INDEPENDENT BANK CORP /MI/IBCP
INDEPENDENT BANK CORP /MI/ Income Taxes Disclosure
INCOME TAX
The composition of income tax expense for the years ended December 31 follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current expense | $ | 16,281 | $ | 17,504 | $ | 14,394 | |||||||||||
| Deferred expense (benefit) | (3,531) | (1,248) | 215 | ||||||||||||||
| Income tax expense | $ | 12,750 | $ | 16,256 | $ | 14,609 | |||||||||||
We are subject to U.S. federal income taxes and are not subject to state or foreign income taxes. A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate of 21% for 2025, 2024 and 2023 to the income before income tax for the years ended December 31 follows:
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| $ | 17,071 | 21.0% | $ | 17,440 | 21.0% | $ | 15,472 | 21.0% | |||||||||||||||||||||||||||
Tax credits | |||||||||||||||||||||||||||||||||||
| Purchased tax credits | (1,836) | (2.3) | — | — | — | — | |||||||||||||||||||||||||||||
Tax credit investments, net of amortization | (807) | (1.0) | (373) | (0.5) | (235) | (0.3) | |||||||||||||||||||||||||||||
Nontaxable and nondeductible items | |||||||||||||||||||||||||||||||||||
Tax-exempt interest income | (1,155) | (1.4) | (522) | (0.6) | (508) | (0.7) | |||||||||||||||||||||||||||||
| Bank owned life insurance | (249) | (0.3) | (175) | (0.2) | (99) | (0.1) | |||||||||||||||||||||||||||||
| Non-deductible meals, entertainment and memberships | 114 | 0.1 | 83 | 0.1 | 77 | 0.1 | |||||||||||||||||||||||||||||
| Share-based compensation | (323) | (0.4) | (130) | (0.2) | (50) | (0.1) | |||||||||||||||||||||||||||||
| Employee stock ownership plan dividends | (116) | (0.1) | (108) | (0.1) | (106) | (0.2) | |||||||||||||||||||||||||||||
| Other, net | 51 | 0.1 | 41 | 0.1 | 58 | 0.1 | |||||||||||||||||||||||||||||
| Income tax expense | $ | 12,750 | 15.7% | $ | 16,256 | 19.6% | $ | 14,609 | 19.8% | ||||||||||||||||||||||||||
In December, 2025, we executed a Tax Credit Transfer Agreement (TCTA) whereby we agreed to purchase $22.9 million of 2025 Section 48 tax credits at a purchase price of 92% of the tax credit amount. The purchase price of $21.1 million was paid by us to the seller, an independent third party on January 15, 2026. We plan to utilize the purchased tax credits of $22.9 million to offset amounts that otherwise would be due and payable to the IRS for 2025 and prior tax years. The accounting treatment at December 31, 2025 is an increase in income tax receivable from the Internal Revenue Service ("IRS") of $22.9 million (recorded in Accrued income and other assets in the Consolidated Statements of Financial Condition), a liability to the seller of $21.1 million (recorded in Accrued expenses and other liabilities in the Consolidated Statements of Financial Condition), and a reduction to income tax expense of $1.8 million in the Consolidated Statements of Operations for the year ending December 31, 2025. This $1.8 million is included in "Purchased tax credits" in the table above. The $21.1 million liability to the seller was paid on January 15, 2026.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 follow:
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets | |||||||||||
| Allowance for credit losses | $ | 13,323 | $ | 12,470 | |||||||
| Unrealized loss on securities AFS | 10,700 | 13,105 | |||||||||
| Unrealized loss on securities HTM transferred from AFS | 2,726 | 3,396 | |||||||||
| Incentive compensation | 1,839 | 2,052 | |||||||||
| Lease liabilities | 1,581 | 1,331 | |||||||||
| Property and equipment | 1,479 | 1,545 | |||||||||
| Reserve for unfunded lending commitments | 1,142 | 1,078 | |||||||||
| Share-based compensation | 1,082 | 861 | |||||||||
| Deferred compensation | 645 | 621 | |||||||||
| Non accrual loan interest income | 300 | 128 | |||||||||
Unrealized loss on derivative financial instruments | 367 | 551 | |||||||||
| Loss reimbursement on sold loans reserve | 252 | 260 | |||||||||
| Other than temporary impairment charge on securities available for sale | 147 | 146 | |||||||||
| Securities premium amortization | 91 | 831 | |||||||||
| Gross deferred tax assets | 35,674 | 38,375 | |||||||||
| Deferred tax liabilities | |||||||||||
| Capitalized mortgage loan servicing rights | 6,614 | 9,827 | |||||||||
| Deferred loan fees | 2,256 | 2,245 | |||||||||
| Lease right of use asset | 1,532 | 1,254 | |||||||||
| Purchase premiums, net | 443 | 517 | |||||||||
| Other | 94 | 69 | |||||||||
| Gross deferred tax liabilities | 10,939 | 13,912 | |||||||||
| Deferred tax assets, net (1) | $ | 24,735 | $ | 24,463 | |||||||
| (1) | Included in accrued income and other assets on the Consolidated Statements of Financial Position. | ||||
We assess whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a ‘‘more likely than not’’ standard. The ultimate realization of this asset is primarily based on generating future income. We concluded at both December 31, 2025 and 2024, that the realization of substantially all of our deferred tax assets continues to be more likely than not.
Changes in unrecognized tax benefits for the years ended December 31 follow:
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Balance at beginning of year | $ | 188 | $ | 188 | $ | 186 | |||||||||||
| Additions based on tax positions related to the current year | 26 | 18 | 13 | ||||||||||||||
| Reductions due to the statute of limitations | (20) | (18) | (11) | ||||||||||||||
| Reductions due to settlements | — | — | — | ||||||||||||||
| Balance at end of year | $ | 194 | $ | 188 | $ | 188 | |||||||||||
If recognized, the entire amount of unrecognized tax benefits, net of $0.04 million of federal tax on state benefits, would affect our effective tax rate. No amounts were expensed for interest and penalties for the years ended December 31,
2025, 2024 and 2023. No amounts were accrued for interest and penalties at December 31, 2025, 2024 and 2023. At December 31, 2025, U.S. Federal tax years 2022 through the present remain open to examination.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 6, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 8, 2024 | |
| 2022 | Mar 3, 2023 | |
| 2021 | Mar 4, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Mar 6, 2020 | |
| 2018 | Mar 7, 2019 | |
| 2017 | Mar 7, 2018 | |
| 2016 | Mar 7, 2017 | |
| 2015 | Mar 7, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.