Hello and welcome to the Independent Bank Corporation Fourth Quarter 2008 Earnings Conference Call. (Operator Instructions) Please note this conference is being recorded. Now, I would like to turn the conference over to Michael Magee, President and CEO. Mr. Magee you may begin.

Thank you. Good morning and welcome to our fourth quarter 2008 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 Stefanie Kimball, our Chief Lending Officer. Following my introductory comments, Rob will provide a detailed review of our financial performance during the fourth quarter. Following Rob’s comments, Stefanie will provide a progress report on the credit quality. We will conclude the call with a brief question-and-answer session. Also, please note that an accompanied 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.independentbank.com. Furthermore, please also note that this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to our Safe Harbor Provision on slide two of the presentation for additional information on forward-looking statements. I will begin today’s discussion with a review of our fourth quarter and year-end financial results, which are summarized on slide four of the accompanying slide presentation. For the fourth quarter ended December 31, 2008 we reported a net loss applicable to common stock of $86.5 million, or $3.80 per share, compared to net income from continuing operations of $2.3 million, or $0.10 per diluted share in the fourth quarter of 2007. For a high level overview of the quarter, please turn to slide five of the accompanied presentation. In discussing these results, I believe it'd be helpful to view the factors contributing to the results in three broad categories. Pre-tax pre-provision core earnings, provision for loan losses, and several one-time items that contributed to the vast majority of our reported losses. First, our pre-tax pre-provision core operating earnings remains strong, and showed…

Thank you Mike. Good morning everyone. I am starting at page seven of our PowerPoint presentation. I will focus my comments on adding more detail related to several of the unusual charges that impacted our fourth quarter and forward year results on capital and liquidity, net interest income in our margin, certain components of non-interest income and non-interest expense, and some very brief comments about asset quality, as Stefanie will cover this last topic in much greater detail. As outlined on page seven, there were some positive factors evident in our fourth quarter ’08 results. Most notable was the continued strength of our net interest margin. However the positives were overshadowed by unusual non-cash charges, securities losses, and a rise in credit costs. Page eight outlines several of the unusual items impacting the fourth quarter including the goodwill impairment charge, a charge to establish valuation allowance on deferred tax assets, an impairment charge on capitalized mortgage loan servicing rights, and securities losses. As Mike mentioned, collectively these four items totaled 90% of the total loss for the quarter. Page nine outlines the factors leading to our $50 million goodwill impairment charge. Like many other banks who have reported goodwill impairment charges during 2008, the decline in our common stock price during the fourth quarter was the major factor in our assessment. As you know, this non-cash charge did not impact our regulatory capital ratios, liquidity, or financial resources. As Mike mentioned, at year-end, we had $16.7 million of goodwill remaining on our books that is contained entirely in our Mepco Finance Corporation Reporting Unit. Because of Mepco’s level of profitability, we do not see any further risk for additional goodwill impairment charges at the present time. Page 10 outlines the issues surrounding our decision to record valuation allowance on our…

Thanks, Rob. My remarks will follow slides 27 through 43, and I will be discussing the credit quality results and our initiatives to enable us to weather this challenging credit and economic cycle. First I will turn my comments to commercial lending. As Mike referenced in his comments, our management team continues to work diligently with our clients through this very difficult Michigan business climate. While national economic conditions deteriorated rapidly during the fourth quarter, our clients have been under stress now for several years. A number of them could not continue on during 2008 and defaulted on their loans. Our commitment to relationship banking continues and our philosophy of working with our clients as long as they are working with us has been maintained. We continue to see the most severe stress with clients that depended in the past upon the sale of residential real estate to produce some cash flow for their business, as generally these clients were unable to produce sufficient volume to cover even the most basic of expenses. Most of the clients that remain in this sector have alternative sources of income. As a community bank, our numbers reflect the story of individuals in the communities we serve and as I review the various credit metrics, I will share a few stories of clients that help illustrate these trends. Page 27 provides highlight of some of the key metrics for the commercial lending business. During the fourth quarter, new and renewed commercial loan volume of $75 million was reported, which was consistent with our level in the third quarter. Overall, commercial loan demand has been weak in 2008 as it relates to new projects. However we did see an increase in borrower applications who’ve met our lending criteria that were looking to move their relationships…

Thank you Stef and thank you Rob. As one of the oldest and most well established banking brands in Michigan, we’ve been in business for more than 140 years and have weathered a variety of market cycles and business trends over those many decades. We will continue to face tough conditions, but I am confident that the substantial structural and operational changes we’ve implemented in the recent months, the commitment of our employees to continue to deliver the highest level of service will eventually begin to positively impact our business and position us for the improved performance over the long-term. That concludes our prepared comments. At this time, we will open the line for questions from investors and analysts.

Thank you. (Operator Instructions) Our first question will come from Stephen Geyen from Stifel Nicolaus. Please go ahead Stephen Geyen – Stifel Nicolaus: Yes, good morning. Rob just wondering that your deferred tax assets, just curious under what circumstances will that be realized in the future?

Well, just to kind of walk you through to the extent you have taxable book tax income, you can utilize it to offset that. I said, earlier on that at least for the next several quarters, if we have earnings they are not going to be taxed. Okay, so that’s how you are going to be utilizing it. And conversely if we have a loss you are not going to see a tax benefit, because in that instance what would happen is we would record a deferred tax asset but then we would increase our valuation allowance and the net of those would be zero. So to just answer your question directly the way you can realize it is by generating book taxable income in the future. At some point, if you’ve done that for many, it’s a judgment call, but if you have several consecutive quarters of having done that, you are always evaluating the need for that valuation allowance and you could restore it in its entirety, you know if you return to a period of profitability, and I would tell you other than where we started in 2008 historically the company always had generated taxable earnings. So, at some point in time it seems like it’s very difficult to know when this credit cycle is going to end, but at some point, certainly we’d expect there to be future taxable earnings, but in terms of the accounting, the establishment of the valuation allowance we have to look at a fairly narrow time band. Stephen Geyen – Stifel Nicolaus: Okay, and Stefanie you said that the bank is working with managers to find use for OREO. It sounds like it’s a bit of change from the past. I’m just wondering do you have the staff in place to work through these problem loans and to work with these assets and get them into the position where they can generate income down the road?

Yes, two things with regard to that. First of all, we do have a couple of people in our special assets group that are managing the ORE properties, but in addition to that we’re really outsourcing some of the management by contracting with experts in each of our markets that could help us with each individual projects. For instance if we have a project that's a retail strip center, that needs different kind of maintenance and they could lend or then residential lots. And so, depending upon what that real estate is, we are finding someone who is expert in that management, since we don’t want to develop being a landlord of such a diversified amount of real estate. Stephen Geyen – Stifel Nicolaus: So, I guess, to be more precise with my question, any incremental increase in costs is really dependent on the increase or where OREO may go in 2009, 2010?

You mean in loan and collection costs Steve? Stephen Geyen – Stifel Nicolaus: Yes.

Yeah, I mean there may be some, but in addition, you can also look at arrangements where maybe we would have some type of arrangement to share if they come up with a solution that generates a better result than where we are carrying the asset, you might provide them some upside. So I mean there is different ways of tackling that, but don’t necessarily increase our loan and collection costs. Stephen Geyen – Stifel Nicolaus: Okay, thank you.

And those are all things that we are exploring with some third-party experts in each of the markets. Stephen Geyen – Stifel Nicolaus: Got it. Thanks.

Our next question will come from Brad Millsaps from Sandler O’Neill. Please go ahead. Brad Millsaps –Sandler O’Neill : Hi, good morning.

Hi Brad.

Good morning Brad. Brad Millsaps – Sandler O’Neill : Just maybe had a couple of questions on, kind of the watch list the data you provide I’m not sure the slide number, but Stefanie I wanted you to kind of talk about, I think at the beginning of the year, you had about a $186 million of land, land development construction loans, you finished at the end of the year with roughly 145 and then the charge-off data you provide for commercial loans, you charged off a total of about almost $38 million for the year and I know that encompasses other types of loans besides those three categories that I mentioned. But I’m curious if you can kind of talk about the decline in that loan category, how much of it was related to charge-offs? And just trying to get an idea, what other charges may be coming down the pike in terms of, some of your other commercial categories? Stefanie M. Kimball: Well Brad, in terms of the remaining balances in the land, land development of $145 million that you mentioned, and you’re correct a good part of the decline during 2008 did come from a portion of that $38 million in commercial charge-offs. However, certainly, other segments had charge-offs as well, but the bulk of it would have been from land, land development and construction loans, mostly the land and land development categories.

And Brad just to sort of follow up on the second part of your question about remaining charge-offs, we have a chart at the end of the supplemental data that sort of breaks down those categories, and what is in watch credit, what’s performing, what’s not performing and then what’s not watch credit. You know, the one thing that I would say about, several of the credits and Stefanie said this in her remarks that remained performing is, they are performing not because they are selling anything. They are performing because the borrowers have alternative sources of cash flow and are dependent on sales to continue to service the deck. So, we still have, I guess some optimism that that will continue and so the level of charge-offs, overtime should diminish because the size of the portfolio has diminished and we are contemporaneously adjusting the carrying values based on updated analyses with the collateral values. In terms of the other sections, at least to-date and this is reflected in the delinquency data, they continue to hold up pretty well. Certainly, it’s very tough to project what’s going to happen as we move through ’09, but I think the delinquency data does sort of indicate that those portfolios are still hanging in there.

You know, the other thing I would add is that Rob was talking about the remaining loans in those categories. Certainly, those borrowers do have alternative sources of income. I mean, they’ve been holding on now for several years. As an example, one partnership, one of the partners is a surgeon and has over $1 million annual income and continues to support the project and believes in the project, along with his partner. So that, either that or individuals who have substantial liquidity have been able to hang on through this cycle and are not dependent on selling to real estate in order to make debt service payments. Brad Millsaps – Sandler O’Neill: Right, okay. And then Rob another question in terms of operating expenses. A big part of you guys getting back to that much higher pre-provision earnings number is getting some relief on maybe some of the loan and collection costs, some of the other real estate disposal costs. You talked a little bit about, some things you’ve done on the personnel side, anything else in your mind that if those costs do stay elevated, what you can do? I assume you’ve got, higher FDIC insurance premium as well that you will be filing in 2009?

Yeah, that’s certainly the case with the FDIC insurance is true. I mean, everyone is seeing a jump, at least for the first six months because of across the board increase and then the last six months are going to see probably changes too because of their, some of the other insurance changes they talk about. In terms of loan and collection cost, I will say that the fourth quarter is elevated and this is sort of technical, but one of the things that happens when you pay property taxes as we’ve actually accounted for those in the impairment analyses we do, but they sort of and you know, it’s really just a reclass between the provision in loan and collection. But, as those taxes are paid, they sort of come out of the FAS 114 impairment analysis and then get shifted into loan and collections. So I guess one way to think of it is, you got to look at the provision in loan and collection sort of collectively, but I think, longer term the way those costs come down is really, by disposing of the real estate and getting just the overall number of items in the portfolio down. I think the loss on ORE hopefully, we will see some abatement there as we find a bottom on home prices. I mean, we are finding on the one to four family, we continue to be able to sell, to sell those properties, but we certainly saw an adjustment of price points in the fourth quarter.

Brad, this is Mike. I’d just like to add that, this has been an area of concern of mine because of over the last two years how fast and rapidly expenses increased in loan and collection. We are approaching close to $10 million on an annualized basis. And to this point it’s – and all the properties of course just spread out all over the State of Michigan. And to this point, our collection areas and our folks have been working with attorneys around the State of Michigan and firms to go through the foreclosure litigation process or workout or come to some type of a mediation agreement. I have made the decision to have one person within the corporation who will be responsible for negotiating and controlling all of our legal and collection expenses, because we feel based on the volume right now of the work that we’re requesting outside of the bank that we can negotiate prices down and receive substantial savings. I am not willing to put a dollar amount on that expense item right now, but I am quite confident that by having one individual manage and control who is performing legal work for Independent Bank Corporation and negotiating those prices will save a substantial amount of – of money in loan and collection expenses going forward

Okay, and Rob just one final kind of housekeeping question. What tax rate did you use to get to $1.92 on that non-cash goodwill charge?

Boy! That’s a great question. The the way I get to it is, a bit of the goodwill was actually tax deductible.

Right.

Some of the goodwill associated with our acquisition of the TCF branches were tax deductible so there was roughly about $6 million of tax impact related to the goodwill tax benefit. And so that’s how you come to the $1.92, you have to take the 50 less the 6 and I think that will be come out or it should come out relatively close to the $1.92. Now the interesting thing is the flip side is, then we turnaround because of the deferred tax reserve and sort of reverse back out that $6 million, but if you are looking at the individual components, you still have to tax-effect them.

Okay, okay yeah, doesn’t really matter, but just was curious. Thank you very much.

No, it’s a great question.

(Operator Instructions) Our next question will come from Jason Werner from Howe Barnes. Please go ahead. Jason Werner - Howe Barnes Hoefer & Arnett: Good morning.

Hi, Jason.

Good morning Jason. Jason Werner - Howe Barnes Hoefer & Arnett: I got on the call late. So if I ask any questions you already addressed I apologize. My first question was with regard to your tangible common equity ratio. Obviously that number did dip in the quarter went below 4% and I was curious what you guys are doing to address that. I know you have raised the TARP capital and that’s important but I think investors are still going to be looking at that common tangible number too. So what’s your thoughts on addressing that issue?

Well Jason, I spent a fair amount of my comments talking spot on to that point. And clearly, trying to raise common equity in this environment is extremely difficult and a challenge certainly from a dilution standpoint. But, the two comments I made, one I won’t repeat because you already addressed we have roughly $159 million of other capital contained within the preferred stock and our trust-preferred securities. But the other point I made was, there is a couple of components that are out of common equity right now that over time you know, there is at least the possibility of them being recovered, back into common equity. The one is, if you look at the amount of our accumulated other comprehensive loss, at the end of the year it was $23.2 million. That relates to carrying value, fair value differences in securities available for sale and on interest rates swaps and caps. And as long as we hold those positions, which we intend to do to maturity, that $23 million overtime will be recovered. The other thing I mentioned and this is, again no certainty here but you also have, the potential to recover the deferred tax valuation allowance. Of course that’s dependent on generating consistent future taxable book income. But collectively those two items represent about 1.72% of tangible assets or about $2.19 per share. So, they are very substantial and at least, in my judgment some consideration should be given to those, when at least thinking about our level. The last point I’d make is, and we under the TARP CPP program have responsibilities that we take very seriously regarding new lending and as you could see in the release in the 30 days, since receipt of the money roughly from December 15 through January 15, we had made $72 million in new loans, that’s not necessarily going to equate to dollar-for-dollar to growth in the balance sheet, because some of those loans on the mortgage side are going to be sold and we are going to have, pay-offs in the portfolio. So, I still do believe that there is opportunities for assets to come down. With the strength of our margin, I think we can still do that, without a material erosion in our net interest income. So, I think there is still that opportunity as well and so, I guess I’d point to those factors. Jason Werner - Howe Barnes Hoefer & Arnett : Okay. What about shrinking the balance sheet further obviously, when you are trying to lend out you are going to have some pay-offs also, but what about securities portfolio? Do you envision, continue to delever a little bit or with the TARP capital you don't need to do that now?

Well, I will say this, I think, we had talked about the possibility of levering some of the TARP proceeds to offset some of the preferred dividend, but I think our view is to put, in securities, I think our view right now is to put that on hold. I think, we believe there is still enough upside in the margin, the one slide I think it’s page 18, sort of gives you a snapshot of where at least our asset liability margin modeling has us, if we look at the balance sheet at the end of the year. So, we still think there is upside, there. So, we don’t feel the pressure to leverage that through buying securities and with that I do think then you will get some deleverage in assets just through normal paydowns and alike. So, I think again that will provide some additional opportunity to bring those tangible capital levels up. Jason Werner - Howe Barnes Hoefer & Arnett: Okay. And could you tell me what the discount was on the TARP preferred, and what timeframe will you be accreting that over?

The discount would be, it’s the $72 million less the $68.456 million and then we already accreted I think $35,000 at the end of the year. So, the gross discount was I think $3.6 million and we are accreting it over five years. And I think most banks are doing that same type of thing. There were some different options on how you do it, but most of the releases I’ve seen have that being accreted over 5 years. And then, the difference between the $72 million and the $68.4 million was, what was allocated to the warrants and that’s in capital surplus and that will just remain there, but the preferred stock, the $68.456 million will be accretive up to $72 million over a five-year timeframe. Jason Werner - Howe Barnes Hoefer & Arnett: Okay, and my last question just to kind of go back to what you just said about the margin, you think you have some upside. Obviously that chart on table, the page 18, has that going up in a declining rate environment, but quite honestly we can’t have a much of a declining rate environment when rates are where they are right now. What are your thoughts and how much margin improvement you can have, just where we are today just kind of having things flow through?

Well I agree with the concept that you had that, rates, they are so low that they’re not likely to come down very much, but I do think the one thing that you have is you still have repricing of liabilities to lower rates that haven’t repriced yet. And the other thing I would say is, one of the things we’ve done is we often have floors on many of our commercial loans, variable rate commercial loans. So, they have hit those floors and they are not, the rates aren't going down further, while we still have some liabilities that may reprice lower. So I do think there is some opportunity there. The other thing that the fourth quarter was very unusual. In the first 30 days of the quarter, LIBOR rates were really high. And we had some repricing that was on some debt or swaps that, really at least for that 30 or 3 month period, because they reprice every 90 days, but those high LIBOR rates just in that first 30 days of the quarter really spiked up some, some interest costs. So, I don’t think the fourth quarter in terms of the cost of interest-bearing liabilities is a good reflection of where they will sort of graduate to, because of that and then the other item was and it’s on I think page, there is a page in – it’s page 17. The other unusual thing in that fourth quarter is we had - we have a few interest rate swaps and caps that are hedging Federal Reserve Bank borrowings and we can’t take hedge accounting treatment on those because the discount rate is a managed rate rather than a market rate. So, we have to mark those to market. And what happened is at the end of the year or in the last two months of the quarter, LIBOR rates really declined. So we had to take some mark-to-market hits there that I don’t think will be recurring at that level rates. Again – because you said, you don’t think short-term rates are going to fall much below where they are already at. So, just a couple of unusual things in that fourth quarter again that are necessarily reflective and that’s why I think that 508 on slide 18, is where we are forecasting our base case given the year-end balance sheet, and where rates were at that point in time. And the last thing I would say is I think you will see some shifts in the loan portfolio, where we’ll have some growth and maybe higher yielding types of loans and we are seeing better pricing opportunities for lending people I think are understanding that you have to get better returns there.

Yeah and several of the commercial loans that we are renewing currently, some of them did not have floors, some are implementing floors those loans were tied to prime and so we are taking advantage of. Right now, as Rob pointed out, the competitive environment is such where is the availability of credit that’s important to our borrowers not the cost of credit. And so it’s allowing us to basically receive a very decent return on all the new lending opportunities that we’re looking at Jason Werner - Howe Barnes Hoefer & Arnett: Great. Thank you guys.

This does conclude today’s question-and-answer session. I would like to turn the conference back to Mike McGee for any closing remarks.

Okay, thank you. With that, this concludes our call today. Thank you for your interest in Independent Bank and we look forward to speaking with you again next quarter. For an archived webcast of today’s call, please go to the Investors Section of our website at www.independentbank.com. The webcast will be archived on our website for approximately 90 days from date of today’s call. If you do have any questions in the interim, please don’t hesitate to give Rob Shuster or myself or Stefanie a call. Thank you and we all hope you have a great day. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.