SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2010

Commission file number 0-7818

INDEPENDENT BANK CORPORATION

(Exact name of registrant as specified in its charter)

Michigan		38-2032782
(State or jurisdiction of		(I.R.S. Employer Identification
Incorporation or Organization)		Number)

(Address of principal executive offices)

(616) 527-5820

NONE

     Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 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 þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)
YES o NO o

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, no par value		7,515,360
Class		Outstanding at November 4, 2010

 

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

INDEX

				Number(s)
PART I -		Financial Information
Item 1.		Condensed Consolidated Statements of Financial Condition September 30, 2010 and December 31, 2009			3
		Condensed Consolidated Statements of Operations Three- and Nine-month periods ended September 30, 2010 and 2009			4
		Condensed Consolidated Statements of Cash Flows Nine-month periods ended September 30, 2010 and 2009			5
		Condensed Consolidated Statements of Shareholders’ Equity Nine-month periods ended September 30, 2010 and 2009			6
		Notes to Interim Condensed Consolidated Financial Statements			7-42
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			43-79
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			80
Item 4.		Controls and Procedures			80
PART II -		Other Information
Item 1A		Risk Factors			81
Item 3b		Defaults Upon Senior Securities			81
Item 6.		Exhibits			82
EX-11
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Discussions and statements in this report that are not statements of historical fact, including, without limitation, statements that include terms such as “will,” “may,” “should,” “believe,” “expect,” “forecast,” “anticipate,” “estimate,” “project,” “intend,” “likely,” “optimistic” and “plan,” and statements about future or projected financial and operating results, plans, projections, objectives, expectations, and intentions and other statements that are not historical facts, are forward-looking statements. Forward-looking statements include, but are not limited to, descriptions of plans and objectives for future operations, products or services; projections of our future revenue, earnings or other measures of economic performance; forecasts of credit losses and other asset quality trends; predictions as to our bank’s ability to maintain certain regulatory capital standards; our expectation that we will have sufficient cash on hand to meet expected obligations during 2010; and our expectations regarding a decrease in payment plan receivables held by Mepco and the resulting effect on our net interest margin. These forward-looking statements express our current expectations, forecasts of future events, or long-term goals and, by their nature, are subject to assumptions, risks, and uncertainties. Although we believe that the expectations, forecasts, and goals reflected in these forward-looking statements are reasonable, actual results could differ materially for a variety of reasons, including, among others:

	•		our ability to successfully raise new equity capital through a public offering of our common stock, effect a conversion of our outstanding preferred stock held by the U.S. Treasury into our common stock, and otherwise implement our capital restoration plan;
	•		the failure of assumptions underlying the establishment of and provisions made to our allowance for loan losses;
	•		the timing and pace of an economic recovery in Michigan and the United States in general, including regional and local real estate markets;
	•		the ability of our bank to remain well-capitalized;
	•		the failure of assumptions underlying our estimate of probable incurred losses from vehicle service contract payment plan counterparty contingencies, including our assumptions regarding future cancellations of vehicle service contracts, the value to us of collateral that may be available to recover funds due from our counterparties, and our ability to enforce the contractual obligations of our counterparties to pay amounts owing to us;

	•		further adverse developments in the vehicle service contract industry, whose current turmoil has increased the credit risk and reputation risk for our subsidiary, Mepco;
	•		potential limitations on our ability to access and rely on wholesale funding sources;
	•		the continued services of our management team, particularly as we work through our asset quality issues and the implementation of our capital restoration plan;
	•		implementation of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act or other new legislation, which may have significant effects on us and the financial services industry, the exact nature and extent of which cannot be determined at this time; and
	•		the risk that our common stock may be delisted from the Nasdaq Global Select Market.

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 A of our Annual Report on Form 10-K for the year ended December 31, 2009, 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.

Part I -

Item 1.

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

		September 30,				December 31,
		2010				2009
		(unaudited)
		(in thousands, except share amounts)
Assets
Cash and due from banks		$	55,460			$	65,214
Interest bearing deposits			378,952				223,522
Cash and Cash Equivalents			434,412				288,736
Trading securities			22				54
Securities available for sale			110,318				164,151
Federal Home Loan Bank and Federal Reserve Bank stock, at cost			26,443				27,854
Loans held for sale, carried at fair value			59,719				34,234
Loans
Commercial			730,520				840,367
Mortgage			680,803				749,298
Installment			261,021				303,366
Payment plan receivables			240,559				406,341
Total Loans			1,912,903				2,299,372
Allowance for loan losses			(71,744	)			(81,717	)
Net Loans			1,841,159				2,217,655
Other real estate and repossessed assets			44,953				31,534
Property and equipment, net			69,335				72,616
Bank-owned life insurance			47,457				46,514
Other intangibles			9,295				10,260
Capitalized mortgage loan servicing rights			11,667				15,273
Prepaid FDIC deposit insurance assessment			17,313				22,047
Vehicle service contract counterparty receivables, net			33,483				5,419
Accrued income and other assets			31,196				29,017
Total Assets		$	2,736,772			$	2,965,364
Liabilities and Shareholders’ Equity
Deposits
Non-interest bearing		$	362,258			$	334,608
Savings and NOW			1,126,089				1,059,840
Retail time			542,514				542,170
Brokered time			347,639				629,150
Total Deposits			2,378,500				2,565,768
Other borrowings			133,213				131,182
Subordinated debentures			50,175				92,888
Vehicle service contract counterparty payables			16,109				21,309
Accrued expenses and other liabilities			33,680				44,356
Total Liabilities			2,611,677				2,855,503
Shareholders’ Equity
Preferred stock, no par value, 200,000 shares authorized
Issued and outstanding:
At September 30, 2010: Series B, 74,426 shares, $1,023 liquidation preference per share			71,566				—
At December 31, 2009: Series A, 72,000 shares, $1,000 liquidation preference per share			—				69,157
Common stock, no par value at September 30, 2010, and $1.00 par value at December 31, 2009—authorized: 500,000,000 shares at September 30, 2010, and 60,000,000 shares at December 31, 2009; issued and outstanding: 7,515,360 shares at September 30, 2010, and 2,402,851 shares at December 31, 2009			250,861				2,386
Capital surplus			—				223,095
Accumulated deficit			(184,961	)			(169,098	)
Accumulated other comprehensive loss			(12,371	)			(15,679	)
Total Shareholders’ Equity			125,095				109,861
Total Liabilities and Shareholders’ Equity		$	2,736,772			$	2,965,364

See notes to interim condensed consolidated financial statements (unaudited)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
		(unaudited)
		(in thousands, except per share data)
Interest Income
Interest and fees on loans		$	34,370			$	45,290			$	110,072			$	134,915
Interest on securities
Taxable			509				1,475				2,571				4,913
Tax-exempt			383				841				1,594				2,924
Other investments			425				299				1,186				862
Total Interest Income			35,687				47,905				115,423				143,614
Interest Expense
Deposits			6,737				9,109				22,464				26,468
Other borrowings			1,965				3,537				7,372				12,021
Total Interest Expense			8,702				12,646				29,836				38,489
Net Interest Income			26,985				35,259				85,587				105,125
Provision for loan losses			9,543				22,425				39,237				78,208
Net Interest Income After Provision for Loan Losses			17,442				12,834				46,350				26,917
Non-interest Income
Service charges on deposit accounts			5,516				6,384				16,624				18,212
Net gains (losses) on assets
Mortgage loans			3,829				2,257				8,044				8,800
Securities			(3	)			121				1,625				3,787
Other than temporary loss on securities available for sale
Total impairment loss			(316	)			—				(434	)			(17	)
Loss recognized in other comprehensive loss			—				—				—				—
Net impairment loss recognized in earnings			(316	)			—				(434	)			(17	)
VISA check card interchange income			1,625				1,480				4,852				4,395
Mortgage loan servicing			(1,377	)			(496	)			(2,988	)			1,011
Title insurance fees			533				521				1,393				1,862
Gain (loss) on extinguishment of debt			(20	)			—				18,066				—
Other income			2,241				2,514				6,177				7,320
Total Non-interest Income			12,028				12,781				53,359				45,370
Non-interest Expense
Compensation and employee benefits			12,806				13,823				39,449				39,728
Vehicle service contract counterparty contingencies			5,968				8,713				14,247				11,728
Loan and collection			3,805				3,628				11,376				10,893
Occupancy, net			2,721				2,602				8,225				8,210
Data processing			1,798				2,146				5,942				6,252
FDIC deposit insurance			1,651				1,729				5,216				5,670
Furniture, fixtures and equipment			1,591				1,727				4,958				5,424
Loss on other real estate and repossessed assets			1,296				3,558				4,879				6,758
Credit card and bank service fees			1,378				1,722				4,553				4,854
Advertising			692				1,335				2,145				4,198
Costs (recoveries) related to unfunded lending commitments			(807	)			(140	)			(471	)			(292	)
Other expenses			4,159				4,174				12,839				12,690
Total Non-interest Expense			37,058				45,017				113,358				116,113
Loss Before Income Tax			(7,588	)			(19,402	)			(13,649	)			(43,826	)
Income tax benefit			(978	)			(1,088	)			(1,086	)			(1,754	)
Net Loss		$	(6,610	)		$	(18,314	)		$	(12,563	)		$	(42,072	)
Preferred dividends and discount accretion			1,109				1,075				3,299				3,225
Net Loss Applicable to Common Stock		$	(7,719	)		$	(19,389	)		$	(15,862	)		$	(45,297	)
Net Loss Per Common Share
Basic		$	(1.03	)		$	(8.07	)		$	(3.71	)		$	(19.02	)
Diluted			(1.03	)			(8.07	)			(3.71	)			(19.02	)
Dividends Per Common Share
Declared		$	.00			$	.01			$	.00			$	.03
Paid			.00				.01				.00				.03

See notes to interim condensed consolidated financial statements (unaudited)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

		Nine months ended
		September 30,
		2010				2009
		(unaudited)
		(in thousands)
Net Loss		$	(12,563	)		$	(42,072	)
Adjustments to Reconcile Net Loss to Net Cash from (used in) Operating Activities
Proceeds from the sales of trading securities			—				2,827
Proceeds from sales of loans held for sale			306,563				453,956
Disbursements for loans held for sale			(324,004	)			(441,533	)
Provision for loan losses			39,237				78,208
Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities and loans			(23,060	)			(32,140	)
Net gains on sales of mortgage loans			(8,044	)			(8,800	)
Net gains on securities			(1,625	)			(3,787	)
Securities impairment recognized in earnings			434				17
Net loss on other real estate and repossessed assets			4,879				6,758
Vehicle service contract counterparty contingencies			14,247				11,728
Gain on extinguishment of debt			(18,066	)			—
Deferred loan fees			318				(460	)
Share based compensation			415				520
(Increase) decrease in accrued income and other assets			309				(1,139	)
Increase in accrued expenses and other liabilities			5,528				1,363
			(2,869	)			67,518
Net Cash from (used in) Operating Activities			(15,432	)			25,446
Cash Flow from Investing Activities
Proceeds from the sale of securities available for sale			95,444				33,921
Proceeds from the maturity of securities available for sale			5,320				4,476
Principal payments received on securities available for sale			12,507				21,470
Purchases of securities available for sale			(53,950	)			(15,806	)
Redemption of Federal Reserve Bank stock			1,411				208
Net decrease in portfolio loans (loans originated, net of principal payments)			271,807				11,976
Proceeds from the collection of vehicle service contract counterparty receivables			9,781				—
Proceeds from the sale of other real estate			13,305				10,198
Capital expenditures			(3,075	)			(6,529	)
Net Cash from Investing Activities			352,550				59,914
Cash Flow from (used in) Financing Activities
Net increase (decrease) in total deposits			(187,268	)			419,355
Net decrease in other borrowings and federal funds purchased			(1,689	)			(190,636	)
Proceeds from Federal Home Loan Bank advances			33,000				241,524
Payments of Federal Home Loan Bank advances			(29,280	)			(431,283	)
Net increase (decrease) in vehicle service contract counterparty payables			(5,200	)			3,523
Extinguishment of debt, net			(1,005	)			—
Dividends paid			—				(3,143	)
Net Cash from (used in) Financing Activities			(191,442	)			39,340
Net Increase in Cash and Cash Equivalents			145,676				124,700
Cash and Cash Equivalents at Beginning of Period			288,736				57,705
Cash and Cash Equivalents at End of Period		$	434,412			$	182,405
Cash paid during the period for
Interest		$	29,975			$	39,231
Income taxes			292				237
Transfer of loans to other real estate			31,603				28,281
Transfer of payment plan receivables to vehicle service contract counterparty receivables			63,991				10,499
Common stock issued for extinguishment of debt			23,502				—

See notes to interim condensed consolidated financial statements (unaudited)

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES

		Nine months ended
		September 30,
		2010				2009
		(unaudited)
		(in thousands)
Balance at beginning of period		$	109,861			$	194,877
Net loss			(12,563	)			(42,072	)
Preferred dividends			(1,076	)			(2,700	)
Cash dividends declared			—				(721	)
Issuance of common stock			23,502				1,194
Share based compensation			415				520
Issuance of Series B preferred stock			69,550				—
Retirement of Series A preferred stock			(69,364	)			—
Issuance of common stock warrants			5,041				—
Retirement of common stock warrants			(3,579	)			—
Net change in accumulated other comprehensive income, net of related tax effect			3,308				7,243
Balance at end of period		$	125,095			$	158,341

See notes to interim condensed consolidated financial statements (unaudited)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. The interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2009 included in our annual report on Form 10-K.

In our opinion, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary to present fairly our consolidated financial condition as of September 30, 2010 and December 31, 2009, and the results of operations for the three and nine-month periods ended September 30, 2010 and 2009. The results of operations for the three and nine-month periods ended September 30, 2010, are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. 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 payment plan counterparty contingencies, the valuation of derivative financial instruments, the valuation of originated mortgage loan servicing rights and the valuation of deferred tax assets. Refer to our 2009 Annual Report on Form 10-K for a disclosure of our accounting policies.

2. In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”, an amendment to FASB ASC Topic 310 “Receivables”. This ASU is expected to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. This ASU will require existing disclosures to be amended to require an entity to provide disclosures about its financing receivables on a more disaggregated basis as well as provide additional disclosures relating to credit quality. This ASU is effective for interim and annual reporting periods ending on or after December 15, 2010 for disclosures as of the end of a reporting period and is effective for interim and annual reporting periods beginning on or after December 15, 2010 for disclosures about activity that occurs during a reporting period. This ASU encourages, but does not require, comparative disclosures for earlier reporting periods that ended before initial adoption. However, an entity should provide comparative disclosures for those reporting periods ending after initial adoption. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

In June 2009, the FASB issued FASB ASC Topic 860 “Transfers and Servicing” (formerly SFAS No. 166 “Accounting for Transfers of Financial Assets — an Amendment of FASB Statement No. 140”). This standard removes the concept of a qualifying special-purpose entity and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. The adoption of this standard on January 1, 2010 did not have a material impact on our consolidated financial statements.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

In June 2009, the FASB issued FASB ASC Topic 810-10, “Consolidation” (formerly SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”). The standard amends tests for variable interest entities to determine whether a variable interest entity must be consolidated. This standard requires an entity to perform an analysis to determine whether an entity’s variable interest or interests give it a controlling financial interest in a variable interest entity. This standard requires ongoing reassessments of whether an entity is the primary beneficiary of a variable interest entity and enhanced disclosures that provide more transparent information about an entity’s involvement with a variable interest entity. The adoption of this standard on January 1, 2010 did not have a material impact on our consolidated financial statements.

3. Securities available for sale consist of the following:

		Amortized				Unrealized
		Cost				Gains				Losses				Fair Value
						(in thousands)
September 30, 2010
U.S. Treasury		$	38,062			$	4			$	—			$	38,066
U.S. agency residential mortgage-backed			13,443				522				—				13,965
Private label residential mortgage-backed			19,498				34				3,065				16,467
Obligations of states and political subdivisions			32,400				820				219				33,001
Trust preferred			9,468				246				895				8,819
Total		$	112,871			$	1,626			$	4,179			$	110,318
December 31, 2009
U.S. agency residential mortgage-backed		$	46,108			$	1,500			$	86			$	47,522
Private label residential mortgage-backed			38,531				97				7,653				30,975
Other asset-backed			5,699				—				194				5,505
Obligations of states and political subdivisions			66,439				1,096				403				67,132
Trust preferred			14,272				456				1,711				13,017
Total		$	171,049			$	3,149			$	10,047			$	164,151

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 follows:

		Less Than Twelve Months								Twelve Months or More								Total
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
		(in thousands)
September 30, 2010
Private label residential mortgage-backed		$	—			$	—			$	15,080			$	3,065			$	15,080			$	3,065
Obligations of states and political subdivisions			4,035				106				2,169				113				6,204				219
Trust preferred			—				—				3,791				895				3,791				895
Total		$	4,035			$	106			$	21,040			$	4,073			$	25,075			$	4,179
December 31, 2009
U.S. agency residential mortgage-backed		$	7,310			$	86			$	—			$	—			$	7,310			$	86
Private label residential mortgage-backed			4,343				112				18,126				7,541				22,469				7,653
Other asset backed			783				3				4,722				191				5,505				194
Obligations of states and political subdivisions			4,236				124				3,960				279				8,196				403
Trust preferred			—				—				7,715				1,711				7,715				1,711
Total		$	16,672			$	325			$	34,523			$	9,722			$	51,195			$	10,047

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

Private label residential mortgage and other asset-backed securities — at September 30, 2010 we had 11 securities whose fair value is less than amortized cost. Eight of the issues are rated by a major rating agency as investment grade while three are below investment grade. During 2009 pricing conditions in the private label residential mortgage and other asset-backed security markets were characterized by sporadic secondary market flow, significant implied liquidity risk discounts, a wide bid / ask spread and an absence of new issuances of similar securities. In the first nine months of 2010, while this market is still “closed” to new issuance, secondary market trading activity increased and appeared to be more orderly than compared to 2009. In addition, many bonds are trading at levels near their economic value with fewer distressed valuations relative to 2009. Prices for many securities have been rising, due in part to negative new supply. This improvement in trading activity is supported by sales of 11 securities with an amortized cost of $14.2 million at a $0.2 million gain during the first quarter of 2010 and an additional seven securities (all of our remaining other asset-backed securities) with an amortized cost of $5.3 million at a $0.1 million gain during the second quarter of 2010.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The unrealized losses, while showing improvement in the aggregate during the first nine months of 2010, are largely attributable to credit spread widening on these securities. The underlying loans within these securities include Jumbo (62%) and Alt A (38%).

		September 30, 2010								December 31, 2009
						Net								Net
		Fair				Unrealized				Fair				Unrealized
		Value				Gain (Loss)				Value				Gain (Loss)
		(in thousands)
Private label residential mortgage-backed
Jumbo		$	10,268			$	(1,510	)		$	21,718			$	(5,749	)
Alt-A			6,199				(1,521	)			9,257				(1,807	)
Other asset-backed — Manufactured housing			—				—				5,505				(194	)

All of the private label residential mortgage-backed transactions have geographic concentrations in California, ranging from 29% to 59% (at origination date) of the collateral pool. Typical exposure levels to California (median exposure was 39% at origination date) are consistent with overall market collateral characteristics. Five transactions have modest exposure to Florida, ranging from 5% to 11% (at origination date), and one transaction has modest exposure to Arizona (5% at origination date). The underlying collateral pools do not have meaningful exposure to Nevada, Michigan or Ohio. None of the issues involve subprime mortgage collateral. Thus the impact of this market segment is only indirect, in that it has impacted liquidity and pricing in general for private label residential mortgage-backed securities. The majority of transactions are backed by fully amortizing loans. However, eight transactions have concentrations in interest only loans ranging from 31% to 94% (at origination date). The structure of the residential mortgage securities portfolio provides protection to credit losses. The portfolio primarily consists of senior securities as demonstrated by the following: super senior (12%), senior (54%), senior support (19%) and mezzanine (15%). The mezzanine classes are from seasoned transactions (74 to 102 months) with significant levels of subordination (8% to 27%). Except for the additional discussion below relating to other than temporary impairment, each private label residential mortgage security has sufficient credit enhancement via subordination to reasonably assure full realization of book value. This assertion is based on a transaction level review of the portfolio. Individual security reviews include: external credit ratings, forecasted weighted average life, recent prepayment speeds, underwriting characteristics of the underlying collateral, the structure of the securitization and the credit performance of the underlying collateral. The review of underwriting characteristics considers: average loan size, type of loan (fixed or ARM), vintage, rate, FICO, loan-to-value, scheduled amortization, occupancy, purpose, geographic mix and loan documentation. The review of the securitization structure focuses on the priority of cash flows to the bond, the priority of the bond relative to the realization of credit losses and the level of subordination available to absorb credit losses. The review of credit performance includes: current period as well as cumulative realized losses; the level of severe payment problems, which includes other real estate (ORE), foreclosures, bankruptcy and 90 day delinquencies; and the level of less severe payment problems, which consists of 30 and 60 day delinquencies.

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

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

In addition to the review discussed above, certain securities, including the three securities with a rating below investment grade, were reviewed for OTTI utilizing a cash flow projection. The scope of review included securities that account for 89% of the $3.1 million in gross unrealized losses. The cash flow analysis forecasted cash flow from the underlying loans in each transaction and then applied these cash flows to the bonds in the securitization. The cash flows from the underlying loans considered contractual payment terms (scheduled amortization), prepayments, defaults and severity of loss given default. The analysis used dynamic assumptions for prepayments, defaults and loss severity. Near term prepayment assumptions were based on recently observed prepayment rates. More weight was given to longer term historic performance (three to 12 months). Recent prepayment experience has increased somewhat due to an increase in nonconforming loans being refinanced into conventional transactions. In some cases, recently observed prepayment rates are lower than historic norms due to the absence of new jumbo loan issuance. This loan market is heavily dependent upon securitization for funding, and new securitization transactions have been minimal. Our model projections anticipate that prepayment rates gradually revert to historical levels. For seasoned ARM transactions, normalized prepayment rates are estimated at 15% to 25% CPR. For fixed rate collateral (one transaction), the prepayment speed is projected to increase modestly given the spread differential between the collateral and the current market rate for conforming mortgages.

Default assumptions are largely based on the volume of existing real-estate owned, pending foreclosures and severe delinquencies. Other considerations include the quality of loan underwriting, recent default experience, realized loss performance and the volume of less severe delinquencies. Default levels generally are projected to remain elevated or increase for a period of time sufficient to address the level of distressed loans in the transaction. Our projections expect defaults to then decline, generally beginning in year 3. Current loss severity assumptions are based on recent observations when meaningful data is available. Loss severity is expected to remain elevated for the next three years. Severity is expected to decline beginning in year four as conditions in the housing market are expected to improve. While we have seen modest home price increase recently, housing data remains weak. Except for two securities discussed in further detail below (both are currently below investment grade), our cash flow analysis forecasts complete recovery of our cost basis for each reviewed security.

At September 30, 2010 two below investment grade private label residential mortgage-backed securities with fair values of $6.6 million and $0.4 million, respectively and unrealized losses of $0.3 million and zero, respectively (amortized cost of $6.9 million and $0.4 million, respectively) had losses that were considered other than temporary.

The underlying loans in the first transaction are 30 year fixed rate jumbos with an average origination date FICO of 748 and an average origination date loan-to-value ratio of 73%. The loans backing this transaction were originated in 2007 and is our only security backed by 2007 vintage loans. We believe that this vintage is a key differentiating factor between this security and the others in our portfolio that do not have unrealized losses that are considered OTTI. The bond is a senior security that is receiving principal and interest payments similar to principal reductions in the underlying collateral. The cash flow analysis described above calculated $0.234 million of credit related OTTI and was recognized in our consolidated statements of operations ($0.118 million, $0.051 million and $0.065 million during the three months ended September 30, 2010, March 31, 2010 and December 31, 2009, respectively). The remaining unrealized loss was attributed to other factors and reflected in other comprehensive income (loss) during those same periods.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

The underlying loans in the second transaction are 30 year hybrid ARM jumbos with an average origination date FICO of 740 and an average origination date loan-to-value ratio of 65%. The loans backing this transaction were originated in 2005. The bond is a senior support security that is receiving principal and interest payments similar to principal reductions in the underlying collateral. The cash flow analysis described above calculated credit related OTTI of $0.198 million at September 30, 2010. This represented the entire unrealized loss on this security.

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.

Obligations of states and political subdivisions — at September 30, 2010 we had 16 municipal securities whose fair value is less than amortized cost. The unrealized losses are largely attributed to a widening of market spreads and continued illiquidity for certain issues. The majority of the securities are not rated by a major rating agency. Approximately 87% of the non rated securities originally had a AAA credit rating by virtue of bond insurance. However, the insurance provider no longer has an investment grade rating. The remaining non rated issues are small local issues that did not receive a credit rating due to the size of the transaction. The non rated securities have a periodic internal credit review according to established procedures. 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 September 30, 2010 we had four securities whose fair value is less than amortized cost. All of our trust preferred securities are single issue securities issued by a trust subsidiary of a bank holding company. The pricing of trust preferred securities over the past two years has suffered from significant credit spread widening fueled by uncertainty regarding potential losses of financial companies, the absence of a liquid functioning secondary market and potential supply concerns from financial companies issuing new debt to recapitalize themselves. During the first nine months of 2010, although still showing signs of weakness, pricing for all issues improved from the prior year end due to credit spread tightening.

One of the four securities are rated by a major rating agency as investment grade, while one is split rated (this security is rated as investment grade by one major rating agency and below investment grade by another) and the other two are non-rated. The two non-rated issues are relatively small banks and neither of these issues were ever rated. The issuers on these trust preferred securities, which had a combined amortized cost of $2.8 million and a combined fair value of $2.3 million as of September 30, 2010, continue to make interest payments and have satisfactory credit metrics.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

Our OTTI analysis for trust preferred securities is based on a security level financial analysis of the issuer. This review considers: external credit ratings, maturity date of the instrument, the scope of the bank’s operations, relevant financial metrics and recent issuer specific news. The analysis of relevant financial metrics includes: capital adequacy, asset quality, earnings and liquidity. We use the same OTTI review methodology for both rated and non-rated issues. During the first quarter of 2010 we recorded OTTI on an unrated trust preferred security of $0.067 million (we had recorded OTTI on this security of $0.183 million in prior periods). Specifically, this issuer has deferred interest payments on all of its trust preferred securities and is operating under a written agreement with the regulatory agencies that specifically prohibits dividend payments. The issuer is a relatively small bank with operations centered in southeast Michigan. The issuer reported losses in 2008 and 2009 and now is insolvent. Additionally, the issuer has a high volume of nonperforming assets. This investment’s amortized cost has been written down to zero, compared to a par value of $0.25 million.

The following table breaks out our trust preferred securities in further detail as of September 30, 2010 and December 31, 2009:

		September 30, 2010								December 31, 2009
						Net								Net
		Fair				Unrealized				Fair				Unrealized
		Value				Gain (Loss)				Value				Gain (Loss)
		(in thousands)
Trust preferred securities
Rated issues — no OTTI		$	6,488			$	(175	)		$	11,188			$	(212	)
Unrated issues — no OTTI			2,331				(474	)			1,761				(1,044	)
Unrated issues — with OTTI			—				—				68				1

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.

The amortized cost and fair value of securities available for sale at September 30, 2010, by contractual maturity, follow. 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.

		Amortized				Fair
		Cost				Value
		(in thousands)
Maturing within one year		$	40,233			$	40,277
Maturing after one year but within five years			7,308				7,604
Maturing after five years but within ten years			10,625				10,842
Maturing after ten years			21,764				21,163
			79,930				79,886
U.S. agency residential mortgage-backed			13,443				13,965
Private label residential mortgage-backed			19,498				16,467
Total		$	112,871			$	110,318

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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. A summary of proceeds from the sale of securities available for sale and gains and losses for the nine month periods ending September 30, follows:

						Realized
		Proceeds				Gains				Losses(1)
		(in thousands)
2010		$	95,444			$	1,878			$	221
2009			33,921				2,929				133

During 2010 and 2009 our trading securities consisted of various preferred stocks. During the first nine months of 2010 and 2009 we recognized gains (losses) on trading securities of $(0.032) million and $1.0 million, respectively, that are included in net gains (losses) on assets in the consolidated statements of operations. $(0.032) million and $0.1 million of these amounts, relate to gains (losses) recognized on trading securities still held at each respective period end.

4. Our assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent loss experience, current economic conditions and other pertinent factors. Loans on non-accrual status and past due more than 90 days (“Non-performing Loans”) amounted to $70.1 million at September 30, 2010, and $109.9 million at December 31, 2009.

Impaired loans are as follows:

		September 30,				December 31,
		2010				2009
		(in thousands)
Impaired loans with no allocated allowance
TDR		$	22,211			$	9,059
Non — TDR			3,918				2,995
Impaired loans with an allocated allowance
TDR — allowance based on collateral			27,271				3,552
TDR — allowance based on present value cash flow			84,996				74,287
Non — TDR — allowance based on collateral			31,736				68,032
Total impaired loans		$	170,132			$	157,925
Amount of allowance for loan losses allocated
TDR — allowance based on collateral		$	6,924			$	761
TDR — allowance based on present value cash flow			11,453				7,828
Non — TDR — allowance based on collateral			9,400				21,004
Total amount of allowance for lossess allocated		$	27,777			$	29,593

Our average investment in impaired loans was approximately $168.3 million and $99.5 million for the nine-month periods ended September 30, 2010 and 2009, respectively. Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance. Interest income recognized on impaired loans during the first nine months of 2010 and 2009 was approximately $4.3 million and $1.1 million, respectively, the majority of which was received in cash.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The increase in impaired loans relative to the decrease in Non-performing Loans during the first nine months of 2010 reflects a $38.6 million increase from December 31, 2009 in troubled debt restructured (“TDR”) loans that remain performing at September 30, 2010. The increase in TDR loans is primarily attributed to the restructuring of repayment terms of residential mortgage and commercial loans. TDR loans not already included in Non-performing Loans totaled $110.6 million and $72.0 million at September 30, 2010 and December 31, 2009, respectively.

An analysis of the allowance for loan losses is as follows:

						Nine months ended
						September 30,
		2010								2009
						Unfunded								Unfunded
		Loans				Commitments				Loans				Commitments
						(dollars in thousands)
Balance at beginning of period		$	81,717			$	1,858			$	57,900			$	2,144
Additions (deduction)
Provision for loan losses			39,237				—				78,208				—
Recoveries credited to allowance			2,656				—				2,130				—
Loans charged against the allowance			(51,866	)			—				(64,528	)			—
Additions (deductions) included in non-interest expense			—				(471	)			—				(292	)
Balance at end of period		$	71,744			$	1,387			$	73,710			$	1,852
Net loans charged against the allowance to average Portfolio Loans (annualized)			3.13	%							3.41	%

5. Comprehensive income (loss) for the three- and nine-month periods ended September 30 follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2010				2009				2010				2009
						(in thousands)
Net loss		$	(6,610	)		$	(18,314	)		$	(12,563	)		$	(42,072	)
Net change in unrealized gain (loss) on securities available for sale, net of related tax effect			1,379				2,455				132				6,456
Change in unrealized losses on securities available for sale for which a portion of other than temporary impairment has been recognized in earnings			399				—				2,693				—
Net change in unrealized loss on derivative instruments, net of related tax effect			(124	)			(72	)			(51	)			787
Reclassification adjustment for accretion on settled derivative instruments			256				—				534				—
Comprehensive loss		$	(4,700	)		$	(15,931	)		$	(9,255	)		$	(34,829	)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The net change in unrealized loss on securities available for sale reflects net gains reclassified into earnings as follows:

		Three months ended								Nine months ended
		September 30,								September 30,
		2010				2009				2010				2009
		(in thousands)
Net gain reclassified into earnings		$	(314	)		$	68			$	1,223			$	2,779
Federal income tax expense as a result of the reclassification of these amounts from comprehensive income			—				—				—				—

6. Our reportable segments are based upon legal entities. We currently have two reportable segments: Independent Bank (“IB” or “Bank”) and Mepco Finance Corporation (“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 Prime beginning on January 1, 2010 and priced principally based on Brokered certificate of deposit (“CD”) rates prior to that time. Our IB segment also provides certain administrative services to our Mepco segment which reimburses 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.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A summary of selected financial information for our reportable segments as of or for the three-month and nine-month periods ended September 30, follows:

As of or for the three months ended September 30,

		IB				Mepco(1)				Other(2)				Elimination(3)				Total
		(in thousands)
2010
Total assets		$	2,434,890			$	302,329			$	180,828			$	(181,275	)		$	2,736,772
Interest income			27,236				8,451				—				—				35,687
Net interest income			21,258				6,405				(678	)			—				26,985
Provision for loan losses			9,598				(55	)			—				—				9,543
Income (loss) before income tax			(4,239	)			(2,201	)			(1,124	)			(24	)			(7,588	)
Net income (loss)			(4,078	)			(1,384	)			(1,124	)			(24	)			(6,610	)
2009
Total assets		$	2,493,478			$	465,629			$	255,538			$	(252,617	)		$	2,962,028
Interest income			33,274				14,631				—				—				47,905
Net interest income			23,002				13,896				(1,639	)			—				35,259
Provision for loan losses			22,427				(2	)			—				—				22,425
Income (loss) before income tax			(20,072	)			2,405				(1,711	)			(24	)			(19,402	)
Net income (loss)			(18,089	)			1,510				(1,711	)			(24	)			(18,314	)

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

As of or for the nine months ended September 30,

		IB				Mepco(1)				Other(2)				Elimination(3)				Total
		(in thousands)
2010
Total assets		$	2,434,890			$	302,329			$	180,828			$	(181,275	)		$	2,736,772
Interest income			85,367				30,056				—				—				115,423
Net interest income			66,286				23,101				(3,800	)			—				85,587
Provision for loan losses			39,529				(292	)			—				—				39,237
Income (loss) before income tax			(26,143	)			(377	)			12,942	(4)			(71	)			(13,649	)
Net income (loss)			(25,196	)			(238	)			12,942				(71	)			(12,563	)
2009
Total assets		$	2,493,478			$	465,629			$	255,538			$	(252,617	)		$	2,962,028
Interest income			104,281				39,333				—				—				143,614
Net interest income			73,217				36,914				(5,006	)			—				105,125
Provision for loan losses			77,901				307				—				—				78,208
Income (loss) before income tax			(55,769	)			17,449				(5,435	)			(71	)			(43,826	)
Net income (loss)			(47,656	)			11,090				(5,722	)			216				(42,072	)

7. Basic loss per share includes weighted average common shares outstanding during the period and participating share awards. Diluted loss per share excludes the dilutive effect of additional potential common shares to be issued upon the conversion of convertible preferred stock, exercise of common stock warrants, exercise of stock options and stock units for a deferred compensation plan for non-employee directors as they would be anti-dilutive.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

A reconciliation of basic and diluted earnings per share for the three-month and nine-month periods ended September 30 follows:

		Three months								Nine months
		ended								ended
		September 30,								September 30,
		2010				2009				2010				2009
		(in thousands, except per share amounts)
Net loss applicable to common stock		$	(7,719	)		$	(19,389	)		$	(15,862	)		$	(45,297	)
Weighted average shares outstanding(2)			7,513				2,403				4,275				2,381
Effect of convertible preferred stock			48,887				—				30,085				—
Stock units for deferred compensation plan for non- employee directors			7				7				7				7
Shares outstanding for calculation of diluted earnings per share(1)			56,407				2,410				34,367				2,388
Net income (loss) per common share
Basic		$	(1.03	)		$	(8.07	)		$	(3.71	)		$	(19.02	)
Diluted(1)			(1.03	)			(8.07	)			(3.71	)			(19.02	)

Weighted average stock options outstanding that were anti-dilutive totaled 0.1 million and 0.2 million for the three-months ended September 30, 2010 and 2009, respectively. During the nine-month periods ended September 30, 2010 and 2009, weighted-average anti-dilutive stock options totaled 0.1 million and 0.2 million, respectively.

8. We are required to record derivatives on the balance sheet 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 follows:

		September 30, 2010
						Average
		Notional				Maturity				Fair
		Amount				(years)				Value
		(dollars in thousands)
Cash Flow Hedges
Pay fixed interest-rate swap agreements		$	20,000				3.0			$	(1,790	)
Interest-rate cap agreements			5,000				0.8				—
		$	25,000				2.6			$	(1,790	)
No hedge designation
Interest-rate cap agreements		$	25,000				0.2			$	—
Rate-lock mortgage loan commitments			66,018				0.1				1,584
Mandatory commitments to sell mortgage loans			123,040				0.1				(460	)
Total		$	214,058				0.1			$	1,124

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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.

We use variable-rate and short-term fixed-rate (less than 12 months) debt obligations to fund a portion of our balance sheet, which exposes us to variability in interest rates. To meet our 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 currently include certain pay-fixed interest-rate swaps and interest-rate cap agreements.

Through certain special purposes entities we issue trust preferred securities as part of our capital management strategy. Certain of these trust preferred securities are variable rate which exposes us to variability in cash flows. To mitigate our exposure to fluctuations in cash flows resulting from changes in interest rates we entered into a pay-fixed interest-rate swap agreement in September, 2007 on approximately $20.0 million of these variable rate trust preferred securities. During the fourth quarter of 2009 we elected to defer payment of interest on this variable rate trust preferred security. As a result, this pay-fixed interest rate swap was transferred to a no hedge designation and the $1.6 million unrealized loss which was included as a component of accumulated other comprehensive loss at the time of the transfer is being reclassified into earnings over the remaining life of this pay-fixed swap. During the second quarter of 2010 we terminated this pay-fixed swap and the unrealized loss will continue to be reclassified into earnings over the remaining original life of the pay-fixed swap.

Pay-fixed interest-rate swaps convert the variable-rate cash flows on debt obligations to fixed-rates. Under interest-rate cap agreements, we will receive cash if interest rates rise above a predetermined level. As a result, we effectively have variable-rate debt with an established maximum rate. We pay an upfront premium on interest rate caps which is recognized in earnings in the same period in which the hedged item affects earnings. Unrecognized premiums from interest rate caps aggregated to $0.02 million and $0.1 million at September 30, 2010 and December 31, 2009, respectively.

We record the fair value of Cash Flow Hedges in accrued income and other assets and accrued expenses and other liabilities. On an ongoing basis, we adjust our balance sheet to reflect the then current fair value of Cash Flow Hedges. The related gains or losses are reported in other comprehensive income or loss and are subsequently reclassified into earnings, as a yield adjustment in the same period in which the related interest on the hedged items (primarily variable-rate debt obligations) affect earnings. It is anticipated that approximately $0.8 million, of unrealized losses on Cash Flow Hedges at September 30, 2010 will be reclassified to earnings over the next twelve months. To the extent that the Cash Flow Hedges are not effective, the ineffective portion of the Cash Flow Hedges are immediately recognized as interest expense. The maximum term of any Cash Flow Hedge at September 30, 2010 is 4.3 years.

Certain financial derivative instruments are not designated as hedges. The fair value of these derivative financial instruments have been recorded on our balance sheet and are adjusted on an ongoing basis to reflect their then current fair value. The changes in the fair value of derivative financial instruments not designated as hedges, are recognized currently in earnings.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)

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 gains on the sale of mortgage loans. We obtain market prices on Mandatory Commitments and Rate Lock Commitments. Net gains on the sale of mortgage loans, as well as net income may be more volatile as a result of these derivative instruments, which are not designated as hedges.

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

     Fair Values of Derivative Instruments

		Asset Derivatives																Liability Derivatives
		September 30,								December 31,								September 30,								December 31,
		2010								2009								2010								2009
		Balance								Balance								Balance								Balance
		Sheet				Fair				Sheet				Fair				Sheet				Fair				Sheet				Fair
		Location				Value				Location				Value				Location				Value				Location				Value
														(in thousands)
Derivatives designated as hedging instruments
Pay-fixed interest rate swap agreements																		Other liabilities				$	1,790			Other liabilities				$	2,328
Interest-rate cap agreements		Other assets				$	—							$	—			Other liabilities					—			Other liabilities					1
Total							—								—								1,790								2,329
Derivatives not designated as hedging instruments
Pay-fixed interest rate swap agreements																		Other liabilities					—			Other liabilities					1,930
Rate-lock mortgage loan commitments		Other assets					1,584			Other assets					217
Mandatory commitments to sell mortgage loans		Other assets					—			Other assets					715			Other liabilities					460								—
Total							1,584								932								460								1,930
Total derivatives						$	1,584							$	932							$	2,250							$	4,259

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)