AP NEWS

Independent Bank Corporation Reports 2018 Fourth Quarter and Full Year Results

January 29, 2019

GRAND RAPIDS, Mich., Jan. 29, 2019 (GLOBE NEWSWIRE) -- Independent Bank Corporation (NASDAQ: IBCP) reported fourth quarter 2018 net income of $9.9 million, or $0.41 per diluted share, versus net income of $1.7 million, or $0.08 per diluted share, in the prior-year period. For the year ended Dec. 31, 2018, the Company reported net income of $39.8 million, or $1.68 per diluted share. This compares to net income of $20.5 million, or $0.95 per diluted share, in 2017. The increase in fourth quarter earnings as compared to 2017, primarily reflects an increase in net interest income and a decrease in income tax expense that were partially offset by a decrease in non-interest income and by increases in the provision for loan losses and in non-interest expense. The increase in full year 2018 earnings as compared to 2017, primarily reflects increases in net interest income and in non-interest income and a decrease in income tax expense that were partially offset by increases in the provision for loan losses and in non-interest expense.

Significant items impacting comparable fourth quarter and full year 2018 and 2017 results include the following:

-- The acquisition of TCSB Bancorp, Inc. (“TCSB”), and its subsidiary, Traverse City State Bank, on Apr. 1, 2018 (referred to as the “Merger” or “TCSB Acquisition”) and the associated data processing systems conversions in June 2018. The total assets, loans and deposits acquired in the Merger were approximately $343.5 million, $295.8 million (including $1.3 million of loans held for sale) and $287.7 million, respectively. -- Merger related expenses of $0.1 million ($0.004 per diluted share, after taxes) and $3.5 million ($0.115 per diluted share, after taxes) for the fourth quarter and year ended Dec. 31, 2018, respectively, and $0.3 million ($0.009 per diluted share, after taxes) for both the fourth quarter and year ended Dec. 31, 2017. -- A loss on mortgage loans of $0.25 million ($0.008 per diluted share, after taxes) in the fourth quarter of 2018 on the pending sale of approximately $41.5 million of portfolio mortgage loans. These loans were classified as held for sale at Dec. 31, 2018 and carried at the lower of cost or fair value. This sale is expected to close on Jan. 31, 2019. -- Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Change”) of a negative $2.4 million ($0.078 per diluted share, after taxes) and a positive $0.2 million ($0.006 per diluted share, after taxes) for the fourth quarter and full year of 2018, respectively, as compared to a positive change of $0.4 million ($0.011 per diluted share, after taxes) and a negative change $0.7 million ($0.022 per diluted share, after taxes) for the fourth quarter and full year of 2017, respectively. -- The passage of the “Tax Cuts and Jobs Act” in the fourth quarter of 2017, which, among other things, reduced the federal corporate income tax rate to 21% (from 35%) effective January 1, 2018. Further, as a result of the reduction in the federal corporate income tax rate, the Company’s deferred tax assets, net (“DTA”), were remeasured at Dec. 31, 2017. This remeasurement resulted in a reduction of these net assets and a corresponding increase in income tax expense of $6.0 million (or $0.275 per diluted share), which was recorded in the fourth quarter of 2017.

The fourth quarter of 2018 was highlighted by:

-- 58.9% and 41.3% increases in net income and diluted earnings per share, respectively, over the year ago quarter, when excluding the impact of the MSR Change and the 2017 DTA remeasurement. -- Growth in net interest income of $7.4 million, or 31.5%, compared to the year ago quarter. -- Total portfolio loan growth of $19.9 million (representing a 3.1% annualized rate). -- Payment of a 15 cent per share dividend on Nov. 15, 2018.

The Company’s full year 2018 results were highlighted by:

-- 56.6% and 42.7% increases in net income and diluted earnings per share, respectively, over the prior year, when excluding the impact of the MSR Change, Merger related expenses and the 2017 DTA remeasurement. -- Growth in net interest income of $24.1 million, or 27.0%. -- Total portfolio loan growth of $269.2 million, or 13.3%, excluding loans acquired in the Merger. -- A $130.0 million, or 5.8%, increase in total deposits, excluding non-brokered deposits acquired in the Merger and brokered deposits. -- A 4.5% increase in tangible book value per share to $12.90 at Dec. 31, 2018.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “We are very pleased with our fourth quarter and full year 2018 results. For the fourth quarter of 2018, our return on average assets and return on average equity were 1.18% and 11.43%, respectively. If you exclude the after tax impact of the negative MSR Change, these ratios improve to 1.41% and 13.61%, respectively. For the full year of 2018, our return on average assets and return on average equity were 1.27% and 12.38%, respectively. The favorable impact of the TCSB Acquisition, combined with strong loan origination activity, led to meaningful loan growth and increased net interest income. Net income and diluted earnings per share increased significantly in 2018 due to greater operating leverage and efficiency as well as a reduced corporate income tax rate. Reflecting our success and our optimism about the future, we recently announced a 20% increase in our quarterly common stock cash dividend to 18 cents per share, to be paid on Feb 15, 2019.”

Operating Results

The Company’s net interest income totaled $30.7 million during the fourth quarter of 2018, an increase of $7.4 million, or 31.5% from the year-ago period, and an increase of $1.0 million, or 3.3%, from the third quarter of 2018. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.93% during the fourth quarter of 2018, compared to 3.65% in the year-ago quarter and 3.91% in the third quarter of 2018. The year-over-year quarterly increase in net interest income is due to the increase in the net interest margin as well as an increase in average interest-earning assets. Average interest-earning assets were $3.12 billion in the fourth quarter of 2018 compared to $2.57 billion in the year-ago quarter and $3.04 billion in the third quarter of 2018. Fourth quarter 2018 interest income on loans includes $0.42 million of accretion of the discount recorded on the TCSB loans acquired in the Merger. The total discount initially recorded on the TCSB loans acquired in the Merger was $6.5 million (or approximately 2.2% of the total TCSB loans acquired in the Merger).

For the full-year of 2018, net interest income totaled $113.3 million, an increase of $24.1 million, or 27.0% from 2017. This increase is due to increases in the net interest margin and average interest-earning assets. The Company’s net interest margin for all of 2018 increased to 3.88% compared to 3.65% in 2017. Full year 2018 interest income on loans includes $1.66 million of accretion of the discount recorded on the TCSB loans acquired in the Merger. Average interest-earning assets totaled $2.94 billion in 2018 compared to $2.47 billion in 2017.

Non-interest income totaled $9.0 million and $44.8 million, respectively, for the fourth quarter and full year of 2018, compared to $11.4 million and $42.5 million in the respective comparable year ago periods. These variances were primarily due to changes in interchange income and in mortgage banking related revenues (net gains on mortgage loans and mortgage loan servicing, net), as described below.

The Company adopted Financial Accounting Standards Board Accounting Standards Update 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) on Jan. 1, 2018, using the modified retrospective approach. Although ASU 2014-09 did not have any impact on Jan. 1, 2018 shareholders’ equity or 2018 net income, it did result in some classification changes in non-interest income and non-interest expense as compared to the prior year period. Specifically, in the fourth quarter and full year of 2018, interchange income and interchange expense each increased by $0.4 million and $1.5 million, respectively, due to classification changes under ASU 2014-09. Net gains on mortgage loans were $2.0 million in the fourth quarter of 2018, compared to $2.9 million in the year-ago quarter. For the full year of 2018, net gains on mortgage loans totaled $10.6 million compared to $11.8 million in 2017. An increase in mortgage loan sales volume in 2018 was more than offset by margin compression (due principally to competitive factors) and a loss recorded on a portfolio mortgage loan sale as described above.

Mortgage loan servicing generated a loss of $1.5 million and income of $1.0 million in the fourth quarters of 2018 and 2017, respectively. For all of 2018, mortgage loan servicing generated income of $3.2 million as compared to income of $1.6 million in 2017. This activity is summarized in the following table:

Three Months Ended Year Ended --------------------- ---------------------- 12/31/2018 12/31/201712/31/2018 12/31/2017 ---------- --------- ---------- ---------- Mortgage loan servicing: (Dollars in thousands) Revenue, net $ 1,506 $ 1,138 $ 5,480 $ 4,391 Fair value change due to price (2,395 ) 356 191 (719 ) Fair value change due to pay-downs (622 ) (515 ) (2,514 ) (2,025 ) Total $ (1,511 ) $ 979 $ 3,157 $ 1,647 - ------ - - ----- - - ------ - - ------ -

Capitalized mortgage loan servicing rights totaled $21.4 million at Dec. 31, 2018 compared to $15.7 million at Dec. 31, 2017. As of Dec. 31, 2018, the Company serviced approximately $2.33 billion in mortgage loans for others on which servicing rights have been capitalized.

Non-interest expenses totaled $26.8 million in the fourth quarter of 2018, compared to $23.1 million in the year-ago period. For the full year of 2018, non-interest expenses totaled $107.5 million versus $92.1 million in 2017. These year-over-year increases in non-interest expense are primarily due to the TCSB Acquisition (including the aforementioned Merger related expenses) as well as higher performance based compensation and health insurance costs.

The Company recorded an income tax expense of $2.3 million and $9.3 million in the fourth quarter and full-year of 2018, respectively. This compares to an income tax expense of $9.5 million and $18.0 million in the fourth quarter and full-year of 2017, respectively. The decline in income tax expense is primarily due to a reduction in the statutory federal corporate income tax rate to 21% (from 35%) that became effective on Jan. 1, 2018, which was partially offset by an increase in income before income tax. In addition, the fourth quarter and full year 2017 income tax expense was increased by $6.0 million due to the DTA remeasurement as described above.

Asset Quality

Commenting on asset quality, President and CEO Kessel added: “Non-performing loans and assets as well as loan net charge-offs remain at low levels. In addition, thirty- to eighty-nine day delinquency rates at Dec. 31, 2018 were 0.03% for commercial loans and 0.29% for mortgage and consumer loans. These early stage delinquency rates continue to be well-managed.”

A breakdown of non-performing loans (1) by loan type is as follows:

Loan Type 12/31/2018 12/31/2017 12/31/2016 --------- --------- --------- (Dollars in Thousands) Commercial $ 2,220 $ 646 $ 5,163 Consumer/installment 781 543 907 Mortgage 6,033 6,995 7,294 Total $ 9,034 $ 8,184 $ 13,364 - ------- - ------- - ------- Ratio of non-performing loans to total portfolio loans 0.35% 0.41% 0.83% - ------- - ------- - ------- Ratio of non-performing assets to total assets 0.31% 0.35% 0.72% - ------- - ------- - ------- Ratio of the allowance for loan losses to non-performing loans 275.49% 275.99% 151.41% - ------- - ------- - ------- (1) Excludes loans that are classified as “troubled debt restructured” that are still performing.

Non-performing loans at Dec. 31, 2018 increased $0.85 million from Dec. 31, 2017. This increase primarily reflects an increase in commercial non-performing loans. Other real estate and repossessed assets totaled $1.3 million at Dec. 31, 2018, compared to $1.6 million at Dec. 31, 2017.

The provision for loan losses was an expense of $0.6 million and $0.4 million in the fourth quarters of 2018 and 2017, respectively. The provision for loan losses was an expense of $1.5 million and $1.2 million for all of 2018 and 2017, respectively. The level of the provision for loan losses in each period reflects the Company’s overall assessment of the allowance for loan losses, taking into consideration factors such as loan mix, levels of non-performing and classified loans, and loan net charge-offs. The Company recorded loan net charge-offs of $0.1 million and net recoveries of $0.7 million in the fourth quarters of 2018 and 2017, respectively. For all of 2018 and 2017, the Company recorded loan net recoveries of $0.8 million and $1.2 million, respectively. At Dec. 31, 2018, the allowance for loan losses totaled $24.9 million, or 0.96% of portfolio loans (1.06% when excluding the remaining TCSB acquired loan balances), compared to $22.6 million, or 1.12% of portfolio loans, at Dec. 31, 2017.

Balance Sheet, Liquidity and Capital

Total assets were $3.35 billion at Dec. 31, 2018, an increase of $563.9 million from Dec. 31, 2017, primarily reflecting the impact of the TCSB Acquisition as well as loan growth. Loans, excluding loans held for sale, were $2.58 billion at Dec. 31, 2018, compared to $2.02 billion at Dec. 31, 2017.

Deposits totaled $2.91 billion at Dec. 31, 2018, an increase of $512.9 million from Dec. 31, 2017. The increase in deposits is primarily due to the TCSB Acquisition and growth in reciprocal deposits and brokered deposits.

Cash and cash equivalents totaled $70.2 million at Dec. 31, 2018, versus $54.7 million at Dec. 31, 2017. Securities available for sale totaled $427.9 million at Dec. 31, 2018, compared to $522.9 million at Dec. 31, 2017.

In the second quarter of 2018, the Company recorded $29.0 million of goodwill, a core deposit intangible (“CDI”) of $5.8 million and discounts of $6.5 million, $0.4 million and $1.5 million on loans, time deposits and borrowings (including subordinated debentures), respectively, related to the Merger. These adjustments reflected the preliminary valuation of the assets acquired and liabilities assumed in the Merger. In the third quarter of 2018, goodwill was reduced by $0.7 million (to $28.3 million) related to the collection of a TCSB acquired loan that had been charged off in full prior to the Merger. Because of the status of the collection activities related to this loan at the time of the Merger, the Company determined that this transaction was a measurement period adjustment and reduced goodwill accordingly. The goodwill is being periodically tested for impairment, and the CDI is being amortized over a ten year period ($0.2 million and $0.6 million of amortization for this CDI was recorded in the fourth quarter and last nine months of 2018, respectively). The discounts will be accreted based on the lives of the related assets or liabilities.

Total shareholders’ equity was $339.0 million at Dec. 31, 2018, or 10.11% of total assets. Tangible common equity totaled $304.3 million at Dec. 31, 2018, or $12.90 per share. The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:

Regulatory Capital Ratios 12/31/2018 12/31/2017 Well Capitalized Minimum -------------------------------------------- ---------- ---------- ------------------------ 9.44% 9.78% 5.00% Tier 1 capital to average total assets Tier 1 common equity to risk-weighted assets 11.94% 12.95% 6.50% Tier 1 capital to risk-weighted assets 11.94% 12.95% 8.00% Total capital to risk-weighted assets 12.94% 14.10% 10.00%

Share Repurchase Plan

On Dec. 18, 2018, the Board of Directors of the Company authorized the 2019 share repurchase plan. Under the terms of the 2019 share repurchase plan, the Company is authorized to buy back up to 5% of its outstanding common stock. The repurchase plan is authorized to commence on Jan. 1, 2019 and last through Dec. 31, 2019.

During the fourth quarter of 2018, the Company repurchased 587,969 shares under its 2018 share repurchase plan (which expired on Dec. 31, 2018) at an average cost of $21.57 per share.

The Company intends to accomplish the 2019 repurchases through open market transactions, though the Company could execute repurchases through other means, such as privately negotiated transactions. The timing and amount of any share repurchases will depend on a variety of factors, including, among others, securities law restrictions, the trading price of the Company’s common stock, other regulatory requirements, potential alternative uses for capital, and the Company’s financial performance. The repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company’s discretion. The Company expects to fund any repurchases from cash on hand. Thus far in 2019 (through Jan. 25, 2019), the Company has repurchased 43,768 shares under its 2019 share repurchase plan at an average cost of $21.67 per share.

Earnings Conference Call

Brad Kessel, President and CEO, and Rob Shuster, CFO, will review the quarterly and full-year results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, Jan. 29, 2019.

To participate in the live conference call, please dial 1-866-200-8394. Also the conference call will be accessible through an audio webcast with user-controlled slides at the following event site/URL: https://services.choruscall.com/links/ibcp190129.html.

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10127131). The replay will be available through Feb. 5, 2019.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $3.4 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a branch network across Michigan’s Lower Peninsula through one state-chartered bank subsidiary. This subsidiary (Independent Bank) provides a full range of financial services, including commercial banking, mortgage lending, investments and insurance. Independent Bank Corporation is committed to providing exceptional personal service and value to its customers, stockholders and the communities it serves.

For more information, please visit our Web site at: IndependentBank.com.

Forward-Looking StatementsThis release may contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not historical facts, including statements about our expectations, beliefs, plans, strategies, predictions, forecasts, objectives, or assumptions of future events or performance, may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “expects,” “can,” “could,” “may,” “predicts,” “potential,” “opportunity,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “seeks,” “intends” and similar words or phrases. Accordingly, these statements involve estimates, known and unknown risks, assumptions, and uncertainties that could cause actual strategies, actions, or results to differ materially from those expressed in them, and are not guarantees of timing, future results, events, or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions, or results, based on management’s current expectations, assumptions, and estimates on the date hereof, there can be no assurance that actual strategies, actions or results will not differ materially from expectations. Therefore, readers are cautioned not to place undue reliance on such statements. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in capital and credit markets; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; any future acquisitions or divestitures; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Independent Bank Corporation’s customers; the implementation of Independent Bank Corporation’s strategies and business models; Independent Bank Corporation’s ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties, failure of technology infrastructure or information security incidents; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; competitive product and pricing pressures among financial institutions within Independent Bank Corporation’s markets; changes in customer behavior; management’s ability to maintain and expand customer relationships; management’s ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events; changes in accounting standards and the critical nature of Independent Bank Corporation’s accounting policies.

In addition, factors that may cause actual results to differ from expectations regarding the April 1, 2018 acquisition of TCSB Bancorp, Inc. include, but are not limited to, the reaction to the transaction of the companies’ customers, employees and counterparties; customer disintermediation; inflation; expected synergies, cost savings and other financial benefits of the transaction might not be realized within the expected timeframes or might be less than projected; credit and interest rate risks associated with the parties’ respective businesses, customers, borrowings, repayment, investment, and deposit practices; general economic conditions, either nationally or in the market areas in which the parties operate or anticipate doing business, are less favorable than expected; new regulatory or legal requirements or obligations; and other risks.

Certain risks and important factors that could affect Independent Bank Corporation’s future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2017 and other reports filed with the SEC, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Independent Bank Corporation undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances, after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise.

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES Consolidated Statements of Financial Condition December 31, 2018 2017 ------------- ------------- (unaudited) ---------------------------- (In thousands, except share amounts) Assets Cash and due from banks $ 23,350 $ 36,994 Interest bearing deposits 46,894 17,744 Cash and Cash Equivalents 70,244 54,738 Interest bearing deposits - time 595 2,739 Equity securities at fair value 393 - Trading securities - 455 Securities available for sale 427,926 522,925 Federal Home Loan Bank and Federal Reserve Bank stock, at cost 18,359 15,543 Loans held for sale, carried at fair value 44,753 39,436 Loans held for sale, carried at lower of cost or fair value 41,471 - Loans Commercial 1,144,481 853,260 Mortgage 1,042,890 849,530 Installment 395,149 316,027 - --------- - - --------- - Total Loans 2,582,520 2,018,817 Allowance for loan losses (24,888 ) (22,587 ) - --------- - - --------- - Net Loans 2,557,632 1,996,230 Other real estate and repossessed assets 1,299 1,643 Property and equipment, net 38,777 39,149 Bank-owned life insurance 55,068 54,572 Deferred tax assets, net 5,779 15,089 Capitalized mortgage loan servicing rights 21,400 15,699 Other intangibles 6,415 1,586 Goodwill 28,300 - Accrued income and other assets 34,870 29,551 Total Assets $ 3,353,281 $ 2,789,355 - --------- - - --------- - Liabilities and Shareholders’ Equity Deposits Non-interest bearing $ 879,549 $ 768,333 Savings and interest-bearing checking 1,194,865 1,064,391 Reciprocal 182,072 50,979 Time 385,981 374,872 Brokered time 270,961 141,959 - --------- - - --------- - Total Deposits 2,913,428 2,400,534 Other borrowings 25,700 54,600 Subordinated debentures 39,388 35,569 Accrued expenses and other liabilities 35,771 33,719 Total Liabilities 3,014,287 2,524,422 - --------- - - --------- - Shareholders’ Equity Preferred stock, no par value, 200,000 shares authorized; none issued or - - outstanding Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 23,579,725 shares at December 31, 2018 and 21,333,869 shares at December 31, 377,372 324,986 2017 Accumulated deficit (28,270 ) (54,054 ) Accumulated other comprehensive loss (10,108 ) (5,999 ) - --------- - - --------- - Total Shareholders’ Equity 338,994 264,933 Total Liabilities and Shareholders’ Equity $ 3,353,281 $ 2,789,355 - --------- - - --------- -

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Three Months Ended Twelve Months Ended December September December December 31, 31, 30, 31, 2018 2018 2017 2018 2017 ---------- ---------- ---------- ----------- ---------- (unaudited) ----------------------------------------------------------- Interest Income (In thousands, except per share amounts) Interest and fees on loans $ 32,838 $ 31,000 $ 22,643 $ 116,865 $ 84,281 Interest on securities Taxable 2,782 2,737 2,628 10,874 10,928 Tax-exempt 408 412 522 1,743 2,000 Other investments 393 303 233 1,291 1,100 Total Interest Income 36,421 34,452 26,026 130,773 98,309 - ------ - - ------ - - ------ - - ------- - - ------ - Interest Expense Deposits 5,006 3,976 2,021 14,478 6,775 Other borrowings and subordinated debentures 746 779 689 3,013 2,348 Total Interest Expense 5,752 4,755 2,710 17,491 9,123 - ------ - - ------ - - ------ - - ------- - - ------ - Net Interest Income 30,669 29,697 23,316 113,282 89,186 Provision for loan losses 591 (53 ) 393 1,503 1,199 Net Interest Income After Provision for Loan 30,078 29,750 22,923 111,779 87,987 Losses - ------ - - ------ - - ------ - - ------- - - ------ - Non-interest Income Service charges on deposit accounts 3,092 3,166 3,208 12,258 12,673 Interchange income 2,669 2,486 2,154 9,905 8,023 Net gains on assets Mortgage loans 2,026 2,745 2,876 10,597 11,762 Securities 209 93 198 138 260 Mortgage loan servicing, net (1,511 ) 1,212 979 3,157 1,647 Other 2,466 2,134 2,029 8,760 8,168 Total Non-interest Income 8,951 11,836 11,444 44,815 42,533 - ------ - - ------ - - ------ - - ------- - - ------ - Non-interest Expense Compensation and employee benefits 15,572 16,169 13,985 62,078 55,089 Occupancy, net 2,245 2,233 2,070 8,912 8,102 Data processing 2,082 2,051 1,987 8,262 7,657 Furniture, fixtures and equipment 1,051 1,043 927 4,080 3,870 Merger related expenses 111 98 274 3,465 284 Communications 737 727 638 2,848 2,684 Interchange expense 728 715 287 2,702 1,156 Loan and collection 782 531 666 2,682 2,230 Advertising 577 594 354 2,155 1,905 Legal and professional 528 477 526 1,839 1,892 FDIC deposit insurance 331 270 286 1,081 894 Credit card and bank service fees 104 108 97 414 529 Net gains on other real estate and repossessed (53 ) (325 ) (738 ) (672 ) (606 ) assets Other 2,030 2,049 1,777 7,615 6,396 Total Non-interest Expense 26,825 26,740 23,136 107,461 92,082 - ------ - - ------ - - ------ - - ------- - - ------ - Income Before Income Tax 12,204 14,846 11,231 49,133 38,438 Income tax expense 2,268 2,921 9,520 9,294 17,963 - ------ - Net Income $ 9,936 $ 11,925 $ 1,711 $ 39,839 $ 20,475 - ------ - - ------ - - ------ - - ------- - - ------ - Net Income Per Common Share Basic $ 0.41 $ 0.49 $ 0.08 $ 1.70 $ 0.96 - ------ - - ------ - - ------ - - ------- - - ------ - Diluted $ 0.41 $ 0.49 $ 0.08 $ 1.68 $ 0.95 - ------ - - ------ - - ------ - - ------- - - ------ -

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES Selected Financial Data December 31, September 30, June 30, March 31, December 31, 2018 2018 2018 2018 2017 -------------- -------------- -------------- ------------ -------------- (unaudited) ------------------------------------------------------------------------------ (Dollars in thousands except per share data) Three Months Ended Net interest income $ 30,669 $ 29,697 $ 28,980 $ 23,936 $ 23,316 Provision for loan losses 591 (53 ) 650 315 393 Non-interest income 8,951 11,836 12,315 11,713 11,444 Non-interest expense 26,825 26,740 29,761 24,135 23,136 - ---------- - ---------- - - ---------- - ---------- - ---------- Income before income tax 12,204 14,846 10,884 11,199 11,231 Income tax expense 2,268 2,921 2,067 2,038 9,520 Net income $ 9,936 $ 11,925 $ 8,817 $ 9,161 $ 1,711 - ---------- - ---------- - - ---------- - ---------- - ---------- Basic earnings per share $ 0.41 $ 0.49 $ 0.37 $ 0.43 $ 0.08 Diluted earnings per share 0.41 0.49 0.36 0.42 0.08 Cash dividend per share 0.15 0.15 0.15 0.15 0.12 Average shares outstanding 23,988,810 24,148,768 24,109,322 21,364,708 21,332,053 Average diluted shares 24,339,782 24,514,814 24,509,963 21,674,375 21,661,133 outstanding Performance Ratios Return on average assets 1.18 % 1.46 % 1.12 % 1.34 % 0.25 % Return on average common equity 11.43 13.83 10.57 14.04 2.51 Efficiency ratio (1) 67.11 63.63 71.14 66.72 66.14 As a Percent of Average Interest-Earning Assets(1) Interest income 4.66 % 4.53 % 4.49 % 4.15 % 4.07 % Interest expense 0.73 0.62 0.56 0.44 0.42 Net interest income 3.93 3.91 3.93 3.71 3.65 Average Balances Loans $ 2,627,614 $ 2,550,302 $ 2,449,056 $ 2,062,847 $ 2,006,207 Securities available for sale 433,903 442,949 470,427 500,599 532,202 Total earning assets 3,121,640 3,038,221 2,963,982 2,611,890 2,574,779 Total assets 3,327,002 3,247,603 3,168,196 2,776,986 2,742,761 Deposits 2,873,889 2,789,969 2,701,362 2,417,906 2,340,593 Interest bearing liabilities 2,058,720 1,986,905 1,946,287 1,724,153 1,680,917 Shareholders’ equity 344,779 341,998 334,626 264,584 270,099 End of Period Capital Tangible common equity ratio 9.17 % 9.51 % 9.41 % 9.54 % 9.45 % Average equity to average 10.36 10.53 10.56 9.53 9.85 assets Tangible common equity per $ 12.90 $ 12.84 $ 12.47 $ 12.46 $ 12.34 share of common stock Total shares outstanding 23,579,725 24,150,341 24,143,044 21,374,816 21,333,869 Selected Balances Loans $ 2,582,520 $ 2,562,578 $ 2,467,317 $ 2,071,435 $ 2,018,817 Securities available for sale 427,926 436,957 450,593 489,119 522,925 Total earning assets 3,162,911 3,078,083 3,023,454 2,625,534 2,617,204 Total assets 3,353,281 3,297,124 3,234,522 2,793,119 2,789,355 Deposits 2,913,428 2,798,643 2,780,516 2,430,401 2,400,534 Interest bearing liabilities 2,098,967 2,036,770 1,988,495 1,719,771 1,722,370 Shareholders’ equity 338,994 345,204 337,083 267,917 264,933 (1) Presented on a fully tax equivalent basis assuming a marginal tax rate of 21% in 2018 and 35% in 2017.

Reconciliation of Non-GAAP Financial Measures

Independent Bank Corporation

Independent Bank Corporation believes non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate the adequacy of common equity and performance trends. Tangible common equity is used by the Company to measure the quality of capital.

Reconciliation of Non-GAAP Financial Measures Three Months Ended Twelve Months Ended December 31, December 31, 2018 2017 2018 2017 -------------- -------------- -------------- -------------- (Dollars in thousands) Net Interest Margin, Fully Taxable Equivalent (“FTE”) Net interest income $ 30,669 $ 23,316 $ 113,282 $ 89,186 Add: taxable equivalent adjustment 126 286 510 1,123 Net interest income - taxable equivalent $ 30,795 $ 23,602 $ 113,792 $ 90,309 - ---------- - - ---------- - - ---------- - - ---------- - Net interest margin (GAAP) (1) 3.91 % 3.60 % 3.85 % 3.61 % - ---------- - - ---------- - - ---------- - - ---------- - Net interest margin (FTE) (1) 3.93 % 3.65 % 3.88 % 3.65 % - ---------- - - ---------- - - ---------- - - ---------- - Adjusted Net Income, Earnings Per Diluted Share, Return on Equity and Return on Assets Net Income $ 9,936 $ 1,711 $ 39,839 $ 20,475 Deferred tax assets adjustment - 5,965 - 5,965 Adjusted net income $ 9,936 $ 7,676 $ 39,839 $ 26,440 - ---------- - - ---------- - - ---------- - - ---------- - Average diluted shares outstanding 24,339,782 21,661,133 23,768,795 21,650,199 - ---------- - - ---------- - - ---------- - - ---------- - Average total assets $ 3,327,002 $ 2,742,761 $ 3,131,936 $ 2,650,189 - ---------- - - ---------- - - ---------- - - ---------- - Average shareholders’ equity $ 344,779 $ 270,099 $ 321,772 $ 261,768 - ---------- - - ---------- - - ---------- - - ---------- - Diluted earnings per share Reported $ 0.41 $ 0.08 $ 1.68 $ 0.95 - ---------- - - ---------- - - ---------- - - ---------- - Adjusted $ 0.41 $ 0.35 $ 1.68 $ 1.22 - ---------- - - ---------- - - ---------- - - ---------- - Return on average assets(1) Reported 1.18 % 0.25 % 1.27 % 0.77 % - ---------- - - ---------- - - ---------- - - ---------- - Adjusted 1.18 % 1.11 % 1.27 % 1.00 % - ---------- - - ---------- - - ---------- - - ---------- - Return on average common equity(1) Reported 11.43 % 2.51 % 12.38 % 7.82 % - ---------- - - ---------- - - ---------- - - ---------- - Adjusted 11.43 % 11.28 % 12.38 % 10.10 % - ---------- - - ---------- - - ---------- - - ---------- - __________ (1) Annualized for three months ended December 31, 2018 and 2017.

Reconciliation of Non-GAAP Financial Measures (continued) Independent Bank Corporation Tangible Common Equity Ratio December 31, September 30, June 30, March 31, December 31, 2018 2018 2018 2017 2017 ------------- ------------- ------------- ------------- ------------- (Dollars in thousands) Common shareholders’ equity $ 338,994 $ 345,204 $ 337,083 $ 267,917 $ 264,933 Less: Goodwill 28,300 28,300 29,012 - - Other intangibles 6,415 6,709 7,004 1,500 1,586 - --------- - - --------- - - --------- - - --------- - Tangible common equity $ 304,279 $ 310,195 $ 301,067 $ 266,417 $ 263,347 - --------- - - --------- - - --------- - - --------- - - --------- - Total assets $ 3,353,281 $ 3,297,124 $ 3,234,522 $ 2,793,119 $ 2,789,355 Less: Goodwill 28,300 28,300 29,012 - - Other intangibles 6,415 6,709 7,004 1,500 1,586 - --------- - - --------- - - --------- - - --------- - - --------- - Tangible assets $ 3,318,566 $ 3,262,115 $ 3,198,506 $ 2,791,619 $ 2,787,769 - --------- - - --------- - - --------- - - --------- - - --------- - Common equity ratio 10.11 % 10.47 % 10.42 % 9.59 % 9.50 % - --------- - - --------- - - --------- - - --------- - - --------- - Tangible common equity ratio 9.17 % 9.51 % 9.41 % 9.54 % 9.45 % - --------- - - --------- - - --------- - - --------- - - --------- - Tangible Common Equity per Share of Common Stock: Common shareholders’ equity $ 338,994 $ 345,204 $ 337,083 $ 267,917 $ 264,933 - --------- - - --------- - - --------- - - --------- - - --------- - Tangible common equity $ 304,279 $ 310,195 $ 301,067 $ 266,417 $ 263,347 - --------- - - --------- - - --------- - - --------- - - --------- - Shares of common stock outstanding 23,580 24,150 24,143 21,375 21,334 (in thousands) - --------- - - --------- - - --------- - - --------- - - --------- - Common shareholders’ equity per $ 14.38 $ 14.29 $ 13.96 $ 12.53 $ 12.42 share of common stock - --------- - - --------- - - --------- - - --------- - - --------- - Tangible common equity per share of $ 12.90 $ 12.84 $ 12.47 $ 12.46 $ 12.34 common stock - --------- - - --------- - - --------- - - --------- - - --------- -

The tangible common equity ratio removes the effect of intangible assets from capital and total assets. Tangible common equity per share of common stock removes the effect of intangible assets from common shareholders’ equity per share of common stock.

Contact: William B. Kessel, President and CEO, 616.447.3933Robert N. Shuster, Chief Financial Officer, 616.522.1765

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