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, 2015 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.)
4200 East Beltline, Grand Rapids, Michigan	49525
(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, 2015, was $300,922,717.

The number of shares outstanding of the registrant's common stock as of March 4, 2016 was 21,361,594.

Documents incorporated by reference: Portions of our definitive proxy statement and annual report, to be delivered to shareholders in connection with the April 26, 2016 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 Grand Rapids, Michigan, and a total of 62 branches, 1 drive-thru facility, and 8 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, 2015, our bank had total loans (excluding loans held for sale) of $1.515 billion and total deposits of $2.086 billion. As of December 31, 2015, we had 674 full-time employees and 157 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:

	2015	2014	2013
Interest and fees on loans	58.6%	60.2%	61.1%
Other interest income	8.2	7.3	4.9
Non-interest income	33.2	32.5	34.0
	100.0%	100.0%	100.0%

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.

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.

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 law requires 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. 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.

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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.

4

ITEM 1. BUSINESS (continued)

Our Tier 1 capital as of December 31, 2015, 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 Wall Street Reform and Consumer Protection Act adopted in 2010 (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.

On January 1, 2015, we became subject to new regulatory capital rules issued by the Federal Reserve in 2013. In general, these new capital rules increase the minimum requirements for both the quantity and quality of capital we maintain. The 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. This 2.5% capital conservation buffer is being phased in over a four-year period beginning in 2016. The rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and include a minimum leverage ratio of 4%. As to the quality of capital, the new rules emphasize common equity Tier 1 capital, the most loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital instruments. The 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. Under these new capital rules, our existing trust preferred securities are grandfathered as qualifying regulatory capital. We believe we currently exceed all of the capital ratio requirements of these 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.

5

ITEM 1. BUSINESS (continued)

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.

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.

On January 1, 2015, we became subject to new regulatory capital rules issued by the Federal Reserve in 2013. In general, these new capital rules increase the minimum requirements for both the quantity and quality of capital we maintain. The 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. This 2.5% capital conservation buffer is being phased in over a four-year period beginning in 2016. The rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4% to 6% and include a minimum leverage ratio of 4%. As to the quality of capital, the new rules emphasize common equity Tier 1 capital, the most loss-absorbing form of capital, and implements strict eligibility criteria for regulatory capital instruments. The 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. We believe we currently exceed all of the capital ratio requirements of these new capital rules.

6

ITEM 1. BUSINESS (continued)

Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized." Federal regulations define these capital categories as follows:

			Common
	Total	Tier 1	Equity Tier 1
	Risk-Based	Risk-Based	Risk-Based	Leverage
	Capital Ratio	Capital Ratio	Capital Ratio	Ratio
Well capitalized	10% or above	8% or above	6.5% or above	5% or above
Adequately capitalized	8% or above	6% or above	4.5% or above	4% or above
Undercapitalized	Less than 8%	Less than 6%	Less than 4.5%	Less than 4%
Significantly undercapitalized	Less than 6%	Less than 4%	Less than 3%	Less than 3%
Critically undercapitalized	Tangible equity to total assets of 2% or less

At December 31, 2015, 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.

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, 2015, our bank had negative retained earnings of approximately $10.1 million and therefore was unable to pay dividends to the holding company. In lieu of the payment of dividends, we intend to make periodic requests to the Michigan DIFS to approve a return of capital from our bank. On February 24, 2016, the Michigan DIFS approved an $18.0 million return of capital. The bank paid this return of capital to us on February 25, 2016.

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ITEM 1. BUSINESS (continued)

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.

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 (TILA), the Real Estate Settlement Procedures Act (RESPA), 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.

A number of new consumer protection laws were implemented following the recent recession, including:

· The Homeowner Affordability and Stability Plan (HASP) was implemented in 2009 to support a recovery in the housing market and ensure that borrowers can continue to pay off their mortgages through initiatives such as access to low-cost refinancing for responsible homeowners suffering from falling home prices; a $75 billion homeowner stability plan to prevent foreclosure, and support of low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

· The Dodd-Frank Act, adopted in 2010, included the creation of a new federal agency called the Consumer Financial Protection Bureau (CFPB), which was given the power to issue and enforce certain consumer protection laws. The CFPB has issued several new consumer protection regulations, including regulations that impact residential mortgage lending and servicing. The CFPB issued a final rule to integrate disclosures and regulations required by TILA and RESPA. The final rule, called TILA-RESPA Integrated Disclosure (TRID), integrates existing disclosures with new requirements from the Dodd-Frank Act to improve consumer understanding of the mortgage process.  TRID became effective on October 3, 2015.

· The Dodd-Frank Act also implemented new restrictions on how mortgage brokers and loan originators may be compensated.

8

ITEM 1. BUSINESS (continued)

We have experienced, and expect to continue to experience, increased costs and expenses related to compliance with these and other new consumer protection regulations.

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.

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.

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).

9

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 26, 2016 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:

	2015		2014		2013
	(in thousands)
Trading - preferred stock	$	148	$	203	$	498
Available for sale
U.S. agency residential mortgage-backed	$	196,056	$	257,558	$	203,460
States and political subdivisions		144,984		143,415		153,678
Other asset backed		116,904		32,353		45,185
U.S. agency		47,512		35,006		31,808
Corporate		38,614		22,664		19,137
U.S. agency commercial mortgage-backed		34,028		33,728		—
Private label residential mortgage-backed		4,903		6,013		6,788
Trust preferred		2,483		2,441		2,425
Total	$	585,484	$	533,178	$	462,481

10

ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (continued)

(B)  The following table sets forth contractual maturities of securities at December 31, 2015 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																$	148		0.00	%
Tax equivalent adjustment
for calculation of yield																$	—
Available for sale
U.S. agency residential     mortgage-backed	$	46		3.47	%	$	60,571		1.30	%	$	91,913		1.32	%	$	43,526		1.99	%
States and political     subdivisions		20,508		1.57			35,208		2.53			16,118		3.74			73,150		3.35
U.S. agency		2,478		1.20			9,580		0.94			28,642		2.08			6,812		2.29
U.S. agency commercial     mortgage-backed		3,008		1.61			31,020		2.07			—					—
Other asset backed		68,013		1.41			44,574		1.26			4,317		1.15			—
Corporate		11,606		1.31			25,127		1.60			1,881		1.11			—
Private label residential     mortgage-backed		—					80		5.96			2,494		4.21			2,329		5.21
Trust preferred		—					—					—					2,483		1.69
Total	$	105,659		1.43	%	$	206,160		1.64	%	$	145,365		1.78	%	$	128,300		2.84	%
Tax equivalent adjustment for     calculation of yield	$	74				$	167				$	146				$	156

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.

	Tax-Exempt				Rate on Tax Equivalent
Available for sale	Rate		Adjustment		Basis
Under 1 year	1.26	%	0.68	%	1.94	%
1-5 years	2.20		1.19		3.39
5-10 years	2.68		1.45		4.13
After 10 years	4.31		2.33		6.64

11

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

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

	2015		2014		2013		2012		2011
	(in thousands)
Loans held for sale	$	27,866	$	23,662	$	20,390	$	50,779	$	44,801
Mortgage		500,454		472,628		486,633		527,340		590,876
Commercial		748,398		690,955		635,234		617,258		651,155
Installment		231,599		206,378		192,065		189,849		219,559
Payment plan receivables		34,599		40,001		60,638		84,692		115,018
Total Loans	$	1,542,916	$	1,433,624	$	1,394,960	$	1,469,918	$	1,621,409

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, 2015:

			Due
	Due		After One		Due
	Within		But Within		After
	One Year		Five Years		Five Years		Total
	(in thousands)
Mortgage	$	2	$	156	$	43,718	$	43,876
Commercial		89,532		219,973		438,893		748,398
Payment plan receivables		10,956		23,643		—		34,599
Total	$	100,490	$	243,772	$	482,611	$	826,873

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, 2015:

	Fixed		Variable
	Rate		Rate		Total
	(in thousands)
Due after one but within five years	$	112,492	$	131,280	$	243,772
Due after five years		285,360		197,251		482,611
Total	$	397,852	$	328,531	$	726,383

12

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:

	2015		2014		2013		2012		2011
	(in thousands)
(a)  Loans accounted for on a        non-accrual basis (1, 2)	$	10,607	$	15,231	$	17,905	$	32,929	$	59,309
(b)  Aggregate amount of loans        ninety days or more past due        (excludes loans in (a) above)		116		7		—		7		574
(c)  Loans not included above which        are "troubled debt restructurings"        as defined by accounting guidance		81,512		102,971		114,887		126,730		116,569
Total	$	92,235	$	118,209	$	132,792	$	159,666	$	176,452

(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 $5.56 million would have been earned in 2015 had loans in categories (a) and (c) remained at their original terms; however, only $4.03 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, 2015.

At December 31, 2015, 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, 2015, that would be required to be disclosed above (Item III(C)), if such assets were loans.

There were no foreign loans at December 31, 2015, 2014, 2013, 2012 and 2011.

13

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: 

	2015					2014					2013
	(dollars in thousands)
Total loans outstanding at the end of   the year (net of unearned fees)	$	1,542,916				$	1,433,624				$	1,394,960
Average total loans outstanding for   the year (net of unearned fees)	$	1,461,480				$	1,388,772				$	1,413,796
				Unfunded					Unfunded					Unfunded
	Loan			Commit-		Loan			Commit-		Loan			Commit-
	Losses			ments		Losses			ments		Losses			ments
Balance at beginning of year	$	25,990		$	539	$	32,325		$	508	$	44,275		$	598
Loans charged-off
Mortgage		2,567					4,119					6,319
Commercial		1,694					4,613					7,358
Installment		1,467					1,885					2,520
Payment plan receivables		—					2					35
Total loans charged-off		5,728					10,619					16,232
Recoveries of loans previously
charged-off
Mortgage		1,258					1,397					1,996
Commercial		2,656					4,914					5,119
Installment		1,108					1,104					1,074
Payment plan receivables		—					5					81
Total recoveries		5,022					7,420					8,270
Net loans charged-off		706					3,199					7,962
Additions (deductions) included in   operations		(2,714	)		113		(3,136	)		31		(3,988	)		(90	)
Balance at end of year	$	22,570		$	652	$	25,990		$	539	$	32,325		$	508
Net loans charged-off as a percent of   average loans outstanding (includes   loans held for sale) for the year		0.05	%				0.23	%				0.56	%
Allowance for loan losses as a   percent of loans outstanding (includes   loans held for sale) at the end of the year		1.46					1.81					2.32

14

ITEM 1. BUSINESS -- STATISTICAL DISCLOSURE (continued)

	2012		2011
	(dollars in thousands)
Total loans outstanding at the end of   the year (net of unearned fees)	$	1,469,918	$	1,621,409
Average total loans outstanding for   the year (net of unearned fees)	$	1,550,456	$	1,711,948

 

				Unfunded						Unfunded
	Loan			Commit-			Loan			Commit-
	Losses			ments			Losses			ments
Balance at beginning of year	$	58,884		$	1,286		$	67,915		$	1,322
Loans charged-off
Mortgage		10,741						15,608
Commercial		12,588						20,491
Installment		4,009						5,439
Payment plan receivables		70						186
Total loans charged-off		27,408						41,724
Recoveries of loans previously   charged-off
Mortgage		1,581						1,441
Commercial		3,610						1,850
Installment		1,311						1,451
Payment plan receivables		20						5
Total recoveries		6,522						4,747
Net loans charged-off		20,886						36,977
Reclassification to loans held for sale		610
Additions (deductions) included in   operations		6,887			(688	)		27,946			(36	)
Balance at end of year	$	44,275		$	598		$	58,884		$	1,286
Net loans charged-off as a percent of   average loans outstanding (includes loans   held for sale) for the year		1.35	%					2.16	%
Allowance for loan losses as a   percent of loans outstanding (includes loans   held for sale) at the end of the year		3.01						3.63

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 26, 2016 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), and is incorporated herein by reference.

15

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:

	2015					2014					2013
			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	$	5,670		48.5	%	$	5,445		48.2	%	$	6,827		45.5	%
Mortgage		10,391		34.3			13,444		34.6			17,195		36.3
Installment		1,181		15.0			1,814		14.4			2,246		13.8
Payment plan receivables		56		2.2			64		2.8			97		4.4
Subjective allocation		5,272		—			5,223		—			5,960		—
Total	$	22,570		100.0	%	$	25,990		100.0	%	$	32,325		100.0	%

	2012					2011
			Percent					Percent
	Allowance		of Loans to			Allowance		of Loans to
	Amount		Total Loans			Amount		Total Loans
	(dollars in thousands)
Commercial	$	11,402		42.2	%	$	18,183		40.2	%
Mortgage		21,447		39.1			22,885		39.2
Installment		3,378		12.9			6,146		13.5
Payment plan receivables		144		5.8			197		7.1
Subjective allocation		7,904		—			11,473		—
Total	$	44,275		100.0	%	$	58,884		100.0	%

16

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:

	2015					2014					2013
	Average					Average					Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(dollars in thousands)
Non-interest bearing demand	$	619,206				$	540,107				$	500,673
Savings and NOW		988,504		0.11	%		951,745		0.11	%		908,740		0.12	%
Time deposits		386,035		0.76			413,729		0.94			423,291		1.08
Total	$	1,993,745		0.20	%	$	1,905,581		0.26	%	$	1,832,704		0.31	%

The following table summarizes time deposits in amounts of $100,000 or more by time remaining until maturity at December 31, 2015:

		(in thousands)
Three months or less	$	35,085
Over three through six months		51,794
Over six months through one year		91,150
Over one year		52,885
Total	$	230,914

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:

	2015		2014		2013		2012		2011
Net income (loss) as a percent of(1)
Average common equity	7.89	%	7.43	%	64.22	%	68.29	%	(68.44)	%
Average total assets	0.86		0.80		3.87		0.92		(1.02)
Dividends declared per share as a   percent of diluted net income per share	30.23		23.38		0.00		0.00		0.00
Average shareholders' equity as a percent   of average total assets	10.93		10.83		8.69		4.82		4.76

⁽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 26, 2016 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 26, 2016 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.

17

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.

18

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 $10.7 million and $15.2 million at December 31, 2015 and December 31, 2014, respectively. Our allowance coverage ratio of non-performing loans was 210.5% and 170.6% at December 31, 2015 and December 31, 2014, 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 $3.5 million as of December 31, 2015 (compared to approximately $3.1 million as of December 31, 2014). 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, 2015, 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 $7.2 million and $7.7 million at December 31, 2014, and December 31, 2013, respectively.

19

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 challenged 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 $0.1 million, $0.2 million and $4.8 million in 2015, 2014 and 2013, 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, 2015, Mepco had total assets of $57.2 million, which amounts to 2.4 percent of our consolidated assets.

20

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 $7.4 million on mortgage loans during 2015 compared to $5.6 million during 2014 and $10.0 million during 2013.

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 four 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.

21

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.

22

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.

23

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.

24

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 26, 2016 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.

25

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We and our bank operate a total of 82 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 $1.0 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.

26

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 26, 2016.

			First elected
			as an executive
Name (Age)		Position	officer
William B. Kessel  (51)		President, Chief Executive Officer and Director (1)	2004
Robert N. Shuster (58)		Executive Vice President and Chief Financial Officer	1999
Stefanie M. Kimball (56)		Executive Vice President and Chief Risk Officer	2007
David C. Reglin (56)		Executive Vice President, Retail Banking	1998
Mark L. Collins (58)		Executive Vice President, General Counsel	2009
Dennis J. Mack (54)		Executive Vice President and Chief Lending Officer (2)	2012
Richard E. Butler (64)		Senior Vice President, Operations	1998
Peter R. Graves (58)		Senior Vice President, Chief Information Officer	1999
James J. Twarozynski (50)	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.

27

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 26, 2016 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 2015, we issued 2,089 shares of common stock to non-employee directors on a current basis and 434 shares of common stock to the trust for distribution to directors on a deferred basis.  The shares were issued on October 1, 2015, at a price of $14.76 per share, representing aggregate fees of $0.04 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.

ISSUER PURCHASES OF EQUITY SECURITIES

The following table shows certain information relating to purchases of common stock for the three-months ended December 31, 2015:

			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(1)	Under the Plan
October 2015	228,734	$14.53	228,734	260,034
November 2015	79,303	14.51	79,303	180,731
December 2015	—	—	—	NA(2)
Total	308,037	$14.52	308,037

1. As disclosed in a Form 8-K we filed on October 1, 2015, we entered into a 10b5-1 Repurchase Plan with Keefe, Bruyette & Woods, Inc. ("KBW") on September 30, 2015, pursuant to which we authorized KBW to repurchase, on our behalf, up to 460,000 shares of our common stock, subject to the parameters of the plan. 289,560 shares were purchased under this 10b5-1 Repurchase Plan which terminated on November 2, 2015. The balance of the 308,037 shares reflected in this column were shares we purchased in the open market.

2. As disclosed in a Form 8-K we filed on January 23, 2015, our Board authorized the repurchase of up to 5% of our outstanding common stock. This share repurchase plan expired on December 31, 2015.

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 26, 2016 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 26, 2016 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

28

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 26, 2016 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K), is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and the independent auditor's report are set forth in our annual report, to be delivered to shareholders in connection with the April 26, 2016 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, 2015 and 2014

Consolidated Statements of Operations for the years ended

     December 31, 2015, 2014 and 2013

Consolidated Statements of Comprehensive Income

     for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Shareholders' Equity

     for the years ended December 31, 2015, 2014 and 2013

Consolidated Statements of Cash Flows for the years ended

     December 31, 2015, 2014 and 2013

Notes to Consolidated Financial Statements

29

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 26, 2016 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 26, 2016 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, 2015 (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 26, 2016 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.

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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 26, 2016 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 26, 2016 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 Chief Executive Officer and Senior Financial Officers" that applies to our Chief Executive Officer, Chief Financial Officer, and Controller. 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, 4200 East Beltline, Grand Rapids, Michigan 49525.

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 26, 2016 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 26, 2016 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 26, 2016 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, 2015.

			(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	235,596	$4.94	288,415
Equity compensation plan   not approved by security holders	None	N/A	226,162

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 caption s "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 26, 2016 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 26, 2016 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 26, 2016 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 7, 2016.

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 7, 2016
Robert N. Shuster, Executive Vice     President and Chief Financial Officer     (Principal Financial Officer)	s/Robert N. Shuster	March 7, 2016
James J. Twarozynski, Senior Vice     President and Controller     (Principal Accounting Officer)	s/James J. Twarozynski	March 7, 2016
Michael M. Magee, Jr.     Chairman and Director	s/Michael M. Magee Jr.	March 7, 2016
William J. Boer, Director	s/William J. Boer	March 7, 2016
Joan A. Budden, Director	s/Joan A. Budden	March 1, 2016
Stephen L. Gulis, Jr., Director	s/Stephen L. Gulis, Jr.	March 7, 2016
Terry L. Haske, Director
William B. Kessel, Director	s/William B. Kessel	March 7, 2016
Matthew J. Missad, Director	s/Matthew J. Missad	March 7, 2016
James E. McCarty, Director	s/James E. McCarty	March 7, 2016
Charles C. Van Loan, Director

34

EXHIBIT INDEX

Exhibit number and description

EXHIBITS FILED HEREWITH

13	Annual report, relating to the April 26, 2016 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).
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).

35

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*	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).
10.9*	Summary of Independent Bank Corporation Management Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.10 to our annual report on Form 10-K filed March 6, 2015).

^* Represents a compensation plan.

36

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	102

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, 2010 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	12/31/10		12/31/11		12/31/12		12/31/13		12/31/14		12/31/15
Independent Bank Corporation	$	100.00	$	102.31	$	269.23	$	923.08	$	1,018.77	$	1,211.04
NASDAQ Composite		100.00		99.17		116.48		163.21		187.27		200.31
NASDAQ Bank		100.00		74.57		100.48		137.27		153.50		156.89

6

SELECTED CONSOLIDATED FINANCIAL DATA (1)

				Year Ended December 31,
	2015			2014			2013			2012			2011
	(Dollars in thousands, except per share amounts)
SUMMARY OF OPERATIONS
Interest income	$	80,842		$	80,555		$	87,121		$	99,398		$	114,762
Interest expense		5,856			7,299			9,162			13,143			20,193
Net interest income		74,986			73,256			77,959			86,255			94,569
Provision for loan losses		(2,714	)		(3,136	)		(3,988	)		6,887			27,946
Net gains (losses) on securities		20			320			369			887			(511	)
Net gain on branch sale		1,193			—			—			5,402			—
Gain on extinguishment of debt		—			500			—			—			—
Other non-interest income		38,917			37,955			44,460			57,276			47,424
Non-interest expenses		88,450			89,951			104,118			116,735			133,948
Income (loss) before income tax		29,380			25,216			22,658			26,198			(20,412	)
Income tax expense (benefit)		9,363			7,195			(54,851	)		—			(212	)
Net income (loss)	$	20,017		$	18,021		$	77,509		$	26,198		$	(20,200	)
Preferred Stock Dividends		—			—			(3,001	)		(4,347	)		(4,157	)
Preferred Stock Discount		—			—			7,554			—			—
Net income (loss) applicable to common stock	$	20,017		$	18,021		$	82,062		$	21,851		$	(24,357	)
PER COMMON SHARE DATA
Net income (loss) per common share
Basic	$	0.88		$	0.79		$	5.87		$	2.51		$	(2.94	)
Diluted		0.86			0.77			3.55			0.80			(2.94	)
Cash dividends declared		0.26			0.18			0.00			0.00			0.00
Book value		11.28			10.91			10.15			5.58			2.68
SELECTED BALANCES
Assets	$	2,409,066		$	2,248,730		$	2,209,943		$	2,023,867		$	2,307,406
Loans		1,515,050			1,409,962			1,374,570			1,419,139			1,576,608
Allowance for loan losses		22,570			25,990			32,325			44,275			58,884
Deposits		2,085,963			1,924,302			1,884,806			1,779,537			2,086,125
Shareholders’ equity		251,092			250,371			231,581			134,975			102,627
Long-term debt - FHLB advances		11,954			12,470			17,188			17,622			33,384
Subordinated debentures		35,569			35,569			40,723			50,175			50,175
SELECTED RATIOS
Net interest income to average interest earning assets		3.58	%		3.67	%		4.11	%		4.04	%		4.46	%
Net income (loss) to (2)
Average common equity		7.89			7.43			64.22			68.29			(68.44	)
Average assets		0.86			0.80			3.87			0.92			(1.02	)
Average shareholders’ equity to average assets		10.93			10.83			8.69			4.82			4.76
Tier 1 capital to average assets		10.91			11.18			10.61			8.08			6.25
Non-performing loans to Portfolio Loans		0.71			1.08			1.30			2.32			3.80

(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) 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, 2015, 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. At times, we have experienced a difficult economy in Michigan which in turn had an adverse effect 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 2015, albeit at an uneven pace. There has been an overall decline in the unemployment rate as well as generally improving housing prices and other related statistics (such as home sales and new building permits). In addition, since early- to mid-2009, we have seen an improvement in our 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 16 consecutive quarters. In addition, during 2013, we completed various transactions to improve our capital structure.

Recent Developments. On April 29, 2015 the Bank entered into a Purchase and Assumption Agreement (“PAA”) with Isabella Bank (based in Mt. Pleasant, Michigan). Pursuant to the PAA, on August 28, 2015, we sold the fixed assets, real property and certain other assets of our bank branch located in Midland, Michigan (the “Midland Branch”) to Isabella Bank. The deposit liabilities of the Midland Branch were assumed by Isabella Bank. Under the terms of the PAA, Isabella Bank paid a premium of $0.6 million (which was equal to 6.0% of the average deposit liabilities of $9.7 million based on the 20-day average ending two business days prior to the closing date of August 28, 2015) and $0.85 million for the real property and fixed assets (including the ATM). The real property and the fixed assets had a net book value of approximately $0.2 million as of August 28, 2015. We recorded a net gain of $1.2 million in the third quarter of 2015 on the sale of the Midland Branch.

In January 2015, we adopted a plan to consolidate certain branch offices (the “Branch Consolidation”). This Branch Consolidation reflects our ongoing cost reduction initiatives and undertakings to further improve the overall efficiency of our operations. The Branch Consolidation resulted in the closing of six of our branch offices on April 30, 2015. We also undertook certain additional staffing reductions related to our retail banking operations. In connection with the Branch Consolidation and these staffing reductions, we recorded $0.2 million of severance expenses in the first quarter of 2015. We recorded a net gain of approximately $0.2 million in the second quarter of 2015 (included in Other Non-Interest Income) that was comprised of a $0.3 million gain on the sale of the real property of two of the branches that was partially offset by $0.1 million of write-downs of the fixed assets (including real property) of the other four branches. We donated two of these four remaining branches to community groups during 2015 and the other two branches are for sale.

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, 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 2.5% capital conservation buffer is being phased in over a four-year period beginning in 2016. 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. Under the New Capital Rules our existing trust preferred securities are grandfathered as qualifying regulatory capital. We were subject to the New Capital Rules beginning on January 1, 2015, and as of December 31, 2015 we exceeded 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 2015 as compared to earlier periods.

9

RESULTS OF OPERATIONS

Summary. We recorded net income of $20.0 million, or $0.86 per diluted share, in 2015, as compared to $18.0 million, or $0.77 per diluted share, in 2014. We recorded net income applicable to common stock of $82.1 million, or $3.55 per diluted share, in 2013. The significantly higher earnings in 2013, as compared to 2015 and 2014, 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 preferred stock.

KEY PERFORMANCE RATIOS

	Year Ended December 31,
	2015			2014			2013
Net income to
Average common equity		7.89	%		7.43	%		64.22	%
Average assets		0.86			0.80			3.87
Net income per common share
Basic	$	0.88		$	0.79		$	5.87
Diluted		0.86			0.77			3.55

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 $75.0 million during 2015, compared to $73.3 million and $78.0 million during 2014 and 2013, respectively. The increase in net interest income in 2015 compared to 2014 primarily reflects a $96.5 million increase in average interest-earning assets that was partially offset by a nine basis point decrease in our tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”).

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.

Interest rates have generally been at extremely low levels since 2008 due primarily to the Federal Reserve Bank’s (“FRB”) monetary policies and its efforts to stimulate the U.S. economy. This very low interest rate environment has generally had an adverse impact on our interest income and net interest income. The FRB did move the target federal funds rate up by 0.25% in mid-December 2015. Future changes in the target federal funds rate are uncertain, however, we anticipate that any upward movements in short-term interest rates will be very gradual. 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 2014 compared to 2013 primarily reflects a 44 basis point decrease in our net interest margin that was partially offset by a $100.3 million increase in average interest-earning assets.

Our net interest income is also impacted by our level of non-accrual loans. Average non-accrual loans totaled $13.8 million, $17.9 million and $24.1 million in 2015, 2014 and 2013, respectively.

10

AVERAGE BALANCES AND RATES

	2015							2014							2013
	Average Balance		Interest		Rate			Average Balance		Interest		Rate			Average Balance		Interest		Rate
	(Dollars in thousands)
ASSETS (1)
Taxable loans	$	1,457,508	$	70,770		4.86	%	$	1,383,883	$	71,621		5.18	%	$	1,408,305	$	80,434		5.71	%
Tax-exempt loans (2)		3,972		246		6.19			4,889		310		6.34			5,491		354		6.45
Taxable securities		529,571		7,805		1.47			475,917		6,341		1.33			305,468		4,059		1.33
Tax-exempt securities (2)		34,039		1,388		4.08			40,200		1,510		3.76			32,051		1,680		5.24
Interest bearing cash and repurchase agreement		66,595		275		0.41			84,244		282		0.33			139,082		396		0.28
Other investments		17,171		925		5.39			23,252		1,118		4.81			21,673		901		4.16
Interest earning assets		2,108,856		81,409		3.86			2,012,385		81,182		4.03			1,912,070		87,824		4.59
Cash and due from banks		44,842							45,213							44,745
Other assets, net		166,363							182,099							164,281
Total assets	$	2,320,061						$	2,239,697						$	2,121,096
LIABILITIES
Savings and interest-bearing checking	$	988,504		1,056		0.11		$	951,745		1,064		0.11		$	908,740		1,131		0.12
Time deposits		386,035		2,953		0.76			413,729		3,903		0.94			423,291		4,575		1.08
Other borrowings		47,842		1,847		3.86			60,225		2,332		3.87			65,517		3,456		5.27
Interest bearing liabilities		1,422,381		5,856		0.41			1,425,699		7,299		0.51			1,397,548		9,162		0.66
Non-interest bearing deposits		619,206							540,107							500,673
Other liabilities		24,840							31,247							38,462
Shareholders’ equity		253,634							242,644							184,413
Total liabilities and shareholders’ equity	$	2,320,061						$	2,239,697						$	2,121,096
Net interest income			$	75,553						$	73,883						$	78,662
Net interest income as a percent of average interest earning assets						3.58	%						3.67	%						4.11	%

(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%.

11

CHANGE IN NET INTEREST INCOME

	2015 compared to 2014									2014 compared to 2013
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Increase (decrease) in interest income (1, 2)
Taxable loans	$	3,701		$	(4,552	)	$	(851	)	$	(1,374	)	$	(7,439	)	$	(8,813	)
Tax-exempt loans (3)		(57	)		(7	)		(64	)		(38	)		(6	)		(44	)
Taxable securities		754			710			1,464			2,271			11			2,282
Tax-exempt securities (3)		(244	)		122			(122	)		370			(540	)		(170	)
Interest bearing cash and repurchase agreement		(66	)		59			(7	)		(175	)		61			(114	)
Other investments		(316	)		123			(193	)		69			148			217
Total interest income		3,772			(3,545	)		227			1,123			(7,765	)		(6,642	)
Increase (decrease) in interest expense (1)
Savings and interest bearing checking		40			(48	)		(8	)		52			(119	)		(67	)
Time deposits		(248	)		(702	)		(950	)		(101	)		(571	)		(672	)
Other borrowings		(478	)		(7	)		(485	)		(262	)		(862	)		(1,124	)
Total interest expense		(686	)		(757	)		(1,443	)		(311	)		(1,552	)		(1,863	)
Net interest income	$	4,458		$	(2,788	)	$	1,670		$	1,434		$	(6,213	)	$	(4,779	)

(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,
	2015			2014			2013
As a percent of average interest earning assets
Loans (1)		69.3	%		69.0	%		73.9	%
Other interest earning assets		30.7			31.0			26.1
Average interest earning assets		100.0	%		100.0	%		100.0	%
Savings and NOW		46.9	%		47.3	%		47.5	%
Time deposits		18.2			19.9			21.4
Brokered CDs		0.1			0.6			0.8
Other borrowings and long-term debt		2.2			3.0			3.4
Average interest bearing liabilities		67.4	%		70.8	%		73.1	%
Earning asset ratio		90.9	%		89.9	%		90.1	%
Free-funds ratio (2)		32.6			29.2			26.9

(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 in each of 2015, 2014 and 2013, of $2.7 million, $3.1 million and $4.0 million, respectively. 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

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losses may be necessary based on changes in economic conditions, customer circumstances and other credit risk factors. 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 $40.1 million during 2015 compared to $38.8 million and $44.8 million during 2014 and 2013, respectively. The components of non-interest income are as follows:

NON-INTEREST INCOME

	Year Ended December 31,
	2015		2014			2013
	(In thousands)
Service charges on deposit accounts	$	12,389	$	13,446		$	14,076
Interchange income		8,481		8,164			7,362
Net gains (losses) on assets
Mortgage loans		7,448		5,628			10,022
Securities		20		329			395
Other than temporary impairment loss on securities:
Total impairment loss		—		(9	)		(26	)
Loss recognized in other comprehensive loss		—		—			—
Net impairment loss recognized in earnings		—		(9	)		(26	)
Mortgage loan servicing, net		1,751		791			3,806
Investment and insurance commissions		1,827		1,814			1,709
Bank owned life insurance		1,282		1,371			1,363
Title insurance fees		1,156		995			1,682
Net gain on branch sale		1,193		—			—
Gain on extinguishment of debt		—		500			—
Increase in fair value of U.S. Treasury warrant		—		—			(1,025	)
Other		4,583		5,746			5,465
Total non-interest income	$	40,130	$	38,775		$	44,829

Service charges on deposit accounts totaled $12.4 million during 2015, compared to $13.4 million and $14.1 million during 2014 and 2013, respectively. The decreases in such service charges principally reflect 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.

Interchange income totaled $8.5 million in 2015 compared to $8.2 million in 2014 and $7.4 million in 2013. The increase in interchange income 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. Certain volume incentives under the new Debit Brand Agreement began to abate in the fourth quarter of 2015, and as a result, absent transaction volume growth, further increases in interchange income could be a near-term challenge.

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 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 $7.4 million on mortgage loans during 2015, compared to $5.6 million and $10.0 million during 2014 and 2013 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,
	2015			2014			2013
	(Dollars in thousands)
Mortgage loans originated	$	336,618		$	265,494		$	419,494
Mortgage loans sold		281,494			223,580			407,235
Mortgage loans sold with servicing rights released		4,897			37,476			57,099
Net gains on the sale of mortgage loans		7,448			5,628			10,022
Net gains as a percent of mortgage loans sold (“Loan Sales Margin”)		2.65	%		2.52	%		2.46	%
Fair value adjustments included in the Loan Sales Margin		0.16			0.01			(0.55	)

Net gains on mortgage loans increased in 2015 as compared to 2014 due primarily to a decrease in mortgage loan interest rates during parts of 2015 that resulted in an increase in mortgage loan refinance volumes as well as an improving housing market which has resulted in an increase in purchase money mortgage origination volume. Net gains on mortgage loans declined in 2014 as compared to 2013 due primarily to decreases in mortgage loan originations and sales. These declines in mortgage loan originations and sales are due primarily to significantly lower mortgage loan refinance volumes.

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 2.49% in 2015, 2.51% in 2014 and 3.01% in 2013. The lower Loan Sales Margins in 2015 and 2014, as compared to 2013, were 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 $0.02 million in 2015, and $0.3 million and $0.4 million in 2014 and 2013, respectively. The 2015 net securities gain was due primarily to the sales of U.S. agency residential mortgage-backed securities that were partially offset by a $0.06 million decline in the fair value of trading securities. The 2014 securities net gain was 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 gain was due to a $0.4 million increase in the fair value of trading securities.

We recorded no net impairment losses in 2015 as compared to net impairment losses of $0.01 million and $0.03 million in 2014 and 2013, respectively, related to other than temporary impairment of securities available for sale. The 2014 and 2013 impairment charges related to private label residential mortgage-backed securities.

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GAINS AND LOSSES ON SECURITIES

	Proceeds		Gains (1)		Losses (2)		Net
Year Ended December 31,	(In thousands)
2015	$	12,037	$	75	$	55	$	20
2014		14,633		624		304		320
2013		2,940		402		33		369

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

(2) Losses in 2014 and 2013 include $0.009 million and $0.026 million, respectively of other than temporary impairment charges and 2015 and 2014 includes $0.055 million and $0.295 million, respectively related to a decrease in the fair value of trading securities.

Mortgage loan servicing generated net earnings of $1.8 million, $0.8 million and $3.8 million in 2015, 2014 and 2013, 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

	2015			2014			2013
	(In thousands)
Balance at January 1,	$	12,106		$	13,710		$	11,013
Originated servicing rights capitalized		2,697			1,823			3,210
Amortization		(2,868	)		(2,509	)		(3,745	)
Change in valuation allowance		501			(918	)		3,232
Balance at December 31,	$	12,436		$	12,106		$	13,710
Valuation allowance at December 31,	$	3,272		$	3,773		$	2,855

At December 31, 2015, we were servicing approximately $1.64 billion in mortgage loans for others on which servicing rights have been capitalized. This servicing portfolio had a weighted average coupon rate of 4.32% and a weighted average service fee of approximately 25.4 basis points. Remaining capitalized mortgage loan servicing rights at December 31, 2015 totaled $12.4 million, representing approximately 76 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 $12.9 million at December 31, 2015.

Investment and insurance commissions have been relatively unchanged and totaled $1.8 million, $1.8 million and $1.7 million in 2015, 2014 and 2013, respectively.

We earned $1.3 million, $1.4 million and $1.4 million in 2015, 2014 and 2013, 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 $54.4 million and $53.6 million at December 31, 2015 and 2014, respectively.

Title insurance fees totaled $1.2 million in 2015, $1.0 million in 2014 and $1.7 million in 2013. The fluctuation in title insurance fees is primarily a function of the level of mortgage loans that we originated.

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In the third quarter of 2015, we recorded a $1.2 million gain on the sale of our Midland Branch as described earlier.

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.

Changes in the fair value of the Amended Warrant issued to the United States Department of the Treasury (“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) due primarily to a rise in our common stock price during the relevant period.

Other non-interest income totaled $4.6 million, $5.7 million and $5.5 million in 2015, 2014 and 2013, respectively. The decrease in 2015 compared to 2014 is primarily due to declines in rental income on other real estate (“ORE”) and income from merchant card processing that was partially offset by an increase in swap fee income. The decline in rental income on ORE is due to the sales of income-producing properties. The decline in income from merchant card processing is due principally to a change in our third-party processing provider and the timeframe required to transition customers from the prior provider. 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.

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.

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Non-interest expense totaled $88.5 million in 2015, $90.0 million in 2014, and $104.1 million in 2013. The components of non-interest expense are as follows:

NON-INTEREST EXPENSE

	Year ended December 31,
	2015			2014			2013
	(In thousands)
Compensation	$	33,346		$	33,833		$	33,515
Performance-based compensation		6,732			5,154			6,507
Payroll taxes and employee benefits		8,108			8,234			7,902
Compensation and employee benefits		48,186			47,221			47,924
Occupancy, net		8,369			8,912			8,845
Data processing		7,944			7,532			8,019
Furniture, fixtures and equipment		3,892			4,137			4,293
Loan and collection		3,609			5,392			6,886
Communications		2,957			2,926			2,919
Advertising		2,121			2,193			2,433
Legal and professional		2,013			1,969			2,459
FDIC deposit insurance		1,366			1,567			2,435
Interchange expense		1,125			1,291			1,645
Supplies		809			993			1,028
Credit card and bank service fees		797			946			1,263
Amortization of intangible assets		347			536			812
Vehicle service contract counterparty contingencies		119			199			4,837
(Costs) recoveries related to unfunded lending commitments		113			31			(90	)
Provision for loss reimbursement on sold loans		(59	)		(466	)		2,152
Net (gains) losses on other real estate and repossessed assets		(180	)		(500	)		1,237
Other		4,922			5,072			5,021
Total non-interest expense	$	88,450		$	89,951		$	104,118

Compensation expense, which is primarily salaries, totaled $33.3 million, $33.8 million and $33.5 million in 2015, 2014 and 2013, respectively. The decrease in 2015 as compared to 2014 is due to a decline in total full-time equivalent employees related to the Branch Consolidation and other staffing reductions. 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. 2015 average total full-time equivalent employee levels have fallen by 4.1% compared to 2014 and by 7.7% compared to 2013.

Performance-based compensation expense totaled $6.7 million, $5.2 million and $6.5 million in 2015, 2014 and 2013, respectively. The increase in 2015 as compared to 2014 is primarily related to an increase in compensation of $1.0 million under our Management Incentive Compensation Plan based on our actual 2015 financial performance relative to plan targets and a $0.4 million increase under our Long-Term Incentive Plan. 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.

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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 2015, 2014 and 2013 for share-based awards under our long-term equity based incentive plan was $1.4 million, $1.0 million and $0.9 million, respectively. In 2015 and 2014, there were new grants of restricted stock and performance share awards. In 2013, there were new grants of restricted stock units, stock options and salary stock.

Payroll taxes and employee benefits expense totaled $8.1 million, $8.2 million and $7.9 million in 2015, 2014 and 2013, respectively. The decrease in 2015 as compared to 2014 is primarily due to a $0.3 million decrease in health insurance costs that was partially offset by a $0.2 million increase in the 401(k) match. In 2015 we added auto-enrollment to our 401(k) plan. 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.

Occupancy expenses, net, totaled $8.4 million, $8.9 million and $8.8 million in 2015, 2014 and 2013, respectively. The decrease in 2015 as compared to 2014 is primarily due to the Branch Consolidation and lower snow removal costs. 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.

Data processing expenses totaled $7.9 million, $7.5 million, and $8.0 million in 2015, 2014 and 2013, respectively. The increase in 2015 as compared to 2014 is due primarily to the addition of new products and services (desktop software, sales management software and a new mortgage loan origination platform) as well as increased costs due to growth in mobile banking usage. The decline in 2014 as compared to 2013 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 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 steadily during the past several years primarily due to decreases in non-performing loans, new loan defaults and watch/problem credits. 2015, 2014 and 2013 also included $0.02 million, $0.5 million and $0.7 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 2015 from 2014 and declined by $0.2 million in 2014 from 2013. These declines are due primarily to our cost reduction initiatives 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 has been relatively unchanged and totaled $3.0 million, $2.9 million, and $2.9 million in 2015, 2014 and 2013, respectively.

Advertising expense totaled $2.1 million, $2.2 million, and $2.4 million in 2015, 2014 and 2013, respectively. The slight decrease in 2015 as compared to 2014 is due primarily to reductions in outdoor (billboard) advertising. The 2014 decline was due to a reduction in direct mail costs.

Legal and professional fees totaled $2.0 million, $2.0 million, and $2.5 million in 2015, 2014 and 2013, respectively. The decrease in 2014 as compared to 2013 was due primarily to declines in consulting fees, legal fees and external audit fees due, in part, to our cost reduction initiatives.

FDIC deposit insurance expense totaled $1.4 million, $1.6 million, and $2.4 million in 2015, 2014 and 2013, respectively. The declines in 2015 and 2014 as compared to 2013 reflect reductions in the Bank’s risk based premium rate 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 2015 and 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.

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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 closing or consolidation of branches.

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.

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 $2.3 million and $2.6 million at December 31, 2015 and 2014, 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 $0.1 million, $0.2 million and $4.8 million in 2015, 2014 and 2013, respectively. The higher level of expense in 2013 was due to write-downs of or additional reserves on vehicle service contract counterparty receivables. We reached settlements in certain litigation in 2013 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. 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 at both December 31, 2015 and 2014.

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. 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 $0.06 million and $0.5 million in 2015 and 2014, respectively, and an expense of $2.2 million in 2013. This provision represents our estimate of incurred losses related to mortgage loans that we have sold to investors (primarily Fannie Mae, Freddie Mac and Ginnie Mae). The credit provisions in 2015 and 2014 are due primarily to the reduction or rescission of certain loss reimbursement requests that had been pending and accrued for in earlier periods. 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. 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 $0.5 million and $0.7 million at December 31, 2015 and 2014, 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, 2015 and 2014 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 gains of $0.2 million and $0.5 million in 2015 and 2014, respectively, as compared to a net loss of $1.2 million recorded in 2013, primarily reflect greater stability in real estate prices during the last two years, with many markets even experiencing price increases.

Other non-interest expenses have been relatively consistent over the past three years and totaled $4.9 million in 2015, compared to $5.1 million in 2014, and $5.0 million in 2013.

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 2015, 2014 and 2013, respectively.

Income tax expense (benefit). We recorded an income tax expense of $9.4 million and $7.2 million in 2015 and 2014, respectively, as compared to an income tax benefit of $54.9 million in 2013. 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

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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 ten additional profitable quarters since the second quarter of 2013.

The valuation allowance against our deferred tax assets totaled approximately $1.1 million and $1.0 million at December 31, 2015 and 2014, respectively. The portion of the valuation allowance on our deferred tax assets that we did not reverse 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 few 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 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 a valuation allowance on a capital loss carryforward that was believed to not be more likely than not to be realized prior to a strategy executed during the second quarter of 2014 that generated capital gains.

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 $(0.014) million, $0.005 million, and $(0.2) million in 2015, 2014 and 2013, 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.

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

BUSINESS SEGMENTS

	Year ended December 31,
	2015			2014			2013
	(In thousands)
Independent Bank	$	21,727		$	18,550		$	74,313
Mepco		(712	)		366			(1,801	)
Other (1)		(936	)		(712	)		5,092
Elimination		(62	)		(183	)		(95	)
Net income	$	20,017		$	18,021		$	77,509

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

The substantial change in the Bank’s results in 2015 and 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 increase in 2015 as compared to 2014 is primarily due to increases in net interest income and non-interest income as well as a decline in non-interest expense. (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 3.50%). 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. There was no gain or loss on ORE at our Mepco segment in 2015.

“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 2015 and 2014 as compared to 2013 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 included a $1.0 million increase (which reduced 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 $2.41 billion at December 31, 2015, compared to $2.25 billion at December 31, 2014, primarily due to increases in securities available for sale and loans. Loans, excluding loans held for sale (“Portfolio Loans”), totaled $1.52 billion at December 31, 2015, an increase of 7.5% from $1.41 billion at December 31, 2014. (See “Portfolio Loans and asset quality”).

Deposits totaled $2.09 billion at December 31, 2015, compared to $1.92 billion at December 31, 2014. The increase in deposits during 2015 is primarily due to growth in checking, savings and time 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 2015 due primarily to the purchase of U.S. agency, corporate, and asset-backed securities. The securities were purchased to utilize funds generated from the increase in total deposits. (See “Deposits” and “Liquidity and capital resources.”)

Our portfolio of securities available for sale 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 zero, $0.009 million, and $0.026 million, in 2015, 2014, and 2013, 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, 2015	$	585,851	$	3,152	$	3,519	$	585,484
December 31, 2014		532,930		3,317		3,069		533,178

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 and make whole loan purchases from other financial institutions. In December 2015, we purchased $32.6 million of single-family residential fixed rate jumbo mortgage loans from another Michigan-based financial institution. These mortgage loans were all on properties located in Michigan, had a weighted average interest rate (after a 0.25% servicing fee) of 3.94% and a weighted average remaining contractual maturity of 344 months.

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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. 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

	December 31,
	2015		2014
	(In thousands)
Real estate (1)
Residential first mortgages	$	432,215	$	411,423
Residential home equity and other junior mortgages		106,297		108,162
Construction and land development		62,629		54,644
Other (2)		498,706		447,837
Consumer		193,350		154,591
Commercial		180,424		186,875
Payment plan receivables		34,599		40,001
Agricultural		6,830		6,429
Total loans	$	1,515,050	$	1,409,962

(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,
	2015			2014			2013
	(Dollars in thousands)
Non-accrual loans	$	10,607		$	15,231		$	17,905
Loans 90 days or more past due and still accruing interest		116			7			—
Total non-performing loans		10,723			15,238			17,905
Other real estate and repossessed assets		7,150			6,454			18,282
Total non-performing assets	$	17,873		$	21,692		$	36,187
As a percent of Portfolio Loans
Non-performing loans		0.71	%		1.08	%		1.30	%
Allowance for loan losses		1.49			1.84			2.35
Non-performing assets to total assets		0.74			0.96			1.64
Allowance for loan losses as a percent of non-performing loans		210.48			170.56			180.54

(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, 2015
	Commercial		Retail			Total
	(In thousands)
Performing TDR’s	$	13,318	$	68,194		$	81,512
Non-performing TDR’s (1)		3,041		3,777	(2)		6,818
Total	$	16,359	$	71,971		$	88,330

	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

(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.

Non-performing loans declined by $4.5 million, or 29.6%, in 2015 and by $2.7 million, or 14.9%, in 2014 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 $81.5 million, or 5.4% of total Portfolio Loans, and $103.0 million, or 7.3% of total Portfolio Loans, at December 31, 2015 and 2014, respectively. The decrease in the amount of performing TDRs during 2015 reflects declines in both commercial loan and retail loan TDRs.

ORE and repossessed assets totaled $7.2 million at December 31, 2015, compared to $6.5 million at December 31, 2014. The slight increase in ORE during 2015 primarily reflects the migration of some income-producing commercial properties into ORE during the last quarter 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,
	2015		2014		2013
	(In thousands)
Specific allocations	$	10,983	$	13,233	$	15,158
Other adversely rated commercial loans		1,053		761		1,358
Historical loss allocations		5,262		6,773		9,849
Additional allocations based on subjective factors		5,272		5,223		5,960
Total	$	22,570	$	25,990	$	32,325

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

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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 $0.009 million, $0.038 million and $0.097 million for its provision for loan losses in 2015, 2014 and 2013, respectively, due primarily to declines in the balance of payment plan receivables ($5.4 million, or 13.5%, $20.6 million, or 34.0%, and $24.1 million, or 28.4%, in 2015, 2014 and 2013, respectively). Mepco’s allowance for loan losses totaled $0.063 million and $0.072 million at December 31, 2015 and 2014, 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 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.)

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The AFLL decreased $3.4 million to $22.6 million at December 31, 2015 from $26.0 million at December 31, 2014 and was equal to 1.49% of total Portfolio Loans at December 31, 2015 compared to 1.84% at December 31, 2014. Two of the four components of the allowance for loan losses outlined above declined during 2015. The allowance for loan losses related to specific loans decreased $2.3 million in 2015 due primarily to a $24.0 million, or 21.6%, 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 increased $0.3 million in 2015. Although the total balance of such loans included in this component decreased to $27.8 million at December 31, 2015, from $30.6 million at December 31, 2014, the allowance related to such loans increased slightly due to the use of higher loss given default rates. The allowance for loan losses related to historical losses decreased $1.5 million during 2015 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 was relatively unchanged (increased by just $0.05 million during 2015).

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.

ALLOWANCE FOR LOSSES ON LOANS AND UNFUNDED COMMITMENTS

	2015					2014					2013
	Loan Losses			Unfunded Commitments		Loan Losses			Unfunded Commitments		Loan Losses			Unfunded Commitments
	(Dollars in thousands)
Balance at beginning of year	$	25,990		$	539	$	32,325		$	508	$	44,275		$	598
Additions (deductions)
Provision for loan losses		(2,714	)		—		(3,136	)		—		(3,988	)		—
Recoveries credited to allowance		5,022			—		7,420			—		8,270			—
Loans charged against the allowance		(5,728	)		—		(10,619	)		—		(16,232	)		—
Additions (deductions) included in non-interest expense		—			113		—			31		—			(90	)
Balance at end of year	$	22,570		$	652	$	25,990		$	539	$	32,325		$	508
Net loans charged against the allowance to average Portfolio Loans		0.05	%				0.23	%				0.58	%

The ratio of loan net charge-offs to average loans was 0.05% in 2015 (or $0.7 million) compared to 0.23% in 2014 (or $3.2 million) and 0.58% in 2013 (or $8.0 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 $2.09 billion and $1.92 billion at December 31, 2015 and 2014, respectively. The $161.7 million increase in deposits in 2015 is due to growth in checking, savings and time deposit account balances. Reciprocal deposits totaled $50.2 million and $53.7 million at December 31, 2015 and 2014, 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, 2015, we had approximately $492.5 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 a part of our asset/liability management efforts.

Other borrowings, comprised almost entirely of advances from the Federal Home Loan Bank (the “FHLB”), totaled $12.0 million and $12.5 million at December 31, 2015 and 2014, 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, 2015, our use of such wholesale funding sources (including reciprocal deposits) amounted to approximately $62.2 million, or 3.0% 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 2015 and 2014, we entered into $24.3 million and $3.3 million (aggregate notional amounts), respectively, 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 $0.412 million and $0.070 million of fee income related to these transactions during 2015 and 2014, respectively.

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

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categorize these sources and uses into operating, investing and financing activities. We primarily focus our liquidity 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, 2015, we had $302.1 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, $1.66 billion of our deposits at December 31, 2015, 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 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 $15.8 million as of December 31, 2015 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, 2015.

CONTRACTUAL COMMITMENTS (1)

	1 Year or Less		1-3 Years		3-5 Years		After 5 Years		Total
	(In thousands)
Time deposit maturities	$	302,136	$	93,655	$	27,195	$	3,234	$	426,220
Other borrowings		2,526		6,629		2,799		—		11,954
Subordinated debentures		—		—		—		35,569		35,569
Operating lease obligations		1,054		1,671		1,386		253		4,364
Purchase obligations (2)		1,385		2,771		2,771		346		7,273
Total	$	307,101	$	104,726	$	34,151	$	39,402	$	485,380

(1) Excludes approximately $0.6 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.

29

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.

CAPITALIZATION

	December 31,
	2015			2014
	(In thousands)
Subordinated debentures	$	35,569		$	35,569
Amount not qualifying as regulatory capital		(1,069	)		(1,069	)
Amount qualifying as regulatory capital		34,500			34,500
Shareholders’ equity
Common stock		339,462			352,462
Accumulated deficit		(82,334	)		(96,455	)
Accumulated other comprehensive loss		(6,036	)		(5,636	)
Total shareholders’ equity		251,092			250,371
Total capitalization	$	285,592		$	284,871

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.

At both December 31, 2015 and 2014, we had $34.5 million 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, 2015 and 2014. 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 $251.1 million at December 31, 2015 from $250.4 million at December 31, 2014 due primarily to our net income in 2015 that was substantially offset by share repurchases and dividends paid on our common stock. Our tangible common equity (“TCE”) totaled $248.8 million and $247.7 million, respectively, at those same dates. Our ratio of TCE to tangible assets was 10.34% and 11.03% at December 31, 2015 and 2014, respectively.

On January 21, 2015, our Board of Directors authorized a share repurchase plan. Under the terms of this share repurchase plan, we were authorized to buy back up to 5% of our outstanding common stock. This repurchase plan expired on December 31, 2015. During 2015, we repurchased 967,199 shares of our comment stock pursuant to this plan at an average price of $13.96 per share.

30

On January 21, 2016, our Board of Directors authorized another share repurchase plan. Under the terms of the 2016 share repurchase plan, we are authorized to buy back up to 5% of our outstanding common stock. This repurchase plan is authorized to last through December 31, 2016.

We resumed a quarterly cash dividend on our common stock of six cents per share in May 2014 and have continued to pay regular quarterly dividends at that amount through August 2015. In October 2015, our Board of Directors increased the quarterly cash dividend on our common stock to eight cents per share.

Because the Bank currently has negative “undivided profits” (i.e. a retained deficit) of $10.1 million at December 31, 2015, 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 2016, we requested regulatory approval for an $18.0 million return of capital from the Bank to the parent company. This return of capital request was approved by our banking regulators on February 24, 2016, and the Bank returned $18.0 million of capital to the parent company on February 25, 2016. Our banking regulators approved previous return of capital requests totaling $41.0 million during the three-year period ended December 31, 2015. Also see note #20 to the Consolidated Financial Statements included within this report.

As of December 31, 2015 and 2014, 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.

31

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, 2015
200 basis point rise	$	419,600		8.42	%	$	80,700		6.32	%
100 basis point rise		407,300		5.25			78,700		3.69
Base-rate scenario		387,000		—			75,900		—
100 basis point decline		356,500		(7.88	)		72,000		(5.14	)
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	)

(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.

(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 $1.0 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.

32

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 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 zero, $0.009 million, and $0.03 million, in 2015, 2014 and 2013, 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, 2015 and 2014, the estimated fair value of our investment securities classified as available for sale was (less than)/exceeded their cost basis at that same date by $(0.4) million and $0.2 million, respectively. 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, 2015 and 2014, we had approximately $12.4 million and $12.1 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 $0.5 million and $3.2 million in 2015 and 2013, respectively.

33

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 $0.1 million, $0.2 million and $4.8 million in 2015, 2014 and 2013, 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 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, 2015 we had gross deferred tax assets of $45.5 million, gross deferred tax liabilities of $4.8 million and a valuation allowance of $1.1 million. This compares to gross deferred tax assets of $54.6 million, gross deferred tax liabilities of $4.9 million and a valuation allowance of $1.0 million at December 31, 2014. 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.

34

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, 2015. 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, 2015, 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, 2015, 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 the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. 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 7, 2016

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Independent Bank Corporation
Grand Rapids, Michigan

We have audited the accompanying consolidated statements of financial condition of Independent Bank Corporation as of December 31, 2015 and 2014, 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, 2015. We also have audited Independent Bank Corporation’s internal control over financial reporting as of December 31, 2015, 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 Annual 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, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2015 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, 2015, 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 7, 2016

36

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2015			2014
	(In thousands, except share amounts)
ASSETS
Cash and due from banks	$	54,260		$	48,326
Interest bearing deposits		31,523			25,690
Cash and Cash Equivalents		85,783			74,016
Interest bearing deposits - time		11,866			13,561
Trading securities		148			203
Securities available for sale		585,484			533,178
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		15,471			19,919
Loans held for sale, carried at fair value		27,866			23,662
Loans
Commercial		748,398			690,955
Mortgage		500,454			472,628
Installment		231,599			206,378
Payment plan receivables		34,599			40,001
Total Loans		1,515,050			1,409,962
Allowance for loan losses		(22,570	)		(25,990	)
Net Loans		1,492,480			1,383,972
Other real estate and repossessed assets		7,150			6,454
Property and equipment, net		43,103			45,948
Bank-owned life insurance		54,402			53,625
Deferred tax assets, net		39,635			48,632
Capitalized mortgage loan servicing rights		12,436			12,106
Vehicle service contract counterparty receivables, net		7,229			7,237
Other intangibles		2,280			2,627
Accrued income and other assets		23,733			23,590
Total Assets	$	2,409,066		$	2,248,730
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	659,793		$	576,882
Savings and interest-bearing checking		988,174			943,734
Reciprocal		50,207			53,668
Time		387,789			350,018
Total Deposits		2,085,963			1,924,302
Other borrowings		11,954			12,470
Subordinated debentures		35,569			35,569
Vehicle service contract counterparty payables		797			1,977
Accrued expenses and other liabilities		23,691			24,041
Total Liabilities		2,157,974			1,998,359
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: 22,251,373 shares at December 31, 2015 and 22,957,323 shares at December 31, 2014		339,462			352,462
Accumulated deficit		(82,334	)		(96,455	)
Accumulated other comprehensive loss		(6,036	)		(5,636	)
Total Shareholders’ Equity		251,092			250,371
Total Liabilities and Shareholders’ Equity	$	2,409,066		$	2,248,730

See accompanying notes to consolidated financial statements

37

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2015			2014			2013
	(In thousands, except per share amounts)
INTEREST INCOME
Interest and fees on loans	$	70,930		$	71,823		$	80,664
Interest on securities
Taxable		7,805			6,341			4,059
Tax-exempt		907			991			1,101
Other investments		1,200			1,400			1,297
Total Interest Income		80,842			80,555			87,121
INTEREST EXPENSE
Deposits		4,009			4,967			5,706
Other borrowings		1,847			2,332			3,456
Total Interest Expense		5,856			7,299			9,162
Net Interest Income		74,986			73,256			77,959
Provision for loan losses		(2,714	)		(3,136	)		(3,988	)
Net Interest Income After Provision for Loan Losses		77,700			76,392			81,947
NON-INTEREST INCOME
Service charges on deposit accounts		12,389			13,446			14,076
Interchange income		8,481			8,164			7,362
Net gains (losses) on assets
Mortgage loans		7,448			5,628			10,022
Securities		20			329			395
Other than temporary impairment loss on securities
Total impairment loss		—			(9	)		(26	)
Loss recognized in other comprehensive income (loss)		—			—			—
Net impairment loss recognized in earnings		—			(9	)		(26	)
Mortgage loan servicing, net		1,751			791			3,806
Title insurance fees		1,156			995			1,682
Net gain on branch sale		1,193			—			—
Gain on extinguishment of debt		—			500			—
Increase in fair value of U.S. Treasury warrant		—			—			(1,025	)
Other		7,692			8,931			8,537
Total Non-interest Income		40,130			38,775			44,829
NON-INTEREST EXPENSE
Compensation and employee benefits		48,186			47,221			47,924
Occupancy, net		8,369			8,912			8,845
Data processing		7,944			7,532			8,019
Furniture, fixtures and equipment		3,892			4,137			4,293
Loan and collection		3,609			5,392			6,886
Communications		2,957			2,926			2,919
Advertising		2,121			2,193			2,433
Legal and professional		2,013			1,969			2,459
FDIC deposit insurance		1,366			1,567			2,435
Interchange expense		1,125			1,291			1,645
Credit card and bank service fees		797			946			1,263
Vehicle service contract counterparty contingencies		119			199			4,837
Costs (recoveries) related to unfunded lending commitments		113			31			(90	)
Provision for loss reimbursement on sold loans		(59	)		(466	)		2,152
Net (gains) losses on other real estate and repossessed assets		(180	)		(500	)		1,237
Other		6,078			6,601			6,861
Total Non-interest Expense		88,450			89,951			104,118
Income Before Income Tax		29,380			25,216			22,658
Income tax expense (benefit)		9,363			7,195			(54,851	)
Net Income	$	20,017		$	18,021		$	77,509
Preferred stock dividends and discount accretion		—			—			(3,001	)
Preferred stock discount		—			—			7,554
Net Income Applicable to Common Stock	$	20,017		$	18,021		$	82,062
Net income per common share
Basic	$	0.88		$	0.79		$	5.87
Diluted	$	0.86		$	0.77		$	3.55
Cash dividends declared per common share	$	0.26		$	0.18		$	—

See accompanying notes to consolidated financial statements

38

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
Net income	$	20,017		$	18,021		$	77,509
Other comprehensive income (loss)
Securities available for sale
Unrealized gain (loss) arising during period		(540	)		5,095			(4,698	)
Change in unrealized losses for which a portion of other than temporary impairment has been recognized in earnings		—			398			270
Reclassification adjustment for other than temporary impairment included in earnings		—			9			26
Reclassification adjustments for gains included in earnings		(75	)		(329	)		(7	)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale		(615	)		5,173			(4,409	)
Income tax expense (benefit)		(215	)		1,811			(1,544	)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale, net of tax		(400	)		3,362			(2,865	)
Derivative instruments
Unrealized loss arising during period		—			—			(37	)
Reclassification adjustment for expense recognized in earnings		—			—			208
Reclassification adjustment for accretion on settled derivatives		—			380			189
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments		—			380			360
Income tax expense (benefit)		—			133			(1,318	)
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments, net of tax		—			247			1,678
Other comprehensive income (loss)		(400	)		3,609			(1,187	)
Comprehensive income	$	19,617		$	21,630		$	76,322

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, 2013	$	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
Net income for 2015		—			—			20,017			—			20,017
Cash dividends declared, $.26 per share		—			—			(5,896	)		—			(5,896	)
Repurchase of 967,199 shares of common stock		—			(13,498	)		—			—			(13,498	)
Issuance of 39,610 shares of common stock		—			112			—			—			112
Share based compensation (issuance of 299,263 shares of common stock)		—			1,477			—			—			1,477
Share based compensation withholding obligation (withholding of 77,624 shares of common stock)		—			(1,091	)		—			—			(1,091	)
Other comprehensive loss		—			—			—			(400	)		(400	)
Balances at December 31, 2015	$	—		$	339,462		$	(82,334	)	$	(6,036	)	$	251,092

See accompanying notes to consolidated financial statements

40

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
Net Income	$	20,017		$	18,021		$	77,509
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
Proceeds from sales of loans held for sale		288,852			228,906			415,442
Disbursements for loans held for sale		(285,608	)		(226,550	)		(378,323	)
Provision for loan losses		(2,714	)		(3,136	)		(3,988	)
Deferred federal income tax expense (benefit)		8,997			8,918			(57,550	)
Deferred loan fees		(1,234	)		(753	)		17
Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities, loans and interest bearning deposits - time		4,553			3,014			(2,197	)
Net gains on mortgage loans		(7,448	)		(5,628	)		(10,022	)
Net gains on securities		(20	)		(329	)		(395	)
Securities impairment recognized in earnings		—			9			26
Net (gains) losses on other real estate and repossessed assets		(180	)		(500	)		1,237
Vehicle service contract counterparty contingencies		119			199			4,837
Share based compensation		1,477			1,192			1,238
Net gain on branch sale		(1,193	)		—			—
Gain on extinguishment of debt		—			(500	)		—
(Increase) decrease in accrued income and other assets		(1,387	)		(2,579	)		7,747
Decrease in accrued expenses and other liabilities		(196	)		(7,213	)		(3,508	)
Total Adjustments		4,018			(4,950	)		(25,439	)
Net Cash From Operating Activities		24,035			13,071			52,070
CASH FLOW USED IN INVESTING ACTIVITIES
Proceeds from the sale of securities available for sale		12,037			14,633			2,940
Proceeds from the maturity of securities available for sale		36,808			58,220			29,866
Principal payments received on securities available for sale		130,232			84,487			43,702
Purchases of securities available for sale		(234,693	)		(224,946	)		(332,060	)
Purchases of interest bearing deposits - time		(4,595	)		(2,401	)		(20,260	)
Proceeds from the maturity of interest bearing deposits - time		6,222			6,719			2,142
Redemption of Federal Home Loan Bank and Federal Reserve Bank stock		4,906			3,814			—
Purchase of Federal Reserve Bank stock		(458	)		(314	)		(2,581	)
Net (increase) decrease in portfolio loans (loans originated, net of principal payments)		(74,343	)		(37,195	)		33,192
Purchase of portfolio loans		(32,872	)		—			—
Net proceeds from sale of watch, substandard and non-performing loans		—			—			6,721
Net cash from (paid for) branch sale		(7,229	)		—			3,292
Proceeds from the collection of vehicle service contract counterparty receivables		1,092			385			6,751
Proceeds from the sale of other real estate and repossessed assets		6,179			18,471			13,546
Proceeds from the sale of property and equipment		555			309			52
Capital expenditures		(4,354	)		(4,298	)		(8,371	)
Net Cash Used in Investing Activities		(160,513	)		(82,116	)		(221,068	)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in total deposits		170,314			39,496			105,269
Net increase (decrease) in other borrowings		(1	)		(1	)		4
Proceeds from Federal Home Loan Bank advances		100			100			100
Payments of Federal Home Loan Bank advances		(615	)		(4,817	)		(541	)
Net decrease in vehicle service contract counterparty payables		(1,180	)		(2,112	)		(3,636	)
Dividends paid		(5,896	)		(4,129	)		—
Proceeds from issuance of common stock		112			97			98,066
Repurchase of common stock		(13,498	)		—			—
Share based compensation withholding obligation		(1,091	)		—			(513	)
Redemption of subordinated debt		—			(4,654	)		(9,452	)
Redemption of convertible preferred stock and common stock warrant		—			—			(81,000	)
Net Cash From Financing Activities		148,245			23,980			108,297
Net Increase (Decrease) in Cash and Cash Equivalents		11,767			(45,065	)		(60,701	)
Cash and Cash Equivalents at Beginning of Year		74,016			119,081			179,782
Cash and Cash Equivalents at End of Year	$	85,783		$	74,016		$	119,081
Cash paid during the year for
Interest	$	5,769		$	7,365		$	15,914
Income taxes		295			216			43
Transfers to other real estate and repossessed assets		6,694			6,143			6,932
Transfer of payment plan receivables to vehicle service contract counterparty receivables		1,203			180			792
Purchase of securities available for sale and interest bearing deposits - time not yet settled		—			265			4,146

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, 2015, 72.6% 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, net 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 $4.1 million, $4.2 million and $4.3 million for the years ended December 31, 2015, 2014 and 2013, 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, 2015 and 2014. 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 (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.

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 in interest income-other investments on the Consolidated Statements of Operations.

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 in interest income-other investments on the Consolidated Statements of Operations.

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, (iv) home equity – 2nd lien and beginning in 2015 (v) purchased loans. 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. A loan can be removed from TDR status if it is subsequently restructured and the borrower is no longer experiencing financial difficulties and the newly restructured agreement does not contain any concessions to the borrower. The new agreement must specify market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, and other terms no less favorable to us than those we would offer for similar new debt.

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 other real estate 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

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 — 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 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.

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 (loss) 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, 2015 or 2014. 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 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, (ii) certain pay-fixed and pay-variable interest rate swap agreements related to commercial loan customers and (iii) certain purchased and written options related to a time deposit product. 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

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. Fair values of the purchased and written options are based on prices of financial instruments with similar characteristics 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 and options). 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 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, 2015, 0.1 million shares of common stock were reserved for issuance under the dividend reinvestment plan and 0.5 million shares of common stock were reserved for issuance under our long-term incentive plans.

RECLASSIFICATION — Certain amounts in the 2014 and 2013 consolidated financial statements have been reclassified to conform to the 2015 presentation.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ADOPTION OF NEW ACCOUNTING STANDARDS — In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 amended guidance became effective for us on January 1, 2015, and did not 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, 2018, 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.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This ASU amends existing guidance related to the accounting for certain financial assets and liabilities. These amendments, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amended guidance is effective for us on January 1, 2018, 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 2015 and 2014 were $3.2 million and $15.3 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 $2.5 million and $2.8 million at December 31, 2015 and 2014, 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				Fair Value
			Gains		Losses
	(In thousands)
2015
U.S. agency	$	47,283	$	309	$	80	$	47,512
U.S. agency residential mortgage-backed		195,055		1,584		583		196,056
U.S. agency commercial mortgage-backed		34,017		94		83		34,028
Private label residential mortgage-backed		5,061		161		319		4,903
Other asset backed		117,431		54		581		116,904
Obligations of states and political subdivisions		145,193		941		1,150		144,984
Corporate		38,895		9		290		38,614
Trust preferred		2,916		—		433		2,483
Total	$	585,851	$	3,152	$	3,519	$	585,484
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

Total OTTI recognized in accumulated other comprehensive loss for securities available for sale was zero at both December 31, 2015 and 2014, 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)
2015
U.S. agency	$	12,164	$	47	$	6,746	$	33	$	18,910	$	80
U.S. agency residential mortgage-backed		57,538		316		23,340		267		80,878		583
U.S. agency commercial mortgage-backed		16,747		60		2,247		23		18,994		83
Private label residential mortgage-backed		—		—		3,393		319		3,393		319
Other asset backed		102,660		434		5,189		147		107,849		581
Obligations of states and political subdivisions		52,493		597		12,240		553		64,733		1,150
Corporate		30,550		290		—		—		30,550		290
Trust preferred		—		—		2,483		433		2,483		433
Total	$	272,152	$	1,744	$	55,638	$	1,775	$	327,790	$	3,519

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)
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

Our portfolio of securities available for sale 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 (loss).

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at December 31, 2015, we had 39 U.S. agency, 108 U.S. agency residential mortgage-backed and 18 U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to increases in interest rates since acquisition 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, 2015, 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 all five 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 recognized in prior years and is discussed in further detail below.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, 2015, we had 129 other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and 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.

Obligations of states and political subdivisions — at December 31, 2015, we had 79 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, 2015, we had 27 corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and 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.

Trust preferred securities — at December 31, 2015, 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 has suffered from credit spread widening.

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, 2015, 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:

	2015					2014
	Fair Value		Net Unrealized Loss			Fair Value		Net Unrealized Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,690	$	(226	)	$	1,643	$	(267	)
Unrated issues		793		(207	)		798		(202	)

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 2015, 2014 and 2013, we recorded in earnings credit related OTTI charges on securities available for sale of zero, $0.01 million and $0.03 million, respectively.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At December 31, 2015, 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, 2015
Fair value	$	1,616	$	1,331	$	79	$	3,026
Amortized cost		1,635		1,249		—		2,884
Non-credit unrealized loss		19		—		—		19
Unrealized gain		—		82		79		161
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,
2015	$	—	$	—	$	—	$	—
2014		9		—		—		9
2013		26		—		—		26

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, 2015. 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 (loss) 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:

	2015		2014		2013
	(In thousands)
Balance at beginning of year	$	1,844	$	1,835	$	1,809
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
Total	$	1,844	$	1,844	$	1,835

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The amortized cost and fair value of securities available for sale at December 31, 2015, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	34,565	$	34,591
Maturing after one year but within five years		69,976		69,916
Maturing after five years but within ten years		46,512		46,641
Maturing after ten years		83,234		82,445
		234,287		233,593
U.S. agency residential mortgage-backed		195,055		196,056
U.S. agency commercial mortgage-backed		34,017		34,028
Private label residential mortgage-backed		5,061		4,903
Other asset backed		117,431		116,904
Total	$	585,851	$	585,484

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)
2015	$	12,037	$	75	$	—
2014		14,633		329		—
2013		2,940		15		8

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

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

During 2015, 2014 and 2013, our trading securities consisted of various preferred stocks. During each of those years, we recognized gains (losses) on trading securities of $(0.06) million, $(0.30) million and $0.39 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, 2015 and 2014.

Securities with a book value of $1.1 million at both December 31, 2015 and 2014, 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, 2015 or 2014.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 – LOANS AND PAYMENT PLAN RECEIVABLES

Our loan portfolios at December 31 follow:

	2015		2014
	(In thousands)
Real estate (1)
Residential first mortgages	$	432,215	$	411,423
Residential home equity and other junior mortgages		106,297		108,162
Construction and land development		62,629		54,644
Other (2)		498,706		447,837
Consumer		193,350		154,591
Commercial		180,424		186,875
Payment plan receivables		34,599		40,001
Agricultural		6,830		6,429
Total loans	$	1,515,050	$	1,409,962

(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 $2.2 million and $1.0 million at December 31, 2015 and 2014, respectively. Payment plan receivables totaling $36.9 million and $42.6 million at December 31, 2015 and 2014, respectively, are presented net of unamortized discount of $2.3 million and $2.6 million at December 31, 2015 and 2014, respectively. These payment plan receivables had effective yields of 13% and 14% at December 31, 2015 and 2014, respectively. These receivables have various due dates through January 2018.

In December 2015, we purchased $32.6 million of single-family residential fixed rate jumbo mortgage loans from another Michigan-based financial institution. These mortgage loans were all on properties located in Michigan, had a weighted average interest rate (after a 0.25% servicing fee) of 3.94% and a weighted average remaining contractual maturity of 344 months.

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

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2015
Balance at beginning of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
Additions (deductions)
Provision for loan losses		(737	)		(1,744	)		(274	)		(8	)		49			(2,714	)
Recoveries credited to allowance		2,656			1,258			1,108			—			—			5,022
Loans charged against the allowance		(1,694	)		(2,567	)		(1,467	)		—			—			(5,728	)
Balance at end of period	$	5,670		$	10,391		$	1,181		$	56		$	5,272		$	22,570
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

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
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

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

	Commercial		Mortgage		Installment		Payment Plan Receivables		Subjective Allocation		Total
	(In thousands)
2015
Allowance for loan losses:
Individually evaluated for impairment	$	2,708	$	7,818	$	457	$	—	$	—	$	10,983
Collectively evaluated for impairment		2,962		2,573		724		56		5,272		11,587
Total ending allowance balance	$	5,670	$	10,391	$	1,181	$	56	$	5,272	$	22,570
Loans
Individually evaluated for impairment	$	16,868	$	66,375	$	5,888	$	—			$	89,131
Collectively evaluated for impairment		733,399		436,349		226,409		34,599				1,430,756
Total loans recorded investment		750,267		502,724		232,297		34,599				1,519,887
Accrued interest included in recorded investment		1,869		2,270		698		—				4,837
Total loans	$	748,398	$	500,454	$	231,599	$	34,599			$	1,515,050
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

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 $0.6 million, $0.8 million and $1.2 million of interest income would have been recognized in 2015, 2014 and 2013, respectively. Interest income recorded on these loans was approximately zero during the years ended 2015 and 2014 and $0.1 million in 2013.

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)
2015
Commercial
Income producing - real estate	$	—	$	1,027	$	1,027
Land, land development and construction - real estate		49		401		450
Commercial and industrial		69		2,028		2,097
Mortgage
1-4 family		—		4,744		4,744
Resort lending		—		1,094		1,094
Home equity - 1st lien		—		187		187
Home equity - 2nd lien		—		147		147
Purchased loans		—		2		2
Installment
Home equity - 1st lien		—		106		106
Home equity - 2nd lien		—		443		443
Loans not secured by real estate		—		421		421
Other		—		2		2
Payment plan receivables
Full refund		—		2		2
Partial refund		—		2		2
Other		—		1		1
Total recorded investment	$	118	$	10,607	$	10,725
Accrued interest included in recorded investment	$	2	$	—	$	2
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	$	—	$	—	$	—

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)
2015
Commercial
Income producing - real estate	$	203	$	209	$	647	$	1,059	$	305,155	$	306,214
Land, land development and construction - real estate		—		—		252		252		44,231		44,483
Commercial and industrial		785		16		151		952		398,618		399,570
Mortgage
1-4 family		1,943		640		4,744		7,327		272,298		279,625
Resort lending		307		—		1,094		1,401		114,619		116,020
Home equity - 1st lien		50		—		187		237		22,327		22,564
Home equity - 2nd lien		439		54		147		640		50,618		51,258
Purchased loans		9		1		2		12		33,245		33,257
Installment
Home equity - 1st lien		315		107		106		528		16,707		17,235
Home equity - 2nd lien		231		149		443		823		19,727		20,550
Loans not secured by real estate		567		83		421		1,071		191,262		192,333
Other		15		3		2		20		2,159		2,179
Payment plan receivables
Full refund		492		62		2		556		21,294		21,850
Partial refund		415		228		2		645		5,834		6,479
Other		110		3		1		114		6,156		6,270
Total recorded investment	$	5,881	$	1,555	$	8,201	$	15,637	$	1,504,250	$	1,519,887
Accrued interest included in recorded investment	$	53	$	17	$	2	$	72	$	4,765	$	4,837
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

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Impaired loans are as follows:

	December 31,
	2015		2014
	(In thousands)
Impaired loans with no allocated allowance
TDR	$	2,518	$	9,325
Non - TDR		203		299
Impaired loans with an allocated allowance
TDR - allowance based on collateral		4,810		5,879
TDR - allowance based on present value cash flow		81,002		94,970
Non - TDR - allowance based on collateral		260		2,296
Non - TDR - allowance based on present value cash flow		—		—
Total impaired loans	$	88,793	$	112,769
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,436	$	2,025
TDR - allowance based on present value cash flow		8,471		10,188
Non - TDR - allowance based on collateral		76		1,020
Non - TDR - allowance based on present value cash flow		—		—
Total amount of allowance for loan losses allocated	$	10,983	$	13,233

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	2015						2014
	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	$	641	$	851	$	—	$	5,868	$	6,077	$	—
Land, land development & construction-real estate		818		1,393		—		1,051		1,606		—
Commercial and industrial		1,245		1,241		—		2,685		2,667		—
Mortgage
1-4 family		23		183		—		—		49		—
Resort lending		—		—		—		48		397		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		76		—		—		40		—
Home equity - 2nd lien		—		—		—		—		—		—
Loans not secured by real estate		—		—		—		—		—		—
Other		—		—		—		—		—		—
		2,727		3,744		—		9,652		10,836		—
With an allowance recorded:
Commercial
Income producing - real estate		8,377		9,232		516		12,836		13,797		689
Land, land development & construction-real estate		1,690		1,778		296		3,456		3,528		499
Commercial and industrial		4,097		4,439		1,896		8,251		8,486		2,006
Mortgage
1-4 family		47,792		49,808		5,132		53,206		56,063		6,195
Resort lending		18,148		18,319		2,662		18,799		18,963		3,075
Home equity - 1st lien		168		172		9		162		177		14
Home equity - 2nd lien		244		325		15		125		205		27
Installment
Home equity - 1st lien		2,364		2,492		143		2,744		2,930		219
Home equity - 2nd lien		2,929		2,951		271		3,212		3,215		419
Loans not secured by real estate		587		658		42		711		835		89
Other		8		8		1		12		12		1
		86,404		90,182		10,983		103,514		108,211		13,233
Total
Commercial
Income producing - real estate		9,018		10,083		516		18,704		19,874		689
Land, land development & construction-real estate		2,508		3,171		296		4,507		5,134		499
Commercial and industrial		5,342		5,680		1,896		10,936		11,153		2,006
Mortgage
1-4 family		47,815		49,991		5,132		53,206		56,112		6,195
Resort lending		18,148		18,319		2,662		18,847		19,360		3,075
Home equity - 1st lien		168		172		9		162		177		14
Home equity - 2nd lien		244		325		15		125		205		27
Installment
Home equity - 1st lien		2,364		2,568		143		2,744		2,970		219
Home equity - 2nd lien		2,929		2,951		271		3,212		3,215		419
Loans not secured by real estate		587		658		42		711		835		89
Other		8		8		1		12		12		1
Total	$	89,131	$	93,926	$	10,983	$	113,166	$	119,047	$	13,233
Accrued interest included in recorded investment	$	338					$	397

(1) There were no impaired payment plan receivables or purchased mortgage loans at December 31, 2015 or 2014.

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):

	2015				2014				2013
	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	$	4,520	$	387	$	7,660	$	250	$	5,765	$	340
Land, land development & construction-real estate		952		79		1,145		64		3,092		240
Commercial and industrial		2,125		257		3,351		152		3,980		226
Mortgage
1-4 family		19		11		29		—		5		11
Resort lending		12		—		40		1		28		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		5		—		2		1,604		83
Home equity - 2nd lien		—		—		—		—		1,841		96
Loans not secured by real estate		—		—		—		—		470		23
Other		—		—		—		—		15		1
		7,628		739		12,225		469		16,800		1,020
With an allowance recorded:
Commercial
Income producing - real estate		12,677		439		12,772		677		18,164		587
Land, land development & construction-real estate		2,219		54		3,939		149		6,186		149
Commercial and industrial		6,663		104		8,500		294		11,795		457
Mortgage
1-4 family		50,421		2,140		55,877		2,286		60,858		2,622
Resort lending		18,448		670		19,458		753		21,708		836
Home equity - 1st lien		161		8		160		6		136		4
Home equity - 2nd lien		172		13		57		2		42		2
Installment
Home equity - 1st lien		2,539		176		2,837		174		1,448		85
Home equity - 2nd lien		3,055		193		3,359		188		1,546		86
Loans not secured by real estate		653		37		719		35		314		17
Other		10		1		14		1		3		1
		97,018		3,835		107,692		4,565		122,200		4,846
Total
Commercial
Income producing - real estate		17,197		826		20,432		927		23,929		927
Land, land development & construction-real estate		3,171		133		5,084		213		9,278		389
Commercial and industrial		8,788		361		11,851		446		15,775		683
Mortgage
1-4 family		50,440		2,151		55,906		2,286		60,863		2,633
Resort lending		18,460		670		19,498		754		21,736		836
Home equity - 1st lien		161		8		160		6		136		4
Home equity - 2nd lien		172		13		57		2		42		2
Installment
Home equity - 1st lien		2,539		181		2,837		176		3,052		168
Home equity - 2nd lien		3,055		193		3,359		188		3,387		182
Loans not secured by real estate		653		37		719		35		784		40
Other		10		1		14		1		18		2
Total	$	104,646	$	4,574	$	119,917	$	5,034	$	139,000	$	5,866

(1) There were no impaired payment plan receivables or purchased mortgage loans during the years ending December 31, 2015, 2014 and 2013.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our average investment in impaired loans was approximately $104.6 million, $119.9 million and $139.0 million in 2015, 2014 and 2013, 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 $4.6 million, $5.0 million and $5.9 million in 2015, 2014 and 2013, respectively, of which the majority of these amounts were received in cash.

Troubled debt restructurings at December 31 follow:

	2015
	Commercial		Retail			Total
	(In thousands)
Performing TDR’s	$	13,318	$	68,194		$	81,512
Non-performing TDR’s (1)		3,041		3,777	(2)		6,818
Total	$	16,359	$	71,971		$	88,330

	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

(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 $10.9 million and $12.2 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2015 and 2014, respectively. We have committed to lend additional amounts totaling up to $0.04 million at both December 31, 2015 and 2014, 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 36 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 60 months but have extended to as much as 230 months in certain circumstances.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2015
Commercial
Income producing - real estate		2	$	229	$	227
Land, land development & construction-real estate		—		—		—
Commercial and industrial		17		3,188		2,960
Mortgage
1-4 family		8		1,345		1,128
Resort lending		1		313		307
Home equity - 1st lien		1		20		20
Home equity - 2nd lien		1		27		27
Purchased loans		—		—		—
Installment
Home equity - 1st lien		6		220		186
Home equity - 2nd lien		8		228		217
Loans not secured by real estate		2		19		25
Other		—		—		—
Total		46	$	5,589	$	5,097
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

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The troubled debt restructurings described above increased (decreased) the allowance for loan losses by $0.4 million, $0.2 million and $(0.3) million during the years ended December 31, 2015, 2014 and 2013, respectively and resulted in charge offs of $0.16 million, $0.04 million and $0.5 million during the years ended December 31, 2015, 2014 and 2013, 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)
2015
Commercial
Income producing - real estate		—	$	—
Land, land development & construction-real estate		—		—
Commercial and industrial		2		157
Mortgage
1-4 family		2		73
Resort lending		—		—
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Purchased loans		—		—
Installment
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Loans not secured by real estate		1		4
Other		—		—
Total		5	$	234
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

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
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

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 (decreased) the allowance for loan losses by $(0.03) million, $0.02 million and zero during the years ended December 31, 2015, 2014 and 2013, respectively and resulted in charge offs of zero, zero and $0.2 million during the years ended December 31, 2015, 2014 and 2013, respectively.

The terms of certain other loans were modified during the years ending December 31, 2015, 2014 and 2013 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 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) financial performance 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 at December 31:

	Commercial
	Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11		Total
	(In thousands)
2015
Income producing - real estate	$	296,898	$	6,866	$	1,423	$	1,027	$	306,214
Land, land development and construction - real estate		40,844		2,995		243		401		44,483
Commercial and industrial		371,357		19,502		6,683		2,028		399,570
Total	$	709,099	$	29,363	$	8,349	$	3,456	$	750,267
Accrued interest included in total	$	1,729	$	108	$	32	$	—	$	1,869
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

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 semi-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		Purchased Loans		Total
	(In thousands)
2015
800 and above	$	28,760	$	13,943	$	4,374	$	7,696	$	2,310	$	57,083
750-799		78,802		40,888		7,137		17,405		23,283		167,515
700-749		56,519		31,980		4,341		11,022		6,940		110,802
650-699		51,813		17,433		3,203		7,691		—		80,140
600-649		27,966		4,991		1,467		3,684		—		38,108
550-599		16,714		3,070		1,027		1,918		—		22,729
500-549		10,610		1,051		572		1,295		—		13,528
Under 500		4,708		554		244		265		—		5,771
Unknown		3,733		2,110		199		282		724		7,048
Total	$	279,625	$	116,020	$	22,564	$	51,258	$	33,257	$	502,724
Accrued interest included in total	$	1,396	$	477	$	87	$	196	$	114	$	2,270

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Purchased Loans		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

(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)
2015
800 and above	$	1,792	$	1,782	$	44,254	$	58	$	47,886
750-799		4,117		5,931		86,800		531		97,379
700-749		2,507		3,899		34,789		694		41,889
650-699		3,508		4,182		16,456		499		24,645
600-649		2,173		2,153		4,979		200		9,505
550-599		1,800		1,346		1,997		109		5,252
500-549		1,056		855		1,170		61		3,142
Under 500		223		370		385		23		1,001
Unknown		59		32		1,503		4		1,598
Total	$	17,235	$	20,550	$	192,333	$	2,179	$	232,297
Accrued interest included in total	$	78	$	83	$	520	$	17	$	698
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

(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, 2015, approximately 63.2% 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 18.7% of Mepco’s outstanding payment plan receivables as of December 31, 2015, 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)
2015
AM Best rating
A+	$	—	$	6	$	—	$	6
A		2,712		5,203		—		7,915
A-		3,418		1,177		6,265		10,860
Not rated		15,720		93		5		15,818
Total	$	21,850	$	6,479	$	6,270	$	34,599
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

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:

	2015		2014
	(In thousands)
Mortgage loans serviced for:
Fannie Mae	$	898,443	$	913,863
Freddie Mac		707,891		748,833
Ginnie Mae		37,884		—
Other		107		104
Total	$	1,644,325	$	1,662,800

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Custodial deposit accounts maintained in connection with mortgage loans serviced for others totaled $21.8 million and $20.9 million, at December 31, 2015 and 2014, 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:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	12,106		$	13,710		$	11,013
Originated servicing rights capitalized		2,697			1,823			3,210
Amortization		(2,868	)		(2,509	)		(3,745	)
Change in valuation allowance		501			(918	)		3,232
Balance at end of year	$	12,436		$	12,106		$	13,710
Valuation allowance	$	3,272		$	3,773		$	2,855
Loans sold and serviced that have had servicing rights capitalized	$	1,643,086		$	1,661,269		$	1,732,476

The fair value of capitalized mortgage loan servicing rights was $12.9 million and $12.6 million at December 31, 2015 and 2014, respectively. Fair value was determined using an average coupon rate of 4.32%, average servicing fee of 0.254%, average discount rate of 10.04% and an average Public Securities Association (“PSA”) prepayment rate of 203 for December 31, 2015; and an average coupon rate of 4.44%, average servicing fee of 0.253%, average discount rate of 10.07% and an average PSA prepayment rate of 200 for December 31, 2014.

NOTE 5 – OTHER REAL ESTATE OWNED

A summary of other real estate owned activity for the years ended December 31 follows (1):

	2015			2014			2013
	(In thousands)
Balance at beginning of year, net of valuation allowance	$	6,370		$	18,088		$	25,748
Loans transferred to other real estate owned		6,694			6,143			6,932
Sales of other real estate owned		(5,502	)		(17,198	)		(11,994	)
Additions to valuation allowance charged to expense		(492	)		(663	)		(2,598	)
Balance at end of year, net of valuation allowance	$	7,070		$	6,370		$	18,088

(1) Table excludes other repossessed assets totaling $0.08 million at both December 31, 2015 and 2014, respectively.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	2,511		$	4,047		$	5,958
Additions charged to expense		492			663			2,598
Direct write-downs upon sale		(1,311	)		(2,199	)		(4,509	)
Balance at end of year	$	1,692		$	2,511		$	4,047

At December 31, 2015 and 2014, the balance of other real estate owned includes $2.8 million and $2.9 million of foreclosed residential real estate properties. Retail mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements totaled $1.1 million and $2.5 million at December 31, 2015 and 2014, respectively.

Other real estate and repossessed assets totaling $7.2 million and $6.5 million at December 31, 2015 and 2014, respectively, are presented net of the valuation allowance on the Consolidated Statements of Financial Condition.

NOTE 6 – PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31 follows:

	2015			2014
	(In thousands)
Land	$	15,152		$	14,904
Buildings		57,638			59,486
Equipment		79,842			79,809
		152,632			154,199
Accumulated depreciation and amortization		(109,529	)		(108,251	)
Property and equipment, net	$	43,103		$	45,948

Depreciation expense was $6.6 million, $6.7 million and $6.7 million in 2015, 2014 and 2013, respectively.

NOTE 7 – INTANGIBLE ASSETS

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

	2015				2014
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	3,838	$	6,118	$	3,491

Intangible amortization expense was $0.3 million, $0.5 million and $0.8 million in 2015, 2014 and 2013, respectively.

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of estimated core deposit intangible amortization at December 31, 2015, follows:

	(In thousands)
2016	$	347
2017		346
2018		346
2019		346
2020		346
2021 and thereafter		549
Total	$	2,280

NOTE 8 – DEPOSITS

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

	2015		2014		2013
	(In thousands)
Savings and interest bearing checking	$	1,056	$	1,064	$	1,131
Time deposits under $100,000		1,586		2,467		2,995
Time deposits of $100,000 or more		1,367		1,436		1,580
Total	$	4,009	$	4,967	$	5,706

Aggregate time deposits in denominations of $250,000 or more amounted to $110.4 million and $42.8 million at December 31, 2015 and 2014, respectively.

A summary of the maturity of time deposits at December 31, 2015, follows:

	(In thousands)
2016	$	302,136
2017		66,288
2018		27,367
2019		15,432
2020		11,763
2021 and thereafter		3,234
Total	$	426,220

Time deposits acquired through broker relationships totaled zero and $11.3 million at December 31, 2015 and 2014, respectively.

Reciprocal deposits totaled $50.2 million and $53.7 million at December 31, 2015 and 2014, 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:

	2015		2014
	(In thousands)
Demand	$	3,436	$	5,867
Money market		8,340		7,692
Time		38,431		40,109
Total	$	50,207	$	53,668

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 9 – OTHER BORROWINGS

A summary of other borrowings at December 31 follows:

	2015		2014
	(In thousands)
Advances from the FHLB	$	11,949	$	12,464
Other		5		6
Total	$	11,954	$	12,470

Advances from the FHLB are secured by unencumbered qualifying mortgage and home equity loans with a market value equal to at least 135% to 174%, respectively, of outstanding advances. Advances are also secured by FHLB stock that we own, which totaled $7.8 million at December 31, 2015. Unused borrowing capacity with the FHLB (subject to the FHLB’s credit requirements and policies) was $179.6 million at December 31, 2015. Interest expense on advances amounted to $0.8 million, $0.9 million and $1.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. No FHLB advances were terminated during 2015, 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, 2015, 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:

	2015					2014
	Amount		Rate			Amount		Rate
	(Dollars in thousands)
Fixed-rate advances
2016	$	2,089		6.55	%	$	2,205		6.55	%
2017		1,258		7.04			1,320		7.04
2018		5,437		5.99			5,671		5.99
2019		—					—
2020		3,165		7.49			3,268		7.49
Total advances	$	11,949		6.59	%	$	12,464		6.59	%

A summary of contractually required repayments of FHLB Advances at December 31, 2015, follows:

	(In thousands)
2016	$	2,521
2017		1,587
2018		5,042
2019		143
2020		2,656
Total	$	11,949

We had no borrowings outstanding with the FRB during the years ended or at December 31, 2015, 2014 or 2013. We had unused borrowing capacity with the FRB (subject to the FRB’s credit requirements and policies) of $307.7 million at December 31, 2015. 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 $781.8 million at December 31, 2015.

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 at both December 31, 2015 and 2014, 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:

		2015 and 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

Other key terms for the subordinated debentures and trust preferred securities that were outstanding at December 31, 2015 and 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

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. Interest is payable quarterly on each of the subordinated debentures and trust preferred securities and no distributions were deferred at December 31, 2015 and 2014.

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.

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.

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:

	2015		2014
	(In thousands)
Financial instruments whose risk is represented by contract amounts
Commitments to extend credit	$	243,458	$	204,827
Standby letters of credit		3,582		2,757

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 2.75% 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 $1.0 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 Condensed 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.

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 both December 31, 2015 and 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. 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 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 2015, 2014 and 2013, non-interest expenses include $0.1 million, $0.2 million and $4.8 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

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:

	2015			2014			2013
	(In thousands)
Balance at beginning of year, net of reserve	$	7,237		$	7,716		$	18,449
Transfers in from payment plan receivables		1,203			180			792
Reserves established and charge-offs recorded to expense		(119	)		(199	)		(4,837	)
Transferred to (from) contingency reserves		—			(75	)		63
Cash received		(1,092	)		(385	)		(6,751	)
Balance at end of year, net of reserve	$	7,229		$	7,237		$	7,716
Reserve at end of year	$	56		$	1,370		$	1,300

An analysis of our vehicle service contract counterparty reserve follows:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	1,370		$	1,375		$	2,012
Additions charged to expense		119			199			4,837
Charge-offs, net		(1,433	)		(204	)		(5,474	)
Balance at end of year	$	56		$	1,370		$	1,375
Reserves recorded in VSC counterparty receivables, net	$	56		$	1,370		$	1,300
Reserves recorded in accrued expenses and other liabilities		—			—			75
Total at end of year	$	56		$	1,370		$	1,375

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, Freddie Mac and Ginnie Mae). 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. 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 $0.5 million and $0.7 million at December 31, 2015 and 2014, 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, 2015 and 2014 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.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 12 – SHAREHOLDERS’ EQUITY AND INCOME PER COMMON SHARE

On January 21, 2015, our Board of Directors authorized a share repurchase plan (the “Repurchase Plan”) to buy back up to 5% of our outstanding common stock through December 31, 2015. The repurchases were made through open market transactions and totaled 967,199 shares of common stock for an aggregate purchase price of $13.5 million.

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.

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	2015		2014		2013
	(In thousands, except per share amounts)
Net income applicable to common stock	$	20,017	$	18,021	$	82,062
Convertible preferred stock dividends		—		—		3,001
Preferred stock discount		—		—		(7,554	)
Net income applicable to common stock for calculation of diluted earnings per share	$	20,017	$	18,021	$	77,509
Weighted average shares outstanding (1)		22,716		22,927		13,970
Restricted stock units		233		306		363
Effect of stock options		119		124		92
Stock units for deferred compensation plan for non-employee directors		112		114		125
Effect of convertible preferred stock		—		—		7,314
Weighted average shares outstanding for calculation of diluted earnings per share		23,180		23,471		21,864
Net income per common share
Basic (1)	$	0.88	$	0.79	$	5.87
Diluted	$	0.86	$	0.77	$	3.55

(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, 0.03 million and 0.1 million for 2015, 2014 and 2013, 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 as it was anti-dilutive.

NOTE 13 – INCOME TAX

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

	2015		2014			2013
	(In thousands)
Current	$	200	$	(359	)	$	(277	)
Deferred		9,128		7,672			—
Disproportionate tax effect		—		—			1,444
Valuation allowance - change in estimate		35		(118	)		(56,018	)
Income tax expense (benefit)	$	9,363	$	7,195		$	(54,851	)

Income tax expense (benefit) was $9.4 million, $7.2 million and $(54.9) million during the years ended December 31, 2015, 2014 and 2013. 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 (loss) and credited to income tax expense (benefit) due to our valuation allowance on deferred tax assets as more fully discussed in note #24. 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.

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 $(0.1) million, zero and $(0.2) million in 2015, 2014 and 2013, respectively.

The deferred income tax expense of $9.1 million and $7.7 million during 2015 and 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 expense (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:

	2015			2014			2013
	(In thousands)
Statutory rate applied to income before income tax	$	10,283		$	8,826		$	7,930
Bank owned life insurance		(449	)		(480	)		(477	)
Tax-exempt income		(434	)		(522	)		(402	)
Unrecognized tax benefit		(135	)		(595	)		(186	)
Non-deductible meals, entertainment and memberships		43			53			55
Net change in valuation allowance		35			(118	)		(63,980	)
Disproportionate tax effect		—			—			1,444
U.S. Treasury warrant		—			—			359
Share-based compensation		—			—			8
Other, net		20			31			398
Income tax expense (benefit)	$	9,363		$	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:

	2015			2014
	(In thousands)
Deferred tax assets
Loss carryforwards	$	25,516		$	32,933
Allowance for loan losses		7,901			9,099
Alternative minimum tax credit carry forward		3,427			3,037
Property and equipment		3,369			3,239
Purchase premiums, net		1,755			2,050
Share based payments		786			684
Valuation allowance on other real estate		592			879
Unrealized loss on trading securities		578			559
Deferred compensation		404			448
Other than temporary impairment charge on securities available for sale		382			436
Non accrual loan interest income		232			244
Reserve for unfunded lending commitments		228			189
Loss reimbursement on sold loans reserve		186			242
Unrealized loss on securities available for sale		128			—
Vehicle service contract counterparty contingency reserve		21			521
Gross deferred tax assets		45,505			54,560
Valuation allowance		(1,054	)		(1,019	)
Total net deferred tax assets		44,451			53,541

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2015		2014
	(In thousands)
Deferred tax liabilities
Capitalized mortgage loan servicing rights		4,353		4,237
Deferred loan fees		256		260
Federal Home Loan Bank stock		45		196
Unrealized gain on securities available for sale		—		87
Other		162		129
Gross deferred tax liabilities		4,816		4,909
Net deferred tax assets	$	39,635	$	48,632

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 10 additional profitable quarters since June 30, 2013.

The valuation allowance against our deferred tax assets totaled $1.1 million and $1.0 million at December 31, 2015 and 2014, respectively. The valuation allowance against our deferred tax assets at December 31, 2015 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, 2015, we had federal net operating loss (“NOL”) carryforwards of approximately $73.4 million which, if not used against taxable income, will expire as follows:

	(In thousands)
2030	$	18,496
2031		17,170
2032		37,739
Total	$	73,405

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$3.4 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 $3.4 million of alternative minimum tax credit carryforwards with indefinite lives at December 31, 2015.

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

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	1,091		$	1,672		$	1,871
Additions based on tax positions related to the current year		20			18			11
Reductions due to the statute of limitations		(135	)		(595	)		(186	)
Reductions due to settlements		—			(4	)		(24	)
Balance at end of year	$	976		$	1,091		$	1,672

If recognized, the entire amount of unrecognized tax benefits, net of $0.3 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, 2015, 2014 and 2013. No amounts were accrued for interest and penalties at December 31, 2015, 2014 or 2013. At December 31, 2015, U.S. Federal tax years 2012 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 0.3 million shares of common stock as of December 31, 2015. 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, 2015. 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 2015 and 2014, pursuant to our long-term incentive plan, we granted in each year 0.07 million, shares of restricted stock and 0.03 million performance stock units (“PSUs”) to certain officers. The shares of restricted stock issued during 2015 cliff vest after a period of three years, the shares of restricted stock issued during 2014 vest ratably over three years and the PSUs issued in both years 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.

During 2013, we issued 0.1 million restricted stock units to certain of our executive officers. These restricted stock units cliff vest after a period of three years. We used the market value of the common stock on the date of grant to measure compensation cost for these non-vested share awards.

During 2013, pursuant to our performance-based compensation plans, we granted 0.1 million stock options 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, 0.01 million shares and 0.06 million shares to directors during 2015, 2014 and 2013, respectively, and expensed their value during those same periods.

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2013, a portion of our president’s annual salary was paid in the form of common stock. The amount paid in common stock (also referred to as “salary stock”) was $0.020 million. These shares were issued each pay period and vested immediately. No salary stock was paid during 2015 and 2014.

Total compensation expense recognized for grants pursuant to our long-term incentive plan was $1.4 million, $1.0 million and $0.9 million in 2015, 2014 and 2013, respectively. The corresponding tax benefit relating to this expense was $0.5 million, $0.4 million and zero in 2015, 2014 and 2013, respectively. Total expense recognized for non-employee director share based payments was $0.1 million, $0.2 million and $0.3 million in 2015, 2014 and 2013, respectively. The corresponding tax benefit relating to this expense was $0.03 million, $0.1 million and zero in 2015, 2014 and 2013, respectively.

At December 31, 2015, the total expected compensation cost related to non-vested stock options, restricted stock, PSUs and restricted stock unit awards not yet recognized was $1.5 million. The weighted-average period over which this amount will be recognized is 1.6 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, 2015		281,820		$	4.69
Granted		—
Exercised		(42,204	)		3.25
Forfeited		(2,096	)		4.77
Expired		(1,924	)		6.79
Outstanding at December 31, 2015		235,596		$	4.94		6.12	$	2,443
Vested and expected to vest at December 31, 2015		234,949		$	4.93		6.11	$	2,437
Exercisable at December 31, 2015		213,154		$	4.78		5.98	$	2,245

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

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2015		407,130		$	6.31
Granted		108,761			13.07
Vested		(249,526	)		3.92
Forfeited		(4,384	)		12.88
Outstanding at December 31, 2015		261,981		$	11.29

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 2015 and 2014):

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

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:

	2015		2014		2013
	(In thousands)
Intrinsic value	$	444	$	321	$	117
Cash proceeds received	$	137	$	96	$	39
Tax benefit realized	$	155	$	112	$	—

We maintain 401(k) and employee stock ownership plans covering substantially all of our full-time employees. During 2015 we matched 50% of employee contributions to the 401(k) plan up to a maximum of 4% of participating employees’ eligible wages. During 2014 and 2013 we matched 100% of employee contributions up to a maximum of 2% and 1%, respectively of participating employees’ eligible wages. 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 2015 and 2014 and 3% for 2013. Amounts expensed for these retirement plans were $1.2 million, $1.0 million, and $1.2 million in 2015, 2014 and 2013, respectively.

Our officers participate in various performance-based compensation plans. Amounts expensed for all incentive plans totaled $5.7 million, $4.2 million and $5.0 million, in 2015, 2014 and 2013, respectively.

We also provide certain health care and life insurance programs to substantially all full-time employees. Amounts expensed for these programs totaled $3.6 million, $3.9 million and $3.8 million in 2015, 2014 and 2013 respectively. These insurance programs are also available to retired employees at their own expense.

NOTE 15 – OTHER NON-INTEREST INCOME

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

	2015		2014		2013
	(In thousands)
Investment and insurance commissions	$	1,827	$	1,814	$	1,709
ATM fees		1,551		1,599		1,661
Bank owned life insurance		1,282		1,371		1,363
Other real estate rental income		128		1,295		1,471
Other		2,904		2,852		2,333
Total other non-interest income	$	7,692	$	8,931	$	8,537

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:

	2015
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	20,581		0.1	$	550
Mandatory commitments to sell mortgage loans		46,320		0.1		69
Pay-fixed interest rate swap agreements		27,587		8.0		(497	)
Pay-variable interest rate swap agreements		27,587		8.0		497
Purchased options		2,098		5.7		122
Written options		2,098		5.7		(122	)
Total	$	126,271		3.7	$	619

	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

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 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 was included as a component of accumulated other comprehensive loss and was amortized into earnings through December 31, 2014, the original remaining life of the 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

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 2015, we began offering to our deposit customers an equity linked time deposit product (“Altitude CD”). The Altitude CD is a time deposit that provides the customer a guaranteed return of principal at maturity plus a potential equity return (a written option), while we receive a like stream of funds based on the equity return (a purchased option). The written and purchased options will generally move in opposite directions resulting in little or no net impact on our Consolidated Statements of Operations. All of the written and purchased options in the table above relate to this Altitude CD product.

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 net gains 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 non-interest 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 on our Consolidated Statements of Financial Condition 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).

84

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,
	2015			2014			2015			2014
	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	$	550	Other assets	$	437	Other liabilities	$	—	Other liabilities	$	—
Mandatory commitments to sell mortgage loans	Other assets		69	Other assets		—	Other liabilities		—	Other liabilities		184
Pay-fixed interest rate swap agreements	Other assets		—	Other assets		—	Other liabilities		497	Other liabilities		182
Pay-variable interest rate swap agreements	Other assets		497	Other assets		182	Other liabilities		—	Other liabilities		—
Purchased options	Other assets		122	Other assets		—	Other liabilities		—	Other liabilities		—
Written options	Other assets		—	Other assets		—	Other liabilities		122	Other liabilities		—
Total derivatives		$	1,238		$	619		$	619		$	366

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

	Year Ended December 31,
	Loss Recognized in Other Comprehensive Income (Loss) (Effective Portion)							Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)								Location of Gain (Loss) Recognized in Income (1)	Gain (Loss) Recognized in Income (1)
	2015		2014		2013				2015		2014			2013				2015			2014			2013
	(In thousands)
Cash Flow Hedges
Pay-fixed interest rate swap agreements	$	—	$	—	$	(37	)	Interest    expense	$	—	$	(380	)	$	(397	)	Interest    expense	$	—		$	—		$	—
Total	$	—	$	—	$	(37	)		$	—	$	(380	)	$	(397	)		$	—		$	—		$	—
No hedge designation
Rate-lock mortgage loan commitments																	Net gains on    mortgage    loans	$	113		$	71		$	(1,002	)
Mandatory commitments to sell mortgage loans																	Net gains    on mortgage    loans		253			(312	)		250
Pay-fixed interest rate swap agreements																	Interest    income		(315	)		(182	)		—
Pay-variable interest rate swap agreements																	Interest    income		315			182			—
Purchased options																	Interest    expense		122			—			—
Written options																	Interest    expense		(122	)		—			—
UST short position																	Gain on    securities		—			295			—
Amended Warrant																	Increase in    fair value of    U.S. Treasury    warrant		—			—			(1,025	)
Total																		$	366		$	54		$	(1,777	)

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

85

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 2015 and 2014.

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:

	2015			2014
	(In thousands)
Balance at beginning of year	$	216		$	351
New loans and advances		—			—
Repayments		(26	)		(135	)
Balance at end of year	$	190		$	216

Deposits held by us for directors and executive officers totaled $1.3 million and $1.0 million at December 31, 2015 and 2014, 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, 2015, follows:

	(In thousands)
2016	$	1,054
2017		862
2018		809
2019		720
2020		666
2021 and thereafter		253
Total	$	4,364

Rental expense on operating leases totaled $1.2 million, $1.3 million and $1.2 million in 2015, 2014 and 2013, 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, 2015, include $538.5 million of loans secured by residential real estate and $62.6 million of construction and development loans. In addition, we have a concentration of credit within the vehicle service contract industry. At December 31, 2015, we had $34.6 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.

86

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, 2015: Lessors of Nonresidential Real Estate ($259.1 million); Lessors of Residential Real Estate ($82.1 million); Health Care and Social Assistance ($67.8 million) and Construction General Contractors and Land Development ($54.4 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 42.4%, 24.0%, 15.0%, 7.8% and 3.7%, respectively, of Mepco’s payment plan receivables at December 31, 2015. 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 62.2%, 11.7%, 9.4%, 5.4% and 3.8%, respectively of Mepco’s payment plan receivables at December 31, 2015. 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, 2015, the Bank had negative undivided profits of $10.1 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, Tier 1, and common equity Tier 1 (as of January 1, 2015) capital to risk-weighted assets and Tier 1 capital to average assets. Failure to meet minimum capital requirements can result in 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, 2015 and 2014, 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.

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 implement 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 New Capital Rules became effective for us on January 1, 2015.

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)
2015
Total capital to risk-weighted assets
Consolidated	$	278,170		16.65	%	$	133,668		8.00	%	NA		NA
Independent Bank		261,894		15.69			133,514		8.00		$	166,893		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	257,050		15.38	%	$	100,251		6.00	%	NA		NA
Independent Bank		240,867		14.43			100,136		6.00		$	133,514		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	239,271		14.32	%	$	75,188		4.50	%	NA		NA
Independent Bank		240,867		14.43			75,102		4.50		$	108,480		6.50	%
Tier 1 capital to average assets
Consolidated	$	257,050		10.91	%	$	94,217		4.00	%	NA		NA
Independent Bank		240,867		10.23			94,145		4.00		$	117,682		5.00	%
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	%

NA — Not applicable

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2015			2014			2015			2014
	(In thousands)
Total shareholders’ equity	$	251,092		$	250,371		$	259,947		$	257,832
Add (deduct)
Accumulated other comprehensive loss for regulatory purposes		238			5,636			238			5,636
Intangible assets		(912	)		(2,627	)		(912	)		(2,627	)
Disallowed deferred tax assets		(11,147	)		(40,500	)		(18,406	)		(30,728	)
Disallowed capitalized mortgage loan servicing rights		—			(752	)		—			(752	)
Common equity tier 1 capital		239,271			212,128			240,867			229,361
Qualifying trust preferred securities		34,500			34,500			—			—
Disallowed deferred tax assets		(16,721	)		—			—			—
Tier 1 capital		257,050			246,628			240,867			229,361
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		21,120			18,535			21,027			18,522
Total risk-based capital	$	278,170		$	265,163		$	261,894		$	247,883

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.

89

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, 2015 and 2014, 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.

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). The fair value of purchased and written options is based on prices of financial instruments with similar characteristics and do not typically involve judgment by management (recurring Level 2).

90

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, 2015:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	148	$	148	$	—	$	—
Securities available for sale
U.S. agency		47,512		—		47,512		—
U.S. agency residential mortgage-backed		196,056		—		196,056		—
U.S. agency commercial mortgage-backed		34,028		—		34,028		—
Private label residential mortgage-backed		4,903		—		4,903		—
Other asset backed		116,904		—		116,904		—
Obligations of states and political subdivisions		144,984		—		144,984		—
Corporate		38,614		—		38,614		—
Trust preferred		2,483		—		2,483		—
Loans held for sale		27,866		—		27,866		—
Derivatives (1)		1,238		—		1,238		—
Liabilities
Derivatives (2)		619		—		619		—
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		8,481		—		—		8,481
Impaired loans (4)
Commercial
Income producing - real estate		711		—		—		711
Land, land development & construction-real estate		40		—		—		40
Commercial and industrial		1,257		—		—		1,257
Mortgage
1-4 Family		421		—		—		421
Resort lending		129		—		—		129
Other real estate (5)
Commercial
Land, land development & construction-real estate		639		—		—		639
Commercial and industrial		165		—		—		165
Mortgage
1-4 Family		26		—		—		26
Resort lending		107		—		—		107
Home equity - 1st lien		14		—		—		14
Installment
Home equity - 1st lien		36		—		—		36

(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)

			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.

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2015 and 2014.

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)
2015
Trading securities	$	(55	)	$	—		$	(55	)
Loans held for sale		—			90			90
2014
Trading securities	$	(295	)	$	—		$	(295	)
Loans held for sale		—			258			258
2013
Trading securities	$	388		$	—		$	388
Loans held for sale		—			(1,477	)		(1,477	)

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, 2015, 2014 and 2013 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 $8.5 million, which is net of a valuation allowance of $3.3 million, at December 31, 2015, and had a carrying amount of $9.2 million, which is net of a valuation allowance of $3.8 million, at December 31, 2014. A recovery (charge) of $0.5 million, $(0.9) million and $3.2 million was included in our results of operations for the years ending December 31, 2015, 2014 and 2013, respectively.

• Loans which are measured for impairment using the fair value of collateral for collateral dependent loans had a carrying amount of $5.1 million, with a valuation allowance of $2.5 million at December 31, 2015, and had a carrying amount of $8.2 million, with a valuation allowance of $3.1 million at December 31, 2014. An additional provision for loan losses relating to impaired loans of $1.1 million, $2.1 million and $1.5 million was included in our results of operations for the years ending December 31, 2015, 2014 and 2013, respectively.

• Other real estate, which is measured using the fair value of the property, had a carrying amount of $1.0 million which is net of a valuation allowance of $1.7 million at December 31, 2015, and a carrying amount of $1.9 million, which is net of a valuation allowance of $2.5 million, at December 31, 2014. An additional charge relating to other real estate measured at fair value of $0.3 million, $0.3 million and $1.6 million was included in our results of operations during the years ended December 31, 2015, 2014 and 2013, respectively.

We had no assets or liabilities measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) during the years ended December 31, 2015 and 2014.

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
2015
Capitalized mortgage loan servicing rights	$	8,481	Present value of net	Discount rate		10.04	%
			servicing revenue	Cost to service	$	80
				Ancillary income		24
				Float rate		1.73	%
Impaired loans
Commercial (1)		1,605	Sales comparison approach	Adjustment for differences between comparable sales		(2.1	)%
			Income approach	Capitalization rate		9.3
Mortgage		550	Sales comparison approach	Adjustment for differences between comparable sales		0.7
Other real estate
Commercial		804	Sales comparison approach	Adjustment for differences between comparable sales		(3.9	)
Mortgage and installment		183	Sales comparison approach	Adjustment for differences between comparable sales		75.6
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 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

(1) In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2015 and 2014, we had an impaired collateral dependent commercial relationship that totaled $0.4 million and $1.1 million, respectively that was primarily secured by collateral other than real estate. Collateral securing this relationship primarily included machinery and equipment and inventory at December 31, 2015 and 2014 and also included accounts receivable at December 31, 2014. Valuation techniques at December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type. Discount rates used ranged from 0% to 100% of stated values. Valuation techniques at December 31, 2014, 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.

94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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
2015	$	27,866	$	714	$	27,152
2014		23,662		624		23,038
2013		20,390		366		20,024

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, 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 and the fair value of purchased and written options is based on prices of financial instruments with similar characteristics 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: Other borrowings 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.

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 at December 31 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 Unobservable Inputs (Level 3)
	(In thousands)
2015
Assets
Cash and due from banks	$	54,260	$	54,260	$	54,260	$	—	$	—
Interest bearing deposits		31,523		31,523		31,523		—		—
Interest bearing deposits - time		11,866		11,858		—		11,858		—
Trading securities		148		148		148		—		—
Securities available for sale		585,484		585,484		—		585,484		—
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,471		NA		NA		NA		NA
Net loans and loans held for sale		1,520,346		1,472,613		—		27,866		1,444,747
Accrued interest receivable		6,565		6,565		5		1,969		4,591
Derivative financial instruments		1,238		1,238		—		1,238		—
Liabilities
Deposits with no stated maturity (1)	$	1,659,743	$	1,659,743	$	1,659,743	$	—	$	—
Deposits with stated maturity (1)		426,220		423,776		—		423,776		—
Other borrowings		11,954		13,448		—		13,448		—
Subordinated debentures		35,569		23,069		—		23,069		—
Accrued interest payable		466		466		21		445		—
Derivative financial instruments		619		619		—		619		—
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		—

(1) Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $11.8 million and $13.6 million at December 31, 2015 and 2014, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $38.4 million and $40.1 million at December 31, 2015 and 2014, 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)
2015
Total assets	$	2,340,566		$	57,208		$	286,936		$	(275,644	)	$	2,409,066
Interest income		75,552			5,290			72			(72	)		80,842
Net interest income		71,448			4,487			(949	)		—			74,986
Provision for loan losses		(2,705	)		(9	)		—			—			(2,714	)
Income (loss) before income tax		32,136			(1,183	)		(1,478	)		(95	)		29,380
Net income (loss)		21,727			(712	)		(936	)		(62	)		20,017
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

(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”), net of tax during the years ended December 31 follows:

	Unrealized Losses on Available for Sale Securities			Disproportionate Tax Effects from Securities Available for Sale			Unrealized Losses on Cash Flow Hedges			Unrealized Losses on Settled Derivatives			Disproportionate Tax Effects from Cash Flow Hedges			Total
	(In thousands)
2015
Balances at beginning of period	$	162		$	(5,798	)	$	—		$	—		$	—		$	(5,636	)
Other comprehensive loss before reclassifications		(351	)		—			—			—			—			(351	)
Amounts reclassified from AOCL		(49	)		—			—			—			—			(49	)
Net current period other comprehensive loss		(400	)		—			—			—			—			(400	)
Balances at end of period	$	(238	)	$	(5,798	)	$	—		$	—		$	—		$	(6,036	)
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 loss 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	)

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 loss (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)
2015
Unrealized losses on securities available for sale
	$	75		Net gains on securities
		—		Net impairment loss recognized in earnings
		75		Total reclassifications before tax
		26		Income tax expense (benefit)
	$	49		Reclassifications, net of tax
2014
Unrealized losses on securities available for sale
	$	329		Net gains on securities
		(9	)	Net impairment loss recognized in earnings
		320		Total reclassifications before tax
		112		Income tax expense (benefit)
	$	208		Reclassifications, net of tax
Unrealized losses on settled derivatives
	$	(380	)	Interest expense
		(133	)	Income tax expense (benefit)
	$	(247	)	Reclassification, net of tax
	$	(39	)	Total reclassifications for the period, net of tax
2013
Unrealized losses on securities available for sale
	$	7		Net gains on securities
		(26	)	Net impairment loss recognized in earnings
		(19	)	Total reclassifications before tax
		(7	)	Income tax expense (benefit)
	$	(12	)	Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(208	)	Interest expense
		(73	)	Income tax expense (benefit)
	$	(135	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(189	)	Interest expense
		(66	)	Income tax expense (benefit)
	$	(123	)	Reclassification, net of tax
Disproportionate tax effects from cash flow hedges
	$	1,444		Income tax expense (benefit)
	$	(1,714	)	Total reclassifications for the period, net of tax

99

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,
	2015		2014
	(In thousands)
ASSETS
Cash and due from banks	$	10,800	$	5,174
Interest bearing deposits - time		5,000		12,500
Investment in subsidiaries		261,016		258,901
Other assets		10,120		9,583
Total Assets	$	286,936	$	286,158
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures	$	35,569	$	35,569
Other liabilities		378		382
Shareholders’ equity		250,989		250,207
Total Liabilities and Shareholders’ Equity	$	286,936	$	286,158

CONDENSED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
OPERATING INCOME (LOSS)
Interest income	$	72		$	64		$	—
Gain on extinguishment of debt		—			500			—
Gain on securities		—			295			—
Increase in fair value of U.S. Treasury warrant		—			—			(1,025	)
Other income		31			35			63
Total Operating Income (Loss)		103			894			(962	)
OPERATING EXPENSES
Interest expense		1,021			1,462			2,317
Administrative and other expenses		560			527			682
Total Operating Expenses		1,581			1,989			2,999
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		(1,478	)		(1,095	)		(3,961	)
Income tax benefit		(542	)		(383	)		(9,053	)
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries		(936	)		(712	)		5,092
Equity in undistributed net income of subsidiaries		20,953			18,733			72,417
Net Income	$	20,017		$	18,021		$	77,509

100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
Net Income	$	20,017		$	18,021		$	77,509
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes		(542	)		(383	)		(8,955	)
Share based compensation		21			46			84
Gain on extinguishment of debt		—			(500	)		—
Gain on securities		—			(295	)		—
Decrease in other assets		5			118			738
Increase (decrease) in other liabilities		(6	)		287			(5,858	)
Equity in undistributed net income of subsidiaries operations		(20,953	)		(18,733	)		(72,417	)
Total Adjustments		(21,475	)		(19,460	)		(86,408	)
Net Cash Used in Operating Activities		(1,458	)		(1,439	)		(8,899	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits - time		(5,000	)		(17,500	)		—
Maturity of interest bearing deposits - time		12,500			5,000			—
Return of capital from subsidiary		18,500			15,000			7,500
Net Cash From Investing Activities		26,000			2,500			7,500
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES
Repurchase of common stock		(13,498	)		—			—
Dividends paid		(5,896	)		(4,129	)		—
Proceeds from issuance of common stock		1,569			1,242			100,230
Share based compensation withholding obligation		(1,091	)		—			(513	)
Redemption of subordinated debt		—			(4,654	)		(9,452	)
Redemption of convertible preferred stock and common stock warrant		—			—			(81,000	)
Net Cash From (Used in) Financing Activities		(18,916	)		(7,541	)		9,265
Net Increase (Decrease) in Cash and Cash Equivalents		5,626			(6,480	)		7,866
Cash and Cash Equivalents at Beginning of Year		5,174			11,654			3,788
Cash and Cash Equivalents at End of Year	$	10,800		$	5,174		$	11,654

NOTE 26 – BRANCH SALE

On April 29, 2015 we entered into a Purchase and Assumption Agreement (“PAA”) with Isabella Bank (based in Mt. Pleasant, Michigan). Pursuant to the PAA, on August 28, 2015, we sold the fixed assets, real property and certain other assets of our bank branch located in Midland, Michigan (the “Midland Branch”) to Isabella Bank. The deposit liabilities of the Midland Branch were assumed by Isabella Bank which totaled $8.7 million on the date of sale. Under the terms of the PAA, Isabella Bank paid a premium of $0.6 million (which was equal to 6.0% of the average deposit liabilities of $9.7 million based on the 20-day average ending two business days prior to the closing date of August 28, 2015) and $0.85 million for the real property and fixed assets (including the ATM). The real property and the fixed assets had a net book value of approximately $0.2 million as of August 28, 2015. We recorded a net gain of $1.2 million in the third quarter of 2015 on the sale of the Midland Branch.

101

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)
2015
Interest income	$	19,552		$	20,131		$	20,293		$	20,866
Net interest income		18,091			18,701			18,841			19,353
Provision for loan losses		(659	)		(134	)		(244	)		(1,677	)
Income before income tax		5,561			8,243			7,325			8,251
Net income		3,781			5,619			5,047			5,570
Income per common share
Basic		0.16			0.25			0.22			0.25
Diluted		0.16			0.24			0.22			0.25
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
Income per common share
Basic		0.14			0.26			0.21			0.17
Diluted		0.13			0.26			0.21			0.17

During the fourth quarter of 2015, we recognized a recovery of impairment on our capitalized mortgage loan servicing rights of $0.8 million (see note #4). 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).

QUARTERLY SUMMARY (UNAUDITED)

	Reported Sales Prices of Common Shares												Cash Dividends Declared
	2015						2014
	High		Low		Close		High		Low		Close		2015		2014
First quarter	$	13.20	$	12.07	$	12.83	$	14.25	$	11.78	$	12.98	$	0.06	$	—
Second quarter		13.93		12.62		13.56		13.88		12.45		12.87		0.06		0.06
Third quarter		15.27		13.20		14.76		13.47		11.77		11.92		0.06		0.06
Fourth quarter		15.88		13.71		15.23		13.20		11.47		13.05		0.08		0.06

We have approximately 1,600 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).

102

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
Grand Rapids, 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, Grand Rapids, 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.

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 7, 2016 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, 2015.

/s/ Crowe Horwath LLP

Grand Rapids, Michigan

March 7, 2016

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 7, 2016	/s/ William B. Kessel
	William B. Kessel President and Chief Executive Officer

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 7, 2016	/s/ Robert N. Shuster
	Robert N. Shuster  Chief Financial Officer

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, 2015, 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, 2015, fairly presents, in all material respects, the financial condition and results of operations of Independent Bank Corporation.

Date:  March 7, 2016	/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.

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, 2015, 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, 2015, fairly presents, in all material respects, the financial condition and results of operations of Independent Bank Corporation.

Date:  March 7, 2016	/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.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2015	Mar. 04, 2016	Jun. 30, 2015
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			$ 300,922,717
Entity Common Stock, Shares Outstanding		21,361,594
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2015

XML

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014
Assets
Cash and due from banks	$ 54,260	$ 48,326
Interest bearing deposits	31,523	25,690
Cash and Cash Equivalents	85,783	74,016
Interest bearing deposits - time	11,866	13,561
Trading securities	148	203
Securities available for sale	585,484	533,178
Federal Home Loan Bank and Federal Reserve Bank stock, at cost	15,471	19,919
Loans held for sale, carried at fair value	27,866	23,662
Loans
Commercial	748,398	690,955
Mortgage	500,454	472,628
Installment	231,599	206,378
Payment plan receivables	34,599	40,001
Total Loans	1,515,050	1,409,962
Allowance for loan losses	(22,570)	(25,990)
Net Loans	1,492,480	1,383,972
Other real estate and repossessed assets	7,150	6,454
Property and equipment, net	43,103	45,948
Bank-owned life insurance	54,402	53,625
Deferred tax assets, net	39,635	48,632
Capitalized mortgage loan servicing rights	12,436	12,106
Vehicle service contract counterparty receivables, net	7,229	7,237
Other intangibles	2,280	2,627
Accrued income and other assets	23,733	23,590
Total Assets	2,409,066	2,248,730
Deposits
Non-interest bearing	659,793	576,882
Savings and interest-bearing checking	988,174	943,734
Reciprocal	50,207	53,668
Time	387,789	350,018
Total Deposits	2,085,963	1,924,302
Other borrowings	11,954	12,470
Subordinated debentures	35,569	35,569
Vehicle service contract counterparty payables	797	1,977
Accrued expenses and other liabilities	23,691	24,041
Total Liabilities	$ 2,157,974	$ 1,998,359
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: 22,251,373 shares at December 31, 2015 and 22,957,323 shares at December 31, 2014	339,462	352,462
Accumulated deficit	(82,334)	(96,455)
Accumulated other comprehensive loss	(6,036)	(5,636)
Total Shareholders' Equity	251,092	250,371
Total Liabilities and Shareholders' Equity	$ 2,409,066	$ 2,248,730

XML

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - $ / shares	Dec. 31, 2015	Dec. 31, 2014
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)	22,251,373	22,957,323
Common stock, shares outstanding (in shares)	22,251,373	22,957,323

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
INTEREST INCOME
Interest and fees on loans		$ 70,930	$ 71,823	$ 80,664
Interest on securities
Taxable		7,805	6,341	4,059
Tax-exempt		907	991	1,101
Other investments		1,200	1,400	1,297
Total Interest Income		80,842	80,555	87,121
INTEREST EXPENSE
Deposits		4,009	4,967	5,706
Other borrowings		1,847	2,332	3,456
Total Interest Expense		5,856	7,299	9,162
Net Interest Income		74,986	73,256	77,959
Provision for loan losses		(2,714)	(3,136)	(3,988)
Net Interest Income After Provision for Loan Losses		77,700	76,392	81,947
NON-INTEREST INCOME
Service charges on deposit accounts		12,389	13,446	14,076
Interchange income		8,481	8,164	7,362
Net gains (losses) on assets
Mortgage loans		7,448	5,628	10,022
Securities		20	329	395
Other than temporary impairment loss on securities
Total impairment loss		0	(9)	(26)
Loss recognized in other comprehensive income (loss)		0	0	0
Net impairment loss recognized in earnings		0	(9)	(26)
Mortgage loan servicing, net		1,751	791	3,806
Title insurance fees		1,156	995	1,682
Net gain on branch sale		1,193	0	0
Gain on extinguishment of debt		0	500	0
Increase in fair value of U.S. Treasury warrant		0	0	(1,025)
Other		7,692	8,931	8,537
Total Non-interest Income		40,130	38,775	44,829
NON-INTEREST EXPENSE
Compensation and employee benefits		48,186	47,221	47,924
Occupancy, net		8,369	8,912	8,845
Data processing		7,944	7,532	8,019
Furniture, fixtures and equipment		3,892	4,137	4,293
Loan and collection		3,609	5,392	6,886
Communications		2,957	2,926	2,919
Advertising		2,121	2,193	2,433
Legal and professional		2,013	1,969	2,459
FDIC deposit insurance		1,366	1,567	2,435
Interchange expense		1,125	1,291	1,645
Credit card and bank service fees		797	946	1,263
Vehicle service contract counterparty contingencies		119	199	4,837
Costs (recoveries) related to unfunded lending commitments		113	31	(90)
Provision for loss reimbursement on sold loans		(59)	(466)	2,152
Net (gains) losses on other real estate and repossessed assets		(180)	(500)	1,237
Other		6,078	6,601	6,861
Total Non-interest Expense		88,450	89,951	104,118
Income Before Income Tax		29,380	25,216	22,658
Income tax expense (benefit)		9,363	7,195	(54,851)
Net Income		20,017	18,021	77,509
Preferred stock dividends and discount accretion		0	0	(3,001)
Preferred stock discount		0	0	7,554
Net income applicable to common stock		$ 20,017	$ 18,021	$ 82,062
Net income per common share
Basic (in dollars per share)	[1]	$ 0.88	$ 0.79	$ 5.87
Diluted (in dollars per share)		0.86	0.77	3.55
Cash dividends declared per common share (in dollars per share)		$ 0.26	$ 0.18	$ 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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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME [Abstract]
Net income	$ 20,017	$ 18,021	$ 77,509
Securities available for sale
Unrealized gain (loss) arising during period	(540)	5,095	(4,698)
Change in unrealized losses for which a portion of other than temporary impairment has been recognized in earnings	0	398	270
Reclassification adjustment for other than temporary impairment included in earnings	0	9	26
Reclassification adjustments for gains included in earnings	(75)	(329)	(7)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale	(615)	5,173	(4,409)
Income tax expense (benefit)	(215)	1,811	(1,544)
Unrealized gains (losses) recognized in other comprehensive income (loss) on securities available for sale, net of tax	(400)	3,362	(2,865)
Derivative instruments
Unrealized loss arising during period	0	0	(37)
Reclassification adjustment for expense recognized in earnings	0	0	208
Reclassification adjustment for accretion on settled derivatives	0	380	189
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments	0	380	360
Income tax expense (benefit)	0	133	(1,318)
Unrealized gains recognized in other comprehensive income (loss) on derivative instruments, net of tax	0	247	1,678
Other comprehensive income (loss)	(400)	3,609	(1,187)
Comprehensive income	$ 19,617	$ 21,630	$ 76,322

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Preferred Stock [Member]	Common Stock [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balance at beginning of period 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 (loss)	0	0	0	(1,187)	(1,187)
Balances at end of the period 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 (loss)	0	0	0	3,609	3,609
Balances at end of the period at Dec. 31, 2014	0	352,462	(96,455)	(5,636)	250,371
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	0	20,017	0	20,017
Cash dividends declared	0	0	(5,896)	0	(5,896)
Repurchase of common stock	0	(13,498)			(13,498)
Issuance of common stock	0	112	0	0	112
Share based compensation	0	1,477	0	0	1,477
Share based compensation withholding obligation	0	(1,091)	0	0	(1,091)
Other comprehensive income (loss)	0	0	0	(400)	(400)
Balances at end of the period at Dec. 31, 2015	$ 0	$ 339,462	$ (82,334)	$ (6,036)	$ 251,092

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY [Abstract]
Preferred stock stated dividend rate			5.00%
Cash dividends declared (in dollars per share)	$ 0.26	$ 0.18	$ 0
Repurchase of shares of common stock (in shares)	967,199
Issuance of shares of common stock (in shares)	39,610	30,828	13,604,963
Share based compensation, common stock (in shares)	299,263	107,359	175,789
Share based compensation withholding obligation, common stock (in shares)	77,624		55,348

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
CONSOLIDATED STATEMENTS OF CASH FLOWS [Abstract]
Net income	$ 20,017	$ 18,021	$ 77,509
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES
Proceeds from sales of loans held for sale	288,852	228,906	415,442
Disbursements for loans held for sale	(285,608)	(226,550)	(378,323)
Provision for loan losses	(2,714)	(3,136)	(3,988)
Deferred federal income tax expense (benefit)	8,997	8,918	(57,550)
Deferred loan fees	(1,234)	(753)	17
Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities, loans and interest bearning deposits - time	4,553	3,014	(2,197)
Net gains on mortgage loans	(7,448)	(5,628)	(10,022)
Net gains on securities	(20)	(329)	(395)
Securities impairment recognized in earnings	0	9	26
Net (gains) losses on other real estate and repossessed assets	(180)	(500)	1,237
Vehicle service contract counterparty contingencies	119	199	4,837
Share based compensation	1,477	1,192	1,238
Net gain on branch sale	(1,193)	0	0
Gains on extinguishment of debt	0	(500)	0
(Increase) decrease in accrued income and other assets	(1,387)	(2,579)	7,747
Decrease in accrued expenses and other liabilities	(196)	(7,213)	(3,508)
Total Adjustments	4,018	(4,950)	(25,439)
Net Cash From Operating Activities	24,035	13,071	52,070
CASH FLOW USED IN INVESTING ACTIVITIES
Proceeds from the sale of securities available for sale	12,037	14,633	2,940
Proceeds from the maturity of securities available for sale	36,808	58,220	29,866
Principal payments received on securities available for sale	130,232	84,487	43,702
Purchases of securities available for sale	(234,693)	(224,946)	(332,060)
Purchases of interest bearing deposits - time	(4,595)	(2,401)	(20,260)
Proceeds from the maturity of interest bearing deposits - time	6,222	6,719	2,142
Redemption of Federal Home Loan Bank and Federal Reserve Bank stock	4,906	3,814	0
Purchase of Federal Reserve Bank stock	(458)	(314)	(2,581)
Net (increase) decrease in portfolio loans (loans originated, net of principal payments)	(74,343)	(37,195)	33,192
Purchase of portfolio loans	(32,872)	0	0
Net proceeds from the sale of watch, substandard and non-performing loans	0	0	6,721
Net cash from (paid for) branch sale	(7,229)	0	3,292
Proceeds from the collection of vehicle service contract counterparty receivables	1,092	385	6,751
Proceeds from the sale of other real estate and repossessed assets	6,179	18,471	13,546
Proceeds from the sale of property and equipment	555	309	52
Capital expenditures	(4,354)	(4,298)	(8,371)
Net Cash Used in Investing Activities	(160,513)	(82,116)	(221,068)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase in total deposits	170,314	39,496	105,269
Net increase (decrease) in other borrowings	(1)	(1)	4
Proceeds from Federal Home Loan Bank advances	100	100	100
Payments of Federal Home Loan Bank advances	(615)	(4,817)	(541)
Net decrease in vehicle service contract counterparty payables	(1,180)	(2,112)	(3,636)
Dividends paid	(5,896)	(4,129)	0
Proceeds from issuance of common stock	112	97	98,066
Repurchase of common stock	(13,498)	0	0
Share based compensation withholding obligations	(1,091)	0	(513)
Redemption of subordinated debt	0	(4,654)	(9,452)
Redemption of convertible preferred stock and common stock warrant	0	0	(81,000)
Net Cash From Financing Activities	148,245	23,980	108,297
Net Increase (Decrease) in Cash and Cash Equivalents	11,767	(45,065)	(60,701)
Cash and Cash Equivalents at Beginning of Year	74,016	119,081	179,782
Cash and Cash Equivalents at End of Year	85,783	74,016	119,081
Cash paid during the year for
Interest	5,769	7,365	15,914
Income taxes	295	216	43
Transfers to other real estate and repossessed assets	6,694	6,143	6,932
Transfer of payment plan receivables to vehicle service contract counterparty receivables	1,203	180	792
Purchase of securities available for sale and interest bearing deposits - time not yet settled	$ 0	$ 265	$ 4,146

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ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2015

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, 2015, 72.6% 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, net 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 $4.1 million, $4.2 million and $4.3 million for the years ended December 31, 2015, 2014 and 2013, 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 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, 2015 and 2014. 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 (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.

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 in interest income-other investments on the Consolidated Statements of Operations.

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 in interest income-other investments on the Consolidated Statements of Operations.

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.

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, (iv) home equity – 2nd lien and beginning in 2015 (v) purchased loans. 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. A loan can be removed from TDR status if it is subsequently restructured and the borrower is no longer experiencing financial difficulties and the newly restructured agreement does not contain any concessions to the borrower. The new agreement must specify market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, and other terms no less favorable to us than those we would offer for similar new debt.

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 other real estate 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.

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 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.

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 (loss) 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, 2015 or 2014. 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 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, (ii) certain pay-fixed and pay-variable interest rate swap agreements related to commercial loan customers and (iii) certain purchased and written options related to a time deposit product. 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. Fair values of the purchased and written options are based on prices of financial instruments with similar characteristics 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 and options). 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 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, 2015, 0.1 million shares of common stock were reserved for issuance under the dividend reinvestment plan and 0.5 million shares of common stock were reserved for issuance under our long-term incentive plans.

RECLASSIFICATION — Certain amounts in the 2014 and 2013 consolidated financial statements have been reclassified to conform to the 2015 presentation.

ADOPTION OF NEW ACCOUNTING STANDARDS — In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 amended guidance became effective for us on January 1, 2015, and did not 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, 2018, 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.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This ASU amends existing guidance related to the accounting for certain financial assets and liabilities. These amendments, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

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RESTRICTIONS ON CASH AND DUE FROM BANKS

12 Months Ended

Dec. 31, 2015

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 2015 and 2014 were $3.2 million and $15.3 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 $2.5 million and $2.8 million at December 31, 2015 and 2014, respectively.

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SECURITIES

12 Months Ended

Dec. 31, 2015

SECURITIES [Abstract]

SECURITIES

NOTE 3 – SECURITIES

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

	Amortized Cost		Unrealized				Fair Value
			Gains		Losses
	(In thousands)
2015
U.S. agency	$	47,283	$	309	$	80	$	47,512
U.S. agency residential mortgage-backed		195,055		1,584		583		196,056
U.S. agency commercial mortgage-backed		34,017		94		83		34,028
Private label residential mortgage-backed		5,061		161		319		4,903
Other asset backed		117,431		54		581		116,904
Obligations of states and political subdivisions		145,193		941		1,150		144,984
Corporate		38,895		9		290		38,614
Trust preferred		2,916		—		433		2,483
Total	$	585,851	$	3,152	$	3,519	$	585,484
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

Total OTTI recognized in accumulated other comprehensive loss for securities available for sale was zero at both December 31, 2015 and 2014, 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)
2015
U.S. agency	$	12,164	$	47	$	6,746	$	33	$	18,910	$	80
U.S. agency residential mortgage-backed		57,538		316		23,340		267		80,878		583
U.S. agency commercial mortgage-backed		16,747		60		2,247		23		18,994		83
Private label residential mortgage-backed		—		—		3,393		319		3,393		319
Other asset backed		102,660		434		5,189		147		107,849		581
Obligations of states and political subdivisions		52,493		597		12,240		553		64,733		1,150
Corporate		30,550		290		—		—		30,550		290
Trust preferred		—		—		2,483		433		2,483		433
Total	$	272,152	$	1,744	$	55,638	$	1,775	$	327,790	$	3,519

	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

Our portfolio of securities available for sale 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 (loss).

U.S. agency, U.S. agency residential mortgage-backed securities and U.S. agency commercial mortgage backed securities — at December 31, 2015, we had 39 U.S. agency, 108 U.S. agency residential mortgage-backed and 18 U.S. agency commercial mortgage-backed securities whose fair market value is less than amortized cost. The unrealized losses are largely attributed to increases in interest rates since acquisition 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, 2015, 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 all five 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 recognized in prior years 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, 2015, we had 129 other asset backed securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and 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.

Obligations of states and political subdivisions — at December 31, 2015, we had 79 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, 2015, we had 27 corporate securities whose fair value is less than amortized cost. The unrealized losses are primarily due to credit spread widening and 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.

Trust preferred securities — at December 31, 2015, 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 has suffered from credit spread widening.

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, 2015, 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:

	2015					2014
	Fair Value		Net Unrealized Loss			Fair Value		Net Unrealized Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,690	$	(226	)	$	1,643	$	(267	)
Unrated issues		793		(207	)		798		(202	)

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 2015, 2014 and 2013, we recorded in earnings credit related OTTI charges on securities available for sale of zero, $0.01 million and $0.03 million, respectively.

At December 31, 2015, 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, 2015
Fair value	$	1,616	$	1,331	$	79	$	3,026
Amortized cost		1,635		1,249		—		2,884
Non-credit unrealized loss		19		—		—		19
Unrealized gain		—		82		79		161
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,
2015	$	—	$	—	$	—	$	—
2014		9		—		—		9
2013		26		—		—		26

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, 2015. 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 (loss) 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:

	2015		2014		2013
	(In thousands)
Balance at beginning of year	$	1,844	$	1,835	$	1,809
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
Total	$	1,844	$	1,844	$	1,835

The amortized cost and fair value of securities available for sale at December 31, 2015, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	34,565	$	34,591
Maturing after one year but within five years		69,976		69,916
Maturing after five years but within ten years		46,512		46,641
Maturing after ten years		83,234		82,445
		234,287		233,593
U.S. agency residential mortgage-backed		195,055		196,056
U.S. agency commercial mortgage-backed		34,017		34,028
Private label residential mortgage-backed		5,061		4,903
Other asset backed		117,431		116,904
Total	$	585,851	$	585,484

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)
2015	$	12,037	$	75	$	—
2014		14,633		329		—
2013		2,940		15		8

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

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

During 2015, 2014 and 2013, our trading securities consisted of various preferred stocks. During each of those years, we recognized gains (losses) on trading securities of $(0.06) million, $(0.30) million and $0.39 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, 2015 and 2014.

Securities with a book value of $1.1 million at both December 31, 2015 and 2014, 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, 2015 or 2014.

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LOANS AND PAYMENT PLAN RECEIVABLES

12 Months Ended

Dec. 31, 2015

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:

	2015		2014
	(In thousands)
Real estate (1)
Residential first mortgages	$	432,215	$	411,423
Residential home equity and other junior mortgages		106,297		108,162
Construction and land development		62,629		54,644
Other (2)		498,706		447,837
Consumer		193,350		154,591
Commercial		180,424		186,875
Payment plan receivables		34,599		40,001
Agricultural		6,830		6,429
Total loans	$	1,515,050	$	1,409,962

(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 $2.2 million and $1.0 million at December 31, 2015 and 2014, respectively. Payment plan receivables totaling $36.9 million and $42.6 million at December 31, 2015 and 2014, respectively, are presented net of unamortized discount of $2.3 million and $2.6 million at December 31, 2015 and 2014, respectively. These payment plan receivables had effective yields of 13% and 14% at December 31, 2015 and 2014, respectively. These receivables have various due dates through January 2018.

In December 2015, we purchased $32.6 million of single-family residential fixed rate jumbo mortgage loans from another Michigan-based financial institution. These mortgage loans were all on properties located in Michigan, had a weighted average interest rate (after a 0.25% servicing fee) of 3.94% and a weighted average remaining contractual maturity of 344 months.

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

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2015
Balance at beginning of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
Additions (deductions)
Provision for loan losses		(737	)		(1,744	)		(274	)		(8	)		49			(2,714	)
Recoveries credited to allowance		2,656			1,258			1,108			—			—			5,022
Loans charged against the allowance		(1,694	)		(2,567	)		(1,467	)		—			—			(5,728	)
Balance at end of period	$	5,670		$	10,391		$	1,181		$	56		$	5,272		$	22,570
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

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
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

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

	Commercial		Mortgage		Installment		Payment Plan Receivables		Subjective Allocation		Total
	(In thousands)
2015
Allowance for loan losses:
Individually evaluated for impairment	$	2,708	$	7,818	$	457	$	—	$	—	$	10,983
Collectively evaluated for impairment		2,962		2,573		724		56		5,272		11,587
Total ending allowance balance	$	5,670	$	10,391	$	1,181	$	56	$	5,272	$	22,570
Loans
Individually evaluated for impairment	$	16,868	$	66,375	$	5,888	$	—			$	89,131
Collectively evaluated for impairment		733,399		436,349		226,409		34,599				1,430,756
Total loans recorded investment		750,267		502,724		232,297		34,599				1,519,887
Accrued interest included in recorded investment		1,869		2,270		698		—				4,837
Total loans	$	748,398	$	500,454	$	231,599	$	34,599			$	1,515,050
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

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 $0.6 million, $0.8 million and $1.2 million of interest income would have been recognized in 2015, 2014 and 2013, respectively. Interest income recorded on these loans was approximately zero during the years ended 2015 and 2014 and $0.1 million in 2013.

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)
2015
Commercial
Income producing - real estate	$	—	$	1,027	$	1,027
Land, land development and construction - real estate		49		401		450
Commercial and industrial		69		2,028		2,097
Mortgage
1-4 family		—		4,744		4,744
Resort lending		—		1,094		1,094
Home equity - 1st lien		—		187		187
Home equity - 2nd lien		—		147		147
Purchased loans		—		2		2
Installment
Home equity - 1st lien		—		106		106
Home equity - 2nd lien		—		443		443
Loans not secured by real estate		—		421		421
Other		—		2		2
Payment plan receivables
Full refund		—		2		2
Partial refund		—		2		2
Other		—		1		1
Total recorded investment	$	118	$	10,607	$	10,725
Accrued interest included in recorded investment	$	2	$	—	$	2
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	$	—	$	—	$	—

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)
2015
Commercial
Income producing - real estate	$	203	$	209	$	647	$	1,059	$	305,155	$	306,214
Land, land development and construction - real estate		—		—		252		252		44,231		44,483
Commercial and industrial		785		16		151		952		398,618		399,570
Mortgage
1-4 family		1,943		640		4,744		7,327		272,298		279,625
Resort lending		307		—		1,094		1,401		114,619		116,020
Home equity - 1st lien		50		—		187		237		22,327		22,564
Home equity - 2nd lien		439		54		147		640		50,618		51,258
Purchased loans		9		1		2		12		33,245		33,257
Installment
Home equity - 1st lien		315		107		106		528		16,707		17,235
Home equity - 2nd lien		231		149		443		823		19,727		20,550
Loans not secured by real estate		567		83		421		1,071		191,262		192,333
Other		15		3		2		20		2,159		2,179
Payment plan receivables
Full refund		492		62		2		556		21,294		21,850
Partial refund		415		228		2		645		5,834		6,479
Other		110		3		1		114		6,156		6,270
Total recorded investment	$	5,881	$	1,555	$	8,201	$	15,637	$	1,504,250	$	1,519,887
Accrued interest included in recorded investment	$	53	$	17	$	2	$	72	$	4,765	$	4,837
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

Impaired loans are as follows:

	December 31,
	2015		2014
	(In thousands)
Impaired loans with no allocated allowance
TDR	$	2,518	$	9,325
Non - TDR		203		299
Impaired loans with an allocated allowance
TDR - allowance based on collateral		4,810		5,879
TDR - allowance based on present value cash flow		81,002		94,970
Non - TDR - allowance based on collateral		260		2,296
Non - TDR - allowance based on present value cash flow		—		—
Total impaired loans	$	88,793	$	112,769
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,436	$	2,025
TDR - allowance based on present value cash flow		8,471		10,188
Non - TDR - allowance based on collateral		76		1,020
Non - TDR - allowance based on present value cash flow		—		—
Total amount of allowance for loan losses allocated	$	10,983	$	13,233

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

	2015						2014
	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	$	641	$	851	$	—	$	5,868	$	6,077	$	—
Land, land development & construction-real estate		818		1,393		—		1,051		1,606		—
Commercial and industrial		1,245		1,241		—		2,685		2,667		—
Mortgage
1-4 family		23		183		—		—		49		—
Resort lending		—		—		—		48		397		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		76		—		—		40		—
Home equity - 2nd lien		—		—		—		—		—		—
Loans not secured by real estate		—		—		—		—		—		—
Other		—		—		—		—		—		—
		2,727		3,744		—		9,652		10,836		—
With an allowance recorded:
Commercial
Income producing - real estate		8,377		9,232		516		12,836		13,797		689
Land, land development & construction-real estate		1,690		1,778		296		3,456		3,528		499
Commercial and industrial		4,097		4,439		1,896		8,251		8,486		2,006
Mortgage
1-4 family		47,792		49,808		5,132		53,206		56,063		6,195
Resort lending		18,148		18,319		2,662		18,799		18,963		3,075
Home equity - 1st lien		168		172		9		162		177		14
Home equity - 2nd lien		244		325		15		125		205		27
Installment
Home equity - 1st lien		2,364		2,492		143		2,744		2,930		219
Home equity - 2nd lien		2,929		2,951		271		3,212		3,215		419
Loans not secured by real estate		587		658		42		711		835		89
Other		8		8		1		12		12		1
		86,404		90,182		10,983		103,514		108,211		13,233
Total
Commercial
Income producing - real estate		9,018		10,083		516		18,704		19,874		689
Land, land development & construction-real estate		2,508		3,171		296		4,507		5,134		499
Commercial and industrial		5,342		5,680		1,896		10,936		11,153		2,006
Mortgage
1-4 family		47,815		49,991		5,132		53,206		56,112		6,195
Resort lending		18,148		18,319		2,662		18,847		19,360		3,075
Home equity - 1st lien		168		172		9		162		177		14
Home equity - 2nd lien		244		325		15		125		205		27
Installment
Home equity - 1st lien		2,364		2,568		143		2,744		2,970		219
Home equity - 2nd lien		2,929		2,951		271		3,212		3,215		419
Loans not secured by real estate		587		658		42		711		835		89
Other		8		8		1		12		12		1
Total	$	89,131	$	93,926	$	10,983	$	113,166	$	119,047	$	13,233
Accrued interest included in recorded investment	$	338					$	397

(1) There were no impaired payment plan receivables or purchased mortgage loans at December 31, 2015 or 2014.

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

	2015				2014				2013
	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	$	4,520	$	387	$	7,660	$	250	$	5,765	$	340
Land, land development & construction-real estate		952		79		1,145		64		3,092		240
Commercial and industrial		2,125		257		3,351		152		3,980		226
Mortgage
1-4 family		19		11		29		—		5		11
Resort lending		12		—		40		1		28		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		5		—		2		1,604		83
Home equity - 2nd lien		—		—		—		—		1,841		96
Loans not secured by real estate		—		—		—		—		470		23
Other		—		—		—		—		15		1
		7,628		739		12,225		469		16,800		1,020
With an allowance recorded:
Commercial
Income producing - real estate		12,677		439		12,772		677		18,164		587
Land, land development & construction-real estate		2,219		54		3,939		149		6,186		149
Commercial and industrial		6,663		104		8,500		294		11,795		457
Mortgage
1-4 family		50,421		2,140		55,877		2,286		60,858		2,622
Resort lending		18,448		670		19,458		753		21,708		836
Home equity - 1st lien		161		8		160		6		136		4
Home equity - 2nd lien		172		13		57		2		42		2
Installment
Home equity - 1st lien		2,539		176		2,837		174		1,448		85
Home equity - 2nd lien		3,055		193		3,359		188		1,546		86
Loans not secured by real estate		653		37		719		35		314		17
Other		10		1		14		1		3		1
		97,018		3,835		107,692		4,565		122,200		4,846
Total
Commercial
Income producing - real estate		17,197		826		20,432		927		23,929		927
Land, land development & construction-real estate		3,171		133		5,084		213		9,278		389
Commercial and industrial		8,788		361		11,851		446		15,775		683
Mortgage
1-4 family		50,440		2,151		55,906		2,286		60,863		2,633
Resort lending		18,460		670		19,498		754		21,736		836
Home equity - 1st lien		161		8		160		6		136		4
Home equity - 2nd lien		172		13		57		2		42		2
Installment
Home equity - 1st lien		2,539		181		2,837		176		3,052		168
Home equity - 2nd lien		3,055		193		3,359		188		3,387		182
Loans not secured by real estate		653		37		719		35		784		40
Other		10		1		14		1		18		2
Total	$	104,646	$	4,574	$	119,917	$	5,034	$	139,000	$	5,866

(1) There were no impaired payment plan receivables or purchased mortgage loans during the years ending December 31, 2015, 2014 and 2013.

Our average investment in impaired loans was approximately $104.6 million, $119.9 million and $139.0 million in 2015, 2014 and 2013, 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 $4.6 million, $5.0 million and $5.9 million in 2015, 2014 and 2013, respectively, of which the majority of these amounts were received in cash.

Troubled debt restructurings at December 31 follow:

	2015
	Commercial		Retail			Total
	(In thousands)
Performing TDR’s	$	13,318	$	68,194		$	81,512
Non-performing TDR’s (1)		3,041		3,777	(2)		6,818
Total	$	16,359	$	71,971		$	88,330

	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

(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 $10.9 million and $12.2 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2015 and 2014, respectively. We have committed to lend additional amounts totaling up to $0.04 million at both December 31, 2015 and 2014, 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 36 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 60 months but have extended to as much as 230 months in certain circumstances.

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

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2015
Commercial
Income producing - real estate		2	$	229	$	227
Land, land development & construction-real estate		—		—		—
Commercial and industrial		17		3,188		2,960
Mortgage
1-4 family		8		1,345		1,128
Resort lending		1		313		307
Home equity - 1st lien		1		20		20
Home equity - 2nd lien		1		27		27
Purchased loans		—		—		—
Installment
Home equity - 1st lien		6		220		186
Home equity - 2nd lien		8		228		217
Loans not secured by real estate		2		19		25
Other		—		—		—
Total		46	$	5,589	$	5,097
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

The troubled debt restructurings described above increased (decreased) the allowance for loan losses by $0.4 million, $0.2 million and $(0.3) million during the years ended December 31, 2015, 2014 and 2013, respectively and resulted in charge offs of $0.16 million, $0.04 million and $0.5 million during the years ended December 31, 2015, 2014 and 2013, 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)
2015
Commercial
Income producing - real estate		—	$	—
Land, land development & construction-real estate		—		—
Commercial and industrial		2		157
Mortgage
1-4 family		2		73
Resort lending		—		—
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Purchased loans		—		—
Installment
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Loans not secured by real estate		1		4
Other		—		—
Total		5	$	234
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

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
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

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 (decreased) the allowance for loan losses by $(0.03) million, $0.02 million and zero during the years ended December 31, 2015, 2014 and 2013, respectively and resulted in charge offs of zero, zero and $0.2 million during the years ended December 31, 2015, 2014 and 2013, respectively.

The terms of certain other loans were modified during the years ending December 31, 2015, 2014 and 2013 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 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) financial performance 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 at December 31:

	Commercial
	Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11		Total
	(In thousands)
2015
Income producing - real estate	$	296,898	$	6,866	$	1,423	$	1,027	$	306,214
Land, land development and construction - real estate		40,844		2,995		243		401		44,483
Commercial and industrial		371,357		19,502		6,683		2,028		399,570
Total	$	709,099	$	29,363	$	8,349	$	3,456	$	750,267
Accrued interest included in total	$	1,729	$	108	$	32	$	—	$	1,869
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

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 semi-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		Purchased Loans		Total
	(In thousands)
2015
800 and above	$	28,760	$	13,943	$	4,374	$	7,696	$	2,310	$	57,083
750-799		78,802		40,888		7,137		17,405		23,283		167,515
700-749		56,519		31,980		4,341		11,022		6,940		110,802
650-699		51,813		17,433		3,203		7,691		—		80,140
600-649		27,966		4,991		1,467		3,684		—		38,108
550-599		16,714		3,070		1,027		1,918		—		22,729
500-549		10,610		1,051		572		1,295		—		13,528
Under 500		4,708		554		244		265		—		5,771
Unknown		3,733		2,110		199		282		724		7,048
Total	$	279,625	$	116,020	$	22,564	$	51,258	$	33,257	$	502,724
Accrued interest included in total	$	1,396	$	477	$	87	$	196	$	114	$	2,270

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Purchased Loans		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

(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)
2015
800 and above	$	1,792	$	1,782	$	44,254	$	58	$	47,886
750-799		4,117		5,931		86,800		531		97,379
700-749		2,507		3,899		34,789		694		41,889
650-699		3,508		4,182		16,456		499		24,645
600-649		2,173		2,153		4,979		200		9,505
550-599		1,800		1,346		1,997		109		5,252
500-549		1,056		855		1,170		61		3,142
Under 500		223		370		385		23		1,001
Unknown		59		32		1,503		4		1,598
Total	$	17,235	$	20,550	$	192,333	$	2,179	$	232,297
Accrued interest included in total	$	78	$	83	$	520	$	17	$	698
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

(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, 2015, approximately 63.2% 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 18.7% of Mepco’s outstanding payment plan receivables as of December 31, 2015, 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)
2015
AM Best rating
A+	$	—	$	6	$	—	$	6
A		2,712		5,203		—		7,915
A-		3,418		1,177		6,265		10,860
Not rated		15,720		93		5		15,818
Total	$	21,850	$	6,479	$	6,270	$	34,599
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

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:

	2015		2014
	(In thousands)
Mortgage loans serviced for:
Fannie Mae	$	898,443	$	913,863
Freddie Mac		707,891		748,833
Ginnie Mae		37,884		—
Other		107		104
Total	$	1,644,325	$	1,662,800

Custodial deposit accounts maintained in connection with mortgage loans serviced for others totaled $21.8 million and $20.9 million, at December 31, 2015 and 2014, 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:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	12,106		$	13,710		$	11,013
Originated servicing rights capitalized		2,697			1,823			3,210
Amortization		(2,868	)		(2,509	)		(3,745	)
Change in valuation allowance		501			(918	)		3,232
Balance at end of year	$	12,436		$	12,106		$	13,710
Valuation allowance	$	3,272		$	3,773		$	2,855
Loans sold and serviced that have had servicing rights capitalized	$	1,643,086		$	1,661,269		$	1,732,476

The fair value of capitalized mortgage loan servicing rights was $12.9 million and $12.6 million at December 31, 2015 and 2014, respectively. Fair value was determined using an average coupon rate of 4.32%, average servicing fee of 0.254%, average discount rate of 10.04% and an average Public Securities Association (“PSA”) prepayment rate of 203 for December 31, 2015; and an average coupon rate of 4.44%, average servicing fee of 0.253%, average discount rate of 10.07% and an average PSA prepayment rate of 200 for December 31, 2014.

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OTHER REAL ESTATE OWNED

12 Months Ended

Dec. 31, 2015

OTHER REAL ESTATE OWNED [Abstract]

OTHER REAL ESTATE OWNED

NOTE 5 – OTHER REAL ESTATE OWNED

A summary of other real estate owned activity for the years ended December 31 follows (1):

	2015			2014			2013
	(In thousands)
Balance at beginning of year, net of valuation allowance	$	6,370		$	18,088		$	25,748
Loans transferred to other real estate owned		6,694			6,143			6,932
Sales of other real estate owned		(5,502	)		(17,198	)		(11,994	)
Additions to valuation allowance charged to expense		(492	)		(663	)		(2,598	)
Balance at end of year, net of valuation allowance	$	7,070		$	6,370		$	18,088

(1) Table excludes other repossessed assets totaling $0.08 million at both December 31, 2015 and 2014, respectively.

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:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	2,511		$	4,047		$	5,958
Additions charged to expense		492			663			2,598
Direct write-downs upon sale		(1,311	)		(2,199	)		(4,509	)
Balance at end of year	$	1,692		$	2,511		$	4,047

At December 31, 2015 and 2014, the balance of other real estate owned includes $2.8 million and $2.9 million of foreclosed residential real estate properties. Retail mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements totaled $1.1 million and $2.5 million at December 31, 2015 and 2014, respectively.

Other real estate and repossessed assets totaling $7.2 million and $6.5 million at December 31, 2015 and 2014, respectively, are presented net of the valuation allowance on the Consolidated Statements of Financial Condition.

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PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2015

PROPERTY AND EQUIPMENT [Abstract]

PROPERTY AND EQUIPMENT

NOTE 6 – PROPERTY AND EQUIPMENT

A summary of property and equipment at December 31 follows:

	2015			2014
	(In thousands)
Land	$	15,152		$	14,904
Buildings		57,638			59,486
Equipment		79,842			79,809
		152,632			154,199
Accumulated depreciation and amortization		(109,529	)		(108,251	)
Property and equipment, net	$	43,103		$	45,948

Depreciation expense was $6.6 million, $6.7 million and $6.7 million in 2015, 2014 and 2013, respectively.

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INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2015

INTANGIBLE ASSETS [Abstract]

INTANGIBLE ASSETS

NOTE 7 – INTANGIBLE ASSETS

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

	2015				2014
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	3,838	$	6,118	$	3,491

Intangible amortization expense was $0.3 million, $0.5 million and $0.8 million in 2015, 2014 and 2013, respectively.

A summary of estimated core deposit intangible amortization at December 31, 2015, follows:

	(In thousands)
2016	$	347
2017		346
2018		346
2019		346
2020		346
2021 and thereafter		549
Total	$	2,280

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DEPOSITS

12 Months Ended

Dec. 31, 2015

DEPOSITS [Abstract]

DEPOSITS

NOTE 8 – DEPOSITS

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

	2015		2014		2013
	(In thousands)
Savings and interest bearing checking	$	1,056	$	1,064	$	1,131
Time deposits under $100,000		1,586		2,467		2,995
Time deposits of $100,000 or more		1,367		1,436		1,580
Total	$	4,009	$	4,967	$	5,706

Aggregate time deposits in denominations of $250,000 or more amounted to $110.4 million and $42.8 million at December 31, 2015 and 2014, respectively.

A summary of the maturity of time deposits at December 31, 2015, follows:

	(In thousands)
2016	$	302,136
2017		66,288
2018		27,367
2019		15,432
2020		11,763
2021 and thereafter		3,234
Total	$	426,220

Time deposits acquired through broker relationships totaled zero and $11.3 million at December 31, 2015 and 2014, respectively.

Reciprocal deposits totaled $50.2 million and $53.7 million at December 31, 2015 and 2014, 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:

	2015		2014
	(In thousands)
Demand	$	3,436	$	5,867
Money market		8,340		7,692
Time		38,431		40,109
Total	$	50,207	$	53,668

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OTHER BORROWINGS

12 Months Ended

Dec. 31, 2015

OTHER BORROWINGS [Abstract]

OTHER BORROWINGS

NOTE 9 – OTHER BORROWINGS

A summary of other borrowings at December 31 follows:

	2015		2014
	(In thousands)
Advances from the FHLB	$	11,949	$	12,464
Other		5		6
Total	$	11,954	$	12,470

Advances from the FHLB are secured by unencumbered qualifying mortgage and home equity loans with a market value equal to at least 135% to 174%, respectively, of outstanding advances. Advances are also secured by FHLB stock that we own, which totaled $7.8 million at December 31, 2015. Unused borrowing capacity with the FHLB (subject to the FHLB’s credit requirements and policies) was $179.6 million at December 31, 2015. Interest expense on advances amounted to $0.8 million, $0.9 million and $1.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. No FHLB advances were terminated during 2015, 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, 2015, 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:

	2015					2014
	Amount		Rate			Amount		Rate
	(Dollars in thousands)
Fixed-rate advances
2016	$	2,089		6.55	%	$	2,205		6.55	%
2017		1,258		7.04			1,320		7.04
2018		5,437		5.99			5,671		5.99
2019		—					—
2020		3,165		7.49			3,268		7.49
Total advances	$	11,949		6.59	%	$	12,464		6.59	%

A summary of contractually required repayments of FHLB Advances at December 31, 2015, follows:

	(In thousands)
2016	$	2,521
2017		1,587
2018		5,042
2019		143
2020		2,656
Total	$	11,949

We had no borrowings outstanding with the FRB during the years ended or at December 31, 2015, 2014 or 2013. We had unused borrowing capacity with the FRB (subject to the FRB’s credit requirements and policies) of $307.7 million at December 31, 2015. 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 $781.8 million at December 31, 2015.

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SUBORDINATED DEBENTURES

12 Months Ended

Dec. 31, 2015

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 at both December 31, 2015 and 2014, 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:

		2015 and 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

Other key terms for the subordinated debentures and trust preferred securities that were outstanding at December 31, 2015 and 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

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. Interest is payable quarterly on each of the subordinated debentures and trust preferred securities and no distributions were deferred at December 31, 2015 and 2014.

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.

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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COMMITMENTS AND CONTINGENT LIABILITIES

12 Months Ended

Dec. 31, 2015

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:

	2015		2014
	(In thousands)
Financial instruments whose risk is represented by contract amounts
Commitments to extend credit	$	243,458	$	204,827
Standby letters of credit		3,582		2,757

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 2.75% 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 $1.0 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 Condensed 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 both December 31, 2015 and 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. 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 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 2015, 2014 and 2013, non-interest expenses include $0.1 million, $0.2 million and $4.8 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:

	2015			2014			2013
	(In thousands)
Balance at beginning of year, net of reserve	$	7,237		$	7,716		$	18,449
Transfers in from payment plan receivables		1,203			180			792
Reserves established and charge-offs recorded to expense		(119	)		(199	)		(4,837	)
Transferred to (from) contingency reserves		—			(75	)		63
Cash received		(1,092	)		(385	)		(6,751	)
Balance at end of year, net of reserve	$	7,229		$	7,237		$	7,716
Reserve at end of year	$	56		$	1,370		$	1,300

An analysis of our vehicle service contract counterparty reserve follows:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	1,370		$	1,375		$	2,012
Additions charged to expense		119			199			4,837
Charge-offs, net		(1,433	)		(204	)		(5,474	)
Balance at end of year	$	56		$	1,370		$	1,375
Reserves recorded in VSC counterparty receivables, net	$	56		$	1,370		$	1,300
Reserves recorded in accrued expenses and other liabilities		—			—			75
Total at end of year	$	56		$	1,370		$	1,375

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, Freddie Mac and Ginnie Mae). 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. 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 $0.5 million and $0.7 million at December 31, 2015 and 2014, 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, 2015 and 2014 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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SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE

12 Months Ended

Dec. 31, 2015

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 January 21, 2015, our Board of Directors authorized a share repurchase plan (the “Repurchase Plan”) to buy back up to 5% of our outstanding common stock through December 31, 2015. The repurchases were made through open market transactions and totaled 967,199 shares of common stock for an aggregate purchase price of $13.5 million.

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:

	2015		2014		2013
	(In thousands, except per share amounts)
Net income applicable to common stock	$	20,017	$	18,021	$	82,062
Convertible preferred stock dividends		—		—		3,001
Preferred stock discount		—		—		(7,554	)
Net income applicable to common stock for calculation of diluted earnings per share	$	20,017	$	18,021	$	77,509
Weighted average shares outstanding (1)		22,716		22,927		13,970
Restricted stock units		233		306		363
Effect of stock options		119		124		92
Stock units for deferred compensation plan for non-employee directors		112		114		125
Effect of convertible preferred stock		—		—		7,314
Weighted average shares outstanding for calculation of diluted earnings per share		23,180		23,471		21,864
Net income per common share
Basic (1)	$	0.88	$	0.79	$	5.87
Diluted	$	0.86	$	0.77	$	3.55

(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, 0.03 million and 0.1 million for 2015, 2014 and 2013, 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 as it was anti-dilutive.

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INCOME TAX

12 Months Ended

Dec. 31, 2015

INCOME TAX [Abstract]

INCOME TAX

NOTE 13 – INCOME TAX

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

	2015		2014			2013
	(In thousands)
Current	$	200	$	(359	)	$	(277	)
Deferred		9,128		7,672			—
Disproportionate tax effect		—		—			1,444
Valuation allowance - change in estimate		35		(118	)		(56,018	)
Income tax expense (benefit)	$	9,363	$	7,195		$	(54,851	)

Income tax expense (benefit) was $9.4 million, $7.2 million and $(54.9) million during the years ended December 31, 2015, 2014 and 2013. 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 (loss) and credited to income tax expense (benefit) due to our valuation allowance on deferred tax assets as more fully discussed in note #24. 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.

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 $(0.1) million, zero and $(0.2) million in 2015, 2014 and 2013, respectively.

The deferred income tax expense of $9.1 million and $7.7 million during 2015 and 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 expense (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:

	2015			2014			2013
	(In thousands)
Statutory rate applied to income before income tax	$	10,283		$	8,826		$	7,930
Bank owned life insurance		(449	)		(480	)		(477	)
Tax-exempt income		(434	)		(522	)		(402	)
Unrecognized tax benefit		(135	)		(595	)		(186	)
Non-deductible meals, entertainment and memberships		43			53			55
Net change in valuation allowance		35			(118	)		(63,980	)
Disproportionate tax effect		—			—			1,444
U.S. Treasury warrant		—			—			359
Share-based compensation		—			—			8
Other, net		20			31			398
Income tax expense (benefit)	$	9,363		$	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:

	2015			2014
	(In thousands)
Deferred tax assets
Loss carryforwards	$	25,516		$	32,933
Allowance for loan losses		7,901			9,099
Alternative minimum tax credit carry forward		3,427			3,037
Property and equipment		3,369			3,239
Purchase premiums, net		1,755			2,050
Share based payments		786			684
Valuation allowance on other real estate		592			879
Unrealized loss on trading securities		578			559
Deferred compensation		404			448
Other than temporary impairment charge on securities available for sale		382			436
Non accrual loan interest income		232			244
Reserve for unfunded lending commitments		228			189
Loss reimbursement on sold loans reserve		186			242
Unrealized loss on securities available for sale		128			—
Vehicle service contract counterparty contingency reserve		21			521
Gross deferred tax assets		45,505			54,560
Valuation allowance		(1,054	)		(1,019	)
Total net deferred tax assets		44,451			53,541

Deferred tax liabilities
Capitalized mortgage loan servicing rights		4,353		4,237
Deferred loan fees		256		260
Federal Home Loan Bank stock		45		196
Unrealized gain on securities available for sale		—		87
Other		162		129
Gross deferred tax liabilities		4,816		4,909
Net deferred tax assets	$	39,635	$	48,632

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 10 additional profitable quarters since June 30, 2013.

The valuation allowance against our deferred tax assets totaled $1.1 million and $1.0 million at December 31, 2015 and 2014, respectively. The valuation allowance against our deferred tax assets at December 31, 2015 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, 2015, we had federal net operating loss (“NOL”) carryforwards of approximately $73.4 million which, if not used against taxable income, will expire as follows:

	(In thousands)
2030	$	18,496
2031		17,170
2032		37,739
Total	$	73,405

$3.4 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 $3.4 million of alternative minimum tax credit carryforwards with indefinite lives at December 31, 2015.

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

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	1,091		$	1,672		$	1,871
Additions based on tax positions related to the current year		20			18			11
Reductions due to the statute of limitations		(135	)		(595	)		(186	)
Reductions due to settlements		—			(4	)		(24	)
Balance at end of year	$	976		$	1,091		$	1,672

If recognized, the entire amount of unrecognized tax benefits, net of $0.3 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, 2015, 2014 and 2013. No amounts were accrued for interest and penalties at December 31, 2015, 2014 or 2013. At December 31, 2015, U.S. Federal tax years 2012 through the present remain open to examination.

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SHARE BASED COMPENSATION AND BENEFIT PLANS

12 Months Ended

Dec. 31, 2015

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 0.3 million shares of common stock as of December 31, 2015. 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, 2015. 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 2015 and 2014, pursuant to our long-term incentive plan, we granted in each year 0.07 million, shares of restricted stock and 0.03 million performance stock units (“PSUs”) to certain officers. The shares of restricted stock issued during 2015 cliff vest after a period of three years, the shares of restricted stock issued during 2014 vest ratably over three years and the PSUs issued in both years 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.

During 2013, we issued 0.1 million restricted stock units to certain of our executive officers. These restricted stock units cliff vest after a period of three years. We used the market value of the common stock on the date of grant to measure compensation cost for these non-vested share awards.

During 2013, pursuant to our performance-based compensation plans, we granted 0.1 million stock options 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, 0.01 million shares and 0.06 million shares to directors during 2015, 2014 and 2013, respectively, and expensed their value during those same periods.

During 2013, a portion of our president’s annual salary was paid in the form of common stock. The amount paid in common stock (also referred to as “salary stock”) was $0.020 million. These shares were issued each pay period and vested immediately. No salary stock was paid during 2015 and 2014.

Total compensation expense recognized for grants pursuant to our long-term incentive plan was $1.4 million, $1.0 million and $0.9 million in 2015, 2014 and 2013, respectively. The corresponding tax benefit relating to this expense was $0.5 million, $0.4 million and zero in 2015, 2014 and 2013, respectively. Total expense recognized for non-employee director share based payments was $0.1 million, $0.2 million and $0.3 million in 2015, 2014 and 2013, respectively. The corresponding tax benefit relating to this expense was $0.03 million, $0.1 million and zero in 2015, 2014 and 2013, respectively.

At December 31, 2015, the total expected compensation cost related to non-vested stock options, restricted stock, PSUs and restricted stock unit awards not yet recognized was $1.5 million. The weighted-average period over which this amount will be recognized is 1.6 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, 2015		281,820		$	4.69
Granted		—
Exercised		(42,204	)		3.25
Forfeited		(2,096	)		4.77
Expired		(1,924	)		6.79
Outstanding at December 31, 2015		235,596		$	4.94		6.12	$	2,443
Vested and expected to vest at December 31, 2015		234,949		$	4.93		6.11	$	2,437
Exercisable at December 31, 2015		213,154		$	4.78		5.98	$	2,245

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

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2015		407,130		$	6.31
Granted		108,761			13.07
Vested		(249,526	)		3.92
Forfeited		(4,384	)		12.88
Outstanding at December 31, 2015		261,981		$	11.29

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 2015 and 2014):

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

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:

	2015		2014		2013
	(In thousands)
Intrinsic value	$	444	$	321	$	117
Cash proceeds received	$	137	$	96	$	39
Tax benefit realized	$	155	$	112	$	—

We maintain 401(k) and employee stock ownership plans covering substantially all of our full-time employees. During 2015 we matched 50% of employee contributions to the 401(k) plan up to a maximum of 4% of participating employees’ eligible wages. During 2014 and 2013 we matched 100% of employee contributions up to a maximum of 2% and 1%, respectively of participating employees’ eligible wages. 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 2015 and 2014 and 3% for 2013. Amounts expensed for these retirement plans were $1.2 million, $1.0 million, and $1.2 million in 2015, 2014 and 2013, respectively.

Our officers participate in various performance-based compensation plans. Amounts expensed for all incentive plans totaled $5.7 million, $4.2 million and $5.0 million, in 2015, 2014 and 2013, respectively.

We also provide certain health care and life insurance programs to substantially all full-time employees. Amounts expensed for these programs totaled $3.6 million, $3.9 million and $3.8 million in 2015, 2014 and 2013 respectively. These insurance programs are also available to retired employees at their own expense.

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OTHER NON-INTEREST INCOME

12 Months Ended

Dec. 31, 2015

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:

	2015		2014		2013
	(In thousands)
Investment and insurance commissions	$	1,827	$	1,814	$	1,709
ATM fees		1,551		1,599		1,661
Bank owned life insurance		1,282		1,371		1,363
Other real estate rental income		128		1,295		1,471
Other		2,904		2,852		2,333
Total other non-interest income	$	7,692	$	8,931	$	8,537

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DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2015

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:

	2015
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	20,581		0.1	$	550
Mandatory commitments to sell mortgage loans		46,320		0.1		69
Pay-fixed interest rate swap agreements		27,587		8.0		(497	)
Pay-variable interest rate swap agreements		27,587		8.0		497
Purchased options		2,098		5.7		122
Written options		2,098		5.7		(122	)
Total	$	126,271		3.7	$	619

	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

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 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 was included as a component of accumulated other comprehensive loss and was amortized into earnings through December 31, 2014, the original remaining life of the 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 2015, we began offering to our deposit customers an equity linked time deposit product (“Altitude CD”). The Altitude CD is a time deposit that provides the customer a guaranteed return of principal at maturity plus a potential equity return (a written option), while we receive a like stream of funds based on the equity return (a purchased option). The written and purchased options will generally move in opposite directions resulting in little or no net impact on our Consolidated Statements of Operations. All of the written and purchased options in the table above relate to this Altitude CD product.

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 net gains 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 non-interest 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 on our Consolidated Statements of Financial Condition 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,
	2015			2014			2015			2014
	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	$	550	Other assets	$	437	Other liabilities	$	—	Other liabilities	$	—
Mandatory commitments to sell mortgage loans	Other assets		69	Other assets		—	Other liabilities		—	Other liabilities		184
Pay-fixed interest rate swap agreements	Other assets		—	Other assets		—	Other liabilities		497	Other liabilities		182
Pay-variable interest rate swap agreements	Other assets		497	Other assets		182	Other liabilities		—	Other liabilities		—
Purchased options	Other assets		122	Other assets		—	Other liabilities		—	Other liabilities		—
Written options	Other assets		—	Other assets		—	Other liabilities		122	Other liabilities		—
Total derivatives		$	1,238		$	619		$	619		$	366

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

	Year Ended December 31,
	Loss Recognized in Other Comprehensive Income (Loss) (Effective Portion)							Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)								Location of Gain (Loss) Recognized in Income (1)	Gain (Loss) Recognized in Income (1)
	2015		2014		2013				2015		2014			2013				2015			2014			2013
	(In thousands)
Cash Flow Hedges
Pay-fixed interest rate swap agreements	$	—	$	—	$	(37	)	Interest    expense	$	—	$	(380	)	$	(397	)	Interest    expense	$	—		$	—		$	—
Total	$	—	$	—	$	(37	)		$	—	$	(380	)	$	(397	)		$	—		$	—		$	—
No hedge designation
Rate-lock mortgage loan commitments																	Net gains on    mortgage    loans	$	113		$	71		$	(1,002	)
Mandatory commitments to sell mortgage loans																	Net gains    on mortgage    loans		253			(312	)		250
Pay-fixed interest rate swap agreements																	Interest    income		(315	)		(182	)		—
Pay-variable interest rate swap agreements																	Interest    income		315			182			—
Purchased options																	Interest    expense		122			—			—
Written options																	Interest    expense		(122	)		—			—
UST short position																	Gain on    securities		—			295			—
Amended Warrant																	Increase in    fair value of    U.S. Treasury    warrant		—			—			(1,025	)
Total																		$	366		$	54		$	(1,777	)

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

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2015

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 2015 and 2014.

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:

	2015			2014
	(In thousands)
Balance at beginning of year	$	216		$	351
New loans and advances		—			—
Repayments		(26	)		(135	)
Balance at end of year	$	190		$	216

Deposits held by us for directors and executive officers totaled $1.3 million and $1.0 million at December 31, 2015 and 2014, respectively.

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LEASES

12 Months Ended

Dec. 31, 2015

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, 2015, follows:

	(In thousands)
2016	$	1,054
2017		862
2018		809
2019		720
2020		666
2021 and thereafter		253
Total	$	4,364

Rental expense on operating leases totaled $1.2 million, $1.3 million and $1.2 million in 2015, 2014 and 2013, respectively.

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CONCENTRATIONS OF CREDIT RISK

12 Months Ended

Dec. 31, 2015

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, 2015, include $538.5 million of loans secured by residential real estate and $62.6 million of construction and development loans. In addition, we have a concentration of credit within the vehicle service contract industry. At December 31, 2015, we had $34.6 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, 2015: Lessors of Nonresidential Real Estate ($259.1 million); Lessors of Residential Real Estate ($82.1 million); Health Care and Social Assistance ($67.8 million) and Construction General Contractors and Land Development ($54.4 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 42.4%, 24.0%, 15.0%, 7.8% and 3.7%, respectively, of Mepco’s payment plan receivables at December 31, 2015. 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 62.2%, 11.7%, 9.4%, 5.4% and 3.8%, respectively of Mepco’s payment plan receivables at December 31, 2015. See note #11 for additional information on Mepco counterparties.

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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2015

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, 2015, the Bank had negative undivided profits of $10.1 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, Tier 1, and common equity Tier 1 (as of January 1, 2015) capital to risk-weighted assets and Tier 1 capital to average assets. Failure to meet minimum capital requirements can result in 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, 2015 and 2014, 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.

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 implement 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 New Capital Rules became effective for us on January 1, 2015.

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)
2015
Total capital to risk-weighted assets
Consolidated	$	278,170		16.65	%	$	133,668		8.00	%	NA		NA
Independent Bank		261,894		15.69			133,514		8.00		$	166,893		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	257,050		15.38	%	$	100,251		6.00	%	NA		NA
Independent Bank		240,867		14.43			100,136		6.00		$	133,514		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	239,271		14.32	%	$	75,188		4.50	%	NA		NA
Independent Bank		240,867		14.43			75,102		4.50		$	108,480		6.50	%
Tier 1 capital to average assets
Consolidated	$	257,050		10.91	%	$	94,217		4.00	%	NA		NA
Independent Bank		240,867		10.23			94,145		4.00		$	117,682		5.00	%
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	%

NA — Not applicable

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2015			2014			2015			2014
	(In thousands)
Total shareholders’ equity	$	251,092		$	250,371		$	259,947		$	257,832
Add (deduct)
Accumulated other comprehensive loss for regulatory purposes		238			5,636			238			5,636
Intangible assets		(912	)		(2,627	)		(912	)		(2,627	)
Disallowed deferred tax assets		(11,147	)		(40,500	)		(18,406	)		(30,728	)
Disallowed capitalized mortgage loan servicing rights		—			(752	)		—			(752	)
Common equity tier 1 capital		239,271			212,128			240,867			229,361
Qualifying trust preferred securities		34,500			34,500			—			—
Disallowed deferred tax assets		(16,721	)		—			—			—
Tier 1 capital		257,050			246,628			240,867			229,361
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		21,120			18,535			21,027			18,522
Total risk-based capital	$	278,170		$	265,163		$	261,894		$	247,883

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FAIR VALUE DISCLOSURES

12 Months Ended

Dec. 31, 2015

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, 2015 and 2014, 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.

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). The fair value of purchased and written options is based on prices of financial instruments with similar characteristics 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
	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, 2015:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	148	$	148	$	—	$	—
Securities available for sale
U.S. agency		47,512		—		47,512		—
U.S. agency residential mortgage-backed		196,056		—		196,056		—
U.S. agency commercial mortgage-backed		34,028		—		34,028		—
Private label residential mortgage-backed		4,903		—		4,903		—
Other asset backed		116,904		—		116,904		—
Obligations of states and political subdivisions		144,984		—		144,984		—
Corporate		38,614		—		38,614		—
Trust preferred		2,483		—		2,483		—
Loans held for sale		27,866		—		27,866		—
Derivatives (1)		1,238		—		1,238		—
Liabilities
Derivatives (2)		619		—		619		—
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		8,481		—		—		8,481
Impaired loans (4)
Commercial
Income producing - real estate		711		—		—		711
Land, land development & construction-real estate		40		—		—		40
Commercial and industrial		1,257		—		—		1,257
Mortgage
1-4 Family		421		—		—		421
Resort lending		129		—		—		129
Other real estate (5)
Commercial
Land, land development & construction-real estate		639		—		—		639
Commercial and industrial		165		—		—		165
Mortgage
1-4 Family		26		—		—		26
Resort lending		107		—		—		107
Home equity - 1st lien		14		—		—		14
Installment
Home equity - 1st lien		36		—		—		36

(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
	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.

There were no transfers between Level 1 and Level 2 during the years ended December 31, 2015 and 2014.

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)
2015
Trading securities	$	(55	)	$	—		$	(55	)
Loans held for sale		—			90			90
2014
Trading securities	$	(295	)	$	—		$	(295	)
Loans held for sale		—			258			258
2013
Trading securities	$	388		$	—		$	388
Loans held for sale		—			(1,477	)		(1,477	)

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, 2015, 2014 and 2013 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 $8.5 million, which is net of a valuation allowance of $3.3 million, at December 31, 2015, and had a carrying amount of $9.2 million, which is net of a valuation allowance of $3.8 million, at December 31, 2014. A recovery (charge) of $0.5 million, $(0.9) million and $3.2 million was included in our results of operations for the years ending December 31, 2015, 2014 and 2013, respectively.

• Loans which are measured for impairment using the fair value of collateral for collateral dependent loans had a carrying amount of $5.1 million, with a valuation allowance of $2.5 million at December 31, 2015, and had a carrying amount of $8.2 million, with a valuation allowance of $3.1 million at December 31, 2014. An additional provision for loan losses relating to impaired loans of $1.1 million, $2.1 million and $1.5 million was included in our results of operations for the years ending December 31, 2015, 2014 and 2013, respectively.

• Other real estate, which is measured using the fair value of the property, had a carrying amount of $1.0 million which is net of a valuation allowance of $1.7 million at December 31, 2015, and a carrying amount of $1.9 million, which is net of a valuation allowance of $2.5 million, at December 31, 2014. An additional charge relating to other real estate measured at fair value of $0.3 million, $0.3 million and $1.6 million was included in our results of operations during the years ended December 31, 2015, 2014 and 2013, respectively.

We had no assets or liabilities measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) during the years ended December 31, 2015 and 2014.

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

	Asset Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
2015
Capitalized mortgage loan servicing rights	$	8,481	Present value of net	Discount rate		10.04	%
			servicing revenue	Cost to service	$	80
				Ancillary income		24
				Float rate		1.73	%
Impaired loans
Commercial (1)		1,605	Sales comparison approach	Adjustment for differences between comparable sales		(2.1	)%
			Income approach	Capitalization rate		9.3
Mortgage		550	Sales comparison approach	Adjustment for differences between comparable sales		0.7
Other real estate
Commercial		804	Sales comparison approach	Adjustment for differences between comparable sales		(3.9	)
Mortgage and installment		183	Sales comparison approach	Adjustment for differences between comparable sales		75.6
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 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

(1) In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2015 and 2014, we had an impaired collateral dependent commercial relationship that totaled $0.4 million and $1.1 million, respectively that was primarily secured by collateral other than real estate. Collateral securing this relationship primarily included machinery and equipment and inventory at December 31, 2015 and 2014 and also included accounts receivable at December 31, 2014. Valuation techniques at December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type. Discount rates used ranged from 0% to 100% of stated values. Valuation techniques at December 31, 2014, 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
2015	$	27,866	$	714	$	27,152
2014		23,662		624		23,038
2013		20,390		366		20,024

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FAIR VALUES OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2015

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, 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 and the fair value of purchased and written options is based on prices of financial instruments with similar characteristics 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: Other borrowings 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 at December 31 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 Unobservable Inputs (Level 3)
	(In thousands)
2015
Assets
Cash and due from banks	$	54,260	$	54,260	$	54,260	$	—	$	—
Interest bearing deposits		31,523		31,523		31,523		—		—
Interest bearing deposits - time		11,866		11,858		—		11,858		—
Trading securities		148		148		148		—		—
Securities available for sale		585,484		585,484		—		585,484		—
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,471		NA		NA		NA		NA
Net loans and loans held for sale		1,520,346		1,472,613		—		27,866		1,444,747
Accrued interest receivable		6,565		6,565		5		1,969		4,591
Derivative financial instruments		1,238		1,238		—		1,238		—
Liabilities
Deposits with no stated maturity (1)	$	1,659,743	$	1,659,743	$	1,659,743	$	—	$	—
Deposits with stated maturity (1)		426,220		423,776		—		423,776		—
Other borrowings		11,954		13,448		—		13,448		—
Subordinated debentures		35,569		23,069		—		23,069		—
Accrued interest payable		466		466		21		445		—
Derivative financial instruments		619		619		—		619		—
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		—

(1) Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $11.8 million and $13.6 million at December 31, 2015 and 2014, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $38.4 million and $40.1 million at December 31, 2015 and 2014, 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, 2015

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)
2015
Total assets	$	2,340,566		$	57,208		$	286,936		$	(275,644	)	$	2,409,066
Interest income		75,552			5,290			72			(72	)		80,842
Net interest income		71,448			4,487			(949	)		—			74,986
Provision for loan losses		(2,705	)		(9	)		—			—			(2,714	)
Income (loss) before income tax		32,136			(1,183	)		(1,478	)		(95	)		29,380
Net income (loss)		21,727			(712	)		(936	)		(62	)		20,017
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

(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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ACCUMULATED OTHER COMPREHENSIVE LOSS

12 Months Ended

Dec. 31, 2015

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”), net of tax during the years ended December 31 follows:

	Unrealized Losses on Available for Sale Securities			Disproportionate Tax Effects from Securities Available for Sale			Unrealized Losses on Cash Flow Hedges			Unrealized Losses on Settled Derivatives			Disproportionate Tax Effects from Cash Flow Hedges			Total
	(In thousands)
2015
Balances at beginning of period	$	162		$	(5,798	)	$	—		$	—		$	—		$	(5,636	)
Other comprehensive loss before reclassifications		(351	)		—			—			—			—			(351	)
Amounts reclassified from AOCL		(49	)		—			—			—			—			(49	)
Net current period other comprehensive loss		(400	)		—			—			—			—			(400	)
Balances at end of period	$	(238	)	$	(5,798	)	$	—		$	—		$	—		$	(6,036	)
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 loss 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	)

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 loss (see note #13).

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)
2015
Unrealized losses on securities available for sale
	$	75		Net gains on securities
		—		Net impairment loss recognized in earnings
		75		Total reclassifications before tax
		26		Income tax expense (benefit)
	$	49		Reclassifications, net of tax
2014
Unrealized losses on securities available for sale
	$	329		Net gains on securities
		(9	)	Net impairment loss recognized in earnings
		320		Total reclassifications before tax
		112		Income tax expense (benefit)
	$	208		Reclassifications, net of tax
Unrealized losses on settled derivatives
	$	(380	)	Interest expense
		(133	)	Income tax expense (benefit)
	$	(247	)	Reclassification, net of tax
	$	(39	)	Total reclassifications for the period, net of tax
2013
Unrealized losses on securities available for sale
	$	7		Net gains on securities
		(26	)	Net impairment loss recognized in earnings
		(19	)	Total reclassifications before tax
		(7	)	Income tax expense (benefit)
	$	(12	)	Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(208	)	Interest expense
		(73	)	Income tax expense (benefit)
	$	(135	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(189	)	Interest expense
		(66	)	Income tax expense (benefit)
	$	(123	)	Reclassification, net of tax
Disproportionate tax effects from cash flow hedges
	$	1,444		Income tax expense (benefit)
	$	(1,714	)	Total reclassifications for the period, net of tax

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INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2015

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,
	2015		2014
	(In thousands)
ASSETS
Cash and due from banks	$	10,800	$	5,174
Interest bearing deposits - time		5,000		12,500
Investment in subsidiaries		261,016		258,901
Other assets		10,120		9,583
Total Assets	$	286,936	$	286,158
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures	$	35,569	$	35,569
Other liabilities		378		382
Shareholders’ equity		250,989		250,207
Total Liabilities and Shareholders’ Equity	$	286,936	$	286,158

CONDENSED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
OPERATING INCOME (LOSS)
Interest income	$	72		$	64		$	—
Gain on extinguishment of debt		—			500			—
Gain on securities		—			295			—
Increase in fair value of U.S. Treasury warrant		—			—			(1,025	)
Other income		31			35			63
Total Operating Income (Loss)		103			894			(962	)
OPERATING EXPENSES
Interest expense		1,021			1,462			2,317
Administrative and other expenses		560			527			682
Total Operating Expenses		1,581			1,989			2,999
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		(1,478	)		(1,095	)		(3,961	)
Income tax benefit		(542	)		(383	)		(9,053	)
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries		(936	)		(712	)		5,092
Equity in undistributed net income of subsidiaries		20,953			18,733			72,417
Net Income	$	20,017		$	18,021		$	77,509

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
Net Income	$	20,017		$	18,021		$	77,509
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes		(542	)		(383	)		(8,955	)
Share based compensation		21			46			84
Gain on extinguishment of debt		—			(500	)		—
Gain on securities		—			(295	)		—
Decrease in other assets		5			118			738
Increase (decrease) in other liabilities		(6	)		287			(5,858	)
Equity in undistributed net income of subsidiaries operations		(20,953	)		(18,733	)		(72,417	)
Total Adjustments		(21,475	)		(19,460	)		(86,408	)
Net Cash Used in Operating Activities		(1,458	)		(1,439	)		(8,899	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits - time		(5,000	)		(17,500	)		—
Maturity of interest bearing deposits - time		12,500			5,000			—
Return of capital from subsidiary		18,500			15,000			7,500
Net Cash From Investing Activities		26,000			2,500			7,500
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES
Repurchase of common stock		(13,498	)		—			—
Dividends paid		(5,896	)		(4,129	)		—
Proceeds from issuance of common stock		1,569			1,242			100,230
Share based compensation withholding obligation		(1,091	)		—			(513	)
Redemption of subordinated debt		—			(4,654	)		(9,452	)
Redemption of convertible preferred stock and common stock warrant		—			—			(81,000	)
Net Cash From (Used in) Financing Activities		(18,916	)		(7,541	)		9,265
Net Increase (Decrease) in Cash and Cash Equivalents		5,626			(6,480	)		7,866
Cash and Cash Equivalents at Beginning of Year		5,174			11,654			3,788
Cash and Cash Equivalents at End of Year	$	10,800		$	5,174		$	11,654

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BRANCH SALE

12 Months Ended

Dec. 31, 2015

BRANCH SALE [Abstract]

BRANCH SALE

NOTE 26 – BRANCH SALE

On April 29, 2015 we entered into a Purchase and Assumption Agreement (“PAA”) with Isabella Bank (based in Mt. Pleasant, Michigan). Pursuant to the PAA, on August 28, 2015, we sold the fixed assets, real property and certain other assets of our bank branch located in Midland, Michigan (the “Midland Branch”) to Isabella Bank. The deposit liabilities of the Midland Branch were assumed by Isabella Bank which totaled $8.7 million on the date of sale. Under the terms of the PAA, Isabella Bank paid a premium of $0.6 million (which was equal to 6.0% of the average deposit liabilities of $9.7 million based on the 20-day average ending two business days prior to the closing date of August 28, 2015) and $0.85 million for the real property and fixed assets (including the ATM). The real property and the fixed assets had a net book value of approximately $0.2 million as of August 28, 2015. We recorded a net gain of $1.2 million in the third quarter of 2015 on the sale of the Midland Branch.

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ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2015

ACCOUNTING POLICIES [Abstract]

PRINCIPLES OF CONSOLIDATION

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

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 — 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

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

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, net 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 $4.1 million, $4.2 million and $4.3 million for the years ended December 31, 2015, 2014 and 2013, respectively. Late fees and ancillary fees related to loan servicing are not material.

TRANSFERS OF FINANCIAL ASSETS

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 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, 2015 and 2014. 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 (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.

FEDERAL HOME LOAN BANK ("FHLB") STOCK

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 in interest income-other investments on the Consolidated Statements of Operations.

FEDERAL RESERVE BANK ("FRB") STOCK

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 in interest income-other investments on the Consolidated Statements of Operations.

LOAN REVENUE RECOGNITION

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.

PAYMENT PLAN RECEIVABLE REVENUE RECOGNITION

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

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, (iv) home equity – 2nd lien and beginning in 2015 (v) purchased loans. 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. A loan can be removed from TDR status if it is subsequently restructured and the borrower is no longer experiencing financial difficulties and the newly restructured agreement does not contain any concessions to the borrower. The new agreement must specify market terms, including a contractual interest rate not less than a market interest rate for new debt with similar credit risk characteristics, and other terms no less favorable to us than those we would offer for similar new debt.

PROPERTY AND EQUIPMENT

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

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 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 other real estate 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 — 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

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

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.

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 — 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

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

DERIVATIVE FINANCIAL INSTRUMENTS — We 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.

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 (loss) 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, 2015 or 2014. 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 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, (ii) certain pay-fixed and pay-variable interest rate swap agreements related to commercial loan customers and (iii) certain purchased and written options related to a time deposit product. 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. Fair values of the purchased and written options are based on prices of financial instruments with similar characteristics 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 and options). 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 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 — 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

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

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

COMMON STOCK — At December 31, 2015, 0.1 million shares of common stock were reserved for issuance under the dividend reinvestment plan and 0.5 million shares of common stock were reserved for issuance under our long-term incentive plans.

RECLASSIFICATION

RECLASSIFICATION — Certain amounts in the 2014 and 2013 consolidated financial statements have been reclassified to conform to the 2015 presentation.

ADOPTION OF NEW ACCOUNTING STANDARDS

ADOPTION OF NEW ACCOUNTING STANDARDS — In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 amended guidance became effective for us on January 1, 2015, and did not 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, 2018, 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.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities”. This ASU amends existing guidance related to the accounting for certain financial assets and liabilities. These amendments, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amended guidance is effective for us on January 1, 2018, and is not expected to have a material impact on our consolidated operating results or financial condition.

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SECURITIES (Tables)

12 Months Ended

Dec. 31, 2015

SECURITIES [Abstract]

Securities available for sale

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

	Amortized Cost		Unrealized				Fair Value
			Gains		Losses
	(In thousands)
2015
U.S. agency	$	47,283	$	309	$	80	$	47,512
U.S. agency residential mortgage-backed		195,055		1,584		583		196,056
U.S. agency commercial mortgage-backed		34,017		94		83		34,028
Private label residential mortgage-backed		5,061		161		319		4,903
Other asset backed		117,431		54		581		116,904
Obligations of states and political subdivisions		145,193		941		1,150		144,984
Corporate		38,895		9		290		38,614
Trust preferred		2,916		—		433		2,483
Total	$	585,851	$	3,152	$	3,519	$	585,484
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

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
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
2015
U.S. agency	$	12,164	$	47	$	6,746	$	33	$	18,910	$	80
U.S. agency residential mortgage-backed		57,538		316		23,340		267		80,878		583
U.S. agency commercial mortgage-backed		16,747		60		2,247		23		18,994		83
Private label residential mortgage-backed		—		—		3,393		319		3,393		319
Other asset backed		102,660		434		5,189		147		107,849		581
Obligations of states and political subdivisions		52,493		597		12,240		553		64,733		1,150
Corporate		30,550		290		—		—		30,550		290
Trust preferred		—		—		2,483		433		2,483		433
Total	$	272,152	$	1,744	$	55,638	$	1,775	$	327,790	$	3,519

	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

Trust preferred securities

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

	2015					2014
	Fair Value		Net Unrealized Loss			Fair Value		Net Unrealized Loss
	(In thousands)
Trust preferred securities
Rated issues	$	1,690	$	(226	)	$	1,643	$	(267	)
Unrated issues		793		(207	)		798		(202	)

Private label residential mortgage backed securities below investment grade

At December 31, 2015, 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, 2015
Fair value	$	1,616	$	1,331	$	79	$	3,026
Amortized cost		1,635		1,249		—		2,884
Non-credit unrealized loss		19		—		—		19
Unrealized gain		—		82		79		161
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,
2015	$	—	$	—	$	—	$	—
2014		9		—		—		9
2013		26		—		—		26

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:

	2015		2014		2013
	(In thousands)
Balance at beginning of year	$	1,844	$	1,835	$	1,809
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
Total	$	1,844	$	1,844	$	1,835

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, 2015, by contractual maturity, follow:

	Amortized Cost		Fair Value
	(In thousands)
Maturing within one year	$	34,565	$	34,591
Maturing after one year but within five years		69,976		69,916
Maturing after five years but within ten years		46,512		46,641
Maturing after ten years		83,234		82,445
		234,287		233,593
U.S. agency residential mortgage-backed		195,055		196,056
U.S. agency commercial mortgage-backed		34,017		34,028
Private label residential mortgage-backed		5,061		4,903
Other asset backed		117,431		116,904
Total	$	585,851	$	585,484

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:

	Proceeds		Realized Gains (1)		Losses (2)
	(In thousands)
2015	$	12,037	$	75	$	—
2014		14,633		329		—
2013		2,940		15		8

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

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

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LOANS AND PAYMENT PLAN RECEIVABLES (Tables)

12 Months Ended

Dec. 31, 2015

LOANS AND PAYMENT PLAN RECEIVABLES [Abstract]

Loan portfolios

Our loan portfolios at December 31 follow:

	2015		2014
	(In thousands)
Real estate (1)
Residential first mortgages	$	432,215	$	411,423
Residential home equity and other junior mortgages		106,297		108,162
Construction and land development		62,629		54,644
Other (2)		498,706		447,837
Consumer		193,350		154,591
Commercial		180,424		186,875
Payment plan receivables		34,599		40,001
Agricultural		6,830		6,429
Total loans	$	1,515,050	$	1,409,962

(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:

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
2015
Balance at beginning of period	$	5,445		$	13,444		$	1,814		$	64		$	5,223		$	25,990
Additions (deductions)
Provision for loan losses		(737	)		(1,744	)		(274	)		(8	)		49			(2,714	)
Recoveries credited to allowance		2,656			1,258			1,108			—			—			5,022
Loans charged against the allowance		(1,694	)		(2,567	)		(1,467	)		—			—			(5,728	)
Balance at end of period	$	5,670		$	10,391		$	1,181		$	56		$	5,272		$	22,570
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

	Commercial			Mortgage			Installment			Payment Plan Receivables			Subjective Allocation			Total
	(In thousands)
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

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:

	Commercial		Mortgage		Installment		Payment Plan Receivables		Subjective Allocation		Total
	(In thousands)
2015
Allowance for loan losses:
Individually evaluated for impairment	$	2,708	$	7,818	$	457	$	—	$	—	$	10,983
Collectively evaluated for impairment		2,962		2,573		724		56		5,272		11,587
Total ending allowance balance	$	5,670	$	10,391	$	1,181	$	56	$	5,272	$	22,570
Loans
Individually evaluated for impairment	$	16,868	$	66,375	$	5,888	$	—			$	89,131
Collectively evaluated for impairment		733,399		436,349		226,409		34,599				1,430,756
Total loans recorded investment		750,267		502,724		232,297		34,599				1,519,887
Accrued interest included in recorded investment		1,869		2,270		698		—				4,837
Total loans	$	748,398	$	500,454	$	231,599	$	34,599			$	1,515,050
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

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 Still Accruing		Non- Accrual		Total Non- Performing Loans
	(In thousands)
2015
Commercial
Income producing - real estate	$	—	$	1,027	$	1,027
Land, land development and construction - real estate		49		401		450
Commercial and industrial		69		2,028		2,097
Mortgage
1-4 family		—		4,744		4,744
Resort lending		—		1,094		1,094
Home equity - 1st lien		—		187		187
Home equity - 2nd lien		—		147		147
Purchased loans		—		2		2
Installment
Home equity - 1st lien		—		106		106
Home equity - 2nd lien		—		443		443
Loans not secured by real estate		—		421		421
Other		—		2		2
Payment plan receivables
Full refund		—		2		2
Partial refund		—		2		2
Other		—		1		1
Total recorded investment	$	118	$	10,607	$	10,725
Accrued interest included in recorded investment	$	2	$	—	$	2
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	$	—	$	—	$	—

Aging analysis of loans by class

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)
2015
Commercial
Income producing - real estate	$	203	$	209	$	647	$	1,059	$	305,155	$	306,214
Land, land development and construction - real estate		—		—		252		252		44,231		44,483
Commercial and industrial		785		16		151		952		398,618		399,570
Mortgage
1-4 family		1,943		640		4,744		7,327		272,298		279,625
Resort lending		307		—		1,094		1,401		114,619		116,020
Home equity - 1st lien		50		—		187		237		22,327		22,564
Home equity - 2nd lien		439		54		147		640		50,618		51,258
Purchased loans		9		1		2		12		33,245		33,257
Installment
Home equity - 1st lien		315		107		106		528		16,707		17,235
Home equity - 2nd lien		231		149		443		823		19,727		20,550
Loans not secured by real estate		567		83		421		1,071		191,262		192,333
Other		15		3		2		20		2,159		2,179
Payment plan receivables
Full refund		492		62		2		556		21,294		21,850
Partial refund		415		228		2		645		5,834		6,479
Other		110		3		1		114		6,156		6,270
Total recorded investment	$	5,881	$	1,555	$	8,201	$	15,637	$	1,504,250	$	1,519,887
Accrued interest included in recorded investment	$	53	$	17	$	2	$	72	$	4,765	$	4,837
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

Impaired loans

Impaired loans are as follows:

	December 31,
	2015		2014
	(In thousands)
Impaired loans with no allocated allowance
TDR	$	2,518	$	9,325
Non - TDR		203		299
Impaired loans with an allocated allowance
TDR - allowance based on collateral		4,810		5,879
TDR - allowance based on present value cash flow		81,002		94,970
Non - TDR - allowance based on collateral		260		2,296
Non - TDR - allowance based on present value cash flow		—		—
Total impaired loans	$	88,793	$	112,769
Amount of allowance for loan losses allocated
TDR - allowance based on collateral	$	2,436	$	2,025
TDR - allowance based on present value cash flow		8,471		10,188
Non - TDR - allowance based on collateral		76		1,020
Non - TDR - allowance based on present value cash flow		—		—
Total amount of allowance for loan losses allocated	$	10,983	$	13,233

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

	2015						2014
	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	$	641	$	851	$	—	$	5,868	$	6,077	$	—
Land, land development & construction-real estate		818		1,393		—		1,051		1,606		—
Commercial and industrial		1,245		1,241		—		2,685		2,667		—
Mortgage
1-4 family		23		183		—		—		49		—
Resort lending		—		—		—		48		397		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		76		—		—		40		—
Home equity - 2nd lien		—		—		—		—		—		—
Loans not secured by real estate		—		—		—		—		—		—
Other		—		—		—		—		—		—
		2,727		3,744		—		9,652		10,836		—
With an allowance recorded:
Commercial
Income producing - real estate		8,377		9,232		516		12,836		13,797		689
Land, land development & construction-real estate		1,690		1,778		296		3,456		3,528		499
Commercial and industrial		4,097		4,439		1,896		8,251		8,486		2,006
Mortgage
1-4 family		47,792		49,808		5,132		53,206		56,063		6,195
Resort lending		18,148		18,319		2,662		18,799		18,963		3,075
Home equity - 1st lien		168		172		9		162		177		14
Home equity - 2nd lien		244		325		15		125		205		27
Installment
Home equity - 1st lien		2,364		2,492		143		2,744		2,930		219
Home equity - 2nd lien		2,929		2,951		271		3,212		3,215		419
Loans not secured by real estate		587		658		42		711		835		89
Other		8		8		1		12		12		1
		86,404		90,182		10,983		103,514		108,211		13,233
Total
Commercial
Income producing - real estate		9,018		10,083		516		18,704		19,874		689
Land, land development & construction-real estate		2,508		3,171		296		4,507		5,134		499
Commercial and industrial		5,342		5,680		1,896		10,936		11,153		2,006
Mortgage
1-4 family		47,815		49,991		5,132		53,206		56,112		6,195
Resort lending		18,148		18,319		2,662		18,847		19,360		3,075
Home equity - 1st lien		168		172		9		162		177		14
Home equity - 2nd lien		244		325		15		125		205		27
Installment
Home equity - 1st lien		2,364		2,568		143		2,744		2,970		219
Home equity - 2nd lien		2,929		2,951		271		3,212		3,215		419
Loans not secured by real estate		587		658		42		711		835		89
Other		8		8		1		12		12		1
Total	$	89,131	$	93,926	$	10,983	$	113,166	$	119,047	$	13,233
Accrued interest included in recorded investment	$	338					$	397

(1) There were no impaired payment plan receivables or purchased mortgage loans at December 31, 2015 or 2014.

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):

	2015				2014				2013
	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	$	4,520	$	387	$	7,660	$	250	$	5,765	$	340
Land, land development & construction-real estate		952		79		1,145		64		3,092		240
Commercial and industrial		2,125		257		3,351		152		3,980		226
Mortgage
1-4 family		19		11		29		—		5		11
Resort lending		12		—		40		1		28		—
Home equity - 1st lien		—		—		—		—		—		—
Home equity - 2nd lien		—		—		—		—		—		—
Installment
Home equity - 1st lien		—		5		—		2		1,604		83
Home equity - 2nd lien		—		—		—		—		1,841		96
Loans not secured by real estate		—		—		—		—		470		23
Other		—		—		—		—		15		1
		7,628		739		12,225		469		16,800		1,020
With an allowance recorded:
Commercial
Income producing - real estate		12,677		439		12,772		677		18,164		587
Land, land development & construction-real estate		2,219		54		3,939		149		6,186		149
Commercial and industrial		6,663		104		8,500		294		11,795		457
Mortgage
1-4 family		50,421		2,140		55,877		2,286		60,858		2,622
Resort lending		18,448		670		19,458		753		21,708		836
Home equity - 1st lien		161		8		160		6		136		4
Home equity - 2nd lien		172		13		57		2		42		2
Installment
Home equity - 1st lien		2,539		176		2,837		174		1,448		85
Home equity - 2nd lien		3,055		193		3,359		188		1,546		86
Loans not secured by real estate		653		37		719		35		314		17
Other		10		1		14		1		3		1
		97,018		3,835		107,692		4,565		122,200		4,846
Total
Commercial
Income producing - real estate		17,197		826		20,432		927		23,929		927
Land, land development & construction-real estate		3,171		133		5,084		213		9,278		389
Commercial and industrial		8,788		361		11,851		446		15,775		683
Mortgage
1-4 family		50,440		2,151		55,906		2,286		60,863		2,633
Resort lending		18,460		670		19,498		754		21,736		836
Home equity - 1st lien		161		8		160		6		136		4
Home equity - 2nd lien		172		13		57		2		42		2
Installment
Home equity - 1st lien		2,539		181		2,837		176		3,052		168
Home equity - 2nd lien		3,055		193		3,359		188		3,387		182
Loans not secured by real estate		653		37		719		35		784		40
Other		10		1		14		1		18		2
Total	$	104,646	$	4,574	$	119,917	$	5,034	$	139,000	$	5,866

(1) There were no impaired payment plan receivables or purchased mortgage loans during the years ending December 31, 2015, 2014 and 2013.

Troubled debt restructurings

Troubled debt restructurings at December 31 follow:

	2015
	Commercial		Retail			Total
	(In thousands)
Performing TDR’s	$	13,318	$	68,194		$	81,512
Non-performing TDR’s (1)		3,041		3,777	(2)		6,818
Total	$	16,359	$	71,971		$	88,330

	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

(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 years ended December 31 follow:

	Number of Contracts		Pre-modification Recorded Balance		Post-modification Recorded Balance
	(Dollars in thousands)
2015
Commercial
Income producing - real estate		2	$	229	$	227
Land, land development & construction-real estate		—		—		—
Commercial and industrial		17		3,188		2,960
Mortgage
1-4 family		8		1,345		1,128
Resort lending		1		313		307
Home equity - 1st lien		1		20		20
Home equity - 2nd lien		1		27		27
Purchased loans		—		—		—
Installment
Home equity - 1st lien		6		220		186
Home equity - 2nd lien		8		228		217
Loans not secured by real estate		2		19		25
Other		—		—		—
Total		46	$	5,589	$	5,097
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

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 Contracts		Recorded Balance
	(Dollars in thousands)
2015
Commercial
Income producing - real estate		—	$	—
Land, land development & construction-real estate		—		—
Commercial and industrial		2		157
Mortgage
1-4 family		2		73
Resort lending		—		—
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Purchased loans		—		—
Installment
Home equity - 1st lien		—		—
Home equity - 2nd lien		—		—
Loans not secured by real estate		1		4
Other		—		—
Total		5	$	234
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

	Number of Contracts		Recorded Balance
	(Dollars in thousands)
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

Summary of loan ratings by loan class

The following table summarizes loan ratings by loan class for our commercial loan segment at December 31:

	Commercial
	Non-watch 1-6		Watch 7-8		Substandard Accrual 9		Non- Accrual 10-11		Total
	(In thousands)
2015
Income producing - real estate	$	296,898	$	6,866	$	1,423	$	1,027	$	306,214
Land, land development and construction - real estate		40,844		2,995		243		401		44,483
Commercial and industrial		371,357		19,502		6,683		2,028		399,570
Total	$	709,099	$	29,363	$	8,349	$	3,456	$	750,267
Accrued interest included in total	$	1,729	$	108	$	32	$	—	$	1,869
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

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		Purchased Loans		Total
	(In thousands)
2015
800 and above	$	28,760	$	13,943	$	4,374	$	7,696	$	2,310	$	57,083
750-799		78,802		40,888		7,137		17,405		23,283		167,515
700-749		56,519		31,980		4,341		11,022		6,940		110,802
650-699		51,813		17,433		3,203		7,691		—		80,140
600-649		27,966		4,991		1,467		3,684		—		38,108
550-599		16,714		3,070		1,027		1,918		—		22,729
500-549		10,610		1,051		572		1,295		—		13,528
Under 500		4,708		554		244		265		—		5,771
Unknown		3,733		2,110		199		282		724		7,048
Total	$	279,625	$	116,020	$	22,564	$	51,258	$	33,257	$	502,724
Accrued interest included in total	$	1,396	$	477	$	87	$	196	$	114	$	2,270

	Mortgage (1)
	1-4 Family		Resort Lending		Home Equity 1st Lien		Home Equity 2nd Lien		Purchased Loans		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

(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)
2015
800 and above	$	1,792	$	1,782	$	44,254	$	58	$	47,886
750-799		4,117		5,931		86,800		531		97,379
700-749		2,507		3,899		34,789		694		41,889
650-699		3,508		4,182		16,456		499		24,645
600-649		2,173		2,153		4,979		200		9,505
550-599		1,800		1,346		1,997		109		5,252
500-549		1,056		855		1,170		61		3,142
Under 500		223		370		385		23		1,001
Unknown		59		32		1,503		4		1,598
Total	$	17,235	$	20,550	$	192,333	$	2,179	$	232,297
Accrued interest included in total	$	78	$	83	$	520	$	17	$	698
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

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

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)
2015
AM Best rating
A+	$	—	$	6	$	—	$	6
A		2,712		5,203		—		7,915
A-		3,418		1,177		6,265		10,860
Not rated		15,720		93		5		15,818
Total	$	21,850	$	6,479	$	6,270	$	34,599
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

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:

	2015		2014
	(In thousands)
Mortgage loans serviced for:
Fannie Mae	$	898,443	$	913,863
Freddie Mac		707,891		748,833
Ginnie Mae		37,884		—
Other		107		104
Total	$	1,644,325	$	1,662,800

Schedule of capitalized mortgage loan servicing rights

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

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	12,106		$	13,710		$	11,013
Originated servicing rights capitalized		2,697			1,823			3,210
Amortization		(2,868	)		(2,509	)		(3,745	)
Change in valuation allowance		501			(918	)		3,232
Balance at end of year	$	12,436		$	12,106		$	13,710
Valuation allowance	$	3,272		$	3,773		$	2,855
Loans sold and serviced that have had servicing rights capitalized	$	1,643,086		$	1,661,269		$	1,732,476

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OTHER REAL ESTATE OWNED (Tables)

12 Months Ended

Dec. 31, 2015

OTHER REAL ESTATE OWNED [Abstract]

Summary of other real estate owned activity

A summary of other real estate owned activity for the years ended December 31 follows (1):

	2015			2014			2013
	(In thousands)
Balance at beginning of year, net of valuation allowance	$	6,370		$	18,088		$	25,748
Loans transferred to other real estate owned		6,694			6,143			6,932
Sales of other real estate owned		(5,502	)		(17,198	)		(11,994	)
Additions to valuation allowance charged to expense		(492	)		(663	)		(2,598	)
Balance at end of year, net of valuation allowance	$	7,070		$	6,370		$	18,088

(1) Table excludes other repossessed assets totaling $0.08 million at both December 31, 2015 and 2014, respectively.

Valuation allowance for other real estate owned

An analysis of our valuation allowance for other real estate owned follows:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	2,511		$	4,047		$	5,958
Additions charged to expense		492			663			2,598
Direct write-downs upon sale		(1,311	)		(2,199	)		(4,509	)
Balance at end of year	$	1,692		$	2,511		$	4,047

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PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2015

PROPERTY AND EQUIPMENT [Abstract]

Summary of property and equipment

A summary of property and equipment at December 31 follows:

	2015			2014
	(In thousands)
Land	$	15,152		$	14,904
Buildings		57,638			59,486
Equipment		79,842			79,809
		152,632			154,199
Accumulated depreciation and amortization		(109,529	)		(108,251	)
Property and equipment, net	$	43,103		$	45,948

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INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2015

INTANGIBLE ASSETS [Abstract]

Other intangible assets, net of amortization

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

	2015				2014
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(In thousands)
Amortized intangible assets - core deposits	$	6,118	$	3,838	$	6,118	$	3,491

Estimated amortization of other intangible assets

A summary of estimated core deposit intangible amortization at December 31, 2015, follows:

	(In thousands)
2016	$	347
2017		346
2018		346
2019		346
2020		346
2021 and thereafter		549
Total	$	2,280

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DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2015

DEPOSITS [Abstract]

Summary of interest expense on deposits

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

	2015		2014		2013
	(In thousands)
Savings and interest bearing checking	$	1,056	$	1,064	$	1,131
Time deposits under $100,000		1,586		2,467		2,995
Time deposits of $100,000 or more		1,367		1,436		1,580
Total	$	4,009	$	4,967	$	5,706

Summary of maturity of time deposits

A summary of the maturity of time deposits at December 31, 2015, follows:

	(In thousands)
2016	$	302,136
2017		66,288
2018		27,367
2019		15,432
2020		11,763
2021 and thereafter		3,234
Total	$	426,220

Summary of reciprocal deposits

A summary of reciprocal deposits at December 31 follows:

	2015		2014
	(In thousands)
Demand	$	3,436	$	5,867
Money market		8,340		7,692
Time		38,431		40,109
Total	$	50,207	$	53,668

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OTHER BORROWINGS (Tables)

12 Months Ended

Dec. 31, 2015

OTHER BORROWINGS [Abstract]

Summary of other borrowings

A summary of other borrowings at December 31 follows:

	2015		2014
	(In thousands)
Advances from the FHLB	$	11,949	$	12,464
Other		5		6
Total	$	11,954	$	12,470

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:

	2015					2014
	Amount		Rate			Amount		Rate
	(Dollars in thousands)
Fixed-rate advances
2016	$	2,089		6.55	%	$	2,205		6.55	%
2017		1,258		7.04			1,320		7.04
2018		5,437		5.99			5,671		5.99
2019		—					—
2020		3,165		7.49			3,268		7.49
Total advances	$	11,949		6.59	%	$	12,464		6.59	%

Schedule of repayments of federal home loan bank advances

A summary of contractually required repayments of FHLB Advances at December 31, 2015, follows:

	(In thousands)
2016	$	2,521
2017		1,587
2018		5,042
2019		143
2020		2,656
Total	$	11,949

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SUBORDINATED DEBENTURES (Tables)

12 Months Ended

Dec. 31, 2015

SUBORDINATED DEBENTURES [Abstract]

Schedule of information regarding subordinated debentures

Summary information regarding subordinated debentures as of December 31 follows:

		2015 and 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

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, 2015 and 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

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COMMITMENTS AND CONTINGENT LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2015

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:

	2015		2014
	(In thousands)
Financial instruments whose risk is represented by contract amounts
Commitments to extend credit	$	243,458	$	204,827
Standby letters of credit		3,582		2,757

Analysis of vehicle service contract counterparty receivable

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

	2015			2014			2013
	(In thousands)
Balance at beginning of year, net of reserve	$	7,237		$	7,716		$	18,449
Transfers in from payment plan receivables		1,203			180			792
Reserves established and charge-offs recorded to expense		(119	)		(199	)		(4,837	)
Transferred to (from) contingency reserves		—			(75	)		63
Cash received		(1,092	)		(385	)		(6,751	)
Balance at end of year, net of reserve	$	7,229		$	7,237		$	7,716
Reserve at end of year	$	56		$	1,370		$	1,300

Analysis of vehicle service contract counterparty reserve

An analysis of our vehicle service contract counterparty reserve follows:

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	1,370		$	1,375		$	2,012
Additions charged to expense		119			199			4,837
Charge-offs, net		(1,433	)		(204	)		(5,474	)
Balance at end of year	$	56		$	1,370		$	1,375
Reserves recorded in VSC counterparty receivables, net	$	56		$	1,370		$	1,300
Reserves recorded in accrued expenses and other liabilities		—			—			75
Total at end of year	$	56		$	1,370		$	1,375

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SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE (Tables)

12 Months Ended

Dec. 31, 2015

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:

	2015		2014		2013
	(In thousands, except per share amounts)
Net income applicable to common stock	$	20,017	$	18,021	$	82,062
Convertible preferred stock dividends		—		—		3,001
Preferred stock discount		—		—		(7,554	)
Net income applicable to common stock for calculation of diluted earnings per share	$	20,017	$	18,021	$	77,509
Weighted average shares outstanding (1)		22,716		22,927		13,970
Restricted stock units		233		306		363
Effect of stock options		119		124		92
Stock units for deferred compensation plan for non-employee directors		112		114		125
Effect of convertible preferred stock		—		—		7,314
Weighted average shares outstanding for calculation of diluted earnings per share		23,180		23,471		21,864
Net income per common share
Basic (1)	$	0.88	$	0.79	$	5.87
Diluted	$	0.86	$	0.77	$	3.55

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

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INCOME TAX (Tables)

12 Months Ended

Dec. 31, 2015

INCOME TAX [Abstract]

Composition of income tax expense (benefit)

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

	2015		2014			2013
	(In thousands)
Current	$	200	$	(359	)	$	(277	)
Deferred		9,128		7,672			—
Disproportionate tax effect		—		—			1,444
Valuation allowance - change in estimate		35		(118	)		(56,018	)
Income tax expense (benefit)	$	9,363	$	7,195		$	(54,851	)

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

A reconciliation of income tax expense (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:

	2015			2014			2013
	(In thousands)
Statutory rate applied to income before income tax	$	10,283		$	8,826		$	7,930
Bank owned life insurance		(449	)		(480	)		(477	)
Tax-exempt income		(434	)		(522	)		(402	)
Unrecognized tax benefit		(135	)		(595	)		(186	)
Non-deductible meals, entertainment and memberships		43			53			55
Net change in valuation allowance		35			(118	)		(63,980	)
Disproportionate tax effect		—			—			1,444
U.S. Treasury warrant		—			—			359
Share-based compensation		—			—			8
Other, net		20			31			398
Income tax expense (benefit)	$	9,363		$	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:

	2015			2014
	(In thousands)
Deferred tax assets
Loss carryforwards	$	25,516		$	32,933
Allowance for loan losses		7,901			9,099
Alternative minimum tax credit carry forward		3,427			3,037
Property and equipment		3,369			3,239
Purchase premiums, net		1,755			2,050
Share based payments		786			684
Valuation allowance on other real estate		592			879
Unrealized loss on trading securities		578			559
Deferred compensation		404			448
Other than temporary impairment charge on securities available for sale		382			436
Non accrual loan interest income		232			244
Reserve for unfunded lending commitments		228			189
Loss reimbursement on sold loans reserve		186			242
Unrealized loss on securities available for sale		128			—
Vehicle service contract counterparty contingency reserve		21			521
Gross deferred tax assets		45,505			54,560
Valuation allowance		(1,054	)		(1,019	)
Total net deferred tax assets		44,451			53,541

Deferred tax liabilities
Capitalized mortgage loan servicing rights		4,353		4,237
Deferred loan fees		256		260
Federal Home Loan Bank stock		45		196
Unrealized gain on securities available for sale		—		87
Other		162		129
Gross deferred tax liabilities		4,816		4,909
Net deferred tax assets	$	39,635	$	48,632

Schedule of federal net operating loss forwards

At December 31, 2015, we had federal net operating loss (“NOL”) carryforwards of approximately $73.4 million which, if not used against taxable income, will expire as follows:

	(In thousands)
2030	$	18,496
2031		17,170
2032		37,739
Total	$	73,405

Schedule of changes in unrecognized tax benefits

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

	2015			2014			2013
	(In thousands)
Balance at beginning of year	$	1,091		$	1,672		$	1,871
Additions based on tax positions related to the current year		20			18			11
Reductions due to the statute of limitations		(135	)		(595	)		(186	)
Reductions due to settlements		—			(4	)		(24	)
Balance at end of year	$	976		$	1,091		$	1,672

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SHARE BASED COMPENSATION AND BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2015

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:

	Number of Shares			Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregated Intrinsic Value
								(In thousands)
Outstanding at January 1, 2015		281,820		$	4.69
Granted		—
Exercised		(42,204	)		3.25
Forfeited		(2,096	)		4.77
Expired		(1,924	)		6.79
Outstanding at December 31, 2015		235,596		$	4.94		6.12	$	2,443
Vested and expected to vest at December 31, 2015		234,949		$	4.93		6.11	$	2,437
Exercisable at December 31, 2015		213,154		$	4.78		5.98	$	2,245

Summary of non-vested restricted stock and stock units and transactions

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

	Number of Shares			Weighted- Average Grant Date Fair Value
Outstanding at January 1, 2015		407,130		$	6.31
Granted		108,761			13.07
Vested		(249,526	)		3.92
Forfeited		(4,384	)		12.88
Outstanding at December 31, 2015		261,981		$	11.29

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 2015 and 2014):

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

Information regarding options exercised

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

	2015		2014		2013
	(In thousands)
Intrinsic value	$	444	$	321	$	117
Cash proceeds received	$	137	$	96	$	39
Tax benefit realized	$	155	$	112	$	—

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OTHER NON-INTEREST INCOME (Tables)

12 Months Ended

Dec. 31, 2015

OTHER NON-INTEREST INCOME [Abstract]

Schedule of other non-interest income

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

	2015		2014		2013
	(In thousands)
Investment and insurance commissions	$	1,827	$	1,814	$	1,709
ATM fees		1,551		1,599		1,661
Bank owned life insurance		1,282		1,371		1,363
Other real estate rental income		128		1,295		1,471
Other		2,904		2,852		2,333
Total other non-interest income	$	7,692	$	8,931	$	8,537

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2015

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:

	2015
	Notional Amount		Average Maturity (years)		Fair Value
	(Dollars in thousands)
No hedge designation
Rate-lock mortgage loan commitments	$	20,581		0.1	$	550
Mandatory commitments to sell mortgage loans		46,320		0.1		69
Pay-fixed interest rate swap agreements		27,587		8.0		(497	)
Pay-variable interest rate swap agreements		27,587		8.0		497
Purchased options		2,098		5.7		122
Written options		2,098		5.7		(122	)
Total	$	126,271		3.7	$	619

	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

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,
	2015			2014			2015			2014
	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	$	550	Other assets	$	437	Other liabilities	$	—	Other liabilities	$	—
Mandatory commitments to sell mortgage loans	Other assets		69	Other assets		—	Other liabilities		—	Other liabilities		184
Pay-fixed interest rate swap agreements	Other assets		—	Other assets		—	Other liabilities		497	Other liabilities		182
Pay-variable interest rate swap agreements	Other assets		497	Other assets		182	Other liabilities		—	Other liabilities		—
Purchased options	Other assets		122	Other assets		—	Other liabilities		—	Other liabilities		—
Written options	Other assets		—	Other assets		—	Other liabilities		122	Other liabilities		—
Total derivatives		$	1,238		$	619		$	619		$	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,
	Loss Recognized in Other Comprehensive Income (Loss) (Effective Portion)							Location of Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)								Location of Gain (Loss) Recognized in Income (1)	Gain (Loss) Recognized in Income (1)
	2015		2014		2013				2015		2014			2013				2015			2014			2013
	(In thousands)
Cash Flow Hedges
Pay-fixed interest rate swap agreements	$	—	$	—	$	(37	)	Interest    expense	$	—	$	(380	)	$	(397	)	Interest    expense	$	—		$	—		$	—
Total	$	—	$	—	$	(37	)		$	—	$	(380	)	$	(397	)		$	—		$	—		$	—
No hedge designation
Rate-lock mortgage loan commitments																	Net gains on    mortgage    loans	$	113		$	71		$	(1,002	)
Mandatory commitments to sell mortgage loans																	Net gains    on mortgage    loans		253			(312	)		250
Pay-fixed interest rate swap agreements																	Interest    income		(315	)		(182	)		—
Pay-variable interest rate swap agreements																	Interest    income		315			182			—
Purchased options																	Interest    expense		122			—			—
Written options																	Interest    expense		(122	)		—			—
UST short position																	Gain on    securities		—			295			—
Amended Warrant																	Increase in    fair value of    U.S. Treasury    warrant		—			—			(1,025	)
Total																		$	366		$	54		$	(1,777	)

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

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2015

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:

	2015			2014
	(In thousands)
Balance at beginning of year	$	216		$	351
New loans and advances		—			—
Repayments		(26	)		(135	)
Balance at end of year	$	190		$	216

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LEASES (Tables)

12 Months Ended

Dec. 31, 2015

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, 2015, follows:

	(In thousands)
2016	$	1,054
2017		862
2018		809
2019		720
2020		666
2021 and thereafter		253
Total	$	4,364

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REGULATORY MATTERS (Tables)

12 Months Ended

Dec. 31, 2015

REGULATORY MATTERS [Abstract]

Actual capital amounts and ratios

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)
2015
Total capital to risk-weighted assets
Consolidated	$	278,170		16.65	%	$	133,668		8.00	%	NA		NA
Independent Bank		261,894		15.69			133,514		8.00		$	166,893		10.00	%
Tier 1 capital to risk-weighted assets
Consolidated	$	257,050		15.38	%	$	100,251		6.00	%	NA		NA
Independent Bank		240,867		14.43			100,136		6.00		$	133,514		8.00	%
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	239,271		14.32	%	$	75,188		4.50	%	NA		NA
Independent Bank		240,867		14.43			75,102		4.50		$	108,480		6.50	%
Tier 1 capital to average assets
Consolidated	$	257,050		10.91	%	$	94,217		4.00	%	NA		NA
Independent Bank		240,867		10.23			94,145		4.00		$	117,682		5.00	%
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	%

NA — Not applicable

Components of regulatory capital

The components of our regulatory capital are as follows:

	Consolidated						Independent Bank
	December 31,						December 31,
	2015			2014			2015			2014
	(In thousands)
Total shareholders’ equity	$	251,092		$	250,371		$	259,947		$	257,832
Add (deduct)
Accumulated other comprehensive loss for regulatory purposes		238			5,636			238			5,636
Intangible assets		(912	)		(2,627	)		(912	)		(2,627	)
Disallowed deferred tax assets		(11,147	)		(40,500	)		(18,406	)		(30,728	)
Disallowed capitalized mortgage loan servicing rights		—			(752	)		—			(752	)
Common equity tier 1 capital		239,271			212,128			240,867			229,361
Qualifying trust preferred securities		34,500			34,500			—			—
Disallowed deferred tax assets		(16,721	)		—			—			—
Tier 1 capital		257,050			246,628			240,867			229,361
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets		21,120			18,535			21,027			18,522
Total risk-based capital	$	278,170		$	265,163		$	261,894		$	247,883

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FAIR VALUE DISCLOSURES (Tables)

12 Months Ended

Dec. 31, 2015

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
	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, 2015:
Measured at Fair Value on a Recurring Basis:
Assets
Trading securities	$	148	$	148	$	—	$	—
Securities available for sale
U.S. agency		47,512		—		47,512		—
U.S. agency residential mortgage-backed		196,056		—		196,056		—
U.S. agency commercial mortgage-backed		34,028		—		34,028		—
Private label residential mortgage-backed		4,903		—		4,903		—
Other asset backed		116,904		—		116,904		—
Obligations of states and political subdivisions		144,984		—		144,984		—
Corporate		38,614		—		38,614		—
Trust preferred		2,483		—		2,483		—
Loans held for sale		27,866		—		27,866		—
Derivatives (1)		1,238		—		1,238		—
Liabilities
Derivatives (2)		619		—		619		—
Measured at Fair Value on a Non-recurring basis:
Assets
Capitalized mortgage loan servicing rights (3)		8,481		—		—		8,481
Impaired loans (4)
Commercial
Income producing - real estate		711		—		—		711
Land, land development & construction-real estate		40		—		—		40
Commercial and industrial		1,257		—		—		1,257
Mortgage
1-4 Family		421		—		—		421
Resort lending		129		—		—		129
Other real estate (5)
Commercial
Land, land development & construction-real estate		639		—		—		639
Commercial and industrial		165		—		—		165
Mortgage
1-4 Family		26		—		—		26
Resort lending		107		—		—		107
Home equity - 1st lien		14		—		—		14
Installment
Home equity - 1st lien		36		—		—		36

(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
	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.

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:

	Net Gains (Losses) on Assets						Total Change in Fair Values Included in Current Period Earnings
	Securities			Loans
	(In thousands)
2015
Trading securities	$	(55	)	$	—		$	(55	)
Loans held for sale		—			90			90
2014
Trading securities	$	(295	)	$	—		$	(295	)
Loans held for sale		—			258			258
2013
Trading securities	$	388		$	—		$	388
Loans held for sale		—			(1,477	)		(1,477	)

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 Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(In thousands)
2015
Capitalized mortgage loan servicing rights	$	8,481	Present value of net	Discount rate		10.04	%
			servicing revenue	Cost to service	$	80
				Ancillary income		24
				Float rate		1.73	%
Impaired loans
Commercial (1)		1,605	Sales comparison approach	Adjustment for differences between comparable sales		(2.1	)%
			Income approach	Capitalization rate		9.3
Mortgage		550	Sales comparison approach	Adjustment for differences between comparable sales		0.7
Other real estate
Commercial		804	Sales comparison approach	Adjustment for differences between comparable sales		(3.9	)
Mortgage and installment		183	Sales comparison approach	Adjustment for differences between comparable sales		75.6
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 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

(1) In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2015 and 2014, we had an impaired collateral dependent commercial relationship that totaled $0.4 million and $1.1 million, respectively that was primarily secured by collateral other than real estate. Collateral securing this relationship primarily included machinery and equipment and inventory at December 31, 2015 and 2014 and also included accounts receivable at December 31, 2014. Valuation techniques at December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type. Discount rates used ranged from 0% to 100% of stated values. Valuation techniques at December 31, 2014, 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 Fair Value		Difference		Contractual Principal
	(In thousands)
Loans held for sale
2015	$	27,866	$	714	$	27,152
2014		23,662		624		23,038
2013		20,390		366		20,024

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FAIR VALUES OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2015

FAIR VALUES OF FINANCIAL INSTRUMENTS [Abstract]

Estimated fair values and recorded book balances

The estimated recorded book balances and fair values at December 31 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 Unobservable Inputs (Level 3)
	(In thousands)
2015
Assets
Cash and due from banks	$	54,260	$	54,260	$	54,260	$	—	$	—
Interest bearing deposits		31,523		31,523		31,523		—		—
Interest bearing deposits - time		11,866		11,858		—		11,858		—
Trading securities		148		148		148		—		—
Securities available for sale		585,484		585,484		—		585,484		—
Federal Home Loan Bank and Federal
Reserve Bank Stock		15,471		NA		NA		NA		NA
Net loans and loans held for sale		1,520,346		1,472,613		—		27,866		1,444,747
Accrued interest receivable		6,565		6,565		5		1,969		4,591
Derivative financial instruments		1,238		1,238		—		1,238		—
Liabilities
Deposits with no stated maturity (1)	$	1,659,743	$	1,659,743	$	1,659,743	$	—	$	—
Deposits with stated maturity (1)		426,220		423,776		—		423,776		—
Other borrowings		11,954		13,448		—		13,448		—
Subordinated debentures		35,569		23,069		—		23,069		—
Accrued interest payable		466		466		21		445		—
Derivative financial instruments		619		619		—		619		—
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		—

(1) Deposits with no stated maturity include reciprocal deposits with a recorded book balance of $11.8 million and $13.6 million at December 31, 2015 and 2014, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $38.4 million and $40.1 million at December 31, 2015 and 2014, respectively.

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OPERATING SEGMENTS (Tables)

12 Months Ended

Dec. 31, 2015

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)
2015
Total assets	$	2,340,566		$	57,208		$	286,936		$	(275,644	)	$	2,409,066
Interest income		75,552			5,290			72			(72	)		80,842
Net interest income		71,448			4,487			(949	)		—			74,986
Provision for loan losses		(2,705	)		(9	)		—			—			(2,714	)
Income (loss) before income tax		32,136			(1,183	)		(1,478	)		(95	)		29,380
Net income (loss)		21,727			(712	)		(936	)		(62	)		20,017
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

(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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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

12 Months Ended

Dec. 31, 2015

ACCUMULATED OTHER COMPREHENSIVE LOSS [Abstract]

Schedule of Accumulated Other Comprehensive Loss (AOCL), Net of Tax

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

	Unrealized Losses on Available for Sale Securities			Disproportionate Tax Effects from Securities Available for Sale			Unrealized Losses on Cash Flow Hedges			Unrealized Losses on Settled Derivatives			Disproportionate Tax Effects from Cash Flow Hedges			Total
	(In thousands)
2015
Balances at beginning of period	$	162		$	(5,798	)	$	—		$	—		$	—		$	(5,636	)
Other comprehensive loss before reclassifications		(351	)		—			—			—			—			(351	)
Amounts reclassified from AOCL		(49	)		—			—			—			—			(49	)
Net current period other comprehensive loss		(400	)		—			—			—			—			(400	)
Balances at end of period	$	(238	)	$	(5,798	)	$	—		$	—		$	—		$	(6,036	)
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 loss 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	)

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:

AOCL Component	Reclassified From AOCL			Affected Line Item in Consolidated Statements of Operations
	(In thousands)
2015
Unrealized losses on securities available for sale
	$	75		Net gains on securities
		—		Net impairment loss recognized in earnings
		75		Total reclassifications before tax
		26		Income tax expense (benefit)
	$	49		Reclassifications, net of tax
2014
Unrealized losses on securities available for sale
	$	329		Net gains on securities
		(9	)	Net impairment loss recognized in earnings
		320		Total reclassifications before tax
		112		Income tax expense (benefit)
	$	208		Reclassifications, net of tax
Unrealized losses on settled derivatives
	$	(380	)	Interest expense
		(133	)	Income tax expense (benefit)
	$	(247	)	Reclassification, net of tax
	$	(39	)	Total reclassifications for the period, net of tax
2013
Unrealized losses on securities available for sale
	$	7		Net gains on securities
		(26	)	Net impairment loss recognized in earnings
		(19	)	Total reclassifications before tax
		(7	)	Income tax expense (benefit)
	$	(12	)	Reclassifications, net of tax
Unrealized losses on cash flow hedges
	$	(208	)	Interest expense
		(73	)	Income tax expense (benefit)
	$	(135	)	Reclassification, net of tax
Unrealized losses on settled derivatives
	$	(189	)	Interest expense
		(66	)	Income tax expense (benefit)
	$	(123	)	Reclassification, net of tax
Disproportionate tax effects from cash flow hedges
	$	1,444		Income tax expense (benefit)
	$	(1,714	)	Total reclassifications for the period, net of tax

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INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2015

INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION [Abstract]

CONDENSED STATEMENTS OF FINANCIAL CONDITION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

	December 31,
	2015		2014
	(In thousands)
ASSETS
Cash and due from banks	$	10,800	$	5,174
Interest bearing deposits - time		5,000		12,500
Investment in subsidiaries		261,016		258,901
Other assets		10,120		9,583
Total Assets	$	286,936	$	286,158
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debentures	$	35,569	$	35,569
Other liabilities		378		382
Shareholders’ equity		250,989		250,207
Total Liabilities and Shareholders’ Equity	$	286,936	$	286,158

CONDENSED STATEMENTS OF OPERATIONS

CONDENSED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
OPERATING INCOME (LOSS)
Interest income	$	72		$	64		$	—
Gain on extinguishment of debt		—			500			—
Gain on securities		—			295			—
Increase in fair value of U.S. Treasury warrant		—			—			(1,025	)
Other income		31			35			63
Total Operating Income (Loss)		103			894			(962	)
OPERATING EXPENSES
Interest expense		1,021			1,462			2,317
Administrative and other expenses		560			527			682
Total Operating Expenses		1,581			1,989			2,999
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		(1,478	)		(1,095	)		(3,961	)
Income tax benefit		(542	)		(383	)		(9,053	)
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries		(936	)		(712	)		5,092
Equity in undistributed net income of subsidiaries		20,953			18,733			72,417
Net Income	$	20,017		$	18,021		$	77,509

CONDENSED STATEMENTS OF CASH FLOWS

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2015			2014			2013
	(In thousands)
Net Income	$	20,017		$	18,021		$	77,509
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
Deferred income taxes		(542	)		(383	)		(8,955	)
Share based compensation		21			46			84
Gain on extinguishment of debt		—			(500	)		—
Gain on securities		—			(295	)		—
Decrease in other assets		5			118			738
Increase (decrease) in other liabilities		(6	)		287			(5,858	)
Equity in undistributed net income of subsidiaries operations		(20,953	)		(18,733	)		(72,417	)
Total Adjustments		(21,475	)		(19,460	)		(86,408	)
Net Cash Used in Operating Activities		(1,458	)		(1,439	)		(8,899	)
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of interest bearing deposits - time		(5,000	)		(17,500	)		—
Maturity of interest bearing deposits - time		12,500			5,000			—
Return of capital from subsidiary		18,500			15,000			7,500
Net Cash From Investing Activities		26,000			2,500			7,500
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES
Repurchase of common stock		(13,498	)		—			—
Dividends paid		(5,896	)		(4,129	)		—
Proceeds from issuance of common stock		1,569			1,242			100,230
Share based compensation withholding obligation		(1,091	)		—			(513	)
Redemption of subordinated debt		—			(4,654	)		(9,452	)
Redemption of convertible preferred stock and common stock warrant		—			—			(81,000	)
Net Cash From (Used in) Financing Activities		(18,916	)		(7,541	)		9,265
Net Increase (Decrease) in Cash and Cash Equivalents		5,626			(6,480	)		7,866
Cash and Cash Equivalents at Beginning of Year		5,174			11,654			3,788
Cash and Cash Equivalents at End of Year	$	10,800		$	5,174		$	11,654

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ACCOUNTING POLICIES (Details) shares in Millions, $ in Millions	12 Months Ended
	Dec. 31, 2015 USD ($) Employee Payments shares	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
ACCOUNTING POLICIES [Abstract]
Percentage of loan portfolio secured by real estate	72.60%
Mortgage Loan Servicing Rights [Abstract]
Mortgage loan servicing fees | $	$ 4.1	$ 4.2	$ 4.3
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 | Payments	4
Bank Owned Life Insurance [Abstract]
Number of lives of group flexible premium non-participating variable life insurance contract | Employee	270
Income Taxes [Abstract]
Percentage of largest amount of tax benefit	50.00%
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
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)	0.5

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RESTRICTIONS ON CASH AND DUE FROM BANKS (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
RESTRICTIONS ON CASH AND DUE FROM BANKS [Abstract]
Average reserve balances maintained	$ 3.2	$ 15.3
Reserve balances related to investment security transactions and merchant payment processing operations	$ 2.5	$ 2.8

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SECURITIES (Details) $ in Thousands		12 Months Ended
		Dec. 31, 2015 USD ($) Security Grade Bond	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Mar. 31, 2013 Security
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 585,851	$ 532,930
Unrealized gains		3,152	3,317
Unrealized losses		3,519	3,069
Fair value		585,484	533,178
Accumulated other comprehensive loss		0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		272,152	163,665
Less Than Twelve Months, Unrealized Losses		1,744	909
Twelve Months or More, Fair Value		55,638	69,122
Twelve Months or More, Unrealized Losses		1,775	2,160
Total, Fair value		327,790	232,787
Total, Unrealized Losses		3,519	3,069
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value		3,026
Amortized cost		2,884
Non-credit unrealized loss		19
Unrealized gain		161
Cumulative credit related OTTI		1,594
OTTI changes recorded in earnings		0	9	$ 26
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Roll Forward]
Balance at beginning of period		1,844	1,835	1,809
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		0	9	26
Balance at end of period		1,844	1,844	1,835
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis, Fiscal Year Maturity [Abstract]
Maturing within one year		34,565
Maturing after one year but within five years		69,976
Maturing after five years but within ten years		46,512
Maturing after ten years		83,234
Available-for-sale Securities, Debt Maturities, Amortized Cost Basis		234,287
U.S. agency residential mortgage-backed		195,055
U.S. agency commercial mortgage-backed		34,017
Private label residential mortgage-backed		5,061
Other asset backed		117,431
Total		585,851
Available-for-sale Securities, Debt Maturities, Fair Value, Fiscal Year Maturity [Abstract]
Maturing within one year		34,591
Maturing after one year but within five years		69,916
Maturing after five years but within ten years		46,641
Maturing after ten years		82,445
Available-for-sale Securities fair value total		233,593
U.S. agency residential mortgage backed		196,056
U.S. agency commercial mortgage-backed		34,028
Private label residential mortgage-backed		4,903
Other asset backed		116,904
Total		585,484
Gain and losses realized on sale of securities available for sale [Abstract]
Proceeds		12,037	14,633	2,940
Realized Gains	[1]	75	329	15
Realized Losses	[2]	0	0	8
Realized gain related to U.S. Treasury short position			300
Credit Related OTTI Recognized in Earnings			10	30
Trading Securities, Realized Gain (Loss)		(60)	(300)	390
Securities Disclosures [Abstract]
Pledged securities with book value		$ 1,100	1,100
Shareholder equity threshold not exceeded by revenue or taxing authority amount		10.00%
U.S. Agency [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 47,283	34,936
Unrealized gains		309	133
Unrealized losses		80	63
Fair value		47,512	35,006
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		12,164	12,851
Less Than Twelve Months, Unrealized Losses		47	58
Twelve Months or More, Fair Value		6,746	606
Twelve Months or More, Unrealized Losses		33	5
Total, Fair value		18,910	13,457
Total, Unrealized Losses		$ 80	63
Number of securities with market fair value less than amortized cost | Security		39
U.S. Agency Residential Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 195,055	256,387
Unrealized gains		1,584	1,838
Unrealized losses		583	667
Fair value		196,056	257,558
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		57,538	89,547
Less Than Twelve Months, Unrealized Losses		316	531
Twelve Months or More, Fair Value		23,340	15,793
Twelve Months or More, Unrealized Losses		267	136
Total, Fair value		80,878	105,340
Total, Unrealized Losses		$ 583	667
Number of securities with market fair value less than amortized cost | Security		108
U.S. Agency Commercial Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 34,017	33,779
Unrealized gains		94	68
Unrealized losses		83	119
Fair value		34,028	33,728
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		16,747	21,325
Less Than Twelve Months, Unrealized Losses		60	119
Twelve Months or More, Fair Value		2,247	0
Twelve Months or More, Unrealized Losses		23	0
Total, Fair value		18,994	21,325
Total, Unrealized Losses		$ 83	119
Number of securities with market fair value less than amortized cost | Security		18
Private Label Residential Mortgage-Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 5,061	6,216
Unrealized gains		161	187
Unrealized losses		319	390
Fair value		4,903	6,013
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		0	208
Less Than Twelve Months, Unrealized Losses		0	1
Twelve Months or More, Fair Value		3,393	4,013
Twelve Months or More, Unrealized Losses		319	389
Total, Fair value		3,393	4,221
Total, Unrealized Losses		$ 319	390
Number of securities with market fair value less than amortized cost | Security		5
Number of issues rated as investment grade | Grade		2
Number of securities rated below investment grade | Security		2
Number of securities that are split rated | Security		1
Number of bonds with impairment in excess of ten percent | Bond		2
Percentage of excess impairment on bonds		10.00%
Number of bonds with impairment for more than 12 months | Bond		5
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Number of private label mortgage backed securities complete recovery of cost basis | Security		4
Number of private label mortgage backed securities currently below investment grade with OTTI unrealized gains | Security		2
Number of private label mortgage backed securities currently below investment grade with OTTI unrealized loss | Security		1			3
Number of private label mortgage backed securities currently below investment grade with OTTI unrealized loss less than previous OTTI credit | Security		2
Senior Security [Member]
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value		$ 1,616
Amortized cost		1,635
Non-credit unrealized loss		19
Unrealized gain		0
Cumulative credit related OTTI		757
OTTI changes recorded in earnings		0	9	26
Super Senior Security [Member]
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value		1,331
Amortized cost		1,249
Non-credit unrealized loss		0
Unrealized gain		82
Cumulative credit related OTTI		457
OTTI changes recorded in earnings		0	0	0
Senior Support Security [Member]
Private Label Residential Mortgage Backed Securities Below Investment Grade [Abstract]
Fair value		79
Amortized cost		0
Non-credit unrealized loss		0
Unrealized gain		79
Cumulative credit related OTTI		380
OTTI changes recorded in earnings		0	0	$ 0
Other Asset Backed [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		117,431	32,314
Unrealized gains		54	77
Unrealized losses		581	38
Fair value		116,904	32,353
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		102,660	2,960
Less Than Twelve Months, Unrealized Losses		434	15
Twelve Months or More, Fair Value		5,189	8,729
Twelve Months or More, Unrealized Losses		147	23
Total, Fair value		107,849	11,689
Total, Unrealized Losses		$ 581	38
Number of securities with market fair value less than amortized cost | Security		129
Obligations of States and Political Subdivisions [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 145,193	143,698
Unrealized gains		941	961
Unrealized losses		1,150	1,244
Fair value		144,984	143,415
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		52,493	28,114
Less Than Twelve Months, Unrealized Losses		597	106
Twelve Months or More, Fair Value		12,240	37,540
Twelve Months or More, Unrealized Losses		553	1,138
Total, Fair value		64,733	65,654
Total, Unrealized Losses		$ 1,150	1,244
Number of securities with market fair value less than amortized cost | Security		79
Corporate [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 38,895	22,690
Unrealized gains		9	53
Unrealized losses		290	79
Fair value		38,614	22,664
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less Than Twelve Months, Fair Value		30,550	8,660
Less Than Twelve Months, Unrealized Losses		290	79
Twelve Months or More, Fair Value		0	0
Twelve Months or More, Unrealized Losses		0	0
Total, Fair value		30,550	8,660
Total, Unrealized Losses		$ 290	79
Number of securities with market fair value less than amortized cost | Security		27
Trust Preferred [Member]
Available-for-sale Securities, Amortized Cost Basis [Abstract]
Amortized cost		$ 2,916	2,910
Unrealized gains		0	0
Unrealized losses		433	469
Fair value		2,483	2,441
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		2,483	2,441
Twelve Months or More, Unrealized Losses		433	469
Total, Fair value		2,483	2,441
Total, Unrealized Losses		$ 433	469
Number of securities with market fair value less than amortized cost | Security		3
Number of issues rated as investment grade | Grade		1
Number of securities rated below investment grade | Security		1
Number of major credit rating agencies rating securities with fair value less than amortized cost | Grade		2
Number of securities not rated | Security		1
Non-rated securities, amortized cost		$ 1,000
Fair value of non-rated trust preferred securities		800
Rated Issues [Member]
Trust preferred securities [Abstract]
Fair Value		1,690	1,643
Net Unrealized Loss		(226)	(267)
Unrated Issues - No OTTI [Member]
Trust preferred securities [Abstract]
Fair Value		793	798
Net Unrealized Loss		$ (207)	$ (202)

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

[2] Losses in 2014 and 2013 exclude $0.01 million and $0.03 million, respectively of credit related OTTI recognized in earnings.

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LOANS AND PAYMENT PLAN RECEIVABLES (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014
Loans [Abstract]
Total Loans		$ 1,515,050	$ 1,409,962
Net of deferred loan fees		2,200	1,000
Payment plan receivables		36,900	42,600
Unamortized discount		$ 2,300	$ 2,600
Effective yields of payment plan receivables		13.00%	14.00%
Single-family Residential Loans [Member]
Loans [Abstract]
Mortgage loans purchased		$ 32,600
Mortgage loans, servicing fee percentage		0.25%
Weighted average interest rate		3.94%
Weighted average remaining contractual maturity		344 months
Real Estate [Member] | Residential First Mortgages [Member]
Loans [Abstract]
Total Loans	[1]	$ 432,215	$ 411,423
Real Estate [Member] | Residential Home Equity and Other Junior Mortgages [Member]
Loans [Abstract]
Total Loans	[1]	106,297	108,162
Real Estate [Member] | Construction and Land Development [Member]
Loans [Abstract]
Total Loans	[1]	62,629	54,644
Real Estate [Member] | Other [Member]
Loans [Abstract]
Total Loans	[1],[2]	498,706	447,837
Commercial [Member]
Loans [Abstract]
Total Loans		180,424	186,875
Consumer [Member]
Loans [Abstract]
Total Loans		193,350	154,591
Payment Plan Receivables [Member]
Loans [Abstract]
Total Loans		34,599	40,001
Agricultural [Member]
Loans [Abstract]
Total Loans		$ 6,830	$ 6,429

[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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LOANS AND PAYMENT PLAN RECEIVABLES , Allowance for Loan Losses (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		$ 25,990	$ 32,325	$ 44,275
Additions (deductions) [Abstract]
Provision for loan losses		(2,714)	(3,136)	(3,988)
Recoveries credited to allowance		5,022	7,420	8,270
Loans charged against the allowance		(5,728)	(10,619)	(16,232)
Balance at end of period		22,570	25,990	32,325
Allowance for loan losses [Abstract]
Individually evaluated for impairment		10,983	13,233
Collectively evaluated for impairment		11,587	12,757
Total ending allowance balance		22,570	25,990
Loans [Abstract]
Individually evaluated for impairment		89,131	113,166
Collectively evaluated for impairment		1,430,756	1,301,250
Total loans recorded investment		1,519,887	1,414,416
Accrued interest included in recorded investment		4,837	4,454
Total Loans		1,515,050	1,409,962
Commercial [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		5,445	6,827	11,402
Additions (deductions) [Abstract]
Provision for loan losses		(737)	(1,683)	(2,336)
Recoveries credited to allowance		2,656	4,914	5,119
Loans charged against the allowance		(1,694)	(4,613)	(7,358)
Balance at end of period		5,670	5,445	6,827
Allowance for loan losses [Abstract]
Individually evaluated for impairment		2,708	3,194
Collectively evaluated for impairment		2,962	2,251
Total ending allowance balance		5,670	5,445
Loans [Abstract]
Individually evaluated for impairment		16,868	34,147
Collectively evaluated for impairment		733,399	658,423
Total loans recorded investment		750,267	692,570
Accrued interest included in recorded investment		1,869	1,615
Total Loans		748,398	690,955
Mortgage [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		13,444	17,195	21,447
Additions (deductions) [Abstract]
Provision for loan losses		(1,744)	(1,029)	71
Recoveries credited to allowance		1,258	1,397	1,996
Loans charged against the allowance		(2,567)	(4,119)	(6,319)
Balance at end of period		10,391	13,444	17,195
Allowance for loan losses [Abstract]
Individually evaluated for impairment		7,818	9,311
Collectively evaluated for impairment		2,573	4,133
Total ending allowance balance		10,391	13,444
Loans [Abstract]
Individually evaluated for impairment		66,375	72,340
Collectively evaluated for impairment		436,349	402,458
Total loans recorded investment		502,724	474,798
Accrued interest included in recorded investment	[1]	2,270	2,170
Total Loans		500,454	472,628
Installment [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		1,814	2,246	3,378
Additions (deductions) [Abstract]
Provision for loan losses		(274)	349	314
Recoveries credited to allowance		1,108	1,104	1,074
Loans charged against the allowance		(1,467)	(1,885)	(2,520)
Balance at end of period		1,181	1,814	2,246
Allowance for loan losses [Abstract]
Individually evaluated for impairment		457	728
Collectively evaluated for impairment		724	1,086
Total ending allowance balance		1,181	1,814
Loans [Abstract]
Individually evaluated for impairment		5,888	6,679
Collectively evaluated for impairment		226,409	200,368
Total loans recorded investment		232,297	207,047
Accrued interest included in recorded investment	[1]	698	669
Total Loans		231,599	206,378
Payment Plan Receivables [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		64	97	144
Additions (deductions) [Abstract]
Provision for loan losses		(8)	(36)	(93)
Recoveries credited to allowance		0	5	81
Loans charged against the allowance		0	(2)	(35)
Balance at end of period		56	64	97
Allowance for loan losses [Abstract]
Individually evaluated for impairment		0	0
Collectively evaluated for impairment		56	64
Total ending allowance balance		56	64
Loans [Abstract]
Individually evaluated for impairment		0	0
Collectively evaluated for impairment		34,599	40,001
Total loans recorded investment		34,599	40,001
Accrued interest included in recorded investment		0	0
Total Loans		34,599	40,001
Subjective Allocation [Member]
Analysis of allowance for loan losses by portfolio segment [Roll Forward]
Balance at beginning of period		5,223	5,960	7,904
Additions (deductions) [Abstract]
Provision for loan losses		49	(737)	(1,944)
Recoveries credited to allowance		0	0	0
Loans charged against the allowance		0	0	0
Balance at end of period		5,272	5,223	$ 5,960
Allowance for loan losses [Abstract]
Individually evaluated for impairment		0	0
Collectively evaluated for impairment		5,272	5,223
Total ending allowance balance		$ 5,272	$ 5,223

[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 ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Non performing loans [Abstract]
Accrued Interest	$ 600	$ 800	$ 1,200
Interest Income	0	0	$ 100
Aging analysis of loans by class [Abstract]
Total Loans	1,515,050	1,409,962
Total Recorded Investment [Member]
Non performing loans [Abstract]
90+ and Still Accruing	118	7
Non-Accrual	10,607	15,231
Total Non-performing Loans	10,725	15,238
Aging analysis of loans by class [Abstract]
Total	15,637	22,326
Loans not Past Due	1,504,250	1,392,090
Total Loans	1,519,887	1,414,416
Total Recorded Investment [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	5,881	8,246
Total Recorded Investment [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	1,555	2,769
Total Recorded Investment [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	8,201	11,311
Accrued Interest Included in Recorded Investment [Member]
Non performing loans [Abstract]
90+ and Still Accruing	2	0
Non-Accrual	0	0
Total Non-performing Loans	2	0
Aging analysis of loans by class [Abstract]
Total	72	84
Loans not Past Due	4,765	4,370
Total Loans	4,837	4,454
Accrued Interest Included in Recorded Investment [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	53	55
Accrued Interest Included in Recorded Investment [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	17	29
Accrued Interest Included in Recorded Investment [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	2	0
Commercial [Member]
Aging analysis of loans by class [Abstract]
Total Loans	748,398	690,955
Commercial [Member] | Income Producing - Real Estate [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	1,027	1,233
Total Non-performing Loans	1,027	1,233
Aging analysis of loans by class [Abstract]
Total	1,059	303
Loans not Past Due	305,155	252,763
Total Loans	306,214	253,066
Commercial [Member] | Income Producing - Real Estate [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	203	89
Commercial [Member] | Income Producing - Real Estate [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	209	0
Commercial [Member] | Income Producing - Real Estate [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	647	214
Commercial [Member] | Land, Land Development and Construction Real Estate [Member]
Non performing loans [Abstract]
90+ and Still Accruing	49	0
Non-Accrual	401	594
Total Non-performing Loans	450	594
Aging analysis of loans by class [Abstract]
Total	252	354
Loans not Past Due	44,231	33,984
Total Loans	44,483	34,338
Commercial [Member] | Land, Land Development and Construction Real Estate [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	0	131
Commercial [Member] | Land, Land Development and Construction Real Estate [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	0	0
Commercial [Member] | Land, Land Development and Construction Real Estate [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	252	223
Commercial [Member] | Commercial and Industrial [Member]
Non performing loans [Abstract]
90+ and Still Accruing	69	0
Non-Accrual	2,028	2,746
Total Non-performing Loans	2,097	2,746
Aging analysis of loans by class [Abstract]
Total	952	2,879
Loans not Past Due	398,618	402,287
Total Loans	399,570	405,166
Commercial [Member] | Commercial and Industrial [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	785	2,391
Commercial [Member] | Commercial and Industrial [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	16	279
Commercial [Member] | Commercial and Industrial [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	151	209
Mortgage [Member]
Aging analysis of loans by class [Abstract]
Total Loans	500,454	472,628
Mortgage [Member] | 1-4 Family [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	7
Non-Accrual	4,744	5,945
Total Non-performing Loans	4,744	5,952
Aging analysis of loans by class [Abstract]
Total	7,327	9,467
Loans not Past Due	272,298	269,719
Total Loans	279,625	279,186
Mortgage [Member] | 1-4 Family [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	1,943	1,877
Mortgage [Member] | 1-4 Family [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	640	1,638
Mortgage [Member] | 1-4 Family [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	4,744	5,952
Mortgage [Member] | Resort Lending [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	1,094	2,168
Total Non-performing Loans	1,094	2,168
Aging analysis of loans by class [Abstract]
Total	1,401	2,394
Loans not Past Due	114,619	126,342
Total Loans	116,020	128,736
Mortgage [Member] | Resort Lending [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	307	226
Mortgage [Member] | Resort Lending [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	0	0
Mortgage [Member] | Resort Lending [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	1,094	2,168
Mortgage [Member] | Home Equity - 1st Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	187	331
Total Non-performing Loans	187	331
Aging analysis of loans by class [Abstract]
Total	237	420
Loans not Past Due	22,327	19,782
Total Loans	22,564	20,202
Mortgage [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	50	39
Mortgage [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	0	50
Mortgage [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	187	331
Mortgage [Member] | Home Equity - 2nd Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	147	605
Total Non-performing Loans	147	605
Aging analysis of loans by class [Abstract]
Total	640	1,405
Loans not Past Due	50,618	45,269
Total Loans	51,258	46,674
Mortgage [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	439	711
Mortgage [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	54	89
Mortgage [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	147	605
Mortgage [Member] | Purchased Loans [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0
Non-Accrual	2
Total Non-performing Loans	2
Aging analysis of loans by class [Abstract]
Total	12
Loans not Past Due	33,245
Total Loans	33,257
Mortgage [Member] | Purchased Loans [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	9
Mortgage [Member] | Purchased Loans [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	1
Mortgage [Member] | Purchased Loans [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	2
Installment [Member]
Aging analysis of loans by class [Abstract]
Total Loans	231,599	206,378
Installment [Member] | Home Equity - 1st Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	106	576
Total Non-performing Loans	106	576
Aging analysis of loans by class [Abstract]
Total	528	1,079
Loans not Past Due	16,707	20,995
Total Loans	17,235	22,074
Installment [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	315	466
Installment [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	107	37
Installment [Member] | Home Equity - 1st Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	106	576
Installment [Member] | Home Equity - 2nd Lien [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	443	517
Total Non-performing Loans	443	517
Aging analysis of loans by class [Abstract]
Total	823	967
Loans not Past Due	19,727	28,125
Total Loans	20,550	29,092
Installment [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	231	369
Installment [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	149	81
Installment [Member] | Home Equity - 2nd Lien [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	443	517
Installment [Member] | Loans Not Secured By Real Estate [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	421	454
Total Non-performing Loans	421	454
Aging analysis of loans by class [Abstract]
Total	1,071	1,274
Loans not Past Due	191,262	152,115
Total Loans	192,333	153,389
Installment [Member] | Loans Not Secured By Real Estate [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	567	589
Installment [Member] | Loans Not Secured By Real Estate [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	83	231
Installment [Member] | Loans Not Secured By Real Estate [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	421	454
Installment [Member] | Other [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	2	48
Total Non-performing Loans	2	48
Aging analysis of loans by class [Abstract]
Total	20	66
Loans not Past Due	2,159	2,426
Total Loans	2,179	2,492
Installment [Member] | Other [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	15	15
Installment [Member] | Other [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	3	3
Installment [Member] | Other [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	2	48
Payment Plan Receivables [Member]
Aging analysis of loans by class [Abstract]
Total Loans	34,599	40,001
Payment Plan Receivables [Member] | Full Refund [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	2	2
Total Non-performing Loans	2	2
Aging analysis of loans by class [Abstract]
Total	556	1,054
Loans not Past Due	21,294	26,799
Total Loans	21,850	27,853
Payment Plan Receivables [Member] | Full Refund [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	492	838
Payment Plan Receivables [Member] | Full Refund [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	62	214
Payment Plan Receivables [Member] | Full Refund [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	2	2
Payment Plan Receivables [Member] | Partial Refund [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	2	12
Total Non-performing Loans	2	12
Aging analysis of loans by class [Abstract]
Total	645	544
Loans not Past Due	5,834	6,550
Total Loans	6,479	7,094
Payment Plan Receivables [Member] | Partial Refund [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	415	409
Payment Plan Receivables [Member] | Partial Refund [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	228	123
Payment Plan Receivables [Member] | Partial Refund [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	2	12
Payment Plan Receivables [Member] | Other [Member]
Non performing loans [Abstract]
90+ and Still Accruing	0	0
Non-Accrual	1	0
Total Non-performing Loans	1	0
Aging analysis of loans by class [Abstract]
Total	114	120
Loans not Past Due	6,156	4,934
Total Loans	6,270	5,054
Payment Plan Receivables [Member] | Other [Member] | Loans Past Due, 30-59 days [Member]
Aging analysis of loans by class [Abstract]
Total	110	96
Payment Plan Receivables [Member] | Other [Member] | Loans Past Due, 60-89 days [Member]
Aging analysis of loans by class [Abstract]
Total	3	24
Payment Plan Receivables [Member] | Other [Member] | Loans Past Due, 90+ days [Member]
Aging analysis of loans by class [Abstract]
Total	$ 1	$ 0

XML

LOANS AND PAYMENT PLAN RECEIVABLES, Impaired Financing Receivables (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Impaired loans [Abstract]
TDR		$ 2,518	$ 9,325
Non - TDR		203	299
TDR - allowance based on collateral		4,810	5,879
TDR's allowance based on present value cash flow		81,002	94,970
Non - TDR - allowance based on collateral		260	2,296
Non - TDR - allowance based on present value cash flow		0	0
Total impaired loans		88,793	112,769
Amount of allowance for loan losses allocated [Abstract]
TDR - allowance based on collateral		2,436	2,025
TDR - allowance based on present value cash flow		8,471	10,188
Non - TDR - allowance based on collateral		76	1,020
Non - TDR - allowance based on present value cash flow		0	0
Total amount of allowance for loan losses allocated		10,983	13,233
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	2,727	9,652
Unpaid Principal Balance, with no related allowance recorded	[1]	3,744	10,836
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	86,404	103,514
Unpaid Principal Balance, with an allowance recorded	[1]	90,182	108,211
Recorded Investment	[1]	89,131	113,166
Unpaid Principal Balance	[1]	93,926	119,047
Related Allowance	[1]	10,983	13,233
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	7,628	12,225	$ 16,800
Interest Income Recognized, with No Related Allowance	[2]	739	469	1,020
Average Recorded Investment, with Related Allowance	[2]	97,018	107,692	122,200
Interest Income Recognized, with Related Allowance	[2]	3,835	4,565	4,846
Average Recorded Investment	[2]	104,646	119,917	139,000
Interest Income Recognized	[2]	4,574	5,034	5,866
Accrued Interest Included in Recorded Investment [Member]
Impaired Loans by class [Abstract]
Recorded Investment	[1]	338	397
Commercial [Member] | Income Producing - Real Estate [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	641	5,868
Unpaid Principal Balance, with no related allowance recorded	[1]	851	6,077
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	8,377	12,836
Unpaid Principal Balance, with an allowance recorded	[1]	9,232	13,797
Recorded Investment	[1]	9,018	18,704
Unpaid Principal Balance	[1]	10,083	19,874
Related Allowance	[1]	516	689
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	4,520	7,660	5,765
Interest Income Recognized, with No Related Allowance	[2]	387	250	340
Average Recorded Investment, with Related Allowance	[2]	12,677	12,772	18,164
Interest Income Recognized, with Related Allowance	[2]	439	677	587
Average Recorded Investment	[2]	17,197	20,432	23,929
Interest Income Recognized	[2]	826	927	927
Commercial [Member] | Land, Land Development and Construction Real Estate [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	818	1,051
Unpaid Principal Balance, with no related allowance recorded	[1]	1,393	1,606
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	1,690	3,456
Unpaid Principal Balance, with an allowance recorded	[1]	1,778	3,528
Recorded Investment	[1]	2,508	4,507
Unpaid Principal Balance	[1]	3,171	5,134
Related Allowance	[1]	296	499
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	952	1,145	3,092
Interest Income Recognized, with No Related Allowance	[2]	79	64	240
Average Recorded Investment, with Related Allowance	[2]	2,219	3,939	6,186
Interest Income Recognized, with Related Allowance	[2]	54	149	149
Average Recorded Investment	[2]	3,171	5,084	9,278
Interest Income Recognized	[2]	133	213	389
Commercial [Member] | Commercial and Industrial [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	1,245	2,685
Unpaid Principal Balance, with no related allowance recorded	[1]	1,241	2,667
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	4,097	8,251
Unpaid Principal Balance, with an allowance recorded	[1]	4,439	8,486
Recorded Investment	[1]	5,342	10,936
Unpaid Principal Balance	[1]	5,680	11,153
Related Allowance	[1]	1,896	2,006
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	2,125	3,351	3,980
Interest Income Recognized, with No Related Allowance	[2]	257	152	226
Average Recorded Investment, with Related Allowance	[2]	6,663	8,500	11,795
Interest Income Recognized, with Related Allowance	[2]	104	294	457
Average Recorded Investment	[2]	8,788	11,851	15,775
Interest Income Recognized	[2]	361	446	683
Mortgage [Member] | 1-4 Family [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	23	0
Unpaid Principal Balance, with no related allowance recorded	[1]	183	49
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	47,792	53,206
Unpaid Principal Balance, with an allowance recorded	[1]	49,808	56,063
Recorded Investment	[1]	47,815	53,206
Unpaid Principal Balance	[1]	49,991	56,112
Related Allowance	[1]	5,132	6,195
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	19	29	5
Interest Income Recognized, with No Related Allowance	[2]	11	0	11
Average Recorded Investment, with Related Allowance	[2]	50,421	55,877	60,858
Interest Income Recognized, with Related Allowance	[2]	2,140	2,286	2,622
Average Recorded Investment	[2]	50,440	55,906	60,863
Interest Income Recognized	[2]	2,151	2,286	2,633
Mortgage [Member] | Resort Lending [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	0	48
Unpaid Principal Balance, with no related allowance recorded	[1]	0	397
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	18,148	18,799
Unpaid Principal Balance, with an allowance recorded	[1]	18,319	18,963
Recorded Investment	[1]	18,148	18,847
Unpaid Principal Balance	[1]	18,319	19,360
Related Allowance	[1]	2,662	3,075
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	12	40	28
Interest Income Recognized, with No Related Allowance	[2]	0	1	0
Average Recorded Investment, with Related Allowance	[2]	18,448	19,458	21,708
Interest Income Recognized, with Related Allowance	[2]	670	753	836
Average Recorded Investment	[2]	18,460	19,498	21,736
Interest Income Recognized	[2]	670	754	836
Mortgage [Member] | Home Equity - 1st Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	0	0
Unpaid Principal Balance, with no related allowance recorded	[1]	0	0
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	168	162
Unpaid Principal Balance, with an allowance recorded	[1]	172	177
Recorded Investment	[1]	168	162
Unpaid Principal Balance	[1]	172	177
Related Allowance	[1]	9	14
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	0	0	0
Interest Income Recognized, with No Related Allowance	[2]	0	0	0
Average Recorded Investment, with Related Allowance	[2]	161	160	136
Interest Income Recognized, with Related Allowance	[2]	8	6	4
Average Recorded Investment	[2]	161	160	136
Interest Income Recognized	[2]	8	6	4
Mortgage [Member] | Home Equity - 2nd Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	0	0
Unpaid Principal Balance, with no related allowance recorded	[1]	0	0
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	244	125
Unpaid Principal Balance, with an allowance recorded	[1]	325	205
Recorded Investment	[1]	244	125
Unpaid Principal Balance	[1]	325	205
Related Allowance	[1]	15	27
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	0	0	0
Interest Income Recognized, with No Related Allowance	[2]	0	0	0
Average Recorded Investment, with Related Allowance	[2]	172	57	42
Interest Income Recognized, with Related Allowance	[2]	13	2	2
Average Recorded Investment	[2]	172	57	42
Interest Income Recognized	[2]	13	2	2
Installment [Member] | Home Equity - 1st Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	0	0
Unpaid Principal Balance, with no related allowance recorded	[1]	76	40
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	2,364	2,744
Unpaid Principal Balance, with an allowance recorded	[1]	2,492	2,930
Recorded Investment	[1]	2,364	2,744
Unpaid Principal Balance	[1]	2,568	2,970
Related Allowance	[1]	143	219
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	0	0	1,604
Interest Income Recognized, with No Related Allowance	[2]	5	2	83
Average Recorded Investment, with Related Allowance	[2]	2,539	2,837	1,448
Interest Income Recognized, with Related Allowance	[2]	176	174	85
Average Recorded Investment	[2]	2,539	2,837	3,052
Interest Income Recognized	[2]	181	176	168
Installment [Member] | Home Equity - 2nd Lien [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	0	0
Unpaid Principal Balance, with no related allowance recorded	[1]	0	0
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	2,929	3,212
Unpaid Principal Balance, with an allowance recorded	[1]	2,951	3,215
Recorded Investment	[1]	2,929	3,212
Unpaid Principal Balance	[1]	2,951	3,215
Related Allowance	[1]	271	419
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	0	0	1,841
Interest Income Recognized, with No Related Allowance	[2]	0	0	96
Average Recorded Investment, with Related Allowance	[2]	3,055	3,359	1,546
Interest Income Recognized, with Related Allowance	[2]	193	188	86
Average Recorded Investment	[2]	3,055	3,359	3,387
Interest Income Recognized	[2]	193	188	182
Installment [Member] | Loans Not Secured By Real Estate [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	0	0
Unpaid Principal Balance, with no related allowance recorded	[1]	0	0
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	587	711
Unpaid Principal Balance, with an allowance recorded	[1]	658	835
Recorded Investment	[1]	587	711
Unpaid Principal Balance	[1]	658	835
Related Allowance	[1]	42	89
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	0	0	470
Interest Income Recognized, with No Related Allowance	[2]	0	0	23
Average Recorded Investment, with Related Allowance	[2]	653	719	314
Interest Income Recognized, with Related Allowance	[2]	37	35	17
Average Recorded Investment	[2]	653	719	784
Interest Income Recognized	[2]	37	35	40
Installment [Member] | Other [Member]
Impaired Loans by class [Abstract]
Recorded Investment, with no related allowance recorded	[1]	0	0
Unpaid Principal Balance, with no related allowance recorded	[1]	0	0
With no related allowance recorded	[1]	0	0
Recorded Investment, with an allowance recorded	[1]	8	12
Unpaid Principal Balance, with an allowance recorded	[1]	8	12
Recorded Investment	[1]	8	12
Unpaid Principal Balance	[1]	8	12
Related Allowance	[1]	1	1
Average recorded investment in and interest income earned on impaired loans by class [Abstract]
Average Recorded Investment, with No Related Allowance	[2]	0	0	15
Interest Income Recognized, with No Related Allowance	[2]	0	0	1
Average Recorded Investment, with Related Allowance	[2]	10	14	3
Interest Income Recognized, with Related Allowance	[2]	1	1	1
Average Recorded Investment	[2]	10	14	18
Interest Income Recognized	[2]	$ 1	$ 1	$ 2

[1] There were no impaired payment plan receivables or purchased mortgage loans at December 31, 2015 or 2014.

[2] There were no impaired payment plan receivables or purchased mortgage loans during the years ending December 31, 2015, 2014 and 2013.

XML

LOANS AND PAYMENT PLAN RECEIVABLES, Troubled Debt Restructurings (Details) $ in Thousands		12 Months Ended
		Dec. 31, 2015 USD ($) Contract	Dec. 31, 2014 USD ($) Contract	Dec. 31, 2013 USD ($) Contract
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		$ 88,330	$ 110,174
Troubled debt restructuring, specific reserve		10,900	12,200
Additional amounts committed to lend as troubled debt restructurings		$ 40	$ 40
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		46	70	102
Pre-modification recorded balance		$ 5,589	$ 7,123	$ 11,955
Post-modification recorded balance		5,097	6,308	10,368
Increase (decrease) in allowance for loan losses		400	200	(300)
Charge offs due to troubled debt restructurings		$ 160	$ 40	$ 500
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		5	3	9
Recorded Balance		$ 234	$ 444	$ 1,486
Past due period for modified loans		90 days
Increase (decrease) in allowance for loan loss due to TDRs that subsequently defaulted		$ (30)	20	0
Charge-offs on TDRs that subsequently defaulted		$ 0	0	$ 200
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		36 months
Modifications involving extension of maturity date, period range		60 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		230 months
Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		$ 16,359	31,453
Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		$ 71,971	$ 78,721
Income Producing - Real Estate [Member] | Commercial [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		2	4	6
Pre-modification recorded balance		$ 229	$ 426	$ 4,798
Post-modification recorded balance		$ 227	$ 389	$ 3,869
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	1
Recorded Balance		$ 0	$ 0	$ 693
Land, Land Development and Construction Real Estate [Member] | Commercial [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0	2	1
Pre-modification recorded balance		$ 0	$ 55	$ 16
Post-modification recorded balance		$ 0	$ 44	$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	1
Recorded Balance		$ 0	$ 0	$ 334
Commercial and Industrial [Member] | Commercial [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		17	13	23
Pre-modification recorded balance		$ 3,188	$ 2,236	$ 2,522
Post-modification recorded balance		$ 2,960	$ 1,606	$ 1,901
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		2	2	2
Recorded Balance		$ 157	$ 319	$ 143
1-4 Family [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		8	15	20
Pre-modification recorded balance		$ 1,345	$ 1,576	$ 1,968
Post-modification recorded balance		$ 1,128	$ 1,570	$ 1,995
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		2	1	1
Recorded Balance		$ 73	$ 125	$ 106
Resort Lending [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		1	6	5
Pre-modification recorded balance		$ 313	$ 1,583	$ 1,240
Post-modification recorded balance		$ 307	$ 1,572	$ 1,231
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	1
Recorded Balance		$ 0	$ 0	$ 156
Home Equity - 1st Lien [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		1	1	1
Pre-modification recorded balance		$ 20	$ 17	$ 95
Post-modification recorded balance		$ 20	$ 14	$ 97
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0
Recorded Balance		$ 0	$ 0	$ 0
Home Equity - 1st Lien [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		6	13	25
Pre-modification recorded balance		$ 220	$ 631	$ 659
Post-modification recorded balance		$ 186	$ 523	$ 657
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	2
Recorded Balance		$ 0	$ 0	$ 32
Home Equity - 2nd Lien [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		1	1	0
Pre-modification recorded balance		$ 27	$ 85	$ 0
Post-modification recorded balance		$ 27	$ 84	$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	0
Recorded Balance		$ 0	$ 0	$ 0
Home Equity - 2nd Lien [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		8	9	16
Pre-modification recorded balance		$ 228	$ 400	$ 508
Post-modification recorded balance		$ 217	$ 400	$ 508
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0	0	1
Recorded Balance		$ 0	$ 0	$ 22
Purchased Loans [Member] | Mortgage [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		0
Pre-modification recorded balance		$ 0
Post-modification recorded balance		$ 0
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		0
Recorded Balance		$ 0
Loans Not Secured By Real Estate [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		2	6	5
Pre-modification recorded balance		$ 19	$ 114	$ 149
Post-modification recorded balance		$ 25	$ 106	$ 110
TDR that subsequently defaulted [Abstract]
Number of contracts | Contract		1	0	0
Recorded Balance		$ 4	$ 0	$ 0
Other [Member] | Installment [Member]
Loans classified as troubled debt restructurings [Abstract]
Number of contracts | Contract		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 | Contract		0	0	0
Recorded Balance		$ 0	$ 0	$ 0
Performing TDR's [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		81,512	102,971
Performing TDR's [Member] | Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		13,318	29,475
Performing TDR's [Member] | Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring		68,194	73,496
Non-performing TDR's [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	[1]	6,818	7,203
Non-performing TDR's [Member] | Commercial [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	[1]	3,041	1,978
Non-performing TDR's [Member] | Retail [Member]
Financing Receivable, Modifications [Line Items]
Troubled debt restructuring	[1],[2]	$ 3,777	$ 5,225

[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.

XML

LOANS AND PAYMENT PLAN RECEIVABLES, Loan Ratings by Loan Class (Details) - USD ($) $ in Thousands		Dec. 31, 2015	Dec. 31, 2014
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		$ 748,398	$ 690,955
Accrued interest included in total		$ 4,837	4,454
Credit ratings of insurer or risk retention group counterparties [Abstract]
Subsidiary's outstanding payment plan insured by third party		63.20%
Subsidiary's payment outstanding payment plan 2, insured by third party		18.70%
Payment Plan Receivables, Full Refund		$ 21,850	27,853
Payment Plan Receivables, Partial Refund		6,479	7,094
Payment Plan Receivables, Other		6,270	5,054
Total		34,599	40,001
Commercial [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		750,267	692,570
Accrued interest included in total		1,869	1,615
Commercial [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		709,099	645,082
Accrued interest included in total		1,729	1,479
Commercial [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		29,363	34,609
Accrued interest included in total		108	111
Commercial [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		8,349	8,306
Accrued interest included in total		32	25
Commercial [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		3,456	4,573
Accrued interest included in total		0	0
Commercial [Member] | Income Producing - Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		306,214	253,066
Commercial [Member] | Income Producing - Real Estate [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		296,898	241,266
Commercial [Member] | Income Producing - Real Estate [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		6,866	8,649
Commercial [Member] | Income Producing - Real Estate [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		1,423	1,918
Commercial [Member] | Income Producing - Real Estate [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		1,027	1,233
Commercial [Member] | Land, Land Development and Construction Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		44,483	34,338
Commercial [Member] | Land, Land Development and Construction Real Estate [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		40,844	30,869
Commercial [Member] | Land, Land Development and Construction Real Estate [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		2,995	2,485
Commercial [Member] | Land, Land Development and Construction Real Estate [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		243	390
Commercial [Member] | Land, Land Development and Construction Real Estate [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		401	594
Commercial [Member] | Commercial and Industrial [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		399,570	405,166
Commercial [Member] | Commercial and Industrial [Member] | Non-Watch 1-6 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		371,357	372,947
Commercial [Member] | Commercial and Industrial [Member] | Watch 7-8 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		19,502	23,475
Commercial [Member] | Commercial and Industrial [Member] | Substandard Accrual 9 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		6,683	5,998
Commercial [Member] | Commercial and Industrial [Member] | Non Accrual 10-11 [Member]
Loan ratings/credit scores by loan class [Abstract]
Commercial loan		2,028	2,746
Mortgage [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	57,083	52,490
750-799	[1]	167,515	139,075
700-749	[1]	110,802	98,199
650-699	[1]	80,140	83,365
600-649	[1]	38,108	39,874
550-599	[1]	22,729	27,715
500-549	[1]	13,528	18,831
Under 500	[1]	5,771	8,074
Unknown	[1]	7,048	7,175
Total	[1]	502,724	474,798
Accrued interest included in total	[1]	2,270	2,170
Mortgage [Member] | 1-4 Family [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	28,760	27,918
750-799	[1]	78,802	72,674
700-749	[1]	56,519	52,843
650-699	[1]	51,813	51,664
600-649	[1]	27,966	27,770
550-599	[1]	16,714	21,361
500-549	[1]	10,610	14,575
Under 500	[1]	4,708	6,306
Unknown	[1]	3,733	4,075
Total	[1]	279,625	279,186
Accrued interest included in total	[1]	1,396	1,311
Mortgage [Member] | Resort Lending [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	13,943	14,484
750-799	[1]	40,888	45,950
700-749	[1]	31,980	32,660
650-699	[1]	17,433	20,250
600-649	[1]	4,991	6,538
550-599	[1]	3,070	3,639
500-549	[1]	1,051	2,156
Under 500	[1]	554	875
Unknown	[1]	2,110	2,184
Total	[1]	116,020	128,736
Accrued interest included in total	[1]	477	562
Mortgage [Member] | Home Equity - 1st Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	4,374	3,863
750-799	[1]	7,137	6,128
700-749	[1]	4,341	3,054
650-699	[1]	3,203	3,257
600-649	[1]	1,467	1,704
550-599	[1]	1,027	994
500-549	[1]	572	699
Under 500	[1]	244	261
Unknown	[1]	199	242
Total	[1]	22,564	20,202
Accrued interest included in total	[1]	87	88
Mortgage [Member] | Home Equity - 2nd Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	7,696	6,225
750-799	[1]	17,405	14,323
700-749	[1]	11,022	9,642
650-699	[1]	7,691	8,194
600-649	[1]	3,684	3,862
550-599	[1]	1,918	1,721
500-549	[1]	1,295	1,401
Under 500	[1]	265	632
Unknown	[1]	282	674
Total	[1]	51,258	46,674
Accrued interest included in total	[1]	196	209
Mortgage [Member] | Purchased Loans [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	2,310	0
750-799	[1]	23,283	0
700-749	[1]	6,940	0
650-699	[1]	0	0
600-649	[1]	0	0
550-599	[1]	0	0
500-549	[1]	0	0
Under 500	[1]	0	0
Unknown	[1]	724	0
Total	[1]	33,257	0
Accrued interest included in total	[1]	114	0
Installment [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	47,886	36,674
750-799	[1]	97,379	81,375
700-749	[1]	41,889	38,337
650-699	[1]	24,645	26,207
600-649	[1]	9,505	11,225
550-599	[1]	5,252	5,962
500-549	[1]	3,142	3,920
Under 500	[1]	1,001	1,303
Unknown	[1]	1,598	2,044
Total	[1]	232,297	207,047
Accrued interest included in total	[1]	698	669
Installment [Member] | Home Equity - 1st Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	1,792	2,272
750-799	[1]	4,117	5,677
700-749	[1]	2,507	3,111
650-699	[1]	3,508	3,963
600-649	[1]	2,173	3,434
550-599	[1]	1,800	2,019
500-549	[1]	1,056	1,128
Under 500	[1]	223	393
Unknown	[1]	59	77
Total	[1]	17,235	22,074
Accrued interest included in total	[1]	78	93
Installment [Member] | Home Equity - 2nd Lien [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	1,782	2,835
750-799	[1]	5,931	8,557
700-749	[1]	3,899	6,358
650-699	[1]	4,182	5,477
600-649	[1]	2,153	2,408
550-599	[1]	1,346	1,913
500-549	[1]	855	1,036
Under 500	[1]	370	427
Unknown	[1]	32	81
Total	[1]	20,550	29,092
Accrued interest included in total	[1]	83	112
Installment [Member] | Loans Not Secured By Real Estate [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	44,254	31,507
750-799	[1]	86,800	66,558
700-749	[1]	34,789	28,179
650-699	[1]	16,456	16,152
600-649	[1]	4,979	5,128
550-599	[1]	1,997	1,896
500-549	[1]	1,170	1,672
Under 500	[1]	385	455
Unknown	[1]	1,503	1,842
Total	[1]	192,333	153,389
Accrued interest included in total	[1]	520	445
Installment [Member] | Other [Member]
Loan ratings/credit scores by loan class [Abstract]
800 and above	[1]	58	60
750-799	[1]	531	583
700-749	[1]	694	689
650-699	[1]	499	615
600-649	[1]	200	255
550-599	[1]	109	134
500-549	[1]	61	84
Under 500	[1]	23	28
Unknown	[1]	4	44
Total	[1]	2,179	2,492
Accrued interest included in total	[1]	17	19
AM Best Rating A+ [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		0	0
Payment Plan Receivables, Partial Refund		6	43
Payment Plan Receivables, Other		0	0
Total		6	43
AM Best Rating, A Ratings [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		2,712	10,007
Payment Plan Receivables, Partial Refund		5,203	6,190
Payment Plan Receivables, Other		0	0
Total		7,915	16,197
AM Best Rating, A- Rating [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		3,418	1,989
Payment Plan Receivables, Partial Refund		1,177	685
Payment Plan Receivables, Other		6,265	5,054
Total		10,860	7,728
Not Rated [Member]
Credit ratings of insurer or risk retention group counterparties [Abstract]
Payment Plan Receivables, Full Refund		15,720	15,857
Payment Plan Receivables, Partial Refund		93	176
Payment Plan Receivables, Other		5	0
Total		$ 15,818	$ 16,033

[1] Credit scores have been updated within the last twelve months.

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LOANS AND PAYMENT PLAN RECEIVABLES, Loans Serviced for Others (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($) Quarter PSARate	Dec. 31, 2014 USD ($) PSARate	Dec. 31, 2013 USD ($)
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	$ 1,644,325	$ 1,662,800
Custodial Escrow Balances	$ 21,800	20,900
Maximum number of consecutive quarterly losses recorded for profitability requirement | Quarter	4
Percentage of decline in net worth during the period	30.00%
Maximum percentage of decline in net worth for one consecutive quarter	25.00%
Maximum percentage of decline in net worth for two consecutive quarters	40.00%
Highest level of capital, Amount	$ 2,500
Highest level of capital	0.25%
Analysis of capitalized mortgage loan servicing rights [Abstract]
Balance at beginning of year	$ 12,106	13,710	$ 11,013
Originated servicing rights capitalized	2,697	1,823	3,210
Amortization	(2,868)	(2,509)	(3,745)
Change in valuation allowance	501	(918)	3,232
Balance at end of year	12,436	12,106	13,710
Valuation allowance	3,272	3,773	2,855
Loans sold and serviced that have had servicing rights capitalized	1,643,086	1,661,269	$ 1,732,476
Fair value of capitalized mortgage loan servicing rights	$ 12,900	$ 12,600
Average coupon rate	4.32%	4.44%
Average servicing fee	0.254%	0.253%
Average discount rate	10.04%	10.07%
Average PSA Rate | PSARate	203	200
Fannie Mae [Member]
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	$ 898,443	$ 913,863
Freddie Mac [Member]
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	707,891	748,833
Ginnie Mae [Member]
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	37,884	0
Other [Member]
Mortgage loans serviced for others [Abstract]
Mortgage loans serviced	$ 107	$ 104

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OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Other Real Estate [Roll Forward]
Balance at beginning of year, net of valuation allowance	[1]	$ 6,370	$ 18,088	$ 25,748
Loans transferred to other real estate owned	[1]	6,694	6,143	6,932
Sales of other real estate owned	[1]	(5,502)	(17,198)	(11,994)
Additions to valuation allowance charged to expense	[1]	(492)	(663)	(2,598)
Balance at end of year, net of valuation allowance	[1]	7,070	6,370	18,088
Real Estate Owned Valuation Allowance [Roll Forward]
Balance at beginning of year		2,511	4,047	5,958
Additions charged to expense		492	663	2,598
Direct write-downs upon sale		(1,311)	(2,199)	(4,509)
Balance at end of year		1,692	2,511	$ 4,047
Other repossessed assets		800	800
Foreclosed residential real estate		2,800	2,900
Mortgage loans in process of foreclosure		1,100	2,500
Other real estate and repossessed assets		$ 7,150	$ 6,454

[1] Table excludes other repossessed assets totaling $0.08 million at both December 31, 2015 and 2014, respectively.

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	$ 152,632	$ 154,199
Accumulated depreciation and amortization	(109,529)	(108,251)
Property and equipment, Net	43,103	45,948
Depreciation expense	6,600	6,700	$ 6,700
Land [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	15,152	14,904
Buildings [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	57,638	59,486
Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, Gross	$ 79,842	$ 79,809

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INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Intangible assets, net of amortization [Abstract]
Intangible amortization expense	$ 300	$ 500	$ 800
Core Deposits [Member]
Intangible assets, net of amortization [Abstract]
Gross Carrying Amount	6,118	6,118
Accumulated Amortization	3,838	$ 3,491
Summary of estimated core deposit intangible amortization [Abstract]
2016	347
2017	346
2018	346
2019	346
2020	346
2021 and thereafter	549
Total	$ 2,280

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DEPOSITS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of interest expense on deposits [Abstract]
Savings and interest bearing checking	$ 1,056	$ 1,064	$ 1,131
Time deposits under $100,000	1,586	2,467	2,995
Time deposits of $100,000 or more	1,367	1,436	1,580
Total	4,009	4,967	$ 5,706
Time Deposits in denominations of 250,000 or more amounted	110,400	42,800
Summary of the maturity of time deposits [Abstract]
2016	302,136
2017	66,288
2018	27,367
2019	15,432
2020	11,763
2021 and thereafter	3,234
Total	426,220
Time deposits acquired through broker relationships	0	11,300
Summary of reciprocal deposits [Abstract]
Demand	3,436	5,867
Money market	8,340	7,692
Time	38,431	40,109
Total	$ 50,207	$ 53,668

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OTHER BORROWINGS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of other borrowings [Abstract]
Advances from the FHLB	$ 11,949	$ 12,464
Other	5	6
Total	$ 11,954	12,470
Federal Home Loan Bank, Advances, Branch of FHLB Bank [Line Items]
Federal home loan bank, advances, interest rate, minimum	135.00%
Federal home loan bank, advances, interest rate, maximum	174.00%
Federal home loan bank stock	$ 7,800
Unused borrowing capacity with FHLB	179,600
Interest expense on FHLB advances	800	900	$ 1,100
FHLB advances terminated with no gain or loss	$ 0	0	$ 0
FHLB stock as percentages of unpaid principal balance	1.00%
FHLB stock as percentages of outstanding advances	5.00%
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
Total FHLB advances, Amount	$ 11,949	12,464
Summary of repayments of FHLB Advances [Abstract]
Available for sale and loans, pledged to secure other borrowings	781,800
Fixed-Rate Advances [Member]
Summary of other borrowings [Abstract]
Advances from the FHLB	11,949	12,464
Federal Home Loan Bank, Advances, Fiscal Year Maturity [Abstract]
2016, Amount	2,089	2,205
2017, Amount	1,258	1,320
2018, Amount	5,437	5,671
2019, Amount	0	0
2020, Amount	3,165	3,268
Total FHLB advances, Amount	$ 11,949	$ 12,464
Federal Home Loan Bank, Advances, Maturities Summary, Average Interest Rate of Amounts Due [Abstract]
2016, Rate	6.55%	6.55%
2017, Rate	7.04%	7.04%
2018, Rate	5.99%	5.99%
2020, Rate	7.49%	7.49%
Total FHLB advances, Rate	6.59%	6.59%
Federal Reserve Bank Advances [Member]
Short-term Debt [Line Items]
Unused borrowing capacity with the FRB	$ 307,700
Advances from Federal Home Loan Bank ("FHLB") [Member]
Summary of repayments of FHLB Advances [Abstract]
2016	2,521
2017	1,587
2018	5,042
2019	143
2020	2,656
Total	$ 11,949

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SUBORDINATED DEBENTURES (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2015 USD ($) Quarter	Dec. 31, 2014 USD ($)
SUBORDINATED DEBENTURES [Abstract]
Trust preferred securities	$ 34,500	$ 34,500
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	$ 35,569	$ 35,569
Summary of subordinated debentures and trust preferred securities [Abstract]
Distribution deferral period, maximum quarters | Quarter	20
Maximum period within which issuance costs have been capitalized and amortized on straight line basis	30 years
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	Jul. 30, 2037
Interest Rate	3 month LIBOR plus 1.60%	3 month LIBOR plus 1.60%
First Permitted Redemption Date	Jul. 30, 2012	Jul. 30, 2012
Interest Rate Spread	1.60%	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	Sep. 15, 2037
Interest Rate	3 month LIBOR plus 2.85%	3 month LIBOR plus 2.85%
First Permitted Redemption Date	Sep. 15, 2012	Sep. 15, 2012
Interest Rate Spread	2.85%	2.85%
Redemptions of trust preferred securities at par value	$ 5,000
Trust preferred securities redeemed at discount	$ 500
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	Nov. 07, 2032
Interest Rate	3 month LIBOR plus 3.45%	3 month LIBOR plus 3.45%
First Permitted Redemption Date	Nov. 07, 2007	Nov. 07, 2007
Interest Rate Spread	3.45%	3.45%
Subordinated Debentures Subject to Mandatory Redemption [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	$ 35,569	$ 35,569
Subordinated Debentures Subject to Mandatory Redemption [Member] | IBC Capital Finance III [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	12,372	12,372
Subordinated Debentures Subject to Mandatory Redemption [Member] | IBC Capital Finance IV [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	15,465	15,465
Subordinated Debentures Subject to Mandatory Redemption [Member] | Midwest Guaranty Trust I [Member]
Summary of information regarding subordinated debentures [Abstract]
Subordinated Debentures	7,732	7,732
Trust Preferred Securities Subject to Mandatory Redemption [Member]
Summary of information regarding subordinated debentures [Abstract]
Trust Preferred Securities Issued	34,500	34,500
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	12,000
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	15,000
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	7,500
Common Stock Subject to Mandatory Redemption [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	1,069	1,069
Common Stock Subject to Mandatory Redemption [Member] | IBC Capital Finance III [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	372	372
Common Stock Subject to Mandatory Redemption [Member] | IBC Capital Finance IV [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	465	465
Common Stock Subject to Mandatory Redemption [Member] | Midwest Guaranty Trust I [Member]
Summary of information regarding subordinated debentures [Abstract]
Common Stock Issued	$ 232	$ 232

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COMMITMENTS AND CONTINGENT LIABILITIES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Loss Contingencies [Line Items]
Aggregate amount of counterparty obligations	$ 7,237	$ 7,237	$ 18,449	$ 7,229	$ 7,237	$ 7,716
VSC counterparty contingency expense	119	199	4,837
Loss reimbursement on sold loans	(59)	(466)	2,152
Reserve for loss reimbursements on sold mortgage loans				500	700
Vehicle service contract counterparty receivable [Roll Forward]
Balance at beginning of year, net of reserve	7,237	7,716	18,449
Transfers in from payment plan receivables	1,203	180	792
Reserves established and charge-offs recorded to expense	(119)	(199)	(4,837)
Transferred to (from) contingency reserves	0	(75)	63
Cash received	(1,092)	(385)	(6,751)
Balance at end of year, net of reserve	7,229	7,237	7,716
Reserve at end of year				56	1,370	1,300
Vehicle service contract counterparty reserve [Roll Forward]
Balance at beginning of year	1,370	1,375	2,012
Additions charged to expense	119	199	4,837
Charge-offs, net	(1,433)	(204)	(5,474)
Balance at end of year	$ 56	1,370	1,375
Reserves recorded in VSC counterparty receivables, net				56	1,370	1,300
Reserves recorded in accrued expenses and other liabilities				0	0	75
Total at end of year				56	1,370	$ 1,375
Fannie Mae [Member]
Loss Contingencies [Line Items]
Loss reimbursement on sold loans			1,500
Pending Litigation [Member]
Loss Contingencies [Line Items]
Maximum range of reasonably possible loss				1,000
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
Aggregate amount of counterparty obligations	$ 7,200	7,200		7,200	7,200
VSC counterparty contingency expense	100	200	$ 4,800
Vehicle service contract counterparty receivable [Roll Forward]
Balance at beginning of year, net of reserve	7,200
Balance at end of year, net of reserve	$ 7,200	$ 7,200
Commitments to Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments risk represented by contract amounts				243,458	204,827
Standby Letters of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Financial instruments risk represented by contract amounts				$ 3,582	$ 2,757
Standby Letters of Credit [Member] | Minimum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest rate				2.75%
Standby Letters of Credit [Member] | Maximum [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Variable interest rate				8.25%

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SHAREHOLDERS' EQUITY AND INCOME PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended			2 Months Ended	12 Months Ended
		Nov. 15, 2011	Sep. 30, 2013	Aug. 31, 2013	Jul. 31, 2013	Sep. 30, 2013	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Jan. 21, 2015	Aug. 30, 2013
Class of Stock [Line Items]
Stock repurchased (in shares)							967,199
Stock repurchased							$ 13,498
Series B Preferred Stock issued (in shares)							0	0
Shares issued during period (in shares)							39,610	30,828	13,604,963
Shares issued value during period							$ 112	$ 97	$ 99,075
Net proceeds from the issuance of common stock							112	97	98,066
Shareholders with certain limited exceptions		5.00%
Number of Series C Junior Participating Preferred Stock purchase by each right		1/1000
Beneficial Ownership Level		4.99%
Discount to current market price of the common stock		50.00%
Earnings Per Share Reconciliation [Abstract]
Net income applicable to common stock							20,017	18,021	82,062
Convertible preferred stock dividends							0	0	3,001
Preferred stock discount							0	0	(7,554)
Net income applicable to common stock for calculation of diluted earnings per share							$ 20,017	$ 18,021	$ 77,509
Weighted average shares outstanding (in shares)	[1]						22,716,000	22,927,000	13,970,000
Restricted stock units (in shares)							233,000	306,000	363,000
Effect of stock options (in shares)							119,000	124,000	92,000
Stock units for deferred compensation plan for non-employee directors (in shares)							112,000	114,000	125,000
Effect of convertible preferred stock (in shares)							0	0	7,314,000
Weighted average shares outstanding for calculation of diluted earnings per share (in shares)							23,180,000	23,471,000	21,864,000
Net income per common share [Abstract]
Basic (in dollars per share)	[1]						$ 0.88	$ 0.79	$ 5.87
Diluted (in dollars per share)							$ 0.86	$ 0.77	$ 3.55
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]
Stock repurchase program percentage of shares authorized to be repurchased										5.00%
Stock repurchased (in shares)							967,199
Stock repurchased							$ 13,500
Shares issued during period (in shares)			1,725,000	11,500,000
Shares issued value during period			$ 13,400	$ 89,100
Net proceeds from the issuance of common stock						$ 97,100
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
Discount											100
UST [Member] | Series B Preferred Stock [Member]
Class of Stock [Line Items]
Liquidation preference (in dollars per share)					$ 1,000
Book balance											87,200
Discount											7,600
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
Discount											$ 7,700
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
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	30,000	100,000
Antidilutive securities excluded from computation of earnings per share (in shares)							30,000	30,000	100,000
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted loss per share (in shares)									346,154
Antidilutive securities excluded from computation of earnings per share (in shares)									346,154

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

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INCOME TAX (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Income tax expense (benefit) [Abstract]
Current		$ 200	$ (359)	$ (277)
Deferred		9,128	7,672	0
Disproportionate tax effect		0	0	1,444
Valuation allowance - change in estimate		35	(118)	(56,018)
Income tax expense (benefit)	$ 1,400	$ 9,363	7,195	(54,851)
Statutory federal income tax rate		35.00%
Reconciliation of income tax benefit [Abstract]
Statutory rate applied to income before income tax		$ 10,283	8,826	7,930
Bank owned life insurance		(449)	(480)	(477)
Tax-exempt income		(434)	(522)	(402)
Unrecognized tax benefit		(135)	(595)	(186)
Non-deductible meals, entertainment and memberships		43	53	55
Net change in valuation allowance		35	(118)	(63,980)
Disproportionate tax effect		0	0	1,444
U.S. Treasury warrant		0	0	359
Share-based compensation		0	0	8
Other, net		20	31	398
Income tax expense (benefit)	1,400	9,363	7,195	(54,851)
Reversal of valuation allowance on net deferred tax assets	$ 57,600
Deferred tax assets [Abstract]
Loss carryforwards		25,516	32,933
Allowance for loan losses		7,901	9,099
Alternative minimum tax credit carry forward		3,427	3,037
Property and equipment		3,369	3,239
Purchase premiums, net		1,755	2,050
Share based payments		786	684
Valuation allowance on other real estate		592	879
Unrealized loss on trading securities		578	559
Deferred compensation		404	448
Other than temporary impairment charge on securities available for sale		382	436
Non accrual loan interest income		232	244
Reserve for unfunded lending commitments		228	189
Loss reimbursement on sold loans reserve		186	242
Unrealized loss on securities available for sale		128	0
Vehicle service contract counterparty contingency reserve		21	521
Gross deferred tax assets		45,505	54,560
Valuation allowance		(1,054)	(1,019)
Total net deferred tax assets		44,451	53,541
Deferred tax liabilities [Abstract]
Capitalized mortgage loan servicing rights		4,353	4,237
Deferred loan fees		256	260
Federal Home Loan Bank stock		45	196
Unrealized gain on securities available for sale		0	87
Other		162	129
Gross deferred tax liabilities		4,816	4,909
Net deferred tax assets		39,635	48,632
Operating loss carryforwards [Abstract]
2030		18,496
2031		17,170
2032		37,739
Total		73,405
Changes in unrecognized tax benefits [Roll Forward]
Balance at beginning of year		1,091	1,672	1,871
Additions based on tax positions related to the current year		20	18	11
Reductions due to the statute of limitations		(135)	(595)	(186)
Reductions due to settlements		0	(4)	(24)
Balance at end of year		976	1,091	1,672
State income tax expense (benefit)		(100)	0	(200)
Unrecognized tax benefits of effective tax rate		300
Penalties and interest expense		0	0	0
Penalties and interest accrued		0	0	$ 0
NOL Unrealized excess benefits on share-based compensation		3,400
Minimum tax credit carryforwards with indefinite lives		$ 3,400
Open tax year		2012
Mepco [Member]
Valuation Allowance [Line Items]
Valuation allowance against deferred tax assets attributable to Mepco		$ 1,100	$ 1,000

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SHARE BASED COMPENSATION AND BENEFIT PLANS (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share based compensation arrangements [Line Items]
Number of additional shares approved for grant (in shares)	300,000
Total compensation cost not yet recognized	$ 1,500
Total compensation cost not yet recognized, period for recognition	1 year 7 months 6 days
Number of Shares [Roll Forward]
Outstanding, beginning balance (in shares)	407,130
Granted (in shares)	108,761
Vested (in shares)	(249,526)
Forfeited (in shares)	(4,384)
Outstanding, ending balance (in shares)	261,981	407,130
Weighted-Average Grant Date Fair Value [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 6.31
Granted (in dollars per share)	13.07
Vested (in dollars per share)	3.92
Forfeited (in dollars per share)	12.88
Outstanding, ending balance (in dollars per share)	$ 11.29	$ 6.31
Summary of weighted-average assumptions used in Black-Scholes option pricing model for grants of stock options [Abstract]
Expected dividend yield			0.31%
Risk-free interest rate			1.12%
Expected life			6 years
Expected volatility			101.30%
Per share weighted-average fair value (in dollars per share)			$ 4.98
Information regarding options exercised [Abstract]
Intrinsic value	$ 444	$ 321	$ 117
Cash proceeds received	137	96	39
Tax benefit realized	$ 155	$ 112	$ 0
Maximum matching contribution, percent	6.00%
Employee matching contribution, percentage	50.00%	100.00%	100.00%
Maximum contribution of employees' eligible wages	4.00%	2.00%	1.00%
Employee stock ownership plan (ESOP), contributions	2.00%	2.00%	3.00%
401(k) and employee stock ownership plans amount expensed	$ 1,200	$ 1,000	$ 1,200
Performance-based compensation expense	5,700	4,200	5,000
Health care and life insurance expense	3,600	3,900	3,800
Long-term incentive plan [Member]
Share based compensation arrangements [Line Items]
Total compensation expense (recovery) recognized	1,400	1,000	900
Tax benefit relating to compensation expense recognized	$ 500	$ 400	$ 0
Stock Options [Member]
Number of Shares [Roll Forward]
Outstanding, beginning balance (in shares)	281,820
Granted (in shares)	0
Exercised (in shares)	(42,204)
Forfeited (in shares)	(2,096)
Expired (in shares)	(1,924)
Outstanding, ending balance (in shares)	235,596	281,820
Vested and expected to vest, period end (in shares)	234,949
Exercisable, period end (in shares)	213,154
Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 4.69
Exercised (in dollars per share)	3.25
Forfeited (in dollars per share)	4.77
Expired (in dollars per share)	6.79
Outstanding, ending balance (in dollars per share)	4.94	$ 4.69
Vested and expected to vest, period end (in dollars per share)	4.93
Exercisable, period end (in dollars per share)	$ 4.78
Weighted-Average Remaining Contractual Term (Years) [Abstract]
Outstanding, Weighted-Average Remaining Contractual Term	6 years 1 month 13 days
Vested and Expected to Vest, Weighted-Average Remaining Contractual Term	6 years 1 month 10 days
Exercisable, Weighted-Average Remaining Contractual Term	5 years 11 months 23 days
Aggregate Intrinsic Value [Abstract]
Outstanding, Aggregate Intrinsic Value	$ 2,443
Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value	2,437
Exercisable, Aggregate Intrinsic Value	$ 2,245
Director [Member]
Share based compensation arrangements [Line Items]
Shares issues as retainer fees (in shares)	10,000	10,000	60,000
President [Member]
Share based compensation arrangements [Line Items]
Salary stock	$ 0	$ 0	$ 20
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)	70,000	70,000	100,000
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	30,000
Vesting period	3 years	3 years
Senior Officers [Member] | Stock Options [Member] | Long-term incentive plan [Member]
Share based compensation arrangements [Line Items]
Vesting period			3 years
Number of stock options issued to officers (in shares)			100,000
Expire period from date of grant of stock option			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	$ 100	$ 200	$ 300
Tax benefit relating to compensation expense recognized	$ 30	$ 100	$ 0

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OTHER NON-INTEREST INCOME (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
OTHER NON-INTEREST INCOME [Abstract]
Investment and insurance commissions	$ 1,827	$ 1,814	$ 1,709
ATM fees	1,551	1,599	1,661
Bank owned life insurance	1,282	1,371	1,363
Other real estate rental income	128	1,295	1,471
Other	2,904	2,852	2,333
Total other non-interest income	$ 7,692	$ 8,931	$ 8,537

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DERIVATIVE FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2015	Dec. 31, 2014	Apr. 16, 2013
Derivative financial instrument according to type of hedge[ Abstract]
Termination fee		$ 600
Completed securities trade	$ 13,000
Fair value of amended warrant was reclassified into shareholders' equity					$ 1,500
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives			$ 1,238	$ 619
Liability Derivatives			619	366
No Hedge Designation [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount			$ 126,271	$ 61,959
Average Maturity			3 years 8 months 12 days	1 year 1 month 6 days
Fair Value			$ 619	$ 253
No Hedge Designation [Member] | Rate-Lock Mortgage Loan Commitments [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount			$ 20,581	$ 16,759
Average Maturity			1 month 6 days	1 month 6 days
Fair Value			$ 550	$ 437
No Hedge Designation [Member] | Mandatory Commitments to Sell Mortgage Loans [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount			$ 46,320	$ 38,600
Average Maturity			1 month 6 days	1 month 6 days
Fair Value			$ 69	$ (184)
No Hedge Designation [Member] | Purchased Options [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount			$ 2,098
Average Maturity			5 years 8 months 12 days
Fair Value			$ 122
No Hedge Designation [Member] | Written Options [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount			$ 2,098
Average Maturity			5 years 8 months 12 days
Fair Value			$ (122)
Fixed Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount			$ 27,587	$ 3,300
Average Maturity			8 years	9 years 4 months 24 days
Fair Value			$ (497)	$ (182)
Variable Income Interest Rate [Member] | No Hedge Designation [Member] | Interest Rate Swap [Member]
Derivative financial instrument according to type of hedge[ Abstract]
Notional Amount			$ 27,587	$ 3,300
Average Maturity			8 years	9 years 4 months 24 days
Fair Value			$ 497	$ 182
Other Assets [Member] | No Hedge Designation [Member] | Rate-Lock Mortgage Loan Commitments [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives			550	437
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			69	0
Other Assets [Member] | No Hedge Designation [Member] | Purchased Options [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives			122	0
Other Assets [Member] | No Hedge Designation [Member] | Written Options [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Asset Derivatives			0	0
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			497	182
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			0	184
Other Liabilities [Member] | No Hedge Designation [Member] | Purchased Options [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives			0	0
Other Liabilities [Member] | No Hedge Designation [Member] | Written Options [Member]
Fair value of derivative instruments, balance sheet location [Abstract]
Liability Derivatives			122	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			497	182
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

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DERIVATIVE FINANCIAL INSTRUMENTS, Effect on Statement of Operations (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Cash Flow Hedge [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Loss Recognized in Other Comprehensive Income (Loss) (Effective Portion)		$ 0	$ 0	$ (37)
Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)		0	(380)	(397)
Gain (Loss) Recognized in Income	[1]	0	0	0
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]
Loss Recognized in Other Comprehensive Income (Loss) (Effective Portion)		0	0	(37)
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]
Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)		0	(380)	(397)
Gain (Loss) Recognized in Income	[1]	0	0	0
No Hedge Designation [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	[1]	366	54	(1,777)
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	[1]	113	71	(1,002)
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	[1]	253	(312)	250
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	[1]	0	295	0
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	[1]	0	0	(1,025)
No Hedge Designation [Member] | Purchased Options [Member] | Interest Expense [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	[1]	122	0	0
No Hedge Designation [Member] | Written Options [Member] | Interest Expense [Member]
Effect of derivative financial instruments on the consolidated financial statements of operations [Abstract]
Gain (Loss) Recognized in Income	[1]	(122)	0	0
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	[1]	(315)	(182)	0
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	[1]	$ 315	$ 182	$ 0

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

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RELATED PARTY TRANSACTIONS (Details) - USD ($)	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Related Party Transaction [Line Items]
Borrowing relationship exceeds level	$ 60,000
Summary of loans and leases receivable [Roll Forward]
Balance at beginning of year	216,000	$ 351,000
New loans and advances	0	0
Repayments	(26,000)	(135,000)
Balance at end of year	190,000	216,000
Directors and executive officers deposit	$ 1,300,000	$ 1,000,000
Minimum [Member]
Related Party Transaction [Line Items]
Related party entity ownership percentage	10.00%

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LEASES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Summary of future minimum lease payments under non-cancelable operating leases [Abstract]
2016	$ 1,054
2017	862
2018	809
2019	720
2020	666
2021 and thereafter	253
Total	4,364
Rental expense on operating leases	$ 1,200	$ 1,300	$ 1,200

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CONCENTRATIONS OF CREDIT RISK (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014
Concentration Risk [Line Items]
Payment plan receivables	$ 34,599	$ 40,001
Residential Real Estate [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	538,500
Construction and Development Loans [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	62,600
Lessors of Nonresidential Real Estate [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	259,100
Lessors of Residential Real Estate [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	82,100
Health Care and Social Assistance [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	67,800
Construction General Contractors and Land Development [Member]
Concentration Risk [Line Items]
Concentration of risk loans receivable	$ 54,400
Service Contract 1 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company	42.40%
Concentration risk vehicle service	62.20%
Service Contract 2 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company	24.00%
Concentration risk vehicle service	11.70%
Service Contract 3 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company	15.00%
Concentration risk vehicle service	9.40%
Service Contract 4 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company	7.80%
Concentration risk vehicle service	5.40%
Service Contract 5 [Member]
Concentration Risk [Line Items]
Concentrations by insurance company	3.70%
Concentration risk vehicle service	3.80%

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REGULATORY MATTERS (Details) - USD ($) $ in Thousands	Feb. 13, 2015	Mar. 28, 2014	Dec. 31, 2015	Feb. 17, 2015	Dec. 31, 2014	Apr. 09, 2014	Dec. 31, 2013	Dec. 31, 2012
REGULATORY MATTERS [Abstract]
Undivided profits			$ (10,100)
Maximum percentage of allowance for loan losses and allowance for unfunded lending commitments			1.25%
Request for approval to transfer capital from bank to parent entity	$ 18,500	$ 15,000
Transfer of capital from bank to the parent company				$ 18,500		$ 15,000
Components of regulatory capital [Abstract]
Total shareholders' equity			$ 251,092		$ 250,371		$ 231,581	$ 134,975
Add (deduct) [Abstract]
Accumulated other comprehensive loss for regulatory purposes			(6,036)		(5,636)
Intangible assets			(2,280)		(2,627)
Consolidated [Member]
Total capital to risk-weighted assets [Abstract]
Total risk-based capital			278,170		265,163
Minimum for Adequately Capitalized Institutions, Amount			$ 133,668		$ 117,427
Actual, Ratio			16.65%		18.06%
Minimum for Adequately Capitalized Institutions, Ratio			8.00%		8.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 257,050		$ 246,628
Minimum for Adequately Capitalized Institutions, Amount			$ 100,251		$ 58,714
Actual, Ratio			15.38%		16.80%
Minimum for Adequately Capitalized Institutions, Ratio			6.00%		4.00%
Common equity tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 239,271		$ 212,128
Minimum for Adequately Capitalized Institutions, Amount			$ 75,188
Actual, Ratio			14.32%
Minimum for Adequately Capitalized Institutions, Ratio			4.50%
Tier 1 capital to average assets [Abstract]
Tier 1 capital			$ 257,050		246,628
Minimum for Adequately Capitalized Institutions, Amount			$ 94,217		$ 88,206
Actual, Ratio			10.91%		11.18%
Minimum for Adequately Capitalized Institutions, Ratio			4.00%		4.00%
Components of regulatory capital [Abstract]
Total shareholders' equity			$ 251,092		$ 250,371
Add (deduct) [Abstract]
Accumulated other comprehensive loss for regulatory purposes			238		5,636
Intangible assets			(912)		(2,627)
Disallowed deferred tax assets			(11,147)		(40,500)
Disallowed capitalized mortgage loan servicing rights			0		(752)
Common equity tier 1 capital			239,271		212,128
Qualifying trust preferred securities			34,500		34,500
Disallowed deferred tax assets			(16,721)		0
Tier 1 capital			257,050		246,628
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets			21,120		18,535
Total risk-based capital			278,170		265,163
Independent Bank [Member]
Total capital to risk-weighted assets [Abstract]
Total risk-based capital			261,894		247,883
Minimum for Adequately Capitalized Institutions, Amount			133,514		117,374
Minimum for Well Capitalized Institutions, Amount			$ 166,893		$ 146,718
Actual, Ratio			15.69%		16.90%
Minimum for Adequately Capitalized Institutions, Ratio			8.00%		8.00%
Minimum for Well-Capitalized Institutions, Ratio			10.00%		10.00%
Tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 240,867		$ 229,361
Minimum for Adequately Capitalized Institutions, Amount			100,136		58,687
Minimum for Well-Capitalized Institutions, Amount			$ 133,514		$ 88,031
Actual, Ratio			14.43%		15.63%
Minimum for Adequately Capitalized Institutions, Ratio			6.00%		4.00%
Minimum for Well Capitalized Institutions, Ratio			8.00%		6.00%
Common equity tier 1 capital to risk-weighted assets [Abstract]
Actual, Amount			$ 240,867		$ 229,361
Minimum for Adequately Capitalized Institutions, Amount			75,102
Minimum for Well-Capitalized Institutions, Amount			$ 108,480
Actual, Ratio			14.43%
Minimum for Adequately Capitalized Institutions, Ratio			4.50%
Minimum for Well Capitalized Institutions, Ratio			6.50%
Tier 1 capital to average assets [Abstract]
Tier 1 capital			$ 240,867		229,361
Minimum for Adequately Capitalized Institutions, Amount			94,145		87,687
Minimum for Well-Capitalized Institutions, Amount			$ 117,682		$ 109,609
Actual, Ratio			10.23%		10.46%
Minimum for Adequately Capitalized Institutions, Ratio			4.00%		4.00%
Minimum for Well-Capitalized Institutions, Ratio			5.00%		5.00%
Components of regulatory capital [Abstract]
Total shareholders' equity			$ 259,947		$ 257,832
Add (deduct) [Abstract]
Accumulated other comprehensive loss for regulatory purposes			238		5,636
Intangible assets			(912)		(2,627)
Disallowed deferred tax assets			(18,406)		(30,728)
Disallowed capitalized mortgage loan servicing rights			0		(752)
Common equity tier 1 capital			240,867		229,361
Qualifying trust preferred securities			0		0
Disallowed deferred tax assets			0		0
Tier 1 capital			240,867		229,361
Allowance for loan losses and allowance for unfunded lending commitments limited to 1.25% of total risk-weighted assets			21,027		18,522
Total risk-based capital			$ 261,894		$ 247,883

XML

FAIR VALUE DISCLOSURES, Part 1 (Details) - USD ($) $ in Thousands		Dec. 31, 2015	Dec. 31, 2014
FAIR VALUE DISCLOSURES [Abstract]
Value of collateral-dependent impaired loans that will be reviewed by independent third party, minimum		$ 250
Value of collateral-dependent impaired loans that will be reviewed by special assets group, maximum		250
Assets [Abstract]
Trading securities		148	$ 203
Securities available for sale		585,484	533,178
U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		47,512	35,006
U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		196,056	257,558
U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		34,028	33,728
Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		4,903	6,013
Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		116,904	32,353
Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale		144,984	143,415
Corporate [Member]
Assets [Abstract]
Securities available for sale		38,614	22,664
Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		2,483	2,441
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities		148	203
Loans held for sale		27,866	23,662
Derivatives	[1]	1,238	619
Liabilities [Abstract]
Derivatives	[2]	619	366
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		47,512	35,006
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		196,056	257,558
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency Commercial Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		34,028	33,728
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		4,903	6,013
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		116,904	32,353
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Obligations of States and Political Subdivisions [Member]
Assets [Abstract]
Securities available for sale		144,984	143,415
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale		38,614	22,664
Fair Value Measurements [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		2,483	2,441
Fair Value Measurements [Member] | Fair Value, Measurements, Nonrecurring [Member]
ASSETS [Abstract]
Capitalized mortgage loan servicing rights	[3]	8,481	9,197
Fair Value Measurements [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	[4]	711	869
Land, land development & construction - real estate	[4]	40	354
Commercial and industrial	[4]	1,257	2,601
Mortgage [Abstract]
1-4 Family	[4]	421	1,306
Resort Lending	[4]	129
Commercial [Abstract]
Income producing - real estate	[4]	711	869
Land, land development & construction - real estate	[4]	40	354
Commercial and industrial	[4]	1,257	2,601
Mortgage [Abstract]
1-4 Family	[4]	421	1,306
Resort Lending	[4]	129
Fair Value Measurements [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Income producing - real estate	[5]		479
Land, land development & construction - real estate	[5]	639	737
Commercial and industrial	[5]	165
Mortgage [Abstract]
1-4 Family	[5]	26	102
Resort Lending	[5]	107	575
Commercial [Abstract]
Income producing - real estate	[5]		479
Land, land development & construction - real estate	[5]	639	737
Commercial and industrial	[5]	165
Mortgage [Abstract]
1-4 Family	[5]	26	102
Resort Lending	[5]	107	575
Home Equity Mortgage 1st Lien Fair Value Disclosure	[5]	14
Installment [Abstract]
Home equity - 1st lien	[5]	36	13
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets [Abstract]
Trading securities		148	203
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		148	203
Loans held for sale		0	0
Derivatives	[1]	0	0
Liabilities [Abstract]
Derivatives	[2]	0	0
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	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	[3]	0	0
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	[4]	0	0
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]	0
Commercial [Abstract]
Income producing - real estate	[4]	0	0
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]	0
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	[5]		0
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]	0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Commercial [Abstract]
Income producing - real estate	[5]		0
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]	0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Home Equity Mortgage 1st Lien Fair Value Disclosure	[5]	0
Installment [Abstract]
Home equity - 1st lien	[5]	0	0
Significant Other Observable Inputs (Level 2) [Member]
Assets [Abstract]
Trading securities		0	0
Securities available for sale		585,484	533,178
Derivatives		1,238	619
Liabilities [Abstract]
Derivatives		619	366
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities		0	0
Loans held for sale		27,866	23,662
Derivatives	[1]	1,238	619
Liabilities [Abstract]
Derivatives	[2]	619	366
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | U.S. Agency [Member]
Assets [Abstract]
Securities available for sale		47,512	35,006
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		196,056	257,558
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		34,028	33,728
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Private Label Residential Mortgage-Backed [Member]
Assets [Abstract]
Securities available for sale		4,903	6,013
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Other Asset Backed [Member]
Assets [Abstract]
Securities available for sale		116,904	32,353
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		144,984	143,415
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Corporate [Member]
Assets [Abstract]
Securities available for sale		38,614	22,664
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Recurring [Member] | Trust Preferred [Member]
Assets [Abstract]
Securities available for sale		2,483	2,441
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member]
ASSETS [Abstract]
Capitalized mortgage loan servicing rights	[3]	0	0
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	[4]	0	0
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]	0
Commercial [Abstract]
Income producing - real estate	[4]	0	0
Land, land development & construction - real estate	[4]	0	0
Commercial and industrial	[4]	0	0
Mortgage [Abstract]
1-4 Family	[4]	0	0
Resort Lending	[4]	0
Significant Other Observable Inputs (Level 2) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Income producing - real estate	[5]		0
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]	0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Commercial [Abstract]
Income producing - real estate	[5]		0
Land, land development & construction - real estate	[5]	0	0
Commercial and industrial	[5]	0
Mortgage [Abstract]
1-4 Family	[5]	0	0
Resort Lending	[5]	0	0
Home Equity Mortgage 1st Lien Fair Value Disclosure	[5]	0
Installment [Abstract]
Home equity - 1st lien	[5]	0	0
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		8,481	9,197
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member]
Assets [Abstract]
Trading securities		0	0
Loans held for sale		0	0
Derivatives	[1]	0	0
Liabilities [Abstract]
Derivatives	[2]	0	0
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	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	[3]	8,481	9,197
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Impaired Loans [Member]
Commercial [Abstract]
Income producing - real estate	[4]	711	869
Land, land development & construction - real estate	[4]	40	354
Commercial and industrial	[4]	1,257	2,601
Mortgage [Abstract]
1-4 Family	[4]	421	1,306
Resort Lending	[4]	129
Commercial [Abstract]
Income producing - real estate	[4]	711	869
Land, land development & construction - real estate	[4]	40	354
Commercial and industrial	[4]	1,257	2,601
Mortgage [Abstract]
1-4 Family	[4]	421	1,306
Resort Lending	[4]	129
Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Nonrecurring [Member] | Other Real Estate [Member]
Commercial [Abstract]
Income producing - real estate	[5]		479
Land, land development & construction - real estate	[5]	639	737
Commercial and industrial	[5]	165
Mortgage [Abstract]
1-4 Family	[5]	26	102
Resort Lending	[5]	107	575
Commercial [Abstract]
Income producing - real estate	[5]		479
Land, land development & construction - real estate	[5]	639	737
Commercial and industrial	[5]	165
Mortgage [Abstract]
1-4 Family	[5]	26	102
Resort Lending	[5]	107	575
Home Equity Mortgage 1st Lien Fair Value Disclosure	[5]	14
Installment [Abstract]
Home equity - 1st lien	[5]	$ 36	$ 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.

XML

FAIR VALUE DISCLOSURES, Part 2 (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Impairment charges recognized [Abstract]
Capitalized mortgage loan servicing rights, carrying amount	$ 8,500	$ 9,200
Capitalized mortgage loan servicing rights, valuation allowance	3,272	3,773	$ 2,855
Capitalized mortgage loan servicing rights recoveries	500	(900)	3,200
Collateral dependent loans, carrying amount	5,100	8,200
Collateral dependent loans, valuation allowance	2,500	3,100
Additional provision for loan losses on impaired loans	1,100	2,100	1,500
Other real estate, carrying amount	1,000	1,900
Other real estate, valuation allowance	1,692	2,511	4,047	$ 5,958
Other real estate, additional charge	300	300	1,600
Impaired Loans Commercial [Member]
Impairment charges recognized [Abstract]
Total impaired collateral value	$ 400	$ 1,100
Impaired Loans Commercial [Member] | Minimum [Member]
Impairment charges recognized [Abstract]
Discount rate	0.00%	35.00%
Impaired Loans Commercial [Member] | Maximum [Member]
Impairment charges recognized [Abstract]
Discount rate	100.00%	100.00%
Trading Securities [Member]
Changes in fair value for financial assets [Abstract]
Net Gains (Losses) on Assets	$ (55)	$ (295)	388
Total Change in Fair Values Included in Current Period Earnings	(55)	(295)	388
Loans Held For Sale [Member]
Changes in fair value for financial assets [Abstract]
Net Gains (Losses) on Assets	90	258	(1,477)
Total Change in Fair Values Included in Current Period Earnings	$ 90	$ 258	$ (1,477)

XML

FAIR VALUE DISCLOSURES, Part 3 (Details) - USD ($) $ in Thousands	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Fair value option - Loans held for sale [Abstract]
Loans held for sale	$ 27,866	$ 23,662
Difference	714	624	$ 366
Aggregate Fair Value [Member]
Fair value option - Loans held for sale [Abstract]
Loans held for sale	27,866	23,662	20,390
Contractual Principal [Member]
Fair value option - Loans held for sale [Abstract]
Loans held for sale	$ 27,152	$ 23,038	$ 20,024

XML

FAIR VALUE DISCLOSURES, Part 4 (Details) - USD ($)		12 Months Ended
		Dec. 31, 2015	Dec. 31, 2014
Significant Unobservable Inputs (Level 3) [Member]
Asset (Liability) Fair Value [Abstract]
Capitalized mortgage loan servicing rights		$ 8,481,000	$ 9,197,000
Impaired loan [Abstract]
Commercial	[1]	1,605,000	2,751,000
Mortgage		550,000	1,306,000
Other real estate [Abstract]
Commercial		804,000	1,216,000
Mortgage and Installment		$ 183,000	$ 690,000
Income Approach [Member] | Impaired Loans Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Capitalization rate		9.30%	9.30%
Present Value of Net Servicing Revenue [Member]
Unobservable Inputs Weighted Average [Abstract]
Discount rate		10.04%	10.07%
Cost to service		$ 80	$ 82
Ancillary income		$ 24	$ 25
Float rate		1.73%	1.77%
Sales Comparison Approach [Member] | Impaired Loans Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales	[1]	(2.10%)	(3.80%)
Sales Comparison Approach [Member] | Impaired Loans Mortgage [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales		0.70%	8.60%
Sales Comparison Approach [Member] | Other Real Estate Commercial [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales		(3.90%)	(9.00%)
Capitalization rate		75.60%
Sales Comparison Approach [Member] | Other Real Estate Mortgage and Installment [Member]
Unobservable Inputs Weighted Average [Abstract]
Adjustment for differences between comparable sales			34.30%

[1] In addition to the valuation techniques and unobservable inputs discussed above, at December 31, 2015 and 2014, we had an impaired collateral dependent commercial relationship that totaled $0.4 million and $1.1 million, respectively that was primarily secured by collateral other than real estate. Collateral securing this relationship primarily included machinery and equipment and inventory at December 31, 2015 and 2014 and also included accounts receivable at December 31, 2014. Valuation techniques at December 31, 2015, included appraisals and discounting restructuring firm valuations based on estimates of value recovery of each particular asset type. Discount rates used ranged from 0% to 100% of stated values. Valuation techniques at December 31, 2014, 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.

XML

FAIR VALUES OF FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands		Dec. 31, 2015	Dec. 31, 2014
Assets [Abstract]
Interest bearing deposits - time		$ 11,866	$ 13,561
Trading securities		148	203
Securities available for sale		585,484	533,178
Federal Home Loan Bank and Federal Reserve Bank Stock		15,471	19,919
Liabilities [Abstract]
Deposits with stated maturity		426,220
Other borrowings		11,954	12,470
Subordinated debentures		35,569	35,569
Reciprocal deposits included in deposits with no stated maturity		11,800	13,600
Reciprocal deposits included in deposits with stated maturity		38,400	40,100
Recorded Book Balance [Member]
Assets [Abstract]
Cash and due from banks		54,260	48,326
Interest bearing deposits		31,523	25,690
Interest bearing deposits - time		11,866	13,561
Trading securities		148	203
Securities available for sale		585,484	533,178
Federal Home Loan Bank and Federal Reserve Bank Stock		15,471	19,919
Net loans and loans held for sale		1,520,346	1,407,634
Accrued interest receivable		6,565	5,995
Derivative financial instruments		1,238	619
Liabilities [Abstract]
Deposits with no stated maturity	[1]	1,659,743	1,534,175
Deposits with stated maturity	[1]	426,220	390,127
Other borrowings		11,954	12,470
Subordinated debentures		35,569	35,569
Accrued interest payable		466	380
Derivative financial instruments		619	366
Fair Value [Member]
Assets [Abstract]
Cash and due from banks		54,260	48,326
Interest bearing deposits		31,523	25,690
Interest bearing deposits - time		11,858	13,585
Trading securities		148	203
Securities available for sale		585,484	533,178
Net loans and loans held for sale		1,472,613	1,394,424
Accrued interest receivable		6,565	5,995
Derivative financial instruments		1,238	619
Liabilities [Abstract]
Deposits with no stated maturity	[1]	1,659,743	1,534,175
Deposits with stated maturity	[1]	423,776	389,139
Other borrowings		13,448	14,560
Subordinated debentures		23,069	23,328
Accrued interest payable		466	380
Derivative financial instruments		619	366
Quoted Prices in Active Markets for Identical Assets, (Level 1) [Member]
Assets [Abstract]
Cash and due from banks		54,260	48,326
Interest bearing deposits		31,523	25,690
Interest bearing deposits - time		0	0
Trading securities		148	203
Securities available for sale		0	0
Net loans and loans held for sale		0	0
Accrued interest receivable		5	2
Derivative financial instruments		0	0
Liabilities [Abstract]
Deposits with no stated maturity	[1]	1,659,743	1,534,175
Deposits with stated maturity	[1]	0	0
Other borrowings		0	0
Subordinated debentures		0	0
Accrued interest payable		21	21
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		11,858	13,585
Trading securities		0	0
Securities available for sale		585,484	533,178
Net loans and loans held for sale		27,866	23,662
Accrued interest receivable		1,969	1,599
Derivative financial instruments		1,238	619
Liabilities [Abstract]
Deposits with no stated maturity	[1]	0	0
Deposits with stated maturity	[1]	423,776	389,139
Other borrowings		13,448	14,560
Subordinated debentures		23,069	23,328
Accrued interest payable		445	359
Derivative financial instruments		619	366
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		1,444,747	1,370,762
Accrued interest receivable		4,591	4,394
Derivative financial instruments		0	0
Liabilities [Abstract]
Deposits with no stated maturity	[1]	0	0
Deposits with stated maturity	[1]	0	0
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 $11.8 million and $13.6 million at December 31, 2015 and 2014, respectively. Deposits with a stated maturity include reciprocal deposits with a recorded book balance of $38.4 million and $40.1 million at December 31, 2015 and 2014, respectively.

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OPERATING SEGMENTS (Details) $ in Thousands		3 Months Ended	12 Months Ended
		Jun. 30, 2013 USD ($)	Dec. 31, 2015 USD ($) Segment	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)
OPERATING SEGMENTS [Abstract]
Number of reportable segments | Segment			2
Selected financial information for reportable segments [Abstract]
Total assets			$ 2,409,066	$ 2,248,730	$ 2,209,943
Interest income			80,842	80,555	87,121
Net interest income			74,986	73,256	77,959
Provision for loan losses			(2,714)	(3,136)	(3,988)
Income (loss) before income tax			29,380	25,216	22,658
Net income (loss)			20,017	18,021	77,509
Reversal of valuation allowance on net deferred tax assets		$ 57,600
IB [Member]
Selected financial information for reportable segments [Abstract]
Reversal of valuation allowance on net deferred tax assets					47,100
Other [Member]
Selected financial information for reportable segments [Abstract]
Total assets	[1],[2]		286,936	286,158	272,348
Interest income	[1],[2]		72	64	0
Net interest income	[1],[2]		(949)	(1,398)	(2,317)
Provision for loan losses	[1],[2]		0	0	0
Income (loss) before income tax	[1],[2]		(1,478)	(1,095)	(3,961)
Net income (loss)	[1],[2]		(936)	(712)	5,092
Reversal of valuation allowance on net deferred tax assets					9,000
Reportable Segments [Member] | IB [Member]
Selected financial information for reportable segments [Abstract]
Total assets			2,340,566	2,174,536	2,104,550
Interest income			75,552	73,551	76,018
Net interest income			71,448	68,948	71,496
Provision for loan losses			(2,705)	(3,098)	(3,891)
Income (loss) before income tax			32,136	25,845	29,605
Net income (loss)			21,727	18,550	74,313
Reportable Segments [Member] | Mepco [Member]
Selected financial information for reportable segments [Abstract]
Total assets			57,208	63,378	94,648
Interest income			5,290	7,004	11,103
Net interest income			4,487	5,706	8,780
Provision for loan losses			(9)	(38)	(97)
Income (loss) before income tax			(1,183)	561	(2,891)
Net income (loss)			(712)	366	(1,801)
Elimination [Member]
Selected financial information for reportable segments [Abstract]
Total assets	[3]		(275,644)	(275,342)	(261,603)
Interest income	[3]		(72)	(64)	0
Net interest income	[3]		0	0	0
Provision for loan losses	[3]		0	0	0
Income (loss) before income tax	[3]		(95)	(95)	(95)
Net income (loss)	[3]		$ (62)	$ (183)	$ (95)

[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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ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of period		$ 250,371	$ 231,581	$ 134,975
Balances at end of the period		251,092	250,371	231,581
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net impairment loss recognized in earnings		0	9	26
Total reclassifications before tax		29,380	25,216	22,658
Interest expense		5,856	7,299	9,162
Tax expense (benefit)	$ 1,400	9,363	7,195	(54,851)
Total reclassifications for the period, net of tax		20,017	18,021	77,509
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)
Accumulated Other Comprehensive Loss [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period				(8,058)
Accumulated other comprehensive income (loss), tax effect at beginning of period				0
Balance at beginning of period		(5,636)	(9,245)	(8,058)
Terminated cash flow hedge				0
Other comprehensive income (loss) before reclassifications		(351)	3,570	(2,901)
Amounts reclassified from AOCL		(49)	39	1,714
Net current period other comprehensive income (loss)		(400)	3,609	(1,187)
Balances at end of the period		(6,036)	(5,636)	(9,245)
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications for the period, net of tax		0	0	0
Unrealized Losses on Securities Available For Sale [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Accumulated other comprehensive income (loss) before tax at beginning of period				(516)
Accumulated other comprehensive income (loss), tax effect at beginning of period				181
Balance at beginning of period		162	(3,200)	(335)
Terminated cash flow hedge				0
Other comprehensive income (loss) before reclassifications		(351)	3,570	(2,877)
Amounts reclassified from AOCL		(49)	(208)	12
Net current period other comprehensive income (loss)		(400)	3,362	(2,865)
Balances at end of the period		(238)	162	(3,200)
Unrealized Losses on Securities Available For Sale [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net gains on securities		75	329	7
Net impairment loss recognized in earnings		0	(9)	(26)
Total reclassifications before tax		75	320	(19)
Tax expense (benefit)		26	112	(7)
Total reclassifications for the period, net of tax		49	208	(12)
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)
Accumulated other comprehensive income (loss), tax effect at beginning of period				(181)
Balance at beginning of period		(5,798)	(5,798)	(5,798)
Terminated cash flow hedge				0
Other comprehensive income (loss) before reclassifications		0	0	0
Amounts reclassified from AOCL		0	0	0
Net current period other comprehensive income (loss)		0	0	0
Balances at end of the period		(5,798)	(5,798)	(5,798)
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)
Accumulated other comprehensive income (loss), tax effect at beginning of period				258
Balance at beginning of period		0	0	(481)
Terminated cash flow hedge				370
Other comprehensive income (loss) before reclassifications		0	0	(24)
Amounts reclassified from AOCL		0	0	135
Net current period other comprehensive income (loss)		0	0	111
Balances at end of the period		0	0	0
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)
Tax expense (benefit)				(73)
Total reclassifications for the period, net of tax				(135)
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
Accumulated other comprehensive income (loss), tax effect at beginning of period				0
Balance at beginning of period		0	(247)	0
Terminated cash flow hedge				(370)
Other comprehensive income (loss) before reclassifications		0	0	0
Amounts reclassified from AOCL		0	247	123
Net current period other comprehensive income (loss)		0	247	123
Balances at end of the period		0	0	(247)
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)
Tax expense (benefit)			(133)	(66)
Total reclassifications for the period, net of tax			(247)	(123)
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)
Accumulated other comprehensive income (loss), tax effect at beginning of period				(258)
Balance at beginning of period		0	0	(1,444)
Terminated cash flow hedge				0
Other comprehensive income (loss) before reclassifications		0	0	0
Amounts reclassified from AOCL		0	0	1,444
Net current period other comprehensive income (loss)		0	0	1,444
Balances at end of the period		$ 0	$ 0	0
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

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INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
ASSETS [Abstract]
Cash and due from banks		$ 54,260	$ 48,326
Interest bearing deposits - time		11,866	13,561
Other assets		23,733	23,590
Total Assets		2,409,066	2,248,730	$ 2,209,943
LIABILITIES AND SHAREHOLDERS' EQUITY [Abstract]
Subordinated debentures		35,569	35,569
Other liabilities		23,691	24,041
Shareholders' equity		251,092	250,371	231,581	$ 134,975
Total Liabilities and Shareholders' Equity		2,409,066	2,248,730
OPERATING INCOME (LOSS) [Abstract]
Interest income		80,842	80,555	87,121
Gains on extinguishment of debt		0	500	0
Increase in fair value of U.S. Treasury warrant		0	0	(1,025)
OPERATING EXPENSES [Abstract]
Interest expense		5,856	7,299	9,162
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		29,380	25,216	22,658
Income tax benefit	$ 1,400	9,363	7,195	(54,851)
Net Income		20,017	18,021	77,509
CONDENSED STATEMENTS OF CASH FLOWS [Abstract]
Net income		20,017	18,021	77,509
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES [Abstract]
Deferred income taxes		8,997	8,918	(57,550)
Share based compensation		1,477	1,192	1,238
Gains on extinguishment of debt		0	(500)	0
Decrease in other assets		(1,387)	(2,579)	7,747
Increase (decrease) in other liabilities		(196)	(7,213)	(3,508)
Total Adjustments		4,018	(4,950)	(25,439)
Net Cash From Operating Activities		24,035	13,071	52,070
CASH FLOW FROM INVESTING ACTIVITIES [Abstract]
Purchases of interest bearing deposits - time		(4,595)	(2,401)	(20,260)
Maturity of interest bearing deposits - time		6,222	6,719	2,142
Net Cash Used in Investing Activities		(160,513)	(82,116)	(221,068)
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES [Abstract]
Repurchase of common stock		(13,498)	0	0
Dividends paid		(5,896)	(4,129)	0
Proceeds from issuance of common stock		112	97	98,066
Share based compensation withholding obligation		(1,091)	0	(513)
Redemption of subordinated debt		0	(4,654)	(9,452)
Redemption of convertible preferred stock and common stock warrant		0	0	(81,000)
Net Cash From Financing Activities		148,245	23,980	108,297
Net Increase (Decrease) in Cash and Cash Equivalents		11,767	(45,065)	(60,701)
Cash and Cash Equivalents at Beginning of Year		74,016	119,081	179,782
Cash and Cash Equivalents at End of Year		85,783	74,016	119,081
Parent Company [Member]
ASSETS [Abstract]
Cash and due from banks		10,800	5,174
Interest bearing deposits - time		5,000	12,500
Investment in subsidiaries		261,016	258,901
Other assets		10,120	9,583
Total Assets		286,936	286,158
LIABILITIES AND SHAREHOLDERS' EQUITY [Abstract]
Subordinated debentures		35,569	35,569
Other liabilities		378	382
Shareholders' equity		250,989	250,207
Total Liabilities and Shareholders' Equity		286,936	286,158
OPERATING INCOME (LOSS) [Abstract]
Interest income		72	64	0
Gains on extinguishment of debt		0	500	0
Gain on securities		0	295	0
Increase in fair value of U.S. Treasury warrant		0	0	(1,025)
Other income		31	35	63
Total Operating Income (Loss)		103	894	(962)
OPERATING EXPENSES [Abstract]
Interest expense		1,021	1,462	2,317
Administrative and other expenses		560	527	682
Total Operating Expenses		1,581	1,989	2,999
Loss Before Income Tax and Equity in Undistributed Net Income of Subsidiaries		(1,478)	(1,095)	(3,961)
Income tax benefit		(542)	(383)	(9,053)
Income (Loss) Before Equity in Undistributed Net Income of Subsidiaries		(936)	(712)	5,092
Equity in undistributed net income of subsidiaries		20,953	18,733	72,417
Net Income		20,017	18,021	77,509
CONDENSED STATEMENTS OF CASH FLOWS [Abstract]
Net income		20,017	18,021	77,509
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES [Abstract]
Deferred income taxes		(542)	(383)	(8,955)
Share based compensation		21	46	84
Gains on extinguishment of debt		0	(500)	0
Gain on securities		0	(295)	0
Decrease in other assets		5	118	738
Increase (decrease) in other liabilities		(6)	287	(5,858)
Equity in undistributed net income of subsidiaries operations		(20,953)	(18,733)	(72,417)
Total Adjustments		(21,475)	(19,460)	(86,408)
Net Cash From Operating Activities		(1,458)	(1,439)	(8,899)
CASH FLOW FROM INVESTING ACTIVITIES [Abstract]
Purchases of interest bearing deposits - time		(5,000)	(17,500)	0
Maturity of interest bearing deposits - time		12,500	5,000	0
Return of capital from subsidiary		18,500	15,000	7,500
Net Cash Used in Investing Activities		26,000	2,500	7,500
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES [Abstract]
Repurchase of common stock		(13,498)	0	0
Dividends paid		(5,896)	(4,129)	0
Proceeds from issuance of common stock		1,569	1,242	100,230
Share based compensation withholding obligation		(1,091)	0	(513)
Redemption of subordinated debt		0	(4,654)	(9,452)
Redemption of convertible preferred stock and common stock warrant		0	0	(81,000)
Net Cash From Financing Activities		(18,916)	(7,541)	9,265
Net Increase (Decrease) in Cash and Cash Equivalents		5,626	(6,480)	7,866
Cash and Cash Equivalents at Beginning of Year		5,174	11,654	3,788
Cash and Cash Equivalents at End of Year		$ 10,800	$ 5,174	$ 11,654

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BRANCH SALE (Details) - USD ($) $ in Thousands		3 Months Ended	12 Months Ended
	Aug. 28, 2015	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Branch Location [Line Items]
Net gain on branch sale			$ 1,193	$ 0	$ 0
Midland Branch [Member]
Branch Location [Line Items]
Total deposit liabilities	$ 8,700
Premium payment amount	$ 600
Percentage of average deposit liabilities	6.00%
Average deposit liabilities	$ 9,700
Average days for deposit liabilities	20 days
Number of business days prior to closing date	2 days
Proceeds from Real property and fixed assets	$ 850
Net book value of real property and fixed assets	$ 200
Net gain on branch sale		$ 1,200