Independent Bank Corporation Form 8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 26, 2005

INDEPENDENT BANK CORPORATION
(Exact name of registrant as specified in its charter)

Michigan
(State or other
jurisdiction of
incorporation)		 0-7818
(Commission
File Number)		 38-2032782
(IRS Employer
Identification no.)

230 West Main Street
Ionia, Michigan
(Address of principal executive office) 		48846
(Zip Code)

Registrant’s telephone number,
including area code:
(616) 527-9450

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

        [  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

        [  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

        [  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

        [  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On January 26, 2005, Independent Bank Corporation issued a press release announcing results for the fourth fiscal quarter. A copy of the press release is attached as Exhibit 99.1. Attached exhibit 99.2 contains supplemental data to the press release.

The information in this Form 8-K and the attached Exhibits shall not be deemed filed for purposes of Section 18 of the Securities Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits

Exhibits.

99.1   Press release dated January 26, 2005.

99.2   Supplemental data to the Registrant's press release dated January 26, 2005.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




Date    January 26, 2005
            ——————————————




Date    January 26, 2005
            ——————————————		 INDEPENDENT BANK CORPORATION
(Registrant)

By: /s/ Robert N. Shuster
       ——————————————
       Robert N. Shuster, Principal Financial
       Officer


By: /s/ James J. Twarozynski
       ——————————————
       James J. Twarozynski, Principal
       Accounting Officer



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NEWS FROM Exhibit 99.1

CONTACT: Robert N. Shuster
#616/527-5820 ext. 1257

FOR IMMEDIATE USE

INDEPENDENT BANK CORPORATION
REPORTS FOURTH QUARTER AND FULL YEAR 2004 RESULTS

IONIA, Michigan, January 26, 2005 . . . Independent Bank Corporation (Nasdaq: IBCP) (the “Company”), a Michigan-based bank holding company reported that its fourth quarter 2004 net income was $10.8 million or $0.50 per diluted share. A year earlier, net income totaled $9.3 million or $0.47 per diluted share.

Fourth quarter 2004 results were adversely impacted by securities losses of $1.2 million (which includes an other than temporary impairment charge of $1.5 million that is discussed in greater detail below) and a severance charge of approximately $2.3 million. On an after tax basis these charges approximated $0.11 per diluted share. Increases in net interest income and deposit fee income as well as a decline in the provision for loan losses positively impacted fourth quarter 2004 results.

The Company’s net income for all of 2004 totaled $38.6 million or $1.84 per diluted share. In 2003 full year net income was $37.6 million or $1.87 per diluted share. Return on average equity and return on average assets were 19.42% and 1.42%, respectively in 2004 compared to 24.89% and 1.69%, respectively in 2003.

Commenting on 2004 results, the Company’s Chairman, Charles C. Van Loan stated, “This past year was very challenging. At the start of 2004 we projected relatively flat earnings compared to 2003 primarily because of an expected steep drop in mortgage banking revenues due to lower mortgage refinance activity. However, in addition to having to overcome a decline in gains on real estate mortgage loan sales of $10.3 million in 2004 we also had to overcome several unusual charges and expenses during the year. Despite these financial challenges we substantially achieved our original performance objectives for the year and we also were able to successfully complete two bank acquisitions. We are optimistic that 2005 will be an excellent year for Independent Bank Corporation and based upon our current business plan we presently expect a range of $2.10 to $2.20 for full year diluted earnings per share.”

On May 31, 2004, the Company completed its acquisition of Midwest Guaranty Bancorp, Inc. (“Midwest”). The Company issued 997,700 shares of its common stock and paid $16.6 million in cash to the Midwest shareholders. 2004 includes the results of Midwest’s operations subsequent to May 31, 2004. At the time of acquisition, Midwest had total assets of $238.0 million, total loans of $205.0 million, total deposits of $198.9 million and total stockholders’ equity of $18.7 million. We recorded purchase accounting adjustments related to the Midwest acquisition including recording goodwill of $23.1 million, establishing a core deposit intangible of $4.9 million and a covenant not to compete of $1.3 million.

On July 1, 2004, the Company completed its acquisition of North Bancorp, Inc. (“North”). The Company issued 345,391 shares of its common stock to the North shareholders. 2004 includes the results of North’s operations beginning on July 1, 2004. At the time of acquisition, North had total assets of $155.1 million, total loans of $103.6 million, total deposits of $123.8 million and total stockholders’ equity of $3.3 million. We recorded purchase accounting adjustments related to the North acquisition including recording goodwill of $2.9 million and establishing a core deposit intangible of $2.2 million.

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The Company’s tax equivalent net interest income totaled $34.5 million during the fourth quarter of 2004, which represents a $7.4 million or 27.3% increase from the comparable quarter one year earlier. The adjustments to determine tax equivalent net interest income were $1.5 million and $1.4 million for the fourth quarters of 2004 and 2003, respectively, and were computed using a 35% tax rate. The increase in tax equivalent net interest income reflects a $628.5 million increase in the balance of average interest-earning assets that was partially offset by a 6 basis point decrease in the Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”). The increase in average interest-earning assets is due to the Midwest and North acquisitions as well as growth in commercial loans, finance receivables and investment securities. The net interest margin was equal to 4.94% during the fourth quarter of 2004 compared to 5.00% in the fourth quarter of 2003. This decrease was due to a decline in the tax equivalent yield on average interest-earning assets to 6.77% in the fourth quarter of 2004 from 6.95% in the fourth quarter of 2003. This decline is due to the pay down of higher yielding loans and investment securities and the addition of new loans and new investment securities at lower interest rates as well as the impact of the North acquisition. The decrease in the tax equivalent yield on average interest-earning assets was partially offset by a 12 basis point decline in the Company’s interest expense as a percentage of average interest-earning assets (the “cost of funds”) to 1.83% during the fourth quarter of 2004 from 1.95% during the fourth quarter of 2003. The decline in the Company’s cost of funds was primarily due to the maturity of higher costing time deposits and borrowings, as well as increased levels of lower cost core deposits (including those added as a result of the Midwest and North acquisitions).

Service charges on deposits totaled $4.6 million in the fourth quarter of 2004, a $0.7 million or 18.2% increase from the comparable period in 2003. The increase in deposit related service fees resulted primarily from the continued growth of checking accounts as well as the Midwest and North acquisitions.

Gains on the sale of real estate mortgage loans were $1.4 million and $2.3 million in the fourth quarters of 2004 and 2003, respectively. Real estate mortgage loan sales totaled $98.2 million in the fourth quarter of 2004 compared to $120.7 million in the fourth quarter of 2003. These declines primarily are a result of a drop in mortgage loan refinance activity as well as changes in the mix of mortgage loans originated for sale and originated for our portfolio. During the fourth quarter of 2004, gains on the sale of real estate mortgage loans were decreased by approximately $0.04 million, net, as a result of recording changes in the fair value of certain derivative instruments pursuant to Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activity” (“SFAS #133”), compared to a $0.5 million increase in the fourth quarter of 2003. Real estate mortgage loans originated totaled $165.3 million in the fourth quarter of 2004 compared to $153.0 million in the comparable quarter of 2003, and loans held for sale were $38.8 million at December 31, 2004 compared to $32.6 million at December 31, 2003.

Securities losses totaled $1.2 million in the fourth quarter of 2004 compared to securities losses of $24,000 in the fourth quarter of 2003. The securities losses in the fourth quarter of 2004 are comprised of impairment charges of $1.5 million that were partially offset by $0.3 million in securities gains primarily from the call of some preferred securities. In the fourth quarter of 2004 the Company recorded an other than temporary impairment charge of $1.4 million on various Fannie Mae and Freddie Mac preferred securities that it owns. After recording this impairment charge, the Company’s remaining book value for these securities was approximately $25.9 million at December 31, 2004. In addition the Company recorded a $0.1 million other than temporary impairment charge on a mobile home asset-backed security.

Real estate mortgage loan servicing generated income of $0.3 million in the fourth quarter of 2004 compared to income of $0.9 million in the fourth quarter of 2003. This decrease is primarily due to changes in the impairment reserve on and the amortization of capitalized mortgage loan servicing rights. Activity related to capitalized mortgage loan servicing rights is as follows:

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Quarter Ended (in thousands) Year Ended (in thousands)
12/31/04 12/31/03 12/31/04 12/31/03
Balance at beginning of period     $ 11,123   $ 7,690   $ 8,873   $ 4,455  
  Servicing rights acquired           1,138  
  Originated servicing rights capitalized    898    1,068    3,341    7,700  
  Amortization    (491 )  (352 )  (1,948 )  (3,655 )
  (Increase)/decrease in impairment reserve    (170 )  467    (44 )  373  
Balance at end of period   $ 11,360   $ 8,873   $ 11,360   $ 8,873  
Impairment reserve at end of period   $ 766   $ 722  

The decline in servicing rights capitalized is due to the lower level of real estate mortgage loan sales in 2004 compared to 2003. The amortization of capitalized mortgage loan servicing rights declined for all of 2004 compared to 2003 due to a lower level of mortgage loan prepayment activity. The impairment reserve on capitalized mortgage loan servicing rights totaled $0.8 million at December 31, 2004, compared to $0.6 million and $0.7 million at September 30, 2004, and December 31, 2003, respectively. The changes in the impairment reserve reflect the valuation of capitalized mortgage loan servicing rights at each period end. At December 31, 2004, the Company was servicing approximately $1.4 billion in real estate mortgage loans for others on which servicing rights have been capitalized. This servicing portfolio had a weighted average coupon rate of approximately 5.87% and a weighted average service fee of 25.9 basis points.

Non-interest expense totaled $26.3 million in the fourth quarter of 2004, an increase of $4.8 million compared to the fourth quarter of 2003. The increase in fourth quarter non-interest expense was primarily due to severance costs of $2.3 million related to previously announced management changes at Mepco Insurance Premium Financing, Inc. The remainder of the increase in non-interest expense is primarily due to operating costs related to the addition of staff and branch offices from the Midwest and North acquisitions, increases in compensation and employee benefits, and Sarbanes-Oxley 404 implementation costs. The increase in compensation and employee benefits expense is primarily attributable to merit pay increases that were effective January 1, 2004, staffing level increases associated with the expansion and growth of the organization and an increase in health care insurance costs. Sarbanes-Oxley 404 implementation costs totaled $0.3 million and $0.6 million for the fourth quarter and full year of 2004, respectively. These expenses only represent costs incurred with external parties.

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

Loan Type 12/31/2004 9/30/2004 12/31/2003
(Dollars in Millions)
Commercial     $ 5.4   $ 6.2   $ 3.9  
Commercial guaranteed under federal program    1.1    1.0    2.3  
Consumer    1.9    1.2    0.9  
Mortgage    4.6    5.4    3.7  
Finance receivables    2.1    2.3    1.9
  Total   $ 15.1   $ 16.1   $ 12.7  
Ratio of non-performing loans to total portfolio loans    0.68 %  0.73 %  0.76 %

Other real estate and repossessed assets totaled $2.1 million at December 31, 2004 compared to $3.3 million at December 31, 2003. The provision for loan losses was $0.3 million and $1.6 million in the fourth quarters of 2004 and 2003, respectively. The level of the provision for loan losses in each period reflects the Company’s assessment of the allowance for loan losses taking into consideration factors such as loan mix, levels of non-performing and classified loans and net charge-offs. Net loan charge-offs for all of 2004 totaled $3.7 million, or 0.19% of average loans, compared to $3.5 million, or 0.23% of average loans, in 2003. Net loan charge-offs were $1.1 million (0.19% annualized of average loans) in the fourth quarter of 2004 compared to $1.9 million (0.43% annualized of average loans) in the fourth quarter of 2003. At

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December 31, 2004 the allowance for loan losses totaled $24.7 million, or 1.11% of portfolio loans compared to $16.8 million, or 1.01% of portfolio loans at December 31, 2003.

Total assets were $3.09 billion at December 31, 2004 compared to $2.36 billion at December 31, 2003. Loans, excluding loans held for sale, increased to $2.23 billion at December 31, 2004 from $1.67 billion at December 31, 2003. The increase in loans is primarily due to the acquisitions of North and Midwest as well as growth in commercial loans, real estate mortgage loans and finance receivables. Deposits totaled $2.18 billion at December 31, 2004, an increase of $474.1 million from December 31, 2003. This increase is primarily attributable to the acquisitions of North and Midwest as well as increases in checking and savings deposits and brokered certificates of deposit. Stockholders’ equity totaled $230.3 million at December 31, 2004, or 7.44% of total assets, and represents a net book value per share of $10.87.

About Independent Bank Corporation

Independent Bank Corporation (Nasdaq: IBCP) is a Michigan-based bank holding company with total assets of over $3 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation now operates over 100 offices across Michigan’s Lower Peninsula through four state-chartered bank subsidiaries. These subsidiaries, Independent Bank, Independent Bank East Michigan, Independent Bank South Michigan and Independent Bank West Michigan, provide a full range of financial services, including commercial banking, mortgage lending, investments and title services. Financing for insurance premiums and extended automobile warranties is also available through Mepco Insurance Premium Financing, Inc., a wholly owned subsidiary of Independent Bank. 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 website at: www.ibcp.com

Any statements in this news release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as “expect,” “believe,” “intend,” “estimate,” “project,” “may” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are predicated on management’s beliefs and assumptions based on information known to Independent Bank Corporation’s management as of the date of this news release and do not purport to speak as of any other date. Forward-looking statements may include descriptions of plans and objectives of Independent Bank Corporation’s management for future or past operations, products or services, and forecasts of the Company’s revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries, and estimates of credit quality trends. Such statements reflect the view of Independent Bank Corporation’s management as of this date with respect to future events and are not guarantees of future performance, involve assumptions and are subject to substantial risks and uncertainties, such as the changes in Independent Bank Corporation’s plans, objectives, expectations and intentions. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, the Company’s actual results could differ materially from those discussed. Factors that could cause or contribute to such differences are changes in interest rates, changes in the accounting treatment of any particular item, the results of regulatory examinations, changes in industries where the Company has a concentration of loans, changes in the level of fee income, changes in general economic conditions and related credit and market conditions, and the impact of regulatory responses to any of the foregoing. Forward-looking statements speak only as of the date they are made. Independent Bank Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made. For any forward-looking statements made in this news release or in any documents, Independent Bank Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

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INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition

December 31,
2004		 December 31,
2003
(unaudited)
Assets (in thousands)
Cash and due from banks     $ 72,815   $ 61,741  
Securities available for sale    550,908    453,996  
Federal Home Loan Bank stock, at cost    17,322    13,895  
Loans held for sale    38,756    32,642  
Loans  
  Commercial    931,251    603,558  
  Real estate mortgage    773,609    681,602  
  Installment    266,042    234,562  
  Finance receivables    254,388    147,671  
Total Loans    2,225,290    1,667,393  
  Allowance for loan losses    (24,737 )  (16,836 )
Net Loans    2,200,553    1,650,557  
Property and equipment, net    56,569    43,979  
Bank owned life insurance    38,337    36,850  
Goodwill    53,354    16,696  
Other intangibles    13,503    7,523  
Accrued income and other assets    51,910    43,135  
Total Assets   $ 3,094,027   $ 2,361,014  
Liabilities and Shareholders' Equity  
Deposits  
  Non-interest bearing   $ 287,672   $ 192,733  
  Savings and NOW    849,110    700,541  
  Time    1,040,165    809,532  
Total Deposits    2,176,947    1,702,806  
Federal funds purchased    117,552    53,885  
Other borrowings    405,386    331,819  
Subordinated debentures    64,197    52,165  
Financed premiums payable    48,160    26,340  
Accrued expenses and other liabilities    51,493    31,783  
Total Liabilities    2,863,735    2,198,798  
Shareholders' Equity  
  Preferred stock, no par value--200,000 shares authorized; none  
    outstanding  
  Common stock, $1.00 par value--30,000,000 shares authorized;  
    issued and outstanding: 21,194,651 shares at December 31, 2004  
    and 19,521,137 shares at December 31, 2003    21,195    19,521  
  Capital surplus    158,797    119,401  
  Retained earnings    41,795    16,953  
  Accumulated other comprehensive income    8,505    6,341  
Total Shareholders' Equity    230,292    162,216  
Total Liabilities and Shareholders' Equity   $ 3,094,027   $ 2,361,014  

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INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations

Three Months Ended
December 31,		 Twelve Months Ended
December 31,
2004 2003 2004 2003
(unaudited) (unaudited)
(in thousands, except per share amounts)
Interest Income                    
  Interest and fees on loans   $ 39,868   $ 30,811   $ 139,846   $ 118,861  
  Securities available for sale  
    Taxable    3,131    3,112    12,497    11,687  
    Tax-exempt    2,504    2,225    9,439    8,207  
  Other investments    228    169    765    611  
Total Interest Income    45,731    36,317    162,547    139,366  
Interest Expense  
  Deposits    8,288    6,432    28,363    27,802  
  Other borrowings    4,489    4,165    16,651    16,311  
Total Interest Expense    12,777    10,597    45,014    44,113  
Net Interest Income    32,954    25,720    117,533    95,253  
Provision for loan losses    343    1,641    4,309    4,032  
Net Interest Income After Provision for Loan Losses    32,611    24,079    113,224    91,221  
Non-interest Income  
  Service charges on deposit accounts    4,570    3,865    17,089    14,668  
  Net gains (losses) on asset sales  
    Real estate mortgage loans    1,353    2,268    5,956    16,269  
    Securities    (1,200 )  (24 )  856    (779 )
  Title insurance fees    457    459    2,036    3,092  
  Manufactured home loan origination fees    341    487    1,264    1,769  
  Real estate mortgage loan servicing    269    902    1,427    (294 )
  Other income    2,469    1,895    9,170    7,879  
Total Non-interest Income    8,259    9,852    37,798    42,604  
Non-interest Expense  
  Compensation and employee benefits    14,525    11,881    50,081    43,558  
  Occupancy, net    1,921    1,684    7,539    6,519  
  Furniture and fixtures    1,649    1,414    6,122    5,539  
  Other expenses    8,167    6,531    34,926    26,890  
Total Non-interest Expense    26,262    21,510    98,668    82,506  
Income Before Income Tax    14,608    12,421    52,354    51,319  
Income tax expense    3,794    3,097    13,796    13,727  
Net Income   $ 10,814   $ 9,324   $ 38,558   $ 37,592  

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INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data

Three Months Ended
December 31,		 Twelve Months Ended
December 31,
2004 2003 2004 2003
(unaudited) (unaudited)
Per Share Data (A)                    
Net Income  
  Basic   $ .51   $ .48   $ 1.88   $ 1.92  
  Diluted    .50    .47    1.84    1.87  
Cash dividends declared    .17    .16    .66    .59  
   
   
Selected Ratios  
As a percent of average interest-earning assets  
  Tax equivalent interest income    6.77 %  6.95 %  6.71 %  7.03 %
  Interest expense    1.83    1.95    1.80    2.15  
  Tax equivalent net interest income    4.94    5.00    4.91    4.88  
Net income to  
  Average equity    18.80 %  23.35 %  19.42 %  24.89 %
  Average assets    1.43    1.59    1.42    1.69  
   
   
Average Shares (A)  
  Basic    21,146,179    19,496,788    20,462,185    19,587,942  
  Diluted    21,598,663    20,040,024    20,900,337    20,059,177  


(A) Average shares of common stock for basic net income per share include shares issued and outstanding during the period. Average shares of common stock for diluted net income per share include shares to be issued upon exercise of stock options and stock units for deferred compensation plan for non-employee directors.

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INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Supplemental Data

Exhibit 99.2

Non-performing assets

December 31,
2004 2003
(dollars in thousands)
Non-accrual loans     $ 11,804   $ 9,122  
Loans 90 days or more past due and  
  still accruing interest    3,123    3,284  
Restructured loans    218    335  
Total non-performing loans    15,145    12,741  
Other real estate    2,113    3,256  
Total non-performing assets   $ 17,258   $ 15,997  
As a percent of Portfolio Loans  
   Non-performing loans    0.68 %  0.76 %
   Allowance for loan losses    1.11    1.01  
Non-performing assets to total assets    0.56    0.68  
Allowance for loan losses as a percent of  
   non-performing loans    163    132  

Allowance for loan losses

Twelve months ended
December 31,
2004 2003
Loan
Losses		 Unfunded
Commitments		 Loan
Losses		 Unfunded
Commitments
(in thousands)
Balance at beginning of period     $ 16,836   $ 892   $ 15,830   $ 875  
Additions (deduction)  
  Allowance on loans acquired    8,236         517  
  Provision charged to operating expense    3,355    954    4,015    17  
  Recoveries credited to allowance    1,251         1,087  
  Loans charged against the allowance    (4,941 )       (4,613 )
Balance at end of period   $ 24,737   $ 1,846   $ 16,836   $ 892  
   
Net loans charged against the allowance to  
       average Portfolio Loans    0.19 %      0.23 %

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December 31,
2004 2003
Amount Average
Maturity		 Rate Amount Average
Maturity		 Rate
(dollars in thousands)
Brokered CDs(1)     $ 576,944    1.9 years    2.56 % $ 416,566    2.3 years    2.43 %
Fixed rate FHLB advances(1)    59,902    6.4 years    5.55    84,638    5.0 years    3.99  
Variable rate FHLB advances(1)    164,000    0.4 years    2.32    104,150    0.4 years    1.30  
Securities sold under agreements to  
   Repurchase(1)    169,810    0.2 years    2.27    140,969    0.3 years    1.22  
Federal funds purchased    117,552    1 day    2.44    53,885    1 day    1.16  
      Total   $ 1,088,208    1.4 years    2.63 % $ 800,208    1.8 years    2.15 %

(1)     Certain of these items have had their average maturity and rate altered through the use of derivative instruments, including pay-fixed and pay-variable interest rate swaps.

Capitalization

December 31,
2004 2003
(in thousands)
Unsecured debt     $ 9,000      
Subordinated debentures    64,197   $ 52,165  
Amount not qualifying as regulatory capital    (1,847 )  (1,565 )
  Amount qualifying as regulatory capital    62,350    50,600  
Shareholders' Equity  
  Preferred stock, no par value  
  Common stock, par value $1.00 per share    21,195    19,521  
  Capital surplus    158,797    119,401  
  Retained earnings    41,795    16,953  
  Accumulated other comprehensive income    8,505    6,341  
          Total shareholders' equity    230,292    162,216  
          Total capitalization   $ 301,642   $ 212,816  

Non-Interest Income

Three months ended
December 31,		 Twelve months ended
December 31,
2004 2003 2004 2003
(in thousands)
Service charges on deposit accounts     $ 4,570   $ 3,865   $ 17,089   $ 14,668  
Net gains (losses) on asset sales  
  Real estate mortgage loans    1,353    2,268    5,956    16,269  
  Securities    (1,200 )  (24 )  856    (779 )
Title insurance fees    457    459    2,036    3,092  
Bank owned life insurance    395    330    1,486    1,432  
Manufactured home loan origination fees  
  and commissions    341    487    1,264    1,769  
Mutual fund and annuity commissions    285    318    1,260    1,227  
Real estate mortgage loan servicing    269    902    1,427    (294 )
Other    1,789    1,247    6,424    5,220  
      Total non-interest income   $ 8,259   $ 9,852   $ 37,798   $ 42,604  

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Three months ended
December 31,		 Twelve months ended
December 31,
2004 2003 2004 2003
(in thousands)
Real estate mortgage loans originated     $ 165,265   $ 153,039   $ 687,967   $ 1,123,249  
Real estate mortgage loans sold    98,239    120,728    385,445    892,482  
Real estate mortgage loans sold with servicing  
  rights released    14,767    8,330    53,082    51,847  
Net gains on the sale of real estate mortgage loans    1,353    2,268    5,956    16,269  
Net gains as a percent of real estate mortgage  
  loans sold ("Loan Sale Margin")    1.38 %  1.88 %  1.55 %  1.82 %
SFAS #133 adjustments included in the Loan  
  Sale Margin    (0.04 %)  .43 %  0.00 %  0.10 %

Capitalized Real Estate Mortgage Loan Servicing Rights

Twelve months ended
December 31,
2004 2003
(in thousands)
Balance at beginning of period     $ 8,873   $ 4,455  
  Servicing rights acquired    1,138  
  Originated servicing rights capitalized    3,341    7,700  
  Amortization    (1,948 )  (3,655 )
  (Increase)/decrease in impairment reserve    (44 )  373  
Balance at end of period   $ 11,360   $ 8,873  
   
Impairment reserve at end of period   $ 766   $ 722  

Non-Interest Expense

Three months ended
December 31,		 Twelve months ended
December 31,
2004 2003 2004 2003
(in thousands)
Salaries     $ 10,998   $ 7,508   $ 35,205   $ 27,954  
Performance-based compensation  
  and benefits    1,085    2,312    5,301    6,872  
Other benefits    2,442    2,061    9,575    8,732  
Compensation and employee  
    benefits    14,525    11,881    50,081    43,558  
Occupancy, net    1,921    1,684    7,539    6,519  
Furniture and fixtures    1,649    1,414    6,122    5,539  
Data processing    1,130    1,021    4,462    3,942  
Advertising    908    1,117    3,787    4,011  
Loan and collection    897    697    3,556    3,352  
Communications    971    761    3,553    2,895  
Legal and professional    723    236    2,718    1,651  
Mepco claims expense        2,700
Amortization of intangible assets    755    495    2,478    1,721  
Supplies    579    500    2,140    1,920  
Write-off of uncompleted software        977
Loss on prepayments of borrowings                983  
Other    2,204    1,704    8,555    6,415  
      Total non-interest expense   $ 26,262   $ 21,510   $ 98,668    82,506  

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Average Balances and Tax Equivalent Rates

Three Months Ended
December 31,
2004 2003
Average
Balance		 Interest Rate Average
Balance		 Interest Rate
Assets (dollars in thousands)
Taxable loans (1)     $ 2,254,015   $ 39,786    7.03 % $1,684,148 $30,687  7.25 %
Tax-exempt loans (1,2)    7,580    126    6.61    9,993    190    7.54  
Taxable securities    271,908    3,131    4.58    250,147    3,112    4.94  
Tax-exempt securities (2)    231,409    3,978    6.84    195,470    3,516    7.14  
Other investments    17,278    228    5.25    13,930    169    4.81  
Interest Earning Assets    2,782,190    47,249    6.77    2,153,688    37,674    6.95  
Cash and due from banks    63,775        50,023
Other assets, net    172,284        124,821
Total Assets   $ 3,018,249       $2,328,532
   
Liabilities  
Savings and NOW   $ 859,184    1,348    0.62   $ 695,464    1,012    0.58  
Time deposits    1,053,244    6,940    2.62    781,726    5,420    2.75  
Long-term debt    7,495    76    4.03  
Other borrowings    503,277    4,413    3.49    441,930    4,165    3.74  
Interest Bearing Liabilities    2,423,200    12,777    2.10    1,919,120    10,597    2.19  
Demand deposits    283,933        193,404
Other liabilities    82,292        57,582
Shareholders' equity    228,824        158,426
Total liabilities and shareholders' equity   $ 3,018,249       $2,328,532
   
Tax Equivalent Net Interest Income     $34,472           $ 27,077  
   
Tax Equivalent Net Interest Income  
as a Percent of Earning Assets            4.94 %          5.00 %
(1) All domestic
(2) Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 35%

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Average Balances and Tax Equivalent Rates

Twelve Months Ended
December 31,
2004 2003
Average
Balance		 Interest Rate Average
Balance		 Interest Rate
Assets (dollars in thousands)
Taxable loans (1)     $ 2,004,544   $ 139,517    6.96 % $ 1,612,316   $ 118,277    7.34 %
Tax-exempt loans (1,2)    7,637    507    6.64    11,249    898    7.98  
Taxable securities    266,704    12,497    4.69    239,296    11,687    4.88  
Tax-exempt securities (2)    212,441    14,914    7.02    179,668    12,992    7.23  
Other investments    16,283    765    4.70    12,341    611    4.95  
Interest Earning Assets    2,507,609    168,200    6.71    2,054,870    144,465    7.03  
Cash and due from banks    55,728        48,839
Other assets, net    153,245        118,309
Total Assets   $ 2,716,582       $2,222,018
   
Liabilities  
Savings and NOW   $ 805,885    4,543    0.56   $ 688,697    4,879    0.71  
Time deposits    912,285    23,820    2.61    741,731    22,923    3.09  
Long-term debt    4,549    177    3.89  
Other borrowings    480,956    16,474    3.43    407,264    16,311    4.01  
Interest Bearing Liabilities    2,203,675    45,014    2.04    1,837,692    44,113    2.40  
Demand deposits    240,800        183,032
Other liabilities    73,574        50,283
Shareholders' equity    198,533        151,011
Total liabilities and shareholders' equity   $ 2,716,582       $2,222,018
   
Tax Equivalent Net Interest Income     $123,186           $ 100,352  
   
Tax Equivalent Net Interest Income  
as a Percent of Earning Assets            4.91 %          4.88 %
(1) All domestic
(2) Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 35%

14