		244			325
Loss reimbursement on sold loans reserve		242			492
Reserve for unfunded lending commitments		189			178
Unrealized loss on derivative financial instruments		-			133
Unrealized loss on securities available for sale		-			1,723
Other		-			40
Gross deferred tax assets		54,560			64,069
Valuation allowance		(1,019	)		(1,137	)
Total net deferred tax assets		53,541			62,932
Deferred tax liabilities
Mortgage servicing rights		4,237			4,799
Deferred loan fees		260			265
Federal Home Loan Bank stock		196			318
Unrealized gain on securities available for sale		87			-
Other		129			-
Gross deferred tax liabilities		4,909			5,382
Net deferred tax assets	$	48,632		$	57,550

Schedule of federal net operating loss forwards

At December 31, 2014, we had federal net operating loss (“NOL”) carryforwards of approximately $92.4 million which, if not used against taxable income, will expire as follows:

	(In thousands)
2029	$	11,285
2030		26,254
2031		17,170
2032		37,739
Total	$	92,448

Schedule of changes in unrecognized tax benefits

Changes in unrecognized tax benefits for the years ended December 31 follow:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	1,672		$	1,871		$	2,139
Additions based on tax positions related to the current year		18			11			15
Reductions due to the statute of limitations		(595	)		(186	)		(56	)
Reductions due to settlements		(4	)		(24	)		(227	)
Balance at end of year	$	1,091		$	1,672		$	1,871

XML

INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2014

INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION [Abstract]

INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION

NOTE 25 – INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION

Presented below are condensed financial statements for our parent company.

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2014		2013
	(In thousands)
ASSETS
Cash and due from banks	$	5,174	$	11,654
Interest bearing deposits - time		12,500		-
Investment in subsidiaries		258,901		251,529
Other assets		9,583		9,165
Total Assets	$	286,158	$	272,348
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures	$	35,569	$	40,723
Other liabilities		382		391
Shareholders’ equity		250,207		231,234
Total Liabilities and Shareholders’ Equity	$	286,158	$	272,348

CONDENSED STATEMENTS OF OPERATIONS
	Year Ended December 31,
	2014			2013			2012
	(In thousands)
OPERATING INCOME (LOSS)
Gain on extinguishment of debt	$	500		$	-		$	-
Gain on securities		295			-			-
Interest income		64			-			-
Increase in fair value of U.S. Treasury warrant		-			(1,025	)		(285	)
Other income		35			63			70
Total Operating Income (Loss)		894			(962	)		(215	)
OPERATING EXPENSES
Interest expense		1,462			2,317			2,779
Administrative and other expenses		527			682			683
Total Operating Expenses		1,989			2,999			3,462
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		(1,095	)		(3,961	)		(3,677	)
Income tax benefit		(383	)		(9,053	)		-
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries		(712	)		5,092			(3,677	)
Equity in undistributed net income of subsidiaries		18,733			72,417			29,875
Net Income	$	18,021		$	77,509		$	26,198

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Net Income	$	18,021		$	77,509		$	26,198
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes		(383	)		(8,955	)		-
Gain on extinguishment of debt		(500	)		-			-
Gain on securities		(295	)		-			-
Share based compensation		46			84			184
(Increase) decrease in other assets		118			738			(46	)
Increase (decrease) in other liabilities		287			(5,858	)		2,945
Equity in undistributed net income of subsidiaries operations		(18,733	)		(72,417	)		(29,875	)
Total Adjustments		(19,460	)		(86,408	)		(26,792	)
Net Cash Used in Operating Activities		(1,439	)		(8,899	)		(594	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits		(17,500	)		-			-
Maturity of interest bearing deposits		5,000			-			-
Return of capital from subsidiary		15,000			7,500			-
Net Cash From Investing Activities		2,500			7,500			-
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid		(4,129	)		-			-
Proceeds from issuance of common stock		1,242			100,230			2,244
Redemption of subordinated debt		(4,654	)		(9,452	)		-
Redemption of convertible preferred stock and common stock warrant		-			(81,000	)		-
Share based compensation withholding obligation		-			(513	)		-
Net Cash From (Used in) Financing Activities		(7,541	)		9,265			2,244
Net Increase (Decrease) in Cash and Cash Equivalents		(6,480	)		7,866			1,650
Cash and Cash Equivalents at Beginning of Year		11,654			3,788			2,138
Cash and Cash Equivalents at End of Year	$	5,174		$	11,654		$	3,788

XML

DERIVATIVE FINANCIAL INSTRUMENTS (Details) (USD $)	3 Months Ended			12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2009	Dec. 31, 2014	Dec. 31, 2013	Apr. 16, 2013	Sep. 30, 2012
Derivative financial instrument according to type of hedge[ Abstract]
Termination fee		$ 600,000
Unrealized loss to be reclassified into earnings over remaining life			1,600,000
Completed securities trade	13,000,000
Fair value of amended warrant was reclassified into shareholders' equity						1,500,000
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives				619,000	494,000
Liability Derivatives				366,000	0
Interest-Rate Cap Agreement [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount							20,000,000
Cash Flow Hedge [Member] | Interest-Rate Cap Agreement [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Unrecognized premiums				0	0
No Hedge Designation [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount				61,959,000	51,166,000
Average Maturity				1 year 1 month 6 days	0 years 1 month 6 days
Fair Value				253,000	494,000
No Hedge Designation [Member] | Rate-Lock Mortgage Loan Commitments [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount				16,759,000	15,754,000
Average Maturity				0 years 1 month 6 days	0 years 1 month 6 days
Fair Value				437,000	366,000
No Hedge Designation [Member] | Mandatory Commitments to Sell Mortgage Loans [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount				38,600,000	35,412,000
Average Maturity				0 years 1 month 6 days	0 years 1 month 6 days
Fair Value				(184,000)	128,000
Fixed Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount				3,300,000
Average Maturity				9 years 4 months 24 days
Fair Value				(182,000)
Variable Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount				3,300,000
Average Maturity				9 years 4 months 24 days
Fair Value				182,000
Other Assets [Member] | No Hedge Designation [Member] | Rate-Lock Mortgage Loan Commitments [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives				437,000	366,000
Other Assets [Member] | No Hedge Designation [Member] | Mandatory Commitments to Sell Mortgage Loans [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives				0	128,000
Other Assets [Member] | Fixed Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives				0	0
Other Assets [Member] | Variable Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives				182,000	0
Other Liabilities [Member] | No Hedge Designation [Member] | Rate-Lock Mortgage Loan Commitments [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives				0	0
Other Liabilities [Member] | No Hedge Designation [Member] | Mandatory Commitments to Sell Mortgage Loans [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives				184,000	0
Other Liabilities [Member] | Fixed Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives				182,000	0
Other Liabilities [Member] | Variable Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives				$ 0	$ 0

XML

SUBORDINATED DEBENTURES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
SUBORDINATED DEBENTURES [Abstract]
Trust preferred securities	34,500,000	39,500,000
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	35,569,000	40,723,000
Summary of subordinated debentures and trust preferred securities [Abstract]
Distribution deferral period, maximum months	60 months
Maximum period within which issuance costs have been capitalized and amortized on straight line basis	30 years
IBC Capital Finance II [Member]
Summary of subordinated debentures and trust preferred securities [Abstract]
Redemptions of trust preferred securities at par value		9,200,000
IBC Capital Finance III [Member]
Summary of information regarding subordinated debentures [Abstract]
Issue Date	May 30, 2007	May 30, 2007
Summary of subordinated debentures and trust preferred securities [Abstract]
Maturity Date	Jul. 30, 2037
Interest Rate	3 month LIBOR plus 1.60%
First Permitted Redemption Date	Jul. 30, 2012
Interest Rate Spread (in hundredths)	1.60%
IBC Capital Finance IV [Member]
Summary of information regarding subordinated debentures [Abstract]
Issue Date	Sep. 30, 2007	Sep. 30, 2007
Summary of subordinated debentures and trust preferred securities [Abstract]
Maturity Date	Sep. 15, 2037
Interest Rate	3 month LIBOR plus 2.85%
First Permitted Redemption Date	Sep. 15, 2012
Interest Rate Spread (in hundredths)	2.85%
Redemptions of trust preferred securities at par value	5,000,000
Trust preferred securities redeemed at discount	500,000
Midwest Guaranty Trust I [Member]
Summary of information regarding subordinated debentures [Abstract]
Issue Date	Nov. 30, 2002	Nov. 30, 2002
Summary of subordinated debentures and trust preferred securities [Abstract]
Maturity Date	Nov. 07, 2032
Interest Rate	3 month LIBOR plus 3.45%
First Permitted Redemption Date	Nov. 07, 2007
Interest Rate Spread (in hundredths)	3.45%
Subordinated Debentures Subject to Mandatory Redemption [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	35,569,000	40,723,000
Subordinated Debentures Subject to Mandatory Redemption [Member] | IBC Capital Finance III [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	12,372,000	12,372,000
Subordinated Debentures Subject to Mandatory Redemption [Member] | IBC Capital Finance IV [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	15,465,000	20,619,000
Subordinated Debentures Subject to Mandatory Redemption [Member] | Midwest Guaranty Trust I [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	7,732,000	7,732,000
Trust Preferred Securities Subject to Mandatory Redemption [Member]
Summary of information regarding subordinated debentures [Abstract]
Trust Preferred Securities Issued	34,500,000	39,500,000
Trust Preferred Securities Subject to Mandatory Redemption [Member] | IBC Capital Finance III [Member]
Summary of information regarding subordinated debentures [Abstract]
Trust Preferred Securities Issued	12,000,000	12,000,000
Trust Preferred Securities Subject to Mandatory Redemption [Member] | IBC Capital Finance IV [Member]
Summary of information regarding subordinated debentures [Abstract]
Trust Preferred Securities Issued	15,000,000	20,000,000
Trust Preferred Securities Subject to Mandatory Redemption [Member] | Midwest Guaranty Trust I [Member]
Summary of information regarding subordinated debentures [Abstract]
Trust Preferred Securities Issued	7,500,000	7,500,000
Common Stock Subject to Mandatory Redemption [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	1,069,000	1,223,000
Common Stock Subject to Mandatory Redemption [Member] | IBC Capital Finance III [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	372,000	372,000
Common Stock Subject to Mandatory Redemption [Member] | IBC Capital Finance IV [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	465,000	619,000
Common Stock Subject to Mandatory Redemption [Member] | Midwest Guaranty Trust I [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	232,000	232,000

XML

FAIR VALUES OF FINANCIAL INSTRUMENTS (Details) (USD $)	Dec. 31, 2014		Dec. 31, 2013
Assets [Abstract]
Interest bearing deposits - time	$ 13,561,000		$ 17,999,000
Trading securities	203,000		498,000
Securities available for sale	533,178,000		462,481,000
Liabilities [Abstract]
Deposits with stated maturity	390,127,000
Subordinated debentures	35,569,000		40,723,000
Reciprocal deposits included in deposits with no stated maturity	13,600,000		11,200,000
Reciprocal deposits included in deposits with stated maturity	40,100,000		72,300,000
Recorded Book Balance [Member]
Assets [Abstract]
Cash and due from banks	48,326,000		48,156,000
Interest bearing deposits	25,690,000		70,925,000
Interest bearing deposits - time	13,561,000		17,999,000
Trading securities	203,000		498,000
Securities available for sale	533,178,000		462,481,000
Federal Home Loan Bank and Federal Reserve Bank Stock	19,919,000		23,419,000
Net loans and loans held for sale	1,407,634,000		1,362,635,000
Accrued interest receivable	5,995,000		5,948,000
Derivative financial instruments	619,000		494,000
Liabilities [Abstract]
Deposits with no stated maturity	1,534,175,000	[1]	1,440,225,000	[1]
Deposits with stated maturity	390,127,000	[1]	444,581,000	[1]
Other borrowings	12,470,000		17,188,000
Subordinated debentures	35,569,000		40,723,000
Accrued interest payable	380,000		445,000
Derivative financial instruments	366,000		0
Fair Value [Member]
Assets [Abstract]
Cash and due from banks	48,326,000		48,156,000
Interest bearing deposits	25,690,000		70,925,000
Interest bearing deposits - time	13,585,000		18,000,000
Trading securities	203,000		498,000
Securities available for sale	533,178,000		462,481,000
Net loans and loans held for sale	1,394,424,000		1,333,229,000
Accrued interest receivable	5,995,000		5,948,000
Derivative financial instruments	619,000		494,000
Liabilities [Abstract]
Deposits with no stated maturity	1,534,175,000	[1]	1,440,225,000	[1]
Deposits with stated maturity	389,139,000	[1]	446,366,000	[1]
Other borrowings	14,560,000		19,726,000
Subordinated debentures	23,328,000		27,871,000
Accrued interest payable	380,000		445,000
Derivative financial instruments	366,000		0
Quoted Prices in Active Markets for Identical Assets, (Level 1) [Member]
Assets [Abstract]
Cash and due from banks	48,326,000		48,156,000
Interest bearing deposits	25,690,000		70,925,000
Interest bearing deposits - time	0		0
Trading securities	203,000		498,000
Securities available for sale	0		0
Net loans and loans held for sale	0		0
Accrued interest receivable	2,000		1,000
Derivative financial instruments	0		0
Liabilities [Abstract]
Deposits with no stated maturity	1,534,175,000	[1]	1,440,225,000	[1]
Deposits with stated maturity	0	[1]	0	[1]
Other borrowings	0		0
Subordinated debentures	0		0
Accrued interest payable	21,000		20,000
Derivative financial instruments	0		0
Significant Other Observable Inputs, (Level 2) [Member]
Assets [Abstract]
Cash and due from banks	0		0
Interest bearing deposits	0		0
Interest bearing deposits - time	13,585,000		18,000,000
Trading securities	0		0
Securities available for sale	533,178,000		462,481,000
Net loans and loans held for sale	23,662,000		20,390,000
Accrued interest receivable	1,599,000		1,426,000
Derivative financial instruments	619,000		494,000
Liabilities [Abstract]
Deposits with no stated maturity	0	[1]	0	[1]
Deposits with stated maturity	389,139,000	[1]	446,366,000	[1]
Other borrowings	14,560,000		19,726,000
Subordinated debentures	23,328,000		27,871,000
Accrued interest payable	359,000		425,000
Derivative financial instruments	366,000		0
Significant Unobservable Inputs, (Level 3) [Member]
Assets [Abstract]
Cash and due from banks	0		0
Interest bearing deposits	0		0
Interest bearing deposits - time	0		0
Trading securities	0		0
Securities available for sale	0		0
Net loans and loans held for sale	1,370,762,000		1,312,839,000
Accrued interest receivable	4,394,000		4,521,000
Derivative financial instruments	0		0
Liabilities [Abstract]
Deposits with no stated maturity	0	[1]	0	[1]
Deposits with stated maturity	0	[1]	0	[1]
Other borrowings	0		0
Subordinated debentures	0		0
Accrued interest payable	0		0
Derivative financial instruments	$ 0		$ 0

[1] Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $13.6 million and $11.2 million at December 31, 2014 and 2013, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $40.1 million and $72.3 million at December 31, 2014 and 2013, respectively.

XML

INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2014

INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION [Abstract]

CONDENSED STATEMENTS OF FINANCIAL CONDITION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2014		2013
	(In thousands)
ASSETS
Cash and due from banks	$	5,174	$	11,654
Interest bearing deposits - time		12,500		-
Investment in subsidiaries		258,901		251,529
Other assets		9,583		9,165
Total Assets	$	286,158	$	272,348
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures	$	35,569	$	40,723
Other liabilities		382		391
Shareholders’ equity		250,207		231,234
Total Liabilities and Shareholders’ Equity	$	286,158	$	272,348

CONDENSED STATEMENTS OF OPERATIONS

CONDENSED STATEMENTS OF OPERATIONS
	Year Ended December 31,
	2014			2013			2012
	(In thousands)
OPERATING INCOME (LOSS)
Gain on extinguishment of debt	$	500		$	-		$	-
Gain on securities		295			-			-
Interest income		64			-			-
Increase in fair value of U.S. Treasury warrant		-			(1,025	)		(285	)
Other income		35			63			70
Total Operating Income (Loss)		894			(962	)		(215	)
OPERATING EXPENSES
Interest expense		1,462			2,317			2,779
Administrative and other expenses		527			682			683
Total Operating Expenses		1,989			2,999			3,462
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		(1,095	)		(3,961	)		(3,677	)
Income tax benefit		(383	)		(9,053	)		-
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries		(712	)		5,092			(3,677	)
Equity in undistributed net income of subsidiaries		18,733			72,417			29,875
Net Income	$	18,021		$	77,509		$	26,198

CONDENSED STATEMENTS OF CASH FLOWS

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2014			2013			2012
	(In thousands)
Net Income	$	18,021		$	77,509		$	26,198
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes		(383	)		(8,955	)		-
Gain on extinguishment of debt		(500	)		-			-
Gain on securities		(295	)		-			-
Share based compensation		46			84			184
(Increase) decrease in other assets		118			738			(46	)
Increase (decrease) in other liabilities		287			(5,858	)		2,945
Equity in undistributed net income of subsidiaries operations		(18,733	)		(72,417	)		(29,875	)
Total Adjustments		(19,460	)		(86,408	)		(26,792	)
Net Cash Used in Operating Activities		(1,439	)		(8,899	)		(594	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits		(17,500	)		-			-
Maturity of interest bearing deposits		5,000			-			-
Return of capital from subsidiary		15,000			7,500			-
Net Cash From Investing Activities		2,500			7,500			-
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid		(4,129	)		-			-
Proceeds from issuance of common stock		1,242			100,230			2,244
Redemption of subordinated debt		(4,654	)		(9,452	)		-
Redemption of convertible preferred stock and common stock warrant		-			(81,000	)		-
Share based compensation withholding obligation		-			(513	)		-
Net Cash From (Used in) Financing Activities		(7,541	)		9,265			2,244
Net Increase (Decrease) in Cash and Cash Equivalents		(6,480	)		7,866			1,650
Cash and Cash Equivalents at Beginning of Year		11,654			3,788			2,138
Cash and Cash Equivalents at End of Year	$	5,174		$	11,654		$	3,788

XML

INCOME TAX (Details) (USD $)	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Income tax expense (benefit) [Abstract]
Current		$ (359,000)	$ (277,000)	$ 0
Deferred		7,672,000	0	0
Disproportionate tax effect		0	1,444,000	0
Valuation allowance - change in estimate		(118,000)	(56,018,000)	0
Income tax expense (benefit)		7,195,000	(54,851,000)	0
Statutory federal income tax rate (in hundredths)		35.00%
Reconciliation of income tax benefit [Abstract]
Statutory rate applied to income before income tax		8,826,000	7,930,000	9,169,000
Unrecognized tax benefit		(595,000)	(186,000)	0
Tax-exempt income		(522,000)	(402,000)	(453,000)
Bank owned life insurance		(480,000)	(477,000)	(568,000)
Net change in valuation allowance		(118,000)	(63,980,000)	(8,730,000)
Non-deductible meals, entertainment and memberships		53,000	55,000	55,000
Disproportionate tax effect		0	1,444,000	0
U.S. Treasury warrant		0	359,000	100,000
Share-based compensation		0	8,000	258,000
Other, net		31,000	398,000	169,000
Income tax expense (benefit)		7,195,000	(54,851,000)	0
Reversal of valuation allowance on net deferred tax assets	57,600,000
Deferred tax assets [Abstract]
Loss carryforwards		32,933,000	38,027,000
Allowance for loan losses		9,099,000	11,317,000
Fixed assets		3,239,000	3,081,000
Alternative minimum tax credit carry forward		3,037,000	2,672,000
Purchase premiums, net		2,050,000	2,280,000
Valuation allowance on other real estate owned		879,000	1,431,000
Share based payments		684,000	402,000
Unrealized loss on trading securities		559,000	456,000
Vehicle service contract counterparty contingency reserve		521,000	523,000
Deferred compensation		448,000	523,000
Other than temporary impairment charge on securities available for sale		436,000	466,000
Non accrual loan interest income		244,000	325,000
Loss reimbursement on sold loans reserve		242,000	492,000
Reserve for unfunded lending commitments		189,000	178,000
Unrealized loss on derivative financial instruments		0	133,000
Unrealized loss on securities available for sale		0	1,723,000
Other		0	40,000
Gross deferred tax assets		54,560,000	64,069,000
Valuation allowance		(1,019,000)	(1,137,000)
Total net deferred tax assets		53,541,000	62,932,000
Deferred tax liabilities [Abstract]
Mortgage servicing rights		4,237,000	4,799,000
Deferred loan fees		260,000	265,000
Federal Home Loan Bank stock		196,000	318,000
Unrealized gain on securities available for sale		87,000	0
Other		129,000	0
Gross deferred tax liabilities		4,909,000	5,382,000
Net deferred tax assets		48,632,000	57,550,000
Operating loss carryforwards [Abstract]
2029		11,285,000
2030		26,254,000
2031		17,170,000
2032		37,739,000
Total		92,448,000
Changes in unrecognized tax benefits [Roll Forward]
Balance at beginning of year		1,672,000	1,871,000	2,139,000
Additions based on tax positions related to the current year		18,000	11,000	15,000
Reductions due to the statute of limitations		(595,000)	(186,000)	(56,000)
Reductions due to settlements		(4,000)	(24,000)	(227,000)
Balance at end of year		1,091,000	1,672,000	1,871,000
State income tax expense (benefit)		0	(200,000)	0
Unrecognized tax benefits of effective tax rate		400,000
Penalties and interest expense		0	0	0
Penalties and interest accrued		0	0	0
NOL Unrealized excess benefits on share-based compensation		1,200,000
Minimum tax credit carryforwards with indefinite lives		3,000,000
Open tax year		2011
Mepco [Member]
Valuation Allowance [Line Items]
Valuation allowance against deferred tax assets attributable to Mepco		$ 1,000,000	$ 1,100,000

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FAIR VALUE DISCLOSURES, Part 2 (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Impairment charges recognized [Abstract]
Capitalized mortgage loan servicing rights, carrying amount	$ 9,200,000	$ 7,800,000
Capitalized mortgage loan servicing rights, valuation allowance	3,773,000	2,855,000	6,087,000
Capitalized mortgage loan servicing rights recoveries	(900,000)	3,200,000	500,000
Collateral dependent loans, carrying amount	8,200,000	10,800,000
Collateral dependent loans, valuation allowance	3,100,000	3,400,000
Additional provision for loan losses on impaired loans	2,100,000	1,500,000	2,000,000
Other real estate, carrying amount	1,900,000	5,900,000
Other real estate, valuation allowance	2,511,000	4,047,000	5,958,000	14,655,000
Other real estate, additional charge	300,000	1,600,000	1,500,000
Warrant reclassified into shareholders' equity, fair value	1,500,000
Amended Warrant [Member]
Liability [Roll Forward]
Beginning balance	0	(459,000)
Total gains (losses) realized and unrealized [Abstract]
Included in results of operations	0	(1,025,000)
Included in other comprehensive income	0	0
Purchases, issuances, settlements, maturities and calls	0	0
Reclassification to shareholders' equity	0	1,484,000
Transfers in and/or out of Level 3	0	0
Ending balance	0	0
Amended Warrant [Member] | Other Income [Member]
Total gains (losses) realized and unrealized [Abstract]
Amount of total gains (losses) for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31	0	0
Impaired Loans Commercial [Member]
Impairment charges recognized [Abstract]
Total impaired collateral value	1,100,000
Impaired Loans Commercial [Member] | Minimum [Member]
Impairment charges recognized [Abstract]
Discount rate (in hundredths)	35.00%
Impaired Loans Commercial [Member] | Maximum [Member]
Impairment charges recognized [Abstract]
Discount rate (in hundredths)	100.00%
Trading Securities [Member]
Changes in fair value for financial assets [Abstract]
Net Gains (Losses) on Assets	(295,000)	388,000	33,000
Total Change in Fair Values Included in Current Period Earnings	(295,000)	388,000	33,000
Loans Held For Sale [Member]
Changes in fair value for financial assets [Abstract]
Net Gains (Losses) on Assets	258,000	(1,477,000)	440,000
Total Change in Fair Values Included in Current Period Earnings	$ 258,000	$ (1,477,000)	$ 440,000

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RELATED PARTY TRANSACTIONS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
RELATED PARTY TRANSACTIONS [Abstract]
Borrowing relationship exceeds level	$ 60,000
Related party entity ownership percentage (in hundredths)	10.00%
Summary of loans and leases receivable [Roll Forward]
Balance at beginning of year	351,000	208,000
New loans and advances	0	240,000
Repayments	(135,000)	(97,000)
Balance at end of year	216,000	351,000
Directors and executive officers deposit	$ 1,000,000	$ 800,000

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FAIR VALUE DISCLOSURES, Part 3 (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Fair value option - Loans held for sale [Abstract]
Loans held for sale	$ 23,662	$ 20,390
Difference	624	366	1,843
Aggregate Fair Value [Member]
Fair value option - Loans held for sale [Abstract]
Loans held for sale	23,662	20,390	47,487
Contractual Principal [Member]
Fair value option - Loans held for sale [Abstract]
Loans held for sale	$ 23,038	$ 20,024	$ 45,644

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SHARE BASED COMPENSATION AND BENEFIT PLANS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Share based compensation arrangements [Line Items]
Number of additional shares approved for grant (in shares)	400,000
Total compensation cost not yet recognized	$ 1,600,000
Total compensation cost not yet recognized, period for recognition	1 year 8 months 12 days
Number of Shares [Roll Forward]
Outstanding, beginning balance (in shares)	303,980
Granted (in shares)	105,624
Vested (in shares)	0
Forfeited (in shares)	(2,474)
Outstanding, ending balance (in shares)	407,130	303,980
Weighted-Average Grant Date Fair Value [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 3.77
Granted (in dollars per share)	$ 13.79
Forfeited (in dollars per share)	$ 13.34
Outstanding, ending balance (in dollars per share)	$ 6.31	$ 3.77
Summary of weighted-average assumptions used in Black-Scholes option pricing model for grants of stock options [Abstract]
Expected dividend yield (in hundredths)		0.31%	0.74%
Risk-free interest rate (in hundredths)		1.12%	0.88%
Expected life		6 years	6 years
Expected volatility (in hundredths)		101.30%	100.01%
Per share weighted-average fair value (in dollars per share)		$ 4.98	$ 2.04
Information regarding options exercised [Abstract]
Intrinsic value	321,000	117,000	3,000
Cash proceeds received	96,000	39,000	4,000
Tax benefit realized	112,000	0	0
Maximum matching contribution, percent (in hundredths)	3.00%
Employee matching contribution, percentage (in hundredths)	2.00%	1.00%	0.00%
Maximum contribution of employees' eligible wages (in hundredths)	6.00%
Employee stock ownership plan (ESOP), contributions (in hundredths)	2.00%	3.00%	3.00%
401(k) and employee stock ownership plans amount expensed	1,000,000	1,200,000	1,000,000
Performance-based compensation expense	4,200,000	5,000,000	4,000,000
Health care and life insurance expense	3,900,000	3,800,000	4,900,000
Long-term incentive plan [Member]
Share based compensation arrangements [Line Items]
Total compensation expense (recovery) recognized	1,000,000	900,000	400,000
Tax benefit relating to compensation expense recognized	400,000	0	0
Stock Options [Member]
Number of Shares [Roll Forward]
Outstanding, beginning balance (in shares)	320,300
Granted (in shares)	0
Exercised (in shares)	(32,896)
Forfeited (in shares)	(5,300)
Expired (in shares)	(284)
Outstanding, ending balance (in shares)	281,820
Vested and expected to vest, period end (in shares)	277,216
Exercisable, period end (in shares)	198,884
Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 4.52
Exercised (in dollars per share)	$ 2.93
Forfeited (in dollars per share)	$ 5.22
Expired (in dollars per share)	$ 3.46
Outstanding, ending balance (in dollars per share)	$ 4.69
Vested and expected to vest, period end (in dollars per share)	$ 4.69
Exercisable, period end (in dollars per share)	$ 4.62
Weighted-Average Remaining Contractual Term (Years) [Abstract]
Outstanding, Weighted-Average Remaining Contractual Term	7 years 1 month 6 days
Vested and Expected to Vest, Weighted-Average Remaining Contractual Term	7 years 0 months 29 days
Exercisable, Weighted-Average Remaining Contractual Term	6 years 8 months 5 days
Aggregate Intrinsic Value [Abstract]
Outstanding, Aggregate Intrinsic Value	2,431,000
Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	2,394,000
Exercisable, Aggregate Intrinsic Value	1,752,000
Director [Member]
Share based compensation arrangements [Line Items]
Shares issues as retainer fees (in shares)	10,000	60,000	210,000
President [Member]
Share based compensation arrangements [Line Items]
Salary stock		20,000	15,000
Chief Executive Officer [Member]
Share based compensation arrangements [Line Items]
Salary stock			200,000
Executive Officers [Member] | Restricted Stock [Member] | Long-term incentive plan [Member]
Share based compensation arrangements [Line Items]
Number of restricted stock units issued to executive officers (in shares)	100,000	100,000	200,000
Vesting period	3 years	3 years	3 years
Executive Officers [Member] | Performance stock units [Member] | Long-term incentive plan [Member]
Share based compensation arrangements [Line Items]
Number of restricted stock units issued to executive officers (in shares)	30,000
Vesting period	3 years
Senior Officers [Member] | Stock Options [Member] | Long-term incentive plan [Member]
Share based compensation arrangements [Line Items]
Vesting period	3 years	3 years	3 years
Number of stock options issued to officers (in shares)		100,000	100,000
Expire period from date of grant of stock option		10 years	10 years
Non-Employee Directors [Member]
Share based compensation arrangements [Line Items]
Number of additional shares approved for grant (in shares)	200,000
Total compensation expense (recovery) recognized	200,000	300,000	400,000
Tax benefit relating to compensation expense recognized	$ 100,000	$ 0	$ 0

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DEPOSITS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Summary of interest expense on deposits [Abstract]
Savings and interest bearing checking	$ 1,064,000	$ 1,131,000	$ 1,830,000
Time deposits under $100,000	2,467,000	2,995,000	4,838,000
Time deposits of $100,000 or more	1,436,000	1,580,000	2,245,000
Total Deposits	4,967,000	5,706,000	8,913,000
Time Deposits in denominations of 250,000 or more amounted	42,800,000	32,700,000
Time Deposits denominations amount	250,000	250,000
Summary of the maturity of time deposits [Abstract]
2015	239,914,000
2016	88,123,000
2017	22,569,000
2018	22,952,000
2019	15,497,000
2020 and thereafter	1,072,000
Total	390,127,000
Time deposits acquired through broker relationships	11,300,000	13,500,000
Summary of reciprocal deposits [Abstract]
Demand	5,867,000	7,018,000
Money market	7,692,000	4,197,000
Time	40,109,000	72,312,000
Total	$ 53,668,000	$ 83,527,000

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2014

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 17 – RELATED PARTY TRANSACTIONS

Certain of our directors and executive officers, including companies in which they are officers or have significant ownership, were loan and deposit customers during 2014 and 2013.

A summary of loans to our directors and executive officers whose borrowing relationship (which includes loans to entities in which the individual owns a 10% or more voting interest) exceeds $60,000 for the years ended December 31 follows:

	2014			2013
	(In thousands)
Balance at beginning of year	$	351		$	208
New loans and advances		-			240
Repayments		(135	)		(97	)
Balance at end of year	$	216		$	351

Deposits held by us for directors and executive officers totaled $1.0 million and $0.8 million at December 31, 2014 and 2013, respectively.

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2014

RELATED PARTY TRANSACTIONS [Abstract]

Summary of loans to directors and executive officers

A summary of loans to our directors and executive officers whose borrowing relationship (which includes loans to entities in which the individual owns a 10% or more voting interest) exceeds $60,000 for the years ended December 31 follows:

	2014			2013
	(In thousands)
Balance at beginning of year	$	351		$	208
New loans and advances		-			240
Repayments		(135	)		(97	)
Balance at end of year	$	216		$	351

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OTHER BORROWINGS (Tables)

12 Months Ended

Dec. 31, 2014

OTHER BORROWINGS [Abstract]

Summary of other borrowings

A summary of other borrowings at December 31 follows:

	2014		2013
	(In thousands)
Advances from the FHLB	$	12,464	$	17,181
Other		6		7
Total	$	12,470	$	17,188

Schedule of maturity dates and weighted average interest rates FHLB

The maturity dates and weighted average interest rates of FHLB advances at December 31 follow:

	2014					2013
	Amount		Rate			Amount		Rate
	(Dollars in thousands)
Fixed-rate advances
2014						$	4,240		5.73	%
2016	$	2,205		6.55	%		2,313		6.55
2017		1,320		7.04			1,377		7.04
2018		5,671		5.99			5,888		5.99
2019		-					-
2020 and thereafter		3,268		7.49			3,363		7.49
Total advances	$	12,464		6.59	%	$	17,181		6.38	%

Schedule of repayments of federal home loan bank advances

A summary of repayments of FHLB Advances at December 31, 2014, follows:

	(In thousands)
2015	$	515
2016		2,521
2017		1,587
2018		5,042
2019		143
2020 and thereafter		2,656
Total	$	12,464

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SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE (Details) (USD $)	12 Months Ended						1 Months Ended		2 Months Ended	1 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012		Sep. 30, 2013	Aug. 31, 2013	Sep. 30, 2013	Jul. 31, 2013	Nov. 15, 2011	Aug. 30, 2013
Class of Stock [Line Items]
Series B Preferred Stock issued (in shares)	0		0
Shares issued during period (in shares)	30,828		13,604,963		454,842
Shares issued value during period	$ 97,000		$ 99,075,000		$ 1,418,000
Net proceeds from the issuance of common stock	97,000		98,066,000		1,418,000
Shareholders with certain limited exceptions (in hundredths)											5.00%
Number of Series C Junior Participating Preferred Stock purchase by each right	1/1000
Beneficial Ownership Level (in hundredths)											4.99%
Discount to current market price of the common stock (in hundredths)											50.00%
Earnings Per Share Reconciliation [Abstract]
Net Income Applicable to Common Stock	18,021,000		82,062,000		21,851,000
Convertible preferred stock dividends	0		3,001,000		4,347,000
Preferred stock discount	0		(7,554,000)		0
Net income applicable to common stock for calculation of diluted earnings per share	18,021,000		77,509,000		26,198,000
Weighted average shares outstanding	22,927,000	[1]	13,970,000	[1]	8,709,000	[1]
Restricted stock units (in shares)	306,000		363,000		216,000
Effect of stock options (in shares)	124,000		92,000		2,000
Stock units for deferred compensation plan for non-employee directors (in shares)	114,000		125,000		66,000
Effect of convertible preferred stock (in shares)	0		7,314,000		23,892,000
Weighted average shares outstanding for calculation of diluted earnings per share (in shares)	23,471,000		21,864,000		32,885,000
Net income per common share [Abstract]
Basic (in dollars per share)	$ 0.79	[1]	$ 5.87	[1]	$ 2.51	[1]
Diluted (in dollars per share)	$ 0.77		$ 3.55		$ 0.80
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted loss per share (in shares)	30,000		100,000		100,000
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share (in shares)			346,154		346,154
Series B Preferred Stock [Member] | Amended and Restated Warrants [Member]
Class of Stock [Line Items]
Series B Preferred Stock issued (in shares)										74,426
Common Stock [Member]
Class of Stock [Line Items]
Shares issued during period (in shares)							1,725,000	11,500,000
Shares issued value during period							13,400,000	89,100,000
Net proceeds from the issuance of common stock									97,100,000
Common Stock [Member] | Amended and Restated Warrants [Member]
Class of Stock [Line Items]
Amended warrants expiration date	Dec. 12, 2018
UST [Member] | Amended and Restated Warrants [Member]
Class of Stock [Line Items]
Book balance												1,500,000
Discount												100,000
UST [Member] | Series B Preferred Stock [Member]
Class of Stock [Line Items]
Liquidation preference (in dollars per share)										$ 1,000
Book balance												87,200,000
Discount												7,600,000
UST [Member] | Series B Preferred Stock [Member] | Amended and Restated Warrants [Member]
Class of Stock [Line Items]
Amount agreed under securities purchase agreement										81,000,000
Discount												$ 7,700,000
UST [Member] | Common Stock [Member] | Amended and Restated Warrants [Member]
Class of Stock [Line Items]
Warrants issued to purchase common stock (in shares)										346,154
Warrants, exercise price (in dollars per share)										$ 7.234

[1] Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

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LOANS AND PAYMENT PLAN RECEIVABLES (Tables)

12 Months Ended

Dec. 31, 2014

LOANS AND PAYMENT PLAN RECEIVABLES [Abstract]

Loan portfolios

Our loan portfolios at December 31 follow:
	2014		2013
	(In thousands)
Real estate(1)
Residential first mortgages	$	411,423	$	431,812
Residential home equity and other junior mortgages		108,162		113,703
Construction and land development		54,644		50,290
Other(2)		447,837		440,348
Commercial		186,875		146,954
Consumer		154,591		126,443
Payment plan receivables		40,001		60,638
Agricultural		6,429		4,382
Total loans	$	1,409,962	$	1,374,570

(1) Includes both residential and non-residential commercial loans secured by real estate.

(2) Includes loans secured by multi-family residential and non-farm, non-residential property.

Analysis of allowance for loan losses by portfolio segment

An analysis of the allowance for loan losses by portfolio segment for the years ended December 31 follows:

										Payment
										Plan
	Commercial			Mortgage			Installment			Receivables			Unallocated			Total
	(In thousands)
2014
Balance at beginning of period	$	6,827		$	17,195		$	2,246		$	97		$	5,960		$	32,325
Additions (deductions)
Provision for loan losses		(1,683	)		(1,029	)		349			(36	)		(737	)		(3,136	)
Recoveries credited to allowance		4,914			1,397			1,104			5			-			7,420
Loans charged against the allowance		(4,613	)		(4,119	)		(1,885	)		(2	)		-			(10,619	)
Balance at end of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
2013
Balance at beginning of period	$	11,402		$	21,447		$	3,378		$	144		$	7,904		$	44,275
Additions (deductions)
Provision for loan losses		(2,336	)		71			314			(93	)		(1,944	)		(3,988	)
Recoveries credited to allowance		5,119			1,996			1,074			81			-			8,270
Loans charged against the allowance		(7,358	)		(6,319	)		(2,520	)		(35	)		-			(16,232	)
Balance at end of period	$	6,827		$	17,195		$	2,246		$	97		$	5,960		$	32,325
2012
Balance at beginning of period	$	18,183		$	22,885		$	6,146		$	197		$	11,473		$	58,884
Additions (deductions)
Provision for loan losses		2,351			7,778			15			(3	)		(3,254	)		6,887
Recoveries credited to allowance		3,610			1,581			1,311			20			-			6,522
Loans charged against the allowance		(12,588	)		(10,741	)		(4,009	)		(70	)		-			(27,408	)
Reclassification to loans held for sale		(154	)		(56	)		(85	)		-			(315	)		(610	)
Balance at end of period	$	11,402		$	21,447		$	3,378		$	144		$	7,904		$	44,275

Allowance for loan losses and recorded investment in loans by portfolio segment

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

							Payment
							Plan
	Commercial		Mortgage		Installment		Receivables		Unallocated		Total
	(In thousands)
2014
Allowance for loan losses:
Individually evaluated for impairment	$	3,194	$	9,311	$	728	$	-	$	-	$	13,233
Collectively evaluated for impairment		2,251		4,133		1,086		64		5,223		12,757
Total ending allowance balance	$	5,445	$	13,444	$	1,814	$	64	$	5,223	$	25,990
Loans
Individually evaluated for impairment	$	34,147	$	72,340	$	6,679	$	-			$	113,166
Collectively evaluated for impairment		658,423		402,458		200,368		40,001				1,301,250
Total loans recorded investment		692,570		474,798		207,047		40,001				1,414,416
Accrued interest included in recorded investment		1,615		2,170		669		-				4,454
Total loans	$	690,955	$	472,628	$	206,378	$	40,001			$	1,409,962
2013
Allowance for loan losses:
Individually evaluated for impairment	$	3,878	$	10,488	$	792	$	-	$	-	$	15,158
Collectively evaluated for impairment		2,949		6,707		1,454		97		5,960		17,167
Total ending allowance balance	$	6,827	$	17,195	$	2,246	$	97	$	5,960	$	32,325
Loans
Individually evaluated for impairment	$	40,623	$	78,022	$	7,068	$	-			$	125,713
Collectively evaluated for impairment		596,235		410,887		185,676		60,638				1,253,436
Total loans recorded investment		636,858		488,909		192,744		60,638				1,379,149
Accrued interest included in recorded investment		1,624		2,276		679		-				4,579
Total loans	$	635,234	$	486,633	$	192,065	$	60,638			$	1,374,570

Loans on non-accrual status and past due more than 90 days

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) at December 31 follow:

	90+ and				Total Non-
	Still		Non-		Performing
	Accruing		Accrual		Loans
	(In thousands)
2014
Commercial
Income producing - real estate	$	-	$	1,233	$	1,233
Land, land development and construction - real estate		-		594		594
Commercial and industrial		-		2,746		2,746
Mortgage
1-4 family		7		5,945		5,952
Resort lending		-		2,168		2,168
Home equity - 1st lien		-		331		331
Home equity - 2nd lien		-		605		605
Installment
Home equity - 1st lien		-		576		576
Home equity - 2nd lien		-		517		517
Loans not secured by real estate		-		454		454
Other		-		48		48
Payment plan receivables
Full refund		-		2		2
Partial refund		-		12		12
Other		-		-		-
Total recorded investment	$	7	$	15,231	$	15,238
Accrued interest included in recorded investment	$	-	$	-	$	-
2013
Commercial
Income producing - real estate	$	-	$	1,899	$	1,899
Land, land development and construction - real estate		-		1,036		1,036
Commercial and industrial		-		2,434		2,434
Mortgage
1-4 family		-		6,594		6,594
Resort lending		-		2,668		2,668
Home equity - 1st lien		-		415		415
Home equity - 2nd lien		-		689		689
Installment
Home equity - 1st lien		-		938		938
Home equity - 2nd lien		-		571		571
Loans not secured by real estate		-		638		638
Other		-		-		-
Payment plan receivables
Full refund		-		20		20
Partial refund		-		3		3
Other		-		-		-
Total recorded investment	$	-	$	17,905	$	17,905
Accrued interest included in recorded investment	$	-	$	-	$	-

Aging analysis of loans by class

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
2014
Commercial
Income producing - real estate	$	89	$	-	$	214	$	303	$	252,763	$	253,066
Land, land development and construction - real estate		131		-		223		354		33,984		34,338
Commercial and industrial		2,391		279		209		2,879		402,287		405,166
Mortgage
1-4 family		1,877		1,638		5,952		9,467		269,719		279,186
Resort lending		226		-		2,168		2,394		126,342		128,736
Home equity - 1st lien		39		50		331		420		19,782		20,202
Home equity - 2nd lien		711		89		605		1,405		45,269		46,674
Installment
Home equity - 1st lien		466		37		576		1,079		20,995		22,074
Home equity - 2nd lien		369		81		517		967		28,125		29,092
Loans not secured by real estate		589		231		454		1,274		152,115		153,389
Other		15		3		48		66		2,426		2,492
Payment plan receivables
Full refund		838		214		2		1,054		26,799		27,853
Partial refund		409		123		12		544		6,550		7,094
Other		96		24		-		120		4,934		5,054
Total recorded investment	$	8,246	$	2,769	$	11,311	$	22,326	$	1,392,090	$	1,414,416
Accrued interest included in recorded investment	$	55	$	29	$	-	$	84	$	4,370	$	4,454
2013
Commercial
Income producing - real estate	$	1,014	$	428	$	878	$	2,320	$	249,313	$	251,633
Land, land development and construction - real estate		781		129		256		1,166		30,670		31,836
Commercial and industrial		1,155		1,665		318		3,138		350,251		353,389
Mortgage
1-4 family		3,750		224		6,594		10,568		270,855		281,423
Resort lending		698		234		2,668		3,600		142,356		145,956
Home equity - 1st lien		172		-		415		587		18,214		18,801
Home equity - 2nd lien		663		73		689		1,425		41,304		42,729
Installment
Home equity - 1st lien		557		134		938		1,629		25,513		27,142
Home equity - 2nd lien		536		136		571		1,243		36,701		37,944
Loans not secured by real estate		833		281		638		1,752		123,295		125,047
Other		22		12		-		34		2,577		2,611
Payment plan receivables
Full refund		1,364		349		20		1,733		46,344		48,077
Partial refund		190		20		3		213		4,840		5,053
Other		122		4		-		126		7,382		7,508
Total recorded investment	$	11,857	$	3,689	$	13,988	$	29,534	$	1,349,615	$	1,379,149
Accrued interest included in recorded investment	$	100	$	26	$	-	$	126	$	4,453	$	4,579

Impaired loans

Impaired loans are as follows :

	December 31,
	2014		2013
Impaired loans with no allocated allowance	(In thousands)
TDR	$	9,325	$	13,006
Non - TDR		299		334
Impaired loans with an allocated allowance
TDR - allowance based on collateral		5,879		10,085
TDR - allowance based on present value cash flow		94,970		101,131
Non - TDR - allowance based on collateral		2,296		688
Non - TDR - allowance based on present value cash flow		-		-
Total impaired loans	$	112,769	$	125,244
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,025	$	3,127
TDR - allowance based on present value cash flow		10,188		11,777
Non - TDR - allowance based on collateral		1,020		254
Non - TDR - allowance based on present value cash flow		-		-
Total amount of allowance for loan losses allocated	$	13,233	$	15,158

Impaired loans by class as of December 31 are as follows (1):

	2014						2013
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	5,868	$	6,077	$	-	$	7,042	$	7,178	$	-
Land, land development & construction-real estate		1,051		1,606		-		2,185		3,217		-
Commercial and industrial		2,685		2,667		-		4,110		4,087		-
Mortgage
1-4 family		-		49		-		8		8		-
Resort lending		48		397		-		35		163		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		-		40		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Loans not secured by real estate		-		-		-		-		-		-
Other		-		-		-		-		-		-
		9,652		10,836		-		13,380		14,653		-
With an allowance recorded:
Commercial
Income producing - real estate		12,836		13,797		689		14,538		15,631		1,161
Land, land development & construction-real estate		3,456		3,528		499		3,366		4,130		686
Commercial and industrial		8,251		8,486		2,006		9,382		9,529		2,031
Mortgage
1-4 family		53,206		56,063		6,195		57,612		60,768		7,236
Resort lending		18,799		18,963		3,075		20,171		20,608		3,221
Home equity - 1st lien		162		177		14		154		164		11
Home equity - 2nd lien		125		205		27		42		118		20
Installment
Home equity - 1st lien		2,744		2,930		219		2,959		3,115		254
Home equity - 2nd lien		3,212		3,215		419		3,352		3,347		462
Loans not secured by real estate		711		835		89		741		902		75
Other		12		12		1		16		16		1
		103,514		108,211		13,233		112,333		118,328		15,158
Total
Commercial
Income producing - real estate		18,704		19,874		689		21,580		22,809		1,161
Land, land development & construction-real estate		4,507		5,134		499		5,551		7,347		686
Commercial and industrial		10,936		11,153		2,006		13,492		13,616		2,031
Mortgage
1-4 family		53,206		56,112		6,195		57,620		60,776		7,236
Resort lending		18,847		19,360		3,075		20,206		20,771		3,221
Home equity - 1st lien		162		177		14		154		164		11
Home equity - 2nd lien		125		205		27		42		118		20
Installment
Home equity - 1st lien		2,744		2,970		219		2,959		3,115		254
Home equity - 2nd lien		3,212		3,215		419		3,352		3,347		462
Loans not secured by real estate		711		835		89		741		902		75
Other		12		12		1		16		16		1
Total	$	113,166	$	119,047	$	13,233	$	125,713	$	132,981	$	15,158
Accrued interest included in recorded investment	$	397					$	469

(1) There were no impaired payment plan receivables at December 31, 2014 or 2013.

Sales of certain commercial watch, substandard and non-performing loans

During the second quarter of 2013, we sold certain commercial watch, substandard and non-performing loans as follows:

	(In thousands)
Income producing - real estate	$	4,570
Land, land development and construction - real estate		401
Commercial and industrial		3,630
Total	$	8,601

Average recorded investment in and interest income earned on impaired loans by class

Average recorded investment in and interest income earned on impaired loans by class for the years ended December 31 follows (1):

	2014				2013				2012
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	7,660	$	250	$	5,765	$	340	$	2,981	$	166
Land, land development & construction-real estate		1,145		64		3,092		240		2,549		150
Commercial and industrial		3,351		152		3,980		226		3,526		246
Mortgage
1-4 family		29		-		5		11		290		-
Resort lending		40		1		28		-		222		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		-		2		1,604		83		1,961		97
Home equity - 2nd lien		-		-		1,841		96		2,093		111
Loans not secured by real estate		-		-		470		23		549		30
Other		-		-		15		1		22		2
		12,225		469		16,800		1,020		14,193		802
With an allowance recorded:
Commercial
Income producing - real estate		12,772		677		18,164		587		23,508		571
Land, land development & construction-real estate		3,939		149		6,186		149		10,305		183
Commercial and industrial		8,500		294		11,795		457		17,828		467
Mortgage
1-4 family		55,877		2,286		60,858		2,622		66,195		2,852
Resort lending		19,458		753		21,708		836		24,286		1,000
Home equity - 1st lien		160		6		136		4		65		2
Home equity - 2nd lien		57		2		42		2		81		3
Installment
Home equity - 1st lien		2,837		174		1,448		85		1,432		50
Home equity - 2nd lien		3,359		188		1,546		86		1,325		51
Loans not secured by real estate		719		35		314		17		221		10
Other		14		1		3		1		-		-
		107,692		4,565		122,200		4,846		145,246		5,189
Total
Commercial
Income producing - real estate		20,432		927		23,929		927		26,489		737
Land, land development & construction-real estate		5,084		213		9,278		389		12,854		333
Commercial and industrial		11,851		446		15,775		683		21,354		713
Mortgage
1-4 family		55,906		2,286		60,863		2,633		66,485		2,852
Resort lending		19,498		754		21,736		836		24,508		1,000
Home equity - 1st lien		160		6		136		4		65		2
Home equity - 2nd lien		57		2		42		2		81		3
Installment
Home equity - 1st lien		2,837		176		3,052		168		3,393		147
Home equity - 2nd lien		3,359		188		3,387		182		3,418		162
Loans not secured by real estate		719		35		784		40		770		40
Other		14		1		18		2		22		2
Total	$	119,917	$	5,034	$	139,000	$	5,866	$	159,439	$	5,991

(1) There were no impaired payment plan receivables during the years ending December 31, 2014, 2013 and 2012.

Troubled debt restructurings

Troubled debt restructurings at December 31 follow:

	2014
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	29,475	$	73,496		$	102,971
Non-performing TDR's(1)		1,978		5,225	(2)		7,203
Total	$	31,453	$	78,721		$	110,174

	2013
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	35,134	$	79,753		$	114,887
Non-performing TDR's(1)		4,347		4,988	(2)		9,335
Total	$	39,481	$	84,741		$	124,222

(1) Included in non-performing loans table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

Troubled debt restructuring during the period

Loans that have been classified as troubled debt restructurings during the three years endedDecember 31 follow:

			Pre-modification		Post-modification
	Number of		Recorded		Recorded
	Contracts		Balance		Balance
2014	(Dollars in thousands)
Commercial
Income producing - real estate		4	$	426	$	389
Land, land development & construction-real estate		2		55		44
Commercial and industrial		13		2,236		1,606
Mortgage
1-4 family		15		1,576		1,570
Resort lending		6		1,583		1,572
Home equity - 1st lien		1		17		14
Home equity - 2nd lien		1		85		84
Installment
Home equity - 1st lien		13		631		523
Home equity - 2nd lien		9		400		400
Loans not secured by real estate		6		114		106
Other		-		-		-
Total		70	$	7,123	$	6,308
2013
Commercial
Income producing - real estate		6	$	4,798	$	3,869
Land, land development & construction-real estate		1		16		-
Commercial and industrial		23		2,522		1,901
Mortgage
1-4 family		20		1,968		1,995
Resort lending		5		1,240		1,231
Home equity - 1st lien		1		95		97
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		25		659		657
Home equity - 2nd lien		16		508		508
Loans not secured by real estate		5		149		110
Other		-		-		-
Total		102	$	11,955	$	10,368
2012
Commercial
Income producing - real estate		20	$	9,464	$	8,568
Land, land development & construction-real estate		9		4,800		4,858
Commercial and industrial		50		9,951		7,905
Mortgage
1-4 family		66		8,900		8,488
Resort lending		31		7,750		7,514
Home equity - 1st lien		1		15		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		18		666		632
Home equity - 2nd lien		24		784		768
Loans not secured by real estate		13		325		304
Other		-		-		-
Total		232	$	42,655	$	39,037

Troubled debt restructuring during the past twelve months that subsequently defaulted

Loans that have been classified as troubled debt restructured during the past twelve months and that have subsequently defaulted during the years ended December 31 follows:

	Number of		Recorded
	Contracts		Balance
2014	(Dollars in thousands)
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		2		319
Mortgage
1-4 family		1		125
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
Total		3	$	444
2013
Commercial
Income producing - real estate		1	$	693
Land, land development & construction-real estate		1		334
Commercial and industrial		2		143
Mortgage
1-4 family		1		106
Resort lending		1		156
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		2		32
Home equity - 2nd lien		1		22
Loans not secured by real estate		-		-
Other		-		-
Total		9	$	1,486
2012
Commercial
Income producing - real estate		2	$	827
Land, land development & construction-real estate		-		-
Commercial and industrial		5		230
Mortgage
1-4 family		2		148
Resort lending		4		887
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		2		234
Home equity - 2nd lien		1		20
Loans not secured by real estate		-		-
Other		-		-
Total		16	$	2,346

Summary of loan ratings by loan class

	Commercial
					Substandard		Non-
	Non-watch		Watch		Accrual		Accrual
		1-6		7-8		9		10-11	Total
					(In thousands)
2014
Income producing - real estate	$	241,266	$	8,649	$	1,918	$	1,233	$	253,066
Land, land development and construction - real estate		30,869		2,485		390		594		34,338
Commercial and industrial		372,947		23,475		5,998		2,746		405,166
Total	$	645,082	$	34,609	$	8,306	$	4,573	$	692,570
Accrued interest included in total	$	1,479	$	111	$	25	$	-	$	1,615
2013
Income producing - real estate	$	227,957	$	17,882	$	3,895	$	1,899	$	251,633
Land, land development and construction - real estate		25,654		4,829		317		1,036		31,836
Commercial and industrial		318,183		26,303		6,469		2,434		353,389
Total	$	571,794	$	49,014	$	10,681	$	5,369	$	636,858
Accrued interest included in total	$	1,433	$	147	$	44	$	-	$	1,624

For each of our mortgage and installment segment classes we generally monitor credit quality based on the credit scores of the borrowers. These credit scores are generally updated at least annually. The following tables summarize credit scores by loan class for our mortgage and installment loan segments at December 31:

	Mortgage (1)
					Home		Home
			Resort		Equity		Equity
	1-4 Family		Lending		1st Lien		2nd Lien		Total
	(In thousands)
2014
800 and above	$	27,918	$	14,484	$	3,863	$	6,225	$	52,490
750-799		72,674		45,950		6,128		14,323		139,075
700-749		52,843		32,660		3,054		9,642		98,199
650-699		51,664		20,250		3,257		8,194		83,365
600-649		27,770		6,538		1,704		3,862		39,874
550-599		21,361		3,639		994		1,721		27,715
500-549		14,575		2,156		699		1,401		18,831
Under 500		6,306		875		261		632		8,074
Unknown		4,075		2,184		242		674		7,175
Total	$	279,186	$	128,736	$	20,202	$	46,674	$	474,798
Accrued interest included in total	$	1,311	$	562	$	88	$	209	$	2,170
2013
800 and above	$	23,924	$	13,487	$	3,650	$	5,354	$	46,415
750-799		60,728		56,880		4,560		11,809		133,977
700-749		58,269		35,767		3,289		8,628		105,953
650-699		49,771		21,696		2,316		7,145		80,928
600-649		34,991		8,555		2,621		5,141		51,308
550-599		24,616		3,261		1,165		2,485		31,527
500-549		14,823		2,271		644		1,560		19,298
Under 500		9,492		1,160		323		360		11,335
Unknown		4,809		2,879		233		247		8,168
Total	$	281,423	$	145,956	$	18,801	$	42,729	$	488,909
Accrued interest included in total	$	1,300	$	650	$	97	$	229	$	2,276

(1) Credit scores have been updated within the last twelve months.

	Installment(1)
	Home		Home		Loans not
	Equity		Equity		Secured by
	1st Lien		2nd Lien		Real Estate		Other		Total
	(In thousands)
2014
800 and above	$	2,272	$	2,835	$	31,507	$	60	$	36,674
750-799		5,677		8,557		66,558		583		81,375
700-749		3,111		6,358		28,179		689		38,337
650-699		3,963		5,477		16,152		615		26,207
600-649		3,434		2,408		5,128		255		11,225
550-599		2,019		1,913		1,896		134		5,962
500-549		1,128		1,036		1,672		84		3,920
Under 500		393		427		455		28		1,303
Unknown		77		81		1,842		44		2,044
Total	$	22,074	$	29,092	$	153,389	$	2,492	$	207,047
Accrued interest included in total	$	93	$	112	$	445	$	19	$	669
2013
800 and above	$	2,977	$	3,062	$	23,649	$	53	$	29,741
750-799		6,585		11,197		48,585		557		66,924
700-749		4,353		9,487		25,343		683		39,866
650-699		4,815		6,832		15,256		646		27,549
600-649		3,173		2,824		5,289		258		11,544
550-599		2,843		2,084		2,785		213		7,925
500-549		1,483		1,715		1,732		130		5,060
Under 500		751		663		516		29		1,959
Unknown		162		80		1,892		42		2,176
Total	$	27,142	$	37,944	$	125,047	$	2,611	$	192,744
Accrued interest included in total	$	114	$	144	$	399	$	22	$	679

(1) Credit scores have been updated within the last twelve months.

Mepco is a wholly-owned subsidiary of our Bank that operates a vehicle service contract payment plan business throughout the United States. See note #11 for more information about Mepco’s business. As of December 31, 2014, approximately 69.6% of Mepco’s outstanding payment plan receivables relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the full refund owing upon cancellation of the related service contract (including with respect to both the portion funded to the service contract seller and the portion funded to the administrator). These receivables are shown as “Full Refund” in the table below. Another approximately 17.7% of Mepco’s outstanding payment plan receivables as of December 31, 2014, relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the refund owing upon cancellation only with respect to the unearned portion previously funded by Mepco to the administrator (but not to the service contract seller). These receivables are shown as “Partial Refund” in the table below. The balance of Mepco’s outstanding payment plan receivables relate to programs in which there is no insurer or risk retention group that has any contractual liability to Mepco for any portion of the refund amount. These receivables are shown as “Other” in the table below. For each class of our payment plan receivables we monitor financial information on the counterparties as we evaluate the credit quality of this portfolio.

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable at December 31:

	Payment Plan Receivables
	Full		Partial
	Refund		Refund		Other		Total
	(In thousands)
2014
AM Best rating
A+	$	-	$	43	$	-	$	43
A		10,007		6,190		-		16,197
A-		1,989		685		5,054		7,728
Not rated		15,857		176		-		16,033
Total	$	27,853	$	7,094	$	5,054	$	40,001
2013
AM Best rating
A	$	20,203	$	4,221	$	-	$	24,424
A-		4,058		832		7,496		12,386
Not rated		23,816		-		12		23,828
Total	$	48,077	$	5,053	$	7,508	$	60,638

Other mortgage loans service's principal balances

Mortgage loans serviced for others are not reported as assets on the Consolidated Statements of Financial Condition. The principal balances of these loans at December 31 follow:

	2014		2013
	(In thousands)
Mortgage loans serviced for :
Fannie Mae	$	913,863	$	981,031
Freddie Mac		748,833		753,143
Other		104		111
Total	$	1,662,800	$	1,734,285

Schedule of capitalized mortgage loan servicing rights

An analysis of capitalized mortgage loan servicing rights for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	13,710		$	11,013		$	11,229
Originated servicing rights capitalized		1,823			3,210			4,006
Amortization		(2,509	)		(3,745	)		(4,679	)
Change in valuation allowance		(918	)		3,232			457
Balance at end of year	$	12,106		$	13,710		$	11,013
Valuation allowance	$	3,773		$	2,855		$	6,087
Loans sold and serviced that have had servicing rights capitalized	$	1,661,269		$	1,732,476		$	1,751,960

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REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2014

REGULATORY MATTERS [Abstract]

Actual capital amounts and ratios

Our actual capital amounts and ratios at December 31 follow:

						Minimum for					Minimum for
						Adequately Capitalized					Well-Capitalized
	Actual					Institutions					Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
2014
Total capital to risk-weighted assets
Consolidated	$	265,163		18.06	%	$	117,427		8.00	%	NA		NA
Independent Bank		247,883		16.90			117,374		8.00			146,718		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	246,628		16.80	%	$	58,714		4.00	%	NA		NA
Independent Bank		229,361		15.63			58,687		4.00			88,031		6.00	%
Tier 1 capital to average assets
Consolidated	$	246,628		11.18	%	$	88,206		4.00	%	NA		NA
Independent Bank		229,361		10.46			87,687		4.00			109,609		5.00	%
2013
Total capital to risk-weighted assets
Consolidated	$	245,284		17.35	%	$	113,086		8.00	%	NA		NA
Independent Bank		234,078		16.57			113,013		8.00		$	141,267		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	227,338		16.08	%	$	56,543		4.00	%	NA		NA
Independent Bank		216,146		15.30			56,507		4.00		$	84,760		6.00	%
Tier 1 capital to average assets
Consolidated	$	227,338		10.61	%	$	85,729		4.00	%	NA		NA
Independent Bank		216,146		10.09			85,681		4.00		$	107,101		5.00	%

NA - Not applicable

Components of regulatory capital

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2014			2013			2014			2013
	(In thousands)
Total shareholders' equity	$	250,371		$	231,581		$	257,832		$	250,306
Add (deduct)
Qualifying trust preferred securities		34,500			39,500			-			-
Accumulated other comprehensive loss		5,636			9,245			5,636			9,245
Intangible assets		(2,627	)		(3,163	)		(2,627	)		(3,163	)
Disallowed deferred tax assets		(40,500	)		(49,609	)		(30,728	)		(40,026	)
Disallowed capitalized mortgage loan servicing rights		(752	)		(216	)		(752	)		(216	)
Tier 1 capital		246,628			227,338			229,361			216,146
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		18,535			17,946			18,522			17,932
Total risk-based capital	$	265,163		$	245,284		$	247,883		$	234,078

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LOANS AND PAYMENT PLAN RECEIVABLES, Loans Serviced for Others (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 Quater	Dec. 31, 2013	Dec. 31, 2012
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	$ 1,662,800,000	$ 1,734,285,000
Custodial Escrow Balances	20,900,000	20,300,000
Maximum number of consecutive quarterly losses recorded for profitability requirement	4
Percentage of decline in net worth during the period (in hundredths)	30.00%
Maximum percentage of decline in net worth for one consecutive quarter (in hundredths)	25.00%
Maximum percentage of decline in net worth for two consecutive quarters (in hundredths)	40.00%
Highest level of capital, Amount	2,500,000
Highest level of capital (in hundredths)	0.25%
Analysis of capitalized mortgage loan servicing rights [Abstract]
Balance at beginning of year	13,710,000	11,013,000	11,229,000
Originated servicing rights capitalized	1,823,000	3,210,000	4,006,000
Amortization	(2,509,000)	(3,745,000)	(4,679,000)
Change in valuation allowance	(918,000)	3,232,000	457,000
Balance at end of year	12,106,000	13,710,000	11,013,000
Valuation allowance	3,773,000	2,855,000	6,087,000
Loans sold and serviced that have had servicing rights capitalized	1,661,269,000	1,732,476,000	1,751,960,000
Fannie Mae [Member]
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	913,863,000	981,031,000
Freddie Mac [Member]
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	748,833,000	753,143,000
Other [Member]
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	$ 104,000	$ 111,000

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LOANS AND PAYMENT PLAN RECEIVABLES (Details) (USD $)	Dec. 31, 2014		Dec. 31, 2013
Loans [Abstract]
Total Loans	$ 1,409,962,000		$ 1,374,570,000
Net of deferred loan fees	1,000,000		200,000
Payment plan receivables	42,600,000		64,700,000
Unamortized discount	2,600,000		4,100,000
Effective yields of payment plan receivables (in hundredths)	14.00%		15.00%
Residential First Mortgages [Member]
Loans [Abstract]
Total Loans	411,423,000	[1]	431,812,000	[1]
Residential Home Equity and Other Junior Mortgages [Member]
Loans [Abstract]
Total Loans	108,162,000	[1]	113,703,000	[1]
Construction and Land Development [Member]
Loans [Abstract]
Total Loans	54,644,000	[1]	50,290,000	[1]
Other [Member]
Loans [Abstract]
Total Loans	447,837,000	[1],[2]	440,348,000	[1],[2]
Commercial [Member]
Loans [Abstract]
Total Loans	186,875,000		146,954,000
Consumer [Member]
Loans [Abstract]
Total Loans	154,591,000		126,443,000
Payment Plan Receivables [Member]
Loans [Abstract]
Total Loans	40,001,000		60,638,000
Agricultural [Member]
Loans [Abstract]
Total Loans	$ 6,429,000		$ 4,382,000

[1] Includes both residential and non-residential commercial loans secured by real estate.

[2] Includes loans secured by multi-family residential and non-farm, non-residential property.

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SHARE BASED COMPENSATION AND BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2014

SHARE BASED COMPENSATION AND BENEFIT PLANS [Abstract]

Summary of outstanding stock option grants and transactions

A summary of outstanding stock option grants and related transactions follows:

						Weighted-
						Average
				Average		Remaining		Aggregated
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
	(In thousands)
Outstanding at January 1, 2014		320,300		$	4.52
Granted		-
Exercised		(32,896	)		2.93
Forfeited		(5,300	)		5.22
Expired		(284	)		3.46
Outstanding at December 31, 2014		281,820		$	4.69		7.10	$	2,431
Vested and expected to vest at December 31, 2014		277,216		$	4.69		7.08	$	2,394
Exercisable at December 31, 2014		198,884		$	4.62		6.68	$	1,752

Summary of non-vested restricted stock and stock units and transactions

A summary of outstanding non-vested stock and related transactions follows:

				Weighted-
				Average
	Number			Grant Date
	of Shares			Fair Value
Outstanding at January 1, 2014		303,980		$	3.77
Granted		105,624			13.79
Vested		-
Forfeited		(2,474	)		13.34
Outstanding at December 31, 2014		407,130		$	6.31

Summary of weighted-average assumptions used in Black-Scholes option pricing model for grants of stock options

A summary of the weighted-average assumptions used in the Black-Scholes option pricing model for grants of stock options follows (no stock options were granted in 2014):

	2013			2012
Expected dividend yield		0.31	%		0.74	%
Risk-free interest rate		1.12			0.88
Expected life (in years)		6.00			6.00
Expected volatility		101.30	%		100.01	%
Per share weighted-average grant date fair value	$	4.98		$	2.04

Information regarding options exercised

Certain information regarding options exercised during the periods ending December 31 follows:

	2014		2013		2012
	(In thousands)
Intrinsic value	$	321	$	117	$	3
Cash proceeds received	$	96	$	39	$	4
Tax benefit realized	$	112	$	-	$	-

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ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2014

ACCOUNTING POLICIES [Abstract]

ACCOUNTING POLICIES

NOTE 1 – ACCOUNTING POLICIES

The accounting and reporting policies and practices of Independent Bank Corporation and subsidiaries conform to accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. Our critical accounting policies include the assessment for other than temporary impairment (“OTTI”) on investment securities, the determination of the allowance for loan losses, the determination of vehicle service contract counterparty contingencies, the valuation of originated mortgage loan servicing rights and the valuation of deferred tax assets. We are required to make material estimates and assumptions that are particularly susceptible to changes in the near term as we prepare the consolidated financial statements and report amounts for each of these items. Actual results may vary from these estimates.

Our subsidiary Independent Bank (“Bank”) transacts business in the single industry of commercial banking. Our Bank’s activities cover traditional phases of commercial banking, including checking and savings accounts, commercial lending, direct and indirect consumer financing and mortgage lending. Our principal markets are the rural and suburban communities across Lower Michigan that are served by our Bank’s branches and loan production offices. We also purchase payment plans from companies (which we refer to as “counterparties”) that provide vehicle service contracts and similar products to consumers, through our wholly owned subsidiary, Mepco Finance Corporation (“Mepco”). At December 31, 2014, 72.5% of our Bank’s loan portfolio was secured by real estate.

PRINCIPLESOFCONSOLIDATION— The consolidated financial statements include the accounts of Independent Bank Corporation and its subsidiaries. The income, expenses, assets and liabilities of the subsidiaries are included in the respective accounts of the consolidated financial statements, after elimination of all material intercompany accounts and transactions.

STATEMENTSOFCASHFLOWS— For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits and federal funds sold. Generally, federal funds are sold for one-day periods. We report net cash flows for customer loan and deposit transactions, for short-term borrowings and for vehicle service contract counterparty payables.

INTERESTBEARINGDEPOSITS— Interest bearing deposits consist of overnight deposits with the Federal Reserve Bank.

INTERESTBEARINGDEPOSITS-TIME— Interest bearing deposits - time consist of deposits with original maturities of 3 months or more.

LOANSHELDFORSALE— Mortgage loans originated and intended for sale in the secondary market are carried at fair value. Fair value adjustments, as well as realized gains and losses, are recorded in current earnings.

MORTGAGELOANSERVICINGRIGHTS— We recognize as separate assets the rights to service mortgage loans for others. The fair value of originated mortgage loan servicing rights has been determined based upon fair value indications for similar servicing. The mortgage loan servicing rights are amortized in proportion to and over the period of estimated net loan servicing income. We assess mortgage loan servicing rights for impairment based on the fair value of those rights. For purposes of measuring impairment, the characteristics used include interest rate, term and type. Amortization of and changes in the impairment reserve on originated mortgage loan servicing rights are included in mortgage loan servicing in the Consolidated Statements of Operations. The fair values of mortgage loan servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Mortgage loan servicing income is recorded for fees earned for servicing loans previously sold. The fees are generally based on a contractual percentage of the outstanding principal and are recorded as income when earned. Mortgage loan servicing fees, excluding amortization of and changes in the impairment reserve on originated mortgage loan servicing rights, totaled $4.2 million, $4.3 million and $4.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. Late fees and ancillary fees related to loan servicing are not material.

TRANSFERSOFFINANCIALASSETS— Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from us, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

SECURITIES— We classify our securities as trading, held to maturity or available for sale. Trading securities are bought and held principally for the purpose of selling them in the near term and are reported at fair value with realized and unrealized gains and losses included in earnings. Securities held to maturity represent those securities for which we have the positive intent and ability to hold until maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts computed on the level-yield method. We did not have any securities held to maturity at December 31, 2014 and 2013. Securities available for sale represent those securities not classified as trading or held to maturity and are reported at fair value with unrealized gains and losses, net of applicable income taxes reported in other comprehensive income (loss).

We evaluate securities for OTTI at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. In performing this evaluation, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Gains and losses realized on the sale of securities available for sale are determined using the specific identification method and are recognized on a trade-date basis. Premiums and discounts are recognized in interest income computed on the level-yield method.

FEDERALHOMELOANBANK(“FHLB”)STOCK— Our Bank subsidiary is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

FEDERALRESERVEBANK(“FRB”)STOCK— Our Bank subsidiary is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

LOANREVENUERECOGNITION— Interest on loans is accrued based on the principal amounts outstanding. In general, the accrual of interest income is discontinued when a loan becomes 90 days past due for commercial loans and installment loans and when a loan misses four consecutive payments for mortgage loans and the borrower’s capacity to repay the loan and collateral values appear insufficient for each loan class. However, loans may be placed on non-accrual status regardless of whether or not such loans are considered past due if, in management’s opinion, the borrower is unable to meet payment obligations as they become due or as required by regulatory provisions. All interest accrued but not received for all loans placed on non-accrual is reversed from interest income. Payments on such loans are generally applied to the principal balance until qualifying to be returned to accrual status. A non-accrual loan may be restored to accrual status when interest and principal payments are current and the loan appears otherwise collectible. Delinquency status for all classes in the commercial and installment loan segments is based on the actual number of days past due as required by the contractual terms of the loan agreement while delinquency status for mortgage loan segment classes is based on the number of payments past due.

Certain loan fees and direct loan origination costs are deferred and recognized as an adjustment of yield generally over the contractual life of the related loan. Fees received in connection with loan commitments are deferred until the loan is advanced and are then recognized generally over the contractual life of the loan as an adjustment of yield. Fees on commitments that expire unused are recognized at expiration. Fees received for letters of credit are recognized as revenue over the life of the commitment.

PAYMENTPLANRECEIVABLEREVENUERECOGNITION— Payment plan receivables are acquired by our Mepco segment at a discount and reported net of this discount in the Consolidated Statements of Financial Condition. This discount is accreted into interest and fees on loans over the life of the receivable computed on a level-yield method. All classes of payment plan receivables that have been canceled and are 90 days or more past due as required by the contractual terms of the payment plan are classified as non-accrual.

ALLOWANCEFORLOANLOSSES— Portfolios are disaggregated into segments for purposes of determining the allowance for loan losses (“AFLL”) which include commercial, mortgage and installment loans and payment plan receivables. These segments are further disaggregated into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. Classes within the commercial loan segment include (i) income producing – real estate, (ii) land, land development and construction – real estate and (iii) commercial and industrial. Classes within the mortgage loan segment include (i) 1-4 family, (ii) resort lending, (iii) home equity – 1st lien and (iv) home equity – 2nd lien. Classes within the installment loan segment include (i) home equity – 1st lien, (ii) home equity – 2nd lien, (iii) loans not secured by real estate and (iv) other. Classes within the payment plan receivables segment include (i) full refund, (ii) partial refund and (iii) other. Commercial loans are subject to adverse market conditions which may impact the borrower’s ability to make repayment on the loan or could cause a decline in the value of the collateral that secures the loan. Mortgage and installment loans and payment plan receivables are subject to adverse employment conditions in the local economy which could increase default rates. In addition, mortgage loans and real estate based installment loans are subject to adverse market conditions which could cause a decline in the value of collateral that secures the loan. For an analysis of the AFLL by portfolio segment and credit quality information by class, see note #4.

Some loans will not be repaid in full. Therefore, an AFLL is maintained at a level which represents our best estimate of losses incurred. In determining the allowance and the related provision for loan losses, we consider four principal elements: (i) specific allocations based upon probable losses identified during the review of the loan portfolio, (ii) allocations established for other adversely rated commercial loans, (iii) allocations based principally on historical loan loss experience, and (iv) additional allocations based on subjective factors, including local and general economic business factors and trends, portfolio concentrations and changes in the size and/or the general terms of the loan portfolios.

The first AFLL element (specific allocations) reflects our estimate of probable incurred losses based upon our systematic review of specific loans. These estimates are based upon a number of objective factors, such as payment history, financial condition of the borrower, discounted collateral exposure and discounted cash flow analysis. Impaired commercial, mortgage and installment loans are allocated allowance amounts using this first element. The second AFLL element (other adversely rated commercial loans) reflects the application of our loan rating system. This rating system is similar to those employed by state and federal banking regulators. Commercial loans that are rated below a certain predetermined classification are assigned a loss allocation factor for each loan classification category that is based upon a historical analysis of both the probability of default and the expected loss rate (“loss given default”). The lower the rating assigned to a loan or category, the greater the allocation percentage that is applied. The third AFLL element (historical loss allocations) is determined by assigning allocations to higher rated (“non-watch credit”) commercial loans using a probability of default and loss given default similar to the second AFLL element and to homogenous mortgage and installment loan groups based upon borrower credit score and portfolio segment. For homogenous mortgage and installment loans a probability of default for each homogenous pool is calculated by way of credit score migration. Historical loss data for each homogenous pool coupled with the associated probability of default is utilized to calculate an expected loss allocation rate. The fourth AFLL element (additional allocations based on subjective factors) is based on factors that cannot be associated with a specific credit or loan category and reflects our attempt to ensure that the overall allowance for loan losses appropriately reflects a margin for the imprecision necessarily inherent in the estimates of expected credit losses. We consider a number of subjective factors when determining this fourth element, including local and general economic business factors and trends, portfolio concentrations and changes in the size, mix and the general terms of the overall loan portfolio.

Increases in the AFLL are recorded by a provision for loan losses charged to expense. Although we periodically allocate portions of the AFLL to specific loans and loan portfolios, the entire AFLL is available for incurred losses. We generally charge-off commercial, homogenous residential mortgage and installment loans and payment plan receivables when they are deemed uncollectible or reach a predetermined number of days past due based on loan product, industry practice and other factors. Collection efforts may continue and recoveries may occur after a loan is charged against the AFLL.

While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors.

A loan is impaired when full payment under the loan terms is not expected. Generally, those loans included in each commercial loan class that are rated substandard, classified as non-performing or were classified as non-performing in the preceding quarter, are evaluated for impairment. Those loans included in each mortgage loan or installment class whose terms have been modified and considered a troubled debt restructuring are also impaired. Loans which have been modified resulting in a concession, and which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDR”) and classified as impaired. We measure our investment in an impaired loan based on one of three methods: the loan’s observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. Large groups of smaller balance homogeneous loans, such as those loans included in each installment and mortgage loan class and each payment plan receivable class, are collectively evaluated for impairment and accordingly, they are not separately identified for impairment disclosures. TDR loans are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception of the loan. If a TDR is considered to be a collateral dependent loan, the loan is reported net, at the fair value of collateral.

PROPERTYANDEQUIPMENT— Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using both straight-line and accelerated methods over the estimated useful lives of the related assets. Buildings are generally depreciated over a period not exceeding 39 years and equipment is generally depreciated over periods not exceeding 7 years. Leasehold improvements are depreciated over the shorter of their estimated useful life or lease period.

BANKOWNEDLIFEINSURANCE— We have purchased a group flexible premium non-participating variable life insurance contract on approximately 270 lives (who were salaried employees at the time we purchased the contract) in order to recover the cost of providing certain employee benefits. Bank owned life insurance is recorded at its cash surrender value or the amount that can be currently realized.

OTHERREALESTATEANDREPOSSESSEDASSETS— Other real estate at the time of acquisition is recorded at fair value, less estimated costs to sell, which becomes the property’s new basis. Fair value is typically determined by a third party appraisal of the property. Any write-downs at date of acquisition are charged to the allowance for loan losses. Expense incurred in maintaining assets and subsequent write-downs to reflect declines in value and gains or losses on the sale of other real estate are recorded in the Consolidated Statements of Operations. Non-real estate repossessed assets are treated in a similar manner.

OTHERINTANGIBLEASSETS— Other intangible assets consist of core deposits. They are initially measured at fair value and then are amortized on both straight-line and accelerated methods over their estimated useful lives, which range from 10 to 15 years.

VEHICLESERVICECONTRACTCOUNTERPARTYRECEIVABLES,NET— These amounts represent funds due to Mepco from its counterparties for cancelled service contracts. Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected.

INCOMETAXES— We employ the asset and liability method of accounting for income taxes. This method establishes deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates expected to be in effect when such amounts are realized or settled. Under this method, the effect of a change in tax rates is recognized in the period that includes the enactment date. The deferred tax asset is subject to a valuation allowance for that portion of the asset for which it is more likely than not that it will not be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

We recognize interest and/or penalties related to income tax matters in income tax expense.

We file a consolidated federal income tax return. Intercompany tax liabilities are settled as if each subsidiary filed a separate return.

VEHICLESERVICECONTRACTCOUNTERPARTYPAYABLES— Vehicle service contract counterparty payables represent amounts owed to insurance companies or other counterparties for vehicle service contract payment plans purchased by us. The vehicle service contract counterparty payable becomes due in accordance with the terms of the specific contract between Mepco and the counterparty. Typically these terms require payment after Mepco has received one or two payments from the consumer on the payment plan receivable.

COMMITMENTSTOEXTENDCREDIT ANDRELATEDFINANCIALINSTRUMENTS— Financial instruments may include commitments to extend credit and standby letters of credit. Financial instruments involve varying degrees of credit and interest-rate risk in excess of amounts reflected in the Consolidated Statements of Financial Condition. Exposure to credit risk in the event of non-performance by the counterparties to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of those instruments. In general, we use a similar methodology to estimate our liability for these off-balance sheet credit exposures as we do for our allowance for loan losses. For commercial related commitments, we estimate liability using our loan rating system and for mortgage and installment commitments we estimate liability principally upon historical loss experience. Our estimated liability for off balance sheet commitments is included in accrued expenses and other liabilities in our Consolidated Statements of Financial Condition and any charge or recovery is recorded in non-interest expenses in our Consolidated Statements of Operations.

DERIVATIVEFINANCIALINSTRUMENTS— We record derivatives on our Consolidated Statement of Financial Condition as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

At the inception of the derivative we designate the derivative as one of three types based on our intention and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“Fair Value Hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“Cash Flow Hedge”), or (3) an instrument with no hedging designation. For a Fair Value Hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a Cash Flow Hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. We did not have any Fair Value Hedges or Cash Flow Hedges at December 31, 2014 or 2013. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. For instruments with no hedging designation, the gain or loss on the derivative is reported currently in earnings. These free standing instruments currently consist of (i) mortgage banking related derivatives and include rate-lock loan commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and mandatory forward commitments for the future delivery of these mortgage loans and (ii) certain pay-fixed and pay-variable interest rate swap agreements. Fair values of the mortgage derivatives are estimated based on mortgage backed security pricing for comparable assets. We enter into mandatory forward commitments for the future delivery of mortgage loans generally when interest rate locks are entered into in order to hedge the change in interest rates resulting from our commitments to fund the loans. Changes in the fair values of these derivatives are included in net gains on mortgage loans.  Fair values of the pay-fixed and pay-variable interest rate swap agreements are based on discounted cash flow analyses and are included in net interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest expense. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income (mortgage banking related derivatives) or net interest income (interest rate swap agreements). Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

We formally document the relationship between derivatives and hedged items, as well as the risk- management objective and the strategy for undertaking hedge transactions, at the inception of the hedging relationship. This documentation includes linking Fair Value or Cash Flow Hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. We discontinue hedge accounting when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded currently in earnings. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive loss are amortized into earnings over the same periods which the hedged transactions will affect earnings.

COMPREHENSIVEINCOME— Comprehensive income consists of net income, unrealized gains and losses on securities available for sale and derivative instruments classified as cash flow hedges.

INCOMEPERCOMMONSHARE— Basic income per common share is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period and participating share awards. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. For diluted income per common share, net income is divided by the weighted average number of common shares outstanding during the period plus the dilutive effects of the assumed conversion of convertible preferred stock, assumed exercise of common stock warrants, assumed exercise of stock options, restricted stock units and stock units for a deferred compensation plan for non-employee directors.

SHAREBASEDCOMPENSATION— Cost is recognized for stock options and non-vested share awards issued to employees based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, a simulation analysis which considers potential outcomes for a large number of independent scenarios is utilized to estimate the fair value of performance share units and the market price of our common stock at the date of grant is used for other non-vested share awards.  Cost is recognized over the required service period, generally defined as the vesting period. Cost is also recognized for salary stock issued to employees and stock issued to non-employee directors. These shares vest immediately and cost is recognized during the period they are issued.

COMMONSTOCK— At December 31, 2014, 0.1 million shares of common stock were reserved for issuance under the dividend reinvestment plan and 0.7 million shares of common stock were reserved for issuance under our long-term incentive plans.

RECLASSIFICATION— Certain amounts in the 2013 and 2012 consolidated financial statements have been reclassified to conform to the 2014 presentation.

ADOPTIONOFNEWACCOUNTINGSTANDARDS— In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, “Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”.  This ASU amends existing guidance so that an unrecognized tax benefit, or a portion thereof, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability.  This amended guidance became effective for us on January 1, 2014, and did not have a material impact on our consolidated operating results or financial condition.

In January 2014, the FASB issued ASU 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption and retrospective or prospective application permitted. This amendment is not expected to have a material impact on our consolidated operating results or financial condition.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes and replaces nearly all existing revenuerecognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis fordeciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improvesdisclosures about revenue. In addition, this ASU specifies the accounting for some costs to obtain or fulfill a contract with a customer.  This amended guidance is effective for us on January 1, 2017, and is not expected to have a material impact on our consolidated operating results or financial condition.

In June 2014, the FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period”.  This ASU amends existing guidance related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. These amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This amended guidance is effective for us on January 1, 2016, and is not expected to have a material impact on our consolidated operating results or financial condition.

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LOANS AND PAYMENT PLAN RECEIVABLES , Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period	$ 32,325		$ 44,275		$ 58,884
Additions (deductions) [Abstract]
Provision for loan losses	(3,136)		(3,988)		6,887
Recoveries credited to allowance	7,420		8,270		6,522
Loans charged against the allowance	(10,619)		(16,232)		(27,408)
Reclassification to loans held for sale					(610)
Balance at end of period	25,990		32,325		44,275
Allowance for loan losses [Abstract]
Individually evaluated for impairment	13,233		15,158
Collectively evaluated for impairment	12,757		17,167
Total ending allowance balance	25,990		32,325
Loans [Abstract]
Individually evaluated for impairment	113,166		125,713
Collectively evaluated for impairment	1,301,250		1,253,436
Total loans recorded investment	1,414,416		1,379,149
Accrued interest included in recorded investment	4,454		4,579
Total loans	1,409,962		1,374,570
Commercial [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period	6,827		11,402		18,183
Additions (deductions) [Abstract]
Provision for loan losses	(1,683)		(2,336)		2,351
Recoveries credited to allowance	4,914		5,119		3,610
Loans charged against the allowance	(4,613)		(7,358)		(12,588)
Reclassification to loans held for sale					(154)
Balance at end of period	5,445		6,827		11,402
Allowance for loan losses [Abstract]
Individually evaluated for impairment	3,194		3,878
Collectively evaluated for impairment	2,251		2,949
Total ending allowance balance	5,445		6,827
Loans [Abstract]
Individually evaluated for impairment	34,147		40,623
Collectively evaluated for impairment	658,423		596,235
Total loans recorded investment	692,570		636,858
Accrued interest included in recorded investment	1,615		1,624
Total loans	690,955		635,234
Mortgage [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period	17,195		21,447		22,885
Additions (deductions) [Abstract]
Provision for loan losses	(1,029)		71		7,778
Recoveries credited to allowance	1,397		1,996		1,581
Loans charged against the allowance	(4,119)		(6,319)		(10,741)
Reclassification to loans held for sale					(56)
Balance at end of period	13,444		17,195		21,447
Allowance for loan losses [Abstract]
Individually evaluated for impairment	9,311		10,488
Collectively evaluated for impairment	4,133		6,707
Total ending allowance balance	13,444		17,195
Loans [Abstract]
Individually evaluated for impairment	72,340		78,022
Collectively evaluated for impairment	402,458		410,887
Total loans recorded investment	474,798		488,909
Accrued interest included in recorded investment	2,170	[1]	2,276	[1]
Total loans	472,628		486,633
Installment [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period	2,246		3,378		6,146
Additions (deductions) [Abstract]
Provision for loan losses	349		314		15
Recoveries credited to allowance	1,104		1,074		1,311
Loans charged against the allowance	(1,885)		(2,520)		(4,009)
Reclassification to loans held for sale					(85)
Balance at end of period	1,814		2,246		3,378
Allowance for loan losses [Abstract]
Individually evaluated for impairment	728		792
Collectively evaluated for impairment	1,086		1,454
Total ending allowance balance	1,814		2,246
Loans [Abstract]
Individually evaluated for impairment	6,679		7,068
Collectively evaluated for impairment	200,368		185,676
Total loans recorded investment	207,047		192,744
Accrued interest included in recorded investment	669	[1]	679	[1]
Total loans	206,378		192,065
Payment Plan Receivables [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period	97		144		197
Additions (deductions) [Abstract]
Provision for loan losses	(36)		(93)		(3)
Recoveries credited to allowance	5		81		20
Loans charged against the allowance	(2)		(35)		(70)
Reclassification to loans held for sale					0
Balance at end of period	64		97		144
Allowance for loan losses [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	64		97
Total ending allowance balance	64		97
Loans [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	40,001		60,638
Total loans recorded investment	40,001		60,638
Accrued interest included in recorded investment	0		0
Total loans	40,001		60,638
Unallocated [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period	5,960		7,904		11,473
Additions (deductions) [Abstract]
Provision for loan losses	(737)		(1,944)		(3,254)
Recoveries credited to allowance	0		0		0
Loans charged against the allowance	0		0		0
Reclassification to loans held for sale					(315)
Balance at end of period	5,223		5,960		7,904
Allowance for loan losses [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	5,223		5,960
Total ending allowance balance	$ 5,223		$ 5,960

[1] Credit scores have been updated within the last twelve months.

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SUBORDINATED DEBENTURES (Tables)

12 Months Ended

Dec. 31, 2014

SUBORDINATED DEBENTURES [Abstract]

Schedule of information regarding subordinated debentures

Summary information regarding subordinated debentures as of December 31 follows:

		2014
				Trust
				Preferred		Common
	Issue	Subordinated		Securities		Stock
Entity Name	Date	Debentures		Issued		Issued
		(In thousands)
IBC Capital Finance III	May 2007	$	12,372	$	12,000	$	372
IBC Capital Finance IV	September 2007		15,465		15,000		465
Midwest Guaranty Trust I	November 2002		7,732		7,500		232
		$	35,569	$	34,500	$	1,069

		2013
				Trust
				Preferred		Common
	Issue	Subordinated		Securities		Stock
Entity Name	Date	Debentures		Issued		Issued
		(In thousands)
IBC Capital Finance III	May 2007	$	12,372	$	12,000	$	372
IBC Capital Finance IV	September 2007		20,619		20,000		619
Midwest Guaranty Trust I	November 2002		7,732		7,500		232
		$	40,723	$	39,500	$	1,223

Schedule of subordinated debentures and trust preferred securities

Other key terms for the subordinated debentures and trust preferred securities that were outstanding at December 31, 2014 follow:

	Maturity		First Permitted
Entity Name	Date	Interest Rate	Redemption Date
IBC Capital Finance III	July 30, 2037	3 month LIBOR plus 1.60%	July 30, 2012
IBC Capital Finance IV	September 15, 2037	3 month LIBOR plus 2.85%	September 15, 2012
Midwest Guaranty Trust I	November 7, 2032	3 month LIBOR plus 3.45%	November 7, 2007

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FAIR VALUE DISCLOSURES

12 Months Ended

Dec. 31, 2014

FAIR VALUE DISCLOSURES [Abstract]

FAIR VALUE DISCLOSURES

NOTE 21 – FAIR VALUE DISCLOSURES

FASB ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC topic 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1 instruments include securities traded on active exchange markets, such as the New York Stock Exchange, as well as U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.

Level 2:  Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 2 instruments include securities traded in less active dealer or broker markets.

Level 3:  Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

We used the following methods and significant assumptions to estimate fair value:

Securities:  Where quoted market prices are available in an active market, securities (trading or available for sale) are classified as Level 1 of the valuation hierarchy.  Level 1 securities include certain preferred stocks included in our trading portfolio for which there are quoted prices in active markets.  If quoted market prices are not available for the specific security, then fair values are estimated by (1) using quoted market prices of securities with similar characteristics, (2) matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices, or (3) a discounted cash flow analysis whose significant fair value inputs can generally be verified and do not typically involve judgment by management. These securities are classified as Level 2 of the valuation hierarchy and include agency securities, private label residential mortgage-backed securities, other asset backed securities, municipal securities, trust preferred securities and corporate securities.

Loans held for sale:  The fair value of mortgage loans held for sale is based on mortgage backed security pricing for comparable assets (recurring Level 2).

Impaired loans with specific loss allocations based on collateral value:  From time to time, certain loans are considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. We measure our investment in an impaired loan based on one of three methods: the loan’s observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At December 31, 2014 and 2013, all of our total impaired loans were evaluated based on either the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. When the fair value of the collateral is based on an appraised value or when an appraised value is not available we record the impaired loan as nonrecurring Level 3.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and thus will typically result in a Level 3 classification of the inputs for determining fair value.

Other real estate:  At the time of acquisition, other real estate is recorded at fair value, less estimated costs to sell, which becomes the property’s new basis. Subsequent write-downs to reflect declines in value since the time of acquisition may occur from time to time and are recorded in net (gains) losses on other real estate and repossessed assets in the Consolidated Statements of Operations. The fair value of the property used at and subsequent to the time of acquisition is typically determined by a third party appraisal of the property.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by us.  Once received, an independent third party (for commercial properties over $0.25 million) or a member of our Collateral Evaluation Department (for commercial properties under $0.25 million) or a member of our Special Assets Group (for retail properties) reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.   We compare the actual selling price of collateral that has been sold to the most recent appraised value of our properties to determine what additional adjustment, if any, should be made to the appraisal value to arrive at fair value.  For commercial and retail properties we typically discount an appraisal to account for various factors that the appraisal excludes in its assumptions.  These additional discounts generally do not result in material adjustments to the appraised value.  In addition, we will adjust the appraised values for expected liquidation costs including sales commissions and transfer taxes.

Capitalized mortgage loan servicing rights:  The fair value of capitalized mortgage loan servicing rights is based on a valuation model used by an independent third party that calculates the present value of estimated net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income. Certain model assumptions are generally unobservable and are based upon the best information available including data relating to our own servicing portfolio, reviews of mortgage servicing assumption and valuation surveys and input from various mortgage servicers and, therefore, are recorded as nonrecurring Level 3.  Management evaluates the third party valuation for reasonableness each quarter as part of our financial reporting control processes.

Derivatives:  The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets (recurring Level 2).  The fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management (recurring Level 2).

Assets and liabilities measured at fair value, including financial assets for which we have elected the fair value option, were as follows:

			Fair Value Measurements Using
			Quoted
			Prices
			in Active
			Markets		Significant		Significant
			for		Other		Un-
	Fair Value		Identical		Observable		observable
	Measure-		Assets		Inputs		Inputs
	ments		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2014:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	203	$	203	$	-	$	-
Securities available for sale
U.S. agency		35,006		-		35,006		-
U.S. agency residential mortgage-backed		257,558		-		257,558		-
U.S. agency commercial mortgage-backed		33,728		-		33,728		-
Private label residential mortgage-backed		6,013		-		6,013		-
Other asset backed		32,353		-		32,353		-
Obligations of states and political subdivisions		143,415		-		143,415		-
Corporate		22,664		-		22,664		-
Trust preferred		2,441		-		2,441		-
Loans held for sale		23,662		-		23,662		-
Derivatives (1)		619		-		619		-
Liabilities
Derivatives (2)		366		-		366		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		9,197		-		-		9,197
Impaired loans (4)
Commercial
Income producing - real estate		869		-		-		869
Land, land development & construction-real estate		354		-		-		354
Commercial and industrial		2,601		-		-		2,601
Mortgage
1-4 Family		1,306		-		-		1,306
Other real estate (5)
Commercial
Income producing - real estate		479		-		-		479
Land, land development & construction-real estate		737		-		-		737
Mortgage
1-4 Family		102		-		-		102
Resort Lending		575		-		-		575
Installment
Home equity - 1st lien		13		-		-		13

___________________

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

			Fair Value Measurements Using
			Quoted
			Prices
			in Active
			Markets		Significant		Significant
			for		Other		Un-
	Fair Value		Identical		Observable		observable
	Measure-		Assets		Inputs		Inputs
	ments		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2013:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	498	$	498	$	-	$	-
Securities available for sale
U.S. agency		31,808		-		31,808		-
U.S. agency residential mortgage-backed		203,460		-		203,460		-
Private label residential mortgage-backed		6,788		-		6,788		-
Other asset backed		45,185		-		45,185		-
Obligations of states and political subdivisions		153,678		-		153,678		-
Corporate		19,137		-		19,137		-
Trust preferred		2,425		-		2,425		-
Loans held for sale		20,390		-		20,390		-
Derivatives (1)		494		-		494		-
Liabilities
Derivatives (2)		-		-		-		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		7,773		-		-		7,773
Impaired loans (4)
Commercial
Income producing - real estate		1,997		-		-		1,997
Land, land development & construction-real estate		673		-		-		673
Commercial and industrial		2,927		-		-		2,927
Mortgage
1-4 Family		1,455		-		-		1,455
Resort Lending		340		-		-		340
Other real estate (5)
Commercial
Income producing - real estate		559		-		-		559
Land, land development & construction-real estate		1,047		-		-		1,047
Mortgage
1-4 Family		337		-		-		337
Resort Lending		1,257		-		-		1,257
Installment
Home equity - 1st lien		29		-		-		29
Payment plan receivables
Full refund/partial refund		2,668		-		-		2,668

_____________________

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2014 and 2013.

Changes in fair values of financial assets for which we have elected the fair value option for the years ended December 31 were as follows:

								Total
								Change
								in Fair
								Values
								Included
		Net Gains (Losses)						in Current
		on Assets						Period
		Securities			Loans			Earnings
	(In thousands)
2014
Trading securities		$	(295	)	$	-		$	(295	)
Loans held for sale			-			258			258
2013
Trading securities		$	388		$	-		$	388
Loans held for sale			-			(1,477	)		(1,477	)
2012
Trading securities		$	33		$	-		$	33
Loans held for sale			-			440			440

For those items measured at fair value pursuant to our election of the fair value option, interest income is recorded within the Consolidated Statements of Operations based on the contractual amount of interest income earned on these financial assets and dividend income is recorded based on cash dividends.

The following represent impairment charges recognized during the years ended December 31, 2014, 2013 and 2012 relating to assets measured at fair value on a non-recurring basis:

· Capitalized mortgage loan servicing rights, whose individual strata are measured at fair value, had a carrying amount of $9.2 million, which is net of a valuation allowance of $3.8 million, at December 31, 2014, and had a carrying amount of $7.8 million, which is net of a valuation allowance of $2.9 million, at December 31, 2013.  A recovery (charge) of $(0.9) million, $3.2 million and $0.5 million was included in our results of operations for the years ending December 31, 2014, 2013 and 2012, respectively.

● Loans which are measured for impairment using the fair value of collateral for collateral dependent loans had a carrying amount of $8.2 million, with a valuation allowance of $3.1 million at December 31, 2014, and had a carrying amount of $10.8 million, with a valuation allowance of $3.4 million at December 31, 2013.  An additional provision for loan losses relating to impaired loans of $2.1 million, $1.5 million and $2.0 million was included in our results of operations for the years ending December 31, 2014, 2013 and 2012, respectively.

· Other real estate, which is measured using the fair value of the property, had a carrying amount of $1.9 million which is net of a valuation allowance of $2.5 million at December 31, 2014, and a carrying amount of $5.9 million, which is net of a valuation allowance of $4.0 million, at December 31, 2013.  An additional charge relating to ORE measured at fair value of $0.3 million, $1.6 million and $1.5 million was included in our results of operations during the years ended December 31, 2014, 2013 and 2012, respectively.

A reconciliation for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31 follows:

	(Liability)
	Amended Warrant
	2014		2013
	(In thousands)
Beginning balance	$	-	$	(459	)
Total gains (losses) realized and unrealized:
Included in results of operations		-		(1,025	)
Included in other comprehensive income		-		-
Purchases, issuances, settlements, maturities and calls		-		-
Reclassification to shareholders' equity		-		1,484
Transfers in and/or out of Level 3		-		-
Ending balance	$	-	$	-
Amount of total gains (losses) for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31	$	-	$	-

Because of certain anti-dilution features included in the Amended Warrant, it was not considered to be indexed to our common stock and was therefore accounted for as a derivative instrument (see note #16). Any change in value of this warrant was recorded in other income in our Consolidated Statements of Operations.  However, the anti-dilution features in the Amended Warrant which caused it to be accounted for as a derivative and included in accrued expenses and other liabilities expired on April 16, 2013.  As a result, the Amended Warrant was reclassified into shareholders’ equity on that date at its then fair value which totaled $1.5 million.  During the third quarter of 2013, we repurchased the Amended Warrant from the UST (see note #12).

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis follows:

	Asset
	(Liability)
	Fair		Valuation	Unobservable	Weighted
	Value		Technique	Inputs	Average
	(In thousands)
2014
Capitalized mortgage loan servicing rights	$	9,197	Present value of net servicing revenue	Discount rate		10.07	%
				Cost to service	$	82
				Ancillary income		25
				Float rate		1.77	%
Impaired loans Commercial (1)		2,751	Sales comparison approach	Adjustment for differences between comparable sales		(3.8	)%
			Income approach	Capitalization rate		9.3
Mortgage		1,306	Sales comparison approach	Adjustment for differences between comparable sales		8.6
Other real estate Commercial		1,216	Sales comparison approach	Adjustment for differences between comparable sales		(9.0	)
Mortgage and installment		690	Sales comparison approach	Adjustment for differences between comparable sales		34.3
2013
Capitalized mortgage loan servicing rights	$	7,773	Present value of net servicing revenue	Discount rate		10.09	%
				Cost to service	$	81
				Ancillary income		29
				Float rate		1.79	%
Impaired loans Commercial		5,597	Sales comparison approach	Adjustment for differences between comparable sales		(1.9	)%
			Income approach	Capitalization rate		9.3
Mortgage		1,795	Sales comparison approach	Adjustment for differences between comparable sales		3.2
Other real estate Commercial		1,606	Sales comparison approach	Adjustment for differences between comparable sales		(5.7	)
Mortgage and installment		1,623	Sales comparison approach	Adjustment for differences between comparable sales		55.7
Payment plan receivables		2,668	Sales comparison approach	Adjustment for differences between comparable sales		10.4

_____________________

(1) In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2014 we had an impaired collateral dependent commercial relationship that totaled $1.1 million that was primarily secured by collateral other than real estate.  Collateral securing this relationship primarily included machinery and equipment, accounts receivable, inventory and company stock.  Valuation techniques included discounting cost and financial statement value approaches based on estimates of value recovery of each particular asset type.  Discount rates used ranged from 35% to 100% of stated values.

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding for loans held for sale for which the fair value option has been elected at December 31.

	Aggregate				Contractual
	Fair Value		Difference		Principal
	(In thousands)
Loans held for sale
2014	$	23,662	$	624	$	23,038
2013		20,390		366		20,024
2012		47,487		1,843		45,644

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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2014

REGULATORY MATTERS [Abstract]

REGULATORY MATTERS

NOTE 20 – REGULATORY MATTERS

Capital guidelines adopted by federal and state regulatory agencies and restrictions imposed by law limit the amount of cash dividends our Bank can pay to us. Under these guidelines, the amount of dividends that may be paid in any calendar year is limited to the Bank’s current year’s net profits, combined with the retained net profits of the preceding two years. Further, the Bank cannot pay a dividend at any time that it has negative undivided profits.  As of December 31, 2014, the Bank had negative undivided profits of $31.1 million.  We can request regulatory approval for a return of capital from the Bank to the parent company. During the first quarter of 2014, we requested regulatory approval for a $15.0 million return of capital from the Bank to the parent company.  This return of capital request was approved by our banking regulators on March 28, 2014 and the Bank returned $15.0 million of capital to the parent company on April 9, 2014.  During January of 2015, we requested regulatory approval for an additional $18.5 million return of capital from the Bank to the parent company.  This return of capital request was approved by our banking regulators on February 13, 2015, and the Bank returned $18.5 million of capital to the parent company on February 17, 2015.  It is not our intent to have dividends paid in amounts that would reduce the capital of our Bank to levels below those which we consider prudent and in accordance with guidelines of regulatory authorities.

We are also subject to various regulatory capital requirements. The prompt corrective action regulations establish quantitative measures to ensure capital adequacy and require minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly discretionary, actions by regulators that could have a material effect on our consolidated financial statements. Under capital adequacy guidelines, we must meet specific capital requirements that involve quantitative measures as well as qualitative judgments by the regulators. The most recent regulatory filings as of December 31, 2014 and 2013 categorized our Bank as well capitalized. Management is not aware of any conditions or events that would have changed the most recent Federal Deposit Insurance Corporation (“FDIC”) categorization.

Our actual capital amounts and ratios at December 31 follow:

						Minimum for					Minimum for
						Adequately Capitalized					Well-Capitalized
	Actual					Institutions					Institutions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
2014
Total capital to risk-weighted assets
Consolidated	$	265,163		18.06	%	$	117,427		8.00	%	NA		NA
Independent Bank		247,883		16.90			117,374		8.00			146,718		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	246,628		16.80	%	$	58,714		4.00	%	NA		NA
Independent Bank		229,361		15.63			58,687		4.00			88,031		6.00	%
Tier 1 capital to average assets
Consolidated	$	246,628		11.18	%	$	88,206		4.00	%	NA		NA
Independent Bank		229,361		10.46			87,687		4.00			109,609		5.00	%
2013
Total capital to risk-weighted assets
Consolidated	$	245,284		17.35	%	$	113,086		8.00	%	NA		NA
Independent Bank		234,078		16.57			113,013		8.00		$	141,267		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	227,338		16.08	%	$	56,543		4.00	%	NA		NA
Independent Bank		216,146		15.30			56,507		4.00		$	84,760		6.00	%
Tier 1 capital to average assets
Consolidated	$	227,338		10.61	%	$	85,729		4.00	%	NA		NA
Independent Bank		216,146		10.09			85,681		4.00		$	107,101		5.00	%

NA - Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2014			2013			2014			2013
	(In thousands)
Total shareholders' equity	$	250,371		$	231,581		$	257,832		$	250,306
Add (deduct)
Qualifying trust preferred securities		34,500			39,500			-			-
Accumulated other comprehensive loss		5,636			9,245			5,636			9,245
Intangible assets		(2,627	)		(3,163	)		(2,627	)		(3,163	)
Disallowed deferred tax assets		(40,500	)		(49,609	)		(30,728	)		(40,026	)
Disallowed capitalized mortgage loan servicing rights		(752	)		(216	)		(752	)		(216	)
Tier 1 capital		246,628			227,338			229,361			216,146
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		18,535			17,946			18,522			17,932
Total risk-based capital	$	265,163		$	245,284		$	247,883		$	234,078

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

12 Months Ended

Dec. 31, 2014

ACCUMULATED OTHER COMPREHENSIVE LOSS [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

A summary of changes in accumulated other comprehensive  loss  (“AOCL”)  during the  years  ended December 31 follows (1):

				Dispropor-
				tionate									Dispropor-
	Unrealized			Tax Effects									tionate
	Losses on			from			Unrealized			Unrealized			Tax Effects
	Available			Securities			Losses on			Losses on			from Cash
	for Sale			Available			Cash Flow			Settled			Flow
	Securities			for Sale			Hedges			Derivatives			Hedges			Total
							(In thousands)
2014
Balances at beginning of period	$	(3,200	)	$	(5,798	)	$	-		$	(247	)	$	-		$	(9,245	)
Other comprehensive income before reclassifications		3,570			-			-			-			-			3,570
Amounts reclassified from AOCL		(208	)		-			-			247			-			39
Net current period other comprehensive income		3,362			-			-			247			-			3,609
Balances at end of period	$	162		$	(5,798	)	$	-		$	-		$	-		$	(5,636	)
2013
Balances at beginning of period	$	(516	)	$	(5,617	)	$	(739	)	$	-		$	(1,186	)	$	(8,058	)
Income tax		181			(181	)		258			-			(258	)		-
Balances at beginning of period, net of tax		(335	)		(5,798	)		(481	)		-			(1,444	)		(8,058	)
Terminated cash flow hedge		-			-			370			(370	)		-			-
Other comprehensive income before reclassifications		(2,877	)		-			(24	)		-			-			(2,901	)
Amounts reclassified from AOCL		12			-			135			123			1,444			1,714
Net current period other comprehensive income (loss)		(2,865	)		-			111			123			1,444			(1,187	)
Balances at end of period	$	(3,200	)	$	(5,798	)	$	-		$	(247	)	$	-		$	(9,245	)
2012
Balances at beginning of period	$	(3,579	)	$	(5,617	)	$	(1,103	)	$	(436	)	$	(1,186	)	$	(11,921	)
Other comprehensive income (loss) before reclassifications		3,917			-			(127	)		-			-			3,790
Amounts reclassified from AOCL		(854	)		-			491			436			-			73
Net current period other comprehensive income		3,063			-			364			436			-			3,863
Balances at end of period	$	(516	)	$	(5,617	)	$	(739	)	$	-		$	(1,186	)	$	(8,058	)

____________________________________

(1) 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

Summary of reclassifications out of each component of AOCL

A summary of reclassifications out of each component of AOCL for the years ended December 31 follows:

	Reclassified
	From			Affected Line Item in
AOCL Component	AOCL			Consolidated Statements of Operations
	(In thousands)
2014
Unrealized losses on available for sale securities
	$	329		Net gains on securities
		(9	)	Net impairment loss recognized in earnings
		320		Total reclassifications before tax
		112		Tax expense (benefit)
	$	208		Reclassifications, net of tax
Unrealized losses on settled derivatives
	$	(380	)	Interest expense
		(133	)	Tax expense (benefit)
	$	(247	)	Reclassification, net of tax
	$	(39	)	Total reclassifications for the period, net of tax
2013
Unrealized losses on available for sale securities
	$	7		Net gains on securities
		(26	)	Net impairment loss recognized in earnings
		(19	)	Total reclassifications before tax
		(7	)	Tax expense (benefit)
	$	(12	)	Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(208	)	Interest expense
		(73	)	Tax expense (benefit)
	$	(135	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(189	)	Interest expense
		(66	)	Tax expense (benefit)
	$	(123	)	Reclassification, net of tax
Disproportionate tax effects from cash flow hedges	$	1,444		Tax expense (benefit)
	$	(1,714	)	Total reclassifications for the period, net of tax

	Reclassified
	From			Affected Line Item in
AOCL Component	AOCL			Consolidated Statements of Operations
	(In thousands)
2012
Unrealized losses on available for sale securities
	$	1,193		Net gains on securities
		(339	)	Net impairment loss recognized in earnings
		854		Total reclassifications before tax
		-		Tax expense (benefit)
	$	854		Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(491	)	Interest expense
		-		Tax expense (benefit)
	$	(491	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(436	)	Interest expense
		-		Tax expense (benefit)
	$	(436	)	Reclassification, net of tax
	$	(73	)	Total reclassifications for the period, net of tax

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COMMITMENTS AND CONTINGENT LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2014

COMMITMENTS AND CONTINGENT LIABILITIES [Abstract]

Financial instruments with off-balance sheet risk

A summary of financial instruments with off-balance sheet risk at December 31 follows:

	2014		2013
	(In thousands)
Financial instruments whose risk is represented by contract amounts
Commitments to extend credit	$	204,827	$	180,829
Standby letters of credit		2,757		4,262

Analysis of vehicle service contract counterparty receivable

An analysis of our vehicle service contract counterparty receivable, net follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year, net of reserve	$	7,716		$	18,449		$	29,298
Transfers in from payment plan receivables		180			792			1,469
Reserves established and charge-offs recorded to expense		(199	)		(4,837	)		(1,629	)
Transferred to (from) contingency reserves		(75	)		63			(108	)
Cash received		(385	)		(6,751	)		(7,413	)
Collateral received (other real estate and repossessed assets) in partial satisfaction of debt		-			-			(3,168	)
Balance at end of year, net of reserve	$	7,237		$	7,716		$	18,449
Reserve at end of year	$	1,370		$	1,300		$	2,000

Analysis of vehicle service contract counterparty reserve

An analysis of our vehicle service contract counterparty reserve follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	1,375		$	2,012		$	32,570
Additions charged to expense		199			4,837			1,629
Charge-offs, net		(204	)		(5,474	)		(32,187	)
Balance at end of year	$	1,370		$	1,375		$	2,012
Reserves recorded in VSC counterparty receivables, net	$	1,370		$	1,300		$	2,000
Reserves recorded in accrued expenses and other liabilities		-			75			12
Total at end of year	$	1,370		$	1,375		$	2,012

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FAIR VALUES OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2014

Fair Values of Financial Instruments [Abstract]

FAIR VALUES OF FINANCIAL INSTRUMENTS

NOTE 22 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Most of our assets and liabilities are considered financial instruments. Many of these financial instruments lack an available trading market and it is our general practice and intent to hold the majority of our financial instruments to maturity. Significant estimates and assumptions were used to determine the fair value of financial instruments. These estimates are subjective in nature, involving uncertainties and matters of judgment, and therefore, fair values cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Estimated fair values have been determined using available data and methodologies that are considered suitable for each category of financial instrument. For instruments with adjustable-interest rates which reprice frequently and without significant credit risk, it is presumed that estimated fair values approximate the recorded book balances.

Cash and due from banks and interest bearing deposits:  The recorded book balance of cash and due from banks and interest bearing deposits approximate fair value and are classified as Level 1.

Interest bearing deposits - time:  Interest bearing deposits - time have been valued based on a model using a benchmark yield curve plus a base spread and are classified as Level 2.

Securities:  Financial instrument assets actively traded in a secondary market have been valued using quoted market prices.  Trading securities are classified as Level 1 while securities available for sale are classified as Level 2 as described in note #21.

Federal Home Loan Bank and Federal Reserve Bank Stock:  It is not practicable to determine the fair value of FHLB and FRB Stock due to restrictions placed on transferability.

Net loans and loans held for sale:  The fair value of loans is calculated by discounting estimated future cash flows using estimated market discount rates that reflect credit and interest-rate risk inherent in the loans resulting in a Level 3 classification.  Impaired loans are valued at the lower of cost or fair value as described in Note #21.  Loans held for sale are classified as Level 2 as described in Note #21.

Accrued interest receivable and payable:  The recorded book balance of accrued interest receivable and payable approximate fair value and are classified at the same Level as the asset and liability they are associated with.

Derivative financial instruments:  The fair value of rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans is based on mortgage backed security pricing for comparable assets, while the fair value of interest rate swap agreements is based on a discounted cash flow analysis whose significant fair value inputs can generally be observed in the market place and do not typically involve judgment by management. Each of these instruments has been classified as Level 2 as described in note #21.

Deposits:  Deposits without a stated maturity, including demand deposits, savings, NOW and money market accounts, have a fair value equal to the amount payable on demand.  Each of these instruments is classified as Level 1.  Deposits with a stated maturity, such as certificates of deposit, have generally been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Other borrowings:  FHLB advances have been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with a similar maturity resulting in a Level 2 classification.

Subordinated debentures:  Subordinated debentures have generally been valued based on a quoted market price of similar instruments resulting in a Level 2 classification.

The estimated recorded book balances and fair values follow:

					Fair Value Using
					Quoted
					Prices
					in Active
					Markets		Significant		Significant
					for		Other		Un-
	Recorded				Identical		Observable		observable
	Book				Assets		Inputs		Inputs
	Balance		Fair Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
2014
Assets
Cash and due from banks	$	48,326	$	48,326	$	48,326	$	-	$	-
Interest bearing deposits		25,690		25,690		25,690		-		-
Interest bearing deposits - time		13,561		13,585		-		13,585		-
Trading securities		203		203		203		-		-
Securities available for sale		533,178		533,178		-		533,178		-
Federal Home Loan Bank and Federal Reserve Bank Stock		19,919	NA		NA		NA		NA
Net loans and loans held for sale		1,407,634		1,394,424		-		23,662		1,370,762
Accrued interest receivable		5,995		5,995		2		1,599		4,394
Derivative financial instruments		619		619		-		619		-
Liabilities
Deposits with no stated maturity (1)	$	1,534,175	$	1,534,175	$	1,534,175	$	-	$	-
Deposits with stated maturity (1)		390,127		389,139		-		389,139		-
Other borrowings		12,470		14,560		-		14,560		-
Subordinated debentures		35,569		23,328		-		23,328		-
Accrued interest payable		380		380		21		359		-
Derivative financial instruments		366		366		-		366		-
2013
Assets
Cash and due from banks	$	48,156	$	48,156	$	48,156	$	-	$	-
Interest bearing deposits		70,925		70,925		70,925		-		-
Interest bearing deposits - time		17,999		18,000		-		18,000		-
Trading securities		498		498		498		-		-
Securities available for sale		462,481		462,481		-		462,481		-
Federal Home Loan Bank and Federal Reserve Bank Stock		23,419	NA		NA		NA		NA
Net loans and loans held for sale		1,362,635		1,333,229		-		20,390		1,312,839
Accrued interest receivable		5,948		5,948		1		1,426		4,521
Derivative financial instruments		494		494		-		494		-
Liabilities
Deposits with no stated maturity (1)	$	1,440,225	$	1,440,225	$	1,440,225	$	-	$	-
Deposits with stated maturity (1)		444,581		446,366		-		446,366		-
Other borrowings		17,188		19,726		-		19,726		-
Subordinated debentures		40,723		27,871		-		27,871		-
Accrued interest payable		445		445		20		425		-
Derivative financial instruments		-		-		-		-		-

______________________

(1)Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $13.6 million and $11.2 million at December 31, 2014 and 2013, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $40.1 million and $72.3 million at December 31, 2014 and 2013, respectively.

The fair values for commitments to extend credit and standby letters of credit are estimated to approximate their aggregate book balance, which is nominal, and therefore are not disclosed.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale the entire holdings of a particular financial instrument.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, the value of future earnings attributable to off-balance sheet activities and the value of assets and liabilities that are not considered financial instruments.

Fair value estimates for deposit accounts do not include the value of the core deposit intangible asset resulting from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.

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OPERATING SEGMENTS

12 Months Ended

Dec. 31, 2014

OPERATING SEGMENTS [Abstract]

OPERATING SEGMENTS

NOTE 23 – OPERATING SEGMENTS

Our reportable segments are based upon legal entities.  We currently have two reportable segments:  Independent Bank (“IB” or “Bank”) and Mepco.  These business segments are also differentiated based on the products and services provided.  We evaluate performance based principally on net income (loss) of the respective reportable segments.

In the normal course of business, our IB segment provides funding to our Mepco segment through an intercompany line of credit priced at the prime rate of interest as published in the Wall Street Journal. Our IB segment also provides certain administrative services to our Mepco segment which are reimbursed at an agreed upon rate. These intercompany transactions are eliminated upon consolidation. The only other material intersegment balances and transactions are investments in subsidiaries at the parent entities and cash balances on deposit at our IB segment.

A summary of selected financial information for our reportable segments follows:

	IB			Mepco			Other(1)(2)			Elimination(3)			Total
	(In thousands)
2014
Total assets	$	2,174,536		$	63,378		$	286,158		$	(275,342	)	$	2,248,730
Interest income		73,551			7,004			64			(64	)		80,555
Net interest income		68,948			5,706			(1,398	)		-			73,256
Provision for loan losses		(3,098	)		(38	)		-			-			(3,136	)
Income (loss) before income tax		25,845			561			(1,095	)		(95	)		25,216
Net income (loss)		18,550			366			(712	)		(183	)		18,021
2013
Total assets	$	2,104,550		$	94,648		$	272,348		$	(261,603	)	$	2,209,943
Interest income		76,018			11,103			-			-			87,121
Net interest income		71,496			8,780			(2,317	)		-			77,959
Provision for loan losses		(3,891	)		(97	)		-			-			(3,988	)
Income (loss) before income tax		29,605			(2,891	)		(3,961	)		(95	)		22,658
Net income (loss)		74,313			(1,801	)		5,092			(95	)		77,509
2012
Total assets	$	1,885,807		$	135,447		$	192,343		$	(189,730	)	$	2,023,867
Interest income		84,760			14,638			-			-			99,398
Net interest income		77,919			11,115			(2,779	)		-			86,255
Provision for loan losses		6,895			(8	)		-			-			6,887
Income (loss) before income tax		27,379			2,591			(3,677	)		(95	)		26,198
Net income (loss)		28,260			1,710			(3,677	)		(95	)		26,198

_______________________

(1) During 2013 IB and Other (parent company) include $47.1 million and $9.0 million, respectively of income tax benefit related to the reversal of the valuation allowance on our net deferred tax assets (see note #13).

(2) Includes amounts relating to our parent company and certain insignificant operations.

(3) Includes parent company’s investment in subsidiaries and cash balances maintained at subsidiary.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
CONSOLIDATED STATEMENTS OF CASH FLOWS [Abstract]
Net Income	$ 18,021	$ 77,509	$ 26,198
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
Proceeds from sales of loans held for sale	228,906	415,442	527,371
Disbursements for loans held for sale	(226,550)	(378,323)	(512,734)
Provision for loan losses	(3,136)	(3,988)	6,887
Deferred federal income tax expense (benefit)	8,918	(57,550)	0
Deferred loan fees	(753)	17	(392)
Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities and loans	3,014	(2,197)	(4,718)
Write-down of property and equipment held for sale	0	0	860
Net gains on mortgage loans	(5,628)	(10,022)	(17,323)
Net gains on securities	(329)	(395)	(1,226)
Securities impairment recognized in earnings	9	26	339
Net (gains) losses on other real estate and repossessed assets	(500)	1,237	2,854
Vehicle service contract counterparty contingencies	199	4,837	1,629
Share based compensation	1,192	1,238	869
Gains on extinguishment of debt	(500)	0	0
Net gain on branch sale	0	0	(5,402)
(Increase) decrease in accrued income and other assets	(2,579)	7,747	(2,425)
Increase (decrease) in accrued expenses and other liabilities	(7,213)	(3,508)	6,606
Total Adjustments	(4,950)	(25,439)	3,195
Net Cash From Operating Activities	13,071	52,070	29,393
CASH FLOW USED IN INVESTING ACTIVITIES
Proceeds from the sale of securities available for sale	14,633	2,940	37,176
Proceeds from the maturity of securities available for sale	58,220	29,866	83,190
Principal payments received on securities available for sale	84,487	43,702	23,765
Purchases of securities available for sale	(224,946)	(332,060)	(192,726)
Purchases of interest bearing deposits	(2,401)	(20,260)	0
Proceeds from the maturity of interest bearing deposits	6,719	2,142	0
Redemption of Federal Home Loan Bank and Federal Reserve Bank stock	3,814	0	334
Purchase of Federal Reserve Bank stock	(314)	(2,581)	0
Net (increase) decrease in portfolio loans (loans originated, net of principal payments)	(37,195)	33,192	90,952
Net proceeds from the sale of watch, substandard and non-performing loans	0	6,721	0
Net cash from (paid for) branch sale	0	3,292	(339,995)
Proceeds from the collection of vehicle service contract counterparty receivables	385	6,751	7,413
Proceeds from the sale of other real estate and repossessed assets	18,471	13,546	19,331
Proceeds from the sale of property and equipment	309	52	1,958
Capital expenditures	(4,298)	(8,371)	(5,293)
Net Cash From Investing Activities	(82,116)	(221,068)	(273,895)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in total deposits	39,496	105,269	96,428
Net increase (decrease) in other borrowings	(1)	4	0
Proceeds from Federal Home Loan Bank advances	100	100	12,000
Payments of Federal Home Loan Bank advances	(4,817)	(541)	(27,762)
Net increase (decrease) in vehicle service contract counterparty payables	(2,112)	(3,636)	1,092
Dividends paid	(4,129)	0	0
Proceeds from issuance of common stock	97	98,066	1,418
Redemption of subordinated debt	(4,654)	(9,452)	0
Redemption of convertible preferred stock and common stock warrant	0	(81,000)	0
Share based compensation withholding obligations	0	(513)	0
Net Cash From Financing Activities	23,980	108,297	83,176
Net Decrease in Cash and Cash Equivalents	(45,065)	(60,701)	(161,326)
Cash and Cash Equivalents at Beginning of Year	119,081	179,782	341,108
Cash and Cash Equivalents at End of Year	74,016	119,081	179,782
Cash paid during the year for
Interest	7,365	15,914	11,052
Income taxes	216	43	292
Transfers to other real estate and repossessed assets	6,143	6,932	14,276
Transfer of payment plan receivables to vehicle service contract counterparty receivables	180	792	1,469
Purchase of securities available for sale and interest bearing deposits - time not yet settled	265	4,146	0
Transfers to loans held for sale	0	0	47,954
Transfers to property and equipment held for sale	0	0	13,033
Transfers to deposits held for sale	$ 0	$ 0	$ 403,089

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ACCUMULATED OTHER COMPREHENSIVE LOSS

12 Months Ended

Dec. 31, 2014

ACCUMULATED OTHER COMPREHENSIVE LOSS [Abstract]

ACCUMULATED OTHER COMPREHENSIVE LOSS

NOTE 24 – ACCUMULATED OTHER COMPREHENSIVE LOSS

A summary of changes in accumulated other comprehensive  loss  (“AOCL”)  during the  years  ended December 31 follows (1):

				Dispropor-
				tionate									Dispropor-
	Unrealized			Tax Effects									tionate
	Losses on			from			Unrealized			Unrealized			Tax Effects
	Available			Securities			Losses on			Losses on			from Cash
	for Sale			Available			Cash Flow			Settled			Flow
	Securities			for Sale			Hedges			Derivatives			Hedges			Total
							(In thousands)
2014
Balances at beginning of period	$	(3,200	)	$	(5,798	)	$	-		$	(247	)	$	-		$	(9,245	)
Other comprehensive income before reclassifications		3,570			-			-			-			-			3,570
Amounts reclassified from AOCL		(208	)		-			-			247			-			39
Net current period other comprehensive income		3,362			-			-			247			-			3,609
Balances at end of period	$	162		$	(5,798	)	$	-		$	-		$	-		$	(5,636	)
2013
Balances at beginning of period	$	(516	)	$	(5,617	)	$	(739	)	$	-		$	(1,186	)	$	(8,058	)
Income tax		181			(181	)		258			-			(258	)		-
Balances at beginning of period, net of tax		(335	)		(5,798	)		(481	)		-			(1,444	)		(8,058	)
Terminated cash flow hedge		-			-			370			(370	)		-			-
Other comprehensive income before reclassifications		(2,877	)		-			(24	)		-			-			(2,901	)
Amounts reclassified from AOCL		12			-			135			123			1,444			1,714
Net current period other comprehensive income (loss)		(2,865	)		-			111			123			1,444			(1,187	)
Balances at end of period	$	(3,200	)	$	(5,798	)	$	-		$	(247	)	$	-		$	(9,245	)
2012
Balances at beginning of period	$	(3,579	)	$	(5,617	)	$	(1,103	)	$	(436	)	$	(1,186	)	$	(11,921	)
Other comprehensive income (loss) before reclassifications		3,917			-			(127	)		-			-			3,790
Amounts reclassified from AOCL		(854	)		-			491			436			-			73
Net current period other comprehensive income		3,063			-			364			436			-			3,863
Balances at end of period	$	(516	)	$	(5,617	)	$	(739	)	$	-		$	(1,186	)	$	(8,058	)

____________________________________

(1) 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

The disproportionate tax effects from securities available for sale and cash flow hedges arose due to tax effects of other comprehensive income (“OCI”) in the presence of a valuation allowance against our deferred tax assets and a pretax loss from operations.  Generally, the amount of income tax expense or benefit allocated to operations is determined without regard to the tax effects of other categories of income or loss, such as OCI. However, an exception to the general rule is provided when, in the presence of a valuation allowance against deferred tax assets, there is a pretax loss from operations and pretax income from other categories in the current period.  In such instances, income from other categories must offset the current loss from operations, the tax benefit of such offset being reflected in operations.  During the second quarter of 2013, we terminated our last remaining cash flow hedge and cleared the disproportionate tax effects relating to cash flow hedges from accumulated other comprehensive income (see note #13).

A summary of reclassifications out of each component of AOCL for the years ended December 31 follows:

	Reclassified
	From			Affected Line Item in
AOCL Component	AOCL			Consolidated Statements of Operations
	(In thousands)
2014
Unrealized losses on available for sale securities
	$	329		Net gains on securities
		(9	)	Net impairment loss recognized in earnings
		320		Total reclassifications before tax
		112		Tax expense (benefit)
	$	208		Reclassifications, net of tax
Unrealized losses on settled derivatives
	$	(380	)	Interest expense
		(133	)	Tax expense (benefit)
	$	(247	)	Reclassification, net of tax
	$	(39	)	Total reclassifications for the period, net of tax
2013
Unrealized losses on available for sale securities
	$	7		Net gains on securities
		(26	)	Net impairment loss recognized in earnings
		(19	)	Total reclassifications before tax
		(7	)	Tax expense (benefit)
	$	(12	)	Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(208	)	Interest expense
		(73	)	Tax expense (benefit)
	$	(135	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(189	)	Interest expense
		(66	)	Tax expense (benefit)
	$	(123	)	Reclassification, net of tax
Disproportionate tax effects from cash flow hedges	$	1,444		Tax expense (benefit)
	$	(1,714	)	Total reclassifications for the period, net of tax

	Reclassified
	From			Affected Line Item in
AOCL Component	AOCL			Consolidated Statements of Operations
	(In thousands)
2012
Unrealized losses on available for sale securities
	$	1,193		Net gains on securities
		(339	)	Net impairment loss recognized in earnings
		854		Total reclassifications before tax
		-		Tax expense (benefit)
	$	854		Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(491	)	Interest expense
		-		Tax expense (benefit)
	$	(491	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(436	)	Interest expense
		-		Tax expense (benefit)
	$	(436	)	Reclassification, net of tax
	$	(73	)	Total reclassifications for the period, net of tax

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CONCENTRATIONS OF CREDIT RISK (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Concentration Risk [Line Items]
Payment plan receivables	40,001,000	$ 60,638,000
Residential Real Estate [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	519,600,000
Construction and Development Loans [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	54,600,000
Lessors of Nonresidential Real Estate [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	222,800,000
Lessors of Residential Real Estate [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	66,400,000
Construction General Contractors and Land Development [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	59,300,000
Health Care and Social Assistance [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	65,900,000
Service Contract 1 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company (in hundredths)	27.10%
Concentration risk vehicle service (in hundredths)	35.70%
Service Contract 2 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company (in hundredths)	25.00%
Concentration risk vehicle service (in hundredths)	12.90%
Service Contract 3 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company (in hundredths)	17.20%
Concentration risk vehicle service (in hundredths)	10.90%
Service Contract 4 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company (in hundredths)	15.50%
Concentration risk vehicle service (in hundredths)	10.40%
Service Contract 5 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company (in hundredths)	12.50%
Concentration risk vehicle service (in hundredths)	8.80%

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INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2014

INTANGIBLE ASSETS [Abstract]

Other intangible assets, net of amortization

Intangible assets, net of amortization, at December 31 follows:

	2014				2013
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	3,491	$	11,037	$	7,874

Estimated amortization of other intangible assets

A summary of estimated core deposit intangible amortization at December 31, 2014, follows:

	(In thousands)
2015	$	347
2016		347
2017		346
2018		346
2019		346
2020 and thereafter		895
Total	$	2,627

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FAIR VALUE DISCLOSURES (Tables)

12 Months Ended

Dec. 31, 2014

FAIR VALUE DISCLOSURES [Abstract]

Assets and liabilities measured at fair value

Assets and liabilities measured at fair value, including financial assets for which we have elected the fair value option, were as follows:

			Fair Value Measurements Using
			Quoted
			Prices
			in Active
			Markets		Significant		Significant
			for		Other		Un-
	Fair Value		Identical		Observable		observable
	Measure-		Assets		Inputs		Inputs
	ments		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2014:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	203	$	203	$	-	$	-
Securities available for sale
U.S. agency		35,006		-		35,006		-
U.S. agency residential mortgage-backed		257,558		-		257,558		-
U.S. agency commercial mortgage-backed		33,728		-		33,728		-
Private label residential mortgage-backed		6,013		-		6,013		-
Other asset backed		32,353		-		32,353		-
Obligations of states and political subdivisions		143,415		-		143,415		-
Corporate		22,664		-		22,664		-
Trust preferred		2,441		-		2,441		-
Loans held for sale		23,662		-		23,662		-
Derivatives (1)		619		-		619		-
Liabilities
Derivatives (2)		366		-		366		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		9,197		-		-		9,197
Impaired loans (4)
Commercial
Income producing - real estate		869		-		-		869
Land, land development & construction-real estate		354		-		-		354
Commercial and industrial		2,601		-		-		2,601
Mortgage
1-4 Family		1,306		-		-		1,306
Other real estate (5)
Commercial
Income producing - real estate		479		-		-		479
Land, land development & construction-real estate		737		-		-		737
Mortgage
1-4 Family		102		-		-		102
Resort Lending		575		-		-		575
Installment
Home equity - 1st lien		13		-		-		13

___________________

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

			Fair Value Measurements Using
			Quoted
			Prices
			in Active
			Markets		Significant		Significant
			for		Other		Un-
	Fair Value		Identical		Observable		observable
	Measure-		Assets		Inputs		Inputs
	ments		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2013:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	498	$	498	$	-	$	-
Securities available for sale
U.S. agency		31,808		-		31,808		-
U.S. agency residential mortgage-backed		203,460		-		203,460		-
Private label residential mortgage-backed		6,788		-		6,788		-
Other asset backed		45,185		-		45,185		-
Obligations of states and political subdivisions		153,678		-		153,678		-
Corporate		19,137		-		19,137		-
Trust preferred		2,425		-		2,425		-
Loans held for sale		20,390		-		20,390		-
Derivatives (1)		494		-		494		-
Liabilities
Derivatives (2)		-		-		-		-
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		7,773		-		-		7,773
Impaired loans (4)
Commercial
Income producing - real estate		1,997		-		-		1,997
Land, land development & construction-real estate		673		-		-		673
Commercial and industrial		2,927		-		-		2,927
Mortgage
1-4 Family		1,455		-		-		1,455
Resort Lending		340		-		-		340
Other real estate (5)
Commercial
Income producing - real estate		559		-		-		559
Land, land development & construction-real estate		1,047		-		-		1,047
Mortgage
1-4 Family		337		-		-		337
Resort Lending		1,257		-		-		1,257
Installment
Home equity - 1st lien		29		-		-		29
Payment plan receivables
Full refund/partial refund		2,668		-		-		2,668

_____________________

(1) Included in accrued income and other assets

(2) Included in accrued expenses and other liabilities

(3) Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

(4) Only includes impaired loans with specific loss allocations based on collateral value.

(5) Only includes other real estate with subsequent write downs to fair value.

Changes in fair value for financial assets

Changes in fair values of financial assets for which we have elected the fair value option for the years ended December 31 were as follows:

								Total
								Change
								in Fair
								Values
								Included
		Net Gains (Losses)						in Current
		on Assets						Period
		Securities			Loans			Earnings
	(In thousands)
2014
Trading securities		$	(295	)	$	-		$	(295	)
Loans held for sale			-			258			258
2013
Trading securities		$	388		$	-		$	388
Loans held for sale			-			(1,477	)		(1,477	)
2012
Trading securities		$	33		$	-		$	33
Loans held for sale			-			440			440

Reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3)

A reconciliation for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31 follows:

	(Liability)
	Amended Warrant
	2014		2013
	(In thousands)
Beginning balance	$	-	$	(459	)
Total gains (losses) realized and unrealized:
Included in results of operations		-		(1,025	)
Included in other comprehensive income		-		-
Purchases, issuances, settlements, maturities and calls		-		-
Reclassification to shareholders' equity		-		1,484
Transfers in and/or out of Level 3		-		-
Ending balance	$	-	$	-
Amount of total gains (losses) for the year included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at December 31	$	-	$	-

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis

Quantitative information about Level 3 fair value measurements measured on a non-recurring basis follows:

	Asset
	(Liability)
	Fair		Valuation	Unobservable	Weighted
	Value		Technique	Inputs	Average
	(In thousands)
2014
Capitalized mortgage loan servicing rights	$	9,197	Present value of net servicing revenue	Discount rate		10.07	%
				Cost to service	$	82
				Ancillary income		25
				Float rate		1.77	%
Impaired loans Commercial (1)		2,751	Sales comparison approach	Adjustment for differences between comparable sales		(3.8	)%
			Income approach	Capitalization rate		9.3
Mortgage		1,306	Sales comparison approach	Adjustment for differences between comparable sales		8.6
Other real estate Commercial		1,216	Sales comparison approach	Adjustment for differences between comparable sales		(9.0	)
Mortgage and installment		690	Sales comparison approach	Adjustment for differences between comparable sales		34.3
2013
Capitalized mortgage loan servicing rights	$	7,773	Present value of net servicing revenue	Discount rate		10.09	%
				Cost to service	$	81
				Ancillary income		29
				Float rate		1.79	%
Impaired loans Commercial		5,597	Sales comparison approach	Adjustment for differences between comparable sales		(1.9	)%
			Income approach	Capitalization rate		9.3
Mortgage		1,795	Sales comparison approach	Adjustment for differences between comparable sales		3.2
Other real estate Commercial		1,606	Sales comparison approach	Adjustment for differences between comparable sales		(5.7	)
Mortgage and installment		1,623	Sales comparison approach	Adjustment for differences between comparable sales		55.7
Payment plan receivables		2,668	Sales comparison approach	Adjustment for differences between comparable sales		10.4

_____________________

(1) In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2014 we had an impaired collateral dependent commercial relationship that totaled $1.1 million that was primarily secured by collateral other than real estate.  Collateral securing this relationship primarily included machinery and equipment, accounts receivable, inventory and company stock.  Valuation techniques included discounting cost and financial statement value approaches based on estimates of value recovery of each particular asset type.  Discount rates used ranged from 35% to 100% of stated values.

Aggregate fair value and aggregate remaining contractual principal balance for loans held for sale

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding for loans held for sale for which the fair value option has been elected at December 31.

	Aggregate				Contractual
	Fair Value		Difference		Principal
	(In thousands)
Loans held for sale
2014	$	23,662	$	624	$	23,038
2013		20,390		366		20,024
2012		47,487		1,843		45,644

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OTHER BORROWINGS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Summary of other borrowings [Abstract]
Advances from the FHLB	$ 12,464,000	$ 17,181,000
Other	6,000	7,000
Total	12,470,000	17,188,000
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal home loan bank, advances, interest rate, minimum (in hundredths)	135.00%
Federal home loan bank, advances, interest rate, maximum (in hundredths)	159.00%
Federal home loan bank stock	12,300,000
Unused borrowing capacity with FHLB	170,400,000
Interest expense on FHLB advances	900,000	1,100,000	1,200,000
FHLB advances terminated with no gain or loss	0	0	3,000,000
FHLB stock as percentages of unpaid principal balance (in hundredths)	1.00%
FHLB stock as percentages of outstanding advances (in hundredths)	5.00%
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
Total FHLB advances, Amount	12,464,000	17,181,000
Summary of repayments of FHLB Advances [Abstract]
Available for sale and loans, pledged to secure other borrowings	753,400,000
Federal Reserve Bank Advances [Member]
Federal Reserve Bank - Short-term borrowings [Line Items]
Unused borrowing capacity with the FRB	320,000,000
Fixed-Rate Advances [Member]
Summary of other borrowings [Abstract]
Advances from the FHLB	12,464,000	17,181,000
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
2014, Amount		4,240,000
2016, Amount	2,205,000	2,313,000
2017, Amount	1,320,000	1,377,000
2018, Amount	5,671,000	5,888,000
2019, Amount	0	0
2020 and thereafter, Amount	3,268,000	3,363,000
Total FHLB advances, Amount	12,464,000	17,181,000
Federal Home Loan Bank, Advances, Maturities Summary, Average Interest Rate of Amounts Due [Abstract]
2014, Rate (in hundredths)		5.73%
2016, Rate (in hundredths)	6.55%	6.55%
2017, Rate (in hundredths)	7.04%	7.04%
2018, Rate (in hundredths)	5.99%	5.99%
2020 and thereafter, Rate (in hundredths)	7.49%	7.49%
Total FHLB advances, Rate (in hundredths)	6.59%	6.38%
Advances from Federal Home Loan Bank ("FHLB") [Member]
Summary of repayments of FHLB Advances [Abstract]
2015	515,000
2016	2,521,000
2017	1,587,000
2018	5,042,000
2019	143,000
2020 and thereafter	2,656,000
Total	$ 12,464,000

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Dec. 31, 2013
ASSETS
Cash and due from banks	$ 48,326		$ 48,156
Interest bearing deposits	25,690		70,925
Cash and Cash Equivalents	74,016		119,081
Interest bearing deposits - time	13,561		17,999
Trading securities	203		498
Securities available for sale	533,178		462,481
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	19,919		23,419
Loans held for sale, carried at fair value	23,662		20,390
Loans
Commercial	690,955		635,234
Mortgage	472,628		486,633
Installment	206,378		192,065
Payment plan receivables	40,001		60,638
Total Loans	1,409,962		1,374,570
Allowance for loan losses	(25,990)		(32,325)
Net Loans	1,383,972		1,342,245
Other real estate and repossessed assets	6,454		18,282
Property and equipment, net	45,948		48,594
Bank-owned life insurance	53,625		52,253
Deferred tax assets, net	48,632		57,550
Capitalized mortgage loan servicing rights	12,106		13,710
Vehicle service contract counterparty receivables, net	7,237		7,716
Other intangibles	2,627		3,163
Accrued income and other assets	23,590		22,562
Total Assets	2,248,730		2,209,943
Deposits
Non-interest bearing	576,882		518,658
Savings and interest-bearing checking	943,734		910,352
Reciprocal	53,668		83,527
Retail time	338,720		358,800
Brokered time	11,298		13,469
Total Deposits	1,924,302		1,884,806
Other borrowings	12,470		17,188
Subordinated debentures	35,569		40,723
Vehicle service contract counterparty payables	1,977		4,089
Accrued expenses and other liabilities	24,041		31,556
Total Liabilities	1,998,359		1,978,362
Commitments and contingent liabilities
Shareholders' Equity
Preferred stock, no par value, 200,000 shares authorized; none issued or outstanding	0		0
Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 22,957,323 shares at December 31, 2014 and 22,819,136 shares at December 31, 2013	352,462		351,173
Accumulated deficit	(96,455)		(110,347)
Accumulated other comprehensive loss	(5,636)	[1]	(9,245)	[1]
Total Shareholders' Equity	250,371		231,581
Total Liabilities and Shareholders' Equity	$ 2,248,730		$ 2,209,943

[1] 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

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SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE (Tables)

12 Months Ended

Dec. 31, 2014

SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE [Abstract]

Reconciliation of basic and diluted loss per share

A reconciliation of basic and diluted net income per common share for the years ended December 31 follows:

	2014		2013			2012
	(In thousands, except per share amounts)
Net income applicable to common stock	$	18,021	$	82,062		$	21,851
Convertible preferred stock dividends		-		3,001			4,347
Preferred stock discount		-		(7,554	)		-
Net income applicable to common stock for calculation of diluted earnings per share	$	18,021	$	77,509		$	26,198
Weighted average shares outstanding (1)		22,927		13,970			8,709
Restricted stock units		306		363			216
Effect of stock options		124		92			2
Stock units for deferred compensation plan for non-employee directors		114		125			66
Effect of convertible preferred stock		-		7,314			23,892
Weighted average shares outstanding for calculation of diluted earnings per share		23,471		21,864			32,885
Net income per common share
Basic (1)	$	0.79	$	5.87		$	2.51
Diluted	$	0.77	$	3.55		$	0.80

⁽¹⁾Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) In Thousands, unless otherwise specified	Preferred Stock [Member]	Common Stock [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balances at Dec. 31, 2011	$ 79,857	$ 248,950	$ (214,259)	$ (11,921)	$ 102,627
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	0	0	26,198	0	26,198
Dividends on Preferred	4,128	0	(4,128)	0	0
Issuance of common stock	0	1,418	0	0	1,418
Share based compensation	0	869	0	0	869
Accretion of preferred stock discount	219	0	(219)	0	0
Other comprehensive income	0	0	0	3,863	3,863	[1]
Balances at Dec. 31, 2012	84,204	251,237	(192,408)	(8,058)	134,975
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	0	0	77,509	0	77,509
Dividends on Preferred	2,856	0	(2,856)	0	0
Issuance of common stock	0	99,075	0	0	99,075
Share based compensation	0	1,238	0	0	1,238
Share based compensation withholding obligation	0	(513)	0	0	(513)
Accretion of preferred stock discount	146	0	(146)	0	0
Common stock warrant	0	1,484	0	0	1,484
Redemption of convertible preferred stock and common stock warrant	(87,206)	(1,348)	7,554	0	(81,000)
Other comprehensive income	0	0	0	(1,187)	(1,187)	[1]
Balances at Dec. 31, 2013	0	351,173	(110,347)	(9,245)	231,581
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	0	0	18,021	0	18,021
Cash dividends declared	0	0	(4,129)	0	(4,129)
Issuance of common stock	0	97	0	0	97
Share based compensation	0	1,192	0	0	1,192
Other comprehensive income	0	0	0	3,609	3,609	[1]
Balances at Dec. 31, 2014	$ 0	$ 352,462	$ (96,455)	$ (5,636)	$ 250,371

[1] 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

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RESTRICTIONS ON CASH AND DUE FROM BANKS (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
RESTRICTIONS ON CASH AND DUE FROM BANKS [Abstract]
Average reserve balances maintained	$ 15.3	$ 24.5
Reserve balances related to investment security transactions and merchant payment processing operations	$ 2.8	$ 2.4

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ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2014

ACCOUNTING POLICIES [Abstract]

PRINCIPLES OF CONSOLIDATION

PRINCIPLESOFCONSOLIDATION— The consolidated financial statements include the accounts of Independent Bank Corporation and its subsidiaries. The income, expenses, assets and liabilities of the subsidiaries are included in the respective accounts of the consolidated financial statements, after elimination of all material intercompany accounts and transactions.

STATEMENTS OF CASH FLOWS

STATEMENTSOFCASHFLOWS— For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing deposits and federal funds sold. Generally, federal funds are sold for one-day periods. We report net cash flows for customer loan and deposit transactions, for short-term borrowings and for vehicle service contract counterparty payables.

INTEREST BEARING DEPOSITS

INTERESTBEARINGDEPOSITS— Interest bearing deposits consist of overnight deposits with the Federal Reserve Bank.

INTERESTBEARINGDEPOSITS-TIME— Interest bearing deposits - time consist of deposits with original maturities of 3 months or more.

LOANS HELD FOR SALE

LOANSHELDFORSALE— Mortgage loans originated and intended for sale in the secondary market are carried at fair value. Fair value adjustments, as well as realized gains and losses, are recorded in current earnings.

MORTGAGE LOAN SERVICING RIGHTS

MORTGAGELOANSERVICINGRIGHTS— We recognize as separate assets the rights to service mortgage loans for others. The fair value of originated mortgage loan servicing rights has been determined based upon fair value indications for similar servicing. The mortgage loan servicing rights are amortized in proportion to and over the period of estimated net loan servicing income. We assess mortgage loan servicing rights for impairment based on the fair value of those rights. For purposes of measuring impairment, the characteristics used include interest rate, term and type. Amortization of and changes in the impairment reserve on originated mortgage loan servicing rights are included in mortgage loan servicing in the Consolidated Statements of Operations. The fair values of mortgage loan servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses. Mortgage loan servicing income is recorded for fees earned for servicing loans previously sold. The fees are generally based on a contractual percentage of the outstanding principal and are recorded as income when earned. Mortgage loan servicing fees, excluding amortization of and changes in the impairment reserve on originated mortgage loan servicing rights, totaled $4.2 million, $4.3 million and $4.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. Late fees and ancillary fees related to loan servicing are not material.

TRANSFERS OF FINANCIAL ASSETS

TRANSFERSOFFINANCIALASSETS— Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from us, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

SECURITIES

SECURITIES— We classify our securities as trading, held to maturity or available for sale. Trading securities are bought and held principally for the purpose of selling them in the near term and are reported at fair value with realized and unrealized gains and losses included in earnings. Securities held to maturity represent those securities for which we have the positive intent and ability to hold until maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts computed on the level-yield method. We did not have any securities held to maturity at December 31, 2014 and 2013. Securities available for sale represent those securities not classified as trading or held to maturity and are reported at fair value with unrealized gains and losses, net of applicable income taxes reported in other comprehensive income (loss).

We evaluate securities for OTTI at least on a quarterly basis and more frequently when economic or market conditions warrant such an evaluation. In performing this evaluation, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Gains and losses realized on the sale of securities available for sale are determined using the specific identification method and are recognized on a trade-date basis. Premiums and discounts are recognized in interest income computed on the level-yield method.

FEDERAL HOME LOAN BANK ("FHLB") STOCK

FEDERALHOMELOANBANK(“FHLB”)STOCK— Our Bank subsidiary is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

FEDERAL RESERVE BANK ("FRB") STOCK

FEDERALRESERVEBANK(“FRB”)STOCK— Our Bank subsidiary is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

LOAN REVENUE RECOGNITION

LOANREVENUERECOGNITION— Interest on loans is accrued based on the principal amounts outstanding. In general, the accrual of interest income is discontinued when a loan becomes 90 days past due for commercial loans and installment loans and when a loan misses four consecutive payments for mortgage loans and the borrower’s capacity to repay the loan and collateral values appear insufficient for each loan class. However, loans may be placed on non-accrual status regardless of whether or not such loans are considered past due if, in management’s opinion, the borrower is unable to meet payment obligations as they become due or as required by regulatory provisions. All interest accrued but not received for all loans placed on non-accrual is reversed from interest income. Payments on such loans are generally applied to the principal balance until qualifying to be returned to accrual status. A non-accrual loan may be restored to accrual status when interest and principal payments are current and the loan appears otherwise collectible. Delinquency status for all classes in the commercial and installment loan segments is based on the actual number of days past due as required by the contractual terms of the loan agreement while delinquency status for mortgage loan segment classes is based on the number of payments past due.

Certain loan fees and direct loan origination costs are deferred and recognized as an adjustment of yield generally over the contractual life of the related loan. Fees received in connection with loan commitments are deferred until the loan is advanced and are then recognized generally over the contractual life of the loan as an adjustment of yield. Fees on commitments that expire unused are recognized at expiration. Fees received for letters of credit are recognized as revenue over the life of the commitment.

PAYMENT PLAN RECEIVABLE REVENUE RECOGNITION

PAYMENTPLANRECEIVABLEREVENUERECOGNITION— Payment plan receivables are acquired by our Mepco segment at a discount and reported net of this discount in the Consolidated Statements of Financial Condition. This discount is accreted into interest and fees on loans over the life of the receivable computed on a level-yield method. All classes of payment plan receivables that have been canceled and are 90 days or more past due as required by the contractual terms of the payment plan are classified as non-accrual.

ALLOWANCE FOR LOAN LOSSES

ALLOWANCEFORLOANLOSSES— Portfolios are disaggregated into segments for purposes of determining the allowance for loan losses (“AFLL”) which include commercial, mortgage and installment loans and payment plan receivables. These segments are further disaggregated into classes for purposes of monitoring and assessing credit quality based on certain risk characteristics. Classes within the commercial loan segment include (i) income producing – real estate, (ii) land, land development and construction – real estate and (iii) commercial and industrial. Classes within the mortgage loan segment include (i) 1-4 family, (ii) resort lending, (iii) home equity – 1st lien and (iv) home equity – 2nd lien. Classes within the installment loan segment include (i) home equity – 1st lien, (ii) home equity – 2nd lien, (iii) loans not secured by real estate and (iv) other. Classes within the payment plan receivables segment include (i) full refund, (ii) partial refund and (iii) other. Commercial loans are subject to adverse market conditions which may impact the borrower’s ability to make repayment on the loan or could cause a decline in the value of the collateral that secures the loan. Mortgage and installment loans and payment plan receivables are subject to adverse employment conditions in the local economy which could increase default rates. In addition, mortgage loans and real estate based installment loans are subject to adverse market conditions which could cause a decline in the value of collateral that secures the loan. For an analysis of the AFLL by portfolio segment and credit quality information by class, see note #4.

Some loans will not be repaid in full. Therefore, an AFLL is maintained at a level which represents our best estimate of losses incurred. In determining the allowance and the related provision for loan losses, we consider four principal elements: (i) specific allocations based upon probable losses identified during the review of the loan portfolio, (ii) allocations established for other adversely rated commercial loans, (iii) allocations based principally on historical loan loss experience, and (iv) additional allocations based on subjective factors, including local and general economic business factors and trends, portfolio concentrations and changes in the size and/or the general terms of the loan portfolios.

The first AFLL element (specific allocations) reflects our estimate of probable incurred losses based upon our systematic review of specific loans. These estimates are based upon a number of objective factors, such as payment history, financial condition of the borrower, discounted collateral exposure and discounted cash flow analysis. Impaired commercial, mortgage and installment loans are allocated allowance amounts using this first element. The second AFLL element (other adversely rated commercial loans) reflects the application of our loan rating system. This rating system is similar to those employed by state and federal banking regulators. Commercial loans that are rated below a certain predetermined classification are assigned a loss allocation factor for each loan classification category that is based upon a historical analysis of both the probability of default and the expected loss rate (“loss given default”). The lower the rating assigned to a loan or category, the greater the allocation percentage that is applied. The third AFLL element (historical loss allocations) is determined by assigning allocations to higher rated (“non-watch credit”) commercial loans using a probability of default and loss given default similar to the second AFLL element and to homogenous mortgage and installment loan groups based upon borrower credit score and portfolio segment. For homogenous mortgage and installment loans a probability of default for each homogenous pool is calculated by way of credit score migration. Historical loss data for each homogenous pool coupled with the associated probability of default is utilized to calculate an expected loss allocation rate. The fourth AFLL element (additional allocations based on subjective factors) is based on factors that cannot be associated with a specific credit or loan category and reflects our attempt to ensure that the overall allowance for loan losses appropriately reflects a margin for the imprecision necessarily inherent in the estimates of expected credit losses. We consider a number of subjective factors when determining this fourth element, including local and general economic business factors and trends, portfolio concentrations and changes in the size, mix and the general terms of the overall loan portfolio.

Increases in the AFLL are recorded by a provision for loan losses charged to expense. Although we periodically allocate portions of the AFLL to specific loans and loan portfolios, the entire AFLL is available for incurred losses. We generally charge-off commercial, homogenous residential mortgage and installment loans and payment plan receivables when they are deemed uncollectible or reach a predetermined number of days past due based on loan product, industry practice and other factors. Collection efforts may continue and recoveries may occur after a loan is charged against the AFLL.

While we use relevant information to recognize losses on loans, additional provisions for related losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors.

A loan is impaired when full payment under the loan terms is not expected. Generally, those loans included in each commercial loan class that are rated substandard, classified as non-performing or were classified as non-performing in the preceding quarter, are evaluated for impairment. Those loans included in each mortgage loan or installment class whose terms have been modified and considered a troubled debt restructuring are also impaired. Loans which have been modified resulting in a concession, and which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDR”) and classified as impaired. We measure our investment in an impaired loan based on one of three methods: the loan’s observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan’s effective interest rate. Large groups of smaller balance homogeneous loans, such as those loans included in each installment and mortgage loan class and each payment plan receivable class, are collectively evaluated for impairment and accordingly, they are not separately identified for impairment disclosures. TDR loans are measured at the present value of estimated future cash flows using the loan’s effective interest rate at inception of the loan. If a TDR is considered to be a collateral dependent loan, the loan is reported net, at the fair value of collateral.

PROPERTY AND EQUIPMENT

PROPERTYANDEQUIPMENT— Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using both straight-line and accelerated methods over the estimated useful lives of the related assets. Buildings are generally depreciated over a period not exceeding 39 years and equipment is generally depreciated over periods not exceeding 7 years. Leasehold improvements are depreciated over the shorter of their estimated useful life or lease period.

BANK OWNED LIFE INSURANCE

BANKOWNEDLIFEINSURANCE— We have purchased a group flexible premium non-participating variable life insurance contract on approximately 270 lives (who were salaried employees at the time we purchased the contract) in order to recover the cost of providing certain employee benefits. Bank owned life insurance is recorded at its cash surrender value or the amount that can be currently realized.

OTHER REAL ESTATE AND REPOSSESSED ASSETS

OTHERREALESTATEANDREPOSSESSEDASSETS— Other real estate at the time of acquisition is recorded at fair value, less estimated costs to sell, which becomes the property’s new basis. Fair value is typically determined by a third party appraisal of the property. Any write-downs at date of acquisition are charged to the allowance for loan losses. Expense incurred in maintaining assets and subsequent write-downs to reflect declines in value and gains or losses on the sale of other real estate are recorded in the Consolidated Statements of Operations. Non-real estate repossessed assets are treated in a similar manner.

OTHER INTANGIBLE ASSETS

OTHERINTANGIBLEASSETS— Other intangible assets consist of core deposits. They are initially measured at fair value and then are amortized on both straight-line and accelerated methods over their estimated useful lives, which range from 10 to 15 years.

VEHICLE SERVICE CONTRACT COUNTERPARTY RECEIVABLES, NET

VEHICLESERVICECONTRACTCOUNTERPARTYRECEIVABLES,NET— These amounts represent funds due to Mepco from its counterparties for cancelled service contracts. Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected.

INCOME TAXES

INCOMETAXES— We employ the asset and liability method of accounting for income taxes. This method establishes deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at tax rates expected to be in effect when such amounts are realized or settled. Under this method, the effect of a change in tax rates is recognized in the period that includes the enactment date. The deferred tax asset is subject to a valuation allowance for that portion of the asset for which it is more likely than not that it will not be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

We recognize interest and/or penalties related to income tax matters in income tax expense.

We file a consolidated federal income tax return. Intercompany tax liabilities are settled as if each subsidiary filed a separate return.

VEHICLE SERVICE CONTRACT COUNTERPARTY PAYABLES

VEHICLESERVICECONTRACTCOUNTERPARTYPAYABLES— Vehicle service contract counterparty payables represent amounts owed to insurance companies or other counterparties for vehicle service contract payment plans purchased by us. The vehicle service contract counterparty payable becomes due in accordance with the terms of the specific contract between Mepco and the counterparty. Typically these terms require payment after Mepco has received one or two payments from the consumer on the payment plan receivable.

COMMITMENTS TO EXTEND CREDIT AND RELATED FINANCIAL INSTRUMENTS

COMMITMENTSTOEXTENDCREDIT ANDRELATEDFINANCIALINSTRUMENTS— Financial instruments may include commitments to extend credit and standby letters of credit. Financial instruments involve varying degrees of credit and interest-rate risk in excess of amounts reflected in the Consolidated Statements of Financial Condition. Exposure to credit risk in the event of non-performance by the counterparties to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of those instruments. In general, we use a similar methodology to estimate our liability for these off-balance sheet credit exposures as we do for our allowance for loan losses. For commercial related commitments, we estimate liability using our loan rating system and for mortgage and installment commitments we estimate liability principally upon historical loss experience. Our estimated liability for off balance sheet commitments is included in accrued expenses and other liabilities in our Consolidated Statements of Financial Condition and any charge or recovery is recorded in non-interest expenses in our Consolidated Statements of Operations.

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVEFINANCIALINSTRUMENTS— We record derivatives on our Consolidated Statement of Financial Condition as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

At the inception of the derivative we designate the derivative as one of three types based on our intention and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“Fair Value Hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“Cash Flow Hedge”), or (3) an instrument with no hedging designation. For a Fair Value Hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a Cash Flow Hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. We did not have any Fair Value Hedges or Cash Flow Hedges at December 31, 2014 or 2013. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. For instruments with no hedging designation, the gain or loss on the derivative is reported currently in earnings. These free standing instruments currently consist of (i) mortgage banking related derivatives and include rate-lock loan commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and mandatory forward commitments for the future delivery of these mortgage loans and (ii) certain pay-fixed and pay-variable interest rate swap agreements. Fair values of the mortgage derivatives are estimated based on mortgage backed security pricing for comparable assets. We enter into mandatory forward commitments for the future delivery of mortgage loans generally when interest rate locks are entered into in order to hedge the change in interest rates resulting from our commitments to fund the loans. Changes in the fair values of these derivatives are included in net gains on mortgage loans.  Fair values of the pay-fixed and pay-variable interest rate swap agreements are based on discounted cash flow analyses and are included in net interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest expense. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income (mortgage banking related derivatives) or net interest income (interest rate swap agreements). Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

We formally document the relationship between derivatives and hedged items, as well as the risk- management objective and the strategy for undertaking hedge transactions, at the inception of the hedging relationship. This documentation includes linking Fair Value or Cash Flow Hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. We also assess, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. We discontinue hedge accounting when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded currently in earnings. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive loss are amortized into earnings over the same periods which the hedged transactions will affect earnings.

COMPREHENSIVE INCOME

COMPREHENSIVEINCOME— Comprehensive income consists of net income, unrealized gains and losses on securities available for sale and derivative instruments classified as cash flow hedges.

INCOME PER COMMON SHARE

INCOMEPERCOMMONSHARE— Basic income per common share is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period and participating share awards. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. For diluted income per common share, net income is divided by the weighted average number of common shares outstanding during the period plus the dilutive effects of the assumed conversion of convertible preferred stock, assumed exercise of common stock warrants, assumed exercise of stock options, restricted stock units and stock units for a deferred compensation plan for non-employee directors.

SHARE BASED COMPENSATION

SHAREBASEDCOMPENSATION— Cost is recognized for stock options and non-vested share awards issued to employees based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, a simulation analysis which considers potential outcomes for a large number of independent scenarios is utilized to estimate the fair value of performance share units and the market price of our common stock at the date of grant is used for other non-vested share awards.  Cost is recognized over the required service period, generally defined as the vesting period. Cost is also recognized for salary stock issued to employees and stock issued to non-employee directors. These shares vest immediately and cost is recognized during the period they are issued.

COMMON STOCK

COMMONSTOCK— At December 31, 2014, 0.1 million shares of common stock were reserved for issuance under the dividend reinvestment plan and 0.7 million shares of common stock were reserved for issuance under our long-term incentive plans.

RECLASSIFICATION

RECLASSIFICATION— Certain amounts in the 2013 and 2012 consolidated financial statements have been reclassified to conform to the 2014 presentation.

ADOPTION OF NEW ACCOUNTING STANDARDS

ADOPTIONOFNEWACCOUNTINGSTANDARDS— In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-11, “Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”.  This ASU amends existing guidance so that an unrecognized tax benefit, or a portion thereof, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability.  This amended guidance became effective for us on January 1, 2014, and did not have a material impact on our consolidated operating results or financial condition.

In January 2014, the FASB issued ASU 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”. The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. This amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014, with early adoption and retrospective or prospective application permitted. This amendment is not expected to have a material impact on our consolidated operating results or financial condition.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU supersedes and replaces nearly all existing revenuerecognition guidance, including industry-specific guidance, establishes a new control-based revenue recognition model, changes the basis fordeciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improvesdisclosures about revenue. In addition, this ASU specifies the accounting for some costs to obtain or fulfill a contract with a customer.  This amended guidance is effective for us on January 1, 2017, and is not expected to have a material impact on our consolidated operating results or financial condition.

In June 2014, the FASB issued ASU 2014-12, “Compensation – Stock Compensation (Topic 718) – Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period”.  This ASU amends existing guidance related to the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. These amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This amended guidance is effective for us on January 1, 2016, and is not expected to have a material impact on our consolidated operating results or financial condition.

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LOANS AND PAYMENT PLAN RECEIVABLES, Troubled Debt Restructurings (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 Contract		Dec. 31, 2013 Contract		Dec. 31, 2012 Contract
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	$ 110,174,000		$ 124,222,000
Troubled debt restructuring, specific reserve	12,200,000		14,900,000
Additional amounts committed to lend as troubled debt restructurings	40,000		170,000
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	70		102		232
Pre-modification recorded balance	7,123,000		11,955,000		42,655,000
Post-modification recorded balance	6,308,000		10,368,000		39,037,000
Increase in allowance for loan losses	200,000		(300,000)		1,600,000
Charge offs due to troubled debt restructurings	40,000		500,000		1,000,000
TDR that subsequently defaulted [Abstract]
Number of contracts	3		9		16
Recorded Balance	444,000		1,486,000		2,346,000
Past due period for modified loans	90 days
Increase (decrease) in allowance for loan loss due to TDRs that subsequently defaulted	20,000		0		300,000
Charge-offs on TDRs that subsequently defaulted	0		200,000		800,000
Minimum [Member]
Financing Receivable, Modifications [Line Items]
Modification of stated interest rate of loans, range of period	9 months
Modifications involving extension of maturity date, period range	1 month
Maximum [Member]
Financing Receivable, Modifications [Line Items]
Modification of stated interest rate of loans, range of period	60 months
Modifications involving extension of maturity date, period range	70 months
Maximum in Certain Circumstances [Member]
Financing Receivable, Modifications [Line Items]
Modification of stated interest rate of loans, range of period	480 months
Modifications involving extension of maturity date, period range	240 months
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	31,453,000		39,481,000
Income Producing - Real Estate [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	4		6		20
Pre-modification recorded balance	426,000		4,798,000		9,464,000
Post-modification recorded balance	389,000		3,869,000		8,568,000
TDR that subsequently defaulted [Abstract]
Number of contracts	0		1		2
Recorded Balance	0		693,000		827,000
Land, Land Development and Construction Real Estate [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	2		1		9
Pre-modification recorded balance	55,000		16,000		4,800,000
Post-modification recorded balance	44,000		0		4,858,000
TDR that subsequently defaulted [Abstract]
Number of contracts	0		1		0
Recorded Balance	0		334,000		0
Commercial and Industrial [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	13		23		50
Pre-modification recorded balance	2,236,000		2,522,000		9,951,000
Post-modification recorded balance	1,606,000		1,901,000		7,905,000
TDR that subsequently defaulted [Abstract]
Number of contracts	2		2		5
Recorded Balance	319,000		143,000		230,000
Family 1 4 [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	15		20		66
Pre-modification recorded balance	1,576,000		1,968,000		8,900,000
Post-modification recorded balance	1,570,000		1,995,000		8,488,000
TDR that subsequently defaulted [Abstract]
Number of contracts	1		1		2
Recorded Balance	125,000		106,000		148,000
Resort Lending [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	6		5		31
Pre-modification recorded balance	1,583,000		1,240,000		7,750,000
Post-modification recorded balance	1,572,000		1,231,000		7,514,000
TDR that subsequently defaulted [Abstract]
Number of contracts	0		1		4
Recorded Balance	0		156,000		887,000
Home Equity - 1st Lien [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	1		1		1
Pre-modification recorded balance	17,000		95,000		15,000
Post-modification recorded balance	14,000		97,000		0
TDR that subsequently defaulted [Abstract]
Number of contracts	0		0		0
Recorded Balance	0		0		0
Home Equity - 2nd Lien [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	1		0		0
Pre-modification recorded balance	85,000		0		0
Post-modification recorded balance	84,000		0		0
TDR that subsequently defaulted [Abstract]
Number of contracts	0		0		0
Recorded Balance	0		0		0
Home Equity - 1st Lien [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	13		25		18
Pre-modification recorded balance	631,000		659,000		666,000
Post-modification recorded balance	523,000		657,000		632,000
TDR that subsequently defaulted [Abstract]
Number of contracts	0		2		2
Recorded Balance	0		32,000		234,000
Home Equity - 2nd Lien [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	9		16		24
Pre-modification recorded balance	400,000		508,000		784,000
Post-modification recorded balance	400,000		508,000		768,000
TDR that subsequently defaulted [Abstract]
Number of contracts	0		1		1
Recorded Balance	0		22,000		20,000
Loans Not Secured By Real Estate [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	6		5		13
Pre-modification recorded balance	114,000		149,000		325,000
Post-modification recorded balance	106,000		110,000		304,000
TDR that subsequently defaulted [Abstract]
Number of contracts	0		0		0
Recorded Balance	0		0		0
Other [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts	0		0		0
Pre-modification recorded balance	0		0		0
Post-modification recorded balance	0		0		0
TDR that subsequently defaulted [Abstract]
Number of contracts	0		0		0
Recorded Balance	0		0		0
Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	78,721,000		84,741,000
Performing TDR's [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	102,971,000		114,887,000
Performing TDR's [Member] | Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	29,475,000		35,134,000
Performing TDR's [Member] | Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	73,496,000		79,753,000
Non-performing TDR's [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	7,203,000	[1]	9,335,000	[1]
Non-performing TDR's [Member] | Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	1,978,000	[1]	4,347,000	[1]
Non-performing TDR's [Member] | Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	$ 5,225,000	[1],[2]	$ 4,988,000	[1],[2]

[1] Included in non-performing loans table.

[2] Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

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SHARE BASED COMPENSATION AND BENEFIT PLANS

12 Months Ended

Dec. 31, 2014

SHARE BASED COMPENSATION AND BENEFIT PLANS [Abstract]

SHARE BASED COMPENSATION AND BENEFIT PLANS

NOTE 14 – SHARE BASED COMPENSATION AND BENEFIT PLANS

We maintain share based payment plans that include a non-employee director stock purchase plan and a long-term incentive plan that permits the issuance of share based compensation, including stock options and non-vested share awards. The long-term incentive plan, which is shareholder approved, permits the grant of additional share based awards for up to 0.4 million shares of common stock as of December 31, 2014. The non-employee director stock purchase plan permits the grant of additional share based payments for up to 0.2 million shares of common stock as of December 31, 2014. Share based awards and payments are measured at fair value at the date of grant and are expensed over the requisite service period. Common shares issued upon exercise of stock options come from currently authorized but unissued shares.

During 2014, pursuant to our long-term incentive plan, we granted 0.1 million shares of restricted stock and 0.03 million performance stock units (“PSUs”) to certain officers.  The shares of restricted stock vest ratably over three years and the PSUs cliff vest after a period of three years.  The performance feature of the PSUs is based on a comparison of our total shareholder return over the three year period starting on the grant date to the total shareholder return over that period for a banking index of our peers.

We issued 0.1 million and 0.2 million restricted stock units to certain of our executive officers during 2013 and 2012, respectively. These restricted stock units do not vest for a minimum of three years. We use the market value of the common stock on the date of grant to measure compensation cost for non-vested share awards.

During 2013 and 2012, pursuant to our performance-based compensation plans, we granted 0.1 million stock options in each period to certain officers. The stock options have an exercise price equal to the market value on the date of grant, vest ratably over a three year period and expire 10 years from date of grant. We use the Black Scholes option pricing model to measure compensation cost for stock options. We also estimate expected forfeitures over the vesting period.

Our directors may elect to receive at least a portion of their quarterly cash retainer fees in the form of common stock (either on a current basis or on a deferred basis) pursuant to the non-employee director stock purchase plan referenced above. Shares equal in value to that portion of each director’s fees that he or she has elected to receive in stock are issued each quarter and vest immediately.  We issued 0.01 million shares, 0.06 million shares and 0.21 million shares to directors during 2014, 2013 and 2012, respectively, and expensed their value during those same periods.

During 2013 and 2012, a portion of our president’s annual salary was paid in the form of common stock.  The annual amount paid in common stock (also referred to as “salary stock”) was $0.020 million and $0.015 million for 2013 and 2012, respectively.  During 2012, pursuant to a management transition plan, $0.2 million of our former chief executive officer’s annual salary was paid in the form of salary stock. These shares were issued each pay period and vested immediately.  No salary stock was paid during 2014.

Total compensation expense recognized for grants pursuant to our long-term incentive plan was $1.0 million, $0.9 million and $0.4 million in 2014, 2013 and 2012, respectively.  The corresponding tax benefit relating to this expense was $0.4 million in 2014 and zero in both 2013 and 2012. Total expense recognized for non-employee director share based payments was $0.2 million, $0.3 million and $0.4 million in 2014, 2013 and 2012, respectively. The corresponding tax benefit relating to this expense was $0.1 million in 2014 and zero in both 2013 and 2012.

At December 31, 2014, the total expected compensation cost related to non-vested stock options, restricted stock, PSUs and restricted stock unit awards not yet recognized was $1.6 million.  The weighted-average period over which this amount will be recognized is 1.7 years.

A summary of outstanding stock option grants and related transactions follows:

						Weighted-
						Average
				Average		Remaining		Aggregated
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
	(In thousands)
Outstanding at January 1, 2014		320,300		$	4.52
Granted		-
Exercised		(32,896	)		2.93
Forfeited		(5,300	)		5.22
Expired		(284	)		3.46
Outstanding at December 31, 2014		281,820		$	4.69		7.10	$	2,431
Vested and expected to vest at December 31, 2014		277,216		$	4.69		7.08	$	2,394
Exercisable at December 31, 2014		198,884		$	4.62		6.68	$	1,752

A summary of outstanding non-vested stock and related transactions follows:

				Weighted-
				Average
	Number			Grant Date
	of Shares			Fair Value
Outstanding at January 1, 2014		303,980		$	3.77
Granted		105,624			13.79
Vested		-
Forfeited		(2,474	)		13.34
Outstanding at December 31, 2014		407,130		$	6.31

A summary of the weighted-average assumptions used in the Black-Scholes option pricing model for grants of stock options follows (no stock options were granted in 2014):

	2013			2012
Expected dividend yield		0.31	%		0.74	%
Risk-free interest rate		1.12			0.88
Expected life (in years)		6.00			6.00
Expected volatility		101.30	%		100.01	%
Per share weighted-average grant date fair value	$	4.98		$	2.04

The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life was obtained using a simplified method that, in general, averaged the vesting term and original contractual term of the stock option. This method was used as relevant historical data of actual exercise activity was very limited. The expected volatility was based on historical volatility of our common stock.

Certain information regarding options exercised during the periods ending December 31 follows:

	2014		2013		2012
	(In thousands)
Intrinsic value	$	321	$	117	$	3
Cash proceeds received	$	96	$	39	$	4
Tax benefit realized	$	112	$	-	$	-

We maintain 401(k) and employee stock ownership plans covering substantially all of our full-time employees. We have historically matched employee contributions to the 401(k) plan up to a maximum of 3% of participating employees’ eligible wages. The match of employee contributions was 2% in 2014, 1% in 2013 and zero in 2012. Contributions to the employee stock ownership plan are determined annually and require approval of our Board of Directors. The maximum contribution is 6% of employees’ eligible wages. Contributions to the employee stock ownership plan were 2% for 2014 and 3% for 2013 and 2012. Amounts expensed for these retirement plans were $1.0 million, $1.2 million, and $1.0 million in 2014, 2013 and 2012, respectively.

Our officers participate in various performance-based compensation plans. Amounts expensed for all incentive plans totaled $4.2 million, $5.0 million and $4.0 million, in 2014, 2013 and 2012, respectively.

We also provide certain health care and life insurance programs to substantially all full-time employees. Amounts expensed for these programs totaled $3.9 million, $3.8 million and $4.9 million in 2014, 2013 and 2012 respectively. These insurance programs are also available to retired employees at their own expense.

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SECURITIES (Tables)

12 Months Ended

Dec. 31, 2014

SECURITIES [Abstract]

Securities available for sale

Securities available for sale consist of the following at December 31:

	Amortized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
2014
U.S. agency	$	34,936	$	133	$	63	$	35,006
U.S. agency residential mortgage-backed		256,387		1,838		667		257,558
U.S. agency commercial mortgage-backed		33,779		68		119		33,728
Private label residential mortgage-backed		6,216		187		390		6,013
Other asset backed		32,314		77		38		32,353
Obligations of states and political subdivisions		143,698		961		1,244		143,415
Corporate		22,690		53		79		22,664
Trust preferred		2,910		-		469		2,441
Total	$	532,930	$	3,317	$	3,069	$	533,178
2013
U.S. agency	$	32,106	$	44	$	342	$	31,808
U.S. agency residential mortgage-backed		202,649		1,343		532		203,460
Private label residential mortgage-backed		7,294		112		618		6,788
Other asset backed		45,369		10		194		45,185
Obligations of states and political subdivisions		157,966		496		4,784		153,678
Corporate		19,120		43		26		19,137
Trust preferred		2,902		-		477		2,425
Total	$	467,406	$	2,048	$	6,973	$	462,481

Investments in a continuous unrealized loss position

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position, at December 31 follows:

	Less Than Twelve Months				Twelve Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(In thousands)
2014
U.S. agency	$	12,851	$	58	$	606	$	5	$	13,457	$	63
U.S. agency residential mortgage-backed		89,547		531		15,793		136		105,340		667
U.S. agency commercial mortgage-backed		21,325		119		-		-		21,325		119
Private label residential mortgage-backed		208		1		4,013		389		4,221		390
Other asset backed		2,960		15		8,729		23		11,689		38
Obligations of states and political subdivisions		28,114		106		37,540		1,138		65,654		1,244
Corporate		8,660		79		-		-		8,660		79
Trust preferred		-		-		2,441		469		2,441		469
Total	$	163,665	$	909	$	69,122	$	2,160	$	232,787	$	3,069
2013
U.S. agency	$	16,715	$	342	$	-	$	-	$	16,715	$	342
U.S. agency residential mortgage-backed		78,256		532		-		-		78,256		532
Private label residential mortgage-backed		407		6		4,602		612		5,009		618
Other asset backed		33,862		194		-		-		33,862		194
Obligations of states and		103,942		4,645		4,805		139		108,747		4,784
Corporate		7,105		26		-		-		7,105		26
Trust preferred		-		-		2,425		477		2,425		477
Total	$	240,287	$	5,745	$	11,832	$	1,228	$	252,119	$	6,973

Trust preferred securities

The following table breaks out our trust preferred securities in further detail as of December 31:

	2014					2013
			Net					Net
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,643	$	(267	)	$	1,600	$	(302	)
Unrated issues		798		(202	)		825		(175	)

Private label residential mortgage backed securities below investment grade

At December 31, 2014, three private label residential mortgage-backed securities had credit related OTTI and are summarized as follows:

			Super		Senior
	Senior		Senior		Support
	Security		Security		Security		Total
	(In thousands)
As of December 31, 2014
Fair value	$	2,164	$	1,566	$	97	$	3,827
Amortized cost		2,207		1,476		-		3,683
Non-credit unrealized loss		43		-		-		43
Unrealized gain		-		90		97		187
Cumulative credit related OTTI		757		457		380		1,594
Credit related OTTI recognized in our Consolidated Statements of Operations
For the years ended December 31,
2014	$	9	$	-	$	-	$	9
2013		26		-		-		26
2012		247		32		60		339

Credit losses recognized in earnings on securities available for sale

A roll forward of credit losses recognized in earnings on securities available for sale for the years ending December 31 follow:

	2014		2013		2012
	(In thousands)
Balance at beginning of year	$	1,835	$	1,809	$	1,470
Additions to credit losses on securities for which no previous OTTI was recognized		-		-		-
Increases to credit losses on securities for which OTTI was previously recognized		9		26		339
Total	$	1,844	$	1,835	$	1,809

Amortized cost and fair value of securities available for sale by contractual maturity

The amortized cost and fair value of securities available for sale at December 31, 2014, by contractual maturity, follow:

	Amortized		Fair
	Cost		Value
	(In thousands)
Maturing within one year	$	25,427	$	25,479
Maturing after one year but within five years		66,532		66,666
Maturing after five years but within ten years		41,651		41,780
Maturing after ten years		70,624		69,601
		204,234		203,526
U.S. agency residential mortgage-backed		256,387		257,558
U.S. agency commercial mortgage-backed		33,779		33,728
Private label residential mortgage-backed		6,216		6,013
Other asset backed		32,314		32,353
Total	$	532,930	$	533,178

Gains and losses realized on sale of securities available for sale

A summary of proceeds from the sale of securities available for sale and gains and losses for the years ended December 31 follow:

			Realized
	Proceeds		Gains(1)		Losses(2)
	(In thousands)
2014	$	14,633	$	329	$	-
2013		2,940		15		8
2012		37,176		1,193		-

(1) Gains in 2014 exclude $0.3 million of realized gain related to a U.S. Treasury short position.

(2) Losses in 2014, 2013 and 2012 exclude $0.01 million, $0.03 million and $0.3 million, respectively of credit related OTTI recognized in earnings.

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DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2014

DERIVATIVE FINANCIAL INSTRUMENTS [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 16 – DERIVATIVE FINANCIAL INSTRUMENTS

We are required to record derivatives on our Consolidated Statements of Financial Condition as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

Our derivative financial instruments according to the type of hedge in which they are designated at December 31 follow:

	2014
			Average
	Notional		Maturity		Fair
	Amount		(years)		Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	16,759		0.1	$	437
Mandatory commitments to sell mortgage loans		38,600		0.1		(184	)
Pay-fixed interest rate swap agreements		3,300		9.4		(182	)
Pay-variable interest rate swap agreements		3,300		9.4		182
Total	$	61,959		1.1	$	253
		2013
			Average
	Notional		Maturity		Fair
	Amount		(years)		Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	15,754		0.1	$	366
Mandatory commitments to sell mortgage loans		35,412		0.1		128
Total	$	51,166		0.1	$	494

We have established management objectives and strategies that include interest-rate risk parameters for maximum fluctuations in net interest income and market value of portfolio equity. We monitor our interest rate risk position via simulation modeling reports. The goal of our asset/liability management efforts is to maintain profitable financial leverage within established risk parameters.

To meet our asset/liability management objectives, we may periodically enter into derivative financial instruments to mitigate exposure to fluctuations in cash flows resulting from changes in interest rates (“Cash Flow Hedges”).  Cash Flow Hedges during 2013 and 2012 included certain pay-fixed interest rate swaps which converted the variable-rate cash flows on debt obligations to fixed-rates.  During the second quarter of 2013 we terminated our last Cash Flow Hedge pay-fixed interest rate swap and paid a termination fee of $0.6 million. The remaining unrealized loss on the terminated pay-fixed interest rate swap which was equal to this termination fee is included in accumulated other comprehensive income and is being amortized into earnings over the remaining original life of the pay-fixed interest rate swap.

Through certain special purposes entities (see note #10) we issued trust preferred securities as part of our capital management strategy. Certain of these trust preferred securities are variable rate which exposes us to variability in cash flows. To mitigate our exposure to fluctuations in cash flows resulting from changes in interest rates, on approximately $20.0 million of variable rate trust preferred securities, we entered into a pay-fixed interest rate swap agreement in September, 2007. During the fourth quarter of 2009, we elected to defer payment of interest on these variable rate trust preferred securities. As a result, this pay-fixed interest rate swap was transferred to a no hedge designation and the $1.6 million unrealized loss, which was included as a component of accumulated other comprehensive loss at the time of the transfer, was reclassified into earnings through September 2012, which was the remaining life of this pay-fixed interest rate swap.

Certain derivative financial instruments have not been designated as hedges. The fair value of these derivative financial instruments has been recorded on our Consolidated Statements of Financial Condition and is adjusted on an ongoing basis to reflect their then current fair value. The changes in fair value of derivative financial instruments not designated as hedges are recognized in earnings.

In the ordinary course of business, we enter into rate-lock mortgage loan commitments with customers (“Rate-Lock Commitments”).  These commitments expose us to interest rate risk.  We also enter into mandatory commitments to sell mortgage loans (“Mandatory Commitments”) to reduce the impact of price fluctuations of mortgage loans held for sale and Rate-Lock Commitments.  Mandatory Commitments help protect our loan sale profit margin from fluctuations in interest rates. The changes in the fair value of Rate Lock Commitments and Mandatory Commitments are recognized currently as part of net gains on mortgage loans.  We obtain market prices on Mandatory Commitments and Rate-Lock Commitments.  Net gains on mortgage loans, as well as net income, may be more volatile as a result of these derivative instruments, which are not designated as hedges.

During 2014, we began a program that allows commercial loan customers to lock in a fixed rate for a longer period of time than we would normally offer for interest rate risk reasons.  We will enter into a variable rate commercial loan and an interest rate swap agreement with a customer and then enter into an offsetting interest rate swap agreement with an unrelated party.  The interest rate swap agreement fair values will generally move in opposite directions resulting in little or no net impact on our Consolidated Statements of Operations.  All of the interest rate swap agreements in the table above relate to this program.

During the second quarter of 2014, we completed a securities trade in which we shorted a $13 million UST security.  This UST short was terminated during the fourth quarter of 2014 and the change in the fair value of the short position from the inception date to the termination date has been recorded in gain on securities in our Consolidated Statements of Operations.

During 2010, we entered into an amended and restated warrant with the UST that would allow them to purchase our common stock at a fixed price (see Note #12). Because of certain anti-dilution features included in the Amended Warrant, it was not considered to have been indexed to our common stock and was therefore accounted for as a derivative instrument and recorded as a liability. Any change in value of the Amended Warrant while it was accounted for as a derivative was recorded in other income in our Consolidated Statements of Operations.  However, the anti-dilution features in the Amended Warrant which caused it to be accounted for as a derivative and included in accrued expenses and other liabilities expired on April 16, 2013.  As a result, the Amended Warrant was reclassified into shareholders’ equity on that date at its then fair value which totaled $1.5 million.  During the third quarter of 2013, we repurchased the Amended Warrant from the UST (see Note #12).

The following tables illustrate the impact that the derivative financial instruments discussed above have on individual line items in the Consolidated Statements of Financial Condition for the periods presented:

Fair Values of Derivative Instruments

	Asset Derivatives								Liability Derivatives
	December 31,								December 31,
	2014				2013				2014				2013
	Balance				Balance				Balance				Balance
	Sheet	Fair			Sheet	Fair			Sheet	Fair			Sheet	Fair
	Location	Value			Location	Value			Location	Value			Location	Value
	(In thousands)
Derivatives not designated as hedging instruments
Rate-lock mortgage loan commitments	Other assets		$	437	Other assets		$	366	Other liabilities		$	-	Other liabilities		$	-
Mandatory commitments to sell mortgage loans	Other assets			-	Other assets			128	Other liabilities			184	Other liabilities			-
Pay-fixed interest rate swap agreements	Other assets			-	Other assets			-	Other liabilities			182	Other liabilities			-
Pay-variable interest rate swap agreements	Other assets			182	Other assets			-	Other liabilities			-	Other liabilities			-
Total derivatives			$	619			$	494			$	366			$	-

The effect of derivative financial instruments on the Consolidated Statements of Operations follows:

Year Ended December 31,
												Location of
												Gain (Loss)
												Reclassified
												from
	Gain (Loss)											Accumulated	Gain (Loss)
	Recognized in											Other	Reclassified from
	Other											Comprehensive	Accumulated Other
	Comprehensive											Income (Loss)	Comprehensive												Location of	Gain (Loss)
	Income (Loss)											into Income	Loss into Income												Gain (Loss)	Recognized
	(Effective Portion)											(Effective	(Effective Portion)												Recognized	in Income(1)
	2014			2013				2012				Portion)	2014				2013				2012				in Income(1)	2014				2013				2012
	(In thousands)
Cash Flow Hedges
Pay-fixed interest rate swap agreements		$	-		$	(37	)		$	(127	)	Interest expense		$	(380	)		$	(397	)		$	(927	)	Interest expense		$	-			$	-			$	-
Total		$	-		$	(37	)		$	(127	)			$	(380	)		$	(397	)		$	(927	)			$	-			$	-			$	-
No hedge designation
Rate-lock mortgage loan commitments																									Mortgage loan gains		$	71			$	(1,002	)		$	511
Mandatory commitments to sell mortgage loans																									Mortgage loan gains			(312	)			250				484
Pay-fixed interest rate swap agreements																									Interest income			(182	)			-				-
Pay-variable interest rate swap agreements																									Interest income			182				-				-
UST short position																									Gain on securities			295				-				-
Amended Warrant																									Decrease in fair value of U.S. Treasury warrant			-				(1,025	)			(285	)
Total																											$	54			$	(1,777	)		$	710

_________________

(1)For cash flow hedges, this location and amount refers to the ineffective portion.

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OTHER REAL ESTATE OWNED (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
OTHER REAL ESTATE OWNED [Abstract]
Foreclosed on certain loans secured by real estate and transferred to other real estate	$ 6,143,000	$ 6,932,000	$ 14,276,000
Other real estate with book balances	17,200,000	12,000,000
Real Estate Owned Valuation Allowance [Roll Forward]
Balance at beginning of year	4,047,000	5,958,000	14,655,000
Additions charged to expense	663,000	2,598,000	3,769,000
Direct write-downs upon sale	(2,199,000)	(4,509,000)	(12,466,000)
Balance at end of year	2,511,000	4,047,000	5,958,000
Other real estate and repossessed assets	$ 6,454,000	$ 18,282,000

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Cash dividends
Preferred stock stated dividend rate (in hundredths)		5.00%	5.00%
Cash dividends declared (per share)	$ 0.18	$ 0	$ 0
Issuance of shares of common stock (in shares)	30,828	13,604,963	454,842
Share based compensation, common stock (in shares)	107,359	175,789	147,364
Share based compensation withholding obligation, common stock (in shares)		55,348

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Shareholders' Equity
Convertible preferred stock, par value (in dollars per share)	$ 0	$ 0
Convertible preferred stock, shares authorized (in shares)	200,000	200,000
Convertible preferred stock, shares issued (in shares)	0	0
Convertible preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	22,957,323	22,819,136
Common stock, shares outstanding (in shares)	22,957,323	22,819,136

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OTHER BORROWINGS

12 Months Ended

Dec. 31, 2014

OTHER BORROWINGS [Abstract]

OTHER BORROWINGS

NOTE 9 – OTHER BORROWINGS

A summary of other borrowings at December 31 follows:

	2014		2013
	(In thousands)
Advances from the FHLB	$	12,464	$	17,181
Other		6		7
Total	$	12,470	$	17,188

Advances from the FHLB are secured by unencumbered qualifying mortgage and home equity loans with a market value equal to at least 135% to 159%, respectively, of outstanding advances. Advances are also secured by FHLB stock that we own, which totaled $12.3 million at December 31, 2014. Unused borrowing capacity with the FHLB (subject to the FHLB’s credit requirements and policies) was $170.4 million at December 31, 2014. Interest expense on advances amounted to $0.9 million, $1.1 million and $1.2 million for the years ended December 31, 2014, 2013 and 2012, respectively. During 2012, FHLB advances totaling $3.0 million were terminated with no realized gain or loss.  No FHLB advances were terminated during 2014 or 2013.

As a member of the FHLB, we must own FHLB stock equal to the greater of 1.0% of the unpaid principal balance of residential mortgage loans or 5.0% of our outstanding advances. At December 31, 2014, we were in compliance with the FHLB stock ownership requirements.

The maturity dates and weighted average interest rates of FHLB advances at December 31 follow:

	2014					2013
	Amount		Rate			Amount		Rate
	(Dollars in thousands)
Fixed-rate advances
2014						$	4,240		5.73	%
2016	$	2,205		6.55	%		2,313		6.55
2017		1,320		7.04			1,377		7.04
2018		5,671		5.99			5,888		5.99
2019		-					-
2020 and thereafter		3,268		7.49			3,363		7.49
Total advances	$	12,464		6.59	%	$	17,181		6.38	%

A summary of repayments of FHLB Advances at December 31, 2014, follows:

	(In thousands)
2015	$	515
2016		2,521
2017		1,587
2018		5,042
2019		143
2020 and thereafter		2,656
Total	$	12,464

We had no borrowings outstanding with the FRB during the years ended or at December 31, 2014, 2013 or 2012. We had unused borrowing capacity with the FRB (subject to the FRB’s credit requirements and policies) of $320.0 million at December 31, 2014. Collateral for FRB borrowings are certain commercial loans.

Assets, consisting of FHLB stock and loans, pledged to secure other borrowings and unused borrowing capacity totaled $753.4 million at December 31, 2014.

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BRANCH SALE (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Branch Location [Line Items]
Deposit premium payment			$ 11,500,000
Fair value of fixed assets expected to be sold			48,000,000
Discount percentage of branches being sold (in hundredths)			1.75%
Cost of fixed assets expected to be sold, net of accumulated depreciation			8,100,000
Amount of remaining unamortized intangible assets			336,100,000
Net gain on branch sale	0	0	5,402,000
Existing core deposit intangibles allocation related to Branch sale			2,600,000
Loss on sale of fixed assets allocation related to Branch sale			2,500,000
Loss on the sale of loans allocation related to Branch sale			200,000
Transaction related costs allocation related to Branch sale			800,000
Midland, Michigan [Member]
Branch Location [Line Items]
Number of branches to be sold			21
Deposits			$ 403,100,000
Battle Creek, Michigan market area [Member]
Branch Location [Line Items]
Number of branches to be sold			6
Northeast Michigan [Member]
Branch Location [Line Items]
Number of branches to be sold			15

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period			$ (8,058)	[1]	$ (11,921)	[1]
Accumulated other comprehensive income (loss), tax effect at beginning of period			0	[1]
Accumulated other comprehensive income (loss) at beginning period	(9,245)	[1]	(8,058)	[1]
Terminated cash flow hedge			0	[1]
Other comprehensive income (loss) before reclassifications	3,570	[1]	(2,901)	[1]	3,790	[1]
Amounts reclassified from AOCL	39	[1]	1,714	[1]	73	[1]
Net current period other comprehensive income (loss)	3,609	[1]	(1,187)	[1]	3,863	[1]
Accumulated other comprehensive income (loss) before tax at end of period					(8,058)	[1]
Accumulated other comprehensive income (loss) at end of period	(5,636)	[1]	(9,245)	[1]	(8,058)	[1]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net impairment loss recognized in earnings	9		26		339
Interest expense	(7,299)		(9,162)		(13,143)
Total reclassifications before tax	25,216		22,658		26,198
Tax expense (benefit)	7,195		(54,851)		0
Total reclassifications for the period, net of tax	18,021		77,509		26,198
Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications for the period, net of tax	(39)		(1,714)		(73)
Unrealized Losses on Available For Sale Securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period			(516)	[1]	(3,579)	[1]
Accumulated other comprehensive income (loss), tax effect at beginning of period			181	[1]
Accumulated other comprehensive income (loss) at beginning period	(3,200)	[1]	(335)	[1]
Terminated cash flow hedge			0	[1]
Other comprehensive income (loss) before reclassifications	3,570	[1]	(2,877)	[1]	3,917	[1]
Amounts reclassified from AOCL	(208)	[1]	12	[1]	(854)	[1]
Net current period other comprehensive income (loss)	3,362	[1]	(2,865)	[1]	3,063	[1]
Accumulated other comprehensive income (loss) before tax at end of period					(516)	[1]
Accumulated other comprehensive income (loss) at end of period	162	[1]	(3,200)	[1]	(335)	[1]
Unrealized Losses on Available For Sale Securities [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net gains on securities	329		7		1,193
Net impairment loss recognized in earnings	(9)		(26)		(339)
Total reclassifications before tax	320		(19)		854
Tax expense (benefit)	112		(7)		0
Total reclassifications for the period, net of tax	208		(12)		854
Disproportionate Tax Effects from Securities Available for Sale [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period			(5,617)	[1]	(5,617)	[1]
Accumulated other comprehensive income (loss), tax effect at beginning of period			(181)	[1]
Accumulated other comprehensive income (loss) at beginning period	(5,798)	[1]	(5,798)	[1]
Terminated cash flow hedge			0	[1]
Other comprehensive income (loss) before reclassifications	0	[1]	0	[1]	0	[1]
Amounts reclassified from AOCL	0	[1]	0	[1]	0	[1]
Net current period other comprehensive income (loss)	0	[1]	0	[1]	0	[1]
Accumulated other comprehensive income (loss) before tax at end of period					(5,617)	[1]
Accumulated other comprehensive income (loss) at end of period	(5,798)	[1]	(5,798)	[1]	(5,798)	[1]
Unrealized Losses on Cash Flow Hedges [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period			(739)	[1]	(1,103)	[1]
Accumulated other comprehensive income (loss), tax effect at beginning of period			258	[1]
Accumulated other comprehensive income (loss) at beginning period	0	[1]	(481)	[1]
Terminated cash flow hedge			370	[1]
Other comprehensive income (loss) before reclassifications	0	[1]	(24)	[1]	(127)	[1]
Amounts reclassified from AOCL	0	[1]	135	[1]	491	[1]
Net current period other comprehensive income (loss)	0	[1]	111	[1]	364	[1]
Accumulated other comprehensive income (loss) before tax at end of period					(739)	[1]
Accumulated other comprehensive income (loss) at end of period	0	[1]	0	[1]	(481)	[1]
Unrealized Losses on Cash Flow Hedges [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Interest expense			(208)		(491)
Tax expense (benefit)			(73)		0
Total reclassifications for the period, net of tax			(135)		(491)
Unrealized Losses on Settled Derivatives [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period			0	[1]	(436)	[1]
Accumulated other comprehensive income (loss), tax effect at beginning of period			0	[1]
Accumulated other comprehensive income (loss) at beginning period	(247)	[1]	0	[1]
Terminated cash flow hedge			(370)	[1]
Other comprehensive income (loss) before reclassifications	0	[1]	0	[1]	0	[1]
Amounts reclassified from AOCL	247	[1]	123	[1]	436	[1]
Net current period other comprehensive income (loss)	247	[1]	123	[1]	436	[1]
Accumulated other comprehensive income (loss) before tax at end of period					0	[1]
Accumulated other comprehensive income (loss) at end of period	0	[1]	(247)	[1]	0	[1]
Unrealized Losses on Settled Derivatives [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Interest expense	(380)		(189)		(436)
Tax expense (benefit)	(133)		(66)		0
Total reclassifications for the period, net of tax	(247)		(123)		(436)
Disproportionate Tax Effects from Cash Flow Hedges [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period			(1,186)	[1]	(1,186)	[1]
Accumulated other comprehensive income (loss), tax effect at beginning of period			(258)	[1]
Accumulated other comprehensive income (loss) at beginning period	0	[1]	(1,444)	[1]
Terminated cash flow hedge			0	[1]
Other comprehensive income (loss) before reclassifications	0	[1]	0	[1]	0	[1]
Amounts reclassified from AOCL	0	[1]	1,444	[1]	0	[1]
Net current period other comprehensive income (loss)	0	[1]	1,444	[1]	0	[1]
Accumulated other comprehensive income (loss) before tax at end of period					(1,186)	[1]
Accumulated other comprehensive income (loss) at end of period	0	[1]	0	[1]	(1,444)	[1]
Disproportionate Tax Effects from Cash Flow Hedges [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Tax expense (benefit)			$ 1,444

[1] 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Mar. 05, 2015	Jun. 30, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	INDEPENDENT BANK CORP /MI/
Entity Central Index Key	0000039311
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 288,335,749
Entity Common Stock, Shares Outstanding		23,001,804
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2014

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SUBORDINATED DEBENTURES

12 Months Ended

Dec. 31, 2014

SUBORDINATED DEBENTURES [Abstract]

SUBORDINATED DEBENTURES

NOTE 10 – SUBORDINATED DEBENTURES

We have formed various special purpose entities (the “trusts”) for the purpose of issuing trust preferred securities in either public or pooled offerings or in private placements. Independent Bank Corporation owns all of the common stock of each trust and has issued subordinated debentures to each trust in exchange for all of the proceeds from the issuance of the common stock and the trust preferred securities. Trust preferred securities totaling $34.5 million and $39.5 million at December 31, 2014 and 2013, respectively, qualified as Tier 1 regulatory capital.

These trusts are not consolidated with Independent Bank Corporation and accordingly, we report the common securities of the trusts held by us in accrued income and other assets and the subordinated debentures that we have issued to the trusts in the liability section of our Consolidated Statements of Financial Condition.

Summary information regarding subordinated debentures as of December 31 follows:

		2014
				Trust
				Preferred		Common
	Issue	Subordinated		Securities		Stock
Entity Name	Date	Debentures		Issued		Issued
		(In thousands)
IBC Capital Finance III	May 2007	$	12,372	$	12,000	$	372
IBC Capital Finance IV	September 2007		15,465		15,000		465
Midwest Guaranty Trust I	November 2002		7,732		7,500		232
		$	35,569	$	34,500	$	1,069

		2013
				Trust
				Preferred		Common
	Issue	Subordinated		Securities		Stock
Entity Name	Date	Debentures		Issued		Issued
		(In thousands)
IBC Capital Finance III	May 2007	$	12,372	$	12,000	$	372
IBC Capital Finance IV	September 2007		20,619		20,000		619
Midwest Guaranty Trust I	November 2002		7,732		7,500		232
		$	40,723	$	39,500	$	1,223

Other key terms for the subordinated debentures and trust preferred securities that were outstanding at December 31, 2014 follow:

	Maturity		First Permitted
Entity Name	Date	Interest Rate	Redemption Date
IBC Capital Finance III	July 30, 2037	3 month LIBOR plus 1.60%	July 30, 2012
IBC Capital Finance IV	September 15, 2037	3 month LIBOR plus 2.85%	September 15, 2012
Midwest Guaranty Trust I	November 7, 2032	3 month LIBOR plus 3.45%	November 7, 2007

In the fourth quarter of 2009, we elected to defer distributions (payment of interest) on each of the subordinated debentures and trust preferred securities. The subordinated debentures and trust preferred securities are cumulative and have a feature that permits us to defer distributions (payment of interest) from time to time for a period not to exceed 20 consecutive quarters. On August 29, 2013, we brought current the interest payments that we had previously been deferring on each of the subordinated debentures which permitted the resumption of interest payments on the trust preferred securities.

We have the right to redeem the subordinated debentures and trust preferred securities (at par) in whole or in part from time to time on or after the first permitted redemption date specified above or upon the occurrence of specific events defined within the trust indenture agreements. During 2014, we redeemed trust preferred securities issued by IBC Capital Finance IV with a par value of $5.0 million.  These trust preferred securities were redeemed at a discount of $0.5 million and we recognized a gain on extinguishment of debt in our Consolidated Statements of Operations for this same amount.  During 2013, we redeemed, at par, trust preferred securities issued by IBC Capital Finance II with a par value of $9.2 million.

Issuance costs have been capitalized and are being amortized on a straight- line basis over a period not exceeding 30 years and are included in interest expense in the Consolidated Statements of Operations. Distributions (payment of interest) on the trust preferred securities are also included in interest expense in the Consolidated Statements of Operations.

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DERIVATIVE FINANCIAL INSTRUMENTS, Effect on Statement of Operations (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Cash Flow Hedge [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Other Comprehensive Income (Loss) (Effective Portion)	$ 0		$ (37)		$ (127)
Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	(380)		(397)		(927)
Gain (Loss) Recognized in Income	0	[1]	0	[1]	0	[1]
Cash Flow Hedge [Member] | Fixed Income Interest Rate [Member] | Interest Rate Swap [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Other Comprehensive Income (Loss) (Effective Portion)	0		(37)		(127)
Cash Flow Hedge [Member] | Fixed Income Interest Rate [Member] | Interest Rate Swap [Member] | Interest Expense [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	(380)		(397)		(927)
Gain (Loss) Recognized in Income	0	[1]	0	[1]	0	[1]
No Hedge Designation [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	54	[1]	(1,777)	[1]	710	[1]
No Hedge Designation [Member] | Rate-Lock Mortgage Loan Commitments [Member] | Mortgage Loan Gains [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	71	[1]	(1,002)	[1]	511	[1]
No Hedge Designation [Member] | Mandatory Commitments to Sell Mortgage Loans [Member] | Mortgage Loan Gains [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	(312)	[1]	250	[1]	484	[1]
No Hedge Designation [Member] | U.S. Treasury short position [Member] | Gain on securities [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	295	[1]	0	[1]	0	[1]
No Hedge Designation [Member] | Amended Warrant [Member] | Decrease in Fair Value of U.S. Treasury Warrants [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	0	[1]	(1,025)	[1]	(285)	[1]
No Hedge Designation [Member] | Fixed Income Interest Rate [Member] | Interest Rate Swap [Member] | Interest Income [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	(182)	[1]	0	[1]	0	[1]
No Hedge Designation [Member] | Variable Income Interest Rate [Member] | Interest Rate Swap [Member] | Interest Income [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	$ 182	[1]	$ 0	[1]	$ 0	[1]

[1] For cash flow hedges, this location and amount refers to the ineffective portion.

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OPERATING SEGMENTS (Details) (USD $)	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2014 Segment		Dec. 31, 2013		Dec. 31, 2012
OPERATING SEGMENTS [Abstract]
Number of reportable segments		2
Selected financial information for reportable segments [Abstract]
Total assets		$ 2,248,730,000		$ 2,209,943,000		$ 2,023,867,000
Interest income		80,555,000		87,121,000		99,398,000
Net interest income		73,256,000		77,959,000		86,255,000
Provision for loan losses		(3,136,000)		(3,988,000)		6,887,000
Income (loss) before income tax		25,216,000		22,658,000		26,198,000
Net income (loss)		18,021,000		77,509,000		26,198,000
Reversal of valuation allowance on net deferred tax assets	57,600,000
IB [Member]
Selected financial information for reportable segments [Abstract]
Reversal of valuation allowance on net deferred tax assets				47,100,000
Other [Member]
Selected financial information for reportable segments [Abstract]
Total assets		286,158,000	[1],[2]	272,348,000	[1],[2]	192,343,000	[1],[2]
Interest income		64,000	[1],[2]	0	[1],[2]	0	[1],[2]
Net interest income		(1,398,000)	[1],[2]	(2,317,000)	[1],[2]	(2,779,000)	[1],[2]
Provision for loan losses		0	[1],[2]	0	[1],[2]	0	[1],[2]
Income (loss) before income tax		(1,095,000)	[1],[2]	(3,961,000)	[1],[2]	(3,677,000)	[1],[2]
Net income (loss)		(712,000)	[1],[2]	5,092,000	[1],[2]	(3,677,000)	[1],[2]
Reversal of valuation allowance on net deferred tax assets				9,000,000
Reportable Segments [Member] | IB [Member]
Selected financial information for reportable segments [Abstract]
Total assets		2,174,536,000		2,104,550,000		1,885,807,000
Interest income		73,551,000		76,018,000		84,760,000
Net interest income		68,948,000		71,496,000		77,919,000
Provision for loan losses		(3,098,000)		(3,891,000)		6,895,000
Income (loss) before income tax		25,845,000		29,605,000		27,379,000
Net income (loss)		18,550,000		74,313,000		28,260,000
Reportable Segments [Member] | Mepco [Member]
Selected financial information for reportable segments [Abstract]
Total assets		63,378,000		94,648,000		135,447,000
Interest income		7,004,000		11,103,000		14,638,000
Net interest income		5,706,000		8,780,000		11,115,000
Provision for loan losses		(38,000)		(97,000)		(8,000)
Income (loss) before income tax		561,000		(2,891,000)		2,591,000
Net income (loss)		366,000		(1,801,000)		1,710,000
Elimination [Member]
Selected financial information for reportable segments [Abstract]
Total assets		(275,342,000)	[3]	(261,603,000)	[3]	(189,730,000)	[3]
Interest income		(64,000)	[3]	0	[3]	0	[3]
Net interest income		0	[3]	0	[3]	0	[3]
Provision for loan losses		0	[3]	0	[3]	0	[3]
Income (loss) before income tax		(95,000)	[3]	(95,000)	[3]	(95,000)	[3]
Net income (loss)		$ (183,000)	[3]	$ (95,000)	[3]	$ (95,000)	[3]

[1] During 2013 IB and Other (parent company) include $47.1 million and $9.0 million, respectively of income tax benefit related to the reversal of the valuation allowance on our net deferred tax assets (see note #13).

[2] Includes amounts relating to our parent company and certain insignificant operations.

[3] Includes parent company's investment in subsidiaries and cash balances maintained at subsidiary.

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
INTEREST INCOME
Interest and fees on loans	$ 71,823		$ 80,664		$ 93,780
Interest on securities
Taxable	6,341		4,059		2,934
Tax-exempt	991		1,101		1,044
Other investments	1,400		1,297		1,640
Total Interest Income	80,555		87,121		99,398
INTEREST EXPENSE
Deposits	4,967		5,706		8,913
Other borrowings	2,332		3,456		4,230
Total Interest Expense	7,299		9,162		13,143
Net Interest Income	73,256		77,959		86,255
Provision for loan losses	(3,136)		(3,988)		6,887
Net Interest Income After Provision for Loan Losses	76,392		81,947		79,368
NON-INTEREST INCOME
Service charges on deposit accounts	13,446		14,076		17,887
Interchange income	8,164		7,362		9,188
Net gains (losses) on assets
Mortgage loans	5,628		10,022		17,323
Securities	329		395		1,226
Other than temporary impairment loss on securities
Total impairment loss	(9)		(26)		(339)
Loss recognized in other comprehensive income (loss)	0		0		0
Net impairment loss recognized in earnings	(9)		(26)		(339)
Mortgage loan servicing	791		3,806		166
Title insurance fees	995		1,682		1,963
Gain on extinguishment of debt	500		0		0
Increase in fair value of U.S. Treasury warrant	0		(1,025)		(285)
Net gain on branch sale	0		0		5,402
Other	8,931		8,537		11,034
Total Non-interest Income	38,775		44,829		63,565
NON-INTEREST EXPENSE
Compensation and employee benefits	47,221		47,924		53,983
Occupancy, net	8,912		8,845		10,104
Data processing	7,532		8,019		8,009
Loan and collection	5,392		6,886		9,965
Furniture, fixtures and equipment	4,137		4,293		4,635
Communications	2,926		2,919		3,677
Advertising	2,193		2,433		2,494
Legal and professional	1,969		2,459		4,175
FDIC deposit insurance	1,567		2,435		3,306
Interchange expense	1,291		1,645		1,799
Credit card and bank service fees	946		1,263		2,091
Vehicle service contract counterparty contingencies	199		4,837		1,629
Costs (recoveries) related to unfunded lending commitments	31		(90)		(688)
Write-down of property and equipment held for sale	0		0		860
Provision for loss reimbursement on sold loans	(466)		2,152		1,112
Net (gains) losses on other real estate and repossessed assets	(500)		1,237		2,854
Other	6,601		6,861		6,730
Total Non-interest Expense	89,951		104,118		116,735
Income Before Income Tax	25,216		22,658		26,198
Income tax expense (benefit)	7,195		(54,851)		0
Net Income	18,021		77,509		26,198
Preferred stock dividends and discount accretion	0		(3,001)		(4,347)
Preferred stock discount	0		7,554		0
Net Income Applicable to Common Stock	$ 18,021		$ 82,062		$ 21,851
Net income per common share
Basic (in dollars per share)	$ 0.79	[1]	$ 5.87	[1]	$ 2.51	[1]
Diluted (in dollars per share)	$ 0.77		$ 3.55		$ 0.80
Cash dividends declared per common share (in dollars per share)	$ 0.18		$ 0		$ 0

[1] Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

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LOANS AND PAYMENT PLAN RECEIVABLES

12 Months Ended

Dec. 31, 2014

LOANS AND PAYMENT PLAN RECEIVABLES [Abstract]

LOANS AND PAYMENT PLAN RECEIVABLES

NOTE 4 – LOANS AND PAYMENT PLAN RECEIVABLES

Our loan portfolios at December 31 follow:
	2014		2013
	(In thousands)
Real estate(1)
Residential first mortgages	$	411,423	$	431,812
Residential home equity and other junior mortgages		108,162		113,703
Construction and land development		54,644		50,290
Other(2)		447,837		440,348
Commercial		186,875		146,954
Consumer		154,591		126,443
Payment plan receivables		40,001		60,638
Agricultural		6,429		4,382
Total loans	$	1,409,962	$	1,374,570

(1) Includes both residential and non-residential commercial loans secured by real estate.

(2) Includes loans secured by multi-family residential and non-farm, non-residential property.

Loans include net deferred loan costs of $1.0 million and $0.2 million at December 31, 2014 and 2013, respectively. Payment plan receivables totaling $42.6 million and $64.7 million at December 31, 2014 and 2013, respectively, are presented net of unamortized discount of $2.6 million and $4.1 million at December 31, 2014 and 2013, respectively. These payment plan receivables had effective yields of 14% and 15% at December 31, 2014 and 2013, respectively. These receivables have various due dates through December 2016.

An analysis of the allowance for loan losses by portfolio segment for the years ended December 31 follows:

										Payment
										Plan
	Commercial			Mortgage			Installment			Receivables			Unallocated			Total
	(In thousands)
2014
Balance at beginning of period	$	6,827		$	17,195		$	2,246		$	97		$	5,960		$	32,325
Additions (deductions)
Provision for loan losses		(1,683	)		(1,029	)		349			(36	)		(737	)		(3,136	)
Recoveries credited to allowance		4,914			1,397			1,104			5			-			7,420
Loans charged against the allowance		(4,613	)		(4,119	)		(1,885	)		(2	)		-			(10,619	)
Balance at end of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
2013
Balance at beginning of period	$	11,402		$	21,447		$	3,378		$	144		$	7,904		$	44,275
Additions (deductions)
Provision for loan losses		(2,336	)		71			314			(93	)		(1,944	)		(3,988	)
Recoveries credited to allowance		5,119			1,996			1,074			81			-			8,270
Loans charged against the allowance		(7,358	)		(6,319	)		(2,520	)		(35	)		-			(16,232	)
Balance at end of period	$	6,827		$	17,195		$	2,246		$	97		$	5,960		$	32,325
2012
Balance at beginning of period	$	18,183		$	22,885		$	6,146		$	197		$	11,473		$	58,884
Additions (deductions)
Provision for loan losses		2,351			7,778			15			(3	)		(3,254	)		6,887
Recoveries credited to allowance		3,610			1,581			1,311			20			-			6,522
Loans charged against the allowance		(12,588	)		(10,741	)		(4,009	)		(70	)		-			(27,408	)
Reclassification to loans held for sale		(154	)		(56	)		(85	)		-			(315	)		(610	)
Balance at end of period	$	11,402		$	21,447		$	3,378		$	144		$	7,904		$	44,275

Allowance for loan losses and recorded investment in loans by portfolio segment follows:

							Payment
							Plan
	Commercial		Mortgage		Installment		Receivables		Unallocated		Total
	(In thousands)
2014
Allowance for loan losses:
Individually evaluated for impairment	$	3,194	$	9,311	$	728	$	-	$	-	$	13,233
Collectively evaluated for impairment		2,251		4,133		1,086		64		5,223		12,757
Total ending allowance balance	$	5,445	$	13,444	$	1,814	$	64	$	5,223	$	25,990
Loans
Individually evaluated for impairment	$	34,147	$	72,340	$	6,679	$	-			$	113,166
Collectively evaluated for impairment		658,423		402,458		200,368		40,001				1,301,250
Total loans recorded investment		692,570		474,798		207,047		40,001				1,414,416
Accrued interest included in recorded investment		1,615		2,170		669		-				4,454
Total loans	$	690,955	$	472,628	$	206,378	$	40,001			$	1,409,962
2013
Allowance for loan losses:
Individually evaluated for impairment	$	3,878	$	10,488	$	792	$	-	$	-	$	15,158
Collectively evaluated for impairment		2,949		6,707		1,454		97		5,960		17,167
Total ending allowance balance	$	6,827	$	17,195	$	2,246	$	97	$	5,960	$	32,325
Loans
Individually evaluated for impairment	$	40,623	$	78,022	$	7,068	$	-			$	125,713
Collectively evaluated for impairment		596,235		410,887		185,676		60,638				1,253,436
Total loans recorded investment		636,858		488,909		192,744		60,638				1,379,149
Accrued interest included in recorded investment		1,624		2,276		679		-				4,579
Total loans	$	635,234	$	486,633	$	192,065	$	60,638			$	1,374,570

Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. If these loans had continued to accrue interest in accordance with their original terms, approximately $0.8 million, $1.2 million, and $2.3 million of interest income would have been recognized in 2014, 2013 and 2012, respectively. Interest income recorded on these loans was approximately zero during the year ended 2014 and $0.1 million in each of the years ended 2013 and 2012, respectively.

Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) at December 31 follow:

	90+ and				Total Non-
	Still		Non-		Performing
	Accruing		Accrual		Loans
	(In thousands)
2014
Commercial
Income producing - real estate	$	-	$	1,233	$	1,233
Land, land development and construction - real estate		-		594		594
Commercial and industrial		-		2,746		2,746
Mortgage
1-4 family		7		5,945		5,952
Resort lending		-		2,168		2,168
Home equity - 1st lien		-		331		331
Home equity - 2nd lien		-		605		605
Installment
Home equity - 1st lien		-		576		576
Home equity - 2nd lien		-		517		517
Loans not secured by real estate		-		454		454
Other		-		48		48
Payment plan receivables
Full refund		-		2		2
Partial refund		-		12		12
Other		-		-		-
Total recorded investment	$	7	$	15,231	$	15,238
Accrued interest included in recorded investment	$	-	$	-	$	-
2013
Commercial
Income producing - real estate	$	-	$	1,899	$	1,899
Land, land development and construction - real estate		-		1,036		1,036
Commercial and industrial		-		2,434		2,434
Mortgage
1-4 family		-		6,594		6,594
Resort lending		-		2,668		2,668
Home equity - 1st lien		-		415		415
Home equity - 2nd lien		-		689		689
Installment
Home equity - 1st lien		-		938		938
Home equity - 2nd lien		-		571		571
Loans not secured by real estate		-		638		638
Other		-		-		-
Payment plan receivables
Full refund		-		20		20
Partial refund		-		3		3
Other		-		-		-
Total recorded investment	$	-	$	17,905	$	17,905
Accrued interest included in recorded investment	$	-	$	-	$	-

An aging analysis of loans by class at December 31 follows:

	Loans Past Due								Loans not		Total
	30-59 days		60-89 days		90+ days		Total		Past Due		Loans
	(In thousands)
2014
Commercial
Income producing - real estate	$	89	$	-	$	214	$	303	$	252,763	$	253,066
Land, land development and construction - real estate		131		-		223		354		33,984		34,338
Commercial and industrial		2,391		279		209		2,879		402,287		405,166
Mortgage
1-4 family		1,877		1,638		5,952		9,467		269,719		279,186
Resort lending		226		-		2,168		2,394		126,342		128,736
Home equity - 1st lien		39		50		331		420		19,782		20,202
Home equity - 2nd lien		711		89		605		1,405		45,269		46,674
Installment
Home equity - 1st lien		466		37		576		1,079		20,995		22,074
Home equity - 2nd lien		369		81		517		967		28,125		29,092
Loans not secured by real estate		589		231		454		1,274		152,115		153,389
Other		15		3		48		66		2,426		2,492
Payment plan receivables
Full refund		838		214		2		1,054		26,799		27,853
Partial refund		409		123		12		544		6,550		7,094
Other		96		24		-		120		4,934		5,054
Total recorded investment	$	8,246	$	2,769	$	11,311	$	22,326	$	1,392,090	$	1,414,416
Accrued interest included in recorded investment	$	55	$	29	$	-	$	84	$	4,370	$	4,454
2013
Commercial
Income producing - real estate	$	1,014	$	428	$	878	$	2,320	$	249,313	$	251,633
Land, land development and construction - real estate		781		129		256		1,166		30,670		31,836
Commercial and industrial		1,155		1,665		318		3,138		350,251		353,389
Mortgage
1-4 family		3,750		224		6,594		10,568		270,855		281,423
Resort lending		698		234		2,668		3,600		142,356		145,956
Home equity - 1st lien		172		-		415		587		18,214		18,801
Home equity - 2nd lien		663		73		689		1,425		41,304		42,729
Installment
Home equity - 1st lien		557		134		938		1,629		25,513		27,142
Home equity - 2nd lien		536		136		571		1,243		36,701		37,944
Loans not secured by real estate		833		281		638		1,752		123,295		125,047
Other		22		12		-		34		2,577		2,611
Payment plan receivables
Full refund		1,364		349		20		1,733		46,344		48,077
Partial refund		190		20		3		213		4,840		5,053
Other		122		4		-		126		7,382		7,508
Total recorded investment	$	11,857	$	3,689	$	13,988	$	29,534	$	1,349,615	$	1,379,149
Accrued interest included in recorded investment	$	100	$	26	$	-	$	126	$	4,453	$	4,579

Impaired loans are as follows :

	December 31,
	2014		2013
Impaired loans with no allocated allowance	(In thousands)
TDR	$	9,325	$	13,006
Non - TDR		299		334
Impaired loans with an allocated allowance
TDR - allowance based on collateral		5,879		10,085
TDR - allowance based on present value cash flow		94,970		101,131
Non - TDR - allowance based on collateral		2,296		688
Non - TDR - allowance based on present value cash flow		-		-
Total impaired loans	$	112,769	$	125,244
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,025	$	3,127
TDR - allowance based on present value cash flow		10,188		11,777
Non - TDR - allowance based on collateral		1,020		254
Non - TDR - allowance based on present value cash flow		-		-
Total amount of allowance for loan losses allocated	$	13,233	$	15,158

During the second quarter of 2013, we sold certain commercial watch, substandard and non-performing loans as follows:

	(In thousands)
Income producing - real estate	$	4,570
Land, land development and construction - real estate		401
Commercial and industrial		3,630
Total	$	8,601

Impaired loans by class as of December 31 are as follows (1):

	2014						2013
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	5,868	$	6,077	$	-	$	7,042	$	7,178	$	-
Land, land development & construction-real estate		1,051		1,606		-		2,185		3,217		-
Commercial and industrial		2,685		2,667		-		4,110		4,087		-
Mortgage
1-4 family		-		49		-		8		8		-
Resort lending		48		397		-		35		163		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		-		40		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Loans not secured by real estate		-		-		-		-		-		-
Other		-		-		-		-		-		-
		9,652		10,836		-		13,380		14,653		-
With an allowance recorded:
Commercial
Income producing - real estate		12,836		13,797		689		14,538		15,631		1,161
Land, land development & construction-real estate		3,456		3,528		499		3,366		4,130		686
Commercial and industrial		8,251		8,486		2,006		9,382		9,529		2,031
Mortgage
1-4 family		53,206		56,063		6,195		57,612		60,768		7,236
Resort lending		18,799		18,963		3,075		20,171		20,608		3,221
Home equity - 1st lien		162		177		14		154		164		11
Home equity - 2nd lien		125		205		27		42		118		20
Installment
Home equity - 1st lien		2,744		2,930		219		2,959		3,115		254
Home equity - 2nd lien		3,212		3,215		419		3,352		3,347		462
Loans not secured by real estate		711		835		89		741		902		75
Other		12		12		1		16		16		1
		103,514		108,211		13,233		112,333		118,328		15,158
Total
Commercial
Income producing - real estate		18,704		19,874		689		21,580		22,809		1,161
Land, land development & construction-real estate		4,507		5,134		499		5,551		7,347		686
Commercial and industrial		10,936		11,153		2,006		13,492		13,616		2,031
Mortgage
1-4 family		53,206		56,112		6,195		57,620		60,776		7,236
Resort lending		18,847		19,360		3,075		20,206		20,771		3,221
Home equity - 1st lien		162		177		14		154		164		11
Home equity - 2nd lien		125		205		27		42		118		20
Installment
Home equity - 1st lien		2,744		2,970		219		2,959		3,115		254
Home equity - 2nd lien		3,212		3,215		419		3,352		3,347		462
Loans not secured by real estate		711		835		89		741		902		75
Other		12		12		1		16		16		1
Total	$	113,166	$	119,047	$	13,233	$	125,713	$	132,981	$	15,158
Accrued interest included in recorded investment	$	397					$	469

(1) There were no impaired payment plan receivables at December 31, 2014 or 2013.

Average recorded investment in and interest income earned on impaired loans by class for the years ended December 31 follows (1):

	2014				2013				2012
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized		Investment		Recognized
With no related allowance recorded:	(In thousands)
Commercial
Income producing - real estate	$	7,660	$	250	$	5,765	$	340	$	2,981	$	166
Land, land development & construction-real estate		1,145		64		3,092		240		2,549		150
Commercial and industrial		3,351		152		3,980		226		3,526		246
Mortgage
1-4 family		29		-		5		11		290		-
Resort lending		40		1		28		-		222		-
Home equity - 1st lien		-		-		-		-		-		-
Home equity - 2nd lien		-		-		-		-		-		-
Installment
Home equity - 1st lien		-		2		1,604		83		1,961		97
Home equity - 2nd lien		-		-		1,841		96		2,093		111
Loans not secured by real estate		-		-		470		23		549		30
Other		-		-		15		1		22		2
		12,225		469		16,800		1,020		14,193		802
With an allowance recorded:
Commercial
Income producing - real estate		12,772		677		18,164		587		23,508		571
Land, land development & construction-real estate		3,939		149		6,186		149		10,305		183
Commercial and industrial		8,500		294		11,795		457		17,828		467
Mortgage
1-4 family		55,877		2,286		60,858		2,622		66,195		2,852
Resort lending		19,458		753		21,708		836		24,286		1,000
Home equity - 1st lien		160		6		136		4		65		2
Home equity - 2nd lien		57		2		42		2		81		3
Installment
Home equity - 1st lien		2,837		174		1,448		85		1,432		50
Home equity - 2nd lien		3,359		188		1,546		86		1,325		51
Loans not secured by real estate		719		35		314		17		221		10
Other		14		1		3		1		-		-
		107,692		4,565		122,200		4,846		145,246		5,189
Total
Commercial
Income producing - real estate		20,432		927		23,929		927		26,489		737
Land, land development & construction-real estate		5,084		213		9,278		389		12,854		333
Commercial and industrial		11,851		446		15,775		683		21,354		713
Mortgage
1-4 family		55,906		2,286		60,863		2,633		66,485		2,852
Resort lending		19,498		754		21,736		836		24,508		1,000
Home equity - 1st lien		160		6		136		4		65		2
Home equity - 2nd lien		57		2		42		2		81		3
Installment
Home equity - 1st lien		2,837		176		3,052		168		3,393		147
Home equity - 2nd lien		3,359		188		3,387		182		3,418		162
Loans not secured by real estate		719		35		784		40		770		40
Other		14		1		18		2		22		2
Total	$	119,917	$	5,034	$	139,000	$	5,866	$	159,439	$	5,991

(1) There were no impaired payment plan receivables during the years ending December 31, 2014, 2013 and 2012.

Our average investment in impaired loans was approximately $119.9 million, $139.0 million and $159.4 million in 2014, 2013 and 2012, respectively. Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance. Interest income recognized on impaired loans was approximately $5.0 million, $5.9 million and $6.0 million in 2014, 2013 and 2012, respectively, of which the majority of these amounts were received in cash.

Troubled debt restructurings at December 31 follow:

	2014
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	29,475	$	73,496		$	102,971
Non-performing TDR's(1)		1,978		5,225	(2)		7,203
Total	$	31,453	$	78,721		$	110,174

	2013
	Commercial		Retail			Total
	(In thousands)
Performing TDR's	$	35,134	$	79,753		$	114,887
Non-performing TDR's(1)		4,347		4,988	(2)		9,335
Total	$	39,481	$	84,741		$	124,222

(1) Included in non-performing loans table above.

(2) Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis.

We have allocated $12.2 million and $14.9 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2014 and 2013, respectively. We have committed to lend additional amounts totaling up to $0.04 million and $0.17 million as of December 31, 2014 and 2013, respectively, to customers with outstanding loans that are classified as troubled debt restructurings.

The terms of certain loans were modified as troubled debt restructurings and generally included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

Modifications involving a reduction of the stated interest rate of the loan have generally been for periods ranging from 9 months to 60 months but have extended to as much as 480 months in certain circumstances. Modifications involving an extension of the maturity date have generally been for periods ranging from 1 month to 70 months but have extended to as much as 240 months in certain circumstances.

Loans that have been classified as troubled debt restructurings during the three years endedDecember 31 follow:

			Pre-modification		Post-modification
	Number of		Recorded		Recorded
	Contracts		Balance		Balance
2014	(Dollars in thousands)
Commercial
Income producing - real estate		4	$	426	$	389
Land, land development & construction-real estate		2		55		44
Commercial and industrial		13		2,236		1,606
Mortgage
1-4 family		15		1,576		1,570
Resort lending		6		1,583		1,572
Home equity - 1st lien		1		17		14
Home equity - 2nd lien		1		85		84
Installment
Home equity - 1st lien		13		631		523
Home equity - 2nd lien		9		400		400
Loans not secured by real estate		6		114		106
Other		-		-		-
Total		70	$	7,123	$	6,308
2013
Commercial
Income producing - real estate		6	$	4,798	$	3,869
Land, land development & construction-real estate		1		16		-
Commercial and industrial		23		2,522		1,901
Mortgage
1-4 family		20		1,968		1,995
Resort lending		5		1,240		1,231
Home equity - 1st lien		1		95		97
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		25		659		657
Home equity - 2nd lien		16		508		508
Loans not secured by real estate		5		149		110
Other		-		-		-
Total		102	$	11,955	$	10,368
2012
Commercial
Income producing - real estate		20	$	9,464	$	8,568
Land, land development & construction-real estate		9		4,800		4,858
Commercial and industrial		50		9,951		7,905
Mortgage
1-4 family		66		8,900		8,488
Resort lending		31		7,750		7,514
Home equity - 1st lien		1		15		-
Home equity - 2nd lien		-		-		-
Installment
Home equity - 1st lien		18		666		632
Home equity - 2nd lien		24		784		768
Loans not secured by real estate		13		325		304
Other		-		-		-
Total		232	$	42,655	$	39,037

The troubled debt restructurings described above increased (decreased) the allowance for loan losses by $0.2 million, $(0.3) million and $1.6 million during the years ended December 31, 2014, 2013 and 2012, respectively and resulted in charge offs of $0.04 million, $0.5 million and $1.0 million during the years ended December 31, 2014, 2013 and 2012, respectively.

Loans that have been classified as troubled debt restructured during the past twelve months and that have subsequently defaulted during the years ended December 31 follows:

	Number of		Recorded
	Contracts		Balance
2014	(Dollars in thousands)
Commercial
Income producing - real estate		-	$	-
Land, land development & construction-real estate		-		-
Commercial and industrial		2		319
Mortgage
1-4 family		1		125
Resort lending		-		-
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Loans not secured by real estate		-		-
Other		-		-
Total		3	$	444
2013
Commercial
Income producing - real estate		1	$	693
Land, land development & construction-real estate		1		334
Commercial and industrial		2		143
Mortgage
1-4 family		1		106
Resort lending		1		156
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		2		32
Home equity - 2nd lien		1		22
Loans not secured by real estate		-		-
Other		-		-
Total		9	$	1,486
2012
Commercial
Income producing - real estate		2	$	827
Land, land development & construction-real estate		-		-
Commercial and industrial		5		230
Mortgage
1-4 family		2		148
Resort lending		4		887
Home equity - 1st lien		-		-
Home equity - 2nd lien		-		-
Installment
Home equity - 1st lien		2		234
Home equity - 2nd lien		1		20
Loans not secured by real estate		-		-
Other		-		-
Total		16	$	2,346

A loan is generally considered to be in payment default once it is 90 days contractually past due under the modified terms for commercial loans and installment loans and when four consecutive payments are missed for mortgage loans.

The troubled debt restructurings that subsequently defaulted described above increased the allowance for loan losses by $0.02 million, zero, and $0.3 million during the years ended December 31, 2014, 2013 and 2012, respectively and resulted in charge offs of zero, $0.2 million and $0.8 million during the years ended December 31, 2014, 2013 and 2012, respectively.

The terms of certain other loans were modified during the years ending December 31, 2014, 2013 and 2012 that did not meet the definition of a troubled debt restructuring. The modification of these loans could have included modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, we perform an evaluation of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

Credit Quality Indicators – As part of our on-going monitoring of the credit quality of our loan portfolios, we track certain credit quality indicators including (a) weighted-average risk grade of commercial loans, (b) the level of classified commercial loans (c) credit scores of mortgage and installment loan borrowers (d) insurance industry ratings of certain counterparties for payment plan receivables and (e) delinquency history and non-performing loans.

For commercial loans we use a loan rating system that is similar to those employed by state and federal banking regulators. Loans are graded on a scale of 1 to 12. A description of the general characteristics of the ratings follows:

Rating 1 through 6: These loans are generally referred to as our “non-watch” commercial credits that include very high or exceptional credit fundamentals through acceptable credit fundamentals.

Rating 7 and 8: These loans are generally referred to as our “watch” commercial credits. This rating includes loans to borrowers that exhibit potential credit weakness or downward trends. If not checked or cured these trends could weaken our asset or credit position. While potentially weak, no loss of principal or interest is envisioned with these ratings.

Rating 9: These loans are generally referred to as our “substandard accruing” commercial credits. This rating includes loans to borrowers that exhibit a well-defined weakness where payment default is probable and loss is possible if deficiencies are not corrected. Generally, loans with this rating are considered collectible as to both principal and interest primarily due to collateral coverage.

Rating 10 and 11: These loans are generally referred to as our “substandard - non-accrual” and “doubtful” commercial credits. This rating includes loans to borrowers with weaknesses that make collection of debt in full, on the basis of current facts, conditions and values, at best questionable and at worst improbable. All of these loans are placed in non-accrual.

Rating 12: These loans are generally referred to as our “loss” commercial credits. This rating includes loans to borrowers that are deemed incapable of repayment and are charged-off.

The following table summarizes loan ratings by loan class for our commercial loan segment:

	Commercial
					Substandard		Non-
	Non-watch		Watch		Accrual		Accrual
		1-6		7-8		9		10-11	Total
					(In thousands)
2014
Income producing - real estate	$	241,266	$	8,649	$	1,918	$	1,233	$	253,066
Land, land development and construction - real estate		30,869		2,485		390		594		34,338
Commercial and industrial		372,947		23,475		5,998		2,746		405,166
Total	$	645,082	$	34,609	$	8,306	$	4,573	$	692,570
Accrued interest included in total	$	1,479	$	111	$	25	$	-	$	1,615
2013
Income producing - real estate	$	227,957	$	17,882	$	3,895	$	1,899	$	251,633
Land, land development and construction - real estate		25,654		4,829		317		1,036		31,836
Commercial and industrial		318,183		26,303		6,469		2,434		353,389
Total	$	571,794	$	49,014	$	10,681	$	5,369	$	636,858
Accrued interest included in total	$	1,433	$	147	$	44	$	-	$	1,624

For each of our mortgage and installment segment classes we generally monitor credit quality based on the credit scores of the borrowers. These credit scores are generally updated at least annually. The following tables summarize credit scores by loan class for our mortgage and installment loan segments at December 31:

	Mortgage (1)
					Home		Home
			Resort		Equity		Equity
	1-4 Family		Lending		1st Lien		2nd Lien		Total
	(In thousands)
2014
800 and above	$	27,918	$	14,484	$	3,863	$	6,225	$	52,490
750-799		72,674		45,950		6,128		14,323		139,075
700-749		52,843		32,660		3,054		9,642		98,199
650-699		51,664		20,250		3,257		8,194		83,365
600-649		27,770		6,538		1,704		3,862		39,874
550-599		21,361		3,639		994		1,721		27,715
500-549		14,575		2,156		699		1,401		18,831
Under 500		6,306		875		261		632		8,074
Unknown		4,075		2,184		242		674		7,175
Total	$	279,186	$	128,736	$	20,202	$	46,674	$	474,798
Accrued interest included in total	$	1,311	$	562	$	88	$	209	$	2,170
2013
800 and above	$	23,924	$	13,487	$	3,650	$	5,354	$	46,415
750-799		60,728		56,880		4,560		11,809		133,977
700-749		58,269		35,767		3,289		8,628		105,953
650-699		49,771		21,696		2,316		7,145		80,928
600-649		34,991		8,555		2,621		5,141		51,308
550-599		24,616		3,261		1,165		2,485		31,527
500-549		14,823		2,271		644		1,560		19,298
Under 500		9,492		1,160		323		360		11,335
Unknown		4,809		2,879		233		247		8,168
Total	$	281,423	$	145,956	$	18,801	$	42,729	$	488,909
Accrued interest included in total	$	1,300	$	650	$	97	$	229	$	2,276

(1) Credit scores have been updated within the last twelve months.

	Installment(1)
	Home		Home		Loans not
	Equity		Equity		Secured by
	1st Lien		2nd Lien		Real Estate		Other		Total
	(In thousands)
2014
800 and above	$	2,272	$	2,835	$	31,507	$	60	$	36,674
750-799		5,677		8,557		66,558		583		81,375
700-749		3,111		6,358		28,179		689		38,337
650-699		3,963		5,477		16,152		615		26,207
600-649		3,434		2,408		5,128		255		11,225
550-599		2,019		1,913		1,896		134		5,962
500-549		1,128		1,036		1,672		84		3,920
Under 500		393		427		455		28		1,303
Unknown		77		81		1,842		44		2,044
Total	$	22,074	$	29,092	$	153,389	$	2,492	$	207,047
Accrued interest included in total	$	93	$	112	$	445	$	19	$	669
2013
800 and above	$	2,977	$	3,062	$	23,649	$	53	$	29,741
750-799		6,585		11,197		48,585		557		66,924
700-749		4,353		9,487		25,343		683		39,866
650-699		4,815		6,832		15,256		646		27,549
600-649		3,173		2,824		5,289		258		11,544
550-599		2,843		2,084		2,785		213		7,925
500-549		1,483		1,715		1,732		130		5,060
Under 500		751		663		516		29		1,959
Unknown		162		80		1,892		42		2,176
Total	$	27,142	$	37,944	$	125,047	$	2,611	$	192,744
Accrued interest included in total	$	114	$	144	$	399	$	22	$	679

(1) Credit scores have been updated within the last twelve months.

Mepco is a wholly-owned subsidiary of our Bank that operates a vehicle service contract payment plan business throughout the United States. See note #11 for more information about Mepco’s business. As of December 31, 2014, approximately 69.6% of Mepco’s outstanding payment plan receivables relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the full refund owing upon cancellation of the related service contract (including with respect to both the portion funded to the service contract seller and the portion funded to the administrator). These receivables are shown as “Full Refund” in the table below. Another approximately 17.7% of Mepco’s outstanding payment plan receivables as of December 31, 2014, relate to programs in which a third party insurer or risk retention group is obligated to pay Mepco the refund owing upon cancellation only with respect to the unearned portion previously funded by Mepco to the administrator (but not to the service contract seller). These receivables are shown as “Partial Refund” in the table below. The balance of Mepco’s outstanding payment plan receivables relate to programs in which there is no insurer or risk retention group that has any contractual liability to Mepco for any portion of the refund amount. These receivables are shown as “Other” in the table below. For each class of our payment plan receivables we monitor financial information on the counterparties as we evaluate the credit quality of this portfolio.

The following table summarizes credit ratings of insurer or risk retention group counterparties by class of payment plan receivable at December 31:

	Payment Plan Receivables
	Full		Partial
	Refund		Refund		Other		Total
	(In thousands)
2014
AM Best rating
A+	$	-	$	43	$	-	$	43
A		10,007		6,190		-		16,197
A-		1,989		685		5,054		7,728
Not rated		15,857		176		-		16,033
Total	$	27,853	$	7,094	$	5,054	$	40,001
2013
AM Best rating
A	$	20,203	$	4,221	$	-	$	24,424
A-		4,058		832		7,496		12,386
Not rated		23,816		-		12		23,828
Total	$	48,077	$	5,053	$	7,508	$	60,638

Although Mepco has contractual recourse against various counterparties for refunds owing upon cancellation of vehicle service contracts, see Note #11 below regarding certain risks and difficulties associated with collecting these refunds.

Mortgage loans serviced for others are not reported as assets on the Consolidated Statements of Financial Condition. The principal balances of these loans at December 31 follow:

	2014		2013
	(In thousands)
Mortgage loans serviced for :
Fannie Mae	$	913,863	$	981,031
Freddie Mac		748,833		753,143
Other		104		111
Total	$	1,662,800	$	1,734,285

Custodial deposit accounts maintained in connection with mortgage loans serviced for others totaled $20.9 million and $20.3 million, at December 31, 2014 and 2013, respectively.

If we do not remain well capitalized for regulatory purposes (see note #20), 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 these investors. This could impact our ability to generate gains on the sale 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 regulatory purposes. 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.

An analysis of capitalized mortgage loan servicing rights for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	13,710		$	11,013		$	11,229
Originated servicing rights capitalized		1,823			3,210			4,006
Amortization		(2,509	)		(3,745	)		(4,679	)
Change in valuation allowance		(918	)		3,232			457
Balance at end of year	$	12,106		$	13,710		$	11,013
Valuation allowance	$	3,773		$	2,855		$	6,087
Loans sold and serviced that have had servicing rights capitalized	$	1,661,269		$	1,732,476		$	1,751,960

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SECURITIES

12 Months Ended

Dec. 31, 2014

SECURITIES [Abstract]

SECURITIES

NOTE 3 – SECURITIES

Securities available for sale consist of the following at December 31:

	Amortized		Unrealized
	Cost		Gains		Losses		Fair Value
	(In thousands)
2014
U.S. agency	$	34,936	$	133	$	63	$	35,006
U.S. agency residential mortgage-backed		256,387		1,838		667		257,558
U.S. agency commercial mortgage-backed		33,779		68		119		33,728
Private label residential mortgage-backed		6,216		187		390		6,013
Other asset backed		32,314		77		38		32,353
Obligations of states and political subdivisions		143,698		961		1,244		143,415
Corporate		22,690		53		79		22,664
Trust preferred		2,910		-		469		2,441
Total	$	532,930	$	3,317	$	3,069	$	533,178
2013
U.S. agency	$	32,106	$	44	$	342	$	31,808
U.S. agency residential mortgage-backed		202,649		1,343		532		203,460
Private label residential mortgage-backed		7,294		112		618		6,788
Other asset backed		45,369		10		194		45,185
Obligations of states and political subdivisions		157,966		496		4,784		153,678
Corporate		19,120		43		26		19,137
Trust preferred		2,902		-		477		2,425
Total	$	467,406	$	2,048	$	6,973	$	462,481

Total OTTI recognized in accumulated other comprehensive loss for securities available for sale was zero and $0.2 million at December 31, 2014 and 2013, respectively.

Our investments’ gross unrealized losses and fair values aggregated by investment type and length of time that individual securities have been at a continuous unrealized loss position, at December 31 follows:

	Less Than Twelve Months				Twelve Months or More				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(In thousands)
2014
U.S. agency	$	12,851	$	58	$	606	$	5	$	13,457	$	63
U.S. agency residential mortgage-backed		89,547		531		15,793		136		105,340		667
U.S. agency commercial mortgage-backed		21,325		119		-		-		21,325		119
Private label residential mortgage-backed		208		1		4,013		389		4,221		390
Other asset backed		2,960		15		8,729		23		11,689		38
Obligations of states and political subdivisions		28,114		106		37,540		1,138		65,654		1,244
Corporate		8,660		79		-		-		8,660		79
Trust preferred		-		-		2,441		469		2,441		469
Total	$	163,665	$	909	$	69,122	$	2,160	$	232,787	$	3,069
2013
U.S. agency	$	16,715	$	342	$	-	$	-	$	16,715	$	342
U.S. agency residential mortgage-backed		78,256		532		-		-		78,256		532
Private label residential mortgage-backed		407		6		4,602		612		5,009		618
Other asset backed		33,862		194		-		-		33,862		194
Obligations of states and		103,942		4,645		4,805		139		108,747		4,784
Corporate		7,105		26		-		-		7,105		26
Trust preferred		-		-		2,425		477		2,425		477
Total	$	240,287	$	5,745	$	11,832	$	1,228	$	252,119	$	6,973

Our portfolio of available-for-sale securities is reviewed quarterly for impairment in value. In performing this review, management considers (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) the impact of changes in market interest rates on the market value of the security and (4) an assessment of whether we intend to sell, or it is more likely than not that we will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. For securities that do not meet the aforementioned recovery criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income or loss.

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at December 31, 2014, we had 17 U.S. agency, 72 U.S. agency residential mortgage-backed and 19 U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to rises in term interest rates and widening spreads to Treasury bonds. As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Private label residential mortgage backed securities — at December 31, 2014, we had five of this type of security whose fair value is less than amortized cost. Two of the five issues are rated by a major rating agency as investment grade, two are rated below investment grade and one is split rated. Two of these bonds have an impairment in excess of 10% and four of these holdings have been impaired for more than 12 months.  The unrealized losses are largely attributable to credit spread widening on these securities since their acquisition.

All of these securities are receiving principal and interest payments. Most of these transactions are pass-through structures, receiving pro rata principal and interest payments from a dedicated collateral pool. The nonreceipt of interest cash flows is not expected and thus not presently considered in our discounted cash flow methodology discussed below.

All private label residential mortgage-backed securities are reviewed for OTTI utilizing a cash flow projection. The cash flow analysis forecasts cash flow from the underlying loans in each transaction and then applies these cash flows to the bonds in the securitization.  Our cash flow analysis forecasts complete recovery of our cost basis for four of the five securities whose fair value is less than amortized cost while the fifth security had credit related OTTI and is discussed in further detail below.

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no other declines discussed above are deemed to be other than temporary.

Other asset backed — at December 31, 2014, we had nine other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to widening discount margins.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Obligations of states and political subdivisions — at December 31, 2014, we had 96 municipal securities whose fair value is less than amortized cost.  The unrealized losses are primarily due to increases in interest rates since acquisition.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Corporate — at December 31, 2014, we had 11 corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening.  As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

Trust preferred securities — at December 31, 2014, we had three trust preferred securities whose fair value is less than amortized cost. All of our trust preferred securities are single issue securities issued by a trust subsidiary of a bank holding company. The pricing of trust preferred securities over the past several years has suffered from credit spread widening fueled by uncertainty regarding potential losses of financial companies and repricing of risk related to these hybrid capital securities.

One of the three securities is rated by two major rating agencies as investment grade, while one (a Bank of America issuance) is rated below investment grade by two major rating agencies and the other one is non-rated. The non-rated issue is a relatively small bank and was never rated. The issuer of this non-rated trust preferred security, which had a total amortized cost of $1.0 million and total fair value of $0.8 million as of December 31, 2014, continues to have satisfactory credit metrics and make interest payments.

The following table breaks out our trust preferred securities in further detail as of December 31:

	2014					2013
			Net					Net
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,643	$	(267	)	$	1,600	$	(302	)
Unrated issues		798		(202	)		825		(175	)

As management does not intend to liquidate these securities and it is more likely than not that we will not be required to sell these securities prior to recovery of these unrealized losses, no declines are deemed to be other than temporary.

During 2014, 2013 and 2012, we recorded in earnings credit related OTTI charges on securities available for sale of $0.01 million, $0.03 million and $0.3 million, respectively.

At December 31, 2014, three private label residential mortgage-backed securities had credit related OTTI and are summarized as follows:

			Super		Senior
	Senior		Senior		Support
	Security		Security		Security		Total
	(In thousands)
As of December 31, 2014
Fair value	$	2,164	$	1,566	$	97	$	3,827
Amortized cost		2,207		1,476		-		3,683
Non-credit unrealized loss		43		-		-		43
Unrealized gain		-		90		97		187
Cumulative credit related OTTI		757		457		380		1,594
Credit related OTTI recognized in our Consolidated Statements of Operations
For the years ended December 31,
2014	$	9	$	-	$	-	$	9
2013		26		-		-		26
2012		247		32		60		339

Each of these securities is receiving principal and interest payments similar to principal reductions in the underlying collateral.  Two of these securities have unrealized gains and one has an unrealized loss at December 31, 2014.  Prior to the second quarter of 2013, all three of these securities had an unrealized loss.  The original amortized cost for each of these securities has been permanently adjusted downward for previously recorded credit related OTTI.  The unrealized loss (based on original amortized cost) for two of these securities is now less than previously recorded credit related OTTI amounts.  The remaining non-credit related unrealized loss in the senior security is attributed to other factors and is reflected in other comprehensive income during those same periods.

A roll forward of credit losses recognized in earnings on securities available for sale for the years ending December 31 follow:

	2014		2013		2012
	(In thousands)
Balance at beginning of year	$	1,835	$	1,809	$	1,470
Additions to credit losses on securities for which no previous OTTI was recognized		-		-		-
Increases to credit losses on securities for which OTTI was previously recognized		9		26		339
Total	$	1,844	$	1,835	$	1,809

The amortized cost and fair value of securities available for sale at December 31, 2014, by contractual maturity, follow:

	Amortized		Fair
	Cost		Value
	(In thousands)
Maturing within one year	$	25,427	$	25,479
Maturing after one year but within five years		66,532		66,666
Maturing after five years but within ten years		41,651		41,780
Maturing after ten years		70,624		69,601
		204,234		203,526
U.S. agency residential mortgage-backed		256,387		257,558
U.S. agency commercial mortgage-backed		33,779		33,728
Private label residential mortgage-backed		6,216		6,013
Other asset backed		32,314		32,353
Total	$	532,930	$	533,178

The actual maturity may differ from the contractual maturity because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

A summary of proceeds from the sale of securities available for sale and gains and losses for the years ended December 31 follow:

			Realized
	Proceeds		Gains(1)		Losses(2)
	(In thousands)
2014	$	14,633	$	329	$	-
2013		2,940		15		8
2012		37,176		1,193		-

(1) Gains in 2014 exclude $0.3 million of realized gain related to a U.S. Treasury short position.

(2) Losses in 2014, 2013 and 2012 exclude $0.01 million, $0.03 million and $0.3 million, respectively of credit related OTTI recognized in earnings.

During 2014, 2013 and 2012, our trading securities consisted of various preferred stocks. During each of those years, we recognized gains (losses) on trading securities of $(0.30) million, $0.39 million and $0.03 million, respectively, that are included in net gains on securities in the Consolidated Statements of Operations. All of these amounts relate to gains (losses) recognized on trading securities still held at December 31, 2014 and 2013.

Securities with a book value of $1.1 million and $10.7 million at December 31, 2014 and 2013, respectively, were pledged to secure borrowings, derivatives, public deposits and for other purposes as required by law. There were no investment obligations of state and political subdivisions that were payable from or secured by the same source of revenue or taxing authority that exceeded 10% of consolidated shareholders’ equity at December 31, 2014 or 2013.

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OTHER NON-INTEREST INCOME

12 Months Ended

Dec. 31, 2014

Other Non-Interest Income [Abstract]

OTHER NON-INTEREST INCOME

NOTE 15 – OTHER NON-INTEREST INCOME

Other non-interest income for the years ended December 31 follows:

	2014		2013		2012
	(In thousands)
Investment and insurance commissions		1,814		1,709		2,146
ATM fees		1,599		1,661		2,140
Bank owned life insurance		1,371		1,363		1,622
Other real estate rental income		1,295		1,471		1,773
Other		2,852		2,333		3,353
Total other non-interest income	$	8,931	$	8,537	$	11,034

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COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2014

COMMITMENTS AND CONTINGENT LIABILITIES [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 11 – COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of business, we enter into financial instruments with off-balance sheet risk to meet the financing needs of customers or to reduce exposure to fluctuations in interest rates. These financial instruments may include commitments to extend credit and standby letters of credit. Financial instruments involve varying degrees of credit and interest-rate risk in excess of amounts reflected in the Consolidated Statements of Financial Condition. Exposure to credit risk in the event of non-performance by the counterparties to the financial instruments for loan commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. We do not, however, anticipate material losses as a result of these financial instruments.

A summary of financial instruments with off-balance sheet risk at December 31 follows:

	2014		2013
	(In thousands)
Financial instruments whose risk is represented by contract amounts
Commitments to extend credit	$	204,827	$	180,829
Standby letters of credit		2,757		4,262

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and generally require payment of a fee. Since commitments may expire without being drawn upon, the commitment amounts do not represent future cash requirements. Commitments are issued subject to similar underwriting standards, including collateral requirements, as are generally involved in the extension of credit facilities.

Standby letters of credit are written conditional commitments issued to guarantee the performance of a customer to a third party. The credit risk involved in such transactions is essentially the same as that involved in extending loan facilities and, accordingly, standby letters of credit are issued subject to similar underwriting standards, including collateral requirements, as are generally involved in the extension of credit facilities. The majority of the standby letters of credit are to corporations, have variable rates that range from 2.5% to 8.25% and mature through 2018.

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 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. At this time, we estimate the maximum 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, 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.

Our Mepco segment conducts its payment plan business activities across the United States. Mepco acquires the payment plans from companies (which we refer to as Mepco’s “counterparties”) at a discount from the face amount of the payment plan. Each payment plan (which are classified as payment plan receivables in our Consolidated Statements of Financial Condition) permits a consumer to purchase a vehicle 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 thereafter collects the payments from consumers. In acquiring the payment plan, Mepco generally funds a portion of the cost to the seller of the service contract and a portion of the cost to the administrator of the service contract. The administrator, in turn, pays the necessary contractual liability insurance policy (“CLIP”) premium to the insurer or risk retention group.

Consumers are allowed to voluntarily cancel the service contract at any time and are generally entitled to receive a refund from the administrator of the unearned portion of the service contract at the time of cancellation. As a result, while Mepco does not owe any refund to the consumer, it also does not have any recourse against the consumer for nonpayment of a payment plan and therefore does not evaluate the creditworthiness of the individual consumer. If a consumer stops making payments on a payment plan or exercises the right to voluntarily cancel the service contract, the service contract seller and administrator are each obligated to refund to Mepco the amount necessary to make Mepco whole as a result of its funding of the service contract. In addition, the insurer or risk retention group that issued the CLIP for the service contract often guarantees all or a portion of the refund to Mepco. See note #4 above for a breakdown of Mepco’s payment plan receivables by the level of recourse Mepco has against various counterparties.

Upon the cancellation of a service contract and the completion of the billing process to the counterparties for amounts due to Mepco, there is a decrease in the amount of “payment plan receivables” and an increase in the amount of “vehicle service contract counterparty receivables” until such time as the amount due from the counterparty is collected. These amounts represent funds actually due to Mepco from its counterparties for cancelled service contracts. At December 31, 2014, 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 $7.2 million. This compares to a balance of $7.7 million at December 31, 2013.  Mepco is currently in the process of working to recover these receivables, primarily through litigation against counterparties.

In some cases, Mepco requires collateral or guaranties by the principals of the counterparties to secure these refund obligations; however, this is generally only the case when no rated insurance company is involved to guarantee the repayment obligation of the seller and administrator counterparties. 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 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. The sudden failure of one of Mepco’s major counterparties (an insurance company, administrator, or seller/dealer) could expose us to significant losses.

When counterparties do not honor their contractual obligations to Mepco to repay funds, we recognize estimated losses. Mepco pursues collection (including commencing legal action if necessary) of funds due to it under its various contracts with counterparties.  Mepco has had to initiate litigation against certain counterparties, including third party insurers, to collect amounts owed to Mepco as a result of those parties' dispute of their contractual obligations to Mepco.  For 2014, 2013 and 2012, non-interest expenses include $0.2 million, $4.8 million and $1.6 million, respectively, of charges related to estimated losses for vehicle service contract counterparty contingencies.  The significant decrease in this expense in 2014 (from 2013) is due to 2013 including write-downs of vehicle service contract counterparty receivables related to settlements of certain litigation to collect these receivables.  Given the costs and uncertainty of continued litigation, we determined it was in our best interest to resolve these matters.  These charges are being classified in non-interest expense because they are associated with a default or potential default of a contractual obligation under our counterparty contracts as opposed to loss on the administration of the payment plan itself.

Our estimate of probable incurred losses from vehicle service contract counterparty contingencies 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, our evaluation of collateral that may be available to recover funds due from our counterparties, and our assessment of the amount that may ultimately be collected from counterparties in connection with their contractual obligations.  We apply a rigorous process, based upon historical payment plan activity and past experience, to estimate probable incurred losses and quantify the necessary reserves for our vehicle service contract counterparty contingencies, but there can be no assurance that our modeling process will successfully identify all such losses.

We believe our assumptions regarding the collection of vehicle service contract counterparty receivables are reasonable, and we based them on our good faith judgments using data currently available. We also believe the current amount of reserves we have established and the vehicle service contract counterparty contingencies expense that we have recorded are appropriate given our estimate of probable incurred losses at the applicable Consolidated Statement of Financial Condition date. However, because of the uncertainty surrounding the numerous and complex assumptions made, actual losses could exceed the charges we have taken to date.

An analysis of our vehicle service contract counterparty receivable, net follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year, net of reserve	$	7,716		$	18,449		$	29,298
Transfers in from payment plan receivables		180			792			1,469
Reserves established and charge-offs recorded to expense		(199	)		(4,837	)		(1,629	)
Transferred to (from) contingency reserves		(75	)		63			(108	)
Cash received		(385	)		(6,751	)		(7,413	)
Collateral received (other real estate and repossessed assets) in partial satisfaction of debt		-			-			(3,168	)
Balance at end of year, net of reserve	$	7,237		$	7,716		$	18,449
Reserve at end of year	$	1,370		$	1,300		$	2,000

An analysis of our vehicle service contract counterparty reserve follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	1,375		$	2,012		$	32,570
Additions charged to expense		199			4,837			1,629
Charge-offs, net		(204	)		(5,474	)		(32,187	)
Balance at end of year	$	1,370		$	1,375		$	2,012
Reserves recorded in VSC counterparty receivables, net	$	1,370		$	1,300		$	2,000
Reserves recorded in accrued expenses and other liabilities		-			75			12
Total at end of year	$	1,370		$	1,375		$	2,012

The provision for loss reimbursement on sold loans represents our estimate of incurred losses related to mortgage loans that we have sold to investors (primarily Fannie Mae and Freddie Mac). Since we sell mortgage loans without recourse, loss reimbursements only occur in those instances where we have breached a representation or warranty or other contractual requirement related to the loan sale.  Historically, loss reimbursements on mortgage loans sold without recourse were rare. In 2009, we had only one actual loss reimbursement (for $0.06 million). Prior to 2009, we had years in which we incurred no such loss reimbursements. However, our loss reimbursements increased from 2010 to 2013 as Fannie Mae and Freddie Mac, in particular, were doing more reviews of mortgage loans where they had incurred or expected to incur a loss and were more aggressive in pursuing loss reimbursements from the sellers of such mortgage loans.  In November 2013, we executed a Resolution Agreement with Fannie Mae to resolve our existing and future repurchase and make whole obligations (collectively “Repurchase Obligations”) related to mortgage loans originated between January 1, 2000 and December 31, 2008 and delivered to them by January 31, 2009.  Under the terms of the Resolution Agreement, we paid Fannie Mae approximately $1.5 million in November 2013 with respect to the Repurchase Obligations.  We believe that it was in our best interest to execute the Resolution Agreement in order to bring finality to the loss reimbursement exposure with Fannie Mae for these years and reduce the resources spent on individual file reviews and defending loss reimbursement requests.  In addition, we were notified by Freddie Mac in January 2014 that they had completed their review of mortgage loans that we originated between January 1, 2000 and December 31, 2008 and delivered to them.  The reserve for loss reimbursements on sold mortgage loans totaled $0.7 million and $1.4 million at December 31, 2014 and 2013, respectively. This reserve is included in accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. This reserve is based on an analysis of mortgage loans that we have sold which are further categorized by delinquency status, loan to value, and year of origination. The calculation includes factors such as probability of default, probability of loss reimbursement (breach of representation or warranty) and estimated loss severity. The reserve levels at December 31, 2014 and 2013 also reflect the resolution of the mortgage loan origination years of 2000 to 2008 with Fannie Mae and Freddie Mac.  We believe that the amounts that we have accrued for incurred losses on sold mortgage loans are appropriate given our analyses.  However, future losses could exceed our current estimate.

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REGULATORY MATTERS (Details) (USD $)	3 Months Ended	0 Months Ended
	Mar. 31, 2014	Jan. 15, 2015	Dec. 31, 2014		Apr. 09, 2014	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011	Feb. 17, 2015
REGULATORY MATTERS [Abstract]
Undivided profits			$ (31,100,000)
Maximum percentage of allowance for loan losses and allowance for unfunded lending commitments (in hundredths)			1.25%
Subsequent Event [Line Items]
Request for approval to transfer capital from bank to parent entity	15,000,000
Transfer of capital from bank to the parent company					15,000,000
Components of regulatory capital [Abstract]
Total shareholders' equity			250,371,000			231,581,000		134,975,000		102,627,000
Add (deduct) [Abstract]
Accumulated other comprehensive loss			(5,636,000)	[1]		(9,245,000)	[1]	(8,058,000)	[1]
Intangible assets			(2,627,000)			(3,163,000)
Consolidated [Member]
Total capital to risk-weighted assets [Abstract]
Total risk-based capital			265,163,000			245,284,000
Minimum for Adequately Capitalized Institutions, Amount			117,427,000			113,086,000
Actual, Ratio (in hundredths)			18.06%			17.35%
Minimum for Adequately Capitalized Institutions, Ratio (in hundredths)			8.00%			8.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			246,628,000			227,338,000
Minimum for Adequately Capitalized Institutions, Amount			58,714,000			56,543,000
Actual, Ratio (in hundredths)			16.80%			16.08%
Minimum for Adequately Capitalized Institutions, Ratio (in hundredths)			4.00%			4.00%
Tier 1 capital to average assets [Abstract]
Tier 1 capital			246,628,000			227,338,000
Minimum for Adequately Capitalized Institutions, Amount			88,206,000			85,729,000
Actual, Ratio (in hundredths)			11.18%			10.61%
Minimum for Adequately Capitalized Institutions, Ratio (in hundredths)			4.00%			4.00%
Components of regulatory capital [Abstract]
Total shareholders' equity			250,371,000			231,581,000
Add (deduct) [Abstract]
Qualifying trust preferred securities			34,500,000			39,500,000
Accumulated other comprehensive loss			5,636,000			9,245,000
Intangible assets			(2,627,000)			(3,163,000)
Disallowed deferred tax assets			(40,500,000)			(49,609,000)
Disallowed capitalized mortgage loan servicing rights			(752,000)			(216,000)
Tier 1 capital			246,628,000			227,338,000
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets			18,535,000			17,946,000
Total risk-based capital			265,163,000			245,284,000
Independent Bank [Member]
Total capital to risk-weighted assets [Abstract]
Total risk-based capital			247,883,000			234,078,000
Minimum for Adequately Capitalized Institutions, Amount			117,374,000			113,013,000
Minimum for Well Capitalized Institutions, Amount			146,718,000			141,267,000
Actual, Ratio (in hundredths)			16.90%			16.57%
Minimum for Adequately Capitalized Institutions, Ratio (in hundredths)			8.00%			8.00%
Minimum for Well-Capitalized Institutions, Ratio (in hundredths)			10.00%			10.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			229,361,000			216,146,000
Minimum for Adequately Capitalized Institutions, Amount			58,687,000			56,507,000
Minimum for Well-Capitalized Institutions, Amount			88,031,000			84,760,000
Actual, Ratio (in hundredths)			15.63%			15.30%
Minimum for Adequately Capitalized Institutions, Ratio (in hundredths)			4.00%			4.00%
Minimum for Well Capitalized Institutions, Ratio (in hundredths)			6.00%			6.00%
Tier 1 capital to average assets [Abstract]
Tier 1 capital			229,361,000			216,146,000
Minimum for Adequately Capitalized Institutions, Amount			87,687,000			85,681,000
Minimum for Well-Capitalized Institutions, Amount			109,609,000			107,101,000
Actual, Ratio (in hundredths)			10.46%			10.09%
Minimum for Adequately Capitalized Institutions, Ratio (in hundredths)			4.00%			4.00%
Minimum for Well-Capitalized Institutions, Ratio (in hundredths)			5.00%			5.00%
Components of regulatory capital [Abstract]
Total shareholders' equity			257,832,000			250,306,000
Add (deduct) [Abstract]
Qualifying trust preferred securities			0			0
Accumulated other comprehensive loss			5,636,000			9,245,000
Intangible assets			(2,627,000)			(3,163,000)
Disallowed deferred tax assets			(30,728,000)			(40,026,000)
Disallowed capitalized mortgage loan servicing rights			(752,000)			(216,000)
Tier 1 capital			229,361,000			216,146,000
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets			18,522,000			17,932,000
Total risk-based capital			247,883,000			234,078,000
Subsequent Event [Member]
Subsequent Event [Line Items]
Request for approval to transfer capital from bank to parent entity		18,500,000
Transfer of capital from bank to the parent company											$ 18,500,000

[1] 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

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INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2014

INTANGIBLE ASSETS [Abstract]

INTANGIBLE ASSETS

NOTE 7 – INTANGIBLE ASSETS

Intangible assets, net of amortization, at December 31 follows:

	2014				2013
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	3,491	$	11,037	$	7,874

Intangible amortization expense was $0.5 million, $0.8 million and $1.1 million in 2014, 2013 and 2012, respectively.  During 2014, a core deposit intangible acquired in 2004 with an original balance of $4.9 million became fully amortized and was removed from the table above.  In addition, $12.7 million of core deposit balances at December 31, 2013 that had been fully amortized at that date have been removed from the table above.

A summary of estimated core deposit intangible amortization at December 31, 2014, follows:

	(In thousands)
2015	$	347
2016		347
2017		346
2018		346
2019		346
2020 and thereafter		895
Total	$	2,627

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SECURITIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 Security		Dec. 31, 2013		Dec. 31, 2012		Mar. 31, 2013 Security
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	$ 532,930,000		$ 467,406,000
Unrealized gains	3,317,000		2,048,000
Unrealized losses	3,069,000		6,973,000
Fair value	533,178,000		462,481,000
Accumulated other comprehensive loss	0		200,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	163,665,000		240,287,000
Less Than Twelve Months, Unrealized Losses	909,000		5,745,000
Twelve Months or More, Fair Value	69,122,000		11,832,000
Twelve Months or More, Unrealized Losses	2,160,000		1,228,000
Total, Fair value	232,787,000		252,119,000
Total, Unrealized Losses	3,069,000		6,973,000
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	3,827,000
Amortized cost	3,683,000
Non-credit unrealized loss	43,000
Unrealized gain	187,000
Cumulative credit related OTTI	1,594,000
OTTI changes recorded in earnings	9,000		26,000		339,000
The number of private label mortgage backed securities currently below investment grade with OTTI	4
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Roll Forward]
Balance at beginning of period	1,835,000		1,809,000		1,470,000
Additions to credit losses on securities for which no previous OTTI was recognized	0		0		0
Increases to credit losses on securities for which OTTI was previously recognized	9,000		26,000		339,000
Balance at end of period	1,844,000		1,835,000		1,809,000
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Fiscal Year Maturity [Abstract]
Maturing within one year	25,427,000
Maturing after one year but within five years	66,532,000
Maturing after five years but within ten years	41,651,000
Maturing after ten years	70,624,000
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis	204,234,000
U.S. agency residential mortgage-backed	256,387,000
U.S. agency commercial mortgage-backed	33,779,000
Private label residential mortgage-backed	6,216,000
Other asset backed	32,314,000
Total	532,930,000
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
Maturing within one year	25,479,000
Maturing after one year but within five years	66,666,000
Maturing after five years but within ten years	41,780,000
Maturing after ten years	69,601,000
Available-for-sale Securities fair value total	203,526,000
U.S. agency residential mortgage backed	257,558,000
U.S. agency commercial mortgage-backed	33,728,000
Private label residential mortgage-backed	6,013,000
Other asset backed	32,353,000
Total	533,178,000
Gain and losses realized on sale of securities available for sale [Abstract]
Proceeds	14,633,000		2,940,000		37,176,000
Realized Gains	329,000	[1]	15,000	[1]	1,193,000	[1]
Realized Losses	0	[2]	8,000	[2]	0	[2]
Realized gain related to U.S. Treasury short position	300,000
Credit Related OTTI Recognized in Earnings	10,000		30,000		300,000
Trading Securities, Realized Gain (Loss)	(300,000)		390,000		30,000
Securities Disclosures [Abstract]
Pledged securities with book value	1,100,000		10,700,000
Shareholder equity threshold not exceeded by revenue or taxing authority amount (in hundredths)	10.00%
U.S. Agency [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	34,936,000		32,106,000
Unrealized gains	133,000		44,000
Unrealized losses	63,000		342,000
Fair value	35,006,000		31,808,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	12,851,000		16,715,000
Less Than Twelve Months, Unrealized Losses	58,000		342,000
Twelve Months or More, Fair Value	606,000		0
Twelve Months or More, Unrealized Losses	5,000		0
Total, Fair value	13,457,000		16,715,000
Total, Unrealized Losses	63,000		342,000
Number of securities with market fair value less than amortized cost	17
U.S. Agency Residential Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	256,387,000		202,649,000
Unrealized gains	1,838,000		1,343,000
Unrealized losses	667,000		532,000
Fair value	257,558,000		203,460,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	89,547,000		78,256,000
Less Than Twelve Months, Unrealized Losses	531,000		532,000
Twelve Months or More, Fair Value	15,793,000		0
Twelve Months or More, Unrealized Losses	136,000		0
Total, Fair value	105,340,000		78,256,000
Total, Unrealized Losses	667,000		532,000
Number of securities with market fair value less than amortized cost	72
U.S. Agency Commercial Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	33,779,000
Unrealized gains	68,000
Unrealized losses	119,000
Fair value	33,728,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	21,325,000
Less Than Twelve Months, Unrealized Losses	119,000
Twelve Months or More, Fair Value	0
Twelve Months or More, Unrealized Losses	0
Total, Fair value	21,325,000
Total, Unrealized Losses	119,000
Number of securities with market fair value less than amortized cost	19
Private Label Residential Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	6,216,000		7,294,000
Unrealized gains	187,000		112,000
Unrealized losses	390,000		618,000
Fair value	6,013,000		6,788,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	208,000		407,000
Less Than Twelve Months, Unrealized Losses	1,000		6,000
Twelve Months or More, Fair Value	4,013,000		4,602,000
Twelve Months or More, Unrealized Losses	389,000		612,000
Total, Fair value	4,221,000		5,009,000
Total, Unrealized Losses	390,000		618,000
Number of securities with market fair value less than amortized cost	5
Number of issues rated as investment grade	2
Number of securities rated below investment grade	2
Number of securities that are split rated	1
Number of bonds with impairment in excess of ten percent	2
Percentage of excess impairment on bonds (in hundredths)	10.00%
Number of bonds with impairment for more than 12 months	4
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Number of private label mortgage backed securities currently below investment grade with OTTI unrealized gains	2
Number of private label mortgage backed securities currently below investment grade with OTTI unrealized loss	1						3
Number of private label mortgage backed securities currently below investment grade with OTTI unrealized loss less than previous OTTI credit	2
Senior Security [Member]
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	2,164,000
Amortized cost	2,207,000
Non-credit unrealized loss	43,000
Unrealized gain	0
Cumulative credit related OTTI	757,000
OTTI changes recorded in earnings	9,000		26,000		247,000
Super Senior Security [Member]
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	1,566,000
Amortized cost	1,476,000
Non-credit unrealized loss	0
Unrealized gain	90,000
Cumulative credit related OTTI	457,000
OTTI changes recorded in earnings	0		0		32,000
Senior Support Security [Member]
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value	97,000
Amortized cost	0
Non-credit unrealized loss	0
Unrealized gain	97,000
Cumulative credit related OTTI	380,000
OTTI changes recorded in earnings	0		0		60,000
Other Asset Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	32,314,000		45,369,000
Unrealized gains	77,000		10,000
Unrealized losses	38,000		194,000
Fair value	32,353,000		45,185,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	2,960,000		33,862,000
Less Than Twelve Months, Unrealized Losses	15,000		194,000
Twelve Months or More, Fair Value	8,729,000		0
Twelve Months or More, Unrealized Losses	23,000		0
Total, Fair value	11,689,000		33,862,000
Total, Unrealized Losses	38,000		194,000
Number of securities with market fair value less than amortized cost	9
Obligations of States and Political Subdivisions [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	143,698,000		157,966,000
Unrealized gains	961,000		496,000
Unrealized losses	1,244,000		4,784,000
Fair value	143,415,000		153,678,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	28,114,000		103,942,000
Less Than Twelve Months, Unrealized Losses	106,000		4,645,000
Twelve Months or More, Fair Value	37,540,000		4,805,000
Twelve Months or More, Unrealized Losses	1,138,000		139,000
Total, Fair value	65,654,000		108,747,000
Total, Unrealized Losses	1,244,000		4,784,000
Number of securities with market fair value less than amortized cost	96
Corporate [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	22,690,000		19,120,000
Unrealized gains	53,000		43,000
Unrealized losses	79,000		26,000
Fair value	22,664,000		19,137,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	8,660,000		7,105,000
Less Than Twelve Months, Unrealized Losses	79,000		26,000
Twelve Months or More, Fair Value	0		0
Twelve Months or More, Unrealized Losses	0		0
Total, Fair value	8,660,000		7,105,000
Total, Unrealized Losses	79,000		26,000
Number of securities with market fair value less than amortized cost	11
Trust Preferred [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost	2,910,000		2,902,000
Unrealized gains	0		0
Unrealized losses	469,000		477,000
Fair value	2,441,000		2,425,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value	0		0
Less Than Twelve Months, Unrealized Losses	0		0
Twelve Months or More, Fair Value	2,441,000		2,425,000
Twelve Months or More, Unrealized Losses	469,000		477,000
Total, Fair value	2,441,000		2,425,000
Total, Unrealized Losses	469,000		477,000
Number of securities with market fair value less than amortized cost	3
Number of issues rated as investment grade	1
Number of securities rated below investment grade	1
Number of major credit rating agencies rating securities with fair value less than amortized cost	2
Number of securities not rated	1
Non-rated securities, amortized cost	1,000,000
Fair value of non-rated trust preferred securities	800,000
Rated Issues [Member]
Trust preferred securities [Abstract]
Fair Value	1,643,000		1,600,000
Net Unrealized Loss	(267,000)		(302,000)
Unrated Issues - No OTTI [Member]
Trust preferred securities [Abstract]
Fair Value	798,000		825,000
Net Unrealized Loss	$ (202,000)		$ (175,000)

[1] Gains in 2014 exclude $0.3 million of realized gain related to a U.S. Treasury short position.

[2] Losses in 2014, 2013 and 2012 exclude $0.01 million, $0.03 million and $0.3 million, respectively of credit related OTTI recognized in earnings.

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OTHER REAL ESTATE OWNED

12 Months Ended

Dec. 31, 2014

OTHER REAL ESTATE OWNED [Abstract]

OTHER REAL ESTATE OWNED

NOTE 5 – OTHER REAL ESTATE OWNED

During 2014 and 2013, we foreclosed on certain loans secured by real estate and transferred approximately $6.1 million and $6.9 million to other real estate in each of those years, respectively. At the time of acquisition amounts were charged-off against the allowance for loan losses to bring the carrying amount of these properties to their estimated fair values, less estimated costs to sell. During 2014 and 2013, we sold other real estate with book balances of approximately $17.2 million and $12.0 million, respectively. Gains or losses on the sale of other real estate are included in non-interest expense on the Consolidated Statements of Operations.

We periodically review our real estate owned properties and establish valuation allowances on these properties if values have declined since the date of acquisition. An analysis of our valuation allowance for other real estate owned follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	4,047		$	5,958		$	14,655
Additions charged to expense		663			2,598			3,769
Direct write-downs upon sale		(2,199	)		(4,509	)		(12,466	)
Balance at end of year	$	2,511		$	4,047		$	5,958

Other real estate and repossessed assets totaling $6.5 million and $18.3 million at December 31, 2014 and 2013, respectively, are presented net of valuation allowance.

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PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2014

PROPERTY AND EQUIPMENT [Abstract]

PROPERTY AND EQUIPMENT

NOTE 6 – PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31 follows:

	2014			2013
	(In thousands)
Land	$	14,904		$	14,817
Buildings		59,486			58,798
Equipment		79,809			77,452
		154,199			151,067
Accumulated depreciation and amortization		(108,251	)		(102,473	)
Property and equipment, net	$	45,948		$	48,594

Depreciation expense was $6.7 million, $6.7 million and $7.6 million in 2014, 2013 and 2012, respectively.

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DEPOSITS

12 Months Ended

Dec. 31, 2014

DEPOSITS [Abstract]

DEPOSITS

NOTE 8 – DEPOSITS

A summary of interest expense on deposits for the years ended December 31 follows:

	2014		2013		2012
	(In thousands)
Savings and interest bearing checking	$	1,064	$	1,131	$	1,830
Time deposits under $100,000		2,467		2,995		4,838
Time deposits of $100,000 or more		1,436		1,580		2,245
Total	$	4,967	$	5,706	$	8,913

Aggregate time deposits in denominations of $250,000 or more amounted to $42.8 million and $32.7 million at December 31, 2014 and 2013, respectively.

A summary of the maturity of time deposits at December 31, 2014, follows:

	(In thousands)
2015	$	239,914
2016		88,123
2017		22,569
2018		22,952
2019		15,497
2020 and thereafter		1,072
Total	$	390,127

Time deposits acquired through broker relationships totaled $11.3 million and $13.5 million at December 31, 2014 and 2013, respectively.

Reciprocal deposits totaled $53.7 million and $83.5 million at December 31, 2014 and 2013, respectively. These deposits represent demand, money market and time deposits from our customers that have been placed through Promontory Interfinancial Network’s Insured Cash Sweep® service and Certificate of Deposit Account Registry Service®. These services allow our customers to access multi-million dollar FDIC deposit insurance on deposit balances greater than the standard FDIC insurance maximum.

A summary of reciprocal deposits at December 31 follows:

	2014		2013
	(In thousands)
Demand	$	5,867	$	7,018
Money market		7,692		4,197
Time		40,109		72,312
Total	$	53,668	$	83,527

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LOANS AND PAYMENT PLAN RECEIVABLES, Impaired Financing Receivables (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Impaired loans [Abstract]
TDR		$ 9,325		$ 13,006
Non - TDR		299		334
TDR - allowance based on collateral		5,879		10,085
TDR's allowance based on present value cash flow		94,970		101,131
Non - TDR - allowance based on collateral		2,296		688
Non - TDR - allowance based on present value cash flow		0		0
Total impaired loans		112,769		125,244
Amount of allowance for loan losses allocated [Abstract]
TDR - allowance based on collateral		2,025		3,127
TDR - allowance based on present value cash flow		10,188		11,777
Non - TDR - allowance based on collateral		1,020		254
Non - TDR - allowance based on present value cash flow		0		0
Total amount of allowance for loan losses allocated		13,233		15,158
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		9,652	[1]	13,380	[1]
Unpaid Principal Balance, with no related allowance recorded		10,836	[1]	14,653	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		103,514	[1]	112,333	[1]
Unpaid Principal Balance, with an allowance recorded		108,211	[1]	118,328	[1]
Recorded Investment		113,166	[1]	125,713	[1]
Unpaid Principal Balance		119,047	[1]	132,981	[1]
Related Allowance		13,233	[1]	15,158	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		12,225	[2]	16,800	[2]	14,193	[2]
Interest Income Recognized, with No Related Allowance		469	[2]	1,020	[2]	802	[2]
Average Recorded Investment, with Related Allowance		107,692	[2]	122,200	[2]	145,246	[2]
Interest Income Recognized, with Related Allowance		4,565	[2]	4,846	[2]	5,189	[2]
Average Recorded Investment		119,917	[2]	139,000	[2]	159,439	[2]
Interest Income Recognized		5,034	[2]	5,866	[2]	5,991	[2]
Accrued Interest Included in Recorded Investment [Member]
Impaired Loans by class [Abstract]
Recorded Investment		397	[1]	469	[1]
Commercial [Member]
Sale of certain commercial watch, substandard and Non-performing loans [Abstract]
Watch, substandard and non-performing loans sold, book balance	8,601
Income Producing - Real Estate [Member]
Sale of certain commercial watch, substandard and Non-performing loans [Abstract]
Watch, substandard and non-performing loans sold, book balance	4,570
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		5,868	[1]	7,042	[1]
Unpaid Principal Balance, with no related allowance recorded		6,077	[1]	7,178	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		12,836	[1]	14,538	[1]
Unpaid Principal Balance, with an allowance recorded		13,797	[1]	15,631	[1]
Recorded Investment		18,704	[1]	21,580	[1]
Unpaid Principal Balance		19,874	[1]	22,809	[1]
Related Allowance		689	[1]	1,161	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		7,660	[2]	5,765	[2]	2,981	[2]
Interest Income Recognized, with No Related Allowance		250	[2]	340	[2]	166	[2]
Average Recorded Investment, with Related Allowance		12,772	[2]	18,164	[2]	23,508	[2]
Interest Income Recognized, with Related Allowance		677	[2]	587	[2]	571	[2]
Average Recorded Investment		20,432	[2]	23,929	[2]	26,489	[2]
Interest Income Recognized		927	[2]	927	[2]	737	[2]
Land, Land Development and Construction Real Estate [Member]
Sale of certain commercial watch, substandard and Non-performing loans [Abstract]
Watch, substandard and non-performing loans sold, book balance	401
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		1,051	[1]	2,185	[1]
Unpaid Principal Balance, with no related allowance recorded		1,606	[1]	3,217	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		3,456	[1]	3,366	[1]
Unpaid Principal Balance, with an allowance recorded		3,528	[1]	4,130	[1]
Recorded Investment		4,507	[1]	5,551	[1]
Unpaid Principal Balance		5,134	[1]	7,347	[1]
Related Allowance		499	[1]	686	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		1,145	[2]	3,092	[2]	2,549	[2]
Interest Income Recognized, with No Related Allowance		64	[2]	240	[2]	150	[2]
Average Recorded Investment, with Related Allowance		3,939	[2]	6,186	[2]	10,305	[2]
Interest Income Recognized, with Related Allowance		149	[2]	149	[2]	183	[2]
Average Recorded Investment		5,084	[2]	9,278	[2]	12,854	[2]
Interest Income Recognized		213	[2]	389	[2]	333	[2]
Commercial and Industrial [Member]
Sale of certain commercial watch, substandard and Non-performing loans [Abstract]
Watch, substandard and non-performing loans sold, book balance	3,630
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		2,685	[1]	4,110	[1]
Unpaid Principal Balance, with no related allowance recorded		2,667	[1]	4,087	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		8,251	[1]	9,382	[1]
Unpaid Principal Balance, with an allowance recorded		8,486	[1]	9,529	[1]
Recorded Investment		10,936	[1]	13,492	[1]
Unpaid Principal Balance		11,153	[1]	13,616	[1]
Related Allowance		2,006	[1]	2,031	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		3,351	[2]	3,980	[2]	3,526	[2]
Interest Income Recognized, with No Related Allowance		152	[2]	226	[2]	246	[2]
Average Recorded Investment, with Related Allowance		8,500	[2]	11,795	[2]	17,828	[2]
Interest Income Recognized, with Related Allowance		294	[2]	457	[2]	467	[2]
Average Recorded Investment		11,851	[2]	15,775	[2]	21,354	[2]
Interest Income Recognized		446	[2]	683	[2]	713	[2]
1-4 Family [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		0	[1]	8	[1]
Unpaid Principal Balance, with no related allowance recorded		49	[1]	8	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		53,206	[1]	57,612	[1]
Unpaid Principal Balance, with an allowance recorded		56,063	[1]	60,768	[1]
Recorded Investment		53,206	[1]	57,620	[1]
Unpaid Principal Balance		56,112	[1]	60,776	[1]
Related Allowance		6,195	[1]	7,236	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		29	[2]	5	[2]	290	[2]
Interest Income Recognized, with No Related Allowance		0	[2]	11	[2]	0	[2]
Average Recorded Investment, with Related Allowance		55,877	[2]	60,858	[2]	66,195	[2]
Interest Income Recognized, with Related Allowance		2,286	[2]	2,622	[2]	2,852	[2]
Average Recorded Investment		55,906	[2]	60,863	[2]	66,485	[2]
Interest Income Recognized		2,286	[2]	2,633	[2]	2,852	[2]
Resort Lending [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		48	[1]	35	[1]
Unpaid Principal Balance, with no related allowance recorded		397	[1]	163	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		18,799	[1]	20,171	[1]
Unpaid Principal Balance, with an allowance recorded		18,963	[1]	20,608	[1]
Recorded Investment		18,847	[1]	20,206	[1]
Unpaid Principal Balance		19,360	[1]	20,771	[1]
Related Allowance		3,075	[1]	3,221	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		40	[2]	28	[2]	222	[2]
Interest Income Recognized, with No Related Allowance		1	[2]	0	[2]	0	[2]
Average Recorded Investment, with Related Allowance		19,458	[2]	21,708	[2]	24,286	[2]
Interest Income Recognized, with Related Allowance		753	[2]	836	[2]	1,000	[2]
Average Recorded Investment		19,498	[2]	21,736	[2]	24,508	[2]
Interest Income Recognized		754	[2]	836	[2]	1,000	[2]
Home Equity - 1st Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		0	[1]	0	[1]
Unpaid Principal Balance, with no related allowance recorded		0	[1]	0	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		162	[1]	154	[1]
Unpaid Principal Balance, with an allowance recorded		177	[1]	164	[1]
Recorded Investment		162	[1]	154	[1]
Unpaid Principal Balance		177	[1]	164	[1]
Related Allowance		14	[1]	11	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	0	[2]	0	[2]
Interest Income Recognized, with No Related Allowance		0	[2]	0	[2]	0	[2]
Average Recorded Investment, with Related Allowance		160	[2]	136	[2]	65	[2]
Interest Income Recognized, with Related Allowance		6	[2]	4	[2]	2	[2]
Average Recorded Investment		160	[2]	136	[2]	65	[2]
Interest Income Recognized		6	[2]	4	[2]	2	[2]
Home Equity - 2nd Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		0	[1]	0	[1]
Unpaid Principal Balance, with no related allowance recorded		0	[1]	0	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		125	[1]	42	[1]
Unpaid Principal Balance, with an allowance recorded		205	[1]	118	[1]
Recorded Investment		125	[1]	42	[1]
Unpaid Principal Balance		205	[1]	118	[1]
Related Allowance		27	[1]	20	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	0	[2]	0	[2]
Interest Income Recognized, with No Related Allowance		0	[2]	0	[2]	0	[2]
Average Recorded Investment, with Related Allowance		57	[2]	42	[2]	81	[2]
Interest Income Recognized, with Related Allowance		2	[2]	2	[2]	3	[2]
Average Recorded Investment		57	[2]	42	[2]	81	[2]
Interest Income Recognized		2	[2]	2	[2]	3	[2]
Home Equity - 1st Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		0	[1]	0	[1]
Unpaid Principal Balance, with no related allowance recorded		40	[1]	0	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		2,744	[1]	2,959	[1]
Unpaid Principal Balance, with an allowance recorded		2,930	[1]	3,115	[1]
Recorded Investment		2,744	[1]	2,959	[1]
Unpaid Principal Balance		2,970	[1]	3,115	[1]
Related Allowance		219	[1]	254	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	1,604	[2]	1,961	[2]
Interest Income Recognized, with No Related Allowance		2	[2]	83	[2]	97	[2]
Average Recorded Investment, with Related Allowance		2,837	[2]	1,448	[2]	1,432	[2]
Interest Income Recognized, with Related Allowance		174	[2]	85	[2]	50	[2]
Average Recorded Investment		2,837	[2]	3,052	[2]	3,393	[2]
Interest Income Recognized		176	[2]	168	[2]	147	[2]
Home Equity - 2nd Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		0	[1]	0	[1]
Unpaid Principal Balance, with no related allowance recorded		0	[1]	0	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		3,212	[1]	3,352	[1]
Unpaid Principal Balance, with an allowance recorded		3,215	[1]	3,347	[1]
Recorded Investment		3,212	[1]	3,352	[1]
Unpaid Principal Balance		3,215	[1]	3,347	[1]
Related Allowance		419	[1]	462	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	1,841	[2]	2,093	[2]
Interest Income Recognized, with No Related Allowance		0	[2]	96	[2]	111	[2]
Average Recorded Investment, with Related Allowance		3,359	[2]	1,546	[2]	1,325	[2]
Interest Income Recognized, with Related Allowance		188	[2]	86	[2]	51	[2]
Average Recorded Investment		3,359	[2]	3,387	[2]	3,418	[2]
Interest Income Recognized		188	[2]	182	[2]	162	[2]
Loans Not Secured By Real Estate [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		0	[1]	0	[1]
Unpaid Principal Balance, with no related allowance recorded		0	[1]	0	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		711	[1]	741	[1]
Unpaid Principal Balance, with an allowance recorded		835	[1]	902	[1]
Recorded Investment		711	[1]	741	[1]
Unpaid Principal Balance		835	[1]	902	[1]
Related Allowance		89	[1]	75	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	470	[2]	549	[2]
Interest Income Recognized, with No Related Allowance		0	[2]	23	[2]	30	[2]
Average Recorded Investment, with Related Allowance		719	[2]	314	[2]	221	[2]
Interest Income Recognized, with Related Allowance		35	[2]	17	[2]	10	[2]
Average Recorded Investment		719	[2]	784	[2]	770	[2]
Interest Income Recognized		35	[2]	40	[2]	40	[2]
Other [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded		0	[1]	0	[1]
Unpaid Principal Balance, with no related allowance recorded		0	[1]	0	[1]
With no related allowance recorded		0	[1]	0	[1]
Recorded Investment, with an allowance recorded		12	[1]	16	[1]
Unpaid Principal Balance, with an allowance recorded		12	[1]	16	[1]
Recorded Investment		12	[1]	16	[1]
Unpaid Principal Balance		12	[1]	16	[1]
Related Allowance		1	[1]	1	[1]
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance		0	[2]	15	[2]	22	[2]
Interest Income Recognized, with No Related Allowance		0	[2]	1	[2]	2	[2]
Average Recorded Investment, with Related Allowance		14	[2]	3	[2]	0	[2]
Interest Income Recognized, with Related Allowance		1	[2]	1	[2]	0	[2]
Average Recorded Investment		14	[2]	18	[2]	22	[2]
Interest Income Recognized		$ 1	[2]	$ 2	[2]	$ 2	[2]

[1] There were no impaired payment plan receivables at December 31, 2014 or 2013.

[2] There were no impaired payment plan receivables during the years ending December 31, 2014, 2013 and 2012.

XML

FAIR VALUE DISCLOSURES, Part 1 (Details) (USD $)	Dec. 31, 2014		Dec. 31, 2013
FAIR VALUE DISCLOSURES [Abstract]
Value of collateral-dependent impaired loans that will be reviewed by independent third party, minimum	$ 250,000
Value of collateral-dependent impaired loans that will be reviewed by special assets group, maximum	250,000
Assets [Abstract]
Trading securities	203,000		498,000
Securities available for sale	533,178,000		462,481,000
U.S. Agency [Member]
Assets [Abstract]
Securities available for sale	35,006,000		31,808,000
U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	257,558,000		203,460,000
U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	33,728,000
Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	6,013,000		6,788,000
Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale	32,353,000		45,185,000
Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale	143,415,000		153,678,000
Corporate [Member]
Assets [Abstract]
Securities available for sale	22,664,000		19,137,000
Trust Preferred [Member]
Assets [Abstract]
Securities available for sale	2,441,000		2,425,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities	203,000		498,000
Loans held for sale	23,662,000		20,390,000
Derivatives	619,000	[1]	494,000	[1]
Liabilities [Abstract]
Derivatives	366,000	[2]	0	[2]
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale	35,006,000		31,808,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	257,558,000		203,460,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	33,728,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	6,013,000		6,788,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale	32,353,000		45,185,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale	143,415,000		153,678,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale	22,664,000		19,137,000
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale	2,441,000		2,425,000
Fair Value Measurements [Member] | Fair Value, Measurements, Nonrecurring [Member]
ASSETS [Abstract]
Capitalized mortgage loan servicing rights	9,197,000	[3]	7,773,000	[3]
Fair Value Measurements [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	869,000	[4]	1,997,000	[4]
Land, land development & construction - real estate	354,000	[4]	673,000	[4]
Commercial and industrial	2,601,000	[4]	2,927,000	[4]
Mortgage [Abstract]
1-4 Family	1,306,000	[4]	1,455,000	[4]
Resort Lending			340,000	[4]
Commercial [Abstract]
Income producing - real estate	869,000	[4]	1,997,000	[4]
Land, land development & construction - real estate	354,000	[4]	673,000	[4]
Commercial and industrial	2,601,000	[4]	2,927,000	[4]
Mortgage [Abstract]
1-4 Family	1,306,000	[4]	1,455,000	[4]
Resort Lending			340,000	[4]
Fair Value Measurements [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Income producing - real estate	479,000	[5]	559,000	[5]
Land, land development & construction - real estate	737,000	[5]	1,047,000	[5]
Mortgage [Abstract]
1-4 Family	102,000	[5]	337,000	[5]
Resort Lending	575,000	[5]	1,257,000	[5]
Commercial [Abstract]
Income producing - real estate	479,000	[5]	559,000	[5]
Land, land development & construction - real estate	737,000	[5]	1,047,000	[5]
Mortgage [Abstract]
1-4 Family	102,000	[5]	337,000	[5]
Resort Lending	575,000	[5]	1,257,000	[5]
Installment [Abstract]
Home equity - 1st lien	13,000	[5]	29,000	[5]
Payment plan receivables [Abstract]
Full refund/partial refund			2,668,000	[5]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Trading securities	203,000		498,000
Securities available for sale	0		0
Derivatives	0		0
Liabilities [Abstract]
Derivatives	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities	203,000		498,000
Loans held for sale	0		0
Derivatives	0	[1]	0	[1]
Liabilities [Abstract]
Derivatives	0	[2]	0	[2]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Nonrecurring [Member]
ASSETS [Abstract]
Capitalized mortgage loan servicing rights	0	[3]	0	[3]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	0	[4]	0	[4]
Land, land development & construction - real estate	0	[4]	0	[4]
Commercial and industrial	0	[4]	0	[4]
Mortgage [Abstract]
1-4 Family	0	[4]	0	[4]
Resort Lending			0	[4]
Commercial [Abstract]
Income producing - real estate	0	[4]	0	[4]
Land, land development & construction - real estate	0	[4]	0	[4]
Commercial and industrial	0	[4]	0	[4]
Mortgage [Abstract]
1-4 Family	0	[4]	0	[4]
Resort Lending			0	[4]
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Income producing - real estate	0	[5]	0	[5]
Land, land development & construction - real estate	0	[5]	0	[5]
Mortgage [Abstract]
1-4 Family	0	[5]	0	[5]
Resort Lending	0	[5]	0	[5]
Commercial [Abstract]
Income producing - real estate	0	[5]	0	[5]
Land, land development & construction - real estate	0	[5]	0	[5]
Mortgage [Abstract]
1-4 Family	0	[5]	0	[5]
Resort Lending	0	[5]	0	[5]
Installment [Abstract]
Home equity - 1st lien	0	[5]	0	[5]
Payment plan receivables [Abstract]
Full refund/partial refund			0	[5]
Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Trading securities	0		0
Securities available for sale	533,178,000		462,481,000
Derivatives	619,000		494,000
Liabilities [Abstract]
Derivatives	366,000		0
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities	0		0
Loans held for sale	23,662,000		20,390,000
Derivatives	619,000	[1]	494,000	[1]
Liabilities [Abstract]
Derivatives	366,000	[2]	0	[2]
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale	35,006,000		31,808,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	257,558,000		203,460,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	33,728,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	6,013,000		6,788,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale	32,353,000		45,185,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale	143,415,000		153,678,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale	22,664,000		19,137,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale	2,441,000		2,425,000
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member]
ASSETS [Abstract]
Capitalized mortgage loan servicing rights	0	[3]	0	[3]
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	0	[4]	0	[4]
Land, land development & construction - real estate	0	[4]	0	[4]
Commercial and industrial	0	[4]	0	[4]
Mortgage [Abstract]
1-4 Family	0	[4]	0	[4]
Resort Lending			0	[4]
Commercial [Abstract]
Income producing - real estate	0	[4]	0	[4]
Land, land development & construction - real estate	0	[4]	0	[4]
Commercial and industrial	0	[4]	0	[4]
Mortgage [Abstract]
1-4 Family	0	[4]	0	[4]
Resort Lending			0	[4]
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Income producing - real estate	0	[5]	0	[5]
Land, land development & construction - real estate	0	[5]	0	[5]
Mortgage [Abstract]
1-4 Family	0	[5]	0	[5]
Resort Lending	0	[5]	0	[5]
Commercial [Abstract]
Income producing - real estate	0	[5]	0	[5]
Land, land development & construction - real estate	0	[5]	0	[5]
Mortgage [Abstract]
1-4 Family	0	[5]	0	[5]
Resort Lending	0	[5]	0	[5]
Installment [Abstract]
Home equity - 1st lien	0	[5]	0	[5]
Payment plan receivables [Abstract]
Full refund/partial refund			0	[5]
Significant Unobservable Inputs (Level 3) [Member]
Assets [Abstract]
Trading securities	0		0
Securities available for sale	0		0
Derivatives	0		0
Liabilities [Abstract]
Derivatives	0		0
ASSETS [Abstract]
Capitalized mortgage loan servicing rights	9,197,000		7,773,000
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities	0		0
Loans held for sale	0		0
Derivatives	0	[1]	0	[1]
Liabilities [Abstract]
Derivatives	0	[2]	0	[2]
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale	0		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	0		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale	0		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale	0		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale	0		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale	0		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale	0		0
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member]
ASSETS [Abstract]
Capitalized mortgage loan servicing rights	9,197,000	[3]	7,773,000	[3]
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	869,000	[4]	1,997,000	[4]
Land, land development & construction - real estate	354,000	[4]	673,000	[4]
Commercial and industrial	2,601,000	[4]	2,927,000	[4]
Mortgage [Abstract]
1-4 Family	1,306,000	[4]	1,455,000	[4]
Resort Lending			340,000	[4]
Commercial [Abstract]
Income producing - real estate	869,000	[4]	1,997,000	[4]
Land, land development & construction - real estate	354,000	[4]	673,000	[4]
Commercial and industrial	2,601,000	[4]	2,927,000	[4]
Mortgage [Abstract]
1-4 Family	1,306,000	[4]	1,455,000	[4]
Resort Lending			340,000	[4]
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Income producing - real estate	479,000	[5]	559,000	[5]
Land, land development & construction - real estate	737,000	[5]	1,047,000	[5]
Mortgage [Abstract]
1-4 Family	102,000	[5]	337,000	[5]
Resort Lending	575,000	[5]	1,257,000	[5]
Commercial [Abstract]
Income producing - real estate	479,000	[5]	559,000	[5]
Land, land development & construction - real estate	737,000	[5]	1,047,000	[5]
Mortgage [Abstract]
1-4 Family	102,000	[5]	337,000	[5]
Resort Lending	575,000	[5]	1,257,000	[5]
Installment [Abstract]
Home equity - 1st lien	13,000	[5]	29,000	[5]
Payment plan receivables [Abstract]
Full refund/partial refund			$ 2,668,000	[5]

[1] Included in accrued income and other assets

[2] Included in accrued expenses and other liabilities

[3] Only includes servicing rights that are carried at fair value due to recognition of a valuation allowance.

[4] Only includes impaired loans with specific loss allocations based on collateral value.

[5] Only includes other real estate with subsequent write downs to fair value.

XML

LOANS AND PAYMENT PLAN RECEIVABLES, Loan Ratings by Loan Class (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014		Dec. 31, 2013
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	$ 690,955		$ 635,234
Accrued interest included in total	4,454		4,579
Credit ratings of insurer or risk retention group counterparties [Abstract]
Subsidiary's outstanding payment plan insured by third party (in hundredths)	69.60%
Subsidiary's payment outstanding payment plan 2, insured by third party (in hundredths)	17.70%
Payment Plan Receivables, Full Refund	27,853		48,077
Payment Plan Receivables, Partial Refund	7,094		5,053
Payment Plan Receivables, Other	5,054		7,508
Total	40,001		60,638
Commercial [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	692,570		636,858
Accrued interest included in total	1,615		1,624
Commercial [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	645,082		571,794
Accrued interest included in total	1,479		1,433
Commercial [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	34,609		49,014
Accrued interest included in total	111		147
Commercial [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	8,306		10,681
Accrued interest included in total	25		44
Commercial [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	4,573		5,369
Accrued interest included in total	0		0
Income Producing - Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	253,066		251,633
Income Producing - Real Estate [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	241,266		227,957
Income Producing - Real Estate [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	8,649		17,882
Income Producing - Real Estate [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	1,918		3,895
Income Producing - Real Estate [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	1,233		1,899
Land, Land Development and Construction Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	34,338		31,836
Land, Land Development and Construction Real Estate [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	30,869		25,654
Land, Land Development and Construction Real Estate [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	2,485		4,829
Land, Land Development and Construction Real Estate [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	390		317
Land, Land Development and Construction Real Estate [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	594		1,036
Commercial and Industrial [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	405,166		353,389
Commercial and Industrial [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	372,947		318,183
Commercial and Industrial [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	23,475		26,303
Commercial and Industrial [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	5,998		6,469
Commercial and Industrial [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan	2,746		2,434
Mortgage [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	52,490	[1]	46,415	[1]
750-799	139,075	[1]	133,977	[1]
700-749	98,199	[1]	105,953	[1]
650-699	83,365	[1]	80,928	[1]
600-649	39,874	[1]	51,308	[1]
550-599	27,715	[1]	31,527	[1]
500-549	18,831	[1]	19,298	[1]
Under 500	8,074	[1]	11,335	[1]
Unknown	7,175	[1]	8,168	[1]
Total	474,798	[1]	488,909	[1]
Accrued interest included in total	2,170	[1]	2,276	[1]
1-4 Family [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	27,918	[1]	23,924	[1]
750-799	72,674	[1]	60,728	[1]
700-749	52,843	[1]	58,269	[1]
650-699	51,664	[1]	49,771	[1]
600-649	27,770	[1]	34,991	[1]
550-599	21,361	[1]	24,616	[1]
500-549	14,575	[1]	14,823	[1]
Under 500	6,306	[1]	9,492	[1]
Unknown	4,075	[1]	4,809	[1]
Total	279,186	[1]	281,423	[1]
Accrued interest included in total	1,311	[1]	1,300	[1]
Resort Lending [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	14,484	[1]	13,487	[1]
750-799	45,950	[1]	56,880	[1]
700-749	32,660	[1]	35,767	[1]
650-699	20,250	[1]	21,696	[1]
600-649	6,538	[1]	8,555	[1]
550-599	3,639	[1]	3,261	[1]
500-549	2,156	[1]	2,271	[1]
Under 500	875	[1]	1,160	[1]
Unknown	2,184	[1]	2,879	[1]
Total	128,736	[1]	145,956	[1]
Accrued interest included in total	562	[1]	650	[1]
Home Equity - 1st Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	3,863	[1]	3,650	[1]
750-799	6,128	[1]	4,560	[1]
700-749	3,054	[1]	3,289	[1]
650-699	3,257	[1]	2,316	[1]
600-649	1,704	[1]	2,621	[1]
550-599	994	[1]	1,165	[1]
500-549	699	[1]	644	[1]
Under 500	261	[1]	323	[1]
Unknown	242	[1]	233	[1]
Total	20,202	[1]	18,801	[1]
Accrued interest included in total	88	[1]	97	[1]
Home Equity - 2nd Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	6,225	[1]	5,354	[1]
750-799	14,323	[1]	11,809	[1]
700-749	9,642	[1]	8,628	[1]
650-699	8,194	[1]	7,145	[1]
600-649	3,862	[1]	5,141	[1]
550-599	1,721	[1]	2,485	[1]
500-549	1,401	[1]	1,560	[1]
Under 500	632	[1]	360	[1]
Unknown	674	[1]	247	[1]
Total	46,674	[1]	42,729	[1]
Accrued interest included in total	209	[1]	229	[1]
Installment [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	36,674	[1]	29,741	[1]
750-799	81,375	[1]	66,924	[1]
700-749	38,337	[1]	39,866	[1]
650-699	26,207	[1]	27,549	[1]
600-649	11,225	[1]	11,544	[1]
550-599	5,962	[1]	7,925	[1]
500-549	3,920	[1]	5,060	[1]
Under 500	1,303	[1]	1,959	[1]
Unknown	2,044	[1]	2,176	[1]
Total	207,047	[1]	192,744	[1]
Accrued interest included in total	669	[1]	679	[1]
Home Equity - 1st Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	2,272	[1]	2,977	[1]
750-799	5,677	[1]	6,585	[1]
700-749	3,111	[1]	4,353	[1]
650-699	3,963	[1]	4,815	[1]
600-649	3,434	[1]	3,173	[1]
550-599	2,019	[1]	2,843	[1]
500-549	1,128	[1]	1,483	[1]
Under 500	393	[1]	751	[1]
Unknown	77	[1]	162	[1]
Total	22,074	[1]	27,142	[1]
Accrued interest included in total	93	[1]	114	[1]
Home Equity - 2nd Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	2,835	[1]	3,062	[1]
750-799	8,557	[1]	11,197	[1]
700-749	6,358	[1]	9,487	[1]
650-699	5,477	[1]	6,832	[1]
600-649	2,408	[1]	2,824	[1]
550-599	1,913	[1]	2,084	[1]
500-549	1,036	[1]	1,715	[1]
Under 500	427	[1]	663	[1]
Unknown	81	[1]	80	[1]
Total	29,092	[1]	37,944	[1]
Accrued interest included in total	112	[1]	144	[1]
Loans Not Secured By Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	31,507	[1]	23,649	[1]
750-799	66,558	[1]	48,585	[1]
700-749	28,179	[1]	25,343	[1]
650-699	16,152	[1]	15,256	[1]
600-649	5,128	[1]	5,289	[1]
550-599	1,896	[1]	2,785	[1]
500-549	1,672	[1]	1,732	[1]
Under 500	455	[1]	516	[1]
Unknown	1,842	[1]	1,892	[1]
Total	153,389	[1]	125,047	[1]
Accrued interest included in total	445	[1]	399	[1]
Other [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	60	[1]	53	[1]
750-799	583	[1]	557	[1]
700-749	689	[1]	683	[1]
650-699	615	[1]	646	[1]
600-649	255	[1]	258	[1]
550-599	134	[1]	213	[1]
500-549	84	[1]	130	[1]
Under 500	28	[1]	29	[1]
Unknown	44	[1]	42	[1]
Total	2,492	[1]	2,611	[1]
Accrued interest included in total	19	[1]	22	[1]
AM Best Rating A+ [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund	0
Payment Plan Receivables, Partial Refund	43
Payment Plan Receivables, Other	0
Total	43
AM Best Rating, A Ratings [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund	10,007		20,203
Payment Plan Receivables, Partial Refund	6,190		4,221
Payment Plan Receivables, Other	0		0
Total	16,197		24,424
AM Best Rating, A Minus Rating [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund	1,989		4,058
Payment Plan Receivables, Partial Refund	685		832
Payment Plan Receivables, Other	5,054		7,496
Total	7,728		12,386
Not Rated [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund	15,857		23,816
Payment Plan Receivables, Partial Refund	176		0
Payment Plan Receivables, Other	0		12
Total	$ 16,033		$ 23,828

[1] Credit scores have been updated within the last twelve months.

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LOANS AND PAYMENT PLAN RECEIVABLES, Receivables Past Due (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Non performing loans [Abstract]
Accrued Interest	$ 800,000	$ 1,200,000	$ 2,300,000
Interest Income	0	100,000	100,000
Aging analysis of loans by class [Abstract]
Total Loans	1,409,962,000	1,374,570,000
Total Recorded Investment [Member]
Non performing loans [Abstract]
Non-accrual loans	15,231,000	17,905,000
Loans 90 days or more past due and still accruing interest	7,000	0
90+ and Still Accruing	7,000	0
Non-Accrual	15,231,000	17,905,000
Total Non-performing Loans	15,238,000	17,905,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	8,246,000	11,857,000
Loans Past Due 60 to 89 days	2,769,000	3,689,000
Loans Past Due 90+ days	11,311,000	13,988,000
Total	22,326,000	29,534,000
Loans not Past Due	1,392,090,000	1,349,615,000
Total Loans	1,414,416,000	1,379,149,000
Accrued Interest Included in Recorded Investment [Member]
Non performing loans [Abstract]
Non-accrual loans	0	0
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	0	0
Total Non-performing Loans	0	0
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	55,000	100,000
Loans Past Due 60 to 89 days	29,000	26,000
Loans Past Due 90+ days	0	0
Total	84,000	126,000
Loans not Past Due	4,370,000	4,453,000
Total Loans	4,454,000	4,579,000
Commercial [Member]
Aging analysis of loans by class [Abstract]
Total Loans	690,955,000	635,234,000
Income Producing - Real Estate [Member]
Non performing loans [Abstract]
Non-accrual loans	1,233,000	1,899,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	1,233,000	1,899,000
Total Non-performing Loans	1,233,000	1,899,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	89,000	1,014,000
Loans Past Due 60 to 89 days	0	428,000
Loans Past Due 90+ days	214,000	878,000
Total	303,000	2,320,000
Loans not Past Due	252,763,000	249,313,000
Total Loans	253,066,000	251,633,000
Land, Land Development and Construction Real Estate [Member]
Non performing loans [Abstract]
Non-accrual loans	594,000	1,036,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	594,000	1,036,000
Total Non-performing Loans	594,000	1,036,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	131,000	781,000
Loans Past Due 60 to 89 days	0	129,000
Loans Past Due 90+ days	223,000	256,000
Total	354,000	1,166,000
Loans not Past Due	33,984,000	30,670,000
Total Loans	34,338,000	31,836,000
Commercial and Industrial [Member]
Non performing loans [Abstract]
Non-accrual loans	2,746,000	2,434,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	2,746,000	2,434,000
Total Non-performing Loans	2,746,000	2,434,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	2,391,000	1,155,000
Loans Past Due 60 to 89 days	279,000	1,665,000
Loans Past Due 90+ days	209,000	318,000
Total	2,879,000	3,138,000
Loans not Past Due	402,287,000	350,251,000
Total Loans	405,166,000	353,389,000
Mortgage [Member]
Aging analysis of loans by class [Abstract]
Total Loans	472,628,000	486,633,000
1-4 Family [Member]
Non performing loans [Abstract]
Non-accrual loans	5,945,000	6,594,000
Loans 90 days or more past due and still accruing interest	7,000	0
90+ and Still Accruing	7,000	0
Non-Accrual	5,945,000	6,594,000
Total Non-performing Loans	5,952,000	6,594,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	1,877,000	3,750,000
Loans Past Due 60 to 89 days	1,638,000	224,000
Loans Past Due 90+ days	5,952,000	6,594,000
Total	9,467,000	10,568,000
Loans not Past Due	269,719,000	270,855,000
Total Loans	279,186,000	281,423,000
Resort Lending [Member]
Non performing loans [Abstract]
Non-accrual loans	2,168,000	2,668,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	2,168,000	2,668,000
Total Non-performing Loans	2,168,000	2,668,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	226,000	698,000
Loans Past Due 60 to 89 days	0	234,000
Loans Past Due 90+ days	2,168,000	2,668,000
Total	2,394,000	3,600,000
Loans not Past Due	126,342,000	142,356,000
Total Loans	128,736,000	145,956,000
Home Equity - 1st Lien [Member]
Non performing loans [Abstract]
Non-accrual loans	331,000	415,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	331,000	415,000
Total Non-performing Loans	331,000	415,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	39,000	172,000
Loans Past Due 60 to 89 days	50,000	0
Loans Past Due 90+ days	331,000	415,000
Total	420,000	587,000
Loans not Past Due	19,782,000	18,214,000
Total Loans	20,202,000	18,801,000
Home Equity - 2nd Lien [Member]
Non performing loans [Abstract]
Non-accrual loans	605,000	689,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	605,000	689,000
Total Non-performing Loans	605,000	689,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	711,000	663,000
Loans Past Due 60 to 89 days	89,000	73,000
Loans Past Due 90+ days	605,000	689,000
Total	1,405,000	1,425,000
Loans not Past Due	45,269,000	41,304,000
Total Loans	46,674,000	42,729,000
Installment [Member]
Aging analysis of loans by class [Abstract]
Total Loans	206,378,000	192,065,000
Home Equity - 1st Lien [Member]
Non performing loans [Abstract]
Non-accrual loans	576,000	938,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	576,000	938,000
Total Non-performing Loans	576,000	938,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	466,000	557,000
Loans Past Due 60 to 89 days	37,000	134,000
Loans Past Due 90+ days	576,000	938,000
Total	1,079,000	1,629,000
Loans not Past Due	20,995,000	25,513,000
Total Loans	22,074,000	27,142,000
Home Equity - 2nd Lien [Member]
Non performing loans [Abstract]
Non-accrual loans	517,000	571,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	517,000	571,000
Total Non-performing Loans	517,000	571,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	369,000	536,000
Loans Past Due 60 to 89 days	81,000	136,000
Loans Past Due 90+ days	517,000	571,000
Total	967,000	1,243,000
Loans not Past Due	28,125,000	36,701,000
Total Loans	29,092,000	37,944,000
Loans Not Secured By Real Estate [Member]
Non performing loans [Abstract]
Non-accrual loans	454,000	638,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	454,000	638,000
Total Non-performing Loans	454,000	638,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	589,000	833,000
Loans Past Due 60 to 89 days	231,000	281,000
Loans Past Due 90+ days	454,000	638,000
Total	1,274,000	1,752,000
Loans not Past Due	152,115,000	123,295,000
Total Loans	153,389,000	125,047,000
Other [Member]
Non performing loans [Abstract]
Non-accrual loans	48,000	0
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	48,000	0
Total Non-performing Loans	48,000	0
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	15,000	22,000
Loans Past Due 60 to 89 days	3,000	12,000
Loans Past Due 90+ days	48,000	0
Total	66,000	34,000
Loans not Past Due	2,426,000	2,577,000
Total Loans	2,492,000	2,611,000
Payment Plan Receivables [Member]
Aging analysis of loans by class [Abstract]
Total Loans	40,001,000	60,638,000
Full Refund [Member]
Non performing loans [Abstract]
Non-accrual loans	2,000	20,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	2,000	20,000
Total Non-performing Loans	2,000	20,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	838,000	1,364,000
Loans Past Due 60 to 89 days	214,000	349,000
Loans Past Due 90+ days	2,000	20,000
Total	1,054,000	1,733,000
Loans not Past Due	26,799,000	46,344,000
Total Loans	27,853,000	48,077,000
Partial Refund [Member]
Non performing loans [Abstract]
Non-accrual loans	12,000	3,000
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	12,000	3,000
Total Non-performing Loans	12,000	3,000
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	409,000	190,000
Loans Past Due 60 to 89 days	123,000	20,000
Loans Past Due 90+ days	12,000	3,000
Total	544,000	213,000
Loans not Past Due	6,550,000	4,840,000
Total Loans	7,094,000	5,053,000
Others [Member]
Non performing loans [Abstract]
Non-accrual loans	0	0
Loans 90 days or more past due and still accruing interest	0	0
90+ and Still Accruing	0	0
Non-Accrual	0	0
Total Non-performing Loans	0	0
Aging analysis of loans by class [Abstract]
Loans Past Due 30-59 days	96,000	122,000
Loans Past Due 60 to 89 days	24,000	4,000
Loans Past Due 90+ days	0	0
Total	120,000	126,000
Loans not Past Due	4,934,000	7,382,000
Total Loans	$ 5,054,000	$ 7,508,000

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INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 48,326	$ 48,156
Interest bearing deposits - time	13,561	17,999
Other assets	23,590	22,562
Total Assets	2,248,730	2,209,943	2,023,867
LIABILITIES AND SHAREHOLDERS' EQUITY
Subordinated debentures	35,569	40,723
Other liabilities	24,041	31,556
Stockholders' equity	250,371	231,581	134,975	102,627
Total Liabilities and Shareholders' Equity	2,248,730	2,209,943
OPERATING INCOME (LOSS)
Gains on extinguishment of debt	500	0	0
Interest income	80,555	87,121	99,398
Increase in fair value of U.S. Treasury warrant	0	(1,025)	(285)
OPERATING EXPENSES
Interest expense	7,299	9,162	13,143
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries	25,216	22,658	26,198
Income tax benefit	7,195	(54,851)	0
Net Income	18,021	77,509	26,198
CONDENSED STATEMENTS OF CASH FLOWS [Abstract]
Net Income	18,021	77,509	26,198
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes	8,918	(57,550)	0
Gains on extinguishment of debt	(500)	0	0
Share based compensation	1,192	1,238	869
(Increase) decrease in other assets	(2,579)	7,747	(2,425)
Increase (decrease) in other liabilities	(7,213)	(3,508)	6,606
Total Adjustments	(4,950)	(25,439)	3,195
Net Cash From Operating Activities	13,071	52,070	29,393
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits	(2,401)	(20,260)	0
Maturity of interest bearing deposits	6,719	2,142	0
Net Cash From Investing Activities	(82,116)	(221,068)	(273,895)
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid	(4,129)	0	0
Proceeds from issuance of common stock	97	98,066	1,418
Redemption of subordinated debt	(4,654)	(9,452)	0
Redemption of convertible preferred stock and common stock warrant	0	(81,000)	0
Share based compensation withholding obligations	0	(513)	0
Net Cash From Financing Activities	23,980	108,297	83,176
Net Decrease in Cash and Cash Equivalents	(45,065)	(60,701)	(161,326)
Cash and Cash Equivalents at Beginning of Year	119,081	179,782	341,108
Cash and Cash Equivalents at End of Year	74,016	119,081	179,782
Parent Company [Member]
ASSETS
Cash and due from banks	5,174	11,654
Interest bearing deposits - time	12,500	0
Investment in subsidiaries	258,901	251,529
Other assets	9,583	9,165
Total Assets	286,158	272,348
LIABILITIES AND SHAREHOLDERS' EQUITY
Subordinated debentures	35,569	40,723
Other liabilities	382	391
Stockholders' equity	250,207	231,234
Total Liabilities and Shareholders' Equity	286,158	272,348
OPERATING INCOME (LOSS)
Gains on extinguishment of debt	500	0	0
Gain on securities	295	0	0
Interest income	64	0	0
Increase in fair value of U.S. Treasury warrant	0	(1,025)	(285)
Other income	35	63	70
Total Operating Income (Loss)	894	(962)	(215)
OPERATING EXPENSES
Interest expense	1,462	2,317	2,779
Administrative and other expenses	527	682	683
Total Operating Expenses	1,989	2,999	3,462
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries	(1,095)	(3,961)	(3,677)
Income tax benefit	(383)	(9,053)	0
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries	(712)	5,092	(3,677)
Equity in undistributed net income of subsidiaries	18,733	72,417	29,875
Net Income	18,021	77,509	26,198
CONDENSED STATEMENTS OF CASH FLOWS [Abstract]
Net Income	18,021	77,509	26,198
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes	(383)	(8,955)	0
Gains on extinguishment of debt	(500)	0	0
Gain on securities	(295)	0	0
Share based compensation	46	84	184
(Increase) decrease in other assets	118	738	(46)
Increase (decrease) in other liabilities	287	(5,858)	2,945
Equity in undistributed net income of subsidiaries operations	(18,733)	(72,417)	(29,875)
Total Adjustments	(19,460)	(86,408)	(26,792)
Net Cash From Operating Activities	(1,439)	(8,899)	(594)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits	(17,500)	0	0
Maturity of interest bearing deposits	5,000	0	0
Return of capital from subsidiary	15,000	7,500	0
Net Cash From Investing Activities	2,500	7,500	0
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid	(4,129)	0	0
Proceeds from issuance of common stock	1,242	100,230	2,244
Redemption of subordinated debt	(4,654)	(9,452)	0
Redemption of convertible preferred stock and common stock warrant	0	(81,000)	0
Share based compensation withholding obligations	0	(513)	0
Net Cash From Financing Activities	(7,541)	9,265	2,244
Net Decrease in Cash and Cash Equivalents	(6,480)	7,866	1,650
Cash and Cash Equivalents at Beginning of Year	11,654	3,788	2,138
Cash and Cash Equivalents at End of Year	$ 5,174	$ 11,654	$ 3,788

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BRANCH SALE

12 Months Ended

Dec. 31, 2014

BRANCH SALE [Abstract]

BRANCH SALE

NOTE 26 – BRANCH SALE

On December 7, 2012 we sold 21 branches to another financial institution (the “Branch Sale”). The branches sold included six branch locations in the Battle Creek, Michigan market area and 15 branch locations 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. We also sold approximately $48.0 million of loans at a discount of 1.75% and premises and equipment totaling approximately $8.1 million. The Branch Sale also resulted in 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. This gain is net of an allocation of $2.6 million of existing core deposit intangibles, a $2.5 million loss on the sale of premises and equipment, a $0.2 million loss on the sale of loans and $0.8 million in transaction and other related net costs.

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LEASES (Tables)

12 Months Ended

Dec. 31, 2014

LEASES [Abstract]

Summary of future minimum lease payments under non-cancelable operating leases

A summary of future minimum lease payments under non-cancelable operating leases at December 31, 2014, follows:

	(In thousands)
2015	$	1,254
2016		767
2017		686
2018		652
2019		561
2020 and thereafter		783
Total	$	4,703

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INCOME TAX

12 Months Ended

Dec. 31, 2014

INCOME TAX [Abstract]

INCOME TAX

NOTE 13 – INCOME TAX

The composition of income tax expense (benefit) for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Current	$	(359	)	$	(277	)	$	-
Deferred		7,672			-			-
Disproportionate tax effect		-			1,444			-
Valuation allowance - change in estimate		(118	)		(56,018	)		-
Income tax expense (benefit)	$	7,195		$	(54,851	)	$	-

Income tax expense (benefit) was $7.2 million, $(54.9) million and zero during the years ended December 31, 2014, 2013 and 2012.  Prior to the second quarter of 2013, we had established a deferred tax asset valuation allowance against all of our net deferred tax assets.  The reversal of substantially all of this valuation allowance on our deferred tax assets during the second quarter of 2013 resulted in our recording an income tax benefit of $57.6 million.  In addition, during the second quarter of 2013, we recorded $1.4 million of income tax expense to clear from accumulated other comprehensive loss (“AOCL”) the disproportionate tax effects from cash flow hedges.  These disproportionate tax effects had been charged to other comprehensive income and credited to income tax expense due to our valuation allowance on deferred tax assets as more fully discussed in note #24 to the Consolidated Financial Statements.  Because we terminated our last remaining cash flow hedge in the second quarter of 2013, it was appropriate to clear these disproportionate tax effects from AOCL.  During 2012, income tax expense related to income before income tax was largely offset by the change in the deferred tax valuation allowance. As a result, we recorded no income tax expense or benefit in 2012.

The income tax expense (benefit) in the Consolidated Statements of Operations also includes income taxes in a variety of other states due primarily to Mepco’s operations. The amounts of such state income taxes were an expense (benefit) of zero, $(0.2) million, and zero in 2014, 2013 and 2012, respectively.

The deferred income tax expense of $7.7 million during 2014 can be primarily attributed to tax effects of temporary differences. The deferred income tax benefit of $56.0 million during 2013 is attributed to the reversal of our deferred tax valuation allowance on primarily all of our deferred tax assets.

A reconciliation of income tax benefit to the amount computed by applying the statutory federal income tax rate of 35% in each year presented to the income before income tax for the years ended December 31 follows:

	2014			2013			2012
	(In thousands)
Statutory rate applied to income before income tax	$	8,826		$	7,930		$	9,169
Unrecognized tax benefit		(595	)		(186	)		-
Tax-exempt income		(522	)		(402	)		(453	)
Bank owned life insurance		(480	)		(477	)		(568	)
Net change in valuation allowance		(118	)		(63,980	)		(8,730	)
Non-deductible meals, entertainment and memberships		53			55			55
Disproportionate tax effect		-			1,444			-
U.S. Treasury warrant		-			359			100
Share-based compensation		-			8			258
Other, net		31			398			169
Income tax expense (benefit)	$	7,195		$	(54,851	)	$	-

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 follow:

	2014			2013
	(In thousands)
Deferred tax assets
Loss carryforwards	$	32,933		$	38,027
Allowance for loan losses		9,099			11,317
Fixed assets		3,239			3,081
Alternative minimum tax credit carry forward		3,037			2,672
Purchase premiums, net		2,050			2,280
Valuation allowance on other real estate owned		879			1,431
Share based payments		684			402
Unrealized loss on trading securities		559			456
Vehicle service contract counterparty contingency reserve		521			523
Deferred compensation		448			523
Other than temporary impairment charge on securities available for sale		436			466
Non accrual loan interest income		244			325
Loss reimbursement on sold loans reserve		242			492
Reserve for unfunded lending commitments		189			178
Unrealized loss on derivative financial instruments		-			133
Unrealized loss on securities available for sale		-			1,723
Other		-			40
Gross deferred tax assets		54,560			64,069
Valuation allowance		(1,019	)		(1,137	)
Total net deferred tax assets		53,541			62,932
Deferred tax liabilities
Mortgage servicing rights		4,237			4,799
Deferred loan fees		260			265
Federal Home Loan Bank stock		196			318
Unrealized gain on securities available for sale		87			-
Other		129			-
Gross deferred tax liabilities		4,909			5,382
Net deferred tax assets	$	48,632		$	57,550

We assess whether a valuation allowance on our deferred tax assets is necessary each quarter.  Reversing or reducing the valuation allowance requires us to conclude that the realization of the deferred tax assets is “more likely than not.”  The ultimate realization of this asset is primarily based on generating future income.  As of June 30, 2013, we concluded that the realization of substantially all of our deferred tax assets was now more likely than not.  This conclusion was primarily based upon the following factors:

· Achieving a sixth consecutive quarter of profitability;

· A forecast of future profitability that supported that the realization of the deferred tax assets is more likely than not; and

· A forecast that future asset quality continued to be stable to improving and that other factors did not exist that could cause a significant adverse impact on future profitability.

We have also concluded subsequent to June 30, 2013, that the realization of substantially all of our deferred tax assets continues to be more likely than not for substantially the same reasons as enumerated above, including six additional profitable quarters since June 30, 2013.

The valuation allowance against our deferred tax assets totaled $1.0 million and $1.1 million at December 31, 2014 and 2013, respectively.  The valuation allowance against our deferred tax assets at December 31, 2014 primarily relates to state income taxes from our Mepco segment.  In this instance, we determined that the future realization of these particular deferred tax assets was not more likely than not.  This conclusion was primarily based on the uncertainty of Mepco’s future earnings attributable to particular states (given the various apportionment criteria) and the significant reduction in the size of Mepco’s business over the past three years.

Because of our net operating loss and tax credit carryforwards, we are still subject to the rules of Section 382 of the Internal Revenue Code of 1986, as amended. An ownership change, as defined by these rules, would negatively affect our ability to utilize our net operating loss carryforwards and other deferred tax assets in the future. If such an ownership change were to occur, we may suffer higher-than-anticipated tax expense, and consequently lower net income and cash flow, in those future years. Although we cannot control our shareholders’ activities in buying and selling our common stock, we do have in place a Tax Benefits Preservation Plan to dissuade any movement in our stock that would trigger an ownership change, and we limited the size of our Common Stock Offering to avoid triggering any Section 382 limitations.

At December 31, 2014, we had federal net operating loss (“NOL”) carryforwards of approximately $92.4 million which, if not used against taxable income, will expire as follows:

	(In thousands)
2029	$	11,285
2030		26,254
2031		17,170
2032		37,739
Total	$	92,448

$1.2 million of NOL carryforwards in the table above relate to unrealized excess benefits on share based compensation for which a benefit will be recorded to additional paid in capital (common stock) when realized. We also had a minor amount of state NOL carryforwards in certain states where Mepco operates.  In addition, we had $3.0 million of alternative minimum tax credit carryforwards with indefinite lives at December 31, 2014.

Changes in unrecognized tax benefits for the years ended December 31 follow:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	1,672		$	1,871		$	2,139
Additions based on tax positions related to the current year		18			11			15
Reductions due to the statute of limitations		(595	)		(186	)		(56	)
Reductions due to settlements		(4	)		(24	)		(227	)
Balance at end of year	$	1,091		$	1,672		$	1,871

If recognized, the entire amount of unrecognized tax benefits, net of $0.4 million of federal tax on state benefits, would affect our effective tax rate. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. No amounts were expensed for interest and penalties for the years ended December 31, 2014, 2013 and 2012. No amounts were accrued for interest and penalties at December 31, 2014, 2013 or 2012. At December 31, 2014, U.S. Federal tax years 2011 through the present remain open to examination.

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LEASES

12 Months Ended

Dec. 31, 2014

LEASES [Abstract]

LEASES

NOTE 18 – LEASES

We have non-cancelable operating leases for certain office facilities, some of which include renewal options and escalation clauses.

A summary of future minimum lease payments under non-cancelable operating leases at December 31, 2014, follows:

	(In thousands)
2015	$	1,254
2016		767
2017		686
2018		652
2019		561
2020 and thereafter		783
Total	$	4,703

Rental expense on operating leases totaled $1.3 million, $1.2 million and $1.2 million in 2014, 2013 and 2012, respectively.

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2014

DERIVATIVE FINANCIAL INSTRUMENTS [Abstract]

Derivative financial instruments according to type of hedge designation

Our derivative financial instruments according to the type of hedge in which they are designated at December 31 follow:

	2014
			Average
	Notional		Maturity		Fair
	Amount		(years)		Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	16,759		0.1	$	437
Mandatory commitments to sell mortgage loans		38,600		0.1		(184	)
Pay-fixed interest rate swap agreements		3,300		9.4		(182	)
Pay-variable interest rate swap agreements		3,300		9.4		182
Total	$	61,959		1.1	$	253
		2013
			Average
	Notional		Maturity		Fair
	Amount		(years)		Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	15,754		0.1	$	366
Mandatory commitments to sell mortgage loans		35,412		0.1		128
Total	$	51,166		0.1	$	494

Fair value of derivative instruments

The following tables illustrate the impact that the derivative financial instruments discussed above have on individual line items in the Consolidated Statements of Financial Condition for the periods presented:

Fair Values of Derivative Instruments

	Asset Derivatives								Liability Derivatives
	December 31,								December 31,
	2014				2013				2014				2013
	Balance				Balance				Balance				Balance
	Sheet	Fair			Sheet	Fair			Sheet	Fair			Sheet	Fair
	Location	Value			Location	Value			Location	Value			Location	Value
	(In thousands)
Derivatives not designated as hedging instruments
Rate-lock mortgage loan commitments	Other assets		$	437	Other assets		$	366	Other liabilities		$	-	Other liabilities		$	-
Mandatory commitments to sell mortgage loans	Other assets			-	Other assets			128	Other liabilities			184	Other liabilities			-
Pay-fixed interest rate swap agreements	Other assets			-	Other assets			-	Other liabilities			182	Other liabilities			-
Pay-variable interest rate swap agreements	Other assets			182	Other assets			-	Other liabilities			-	Other liabilities			-
Total derivatives			$	619			$	494			$	366			$	-

Effect of derivative financial instruments on consolidated statement of operation

The effect of derivative financial instruments on the Consolidated Statements of Operations follows:

Year Ended December 31,
												Location of
												Gain (Loss)
												Reclassified
												from
	Gain (Loss)											Accumulated	Gain (Loss)
	Recognized in											Other	Reclassified from
	Other											Comprehensive	Accumulated Other
	Comprehensive											Income (Loss)	Comprehensive												Location of	Gain (Loss)
	Income (Loss)											into Income	Loss into Income												Gain (Loss)	Recognized
	(Effective Portion)											(Effective	(Effective Portion)												Recognized	in Income(1)
	2014			2013				2012				Portion)	2014				2013				2012				in Income(1)	2014				2013				2012
	(In thousands)
Cash Flow Hedges
Pay-fixed interest rate swap agreements		$	-		$	(37	)		$	(127	)	Interest expense		$	(380	)		$	(397	)		$	(927	)	Interest expense		$	-			$	-			$	-
Total		$	-		$	(37	)		$	(127	)			$	(380	)		$	(397	)		$	(927	)			$	-			$	-			$	-
No hedge designation
Rate-lock mortgage loan commitments																									Mortgage loan gains		$	71			$	(1,002	)		$	511
Mandatory commitments to sell mortgage loans																									Mortgage loan gains			(312	)			250				484
Pay-fixed interest rate swap agreements																									Interest income			(182	)			-				-
Pay-variable interest rate swap agreements																									Interest income			182				-				-
UST short position																									Gain on securities			295				-				-
Amended Warrant																									Decrease in fair value of U.S. Treasury warrant			-				(1,025	)			(285	)
Total																											$	54			$	(1,777	)		$	710

_________________

(1)For cash flow hedges, this location and amount refers to the ineffective portion.

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DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2014

DEPOSITS [Abstract]

Summary of interest expense on deposits

A summary of interest expense on deposits for the years ended December 31 follows:

	2014		2013		2012
	(In thousands)
Savings and interest bearing checking	$	1,064	$	1,131	$	1,830
Time deposits under $100,000		2,467		2,995		4,838
Time deposits of $100,000 or more		1,436		1,580		2,245
Total	$	4,967	$	5,706	$	8,913

Summary of maturity of time deposits

A summary of the maturity of time deposits at December 31, 2014, follows:

	(In thousands)
2015	$	239,914
2016		88,123
2017		22,569
2018		22,952
2019		15,497
2020 and thereafter		1,072
Total	$	390,127

Summary of reciprocal deposits

A summary of reciprocal deposits at December 31 follows:

	2014		2013
	(In thousands)
Demand	$	5,867	$	7,018
Money market		7,692		4,197
Time		40,109		72,312
Total	$	53,668	$	83,527

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) [Abstract]
Net Income	$ 18,021		$ 77,509		$ 26,198
Available for sale securities
Unrealized gain (loss) arising during period	5,095		(4,698)		2,757
Change in unrealized losses for which a portion of other than temporary impairment has been recognized in earnings	398		270		1,160
Reclassification adjustment for other than temporary impairment included in earnings	9		26		339
Reclassification adjustments for (gains) included in earnings	(329)		(7)		(1,193)
Unrealized gains (losses) recognized in other comprehensive income (loss) on available for sale securities	5,173		(4,409)		3,063
Income tax expense (benefit)	1,811		(1,544)		0
Unrealized gains (losses) recognized in other comprehensive income (loss) on available for sale securities, net of tax	3,362		(2,865)		3,063
Derivative instruments
Unrealized loss arising during period	0		(37)		(127)
Reclassification adjustment for expense recognized in earnings	0		208		491
Reclassification adjustment for accretion on settled derivatives	380		189		436
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments	380		360		800
Income tax expense (benefit)	133		(1,318)		0
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments, net of tax	247		1,678		800
Other comprehensive income (loss)	3,609	[1]	(1,187)	[1]	3,863	[1]
Comprehensive income	$ 21,630		$ 76,322		$ 30,061

[1] 2014 and 2013 amounts are presented net of tax as we removed substantially all of the valuation allowance on our deferred tax assets during the second quarter of 2013 (see note #13).

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FAIR VALUE DISCLOSURES, Part 4 (Details) (USD $)	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013
Significant Unobservable Inputs (Level 3) [Member]
Asset (Liability) Fair Value [Abstract]
Capitalized mortgage loan servicing rights	9,197,000		7,773,000
Impaired loan [Abstract]
Commercial	2,751,000	[1]	5,597,000
Mortgage	1,306,000		1,795,000
Other real estate [Abstract]
Commercial	1,216,000		1,606,000
Mortgage and Installment	690,000		1,623,000
Payment Plan Receivables			2,668,000
Income Approach [Member] | Impaired Loans Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Capitalization rate (in hundredths)	9.30%		9.30%
Present Value of Net Servicing Revenue [Member]
Unobservable Inputs Weighted Average [Abstract]
Discount rate (in hundredths)	10.07%		10.09%
Cost to service	82		81
Ancillary income	25		29
Float rate (in hundredths)	1.77%		1.79%
Sales Comparison Approach [Member] | Impaired Loans Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales (in hundredths)	(3.80%)	[1]	(1.90%)
Sales Comparison Approach [Member] | Impaired Loans Mortgage [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales (in hundredths)	8.60%		3.20%
Sales Comparison Approach [Member] | Other Real Estate Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales (in hundredths)	(9.00%)		(5.70%)
Capitalization rate (in hundredths)	34.30%
Sales Comparison Approach [Member] | Other Real Estate Mortgage and Installment [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales (in hundredths)			55.70%
Sales Comparison Approach [Member] | Significant Unobservable Inputs (Level 3) [Member] | Payment Plan Receivable [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales (in hundredths)			10.40%

[1] In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2014 we had an impaired collateral dependent commercial relationship that totaled $1.1 million that was primarily secured by collateral other than real estate. Collateral securing this relationship primarily included machinery and equipment, accounts receivable, inventory and company stock. Valuation techniques included discounting cost and financial statement value approaches based on estimates of value recovery of each particular asset type. Discount rates used ranged from 35% to 100% of stated values.

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RESTRICTIONS ON CASH AND DUE FROM BANKS

12 Months Ended

Dec. 31, 2014

RESTRICTIONS ON CASH AND DUE FROM BANKS [Abstract]

RESTRICTIONS ON CASH AND DUE FROM BANKS

NOTE 2 – RESTRICTIONS ON CASH AND DUE FROM BANKS

Our Bank is required to maintain reserve balances in the form of vault cash and non-interest earning balances with the FRB. The average reserve balances to be maintained during 2014 and 2013 were $15.3 million and $24.5 million, respectively. We do not maintain compensating balances with correspondent banks. We are also required to maintain reserve balances related primarily to our merchant payment processing operations and for certain investment security transactions. These balances are held at unrelated financial institutions and totaled $2.8 million and $2.4 million at December 31, 2014 and 2013, respectively.

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ACCOUNTING POLICIES (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2014 Employee Payments	Dec. 31, 2013	Dec. 31, 2012
ACCOUNTING POLICIES [Abstract]
Percentage of loan portfolio secured by real estate (in hundredths)	72.50%
Mortgage Loan Servicing Rights [Abstract]
Mortgage loan servicing fees	$ 4.2	$ 4.3	$ 4.4
Loan Revenue Recognition [Abstract]
Number of past due days for commercial loan, installment loans and payment plan receivables	90 days
Number of consecutive payments for mortgage loans misses	4
Bank Owned Life Insurance [Abstract]
Number of lives of group flexible premium non-participating variable life insurance contract	270
Income Taxes [Abstract]
Percentage of largest amount of tax benefit (in hundredths)	50.00%
Dividend Reinvestment Plan [Member]
Stock Reserved [Line Items]
Common stock reserved for issuance (in shares)	0.1
Long-Term Incentive Plans [Member]
Stock Reserved [Line Items]
Common stock reserved for issuance (in shares)	0.7
Minimum [Member]
Other Intangible Assets [Line Items]
Estimated useful lives	10 years
Maximum [Member]
Other Intangible Assets [Line Items]
Estimated useful lives	15 years
Building [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Depreciated over a period	39 years
Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Depreciated over a period	7 years

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LEASES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Summary of future minimum lease payments under non-cancelable operating leases [Abstract]
2015	$ 1,254,000
2016	767,000
2017	686,000
2018	652,000
2019	561,000
2020 and thereafter	783,000
Total	4,703,000
Rental expense on operating leases	$ 1,300,000	$ 1,200,000	$ 1,200,000

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PROPERTY AND EQUIPMENT (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	$ 154,199,000	$ 151,067,000
Accumulated depreciation and amortization	(108,251,000)	(102,473,000)
Property and equipment, Net	45,948,000	48,594,000
Depreciation expense	6,700,000	6,700,000	7,600,000
Land [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	14,904,000	14,817,000
Buildings [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	59,486,000	58,798,000
Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	$ 79,809,000	$ 77,452,000

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CONCENTRATIONS OF CREDIT RISK

12 Months Ended

Dec. 31, 2014

CONCENTRATIONS OF CREDIT RISK [Abstract]

CONCENTRATIONS OF CREDIT RISK

NOTE 19 – CONCENTRATIONS OF CREDIT RISK

Credit risk is the risk to earnings and capital arising from an obligor’s failure to meet the terms of any contract with our organization or otherwise fail to perform as agreed. Credit risk can occur outside of our traditional lending activities and can exist in any activity where success depends on counterparty, issuer or borrower performance. Concentrations of credit risk (whether on- or off-balance sheet) arising from financial instruments can exist in relation to individual borrowers or groups of borrowers, certain types of collateral, certain types of industries or certain geographic regions. Credit risk associated with these concentrations could arise when a significant amount of loans or other financial instruments, related by similar characteristics, are simultaneously impacted by changes in economic or other conditions that cause their probability of repayment or other type of settlement to be adversely affected. Our major concentrations of credit risk arise by collateral type and by industry. The significant concentrations by collateral type at December 31, 2014, include $519.6 million of loans secured by residential real estate and $54.6 million of construction and development loans. In addition, we have a concentration of credit within the vehicle service contract industry. At December 31, 2014, we had $40.0 million of payment plan receivables. Our recourse for nonpayment of these payment plan receivables is against our counterparties operating within the vehicle service contract industry.

Additionally, within our commercial real estate and commercial loan portfolio, we had significant standard industry classification concentrations in the following categories as of December 31, 2014: Lessors of Nonresidential Real Estate ($222.8 million); Lessors of Residential Real Estate ($66.4 million); Health Care and Social Assistance ($65.9 million) and Construction General Contractors and Land Development ($59.3 million). A geographic concentration arises because we primarily conduct our lending activities in the State of Michigan.

Our concentration of credit within the vehicle service contract industry relates to the business operated by our subsidiary, Mepco. This business and certain risks associated with this business are described in note #11 above. In addition, see note #4 above for a breakdown of Mepco’s payment plan receivables by the level of recourse Mepco has against various counterparties. Mepco monitors counterparty concentrations in order to attempt to manage our exposure for contractual obligations from its counterparties. In addition, even where an insurance company or risk retention group does not have a guarantee obligation to Mepco, the failure of the insurance company or risk retention group could result in a mass cancellation of the vehicle service contracts (and the related payment plans) insured by such entity. Such a mass cancellation would trigger and accelerate the contractual obligations of the counterparties that did have such obligations to Mepco. The counterparty concentration levels are managed based on the AM Best rating and statutory surplus level for an insurance company and on other factors including financial evaluation, collateral, funding holdbacks, guarantees, and distribution of concentrations for vehicle service contract administrators and vehicle service contract sellers/dealers.

The five largest concentrations by insurance company, risk retention group or other party backing the service contract represents approximately 27.1%, 25.0%, 17.2%, 15.5% and 12.5%, respectively, of Mepco’s payment plan receivables at December 31, 2014. These companies have provided the insurance coverage for the vehicle service contracts underlying the payment plan receivables; however, these companies are not all obligated to Mepco for the repayment of the payment plan receivables upon cancellation of the underlying vehicle service contracts and payment plans. Mepco has varying levels of recourse against such companies. Still, the failure of any insurer backing service contracts related to Mepco’s payment plan receivables could have an adverse effect on Mepco’s collection of those receivables.

The top five vehicle service contract sellers from which Mepco purchases payment plans represent approximately 35.7%, 12.9%, 10.9%, 10.4% and 8.8%, respectively of Mepco’s payment plan receivables at December 31, 2014. See note #11 for additional information on Mepco counterparties.

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COMMITMENTS AND CONTINGENT LIABILITIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2009
Loss Contingencies [Line Items]
Aggregate amount of counterparty obligations	$ 7,237,000	$ 7,716,000	$ 18,449,000
VSC counterparty contingency expense	199,000	4,837,000	1,629,000
Loss reimbursement on sold loans	(466,000)	2,152,000	1,112,000	60,000
Reserve for loss reimbursements on sold mortgage loans	700,000	1,400,000
Vehicle service contract counterparty receivable [Roll Forward]
Balance at beginning of year, net of reserve	7,716,000	18,449,000	29,298,000
Transfers in from payment plan receivables	180,000	792,000	1,469,000
Reserves established and charge-offs recorded to expense	(199,000)	(4,837,000)	(1,629,000)
Transferred to (from) contingency reserves	(75,000)	63,000	(108,000)
Cash received	(385,000)	(6,751,000)	(7,413,000)
Collateral received (other real estate and repossessed assets) in partial satisfaction of debt	0	0	(3,168,000)
Balance at end of year, net of reserve	7,237,000	7,716,000	18,449,000
Reserve at end of year	1,370,000	1,300,000	2,000,000
Vehicle service contract counterparty reserve [Roll Forward]
Balance at beginning of year	1,375,000	2,012,000	32,570,000
Additions charged to expense	199,000	4,837,000	1,629,000
Charge-offs, net	(204,000)	(5,474,000)	(32,187,000)
Balance at end of year	1,370,000	1,375,000	2,012,000
Reserves recorded in VSC counterparty receivables, net	1,370,000	1,300,000	2,000,000
Reserves recorded in accrued expenses and other liabilities	0	75,000	12,000
Total at end of year	1,370,000	1,375,000	2,012,000
Fannie Mae [Member]
Loss Contingencies [Line Items]
Loss reimbursement on sold loans		1,500,000
Pending Litigation [Member]
Loss Contingencies [Line Items]
Maximum range of reasonably possible loss	500,000
Accounts Receivables Due to Mepco [Member]
Loss Contingencies [Line Items]
Installment payments period for service contract, minimum	12 months
Installment payments period for service contract, maximum	24 months
VSC counterparty contingency expense	200,000	4,800,000	1,600,000
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments risk represented by contract amounts	204,827,000	180,829,000
Standby Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments risk represented by contract amounts	$ 2,757,000	$ 4,262,000
Standby Letters of Credit [Member] | Minimum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest rate (in hundredths)	2.50%
Standby Letters of Credit [Member] | Maximum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest rate (in hundredths)	8.25%

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OTHER REAL ESTATE OWNED (Tables)

12 Months Ended

Dec. 31, 2014

OTHER REAL ESTATE OWNED [Abstract]

Valuation allowance for other real estate owned

We periodically review our real estate owned properties and establish valuation allowances on these properties if values have declined since the date of acquisition. An analysis of our valuation allowance for other real estate owned follows:

	2014			2013			2012
	(In thousands)
Balance at beginning of year	$	4,047		$	5,958		$	14,655
Additions charged to expense		663			2,598			3,769
Direct write-downs upon sale		(2,199	)		(4,509	)		(12,466	)
Balance at end of year	$	2,511		$	4,047		$	5,958

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SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE

12 Months Ended

Dec. 31, 2014

SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE [Abstract]

SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE

NOTE 12 – SHAREHOLDERS’ EQUITY AND INCOME PER COMMON SHARE

On July 26, 2013, we executed a Securities Purchase Agreement (“SPA”) with the U.S. Department of the Treasury (“UST”).  Under the terms of the SPA, we agreed to purchase from the UST for $81.0 million in cash 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 Preferred Stock”), including all accrued and unpaid dividends; and (ii) the Amended and Restated Warrant to purchase 346,154 shares of our common stock at an exercise price of $7.234 per share and expiring on December 12, 2018 (the “Amended Warrant”).  On August 30, 2013, we closed the SPA transaction with the UST and we exited the Troubled Asset Relief Program (“TARP”).  On that date, the Series B Preferred Stock and Amended Warrant had book balances of $87.2 million (including accrued dividends) and $1.5 million, respectively. This transaction resulted in a discount of $7.7 million, of which $7.6 million was allocated to the Series B Preferred Stock and included in net income applicable to common stock and $0.1 million was allocated to the Amended Warrant and recorded to common stock.

On August 28, 2013, we sold 11.5 million shares of our common stock for gross proceeds of $89.1 million in a public offering and on September 10, 2013, we sold an additional 1.725 million shares of our common stock for gross proceeds of $13.4 million pursuant to the underwriters’ overallotment option (collectively, the “Common Stock Offering”).  The net proceeds from the Common Stock Offering were approximately $97.1 million.

On November 15, 2011, we entered into a Tax Benefits Preservation Plan (the "Preservation Plan") with our stock transfer agent, American Stock Transfer & Trust Company. Our Board of Directors adopted the Preservation Plan in an effort to protect the value to our shareholders of our ability to use deferred tax assets, such as net operating loss carry forwards, to reduce potential future federal income tax obligations. Under federal tax rules, this value could be lost in the event we experienced an "ownership change," as defined in Section 382 of the federal Internal Revenue Code. The Preservation Plan attempts to protect this value by reducing the likelihood that we will experience such an ownership change by discouraging any person who is not already a 5% shareholder from becoming a 5% shareholder (with certain limited exceptions).

On November 15, 2011, our Board of Directors declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of our common stock under the terms of the Preservation Plan. The dividend is payable to the holders of common stock outstanding as of the close of business on November 15, 2011, or outstanding at any time thereafter but before the earlier of a "Distribution Date" and the date the Preservation Plan terminates. Each Right entitles the registered holder to purchase from us 1/1000 of a share of our Series C Junior Participating Preferred Stock, no par value per share ("Series C Preferred Stock"). Each 1/1000 of a share of Series C Preferred Stock has economic and voting terms similar to those of one whole share of common stock. The Rights are not exercisable and generally do not become exercisable until a person or group has acquired, subject to certain exceptions and conditions, beneficial ownership of 4.99% or more of the outstanding shares of common stock. At that time, each Right will generally entitle its holder to purchase securities of the Company at a discount of 50% to the current market price of the common stock. However, the Rights owned by the person acquiring beneficial ownership of 4.99% or more of the outstanding shares of common stock would automatically be void. The significant dilution that would result is expected to deter any person from acquiring beneficial ownership of 4.99% or more and thereby triggering the Rights.

To date, none of the Rights have been exercised or have become exercisable because no unpermitted 4.99% or more change in the beneficial ownership of the outstanding common stock has occurred. The Rights will generally expire on the earlier to occur of the close of business on November 15, 2016 and certain other events described in the Preservation Plan, including such date as our Board of Directors determines that the Preservation Plan is no longer necessary for its intended purposes.

A reconciliation of basic and diluted net income per common share for the years ended December 31 follows:

	2014		2013			2012
	(In thousands, except per share amounts)
Net income applicable to common stock	$	18,021	$	82,062		$	21,851
Convertible preferred stock dividends		-		3,001			4,347
Preferred stock discount		-		(7,554	)		-
Net income applicable to common stock for calculation of diluted earnings per share	$	18,021	$	77,509		$	26,198
Weighted average shares outstanding (1)		22,927		13,970			8,709
Restricted stock units		306		363			216
Effect of stock options		124		92			2
Stock units for deferred compensation plan for non-employee directors		114		125			66
Effect of convertible preferred stock		-		7,314			23,892
Weighted average shares outstanding for calculation of diluted earnings per share		23,471		21,864			32,885
Net income per common share
Basic (1)	$	0.79	$	5.87		$	2.51
Diluted	$	0.77	$	3.55		$	0.80

⁽¹⁾Basic net income per common share includes weighted average common shares outstanding during the period and participating share awards.

Weighted average stock options outstanding that were not considered in computing diluted net income per common share because they were anti-dilutive totaled 0.03 million, 0.1 million and 0.1 million for 2014, 2013 and 2012, respectively. The Amended Warrant issued to the UST to purchase 346,154 shares of our common stock was also not considered in computing the diluted net income per common share in 2013 and 2012 as it was anti-dilutive.