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Independent Bank Corporation 9/16/09 correspondence

Filed Via Edgar

September 16, 2009

United States Securities
and Exchange Commission (“SEC”)
Attn. Amit Pande
Accounting Branch Chief

Washington, DC 20549

Re:
Independent
Bank Corporation (“IBC” or the “Company”)

Form 10-K for the Fiscal Year Ended December 31, 2008 (the “10-K”)

Form 10-Q for the Fiscal Quarter Ended March 31, 2009 (the “1Q 2009 10-Q”)

Form 10-Q for the Fiscal Quarter Ended June 30, 2009 (the “2Q 2009 10-Q”)

File No. 000-07818

Dear Mr. Pande,

The following is the response of IBC
to your review letter dated August 19, 2009 (the “Review Letter”) with respect
to the filings referenced above. Set forth below is the text of the comments of the SEC
set forth in the Review Letter, followed in each case by the Company’s response.

Form 10-K for the Fiscal
Year Ended December 31, 2008

Management’s
Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations,
page 10

          1.

          We refer to Note 25, Operating Segments on page 80 that shows the Mepco
          segment has pre-tax net income  of $17.3 million in 2008
          compared to a net loss of $96.8 million of the IB segment. Considering the
           impact of Mepco’s operations on consolidated
          operating results, please revise this section in future
          filings to provide a discussion of the reasons for the major changes in
          operating results of both  reportable segments. Refer to
          Item 303(a) of Regulation S-K. Consider including a discussion of the
           following:

•
The
effects of any intersegment transactions and of corporate allocations of general expenses
and taxes to each reportable segment.

•
The
effects of the sale in 2007 of Mepco’s insurance premium finance business.

United States Securities and Exchange Commission

Response to Letter Dated August 19, 2009

September 16, 2009

•
Based
on your disclosure on page 23 that the failure of one of Mepco’s counterparties
could expose the Company to significant losses, please revise the
last paragraph on page 22 to disclose in greater detail the
methodology used by Mepco to establish and monitor counterparty credit limits in order to
manage their collateral exposure.

RESPONSE

Future filings will include the
disclosures requested above in the Review Letter.

Critical Accounting Policies,
page 48

2.
We
refer to the statement that you believe your assumptions and judgments in assessingother-than-temporary
impairments are “reasonable and conform to industry practices.” Please tell us
andrevise future filings to discuss the significant assumptions and judgments used to
determine impairmentsto investment securities whose fair value is based on mathematical
models, such as matrix pricing ordiscounted cash flow analysis.

RESPONSE

Future filings will include the
following additional disclosures (see underlined text) in the accounting for investment
securities section of critical accounting policies:

“We believe that our assumptions
and judgments in assessing other than temporary impairment for our investment securities
are reasonable and conform to general industry practices. Prices for investment
securities are largely provided by a pricing service. These prices consider benchmark
yields, reported trades, broker / dealer quotes and issuer spreads. Furthermore, prices
for mortgage securities consider: TBA prices, monthly payment information and collateral
performance. As of <Date>, the pricing service did not provide fair values for
securities with a fair value of $<number> million. Management estimated the fair
value of these securities using similar techniques including: observed prices, benchmark
yields, dealer bids and TBA pricing. These estimates are subject to change and the
resulting level 3 valued securities may be volatile as a result.”

Financial Statements for
the period ended December 31, 2008

Note 4, Securities, page 50

          3.

          We note that gross unrealized losses related to mortgage-backed securities
          were $6.8 million or 71% of  total unrealized losses with
          duration of 12 months or more which you attribute to credit spread
           widening. Please tell us and discuss in future filings
          include the following information:

2

United States Securities and Exchange Commission

Response to Letter Dated August 19, 2009

September 16, 2009

•
Discuss
how you factored into your analysis for determining other-than-temporary impairments the
effects of the financial market illiquidity on the determination of
the fair value of your private label mortgage-backed securities.

•
Disclose
the extent to which these mortgage-backed securities are collateralized by high-risk
mortgage loans, such as sub-prime, Alt-A, Option ARM or interest
only loans with collateral located in geographical areas with high
default rates. Refer to Note 12 on page 21 of your June 30, 2009 10-Q
that states underlying loans with certain Level 3 private label and mortgage-backed securities
were Jumbo loans, Alt-A loans and manufactured housing loans.

•
Explain
what you mean by the statement that you have “satisfactory relationships” between
non-performing assets and the subordination levels of each security.
Disclose any major investments in high-risk subordination levels,
such as mezzanine or interest only tranches.

•
Clarify
your statement that you continue to receive principal reductions to disclose how you
consider the receipt or non-receipt of interest cash-flows in your
other-than-temporary impairment analysis.

RESPONSE

Future filings will include the
following additional disclosures (see underlined text) in the footnote for investment
securities:

“Mortgage-backed and other asset
backed securities — at December 31, 2008 we had 45 securities whose fair market value
is less than amortized cost. Unrealized losses on agency mortgage-backed securities are
minimal (only $62,000 in gross unrealized losses). These securities include both agency
and private label mortgage-backed securities. Therefore, the majority of unrealized losses
in this portfolio are attributed to private label mortgage and asset-backed securities.
Pricing metrics in these markets have been under pressure for some time. Market prices
have suffered from wider credit spreads as well as increased liquidity premiums. Prices
deteriorated further in late 2008 as the U.S. Treasury shifted the focus of TARP activity
from purchasing troubled mortgage assets to capital injections in financial institutions.
The unrealized losses are largely attributable to credit spread widening on these
securities. The underlying loans within these securities include Jumbo (59%), Alt A (24%)
and manufactured housing (17%). All of the private label mortgage-backed transactions have
geographic concentrations in California, ranging from 25% to 60% of the collateral pool.
Typical exposure levels to California (median exposure is 43%) are consistent with overall
market collateral characteristics. Six transactions have modest exposure to Florida,
ranging from 5% to 11%, and one transaction has modest exposure to Arizona (5%). The
underlying collateral pools do not have meaningful exposure to Nevada, Michigan or Ohio.
The majority of transactions are backed by fully amortizing loans. However, seven
transactions have concentrations in interest only loans ranging from 31% to 94%. The
structure of the mortgage and asset-backed securities portfolio provides protection to
credit losses. The portfolio primarily consists of senior securities as demonstrated by
the following: super senior (5%), senior (74%), senior support (11%) and mezzanine (10%).
The mezzanine classes are from seasoned transactions (54 to 83 months) with significant
levels of subordination (8% to 18%). All of these securities are receiving principal and
interest payments. Most of these transactions are pass-through structures, receiving pro
rata principal and interest payments from a dedicated collateral pool.

3

United States Securities and Exchange Commission

Response to Letter Dated August 19, 2009

September 16, 2009

Each private label mortgage and
asset-backed security has sufficient credit enhancement via subordination to assure full
realization of book value. This assertion is based on a transaction level review of the
portfolio. Individual security reviews include: external credit ratings, forecasted
weighted average life, recent prepayment speeds, underwriting characteristics of the
underlying collateral, the structure of the securitization and the credit performance of
the underlying collateral. The review of underwriting characteristics considers: average
loan size, type of loan (fixed or ARM), vintage, rate, FICO, loan-to-value, scheduled
amortization, occupancy, purpose, geographic mix and loan documentation. The review of the
securitization structure focuses on the priority of cash flows to the bond, the priority
of the bond relative to the realization of credit losses and the level of subordination
available to absorb credit losses. The review of credit performance includes: current
period as well as cumulative realized losses; the level of severe payment problems, which
includes other real estate (ORE), foreclosures, bankruptcy and 90 day delinquencies; and
the level of less severe payment problems, which consists of 30 and 60 day delinquencies.
While the levels of identified payment problems continue to escalate in certain
securities, the amount of subordination protection remains adequate. Further, we continue
to receive principal and interest payments. One bond experienced a significant rating
downgrade during the last quarter of 2008. A cash flow analysis was prepared for this
investment. This analysis was based on projections for voluntary prepayments, defaults and
loss severity. The analysis indicates full realization of book value. All of the other
issues are rated by a major rating agency as investment grade.

The Company’s portfolio of
available-for-sale securities is reviewed quarterly for impairment in value. In performing
this review management considers (1) the length of time and extent that fair value has
been less than cost, (2) the financial condition and near term prospects of the issuer,
(3) the impact of changes in market interest rates on the market value of the security and
(4) the FSP requires an entity to assess whether it intends to sell, or it is more likely
than not that it will be required to sell a security in an unrealized loss position before
recovery of its amortized cost basis. If either of these criteria is met, the entire
difference between amortized cost and fair value is recognized in earnings.

For securities that do not meet
the aforementioned criteria, the amount of impairment recognized in earnings is limited to
the amount related to credit losses, while impairment related to other factors is
recognized in other comprehensive income.

4

United States Securities and Exchange Commission

Response to Letter Dated August 19, 2009

September 16, 2009

In addition, in future filings we
intend to break out agency mortgage backed securities from private label mortgage backed
and asset backed securities. An example of such a tabular break out is as follows (using
data as of December 31, 2008 and June 30, 2009):

     As of December 31, 2008
     As of June 30, 2009

     Fair Value
     Unrealized Gain
(Loss)
     Fair Value
     Unrealized Gain
(Loss)

     Agency MBS
     $  48,029

     $     653

     $  54,328

     $     889

     Private label MBS and ABS

       Jumbo
       26,139

       (9,349
        )
       25,942

       (5,411
        )

       Alt-A
       10,748

       (2,685
        )
       10,670

       (1,604
        )

       Mobile Home
       7,421

       (855
        )
       7,731

       238

          4.

          We note that the Company had investments in trust preferred securities
          with gross unrealized losses of  $2.8 million or 29% of
          total unrealized losses with duration of twelve months or more. Please tell us
           and revise this section in future filings to include the
          following information:

•
Describe
in greater detail the credit characteristics of the securities, including whether they
are pooled or single issue securities, the tranche held and their
ability to absorb credit losses, the level of subordination and the
collateralization remaining on the security.

•
Considering
the significant unrealized losses related to these securities and the $200,000 other-than-temporary
impairment on one of the securities, tell us and revise future filings to describe
the methodology you used and the analysis you performed on pooled and single issue trust
preferred securities as of December 31, 2008 to determine they were not other-than-temporarily
impaired.

•
Discuss
if the same methodology was used to evaluate for impairments the six investment grade
securities and the two non-rated securities with a fair value less
than amortized cost.

RESPONSE

Future filings will include the
following additional disclosures (see underlined text) in the footnote for investment
securities:

“Trust preferred securities
— at December 31, 2008 we had eight securities whose fair market value is less than
amortized cost. All of our trust preferred securities are single issue securities
issued by a bank. Pricing of trust preferred securities has suffered from credit
spread widening fueled by uncertainty regarding potential losses of financial companies,
the absence of a liquid functioning secondary market and potential supply concerns from
financial companies issuing new debt to recapitalize themselves. Six of the eight
securities are rated by a major rating agency as investment grade while the other two are
non-rated. Our other than temporary (OTTI) analysis is based on a security level
financial analysis of the issuer. This review considers: external credit ratings, maturity
date of the instrument, the scope of the bank’s operations, relevant financial
metrics and recent issuer specific news. The analysis of relevant financial metrics
includes: capital adequacy, asset quality, earnings and liquidity. We use the same OTTI
review methodology for both rated and non-rated issues.

5

United States Securities and Exchange Commission

Response to Letter Dated August 19, 2009

September 16, 2009

The Company’s portfolio of
available-for-sale securities is reviewed quarterly for impairment in value. In performing
this review management considers (1) the length of time and extent that fair value has
been less than cost, (2) the financial condition and near term prospects of the issuer,
(3) the impact of changes in market interest rates on the market value of the security and
(4) the FSP requires an entity to assess whether it intends to sell, or it is more likely
than not that it will be required to sell a security in an unrealized loss position before
recovery of its amortized cost basis. If either of these criteria is met, the entire
difference between amortized cost and fair value is recognized in earnings.

For securities that do not meet
the aforementioned criteria, the amount of impairment recognized in earnings is limited to
the amount related to credit losses, while impairment related to other factors is
recognized in other comprehensive income.”

The following table breaks out the
Company’s trust preferred securities in further detail as of December 31, 2008 and
June 30, 2009.

     As of December 31, 2008
     As of June 30, 2009

     Fair Value
     Unrealized Gain
(Loss)
     Fair Value
     Unrealized Gain
(Loss)

     (Dollars in Thousands)

     Trust preferred securities

       Rated issues
     $  11,113

     $  (3,874
        )
     $  11,816

     $  (3,196
        )

       Unrated issues - no OTTI
       1,508

       (1,294
        )
       2,164

       (639