As filed with the Securities and Exchange Commission on July 8, 2010		Registration No. 333-

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

Independent Bank Corporation

Michigan		6021		38-2032782
(State or other jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
incorporation or organization)		Classification Code Number)		Identification Number)

(Address, including zip code, and telephone number, including area code,
of registrant’s principal executive offices)

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Michael G. Wooldridge Varnum LLP 333 Bridge Street, P.O. Box 352 Grand Rapids, Michigan 49501-0352 (616) 336-6000		Tom W. Zook Lewis, Rice & Fingersh, L.C. 600 Washington Avenue, Suite 2500 St. Louis, Missouri 63101 (314) 444-7600

     Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.

     If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

CALCULATION OF REGISTRATION FEE

				Proposed
				maximum aggregate			Amount of
	Title of each class of securities to be registered			offering price			registration fee
	Common Stock, no par value per share			$126,500,000(1)(2)			$9,019.45(3)

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBJECT TO COMPLETION, DATED JULY 8, 2010

PROSPECTUS

[•] Shares

Common Stock

     We are offering [•] shares of our common stock. Our common stock is listed on the Nasdaq Global Select Market under the symbol “IBCP”. As of July 7, 2010, the closing sale price for our common stock on the Nasdaq Global Select Market was $0.35 per share. However, there is a risk our common stock could be delisted from the Nasdaq Global Select Market in the near future. Please see “Market Price and Dividend Information” on page 45 for more information.

     Investing in our common stock involves risks. We encourage you to read and carefully consider this prospectus in its entirety, in particular the risk factors beginning on page 25, for a discussion of factors that you should consider with respect to this offering.

		Per Share				Total
Public offering price		$				$	110,000,000
Underwriting discounts and commissions		$				$
Proceeds to us (before expenses)		$				$

     This is a firm commitment underwriting. The underwriters have the option to purchase up to an additional [•] shares of our common stock at the public offering price, less underwriting discounts and commissions, within 30 days of the date of this prospectus solely to cover over-allotments, if any.

     The underwriters expect to deliver the common stock in book-entry form only, through the facilities of The Depository Trust Company, against payment on or about [•], 2010.

     The shares of common stock offered are not savings accounts, deposits, or other obligations of any of our bank or non-bank subsidiaries and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

     Neither the Securities and Exchange Commission, any state securities commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Joint Lead Managing Underwriters and Joint Book-Running Managers

Stifel Nicolaus		FBR Capital Markets & Co.

The date of this prospectus is [•], 2010.

TABLE OF CONTENTS

		Page
Where You Can Find More Information			1
Forward-Looking Statements			1
Summary			3
Selected Financial Data			23
Risk Factors			25
Non-GAAP Financial Measures			37
Use of Proceeds			39
Capitalization			39
Capital Plan and This Offering			40
Dividend Policy			44
Market Price and Dividend Information			45
Description of Our Capital Stock			46
Management’s Discussion and Analysis of Financial Condition and Results of Operations			50
Business			85
Management			108
Security Ownership of Certain Beneficial Owners and Management			120
Certain Management Relationships and Benefits			121
Underwriting			122
Legal Matters			124
Experts			124
Index to Consolidated Financial Statements			F-1
EX-4.9
EX-23.1
EX-99.1
EX-99.2

     You should rely only on the information contained in this prospectus and any “free writing prospectus” we authorize to be delivered to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus and any such “free writing prospectus.” If anyone provides you with different or inconsistent information, you should not rely on it. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where those offers and sales are permitted. The information contained in this prospectus and any such “free writing prospectus” is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

     This prospectus describes the specific details regarding this offering and the terms and conditions of the common stock being offered and the risks of investing in our common stock. You should read this prospectus and the additional information about us described in the section entitled “Where You Can Find More Information” before making your investment decision.

     As used in this prospectus, the terms “we,” “our,” “us,” and “IBC” refer to Independent Bank Corporation and its consolidated subsidiaries, unless the context indicates otherwise. When we refer to “our bank” or “Independent Bank” in this prospectus, we are referring to Independent Bank, a Michigan banking corporation and wholly-owned subsidiary of Independent Bank Corporation.

WHERE YOU CAN FIND MORE INFORMATION

     This prospectus, which forms a part of a registration statement filed with the SEC, does not contain all of the information set forth in the registration statement. For further information with respect to us and the securities offered, reference is made to the registration statement.

     We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You can also request copies of the documents, upon payment of a duplicating fee, by writing the Public Reference Section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from the SEC’s web site at http://www.sec.gov.

FORWARD-LOOKING STATEMENTS

     Discussions and statements in this prospectus 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, and projections of our future revenue, earnings or other measures of economic performance (including our projected pre-provision earnings, projected capital, projected provision for loan losses, and projected Mepco counterparty expenses set forth under “Summary — Our Projections”), 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 the risks and uncertainties detailed under “Risk Factors” set forth in this prospectus and the following:

	•		our ability to successfully raise new equity capital in this offering, effect a conversion of our outstanding preferred stock held by the U.S. Treasury into our common stock, and otherwise implement our Capital 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;
	•		increased competition for deposits and loans which could affect portfolio compositions, rates, and terms;
	•		changes in the levels of prepayments received on loans and investment securities that adversely affect the yield and value of our earning assets;
	•		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 Plan;
	•		adoption and implementation of legislation, regulations, or programs to address capital and liquidity issues in the banking system, 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;

	•		the impact of compensation and other restrictions imposed under the TARP until the Treasury ceases to own any of our debt or equity securities acquired pursuant to the Exchange Agreement or the amended and restated Warrant;
	•		changes in the scope and cost of FDIC insurance, increases in regulatory capital requirements, and changes in the TARP’s CPP;
	•		the impact of legislative and regulatory changes, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application of such laws, regulations, and policies by regulators;
	•		the potential loss of core deposits if the challenging banking environment persists or the economy significantly deteriorates;
	•		changes in accounting principles, policies, and guidelines applicable to bank holding companies and the financial services industry;
	•		the risk that sales of our capital stock in this offering and/or other transfers of our capital stock could trigger a reduction in the amount of net operating loss carryforwards that we may be able to utilize for income tax purposes;
	•		the risk that our common stock may be delisted from the Nasdaq Global Select Market;
	•		the ability to manage the risks involved in the foregoing; and
	•		other factors and risks described under “Risk Factors” in this prospectus, which we urge you to read carefully.

     In addition, other factors not currently anticipated may also materially and adversely affect our results of operations, cash flows, financial position, and prospects. We cannot assure you that our future results will meet expectations. While we believe the forward-looking statements in this prospectus 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)		Includes core deposits only. At March 31, 2010, core deposits accounted for approximately 78% of our total deposits of $2.5 billion.

(1)		Represents payment plans for which no payments have been received for 90 days or more and for which Mepco has not yet completed the process to charge the applicable counterparty for the balance due to Mepco.

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

(1)		This table reconciles consolidated net income (loss) presented in accordance with U.S. generally accepted accounting principles (GAAP) to pre-tax, pre-provision core operating earnings. Pre-tax, pre-provision core operating earnings is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income (loss) under GAAP. Pre-tax, pre-provision core operating earnings has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. However, we believe presenting pre-tax, pre-provision core operating earnings provides investors with the ability to gain a further understanding of our underlying operating trends separate from the direct effects of any impairment charges, credit issues, certain fair value adjustments, securities gains or losses, and challenges inherent in the real estate downturn and other economic cycle issues, and displays a consistent core operating earnings trend before the impact of these challenges.
(2)		Represents the excess amount over a “normalized” level (experienced prior to 2008) of $1.25 million quarterly.

(1)		Reflects our issuance of 51.1 million shares of common stock in exchange for $41.4 million in aggregate liquidation amount of trust preferred securities, which exchange occurred June 23, 2010.
(2)		Reflects our issuance of $74.4 million in aggregate liquidation amount of Series B Convertible Preferred Stock in exchange for $72.0 million in aggregate liquidation amount of Series A Preferred Stock held by the Treasury plus approximately $2.4 million in accrued and unpaid dividends on such shares, which exchange occurred April 16, 2010. Also assumes the conversion on July 1, 2010 of all of such Series B Convertible Preferred Stock at 75% of par, plus approximately $0.8 million in accrued and unpaid dividends as of June 30, 2010, at a reference price of $0.7234 per share, which conversion is subject to certain conditions described above, resulting in the issuance of 78.2 million shares of our common stock to the Treasury.
(3)		Includes a net deferred tax asset of $1.2 million.
(4)		Assumes cumulative pre-provision earnings from April 1, 2010 through December 31, 2011 based on our internal projections and assuming we have access to the expected proceeds of this offering. This excludes any gains on the conversion transactions, which are included in “Common Equity Created Through Conversions.”
(5)		Assumes cumulative provisions from April 1, 2010 through December 31, 2011 based upon our internal projections of losses and ending ALLL / Total Loans ratio of 2.32% at December 31, 2011.
(6)		Assumes $110 million gross proceeds from this offering.

(1)		The number of our shares outstanding immediately after the closing of this offering is based on [•] shares of our common stock outstanding as of [•], 2010.
(2)		Unless otherwise indicated, the number of shares of common stock stated to be outstanding in this prospectus excludes (a) [•] shares issuable upon exercise of the underwriters’ over-allotment option, (b) [•] shares of common stock issuable upon exercise of outstanding stock options as of [•], 2010 (with a weighted average exercise price of $[•]), (c) [•] shares issuable pursuant to potential future awards under our equity compensation plans, (d) 3,461,538 shares issuable upon exercise of the amended and restated Warrant (as such number may be adjusted pursuant to the terms of the amended and restated Warrant) held by the Treasury, and (e) all shares issuable upon conversion of our Series B Convertible Preferred Stock held by the Treasury.

SELECTED FINANCIAL DATA

     The following tables set forth selected consolidated financial data for us at and for each of the years in the five-year period ended December 31, 2009 and at and for the three-month periods ended March 31, 2010 and 2009.

     The selected financial data as of and for the years ended December 31, 2009, 2008 and 2007, has been derived from our audited financial statements included in this prospectus beginning on page F-39. The selected financial data as of and for the years ended December 31, 2006 and 2005 has been derived from our audited financial statements included in our annual report on Form 10-K for the year ended December 31, 2006.

     The selected financial data as of and for the three months ended March 31, 2010 and 2009 has been derived from our unaudited interim financial statements included in this prospectus beginning on page F-2. In the opinion of our management, these financial statements reflect all necessary adjustments (consisting only of normal recurring adjustments) for a fair presentation of the data for those periods. Historical results are not necessarily indicative of future results and the results for the three months ended March 31, 2010 are not necessarily indicative of our expected results for the full year ending December 31, 2010 or any other period.

     You should read this information in conjunction with our consolidated financial statements and related notes included at page F-1 below, from which this information is derived.

		3-Months Ended March 31,								Year Ended December 31,
		2010				2009				2009				2008				2007				2006				2005
($ in 000’s, except per share amounts)		(Unaudited)								(Audited)
SUMMARY OF OPERATIONS
Interest income		$	41,244			$	47,565			$	189,056			$	203,736			$	223,254			$	216,895			$	193,035
Interest expense			11,213				13,218				50,533				73,587				102,663				93,698				63,099
Net interest income			30,031				34,347				138,523				130,149				120,591				123,197				129,936
Provision for loan losses			17,070				30,038				103,032				71,321				43,160				16,344				7,806
Net gains (losses) on securities			147				(581	)			3,744				(14,961	)			(705	)			171				1,484
Other non-interest income			11,870				12,159				54,915				44,682				47,850				44,679				41,342
Non-interest expenses			39,079				34,191				187,587				177,150				115,724				106,216				101,785
Income (loss) from continuing operations before income tax			(14,101	)			(18,304	)			(93,437	)			(88,601	)			8,852				45,487				63,171
Income tax expense (benefit)			(264	)			293				(3,210	)			3,063				(1,103	)			11,662				17,466
Income (loss) from continuing operations			(13,837	)			(18,597	)			(90,227	)			(91,664	)			9,955				33,825				45,705
Discontinued operations, net of tax																			402				(622	)			1,207
Net income (loss)			(13,837	)			(18,597	)			(90,227	)			(91,664	)			10,357				33,203				46,912
Preferred dividends			1,077				1,075				4,301				215
Net income (loss) applicable to common stock		$	(14,914	)		$	(19,672	)		$	(94,528	)		$	(91,879	)		$	10,357			$	33,203			$	46,912
PER COMMON SHARE DATA(1)
Income (loss) per common share from continuing operations
Basic		$	(0.62	)		$	(0.84	)		$	(3.96	)		$	(4.00	)		$	0.44			$	1.48			$	1.96
Diluted			(0.62	)			(0.84	)			(3.96	)			(4.00	)			0.44				1.45				1.92
Net income (loss) per common share
Basic		$	(0.62	)		$	(0.84	)		$	(3.96	)		$	(4.00	)		$	0.46			$	1.45			$	2.01
Diluted			(0.62	)			(0.84	)			(3.96	)			(4.00	)			0.45				1.43				1.97
Cash dividends declared			0.00				0.01				0.03				0.14				0.84				0.78				0.71
Book value			1.16				4.53				1.69				5.49				10.62				11.29				10.75

		3-Months Ended March 31,								Year Ended December 31,
		2010				2009				2009				2008				2007				2006				2005
($ in 000’s, except per share amounts)		(Unaudited)								(Audited)
SELECTED BALANCES
Assets		$	2,900,770			$	2,952,981			$	2,965,364			$	2,956,245			$	3,247,516			$	3,406,390			$	3,348,707
Loans			2,155,598				2,446,959				2,299,372				2,459,529				2,518,330				2,459,887				2,365,176
Allowance for loan losses			76,132				58,305				81,717				57,900				45,294				26,879				22,420
Deposits			2,497,542				2,161,028				2,565,768				2,066,479				2,505,127				2,602,791				2,474,239
Shareholders’ equity			97,211				177,436				109,861				194,877				240,502				258,167				248,259
Long-term debt - FHLB advances			122,372				276,705				94,382				314,214				261,509				63,272				81,525
Subordinated debentures			92,888				92,888				92,888				92,888				92,888				60,888				60,888
SELECTED RATIOS
Net interest income to average interest earning assets			4.45	%			5.03	%			5.00	%			4.48	%			4.26	%			4.41	%			4.85	%
Income (loss) from continuing operations to(2)
Average common equity			(184.46	)			(62.73	)			(90.72	)			(39.01	)			3.96				13.06				18.63
Average assets			(2.06	)			(2.68	)			(3.17	)			(2.88	)			0.31				0.99				1.42
Net income (loss) to(2)
Average common equity			(184.46	)			(62.73	)			(90.72	)			(39.01	)			4.12				12.82				19.12
Average assets			(2.06	)			(2.68	)			(3.17	)			(2.88	)			0.32				0.97				1.45
Average shareholders’ equity to average assets			3.48				6.58				5.80				7.50				7.72				7.60				7.61
Tier 1 capital to average assets			4.67				7.97				5.27				8.61				7.44				7.62				7.40
Non-performing loans to portfolio loans			4.56				5.27				4.78				5.09				3.07				1.59				0.70

RISK FACTORS

     An investment in our common stock involves risks. You should carefully consider all of the information contained in this prospectus, including the risks described below, before investing in our common stock. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The risk factors described in this section, as well as any cautionary language in this prospectus, provide examples of risks, uncertainties, and events that could have a material adverse effect on our business, including our operating results and financial condition. This prospectus also contains forward-looking statements that involve risks and uncertainties. These risks could cause our actual results to differ materially from the expectations that we describe in our forward-looking statements. See “Forward-Looking Statements.”

RISKS RELATED TO OUR BUSINESS

Our results of operations, financial condition, and business may be materially and adversely affected if we are unable to successfully implement our Capital Plan.

Our Capital Plan, which is described in more detail under “Capital Plan and This Offering” below, contemplates three primary initiatives that have been undertaken in order to increase our common equity capital, decrease our expenses, and enable us to better withstand and respond to current market conditions and the potential for worsening market conditions. Those three initiatives are the offer to exchange our common stock for our outstanding trust preferred securities, a conversion of the preferred stock held by the Treasury into shares of our common stock, and a public offering of our common stock for cash as described in this prospectus. We cannot be sure we will be able to successfully execute on the public offering of our common stock in a timely manner or at all. The successful implementation of our Capital Plan is, in many respects, largely out of our control as it primarily depends on our success in this offering, which depends on factors such as the stability of the financial markets, other macro economic conditions, and investors’ perception of the ability of the Michigan economy to continue to recover from the current recession.

If we are unable to achieve the minimum capital ratios set forth in our Capital Plan in the near future, it would likely materially and adversely affect our business, financial condition, and the value of our securities. An inability to improve our capital position would make it very difficult for us to withstand continued losses as a result of continued economic difficulties in Michigan and other factors, as described elsewhere in this “Risk Factors” section.

In addition, we believe that if we are unable to achieve the minimum capital ratios set forth in our Capital Plan as a result of our inability to raise sufficient capital in this offering and if our financial condition and performance otherwise fail to improve significantly, it is likely our bank’s capital will fall below the levels necessary to remain well-capitalized under federal regulatory standards during 2010. In that case, our primary bank regulators may impose regulatory restrictions and requirements on us through a regulatory enforcement action. If our bank fails to remain well-capitalized under federal regulatory standards, it will be prohibited from accepting or renewing brokered deposits without the prior consent of the FDIC, which would likely have a material adverse impact on our business and financial condition. If our regulators take enforcement action against us, it would likely increase our expenses and could limit our business operations, as described under “Capital Plan and This Offering” below. There could be other expenses associated with a continued deterioration of our capital, such as increased deposit insurance premiums payable to the FDIC.

Because of our financial condition at March 31, 2010, we received a letter from Fannie Mae in May 2010 advising us that we were in breach of our selling and servicing contract with Fannie Mae. The letter states that if this breach is not remedied as evidenced by our call report as of June 30, 2010, Fannie Mae will suspend our servicing contract. The suspension of our contract with Fannie Mae could have a material adverse impact on our financial condition and results of operations. We are in discussions with Fannie Mae to address the concerns in its May 2010 letter and avoid any suspension of our contract; however, this matter remains unresolved and the risk exists that Fannie Mae may require us to very quickly sell or transfer mortgage servicing rights to a third party or unilaterally strip us of such servicing rights if we cannot complete an approved transfer. Depending on the terms of any such transaction, this forced sale or transfer of such mortgage loan servicing rights could have a material adverse impact on our financial condition and future earnings prospects. Although we have not received any notice from Freddie Mac similar to the notice we received from Fannie Mae, a similar type of action could be taken by Freddie Mac.

Additional restrictions would make it increasingly difficult for us to withstand the current economic conditions, any continued deterioration in our loan portfolio, or any additional charges related to estimated potential losses for Mepco from vehicle service contract counterparty contingencies. We could then be required to engage in a sale or other transaction with a third party or our bank could be placed into receivership by bank regulators. Any such event could be expected to result in a loss of the entire value of our outstanding shares of common stock, including any common stock issued in this offering, and it could also result in a loss of the entire value of our outstanding trust preferred securities and preferred stock.

We may not achieve results similar to the financial projections contained in this prospectus.

This prospectus contains various projections and related assumptions regarding our future financial performance and condition. These projections and assumptions were based on information about circumstances and conditions existing as of the date of this prospectus. The projections and estimated financial results are based on estimates and assumptions that are inherently uncertain and, though considered reasonable by us, are subject to significant business, economic, and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that the projected results will be realized or that actual results will not be significantly different than projected. We do not intend to update the projections. Neither we nor any other person or entity assumes any responsibility for the accuracy or validity of the projections, as the projections are not, and should not be taken as, a guarantee of our future financial performance or condition.

We have credit risk inherent in our asset portfolios, and our allowance for loan losses may not be sufficient to cover actual loan losses, despite analyses that have been conducted (both internally and externally by independent third parties) to assess the adequacy of our allowance.

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 have experienced and may continue to experience significant credit losses which could have a material adverse effect on our operating results. 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. 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. 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. Any increase in our allowance for loan losses or loan charge-offs required by these regulatory agencies would have a material adverse effect on our results of operations and financial condition.

We have performed internal “stress testing” of our loan portfolio and resulting capital position at March 31, 2010, using the same methodologies as used by the Federal Reserve in the Supervisory Capital Assessment Program (SCAP). We performed the SCAP test based on our December 2008 loan portfolio and took into account actual losses/charge-offs during 2009 and first quarter 2010. We also engaged independent third parties to perform a “stress test” on each of our commercial and retail loan portfolios. See the discussions of these analyses under “Summary — Recent Credit Reviews in Advance of this Offering” above for more details.

Although we have performed internal and external 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 or external analysis that has been performed.

Our business has been and may continue to be adversely affected by current conditions in the financial markets and economic conditions generally, and particularly by economic conditions in Michigan.

Our success depends to a great extent upon the general economic conditions in Michigan’s lower peninsula. We have in general experienced a slowing economy in Michigan since 2001. Unlike larger banks that are more geographically diversified, we provide banking services to customers primarily in Michigan’s lower peninsula. Our loan portfolio, the ability of the borrowers to repay these loans, and the value of the collateral securing these loans will be impacted by local economic conditions. The economic difficulties faced in Michigan have had and may continue to have many adverse consequences, including the following:

	•		Loan delinquencies may increase;
	•		Problem assets and foreclosures may increase;
	•		Demand for our products and services may decline; and
	•		Collateral for our loans may decline in value, in turn reducing customers’ borrowing power and reducing the value of assets and collateral associated with existing loans.

Additionally, the overall capital and credit markets have experienced unprecedented levels of volatility and disruption since the start of the U.S. recession. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. As a consequence of the U.S. recession, business activity across a wide range of industries faces serious difficulties due to the lack of consumer spending and the extreme lack of liquidity in the global credit markets. Unemployment has also increased significantly and may continue to increase. In particular, according to data published by the federal Bureau of Labor Statistics, Michigan’s unemployment rate of 13.6% as of May 2010 is the second highest among all states.

While we believe we have started to see some positive trends in the Michigan economy (as described under “Summary” above), the general business environment has continued to have an overall adverse effect on our business during the past year. If conditions do not show some meaningful and sustainable improvement, our business, financial condition, and results of operations will likely continue to be adversely affected by economic conditions.

Current market developments, particularly in real estate markets, may adversely affect our industry, business and results of operations.

Dramatic declines in the housing market in recent years, with falling home prices and increasing foreclosures and unemployment, have resulted in, and may continue to result in, significant write-downs of asset values by us and other financial institutions. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. As a result of these conditions, many lenders and institutional investors have reduced, and in some cases ceased to provide, funding to borrowers including financial institutions.

Although we believe the Michigan economy has shown signs of stabilization recently (as described under “Summary” above), it is possible conditions will not stabilize or recover at or even close to the pace expected.

This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and widespread reduction of business activity generally. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets, and reduced business activity could materially and adversely affect our business, financial condition and results of operations.

Further negative market developments may continue to negatively affect consumer confidence levels and may continue to contribute to increases in delinquencies and default rates, which may impact our charge-offs and provisions for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry.

Events in the vehicle service contract industry over the past year have increased our credit risk and reputation risk and could expose us to further significant losses.

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 become obligated to refund Mepco the unearned portion of the sales price previously funded by Mepco. The refund obligations of these counterparties are not fully secured.

In addition, several of these providers, including the counterparty described in the next risk factor below and other companies from which Mepco has purchased payment plans, have been sued or are under investigation for alleged violations of telemarketing laws and other consumer protection laws. The actions have been brought primarily by state attorneys general and the Federal Trade Commission (FTC) but there have also been class action and other private lawsuits filed. In some cases, the companies have been placed into receivership, filed bankruptcy, or discontinued their business. In addition, the allegations, particularly those relating to blatantly abusive telemarketing practices by a relatively small number of marketers, have resulted in a significant amount of negative publicity that has adversely affected and may in the future continue to adversely affect sales and customer cancellations of purchased products throughout the industry, which have already been negatively impacted by the economic recession. It is possible these events could also cause federal or state lawmakers to enact legislation to further regulate the industry.

These events have had and may continue to have an adverse impact on Mepco in several ways. First, we face increased 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. In 2009 and in the first quarter of 2010, we recorded $31.2 million and $3.4 million of charges, respectively, related to estimated potential losses for vehicle service contract counterparty contingencies. We may incur similar charges in the future. In addition to these potential losses, the recent events within the vehicle service contract industry have negatively affected sales and customer cancellations, which has had and is expected to continue to have a negative impact on the profitability of Mepco’s business. Largely as a result of these events, at the end of 2009, we wrote down all of the $16.7 million of goodwill associated with Mepco that was being carried on our balance sheet. In addition, if any federal or state investigation is expanded to include finance companies such as Mepco, Mepco will face additional legal and other expenses in connection with any such investigation. An increased level of private actions in which Mepco is named as a defendant will also cause Mepco to incur additional legal expenses as well as potential liability. Finally, Mepco has incurred and will likely continue to incur additional legal and other expenses, in general, in dealing with these industry problems, including efforts to collect amounts owed to Mepco by its counterparties.

Mepco has significant exposure to a single counterparty that recently filed bankruptcy. The charges we have taken for expected losses related to the failure of this counterparty have had a material adverse effect on our financial condition and results of operations. If actual losses exceed the charges we have taken, we may incur additional losses that could be material.

Approximately 40% of Mepco’s current outstanding payment plans were purchased from a single counterparty. Beginning in the second half of 2009, this counterparty experienced decreased sales (and ceased all new sales in December 2009) and significantly increased levels of customer cancellations. Customer cancellations trigger an obligation of this counterparty to repay us the unearned portion of the sales price for the payment plan previously advanced by us to this counterparty. In addition, this counterparty is subject to a multi-state attorney general investigation regarding certain of its business practices and multiple civil lawsuits. These events have increased costs for this counterparty, putting further pressure on its cash flow and profitability. This counterparty filed for bankruptcy on March 1, 2010.

Mepco is actively working to reduce its credit exposure to this counterparty. The amount of payment plan receivables (formerly referred to as finance receivables) purchased from this counterparty and outstanding at May 31, 2010 totaled approximately $110.8 million (compared to approximately $147.1 million at March 31, 2010, and $206.1 million at December 31, 2009). In addition, as of May 31, 2010, this counterparty owed Mepco $34.6 million for previously cancelled payment plans. The bankruptcy filing by this counterparty is likely to lead to substantial potential losses as this entity will not be in a position to honor its obligations to Mepco for previously cancelled payment plans and outstanding payment plans that cancel prior to payment in full. Mepco will seek to recover amounts owed by this counterparty from various co-obligors and guarantors and through the liquidation of certain collateral held by Mepco. However, we are not certain as to the amount of any such recoveries. In 2009, Mepco recorded an aggregate $19.0 million expense (as part of vehicle service contract counterparty contingencies expense that is included in non-interest expense) to establish a reserve for losses related to this counterparty. In 2010, this reserve was increased by approximately $0.5 million due primarily to actual payment plan cancellation rates being slightly higher than what was originally projected. In calculating the amount of the reserve in 2009, we took into account the significant likelihood that this counterparty would file for bankruptcy protection. As a result, we currently do not expect to materially increase the amount of our reserve solely as a result of the bankruptcy filing. However, Mepco has committed to provide financing to this counterparty while it is in bankruptcy of up to an aggregate of approximately $4 million. This was done as part of Mepco’s overall efforts to minimize the loss associated with this counterparty. At June 30, 2010, approximately $2.8 million of the $4 million commitment had been advanced. We believe the orderly wind-down of this counterparty’s business is critical as it allows this counterparty to continue providing customer service to consumers to whom it sold vehicle service contracts. As described in the following risk factor, there is a risk that the reserves we have established related to the failure of this counterparty will not be sufficient to absorb the actual losses we may incur.

The assumptions we make in calculating estimated potential losses for Mepco may be inaccurate, which could lead to losses that are materially greater than the charges we have taken to date.

We make a number of key assumptions in calculating the estimated potential losses for Mepco, including the likelihood that a counterparty could discontinue its business operations, the cancellation rates for outstanding payment plans, the value of and our ability to collect any collateral securing the amounts owed to Mepco upon cancellation of outstanding payment plans, and our ability to collect such amounts from other counterparties obligated to Mepco. It is only within the approximately past 12 months that events have occurred that have led to a significant increase in vehicle service contract counterparty contingencies expense. The aggregate amount of vehicle service contract counterparty contingencies expense recorded in past years has grown from $0 in 2007, to $1.0 million in 2008, to $31.2 million in 2009 (and was $3.4 million during the first quarter of 2010). As a result, Mepco does not have much historical data to draw from in making the assumptions necessary to predict probable incurred losses (such as the ability to successfully recover from service contract administrators amounts funded by Mepco to the service contract seller). If actual cancellation rates are higher than we estimated or if actual counterparty repayments are less than we estimated, the amount of our reserves may be insufficient to cover our actual losses, and the additional losses we incur could be significant. Moreover, we may be forced to bring suit against counterparties in order to collect amounts owed to Mepco, which adds further uncertainty to our assumptions. These assumptions are very difficult to make, and actual events could be materially different from any one or more of our assumptions. In that case, we may incur additional, and possibly material, losses in excess of the charges we have taken.

Mepco has historically contributed a meaningful amount of profit to our consolidated results of operations, but we expect the size of its business to shrink significantly in 2010 and beyond.

For 2008 and 2007, Mepco had net income of $10.7 million and $5.5 million, respectively. With the counterparty losses experienced by Mepco late in 2009 (including those related to the counterparty described above) and a $16.7 million goodwill impairment charge, Mepco incurred an $11.7 million loss in 2009. For the first quarter of 2010, Mepco reported net income of $0.7 million.

As of March 31, 2010, the net payment plan receivables held by Mepco represented approximately 11.7% of our consolidated assets (down from 13.7% at December 31, 2009 and as high as 15.0% at July 31, 2009). As a result of the loss of business with the counterparty described above as well as our desire to reduce payment plan receivables as a percentage of total assets, we expect Mepco’s total earning assets to decrease by approximately 50% in 2010 over the 2009 year-end level. As a result, the reduction in the size of Mepco’s business will adversely affect our financial results as compared to our historical results and make it more difficult for us to be profitable on a consolidated basis in the

near future. Historically, Mepco has had a significant positive impact on our net interest margin. Without Mepco, our net interest margin would have been lower by approximately 0.65%, 1.40%, and 1.25% in 2008, 2009, and the first quarter of 2010, respectively. As the size of Mepco’s business shrinks, it will have a negative impact on our net interest margin. We are considering strategic options for Mepco, which could include a sale or wind-down of this business.

Mepco’s business is highly specialized and presents unique operational and internal control challenges.

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 success depends largely on the continued services of its executives and other key employees familiar with its business. In addition, because financing in this market is conducted primarily through relationships with unaffiliated automobile service contract direct marketers and administrators and because the customers are located nationwide, risk management and general supervisory oversight is 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.

Our operations may be adversely affected if we are unable to secure adequate funding. Our use of wholesale funding sources exposes us to liquidity risk and potential earnings volatility.

We rely on wholesale funding, including Federal Home Loan Bank borrowings, brokered deposits, and Federal Reserve Bank borrowings, to augment our core deposits to fund our business. As of March 31, 2010, our use of such wholesale funding sources amounted to approximately $680.6 million or 25.6% of total funding. Because wholesale funding sources are affected by general market conditions, the availability of funding from wholesale lenders may be dependent on the confidence these investors have in our commercial and consumer banking operations. The continued availability to us of these funding sources is uncertain, and brokered deposits may be difficult for us to retain or replace at attractive rates as they mature. Our liquidity will 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. We may not have sufficient liquidity to continue to fund new loans, and we may need to liquidate loans or other assets unexpectedly, in order to repay obligations as they mature.

The constraint on our liquidity would be exacerbated if we were to experience a reduction in our core deposits, and we cannot be sure we will be able to maintain our current level of core deposits. In particular, those deposits that are currently uninsured or those deposits in the TAGP, which is set to expire on December 31, 2010 for participating institutions that have not opted out, may be particularly susceptible to outflow. At March 31, 2010, $1.423 billion of our deposits (compared to $1.394 billion at December 31, 2009), were in account types from which the customer could withdraw the funds on demand.

As a result of these liquidity risks, we have increased our level of overnight cash balances in interest-bearing accounts to $323.5 million at March 31, 2010 from $223.5 million at December 31, 2009 and $7.2 million at March 31, 2009. We have also issued longer-term (two to five year) callable brokered CDs and reduced certain secured borrowings (such as from the Federal Reserve) to increase available funding sources. We believe these actions will assist us in meeting our liquidity needs during 2010. However, these actions have had (in the first quarter of 2010) and are expected to continue to have an adverse impact on our 2010 net interest income and net interest margin. Net interest income totaled $30.0 million during the first quarter of 2010, which represents a $4.3 million or 12.6% decrease from the comparable quarter in 2009. The decrease in net interest income in 2010 compared to 2009 reflects a 58 basis point decline in our net interest margin as well as a $28.5 million decrease in average interest-earning assets.

In addition, if we fail to remain “well-capitalized” under federal regulatory standards, which is likely if we are unable to successfully implement our Capital Plan (as discussed under “Capital Plan and This Offering” below), we will be prohibited from accepting or renewing brokered deposits without the prior consent of the FDIC. As of March 31, 2010, we had brokered deposits of approximately $523 million. Approximately $86 million of these brokered deposits mature by March 31, 2011. As a result, any such restrictions on our ability to access brokered deposits is likely to have a material adverse impact on our business and financial condition.

Moreover, we cannot be sure we will be able to maintain our current level of core deposits. Our deposit customers could move their deposits in reaction to media reports about bank failures in general or, particularly, if we are unable to successfully complete our Capital Plan. A reduction in core deposits would increase our need to rely on wholesale funding sources, at a time when our ability to do so may be more restricted, as described above.

Our financial performance will be materially and adversely affected if we are unable to maintain our access to funding 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 would be adversely affected.

Dividends being deferred on our outstanding trust preferred securities and our outstanding preferred stock are accumulating as a liability on our balance sheet, and this liability is expected to continue to increase as we have no current plans to resume such dividend payments at any time in the near future.

We are currently deferring payment of quarterly dividends on our preferred stock held by the Treasury, which pays cumulative dividends quarterly at a rate of 5% per annum through February 14, 2014, and 9% per annum thereafter. In addition, we have exercised our right to defer all quarterly interest payments on the subordinated debentures we issued to our trust subsidiaries. As a result, all quarterly dividends on the related trust preferred securities are also being deferred. We may defer such interest payments for a total of 20 consecutive calendar quarters without causing an event of default under the documents governing these securities. After such period, we must pay all deferred interest and resume quarterly interest payments or we will be in default.

We do not have any current plans to resume dividend payments on our outstanding trust preferred securities or our outstanding preferred stock. If and when either of such payments resume, however, the accrued amounts must be paid and made current. As of June 30, 2010, the amount of these accrued but unpaid dividends on our outstanding trust preferred securities and our outstanding Series B Convertible Preferred Stock was $20.0 million.

We face uncertainty with respect to legislative efforts by the federal government to help stabilize the U.S. financial system, address problems that caused the recent crisis in the U.S. financial markets, or otherwise regulate the financial services industry.

Beginning in the fourth quarter of 2008, the federal government enacted new laws intended to strengthen and restore confidence in the U.S. financial system. See “Business—Regulatory Developments” below for additional information regarding these developments. There can be no assurance, however, as to the actual impact that such programs will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of these and other programs to stabilize the financial markets and a continuation or worsening of depressed financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit, or the trading price of our common stock.

In addition, additional legislation or regulations may be adopted in the future that could adversely impact us. For example, on May 20, 2010, the U.S. Senate passed a bill, a version of which the U.S. House of Representatives passed in December 2009, that proposes broad changes to the U.S. financial system. As released on June 25, 2010, the reconciled version of the bill or conference report, now known as the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” includes the creation of a new Consumer Financial Protection Bureau with power to promulgate and, with respect to financial institutions with more than $10 billion in assets, enforce consumer protection laws, the creation of a Financial Stability Oversight Council chaired by the Secretary of the Treasury with authority to identify institutions and practices that might pose a systemic risk, provisions affecting corporate governance and executive compensation of all companies whose securities are registered with the Securities and Exchange Commission, a provision that would broaden the base for FDIC insurance assessments, a provision under which interchange fees for debit cards would be set by the Federal Reserve under a restrictive “reasonable and proportional cost” per transaction standard, a provision that would require bank regulators to set minimum capital levels for bank holding companies that are as strong as those required for their insured depository subsidiaries, subject to a grandfather clause for financial institutions with less than $15 billion in assets as of December 31, 2009, and new restrictions on how mortgage brokers and loan originators may be compensated. On June 30, 2010, the U.S. House of Representatives passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation, if enacted into law, as well as other similar federal initiatives could have a material adverse impact on our business.

We have credit risk inherent 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, and asset-backed securities. We also invest in capital securities, which include preferred stocks and trust preferred 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) or by conducting significant due diligence on the issuer for unrated securities. However, gross unrealized losses on securities available for sale in our portfolio totaled approximately $7 million as of March 31, 2010 (compared to approximately $10 million as of December 31, 2009). 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.

Our mortgage-banking revenues are susceptible to substantial variations dependent largely upon factors that we do not control, such as market interest rates.

A portion of our revenues are derived from gains on the sale of real estate mortgage loans. For first quarter 2010 and the year 2009, these gains represented over 3% and over 4% of our total revenues, respectively. 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 real estate 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.

Fluctuations in interest rates could reduce our profitability.

We realize income primarily from the difference between interest earned on loans and investments and the interest paid on deposits and borrowings. Our interest income and interest expense are affected by general economic conditions and by the policies of regulatory authorities. While we have taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that these measures will be effective in avoiding undue interest rate risk. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to our position, this “gap” will work against us, and our earnings may be negatively affected.

We are unable to predict fluctuations of market interest rates, which are affected by, among other factors, changes in the following:

	•		inflation or deflation rates;
	•		levels of business activity;
	•		recession;
	•		unemployment levels;
	•		money supply;
	•		domestic or foreign events; and
	•		instability in domestic and foreign financial markets.

Changes in accounting standards could impact our reported earnings.

Financial accounting and reporting standards are periodically changed by the Financial Accounting Standards Board (FASB), the SEC, and other regulatory authorities. Such changes affect how we are required to prepare and report our consolidated financial statements. These changes are often hard to predict and may materially impact our reported financial condition and results of operations. In some cases, we may be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

In particular, in May 2010, the FASB issued an exposure draft of a proposed accounting standards update that would materially affect the accounting for financial instruments. The proposed accounting changes would force us to use market prices to value almost all of our financial instruments (“mark-to-market”), including our loan portfolio, and record any changes on our balance sheet. Our loans (other than certain mortgage loans intended for sale into the secondary market) are recorded on our balance sheet at their amortized or historical cost. If these proposed accounting changes are implemented, it would likely have a material adverse effect on our business.

We rely heavily on our management team, and the unexpected loss of key managers may adversely affect our operations and the ability to implement our Capital Plan and business strategies.

The continuity of our operations is influenced strongly by our ability to attract and to retain senior management experienced in banking and financial services. Our ability to retain executive officers and the current management teams of each of our lines of business will continue to be important to successful implementation of our Capital Plan and our strategies. We do not have employment or non-compete agreements with any of our executives or other key employees. In addition, we face restrictions on our ability to compensate our executives as a result of our participation in the CPP under TARP. Many of our competitors do not face these same restrictions. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business and financial results.

Competition with other financial institutions could adversely affect our profitability.

We face vigorous competition from banks and other financial institutions, including savings banks, finance companies, and credit unions. A number of these banks and other financial institutions have substantially greater resources and lending limits, larger branch systems, and a wider array of banking services. To a limited extent, we also compete with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies, and insurance companies, which are not subject to the same degree of regulation as that imposed on bank holding companies. As a result, these non-bank competitors may have an advantage over us in providing certain services, and this competition may reduce or limit our margins on banking services, reduce our market share, and adversely affect our results of operations and financial condition.

Even if we are successful in raising capital in this offering, we will face challenges in our ability to achieve future growth in the near term.

Our current capital position has prevented us from pursuing any meaningful growth initiatives, and we have taken actions to shrink our balance sheet. If we are successful in raising at least $100 million of net proceeds in this offering and otherwise restoring our capital levels in accordance with the targets established in our Capital Plan, we believe we will be well-positioned to take advantage of growth opportunities that strategically make sense for our core banking franchise, particularly opportunities created as a result of competitive entities exiting or reducing their resources in the Michigan market. However, we cannot be sure that these opportunities will exist or that we will have sufficient capital or other resources to effectively pursue them. In addition, other competitors may have the same strategy, which may prevent us from realizing these opportunities or may increase our costs of pursuing these opportunities. These factors and others may impede our ability to effectively deploy capital raised in this offering and achieve growth in the near term.

We operate in a highly regulated environment and may be adversely affected by changes in federal and local laws and regulations.

We are generally subject to extensive regulation, supervision, and examination by federal and state banking authorities. The burden of regulatory compliance has increased under current legislation and banking regulations and is likely to continue to have a significant impact on the financial services industry. Recent legislative and regulatory changes as well as changes in regulatory enforcement policies and capital adequacy guidelines are likely to increase our cost of doing business. In addition, future legislative or regulatory changes could have a substantial impact on us. Additional legislation and regulations may be enacted or adopted in the future that could significantly affect our powers, authority, and operations; increase our costs of doing business; and, as a result, give an advantage to our competitors who may not be subject to similar legislative and regulatory requirements. Further, regulators have significant discretion and power to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory power may have a negative impact on our results of operations and financial condition.

There have been numerous media reports about bank failures, which we expect will continue as additional banks fail. These reports have created concerns among certain of our customers, particularly those with deposit balances in excess of deposit insurance limits.

We have proactively sought to provide appropriate information to our deposit customers about our organization in order to retain our business and deposit relationships. To date, we have not experienced a meaningful loss of core deposits, nor have we had to offer above market interest rates in order to retain our core deposits. However, we cannot be sure we will continue to be successful in maintaining the majority of our core deposit base. The outflow of significant amounts of deposits could have a material adverse impact on our liquidity and results of operations.

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

As an FDIC-insured institution, we are required to pay deposit insurance premium assessments to the FDIC. Due to higher levels of bank failures beginning in 2008, the FDIC has taken numerous steps to restore reserve ratios of the deposit insurance fund. Our deposit insurance expense increased substantially in 2009 compared to prior periods, reflecting higher rates and a special assessment of $1.4 million in the second quarter of 2009. This industry-wide special assessment was equal to 5 basis points on our total assets less our Tier 1 capital. In addition, our balance of total deposits increased during 2009. During 2007, we fully utilized the assessment credits that reduced our expense during that year.

Under the FDIC’s risk-based assessment system for deposit insurance premiums, all insured depository institutions are placed into one of four categories and assessed insurance premiums based primarily on their level of capital and supervisory evaluations. Insurance assessments ranged from 0.12% to 0.50% of total deposits for the first quarter 2009 assessment. Effective April 1, 2009, insurance assessments ranged from 0.07% to 0.78%, depending on an institution’s risk classification and other factors. As a result, our deposit insurance expense will increase if our financial condition worsens and our Tier 1 capital continues to deteriorate. The amount of deposit insurance that we are required to pay is also subject to factors outside of our control, including bank failures and regulatory initiatives. Such increases may adversely affect our results of operations.

RISKS RELATED TO OUR EFFORTS TO RAISE CAPITAL

If successful, the initiatives set forth in our Capital Plan will be highly dilutive to our existing common shareholders.

Our Capital Plan contemplates capital raising initiatives that involve the issuance of a significant number of shares of our common stock. You should read “Capitalization” and “Capital Plan and This Offering” below for more information. The completion of any of these capital raising transactions will be highly dilutive to our existing common shareholders and their voting power. The market price of our common stock could decline as a result of the dilutive effect of the capital raising transactions we may enter into or the perception that such transactions could occur.

The capital raising initiatives we are pursuing would result in the Treasury or one or more private investors owning a significant percentage of our stock and having the ability to exert significant influence over our management and operations.

One of the primary capital raising initiatives set forth in our Capital Plan consists of the conversion of the preferred stock held by the Treasury into shares of our common stock. As described under “Capital Plan and This Offering” below, the Series B Convertible Preferred Stock currently held by the Treasury is convertible into shares of our common stock. Any such conversion is likely to result in the Treasury owning a significant percentage of our outstanding common stock, perhaps over 50%.

Except with respect to certain Designated Matters, Treasury has agreed in the Exchange Agreement to vote all shares of our common stock acquired upon conversion of the Series B Convertible Preferred Stock or upon exercise of the amended and restated Warrant that are beneficially owned by it and its controlled affiliates in the same proportion (for, against or abstain) as all other shares of our common stock are voted. “Designated Matters” means (i) the election and removal of our directors, (ii) the approval of any merger, consolidation or similar transaction that requires the approval of our shareholders, (iii) the approval of a sale of all or substantially all of our assets or property, (iv) the approval of our dissolution, (v) the approval of any issuance of any of our securities on which our shareholders are entitled to vote, (vi) the approval of any amendment to our organizational documents on which our shareholders are entitled to vote, and (vii) the approval of any other matters reasonably incidental to the foregoing as determined by the Treasury.

It is also possible that one or more investors, other than the Treasury, could end up as the owner of a significant portion of our common stock. This could occur, for example, if the Treasury transfers shares of the Series B Convertible Preferred Stock it holds or, upon conversion of such stock, transfers to a third party the common stock issued upon conversion. It also could occur if one or more large investors makes a significant investment in our common stock in this offering.

Subject to the voting limitations applicable to the Treasury and its controlled affiliates described above, any such significant shareholder could exercise significant influence on matters submitted to our shareholders for approval, including the election of directors. In addition, having a significant shareholder could make future transactions more difficult or even impossible to complete without the support of such shareholder, whose interests may not coincide with interests of smaller shareholders. These possibilities could have an adverse effect on the market price of our common stock.

In addition to the foregoing, the Series B Convertible Preferred Stock we issued to the Treasury contains a provision that automatically increases the size of our board of directors by two persons and allows the Treasury to fill the two new director positions at such time, if any, as dividends payable on the Series B Convertible Preferred Stock have not been paid for an aggregate of six quarterly dividend periods or more, whether or not consecutive. We are currently deferring quarterly dividends on the Series B Convertible Preferred Stock. If we continue to defer dividends each quarter, the Treasury would have the right to appoint these two directors beginning in approximately August 2011. Assuming we are successful in raising capital in this offering, we intend to exercise our right to convert the Series B Convertible Preferred Stock held by the Treasury into shares of our common stock immediately after this offering. However, if we are unable to do so for any reason, this risk of the Treasury having the right to appoint two directors to our board will continue.

We expect that the sale of our common stock in this offering will trigger an ownership change under federal tax law that will negatively affect our ability to utilize net operating loss carryforwards and other deferred tax assets in the future.

As of March 31, 2010, we had a federal net operating loss carryforward of approximately $53.5 million. Under federal tax law, our ability to utilize this carryforward and other deferred tax assets is limited if we are deemed to experience a change of ownership pursuant to Section 382 of the Internal Revenue Code. This would result in our loss of the benefit of these deferred tax assets. Please see the more detailed discussion of these tax rules under “Results of Operations - Income Tax Expense (Benefit)” below.

We will retain broad discretion in using the net proceeds from this offering.

We intend to contribute all or substantially all of the net proceeds from this offering to our bank to strengthen its regulatory capital ratios. We expect to use any remaining net proceeds for general working capital purposes, which may include repaying certain of our funding obligations, and business acquisitions and combinations. Accordingly, our management will retain broad discretion to allocate the net proceeds of this offering. Our management may use the proceeds for corporate purposes that may not increase our market value or make us more profitable. In addition, it may take us some time to effectively deploy the proceeds from this offering. Until the proceeds are effectively deployed, our return on equity and earnings per share may be adversely impacted. Management’s failure to use the net proceeds of this offering effectively could have a material adverse effect on our business, financial condition, and results of operations.

RISKS RELATED TO THE MARKET PRICE AND VALUE OF THE COMMON STOCK OFFERED

You may not receive dividends on the shares of common stock you purchase in this offering at any time in the near future.

Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. We are currently prohibited from paying any cash dividends on our common stock. Even when such prohibitions end (which we do not expect to occur in the near term, even upon completion of the offering described in this prospectus), there are restrictions on our ability to pay cash dividends that will likely continue to materially limit our ability to pay cash dividends. We cannot provide any assurances of when we may pay cash dividends in the future. Furthermore, our common shareholders are subject to the prior dividend rights of any holders of our preferred stock. See “Dividend Policy” below for more information.

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

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

	•		actual or anticipated quarterly fluctuations in our operating and financial results, particularly if such results vary from the expectations of management, securities analysts, and investors, including with respect to further loan losses or vehicle service contract counterparty contingencies expenses we may incur;
	•		announcements regarding significant transactions in which we may engage, including this offering and the other initiatives that are part of our Capital Plan;
	•		market assessments regarding such transactions, including the timing, terms, and likelihood of success of this offering;
	•		developments relating to litigation or other proceedings that involve us;
	•		changes or perceived changes in our operations or business prospects;
	•		legislative or regulatory changes affecting our industry generally or our businesses and operations;
	•		the failure of general market and economic conditions to stabilize and recover, particularly with respect to economic conditions in Michigan, and the pace of any such stabilization and recovery;
	•		the possible delisting of our common stock from Nasdaq or perceptions regarding the likelihood of such delisting;
	•		the operating and share price performance of companies that investors consider to be comparable to us;
	•		future offerings by us of debt, preferred stock, or trust preferred securities, each of which would be senior to our common stock upon liquidation and for purposes of dividend distributions;
	•		actions of our current shareholders, including future sales of common stock by existing shareholders and our directors and executive officers; and
	•		other changes in U.S. or global financial markets, economies, and market conditions, such as interest or foreign exchange rates, stock, commodity, credit or asset valuations or volatility.

Stock markets in general, and our common stock in particular, have experienced significant volatility since October 2007 and continue to experience significant price and volume volatility. As a result, the market price of our common stock, which has ranged from $0.34 per share to $14.12 per share during this period, may continue to be subject to similar market fluctuations that may or may not be related to our operating performance or prospects. Increased volatility could result in a decline in the market price of our common stock.

In addition, on April 27, 2010, our shareholders approved a 1-for-10 reverse stock split. If implemented, such reverse stock split could have a significant effect on the market price of our common stock. The primary objective of the reverse stock split is to raise the per share trading price of the Company’s common stock sufficiently above the $1.00 minimum bid price requirement imposed by Nasdaq listing standards so that our common stock can continue to be listed on the Nasdaq Global Select Market. However, there is no assurance that, if made effective, the reverse stock split will result in our ability to comply with the Nasdaq minimum bid price rule in the long term.

We urge you to obtain current market quotations for our common stock when you consider this offering.

Our common stock trading volumes may not provide adequate liquidity for investors.

Shares of our common stock are listed on the Nasdaq Global Select Market; however, the average daily trading volume in our common stock is less than that of many larger financial services companies. A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. This capital offering is likely to positively impact the liquidity in our common stock; however, we cannot be sure this expectation will materialize. Given the current daily average trading volume of our common stock, if there is no change in liquidity as a result of this offering, significant sales of our common stock in a brief period of time, or the expectation of these sales, could cause a decline in the price of the stock.

Our common stock could be delisted from Nasdaq.

Our common stock is currently listed on the Nasdaq Global Select Market. However, on June 23, 2010, we received a letter from The Nasdaq Stock Market notifying us that we no longer meet Nasdaq’s continued listing requirements under Listing Rule 5450(a)(1) because the bid price for our common stock had closed below $1.00 per share for 30 consecutive business days. We have until December 20, 2010 to demonstrate compliance with this bid price rule by maintaining a minimum closing bid price of at least $1.00 for a minimum of 10 consecutive business days. If we are unable to establish compliance with the bid price rule within such time period, our common stock will be subject to delisting from the Nasdaq Global Select Market. However, in that event, we may be eligible for an additional grace period by transferring our common stock listing from the Nasdaq Global Select Market to the Nasdaq Capital Market. This would require us to meet the initial listing criteria of the Nasdaq Capital Market, other than with respect to the minimum closing bid price requirement. If we are then permitted to transfer our listing to the Nasdaq Capital Market, we expect we would be granted an additional 180 calendar day period in which to demonstrate compliance with the minimum bid price rule.

The delisting of our common stock from Nasdaq, whether in connection with the foregoing or as a result of our future inability to meet any listing standards, would have an adverse effect on the liquidity of our common stock and, as a result, the market price of our common stock might become more volatile. Even the perception that our common stock may be delisted could affect its liquidity and market price. Delisting could also make it more difficult to raise additional capital.

If our common stock is delisted from the Nasdaq, it is likely that quotes for our common stock would continue to be available on the OTC Bulletin Board or on the “Pink Sheets.” However, these alternatives are generally considered to be less efficient markets and it is likely that the liquidity of our common stock as well as our stock price would be adversely impacted as a result.

One of the proposals voted upon at our annual meeting of shareholders on April 27, 2010 was a proposal to amend our Articles of Incorporation to effect a one 1-for-10 reverse split of our common stock. The primary objective of the reverse stock split is to raise the per share trading price of the Company’s common stock sufficiently above the $1.00 minimum bid price requirement for continued listing on the Nasdaq Global Select Market. Although our shareholders authorized this amendment to our Articles of Incorporation, there can be no assurance that, if made effective, the reverse stock split will result in our ability to comply or thereafter maintain compliance with the Nasdaq minimum bid price rule. We have not yet made a determination as to whether or when to implement this reverse stock split.

Any future offerings of debt, preferred stock, or trust preferred securities, each of which would be senior to our common stock upon liquidation and for purposes of dividend distributions, and any future equity offerings may adversely affect the market price of our common stock.

We may attempt to increase our capital resources, or we or our bank could be forced by federal and state bank regulators to raise additional capital, by making additional offerings of debt or preferred equity securities, including medium-term notes, trust preferred securities, senior or subordinated notes and preferred stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive distributions of our available assets prior to the holders of our outstanding shares of common stock. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both. Holders of our common stock are not entitled to preemptive rights or other protections against dilution.

Our board of directors is authorized to issue one or more classes or series of preferred stock from time to time without any action on the part of our shareholders. Our board of directors also has the power, without shareholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or upon our dissolution, winding-up and liquidation and other terms. Therefore, if we issue preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.

Our Articles of Incorporation as well as certain banking laws may have an anti-takeover effect.

Provisions of our Articles of Incorporation and certain federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. The combination of these provisions may inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

Investors could become subject to regulatory restrictions upon ownership of our common stock.

Under the federal Change in Bank Control Act, a person may be required to obtain prior approval from the Federal Reserve before acquiring the power to direct or indirectly control our management, operations, or policy or before acquiring 10% or more of our common stock. As a result, potential investors who seek to participate in this offering should evaluate whether they could become subject to the approval and other requirements of this federal statute.

NON-GAAP FINANCIAL MEASURES

     The following table presents computations of certain financial measures related to “tangible common equity” and “Tier 1 common equity.” The tangible common equity ratio has become a focus of some investors, and we believe this ratio may assist investors in analyzing our capital position absent the effects of intangible assets and preferred stock. Traditionally, the Federal Reserve and other banking regulators have assessed a bank’s capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. More recently, the banking regulators have also supplemented their assessment of the capital adequacy of a bank based on a variation of Tier 1 capital, known as Tier 1 common equity. Because tangible common equity and Tier 1 common equity are not formally defined by generally accepted accounting principles (GAAP) or codified in the federal banking regulations, these measures are considered to be non-GAAP financial measures. Because analysts and banking regulators may assess our capital adequacy using tangible common equity and Tier 1 common equity, we believe it is useful to provide investors the ability to assess our capital adequacy on these same bases.

     Tier 1 common equity is often expressed as a percentage of net risk-weighted assets. Under the risk-based capital framework, a bank’s balance sheet assets and credit equivalent amounts of off-balance sheet items are assigned to one of four broad risk categories. The aggregated dollar amount in each category is then multiplied by the risk weight assigned to that category. The resulting weighted values from each of the four categories are added together and this sum is the risk-weighted assets total that, as adjusted, comprises the denominator of certain risk-based capital ratios. Tier 1 capital is then divided by this denominator (net risk-weighted assets) to determine the Tier 1 capital ratio. Adjustments are made to Tier 1 capital to arrive at Tier 1 common equity. Tier 1 common equity is also divided by net risk-weighted assets to determine the Tier 1 common equity ratio. The amounts disclosed as net risk-weighted assets are calculated consistent with banking regulatory requirements.

     Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. To mitigate these limitations, we have procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components and to ensure that our capital performance is properly reflected to facilitate period-to-period comparisons. Although these non-GAAP financial measures are frequently used by investors in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

     The following table provides reconciliations of the following:

	•		Total assets (GAAP) to tangible assets (non-GAAP)
	•		Total shareholders’ equity (GAAP) to tangible common equity (non-GAAP)
	•		Total shareholders’ equity (GAAP) to Tier 1 common equity (non-GAAP)

     These computations are based on our actual results without giving effect to the potential conversion of our Series B Convertible Preferred Stock into common stock or the offering contemplated by this prospectus.

		March 31,				December 31,
		2010				2009				2008				2007				2006				2005
($ in 000’s)		(Unaudited)
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
Total assets (GAAP)		$	2,900,770			$	2,965,364			$	2,956,245			$	3,247,516			$	3,406,390			$	3,348,707
Deduct: Goodwill											16,734				66,754				52,842				55,946
Deduct: Core deposit intangible assets (all other intangibles)			9,938				10,260				12,190				15,262				8,157				10,729
Deduct: Deferred taxes			1,207				691				6,892				18,572				10,597				7,509
Tangible assets (non-GAAP)		$	2,889,625			$	2,954,413			$	2,920,429			$	3,146,928			$	3,334,794			$	3,274,523
Total shareholders’ equity (GAAP)		$	97,211			$	109,861			$	194,877			$	240,502			$	258,167			$	248,259
Deduct: Goodwill											16,734				66,754				52,842				55,946
Deduct: Core deposit intangible assets (all other intangibles)			9,938				10,260				12,190				15,262				8,157				10,729
Deduct: Deferred taxes			1,207				691				6,892				18,572				10,597				7,509
Deduct: Preferred stock			69,334				69,157				68,456				—				—				—
Tangible common equity (non-GAAP)		$	16,732			$	29,753			$	90,605			$	139,914			$	186,571			$	174,075
Tangible common equity to tangible assets ratio (non-GAAP)			0.58	%			1.01	%			3.10	%			4.45	%			5.59	%			5.32	%
TIER 1 COMMON EQUITY
Total shareholders’ equity (GAAP)		$	97,211			$	109,861			$	194,877			$	240,502			$	258,167			$	248,259
Add: Qualifying capital securities			37,019				41,880				72,751				80,309				62,350				62,350
Deduct: Goodwill											16,734				66,754				52,842				55,946
(Add) deduct: Accumulated other comprehensive (loss) income			(13,749	)			(15,679	)			(23,318	)			(339	)			3,370				4,297
Deduct: Intangible assets			9,938				10,260				12,190				15,262				8,157				10,729
Deduct: Disallowed servicing assets			544				559				1,018
Deduct: Disallowed deferred tax assets			720
Deduct: Net unrealized losses on equity securities															3,155
(Add) deduct: Other			(98	)			(101	)			(59	)			(86	)			(139	)			(294	)
Tier 1 capital (regulatory)			136,875				156,702				261,063				236,065				256,287				239,931
Deduct: Qualifying capital securities			37,019				41,880				72,751				80,309				62,350				62,350
Deduct: Preferred stock			69,334				69,157				68,456				—				—				—
Tier 1 common equity (non-GAAP)		$	30,522			$	45,665			$	119,856			$	155,756			$	193,937			$	177,581
Net risk-weighted assets (regulatory)		$	2,062,677			$	2,204,157			$	2,365,082			$	2,525,594			$	2,664,931			$	2,578,081
Tier 1 common equity ratio (non-GAAP)			1.48	%			2.07	%			5.07	%			6.17	%			7.28	%			6.89	%

USE OF PROCEEDS

     Our estimated net proceeds from this offering are approximately $103 million, or approximately $118.5 million if the underwriters exercise their over-allotment option in full, after deducting the underwriting discounts and commissions and other estimated expenses of this offering. We intend to contribute all or substantially all of the net proceeds from this offering to our bank to strengthen its regulatory capital ratios. We expect to use any remaining net proceeds for general working capital purposes.

     We do not intend to use any proceeds from this offering to resume quarterly dividend payments on our outstanding trust preferred securities or our outstanding Series B Convertible Preferred Stock. We have no current intention of resuming such payments at any time in the near future.

CAPITALIZATION

     The following table sets forth our capitalization and selected capital ratios for our bank, as of March 31, 2010, (a) on an actual basis and (b) on a pro forma basis to give effect to (i) the issuance of 51.1 million shares of our common stock on June 23, 201 in exchange for tendered shares of our outstanding trust preferred securities, (ii) the issuance and sale of [•] shares of common stock in this offering, assuming that the underwriters’ over-allotment is not exercised, at an assumed price per share of $[•], net of underwriting discounts and commissions and estimated offering expenses, and (iii) an assumed issuance of 78.2 million shares of our common stock to the Treasury upon conversion on July 1, 2010 of our Series B Convertible Preferred Stock at 75% of par ($74.4 million), plus approximately $0.8 million in accrued and unpaid dividends as of June 30, 2010, which is contingent on our completion of a new cash equity raise of not less than $100 million on terms acceptable to the Treasury in its sole discretion (other than with respect to the price offered per share). This table assumes that all of the net proceeds from this offering are contributed to our bank. This table should be read in conjunction with the historical financial data included within this prospectus, including the consolidated financial statements (and notes thereto) beginning on page F-1.

		March 31, 2010
		Actual				As adjusted
		(in thousands)
		(unaudited)
Certain Long-Term Debt:
Subordinated debentures		$	92,888			$	[•]
Amount not qualifying as regulatory capital			(2,788	)			[•]
Amount qualifying as regulatory capital			90,100				[•]
Shareholders’ Equity:
Preferred stock			69,334				[•]
Common stock			23,884				[•]
Capital surplus			201,754				[•]
Accumulated deficit			(184,012	)			[•]
Accumulated other comprehensive loss			(13,749	)			[•]
Total shareholders’ equity			97,211				[•]
Total capitalization		$	187,311			$	[•]
Capital Ratios for Independent Bank:
Total Risk-Based Capital Ratio			10.41	%			[•]
Tier 1 Capital Leverage Ratio			6.43	%			[•]

CAPITAL PLAN AND THIS OFFERING

     We are conducting the offering described in this prospectus as part of the more comprehensive Capital Plan adopted by our board of directors and described below. The primary objective of our Capital Plan is to enable our bank to achieve and thereafter maintain the minimum capital ratios established by its board pursuant to resolutions adopted in December 2009.

Adoption of Board Resolutions

     In December 2009, the board of directors of our bank, adopted resolutions designed to enhance and strengthen our operations. Importantly, alongside other resolutions regarding the improvement of asset quality, liquidity, and cash management, the resolutions require our bank to improve its capital position. Our bank began to experience rising levels of non-performing loans and higher provisions for loan losses in 2006. Although our bank remained profitable through the second quarter of 2008, it has incurred seven consecutive quarterly losses since then (and anticipates future losses), which have pressured its capital ratios. In response to these losses, economic stress in Michigan, and elevated levels of non-performing assets, and in conjunction with discussions with the Board of Governors of the Federal Reserve System (the “Federal Reserve”), as our bank’s primary federal regulator, and the Michigan Office of Financial and Insurance Regulation (the “Michigan OFIR”), as our bank’s state regulator, the board of directors of our bank adopted resolutions that require the following:

	•		The adoption by our bank of a capital restoration plan designed to achieve a minimum Tier 1 capital leverage ratio of 8% and a minimum total risk based capital ratio of 11%, and a regular periodic review and evaluation of such capital plan by the board of directors of our bank thereafter;
	•		The enhancement of our bank’s documentation of the rationale for discounts applied to collateral valuations on impaired loans and improved support for the identification, tracking, and reporting of loans classified as troubled debt restructurings;
	•		The adoption of certain changes and enhancements to our liquidity monitoring and contingency planning and our interest rate risk management practices;
	•		Additional reporting to our board regarding initiatives and plans pursued by management to improve our bank’s risk management practices;
	•		Prior approval of the Federal Reserve and the Michigan OFIR for any dividends or distributions to be paid to us by our bank; and
	•		Notice to the Federal Reserve and the Michigan OFIR of any rescission of or material modification to any of these resolutions.

     In addition to these resolutions adopted for our bank, our board of directors (which is comprised of the same members as our bank’s board) adopted resolutions in December of 2009 that impose the following restrictions:

	•		We will not pay dividends on our outstanding common stock or the outstanding preferred stock held by the Treasury, and we will not pay distributions on our outstanding trust preferred securities without, in each case, the prior written approval of the Federal Reserve and the Michigan OFIR;
	•		We will not incur or guarantee any additional indebtedness without the prior approval of the Federal Reserve;
	•		We will not repurchase or redeem any of our common stock without the prior approval of the Federal Reserve; and
	•		We will not rescind or materially modify any of these limitations without notice to the Federal Reserve and the Michigan OFIR.

     The substance of all of the resolutions described above was developed in conjunction with discussions held with the Federal Reserve and the Michigan OFIR in response to the Federal Reserve’s examination report of our bank completed in October 2009. Based on those discussions, we acted proactively to adopt the resolutions described above to address those areas of our bank’s condition and operations that were highlighted in the exam report and that we believe most require our focus at this time. It is very possible that if we had not adopted these resolutions, the Federal Reserve and the Michigan OFIR may have imposed similar requirements on us through a memorandum of understanding or similar undertaking. We are not currently subject to any such regulatory agreement or enforcement action. However, we believe that if we are unable to substantially comply with the resolutions set forth above and if our financial condition and performance do not otherwise materially improve, it is likely our primary bank regulators will impose additional regulatory restrictions and requirements on us through a regulatory enforcement action.

     Subsequent to the adoption of the resolutions described above, we adopted the capital restoration plan (the “Capital Plan”), required by the resolutions. Other than fully implementing our Capital Plan and achieving the minimum capital ratios set forth in the resolutions, we believe we have already taken appropriate actions to fully comply with these board resolutions.

Capital Plan

     In January 2010, we adopted our Capital Plan, as required by the board resolutions adopted in December 2009 described above, and submitted our Capital Plan to the Federal Reserve and the Michigan OFIR. The offering described in this prospectus, the offer to exchange our common stock for our outstanding trust preferred securities, and the early conversion of the preferred stock held by the Treasury are the cornerstones of our Capital Plan.

     The primary objective of our Capital Plan is to enable our bank to achieve and thereafter maintain the minimum capital ratios required by the board resolutions adopted in December 2009. As of March 31, 2010, our bank continued to be meet the requirements to be considered “well-capitalized” under federal regulatory standards. However, as a matter of prudence and commitment to restoring capital strength, the minimum capital ratios established by our bank’s board are higher than the ratios required in order to be considered “well-capitalized” under federal standards. Our board imposed these higher ratios in order to ensure we have sufficient capital to withstand potential continuing losses based on our elevated level of non-performing assets and given the other risks and uncertainties we face, as described in this prospectus. Set forth below are the actual capital ratios of our bank as of March 31, 2010, the minimum capital ratios imposed by the board resolutions, and the minimum ratios necessary to be considered “well-capitalized” under federal regulatory standards:

		Independent Bank —				Minimum Ratios
		Actual as of				Established by				Required to be
		March 31, 2010				Bank’s Board				Well-Capitalized
Total Risk-Based Capital Ratio			10.41	%			11.0	%			10.0	%
Tier 1 Capital Leverage Ratio			6.43	%			8.0	%			5.0	%

     Our Capital Plan sets forth an objective of achieving these minimum capital ratios as soon as practicable and maintaining such capital ratios though at least the end of 2012. Although our board initially set a deadline of April 30, 2010 to achieve these minimum capital ratios, it subsequently approved extensions to September 30, 2010, and we notified the Federal Reserve and the Michigan OFIR of these extensions.

     Our Capital Plan includes projections we prepared that reflect forecasted financial data through 2012. These projections anticipate a need of a minimum of $60 million of new capital in order for our bank to achieve and maintain the minimum ratios established by our board. These projections take into account the various risks and uncertainties we face, as described in this prospectus. However, because projections are inherently uncertain and based on assumptions that may not prove to be accurate, our Capital Plan contains a target of $100 million to $125 million of new capital to be raised by us.

     In anticipation of the capital raising initiatives described in our Capital Plan, we engaged an independent third party to perform a review (a “stress test”) on our commercial loan portfolio and a separate independent third party to perform a similar review of our retail loan portfolio. These independent stress tests were concluded in January 2010. Each analysis included different scenarios based on expectations of future economic conditions. We engaged these independent reviews in order to ensure that the similar analyses we had performed internally in 2009, on which we based our projections for future expected loan losses and our need for additional capital, were reasonable and did not materially understate our projected loan losses. Based on the conclusions of these third party reviews, we determined that we did not need to modify our projections used for purposes of our Capital Plan. Even though we have had independent third party reviews of these loan portfolios, we cannot be sure that our allowance for loan losses and the additional provisions we anticipate taking in the future to increase such allowance will be sufficient to absorb all loan losses.

     Our Capital Plan sets forth certain initiatives in order to raise new capital and meet the objectives of our Capital Plan. In addition to contemplating the offering described in this prospectus, our Capital Plan contemplates two other primary initiatives: (1) an offer to exchange shares of our common stock for any or all of our outstanding trust preferred securities, and (2) the conversion of the shares of preferred stock held by the Treasury into shares of our common stock. Completion of these two initiatives will reduce required annual interest and dividend payments by reducing the aggregate principal amount of outstanding trust preferred securities and outstanding shares of preferred stock. The conversion of $41.4 million in aggregate liquidation amount of trust preferred securities into our common stock in June 2010 will reduce future interest expense by $3.5 million annually. In addition, they will improve our holding company’s ratio of tangible common equity (TCE) to tangible assets. See “— Our Projections” above. We believe both of these initiatives will improve our ability to successfully raise additional capital through the offering described in this prospectus. We recently completed the issuance of shares of our common stock in exchange for tendered shares of our outstanding trust preferred securities, as described below. Our ability to convert the shares of preferred stock held by the Treasury into shares of our common stock likely depends on our success in raising capital in this offering, as described below.

     Our Capital Plan also outlines various contingency plans in case we do not succeed in raising all additional capital needed. These contingency plans include a possible further reduction in our assets (such as through a sale of branches, loans, and/or other operating divisions or subsidiaries), more significant expense reductions than those that have already been implemented and those that are currently being considered, and a sale of our bank. The contingency plans were considered and included within our Capital Plan in recognition of the possibility that market conditions for these transactions may improve and that such transactions may be necessary or required by our regulators if we are unable to raise sufficient equity capital through the capital raising initiatives described above.

     Our Capital Plan concludes with a recognition that our strategy and focus for the near term will be to improve our asset quality and pursue the initiatives described above in order to strengthen our capital position.

Suspension of Quarterly Dividends and Distributions

     We have recently taken several actions to improve our regulatory capital ratios and preserve capital and liquidity. Beginning in the fourth quarter of 2009, we eliminated the $0.01 per share quarterly cash dividend on our common stock. In addition, we suspended payment of quarterly dividends on our preferred stock held by the Treasury. We also have exercised our right to defer all quarterly interest payments on the subordinated debentures we issued to our trust subsidiaries. As a result, all quarterly dividends on the related trust preferred securities were also deferred. Based on current dividend rates and after taking into account the trust preferred securities accepted for exchange in our recently completed exchange offer (described below), the cash dividends on all outstanding trust preferred securities amount to approximately $2.1 million per year. These actions will preserve cash for us as we do not expect our bank to be able to pay any cash dividends in the near term. Dividends from our bank are restricted by federal and state law and are further restricted by the board resolutions adopted in December of 2009 and described above. For additional information on restrictions on the ability of our bank and Independent Bank Corporation to pay dividends and similar distributions, please see “Dividend Policy” and “Description of Our Capital Stock” below.

     We do not have any current plans to resume dividend payments on our outstanding trust preferred securities or the outstanding shares of our preferred stock. We do not know if or when any such payments will resume.

Exchange with the U.S. Treasury

     In December 2009, we made a proposal to the Treasury to exchange all of the shares of the Series A Fixed Rate Cumulative Perpetual Preferred Stock purchased by the Treasury in December 2008 under the TARP’s CPP for shares of our common stock with a value (based on market prices at the time of the exchange) equal to 75% of the aggregate liquidation value of the Series A Preferred Stock surrendered in the exchange. The aggregate liquidation value of the Series A Preferred stock was $72 million.

     As a result of our discussions with the Treasury, on April 2, 2010 we entered into an Exchange Agreement with the Treasury. We subsequently closed the Exchange Agreement on April 16, 2010. Under the Exchange Agreement, the Treasury accepted our newly issued shares of Series B Fixed Rate Cumulative Mandatorily Convertible Preferred Stock in exchange for the entire $72 million in aggregate liquidation value of the shares of Series A Preferred Stock, plus the value of all accrued and unpaid dividends on such shares of Series A Preferred Stock (approximately $2.4 million). The shares of Series B Convertible Preferred Stock have an aggregate liquidation preference equal to $74,426,000.

     With the exception of being convertible into shares of our common stock, the terms of the Series B Convertible Preferred Stock are substantially similar to the terms of the Series A Preferred Stock that were exchanged. The Series B Convertible Preferred Stock qualifies as Tier 1 regulatory capital, subject to limitations, and is entitled to cumulative dividends quarterly at a rate of 5% per annum through February 14, 2014, and 9% per annum thereafter. A detailed description of the terms of the Series B Convertible Preferred Stock is set forth under “Description of Our Capital Stock” below.

     The Treasury (and any subsequent holder of the shares) has the right to convert the Series B Convertible Preferred Stock into our common stock at any time, subject to the receipt of any applicable approvals, We have the right to compel a conversion of the Series B Convertible Preferred Stock into our common stock if the following conditions are met:

	(i)		we receive appropriate approvals from the Federal Reserve;
	(ii)		at least $40 million aggregate liquidation amount of trust preferred securities have been exchanged for our common stock;
	(iii)		we complete a new cash equity raise of not less than $100 million on terms acceptable to the Treasury in its sole discretion (other than with respect to the price offered per share); and
	(iv)		we make any required anti-dilution adjustments to the rate at which the Series B Convertible Preferred Stock is converted into our common stock, to the extent required.

     If converted by the Treasury (or any subsequent holder) or by us pursuant to either of the above-described conversion rights, each share of Series B Convertible Preferred Stock (liquidation preference of $1,000 per share) will convert into a number of shares of our common stock equal to a fraction, the numerator of which is $750 and the denominator of which is $0.7234, referred to as the “conversion rate,” provided that such conversion rate will be subject to certain anti-dilution adjustments. As an example only, at the time they were issued, the shares of Series B Convertible Preferred Stock were convertible into approximately 77.2 million shares of our common stock. This conversion rate will be subject to certain anti-dilution adjustments that may result in a greater number of shares being issued to the holder of the Series B Convertible Preferred Stock.

     Unless earlier converted by the Treasury (or any subsequent holder) or by us as described above, the Series B Convertible Preferred Stock will convert into shares of our common stock on a mandatory basis on the seventh anniversary of the date of issuance. In any such mandatory conversion, each share of Series B Convertible Preferred Stock (liquidation preference of $1,000 per share) will convert into a number of shares of our common stock equal to a fraction, the numerator of which is $1,000 and the denominator of which is the market price of our common stock at the time of such mandatory conversion (as such market price is determined pursuant to the terms of the Series B Convertible Preferred Stock).

     At the time any shares of Series B Convertible Preferred Stock are converted into our common stock, we will be required to pay all accrued and unpaid dividends on the shares being converted in cash or, at our option, in shares of our common stock at the same conversion rate as is applicable to the conversion of the Series B Convertible Preferred Stock.

     The maximum number of shares of our common stock that may be issued upon conversion of all Series B Convertible Preferred Stock (including any accrued dividends) is 144 million, unless we receive shareholder approval to issue a greater number of shares.

     As part of the terms of the Exchange Agreement, we also amended and restated the terms of the Warrant, dated December 12, 2008, issued to the Treasury to purchase 3,461,538 shares of our common stock. The amended and restated Warrant issued upon the closing of the Exchange Agreement adjusted the initial exercise price of the Warrant to be equal to the initial conversion price applicable to the Series B Convertible Preferred Stock described above.

Exchange Offer for Trust Preferred Securities

     On June 23, 2010, we completed the exchange of an aggregate of 51,091,250 newly issued shares of our common stock for $41.4 million in aggregate liquidation amount of our outstanding trust preferred securities. One of the conditions to our right to compel a conversion of the Series B Convertible Preferred Stock held by the Treasury into our common stock is our exchange of shares of our common stock for at least $40 million in aggregate liquidation amount of trust preferred securities in the pending exchange offer. The results of our exchange offer satisfied this condition to our ability to compel a conversion of the Series B Convertible Preferred Stock.

DIVIDEND POLICY

     We are not currently paying any cash dividends on our common stock and our ability to pay cash dividends in the near term is significantly restricted by the factors described below.

Current Prohibitions on Our Payment of Dividends

     Pursuant to resolutions adopted by our board in December 2009, we are currently prohibited from paying any dividends on our common stock without the prior written approval of the Federal Reserve and the Michigan OFIR. We may not rescind or materially modify these resolutions without notice to the Federal Reserve and the Michigan OFIR. Moreover, our primary source for dividends are dividends payable to us by our bank. The board of directors of our bank adopted similar resolutions in December 2009 that prohibit our bank from paying any dividends to us without the prior written approval of the Federal Reserve and the Michigan OFIR. For more information about these board resolutions, please see “Capital Plan and this Offering” above.

     In addition, as a result of our election to defer regularly scheduled quarterly payments on our outstanding trust preferred securities and our outstanding shares of Series B Convertible Preferred Stock, we are currently prohibited from paying any cash dividends on shares of our common stock. We may not pay any cash dividends on our common stock until all accrued but unpaid dividends and distributions on such senior securities have been paid in full. We do not have any current plans to begin making quarterly payments on our trust preferred securities or our Series B Convertible Preferred Stock.

     Moreover, even if we were to re-commence regularly scheduled quarterly payments on our outstanding trust preferred securities and Series B Convertible Preferred Stock, there are still significant restrictions on our ability to pay dividends on our common stock. Our agreements with Treasury, including the Exchange Agreement discussed above, prevent us from paying quarterly cash dividends on our common stock in excess of $.01 per share and (with certain exceptions) repurchasing shares of common stock. These restrictions will remain in effect until the earlier of December 12, 2011 or such time as Treasury ceases to own any of our debt or equity securities acquired pursuant to the Exchange Agreement or the amended and restated Warrant.

Other Restrictions

     Aside from the specific restrictions set forth above that result from our current financial condition, there are other restrictions that apply under federal and state law to restrict our ability to pay dividends to our shareholders and the ability of our bank to pay dividends to us. For example, the Federal Reserve requires bank holding companies like us to act as a source of financial strength to their subsidiary banks. Accordingly, we are required to inform and consult with the Federal Reserve before paying dividends that could raise safety and soundness concerns. See “Business—Supervision and Regulation” for more information.

MARKET PRICE AND DIVIDEND INFORMATION

     Our common stock is currently listed on the Nasdaq Global Select Market under the symbol “IBCP.” As of June 30, 2010, we had 75,123,427 shares of our common stock outstanding, which were held by approximately 2,138 shareholders. The following table sets forth, for the periods indicated, the high and low closing sales prices per share and the cash dividends declared per share of our common stock.

										Cash
		Closing Sales Price								Dividends
		Per Share								Declared per
		Low				High				Share
2010
Third Quarter through July 7, 2010		$	0.34			$	0.37			None
Second Quarter ended June 30, 2010			0.35				1.62			None
First Quarter ended March 31, 2010			0.69				1.20			None
2009
Fourth Quarter ended December 31, 2009		$	0.59			$	1.89			None
Third Quarter ended September 30, 2009			1.09				2.16			$	0.01
Second Quarter ended June 30, 2009			1.11				2.90				0.01
First Quarter ended March 31, 2009			0.90				3.00				0.01
2008
Fourth Quarter ended December 31, 2008		$	1.48			$	6.95			$	0.01
Third Quarter ended September 30, 2008			2.52				8.40				0.01
Second Quarter ended June 30, 2008			3.66				10.98				0.01
First Quarter ended March 31, 2008			7.50				14.12				0.11