Independent Bank Corp (Michigan) (IBCP) 2007 Q3 法說會逐字稿

Greetings, ladies and gentlemen and welcome to the Independent Bank Corporations Third Quarter 2007 Earnings Conference Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Michael Magee, President and CEO for Independent Bank Corporation. Thank you, Mr. Magee, you may begin.

Thank you. Good morning and welcome to our third quarter 2007 earnings conference call. I am Mike Magee, President and CEO of Independent Bank.

Joining me on the call today are Rob Shuster, our Chief Financial Officer, and Stephanie Kimball, our Chief Lending Officer.

Following my introductory comments, Rob will provide a detailed review of our financial performance during the third quarter. Following Rob's comments, Stephanie will provide a progress report on credit quality. We will conclude the call with a brief question and answer session.

Also, please note that a company PowerPoint presentation will be referenced throughout today's call. To access this presentation, please go to the Investor Relations section of our website at www.IBCP.com.

Furthermore, please also note that this presentation may contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Please refer to our Safe Harbor Provision on slide 3 of the presentation for additional information on forward-looking statements.

I will begin today's discussion with a review of our third quarter financial result which are summarized on slide 4 of the company's slide presentation.

For the third quarter ended September 30, 2007, we reported income from continuing operations of $3.7 million or $0.16 for fully diluted share compared to $9.4 million or $0.40 for fully diluted share in the third quarter of 2006.

While this decline in operating profitability is disappointing, I am encouraged by the progress we made during the quarter to actively address several internal challenges which remain top of mind for both management and investors. And that I believe of which involved a continued increase in our nonperforming loads in an elevated loan loss provision.

For a high level overview of the quarter, please turn next to slide 5 and 6 of the presentation. While efforts to improve credit quality remain a top priority for us, economic conditions throughout Michigan remain sluggish particularly within the residential housing and commercial property markets where real estate values and end-market demand have further softened throughout the year. As a result, non performing loans increased during the third quarter above level experienced in the second quarter of 2007, and primarily to ongoing challenges within our commercial primarily real estate development related credits and one-to-four family mortgage portfolio.

As in many states throughout the country, the inventory of new and existing residential real estate for sale in the areas of Michigan remains above historical norms despite some price depreciation. Our increase in nonperforming loans during the third quarter is closely aligned with the general slowing in the residential housing market and the effect of the slowing has had on borrowers including several residential real estate developers who became past due on their loans in recent quarters.

While our loan loss provision in the third quarter declined substantially from the second quarter of 2007, it still remains at elevated levels when compared to the third quarter of 2006 due in large part to this trend.

Although increased credit costs have mapped the fundamental strength of our business in recent quarters, our management team has been actively engaged in efforts to promote an opportunistic risk adverse lending culture. For example, in recent months, our management team has implemented a new organizational structure designed to improve loan monitoring and enhance our portfolio management function. Specifically, these management and monitoring functions include the implementation of an enhanced quarterly credit quality review. The creation of a special assets group had increased oversight by our credit officers, officers at a real time basis among other key initiatives which Stephanie will touch on in greater detail later in this call.

Despite some of the challenges we face during the third quarter, I am pleased there is no further positive takeaways from the period which are a testament of the hard work and tireless commitment of our associates. Our third quarter net interest margin grew on both the sequential and year-over-year basis due principally to an increase in the tax equivalent yield on average current interest earning assets when compared to the prior (technical difficulty). In addition, non-interest income also grew considerably from the year-ago period driven primarily by growth in the deposits related to revenue.

Next, I would like to share a few words on our recent completion of our bank charter consolidation. Please refer to slide 7 and 8 for this portion of the discussion.

As anticipated we completed our bank charter consolidation during the third quarter, a significant accomplishment that positions us to achieve improved cost saving, operating efficiency and strategic growth over the long term.

While this consolidation has required a significant investment of time and effort on our part, we stand encouraged by the long-term anticipated benefits of this move. In addition to helping us streamline our operations and legal governance structure, the consolidation will position us to implement stronger risk management processes and also position us for the rapid development and deployment of new products and services.

In addition, the charter consolidation is projected to provide shareholders with a $4 million to $5 million in the annual cost saving due principally to improve resource utilization and bank wide productivity. Looking ahead, I remain encouraged by a number of strategic and operational initiatives our people have implemented in the (technical difficulty) but not limited to efforts to improve credit quality and lower credit cost despite the current economic headwinds evident in many of our regional Michigan markets we serve.

Moreover, I am confident that these ongoing efforts will help us become the community bank of choice in Michigan are investments to shift provide value per shareholders and customers alike over the long term. As before, we remain focused on the fundamentals of community banking guided by a continued focus on growing deposits, improving asset quality, and improving operating efficiency through disciplined expense management.

And with that, I will now turn the call over to our Chief Financial Officer, Rob Shuster for a review of our financial performance during the period.

Thank you, Mike. Good morning everyone.

I am starting at Page 10 of our PowerPoint presentation. I will focus my comments on net interest income in our margin, certain components of non-interest income and non-interest expense, asset quality and conclude by making a few comments about our current cash dividends.

If you move to pages 11 and 12, tax equivalent net interest income totalled $31.9 million in the third quarter of '07 which was up $313,000 or 1% on a comparative quarterly basis and down slightly $187,000 or 0.6% on a linked quarter basis.

The increase in the comparative quarterly tax equivalent net interest income was due to a 5 basis point increase in our net interest margin to 4.31% from 4.26%. Partially offsetting this was an $8.6 million decrease in average interest earning assets primarily as a result of a decline in investment securities that was largely offset by growth in loans.

As you can see in the graph on Page 11, our net interest margin bottomed out in the last half of 2006. It has been slowly rising in 2007 despite the relatively flat yield curve and continued competitive pricing conditions in our markets for both loans and deposits.

A linked quarter net interest margin increased 4 basis points. Average interest earning assets decreased $60.4 million on a linked quarter basis due to a $64.1 million decrease in average securities and investments partially offset by a $3.7 million increase in average loans.

As I mentioned in our prior quarterly conference call, average securities and investments had temporarily increased during the second quarter as a result of the investment of funds from our March 2007 acquisition of branches until such time as we could pay off brokered CDs or other borrowed funds. During the third quarter, we liquidated these short term investments to pay down maturing brokered CDs or borrowings.

In the third quarter of 2007, non-accrual loans averaged $58.1 million compared to $44.5 million in the second quarter of '07 and $20.8 million in the third quarter of '06. We reversed $415,000 of accrued and unpaid interest on non accrual loans in the third quarter of '07 compared to $446,000 during the second quarter of '07 and $292,000 in the third quarter of '06. The reversal of this interest in the third quarter of '07 reduced the yield on loans by about 6.5 basis points and the net interest margin by about 5.5 basis points. Looking ahead, we believe the net interest margin will be relatively stable to increasing modestly.

The 0.5% cut in the federal funds rate in late September will help us primarily because we have used interest rate caps which totalled about $316 million at the end of September to hedge variable rate and short term brokered CDs and borrowings. Thus, we will realize the benefit of the decline in short term rates on these liabilities. However, the growth in the net interest margin has been tampered by our elevated level of non-accrual loans which got approximately $65 million at quarter end creates a drag of about 18 basis points on the net interest margin.

Moving on to some of the more significant categories of non-interest income on page 13 of our presentation, charges on deposit accounts increased by $1.3 million or 24.2% on a comparative quarterly basis, and by $0.2 million or 2.9% on a linked quarter basis. VISA CheckCard interchange income was up 47.9% on a comparative quarterly basis and was flat on a linked quarter basis. These large year-over-year increases primarily reflect the acquisition of branches that we completed on March 23, 2007. Gains on real estate mortgage loans totalled $1.1 million in the third quarter of 2007 on $77.2 million of loan sales. These gains were about equal to the third quarter of 2006, but were down by 11.6% on a link quarter basis.

However, total mortgage loan volume of $113.6 in the third quarter of '07 was down about 22.4% from the third quarter of '06, due in part to lower levels of real estate sales in Michigan. We would expect to see further slowdowns over the next two quarters because of seasonal factors.

Mortgage loan servicing income increased by $72,000 on a comparative quarterly basis and decreased by $79,000 on a link quarter basis. These variations primarily reflect changes in the impairment reserve on and amortization of capitalized mortgage loans servicing rights.

Mutual fund and annuity commissions have grown in 2007, due primarily to adding new investment representatives in ongoing efforts to increase our fee-based business.

Moving on to page 14 of our presentation, non-interest expenses totalled $28.4 million in the third quarter of '07. This includes $172,000 of severance expenses and $437,000 of other one-time costs primarily data processing principally related to our bank charter consolidation.

In addition, when comparing to the third quarter of 2006, that quarter included a much lower level of performance based compensation as we eliminated the year-to-date accrual for the ESOP contribution and reduced the accrual for bonuses. In 2007, we are still accruing for an ESOP contribution at 3% of eligible salaries.

Several other categories of expenses, such as amortization of intangible assets, were up due to the acquisition of branches. Loan and collection expenses are higher due to our elevated level of non-performing assets. On a link quarter basis, if you adjust for one-time expenses associated with severance and charter consolidation costs, total non-interest expenses declined by $1.1 million or 3.8% to $27.8 million in the third quarter of '07 from $28.9 in the second quarter of '07. This decline is indicative of the expense reduction initiatives that have been implemented because some of the reasons staff reductions associated with the charter consolidation did not occur until late in the third quarter, we would anticipate some further declines in non-interest expenses in the fourth quarter.

As evidenced on page 15 of our presentation, the assessment of the allowance for loan losses resulted in that provision for loan losses of $10.7 million in the third quarter of '07. Although this is down from the second quarter, it remains at a very high level of about 170 basis points of loans on an annualized basis. Nonperforming loans, page 15 of our presentation, increased to $79.2 million or 3.15% of total portfolio loans at September 30, 2007.

As disclosed in our earnings release, this total includes an $8.4 million credit relationship that was brought current on October 5, 2007. Thus, the adjusted total of nonperforming loans was $70.8 million or 2.82% of total portfolio loans. The rise in nonperforming loans in the first nine months of '07 was primarily concentrated in the commercial loan and real estate mortgage loan portfolios. This is principally due to certain land or land development loans becoming nonperforming as well as increased foreclosures on residential mortgage loans.

Stephanie will provide more information on our commercial loan portfolio during her comments. Further, the Form 8-K that we filed yesterday includes a table that provides a breakdown of our commercial loan portfolio by loan category and information on both performing and nonperforming watch credits.

Page 17 of our presentation provides information on the components of our allowance for loan losses which rose to $42.3 million or 1.69% of total loans. Excluding Mepco's finance receivables in the portion of the allowance that relates to these receivables, the ratio of the remaining allowance rose up to 1.84% of loan. Net loan charge-offs totalled $6.6 million in the third quarter of 2007 or 1.05% of average portfolio loans.

Page 18 of our presentation on the net charge-offs by loan type. As you can see charge-offs in the commercial loan portfolio remain elevated. We have charge-offs of $3.2 million on three commercial credits in the third quarter. When we assess loans for impairment, we consider four factors -- the amount of cash flows indicated from the current collateral values, the timing of those cash flows, the discount rate at which the cash flows should be present valued, and liquidation and holding costs.

In particular, for real estate-related collateral, not only are we seeing a decline in value, but also extended sales timeframes and higher discount rates, the present value to cash flows due to risk. The combination of these factors has led to a higher expected loss severity.

One other comment of the loan charge-off data on Page 18 is that consumer loan net charge-offs include $852,000 of checking account overdraft charge-off year-to-date in 2007. This represents about 28% of the total consumer loan net charge-offs. I'm not sure that all banks categorize checking account overdraft charge-offs in this manner.

Page 19 of our presentation had some historical balance sheet data. In the first nine months of 2007, we have reduced brokered CDs by $350.3 million, fed funds purchase by $84.1 million and other borrowings by $56.2 million. This represents an overall reduction in wholesale funding of $490.6 million or 38% reflecting the deployment of funds from our sale of Mepco's insurance premium finance business and from our acquisition of branches.

Because of the decline in total assets, our tangible capital ratio excluding accumulated other comprehensive income increased slightly to 5.04% at September 30, 2007 from 5.03% at June 30, '07 despite our third quarter earnings being a bit below the $0.21 per share dividend that we paid.

As indicated on page 20 of our presentation, we are committed to remaining well capitalized in protecting our cash dividend. Current company liquidity is very strong, particularly following a September 2007 issuance of $20 million in additional trust-preferred securities. Further, we do not anticipate any need to downstream capital to the bank. As a result, we fully expect to continue our $0.21 per share quarterly cash dividend.

My closing remarks during last quarter's conference call were as follows -- as we look at the last half of 2007, we believe that the results in the second quarter were non-interest income or for net interest income and non-interest income as well as non-interest expense at a recurring level of $27 million to $28 million once the bank charter consolidation is complete are reasonably indicative of our near-term expectations.

We would also hope that the provision for loan losses that we recorded in the second quarter represents the high point and that the future range is lower. But as mentioned, credit cost has been very difficult to predict because of both challenging valuation metrics as well as loans quickly becoming non-performing.

I believe that our actually third quarter results were in fact consistent with these remarks. Obviously, our fourth quarter results will be significantly influenced by our level of loan lost provisioning which is difficult to predict as I just stated. But we are hopeful that the downward trend in the third quarter will continue.

This concludes my remarks and I would now like to turn the call over to Stefanie Kimball.

Thanks, Rob. Good morning, everyone. I will be presenting information that would provide more color regarding the performance of the commercial loan portfolio and this information starts on page 22 of our presentation.

Commercial loan outstandings have declined slightly this year ending the quarter at $1.65 billion. As Mike discussed earlier, we have recently completed our charter consolidation project in the third quarter and we expect many assets from this charter consolidation, one of which is the unwinding of participation between entities of which are no longer necessary. And you can see from page 22 that there hasn't been shift between our regions which previously were banks due to the unwinding of those participations. This is one of the many benefits that we expect to gain from this consolidation.

Our credit challenges continue within the quarter and are best illustrated on Page 23 with the rise in our watch credit. These loans reached $184 million and as you compare the results between Independent Bank and other organizations, it's important to note that Independent Bank's approach is one that of kind with a comprehensive definition that includes all categories of internal watch up to and including non-accruals. In short, it probably includes some component in this definition that others don't.

But whatever the metrics, clearly, there is an increasing trend. And I will discuss a number of the things that are behind this trend and give you a bit of a story of several of the credits because I believe they not only explaining the trends, but also give you a flavor for the aspects of this uncertain economic environment in which we operate.

Both clients that I will discuss are commercial real estate participation, and in both cases, at least some of the guarantors remain solvent and is working to address the issues that created cash flow shortages and delinquent payments.

The first loan is a land development loan where payments were being made by the substantial guarantors. However, it's not all guarantors who continue to contribute their fair share.

Ironically, we are seeing at this point in the credit cycle that partners that were originally thought to mitigate risk have in some cases there's to increase risk as all partners do not have equal liquidity or deep pocket.

Through (inaudible) results when one or more partners can no longer continue to pay, the fees can occur and likely divorce temporary declines and timeliness of loan payments can result while the parties work out their differences. So lesson here is that you don't assume that the borrower can't or won't pay just because they're not paying at the moment.

The second relationship is a family diversified commercial real estate investor that has historically been able to count on the sale of real estate as a stable source of cash. With today's depressed market, this source of cash has dried up. Like [many,] we have an abundant source of cash historically, this borrower was not in a position of forecasting their cash flow far in the future, loan payments became delinquent.

We were however able to work with the borrower and obtain additional collateral to establish an interest reserve and create liquidity that the borrower needed and the loans have now been brought current.

This same relationship is now in our delinquency numbers which can be see on Page 24. As you can see from the chart, removing that relationship from our quarter end delinquency would have resulted in flat results from June 30.

Our new credit practices that I'll discuss further shortly -- should help us minimize some of these situations in the future with a more proactive approach on the banks part.

As I mentioned previously, we are taking an approach to look at commercial loans and work with each of our clients through this difficult economic environment. Some of this takes time and while we are working the clients, loans can move in to the delinquent status and also shown in the next page, page 25, the non-accrual status.

The two large relationships that I mentioned did moving to this category, one has now been cured and the other will require a long difficult negotiation with many interested parties. In some cases, we are better served to work with the client and have them try to resolve their differences or in the case where they need to liquidate properties to sell the property. In this very similarly traded market, that is resulting in an optimal result.

That's realizable net value for our shareholders can be [a patient] approach when appropriate. In other cases, it is appropriate to work closely with the clients to sell property quickly in a known instances we have taken that approach.

It should be noted that when the loans do move into the non-accrual status, they will often stay in that category for sometime while these negotiations take place. As Rob mentioned, when loans do move into this category or our delinquent category, we are looking at them one by one for the larger relationships and increasing the reserves. Our process includes looking at current appraisals which - in which depressed market can resolve in a substantial reserve for the individual credits.

Turning to page 26, I will provide some information about the concentrations of our loan portfolio. Here you can see the 17% of the portfolio is comprised of three segments of commercial real estate -- land, land development and construction loans. These result in a disproportionate segment of our watch portfolio comprising 41%.

Last quarter, I've discussed and stressed that this segment is seeing and it continues. The housing retention has created significant costs of sharing projects and in particular, non-income producing properties have struggled. In many of the cases, the projects are no longer attractive.

Page 27 provides some similar details with regards to our geographic concentration. Generally, the portfolio is fairly well diversified across their market. You can see the two markets, Southeast Michigan and the Northwest market have contributed slightly more than their fair share to the watch credit. Both of these markets were previously growing quite fast and saw the prevalence which is the characteristic of what we are seeing in the real estate market today.

But large inventory of partially built projects has caused a glut in the market. Real estate values in some of these areas have dropped dramatically as that cost of carry and absorption rate had many projects no longer economically attractive and in some cases, investors have lost their entire investment. This is being also reflected in the recent appraisal that we are obtaining.

Turning to page 28, I'd like to discuss factors that are impacting Independent Bank's, credit quality environment from a broader perspective. As Mike mentioned, it continues to be a very challenging economic environment in Michigan.

Particular stress has been noticed in the residential real estate related businesses and the property values have fallen dramatically. In some cases, we've seen 20% or 30% downward adjustment in appraisals and in others we have seen even more significant declines in there.

As we look forward, it's important to note that many of the land and land development loans have already been classified as watch credit and we are monitoring all of our real estate loans very carefully. We are preparing to weather this difficult credit storm with proven best practices on the credit side. We are basing these practices on the time of credit principles that have been proven over time to provide good results. These processes must be more carefully adhered to during uncertain times such as [this].

Geographic diversification of our portfolio also is something that we are studying. For example, growth prospect in Grand Rapids' market today is more favourable than what we've seen in South-eastern Michigan. We do have a number of strategic initiatives that are helping to position us for the future to include attracting a more diverse client-base. Opportunities does continue to exist in the market, we just have to look harder to find it.

Turning to page 29, a number of the best practices are highlighted that we are in the process or have already implemented. These best practices we believe will position us to weather this credit storm and I will highlight a few.

A cornerstone to proactive portfolio management is our credit quality process which is a quarterly watch process to review all of the loans in the watch category. It is a cornerstone of proactive portfolio management and it is focused on preparing action plans and ways to improve the structure of credits wherever possible. A second factor is the independent assignment of risk ratings which gives us an upfront assessment of credit risk so that risk can be properly mitigated and pricing can take that risk into full account. Both of these processes are built on the premise that two heads are better than one and that a collaborative working relationships between our credit and commercial lending line officers can give you better ideas in loan decisions.

Another key best practice implemented earlier this year was the formation of our special assets team and that is providing more effective management of our most troubled loans. The team includes a number of very experienced commercial real state lenders to help with the concentration of the credits that we've seen in that category.

The team is also very well-supported by a select group of law firms who help provide professional advise and systematic feedback on some of our credit thought processes to include our documentation which gives us the information we need for a continuous improvement approach.

As we look forward, Page 30 highlights some of the long term initiatives that are underway to enhance credit quality and the service that we provide our clients. We continue to be a dedicated relationship manager in the markets that we serve using a community banking approach and by a comprehensive spectrum of banking services, that we are small enough to know you, large enough to serve you, outlines us well.

A second key initiative is we are implementing various initiatives to streamline our underwriting and our loan approval process. This will help improve the level of inefficiencies that we have in serving our clients, and further, it was better capitalize on some of the new investments we've made with our technology.

And third, we are designing an enhanced documentation process to improve the client closing experience. Although the credit storm has not subsided, we believe we are well-positioned to weather the storm as you heard from Mike and Rob with our strong liquidity in financial performance and other areas of the bank which coupled with our new implemented credit best practices should help stabilize and improved credit quality.

These credit best practices coupled with our strong relationship management approach will help position as well to help our clients through the difficult times and return to growth.

I will now turn it over to Mike Magee for our question and answer session.

Thank you, Stefanie and also thank you Rob.

As one of the oldest and most well-established banking brands in Michigan, we have weathered a variety of market cycles and business trends over the years. Although the challenging economy and the result of an increasing credit process have masked the fundamental strength of our business in the recent quarters, we believe our continued commitment to the fundamentals of community banking and the communities we serve which includes the strong dedication and efforts of our associates will position us for improved performance in the future.

That concludes our prepared comments. At this time we will open the line for questions.

Thank you. Ladies and gentlemen, we will now be conducting the question and answer session. (OPERATOR INSTRUCTIONS).

The first question is coming from Steven Wieczynski with Stifel Nicolaus. Please state your question.

Good morning. There was a nice sequential increase in the service charges on deposits. Were there any changes in the fee structure or was that mostly on organic growth?

It was mostly organic growth, but we also see the consolidation did review our fee structure and make some changes, so that all of the regions now within any Independent Bank operations have the same fees, and it allows us some opportunities in various geographic areas around the state.

Okay. And you touched briefly on this in the opening, how is the consumer doing initially? I saw that [inaudible] throughout. If you can touch again on where the growth came from and if there's any change in the consumer credit quality that you can share.

Well, the growth in the installment I think, to some degree, you're seeing shift in the fixed rate, seconds in out of variable rate home equity loans. So that's where some of that growth is coming from our actual -- actually, our home equity credit lines are in residential mortgage loans, but our fixed rates seconds are in installment loans. So they're both real estate-oriented loans, but I think you're just seeing some -- the consumer wanting the certainty of a scheduled payment in an amortizing loan. So I think that's part of it.

But we're seeing slow, reasonably decent growth. I think one of the things that's offsetting the trends in the slower real estate sales and maybe a little more stress with the consumer is, I think institutions like banks that have liquidity don't have to rely on a conduit-type of funding source like some mortgage bankers or mortgage brokers are faring better in this market. We've seen some mortgage bankers who have been in business in our markets for 30 years or more close their doors, and I think that's providing some additional opportunities for banks that, again, have the liquidity of that deposit base and better access to funding.

And I think, probably, the final comment I'd make on the installment side is when you -- and Steve, I had thrown out a year-to-date charge off number of $852,000 for overdrafts, which are included in our consumer loan charge-offs. So, absent that that the consumer has fared reasonably well, there has not been a market increase in our charge-off level to a significant degree on the consumer side.

We've really seen the stress from the credit perspective concentrated in the real estate development category on the commercial side. And then the thing we're seeing on the one to four family side is, historically, where our consumers got into trouble and were able to sell their home before the foreclosure process and extricate themselves from the financial stress. That's very difficult in today's market because of lower residential housing prices and slower sales volumes, and that's why we, along with the Fannie Mae and Freddie Mac who we service well over 20,000 loans, are trying to find ways to work with customers. So, you can avoid, if it all possible, for closure whether it's short sales or other techniques, I think all lenders are attempting to be creative in today's environment.

Okay, thank you.

Our next question is coming from Jason Werner of Howe Barnes. Please state your question.

Good morning. First question is, I was hoping you could give us some ideas as to where do you stand with getting updates appraisal for your watch credits.

Okay. As part of our watch process, we do normally get updated appraisals and that's something that is part of the review that we look at each quarter. We generally would look to get an appraisal about once a year.

With the -- looking at the [processed] loans, I mean how much of those have been updated within that one year time frame?

All of the credits would have been either updated or we would have adjusted our valuations based upon our knowledge of the market from other appraisals. So we would regularly each quarter take a look at that when -- and most of the time the risk rating and then to those larger loans help to raise a specific reserve.

And, Jason, a couple of other comments there is, one is, we will charge down the credit for sure once it hits 180 days past due or if we determine that there is in fact, a loss. And I know I've had some questions on the ratio of the allowance to non-performers, but many of those non-performers have already been charged down. And when we do our interim analysis, I'd listen to other bank earnings conference calls where they've indicated, well, there's 10% to 15% decline in value. I'm not debating that since some markets were seeing higher declines in collateral values than 10% to 15%.

But on top of that, we're taking into account that impairment analysis that the timeframe for sales has stretched out. So, not only are you expecting somewhat lower cash flows, but lower cash flows over an extended period of time which is going to reduce the present value of those cash flows. In addition, we're taking into account a higher interest rate for present value in those cash flows, because what we're seeing in new appraisals is the use of higher discount for those increased risk factors. And then finally, we include expected liquidation and holding cost.

So I would submit, when you mix those four things together in today's market, you're likely to see larger declines, and we're taking those things into account in our valuations. I guess time will tell where everyone comes out in that mix, but that's the process we use and we feel like we're taking all of the elements in a very difficult market into place. And that's why, in my mind, you're seeing us with charge-offs, because we're charging those loans down quickly and also, perhaps, a little bit higher degree of loss severity.

Jason, to your question, I'd like to add that in any loan with over $1 million, we take a look at the collateral evaluation and we -- as pointed out by Stefanie, you'll get new appraisals. I think as Rob pointed out, some financial institutions I believe are working off the original appraisal and just gets accounting based on what they consider market factors.

But we have found that it's very -- first of all it's very difficult to get appraisers who'll do a new appraisal, because they're usually giving an opinion about someone they know, a second opinion, and they have -- actually, what we're finding is they're coming in extremely low with their values. I believe because of the amount of litigation against a lot of appraisers right now, there's no incentive for them to come in with a fair market or even higher value. They're being very conservative on the values that they're providing banks right now in new appraisals to make sure that that we don't go after them for coming in with some high appraisal and then later finding out that that we have to sell the property for a much lower value.

So we're finding that is very difficult to work with appraisers right now and that appraisals we are getting are extremely low.

The other thing is, if you look at our charge-off versus the amount we have to provide, going back to Rob's comment about all the other factors we've taken into consideration, our charge -- our actual provisions in some cases have been twice as much as we've charged off. I mean, we're providing a lot of additional money to the loan loss provisions that we're actually experiencing in charge-offs. Again, because we're setting up reserves based in this -- based on carrying cost and how long it's going to take us to liquidate the collateral.

You guys certainly hit on a couple of topics I wanted to touch on it and Rob, you're [inaudible] getting towards that as a percent of MPA, 50% you handle well, and what really kind of jumps out at me and the reason I asked the appraisal question is, you mentioned that the biggest charge off you had where you had a $2 million charge-off, beginning balance is $1.9 million, that's pretty steep hair cut, that's off 150%. And, how do we know what else is in this trend? You said there's a lot of great charge-offs in a lot of these loans but charge-offs for the year are $17 million year to date and watch credit list was $184 million.

We've looked at the sizeable loans within that portfolio and made a determination based on the factors I've just walked you through. That's not to say that you can't have either a change in valuation or some other circumstance that arise that creates a charge-off.

But, first of all, if you were just out the $8.4 million, that number comes up to about $60 million -- but, for 60%. But, nonetheless, I think, a) you've got secured loan within that group. You've got one-to-four family, you've got other commercial real estate secured loans and what I'm -- what we've walked through is the process that we go through when we evaluate impairment or potential charge-offs including the forecasters that I've outlines and we've looked at the watch credit loans and determined what the allowance needed to be at September 30 based on that process that I just outlined.

Jason, I think the other thing with regards to the large charge-off that you're referencing is that particular charge-off was over a 50% write down and that loan is certainly in a category of the most severe. And not only did the property have a devaluations that we confirmed through an appraisal, but most importantly there was a tremendous amount of mismanagement in the project.

In the glory days of real estate developments, real estate developers could cover a lot of pins with the ever increasing price of real estate, and in this market, all of those things are hitting very hard. And we did have a number of issues in that particular credit that are extraordinary and it would not be typical of the rest of the portfolio.

So, I think as you look at 50% or 60% of the non performers having the reserve, even that they are secured loans by real estate it would be a extreme to see right down certainly beyond that for the whole portfolio.

With -- I guess, with the (inaudible) of credit, was that something - (inaudible) get the update appraisal in the quarter, how long to have credit on the watch list going on non-performing? What kind of change other than to get appraisal?

Jason, we actually have the specific reserve on that earlier. We just took the charge-off in the third quarter.

Okay.

So when that loan rotated in, we built this specific reserve on it fairly quickly. We did get, and I think it probably occurred in the second quarter where we got the updated appraisal. So, I guess, my point there would be, one, there is not a -- there is not this long lag time between a watch credit coming in and then suddenly waking up the next quarter and saying, "Gee, we've got an updated appraisal, now, there is this big loss." What happened there is we got to a point where we took the charge off and eliminated the specific reserve on that particular credit. So, that was not new other than the charge-off being new.

And I'll just reiterate, any of the larger credits within watch credit have been evaluated in terms of current market conditions and valuation.

Okay. One more question and I'll let somebody else get in here.

With respect to the three categories across the (inaudible), land, land development and construction, I was kind of curious if you could tell me, have you followed up, I think, you know, to both three categories that's still not performing $34.7 million, watch I think it's $44.2. Can you tell me what -- that's what's on the book for now with a charge-offs already been taking. Can you tell me what that -- the value on those loans where when they're going out on accrual? I'm trying to get a sense of what voted the charge down and hold super credit.

Is that a number that you guys can give me?

We don't have that here right now. I mean, if I would hazard a guess -- I mean, you've got a range of nothing to -- Stefanie went through the extreme on that one credit may have done like about a 50% -- 54% write down. I mean, that's the most extreme.

So, within that range I mean, every situation and circumstance is different. Probably the average might be in the 15% to 20% area, but that's an -- I would just say that's an average with a lot, on one end, where there is nothing to other extremes where you have large large write downs.

And, again, we've evaluated the watch credits and other large credits for those type of issues relative to the current market.

Okay. And the last question then I'll let somebody jump on. The -- are those three categories that I just mentioned, the construction category has the fewest amounts of problems. I think the percent in watch was 26.6%, and I was curious why is that holding up more and maybe it's a breakdown between what's commercial and what's residential? What's keeping those loans in better shape?

Well, the constriction loans, some of them we have an interest reserve that was put in place assuming it was going to take you a while to complete a project. And those loans were all in process, construction projects when our slowdown occurred.

And so, they're continuing to perform fairly well because some of them were able to be finished and -- which is very different than the other end of the category, the vacant land. A vacant land loan that was made with an estimate that it was going to become a development project, let's say, in a year might be waiting 3 or 4 years now for the market to come back and for that development now to be appropriate.

And so those loans we've seen -- both individual investors' ability to continue to carry them and pay the interest themselves. Those are much more difficult and we've seen a much higher percentage of those move into the watch category.

Yeah. I'd say that the general kind of concept there is you're getting cash flow on the construction loans. While construction loans while sales have slowed markedly, they're still occurring.

So, you know, the leases may have slowed somewhat, but there is still -- maybe they were selling five units or eight units, now, they're selling, four units but they're still generating cash flow. And so, that portfolio is held up much better. And some of the other categories in the land and land development, what's occurred today is, you know, with the valuations changing as dramatically as they have -- in (inaudible) it just doesn't make sense, economic sense for the developer to move forward. And, in that situation they're nor generating cash flow and that's creating the greater stress in that portfolio.

Is there a lot of the construction loans still current because of the interest reserve? And would struggle once that interest reserve is exhausted?

I mean, we've - yeah, there's some in there that have that, but we've evaluated and looked at those and what I would tell you is the ones that aren't in watch credit would be ones where there is still a volume of sales occurring that is not creating stress in those particular loans.

Okay. Thank you, guys.

Our next question is coming from Dan Bandi with Integrity Asset Management. Please state your question.

Thank you. And not to beat a dead horse on the appraisal, but I'm just curious on that large charge-off that you had mentioned, Rob, that you guys have put the reserve in last quarter, when was the previous appraisal done on that and what was the timeframe that we are looking at between appraisals?

The previous appraisal on that one is about two years earlier.

Okay.

And so, what we're seeing is the project running to difficulty moved in to the watch category and we did our own estimates of the decline of the value and then confirmed it with an appraisal.

Okay. In the last question, you were just throwing out some hypothetical numbers, Rob, in terms of the sales per month of some of the construction loans. Do you have an idea on average across your construction loans? I mean, how many units were sold per month during the quarter and just -- kind of what the change was? And then, also, what level does that need to be for the loans to stay performing?

We are seeing a difference in the sale decline per month based upon the attractiveness of the home in this market. Some of the homes that are continuing to move are in the more modest price ranges, and so, those types of developments you might see they're slow slightly. The larger homes are moving slower and it also changes by geographic markets.

You know, we're seeing in West Michigan the movement is better. We're seeing -- there is some projects that have other amenities like they're on the water. Those have held up better.

I mean, each project is so unique, Dan, and it's hard to paint a picture. Where you're seeing probably the biggest slowdown is what I would call more the track type development. And in particular the track type development in South East Michigan is what probably you've seen the most market slowdown.

And, as Stefanie said, the other key thing I think, these price points we're seeing, that more modest price range, while there's been some slowing sales that are continuing there and then those instincts is, the borrower is able to continue to perform.

Good. And maybe...

Dan, we do monitor the construction loans in process through the monthly reporting and we have just formed a centralized group to monitor that across the company consistently.

Okay. Great. And I think -- tell me if I'm wring on this. Rob, I think you said you were kind of hoping that you hit the high point in terms of provisioning. And it seemed like in the past that you all have talked about the way your provisioning model works, that it somewhat actually has a lag in it. So the - but even after kind of the- the problem won't stop or decelerate but the provision continues to accelerates, it's the way it weights the past.

So, is -- I mean, just have the case of, just could actually be the high point of provisioning? And maybe I just misunderstood what you had said?

I said - I actually read verbatim what my comments were in the second quarter just to -- because I think the third quarter was consistent with what I said. We would also hope that the provision for loan loss is what we recorded in the second quarter represents the high point and that the future range is lower.

And I'll say that it's -- I said that repeatedly, it's very difficult to predict it. You know, obviously, the second quarter was at such a high level and we had some unique circumstances occur in that quarter. So, our -- we certainly hope that that was the high point. And that moving forward, credit cost begin to stabilize.

The - and Jason brought it up. We have a table in the back of our 8-K that breaks down the commercial loan portfolio by a land, land development, construction income producing and owner occupied. You know, the balance is remaining in land, land development and construction that aren't already in watch credit are fewer now. And we're really watching those credits very carefully and our hope is that the because they performed to date including this very difficult environment that they'll be able to continue on that course and that the worst of it is behind us. But, having said that, obviously 170 basis points of provisioning this quarter is still at a very, very high level.

The components of our allowance -- the one component you asked that has a -- I want to call the lag factor but, the historical allocation piece is based on looking at the historical charge-off. So with a period of time where there's ten years timeframe, but the most recent two years are weighted the heaviest, and that's only one component of the overall allowance.

So that, you know, that will continue to be at a relatively high level because of the recent charge-off rate. That's not going to go down right away, and I guess our view is that it looks at charge-offs over a long period of time and we -- I'm not sure it would be appropriate to have real dramatic swings there because you're trying to get a sense of a portfolio performance over the long term. And then we focus in on the specific components that are creating problems through the loan review and other processes that are part of the overall allowance computation and I went through and described how we compute impairment and we think we were very thorough and are reflecting -- absolutely reflecting current market conditions in those assessments.

Dan, I think the other important point to add is that, although we have this historical charge-off component QR reserve methodology, what's really driving the large provisions that we've taken the last two quarters are the reserves that have been impacted by these property devaluations that we've described.

All right. Okay. And then, just philosophically, on the dividends, you know, it's - your dividend yield on the stock now is 8.7%. And I'm just curious how important it is to you all to maintain that? I know you don't just want us -- that you wouldn't just out of the blue cut the dividend just because of what the market is telling you. But I'm just curious as a -- maybe as a management team and if you can offer any insight into the board's thought on this as to -- how important of an issue is this.

And then, what point does it become not worth it to maintain a dividend on the market, it's not giving you credit for when you look at alternate uses of that capital?

Well, Dan, I think -- and the last part of your question is probably the most important. Is, you know, I've -- the board is extremely committed and the management team to continue the dividend at a level we are.

We, however, is at the point you made at the end as far as whether the market isn't giving you any value for it or recognizing it are you better off to utilize the capital some place else?

Our thought is that there are several quivers in, arrows in our quiver and we're going to use everyone we possibly can. And the first thing is of course to reduce credit cost. The other three areas I think are running extremely well. Are non-interest income is holding it's own, we're controlling non-interest expense and we have a very strong margin. So all we have to do is reduce our credit cost.

Once we reduce our credit cost, our income will bounce back immediately. We'll see an immediate impact of that.

The dividend, of course, the percentage we're referring to of 8.5% -- 8.7% is the reflective of the current stock price. We're hopeful that as soon as the earnings come back, the stock price will bounce back, and of course that percentage will go back down and justify it.

But, as far as -- at the current time, we believe that the dividend is in the best interest of the long-term fiduciary holder at its current level, and of course all the decisions we're making and what we expect as prior to the results Independent Bank Corporation over the long term, we feel that the dividend is justified staying at its current level.

And, Dan, I'll just ass that, if we sell the long term -- we view the dividend, it's a long-term decision and there's a general rule, a payout rate right around 50% or so we don't think would be out of the line in the banking industry.

And you talked about alternative uses. You know, right now asset growth is relatively hard to come by. At least, you know, given all the other metrics we're looking at in terms of underwriting and margin and the like. So, we're not going to be having a lot of demands for capital with respect to asset growth as opposed the other item that is unmentioned there as repurchasing stock. You know, the point that we've made in the past and is in our Q is, we really want to operate with a tangible capital ratio at the holding company in the 5.5% to 6.5% range. As I mentioned earlier, we're at 5.04, we'd like to move back up into that range.

Now, having said that, there is no regulatory tangible capital requirement at the holding company per se, but we have our regulators as one of the audiences we need to work with and the capital at the bank level was significantly higher because of the trust preferred. That's been downstream to the back. So, their capital ration is - as well as our tier 1 at both the holding company and the bank are much, much higher.

But having said that, we'd still rather get that tangible capital ratio up a bit in terms of share repurchases. And, you know, share repurchases -- we don't have right now sufficient capital to single handedly support the market. So, that's not going to happen. And then my view, altering the dividends sends completely the wrong message because our view is long term, our earnings absent the credit cost are strong and can support that dividend, and, we don't view the credit cycle as being persistently out there for an extended period of time. It's certainly been with us for four quarters, you know, we've got an elevated level of nonperforming assets right now, but we do feel that this cycle like all credit cycle is going to start to have and the other categories of our earnings, our solid and will support that dividend.

And in fact those are very helpful. I appreciate it.

Our next question is coming fromBrad Milsaps with Sandler O'Neill. Please state your question.

Hey, good morning.

Hey, Brad.

Hey, Rob. Is it fair to assume -- I guess about $30 million list in commercial MPAs I guess year to date and you charge-off around a little bit more than $11 million. I know, you've got stuff moving on in office so this may not be the best comparison. But, with - certainly maybe $41 million of loan value now that you have recorded at $30 million, is it fair to assume that you're holding this on the books, you know, somewhere around 70% of what you originally advanced. Is that a fair comparison or is that, or am I stretching a little to far there?

Probably on an overall aggregate average, it's probably -- it's -- everything is different and I would tell you, in this kind of environment, the credits that tend to be the weakest and have the most issues are what -- come rolling out first. And so, I'm hopeful that that observation is a correct observation and that the balance of the portfolio will perform far better than what we've seen come through since the fourth quarter of last year.

Stefanie, I don't know if you want to --?

Yeah. I would say, for the portfolio as a whole that's generally the -- an average discount that we would look at somewhere between maybe 25% and 30% for loan that's in the MPA category would have been reserved.

And from what I understand, that's for loan in Michigan in terms of loan sales are probably coming in kind of that $0.50 to $0.60 on the dollar kind of range?

Yeah. In some cases, that, that I've seen Brad, but generally, factoring in the whole period and other things with the loan, we believe that it makes sense to hold their own rather than to sell it at that kind of a discount.

Okay. And I'm just curious, In terms of the construction loan portfolio, can you guys just kind of give us a sense as to where some of these projects are in terms of completion? I mean, do you feel that in some cases you guys will actually have to advance additional money in order to get the projects to be more marketable or -- I know that's probably a -- maybe a too specific of a question for every loan, but just sort of curious as how you deal with that and how you look at charging things off, etcetera.

We have not had many loans in the construction phase that are as in that severe state of a workout where we're looking at having to go in and complete the construction ourselves to make it saleable. Most of the loan in the construction watch portfolio are at in earlier stage in construction. And as Rob said, many of the developments still have some sales that are occurring, it's just not as fast. And the first things that get -- that use up this year, your equities that your developer has put into the project which gives them the ability to hold.

Those things are phased so they're not if it's a 40 Unit Development, they're not building all 40 units at once. They typically do the land improvements all at once, but they're going to phase in the construction and so they're not -- what we're working to make sure of and certainly all developers are in the same mindset is no one wants to get ahead of themselves in terms of building out things that aren't going to sell at a reasonable pace. While you've seen -- as I said earlier, while you've seen slow down there, in most instances there's still some level of sales, just at slower rates and perhaps at somewhat lower prices, but they're still on the construction loans, generally speaking, still generating cash flow.

Okay. And Rob, I know the regulators are there seemingly year-round these days. Just curious as to their last comments on credit quality, et cetera. Sort of where they stand on things. Kind of the last time there were there sort of passing judgment on that.

I don't know that we are permitted to comment particularly on what the regulators do. As you mentioned, one, they are -- come through on a very regular basis. Two, as a public company, I think everyone's aware that the public company has some type of regulatory issue, whether it's a MOU or something else, we have to disclose that. So the fact that we've not made any of those disclosures is evidence that we're not party to anything of that nature. And just a final comment I'd make is I think we have a Chief Lending Officer who brings a vast amount of experience from a bank like Comerica and I know it makes me very comfortable.

Sure. And final question, I know you guys obviously have a very much invested interest here. You guys own a lot of stock. Just curious, I guess the insider activity is maybe slowed down a little bit since maybe early December. Just with the stock off as much as it is, do you anticipate that the directors, et cetera will be more involved maybe supporting the stock at these levels or is there some -- I know you probably can't say specifically -- any reason that you haven't -- that more insiders haven't been able to buy back stock down with yielding non-percent?

Brad, I guess the best way to answer the question is we've had a lot of insiders inquire Rob when they can start buying stock.

Brad, there's lots of times -- and I won't go into specifics -- but times we cannot be in the market. A couple days after this conference call we're eligible to be back in the market. So, you'll be able to see what we're doing then.

Absolutely. Fair enough. Thank you.

Our next question is coming from Michael Cohen with Sonoma Capital. Please state your question.

Hi. Thanks for taking my question. I'm just wondering as you kind of look out long term kind of thinking about the state of Michigan economy what might be done to sort of improve it. And then within the context of that, as it's put a lot pressure on institutions to compete heavily for both positives and loans. How do you see yourself strategically sitting into that kind of long term economy? Do you see yourself potentially - do you see consolidation within the banking markets in Michigan as a result of kind of that economic view? Or do you kind of see everybody weather the storm and want to remain independent?

Excellent question, Michael. First of all, in the long term I guess in order to make it to the long term, everyone's going to have to survive the short term. And I believe that there is a little backing off right now from some of our competitors on their aggressive pricing and definitely loose loan structure. I think everyone is tightening down on their guidelines a little bit and I believe also in order to stay profitable going through these high credit card cycles that everyone's having to look at their margin and their fees a little bit. I do believe most of the markets that we operate, we're seeing not quite as competitive as an environment as we did a year ago.

With that being said, I believe the first strategic initiative is to survive the short term so that you can be a player in the long term. Fortunately, Independent Bank Corporation is well entrenched in many small communities throughout the state of Michigan and we've been there for several years. We have the reputation of being a very strong community oriented bank. We're very involved in our communities. I believe that there is going to be opportunities in the future in the M&A market, but the first thing we have to do as a company in order to be one of the players in the M&A market is to get our stock price back up in the long term so that it's more attractive for a potential seller to want to switch from their form of currency into ours.

I believe that it's going to take awhile for the state of Michigan to work through their economic problems. The one thing that I would say is extremely positive is we're going through all this change. Housing starts are almost, as you can tell by the reports, housing starts are just about nonexistent, which means that eventually we'll be able to work through all this excess inventory we have. I am disappointed and concerned about the amount of eligible home owners in the future right now, I guess, and how long it's going to take because what basically happens is everyone looks at the guidelines at the end of 2003/2004 and thus the sub prime market was born. Just about anyone who could fog a mirror could receive a mortgage. That created a tremendous amount of potential buyers, homeowners, and of course other developers ran up to put out a product.

And at the same time the product came online, all these sub-prime borrowers all of a sudden couldn't afford the homes that they purchased any more and you had a glut of foreclosures and excess inventory. We've lost that whole market of potential buyers. So, I'm very concerned about how long it's going to take us to get through this real estate recession, but I do believe that Michigan overall when we get through it and we're not as reliant on the Big Three and we retool the Michigan economy, I wish we get a little bit more help out of Lansing than what we've received lately, but I do believe that the banks in Michigan, the financial environment in Michigan will be better prepared for the future by retooling the slow economy and not being as dependent on the Big Three.

So, I am still very optimistic about the future for banking in Michigan. We've gone through these cycles before. We've survived. We will be able to do it again and I think there's great opportunities in the M&A market three or four years down the road.

Do you -- would you envision looking for strategic kind of like minded partners where you may not end up being kind of -- I won't say the surviving entity, but you might either see kind of an MOE or maybe even you consider combining forces with a larger institution that shares your values?

Regarding that, Mike, I can tell you that our Board of Directors is extremely committed to the fiduciary responsibility to provide long term shareholder value, but it's been our policy not to specifically comment on any type of M&A activity that we may discuss internally. I will tell you that the Board is extremely interested in providing long term shareholder value.

Right. Thank you.

Our final question is coming from Eric [INAUDIBLE] with KBW. Please state your question.

Hi. Good morning. A couple questions for you. First one is the slides you had on the deck that concerned IDC internal watch credit where you categorize internal watch seven and eight and internal watch nine. Are those corresponding to a regulatory classification like special mention and substandard or not? Am I looking at that the wrong way?

The internal watch category -- let me reference a couple pages of the slide. First of all, if you look on page 23, our non-accruals, non-performing would align certainly with that regulatory category. Our internal watch nine generally would be close to a substandard and then our seven and eight would be more of our own internal classification that would not align with a regulatory.

Okay.

Some of them might be special mention. I'm not sure - many of them would be performing credit that just have some characteristic that would put them into like a seven category that might not correspond with special mention from a regulatory definition.

Our definition would be broader, in a nutshell.

Okay. Thanks. Then I have two more questions. I may have just come into this when you were talking about it. I think someone had asked you a question about interest reserve on the land, the development and the construction loans. Do you know off the top of your head how many of those loans are still drawing on the interest reserve out of the - looks like you have about - the categories you have on the page, $34 million, $57 million, 93 of the total loans?

Generally, our construction loans are to smaller developers where it might be for a couple of homes and in those cases, that's the bulk of our portfolio is pretty granular and in many of those cases we do not have an interest reserve. The developers themselves just paying it out of their other cash flow or personal means. And so, I think the majority of the loans would not be drawn on an interest reserve because they're pretty granular.

Okay. That's a good answer. I didn't know that. Good information. The last question I had was just that the holding company level -- you had a slide in there that talked about the cash dividend outlook. Could you tell me if you looked at the dividend as well as the trust preferred burden, what in total dollars would you say is the annualized burden there that you have to pay out?

The quarterly dividend is around $4.7 million per quarter and the trusts preferred, you're probably looking at $6.4 million or so. We've got about $91 million or so of trust preferred.

Are those mostly something that's on a floating rate, like a live or floater or are they fixed?

No. The vast majority -- $50.6 million is a public transaction [IUCPO] that's fixed at 8.25%. We've got another $12 million that's a pool deal that LIBOR + 160. That is floating. The $20 million we just did was a floating rate, but we put a unsecured fixed face swap on it, so we fixed the rate on that at 7.55%. And then the last piece is $7.5 million and that's the small piece we inherited when we bought Midwest Guarantee. That is a variable rate and I think its LIBOR + 350. So $71 million approximately of the total is fixed.

That's what you were getting back to was about a $6.4 million --.

Maybe it's lower because I used 7.5%. Let's use 8%. You would be at $7.3 million. So you're a little higher than that. If you use 8% as an average rate, the $50.6 million debt, 8.25%. So you have $7.3 million on the trust's preferred securities and then you have a quarterly dividend of about $4.7 million times four. That's $18.8 million, so you're at about $26 million for an annual cash carry for those two pieces.

And your liquidity would look like what up in a holding company. Any kind of dividend capacity you have in the bank up to the holding?

Excluding any dividend, we're probably right around $20 million or a little north of $20 million.

Okay. Great. Thanks very much.

Thank you. This concludes the Q and A session. I'd like to turn the floor back over to management for any closing comments.

Well, that concludes our conference call today. Thank you for your interest in Independent Bank and we look forward to speaking with you again next quarter. For an archived web site of today's call, please go to the investor section of our website at www.IBCP.com. The webcast will be archived on our website for approximately 90 days. If you have any questions in the interim, please contact Rob Shuster or myself. Thank you for attending and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.