What changed in this filing

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Item 1. Business

2023-03-03 compared with 2022-03-04 · 31 added, 57 removed, 19 unchanged (82% of the section changed)

BUSINESS (continued)

The 2018 Act also included regulatory relief for community banks regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures, and risk weights for certain high-risk commercial real estate loans.

Anti-Money Laundering Act of 2020 .

The National Defense Authorization Act for Fiscal Year 2021 (the "NDAA") enacted

January 1, 2021 over a presidential veto, includes a number of significant new requirements intended to enhance U.S.

The National Defense Authorization Act for Fiscal Year 2021 (the "NDAA") enacted January 1, 2021 over a presidential veto, includes a number of significant new requirements intended to enhance U.S.

anti-money laundering efforts.

These provisions, many of which are contained within a section of the NDAA known as the Anti-Money

Laundering Act of 2020 (the "AMLA"), include establishment of a beneficial ownership registration database, the creation of two new criminal offenses regarding money laundering, new penalties for Bank Secrecy Act violations, and increased

whistleblower rewards and protections.

Under these new laws, various government agencies will also be tasked with identification of policy priorities, establishment of streamlined processes, creation of information sharing programs, and regular

reporting to Congress in an effort to modernize anti-money laundering enforcement.

These provisions, many of which are contained within a section of the NDAA known as the Anti-Money Laundering Act of 2020 (the "AMLA"), include establishment of a beneficial ownership registration database, the creation of two new criminal offenses regarding money laundering, new penalties for Bank Secrecy Act violations, and increased whistleblower rewards and protections.

Branching Authority .

Michigan banks, such as our bank, have the authority under Michigan law to establish branches

anywhere in the State of Michigan, subject to receipt of all required regulatory approvals.

Michigan banks, such as our bank, have the authority under Michigan law to establish branches anywhere in the State of Michigan, subject to receipt of all required regulatory approvals.

Banks may establish interstate branch networks through acquisitions of other banks.

The establishment of de novo

interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed only if specifically authorized by state law.

The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed only if specifically authorized by state law.

Michigan permits both U.S.

banks to establish branch offices in Michigan.

The Michigan Banking Code permits, in appropriate circumstances and with the

approval of the Michigan DIFS (1) the acquisition of Michigan banks by FDIC-insured banks or savings banks located in other states, (2) the sale by a Michigan bank of branches to an FDIC-insured bank or savings bank located in a state in which a

Michigan bank could purchase branches of the purchasing entity, (3) the consolidation of Michigan banks and FDIC-insured banks or savings banks located in other states having laws permitting such consolidation, (4) the establishment of branches in

Michigan by FDIC-insured banks located in other states, the District of Columbia or U.S.

territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction, and (5) the establishment by foreign banks of

branches located in Michigan.

The Michigan Banking Code permits, in appropriate circumstances and with the approval of the Michigan DIFS (1) the acquisition of Michigan banks by FDIC-insured banks or savings banks located in other states, (2) the sale by a Michigan bank of branches to an FDIC-insured bank or savings bank located in a state in which a Michigan bank could purchase branches of the purchasing entity, (3) the consolidation of Michigan banks and FDIC-insured banks or savings banks located in other states having laws permitting such consolidation, (4) the establishment of branches in Michigan by FDIC-insured banks located in other states, the District of Columbia or U.S.

territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction, and (5) the establishment by foreign banks of branches located in Michigan.

Current Expected Credit Loss ("CECL") .

In June 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued

Accounting Standards Update (‘‘ASU’’) 2016-13, ‘‘Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments’’.

We were originally required to adopt this ASU on January 1, 2020 but section 4014 of the

CARES Act allowed for temporary relief from applying this ASU.

Under the amended CARES Act we were allowed to delay the adoption of this ASU until the earlier of the termination of the national emergency that was declared on March 13, 2020, or

January 1, 2022.

Early adoption was also allowed on either January 1, 2020 or January 1, 2021.

As such, we chose to delay the adoption of this ASU during 2020 and adopted this ASU on January 1, 2021.

This ASU, also referred to as Current Expected

Credit Loss, or CECL, requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses.

This represents a change from the previous

method of providing allowances for credit losses that are probable and the implementation of the new standard may require us to increase our allowance for credit losses.

It may also greatly increase the data we will need to collect and review to

determine the appropriate level of the allowance for credit losses.

Any increase in our allowance for credit losses, or expenses incurred to determine the appropriate level of the allowance for credit losses, may have a material adverse effect on

our financial condition and results of operations.

In addition, federal bank regulatory agencies allow for a an optional phase-in period for the impact of CECL on regulatory capital.

We have elected the three year CECL method for regulatory

See note #1, “Accounting Policies” in the Notes to Consolidated Financial Statements in our annual report, to be delivered to shareholders in connection with the April 19, 2022 Annual Meeting of Shareholders (filed as exhibit 13 to this

report on Form 10-K) for additional discussion relating to our adoption of CECL.

In June 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) 2016-13, ‘‘Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments’’.

We adopted this ASU on January 1, 2021.

The federal bank regulatory agencies allow for an optional phase-in period for the impact of CECL on regulatory capital, and we have elected the three year CECL method for regulatory capital purposes.

This ASU, also referred to as Current Expected Credit Loss, or CECL, requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses.

This represents a change from the previous method of providing allowances for credit losses that are probable See note #1, “Accounting Policies” in the Notes to Consolidated Financial Statements in our annual report, to be delivered to shareholders in connection with the April 25, 2023 Annual Meeting of Shareholders (filed as exhibit 13 to this report on Form 10-K) for additional discussion relating to our adoption of CECL.

Replacement of LIBOR .

the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it intended to stop persuading or compelling banks to submit rates for the calibration of LIBOR

On March 5, 2021, LIBOR’s administrator announced that end dates for publication of LIBOR:

In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that it intended to stop persuading or compelling banks to submit rates for the calibration of LIBOR after 2021.

On March 5, 2021, LIBOR’s administrator announced end dates for publication of LIBOR:

December 31, 2021 for one-week and two-month USD LIBOR maturities and non-USD LIBOR maturities, and June 30, 2023 for all other tenors.

bank regulators have issued guidance indicating that banks should “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.”

BUSINESS (continued)

Federal bank regulators have issued guidance indicating that banks should “cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.”

The Federal Reserve and the Alternative Reference Rates Committee ("ARRC"), a steering committee comprised primarily of large U.S.

financial institutions, have identified

the Secured Overnight Financing Rate ("SOFR"), a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as a potential alternative to LIBOR, and the Federal Reserve announced final plans for the production of

financial institutions, have identified the Secured Overnight Financing Rate ("SOFR"), a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, as a potential alternative to LIBOR, and the Federal Reserve announced final plans for the production of SOFR.

In July 2021, the ARRC formally recommended the CME SOFR Term Rates.

Whether SOFR will become a LIBOR replacement and the ultimate future of LIBOR remain uncertain.

Some financial institutions have indicated an intent to use other rates in

addition to SOFR.

Some financial institutions have indicated an intent to use other rates in addition to SOFR.

However, both Fannie Mae and Freddie Mac announced in 2020 that they would cease purchasing and issuing LIBOR-based products by the end of 2020 and have begun accepting mortgages based on SOFR.

We have formed a cross-functional project team to lead this transition from LIBOR to a planned adoption of reference rates which could

include SOFR, amongst others.

Implementation of successor indices may lead to additional documentation requirements, compliance measures, financial impacts, and technology-related challenges, as well as potential disputes or litigation

with customers and creditors.

We have formed a cross-functional project team to lead this transition from LIBOR to a planned adoption of reference rates which could include SOFR, among others.

Implementation of successor indices may lead to additional documentation requirements, compliance measures, financial impacts, and technology-related challenges, as well as potential disputes or

BUSINESS (continued)

litigation with customers and creditors.

We are utilizing the timeline guidance published by the ARRC to develop and achieve internal milestones during this transitional period.

We have discontinued the use of new LIBOR-based

loans and interest rate derivative as of December 31, 2021, according to regulatory guidelines.

We discontinued the use of new LIBOR-based loans and interest rate derivative as of December 31, 2021, according to regulatory guidelines.

We also discontinued the use of new LIBOR based interest rate derivatives as of December 31, 2021.

Inflation Reduction Act of 2022 .

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law.

The Inflation Reduction Act of 2022 includes a 1% excise tax on net stock repurchases, effective January 1, 2023.

We do not expect that this new excise tax will have a material impact on our operations or results.

Future Legislation

Various other legislative and regulatory initiatives, including proposals to overhaul the bank regulatory system, are from time to time introduced in Congress and state

legislatures, as well as regulatory agencies.

business, limit or expand permissible activities, or affect the competitive balance among organizations within the industry.

Various other legislative and regulatory initiatives, including proposals to overhaul the bank regulatory system, are from time to time introduced in Congress and state legislatures, as well as regulatory agencies.

Such future legislation regarding financial institutions may change banking statutes and our operating environment in substantial and unpredictable ways and could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among organizations within the industry.

The nature and extent of future legislative and regulatory changes affecting financial institutions is very unpredictable.

1 unchanged sentence

Available Information

Our annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K, and all amendments to those reports are available free of charge through

our website at www.IndependentBank.com as soon as reasonably practicable after filing with the SEC.

Our annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K, and all amendments to those reports are available free of charge through our website at www.IndependentBank.com as soon as reasonably practicable after filing with the SEC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business