SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 000-25927
MACATAWA BANK CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-3391345
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
51 E. Main Street, Zeeland, Michigan 49464
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 748-9491
-----------
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes ___X___ No ________
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 3,588,565 shares of the Company's
Common Stock (no par value) were outstanding as of August 6, 1999.
Transitional Small Business Disclosure Format (check one): Yes _____ No __X__
1
<PAGE>
INDEX
Page
Number(s)
Part I. Financial Information (unaudited):
Item 1.
Condensed Consolidated Financial Statements 3
Notes to Condensed Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II. Other Information
Item 1.
Legal Proceedings 15
Item 2.
Changes in Securities and Use of Proceeds 15
Item 3.
Defaults Upon Senior Securities 15
Item 4.
Submission of Matters to a Vote of Security Holders 15
Item 5.
Other Information 15
Item 6.
Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
Part I Financial Information
MACATAWA BANK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 (unaudited) and December 31, 1998
________________________________________________________________________________
<TABLE>
June 30, December 31,
1999 1998
--------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,686,062 $ 11,453,177
Federal funds sold 9,000,000 --
Short-term investments -- 6,500,000
------------ ------------
Cash and cash equivalents 21,686,062 17,953,177
Securities available for sale, at fair value 21,955,810 27,007,300
Total loans 217,538,862 137,882,260
Allowance for loan losses (3,024,493) (2,030,000)
------------ ------------
214,514,369 135,852,260
Premises and equipment - net 8,479,297 7,125,755
Accrued interest receivable 1,382,217 1,226,199
Other assets 213,735 63,982
------------ ------------
Total Assets $268,231,490 $189,228,673
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 26,539,550 $18,517,550
Interest-bearing 191,003,283 148,471,125
------------ ------------
Total 217,542,833 166,988,675
Federal funds purchased -- 2,000,000
Federal Home Loan Bank Borrowings 16,000,000 --
Accrued expenses and other liabilities 713,735 628,610
------------ ------------
Total liabilities 234,256,568 169,617,285
Shareholders' equity
Preferred stock, no par value, 500,000 shares
authorized; no shares issued and outstanding
Common stock, no par value, 9,500,000 shares
authorized; 3,588,565 and 2,435,125 shares issued
and outstanding as of June 30, 1999 and
December 31, 1998, respectively 36,897,077 22,260,646
Retained deficit (2,687,070) (2,654,076)
Net unrealized appreciation (depreciation) on securities
available for sale, net of tax (235,085) 4,818
------------ ------------
Total shareholders' equity 33,974,922 19,611,388
------------ ------------
Total liabilities and shareholders' equity $268,231,490 $189,228,673
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
MACATAWA BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Month Periods Ended June 30, 1999 and June 30, 1998
Six Month Periods Ended June 30, 1999 and June 30, 1998
(unaudited)
________________________________________________________________________________
<TABLE>
Three Months Three Months Six Months Six Months
ended ended ended ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees $ 4,289,772 $ 808,846 $ 7,568,141 $ 954,357
Investments 373,450 365,224 730,233 563,185
----------- ---------- ----------- ---------
Total interest income 4,663,222 1,174,070 8,298,374 1,517,542
Interest expense
Deposits 2,010,155 446,763 3,759,357 585,107
Other 181,751 962 184,236 1,001
--------- ------- ----------- ---------
Total interest expense 2,191,906 447,725 3,943,593 586,108
Net interest income 2,471,316 726,345 4,354,781 931,434
Provision for loan losses (545,000) (702,000) (995,000) (902,500)
Net interest income after
provision for loan losses 1,926,316 24,345 3,359,781 28,934
Noninterest income 362,580 68,272 751,725 71,713
Noninterest expense
Salaries and benefits 1,246,298 616,611 2,347,455 909,009
Occupancy expense of premises 183,790 60,999 342,180 90,294
Furniture and equipment expense 160,324 45,895 299,281 75,259
Legal and professional fees 35,624 39,122 68,489 73,686
Advertising 74,704 38,707 115,128 65,322
Data Processing 44,455 14,806 86,841 26,287
Shareholder Services 63,399 0 69,779 0
Supplies 81,996 51,514 149,667 75,988
Other expense 354,190 146,214 665,680 231,261
--------- --------- ----------- ---------
Total noninterest expenses 2,244,780 1,013,868 4,144,500 1,547,106
Loss before federal income tax 44,116 (921,251) (32,994) (1,446,459)
Federal income tax 0 0 0 0
--------- -------- ----------- ----------
Net income/(loss) $ 44,116 $ (921,251) $ (32,994) $ (1,446,459)
========= ========== =========== =============
Basic and diluted
income/(loss) per share .02 (.39) (.01) (1.26)
Average shares outstanding 2,480,621 2,336,554 2,607,170 1,148,553
</TABLE>
________________________________________________________________________________
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MACATAWA BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Month Periods Ended June 30, 1999 and June 30, 1998
(unaudited)
________________________________________________________________________________
<TABLE>
Six Months Six Months
ended ended
June 30, 1999 June 30, 1998
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (32,994) $ (1,446,459)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation and amortization 314,042 79,681
Provision for loan losses 995,000 902,500
Net change in
Accrued interest receivable and other assets (305,771) (1,014,001)
Accrued expenses and other liabilities 208,712 210,980
---------- ------------
Net cash from operating activities 1,178,989 (1,267,299)
Purchase of Cash flows from investing activities
Net increase in loans (79,657,109) (59,876,856)
Purchase of Federal Home Loan Bank Stock (2,312,000) -
Purchases of Securities available for sale (8,000,000) (16,000,000)
Proceeds from Maturities and calls of securities available for sale 15,000,000 2,000,000
Purchases of Premises and equipment (1,667,584) (1,900,063)
Net cash from investing activities (76,636,693) (75,776,919)
---------- ------------
Cash flows from financing activities
Net increase in deposits 50,554,158 59,908,714
Net decrease in short term borrowings (2,000,000) -
Proceeds from Federal Home Loan Bank borrowings 16,000,000 -
Proceeds from sale of stock 14,636,431 14,153,895
---------- ------------
Net cash from financing activities 79,190,589 74,062,609
Net change in cash and cash equivalents 3,732,885 (2,981,609)
Cash and cash equivalents at beginning of period 17,953,177 7,415,120
---------- ------------
Cash and cash equivalents at end of period $21,686,062 $ 4,433,511
=========== ============
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 3,767,331 $ 430,961
________________________________________________________________________________
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MACATAWA BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Month Periods Ended June 30, 1999 (Unaudited) and June 30, 1998
________________________________________________________________________________
<TABLE>
Accumulated
Other Total
Common Proceeds from Retained Comprehensive Shareholders'
Stock Sale of Stock Deficit Income Equity
--------- ------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ 8,137,268 $ (165,525) $ 264 $ 7,972,007
Proceeds from sale of stock 14,153,895 14,153,895
Net loss for six months ended
June 30, 1998 (unaudited) (1,446,459) (1,446,459)
Other comprehensive income, net of tax:
Unrealized gains/losses on securities (19,684) (19,684)
-----------
Other comprehensive income
Comprehensive Income (1,466,143)
----------- ------------ ------------- ----------- ------------
Balance, June 30, 1998 $ 8,137,268 $ 14,153,895 $ (1,611,984) $ (19,420) $ 20,659,759
=========== ============ ============= =========== ============
Accumulated
Other Total
Common Proceeds from Retained Comprehensive Shareholders'
Stock Sale of Stock Deficit Income Equity
-------- ------------- --------- ------------- -------------
Balance, December 31, 1998 $ 22,260,646 $ (2,654,076) $ 4,818 $ 19,611,388
Proceeds from sale of Stock 14,636,431 $ 14,636,431
Net loss for six months ended
June 30, 1999 (unaudited) (32,994) (32,994)
Other comprehensive income, net of tax:
Unrealized gains/losses on securities
Other comprehensive income (239,903) (239,903)
----------
Comprehensive Income (272,897)
Balance, June 30, 1999 $ 22,260,646 $ 14,636,431 $ (2,687,070) $ (235,085) $ 33,974,922
============ ============= ============= =========== ============
________________________________________________________________________________
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Proxy Statement dated March 5, 1999, containing financial statements
for the year December 31, 1998.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
Basic earnings (loss) per share is based on net income (loss) divided by
the weighted average number of shares outstanding during the period.
NOTE 3 PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include the
accounts of Macatawa Bank Corporation (the "Company), and its wholly-owned
subsidiary, Macatawa Bank (the "Bank"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
NOTE 4 INITIAL PUBLIC OFFERING AND SUBSEQUENT OFFERING
The Company completed its initial public offering on April 7, 1998. The
Company issued 1,495,000 shares of common stock in the initial public offering,
resulting in net proceeds to the Company of $14,123,378. Pursuant to a
prospectus dated April 30, 1999, the Company offered for sale up to 1,200,000
shares to it's existing shareholders at a purchase price of $12.75 per share.
The purpose of the offering was to strengthen the Company's capital position in
anticipation of future growth. The Company issued 1,153,440 shares in the
offering, resulting in net proceeds of $14,636,431, subject to further
adjustment based upon the final actual expenses incurred.
NOTE 5 COMPARATIVE DATA
The Company became the bank holding company for Macatawa Bank on February
23, 1998, when all of the Bank's outstanding common stock was converted into all
of the outstanding stock of the Company and all of the Bank's shareholders
became all of the Company's shareholders. The Bank had commenced its application
process for regulatory approval on May 21, 1997, completed its initial sale of
common stock on November 7, 1997, and opened for operations on November 25,
1997. The Company's first full year of operation was 1998 and therefore the
financial results for the period ended June 30, 1998 differs substantially from
the financial results for the period ended June 30, 1999.
7
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 6 - SECURITIES
The amortized cost and fair values of securities were as follows:
Available for Sale
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
June 30, 1999 (Unaudited)
U.S. Treasury securities and $20,000,000 $ 0 $ (356,190) $19,643,810
obligations of U.S. Government
corporation and agencies
FHLB 2,312,000 0 0 2,312,000
----------- ---------- ---------- -----------
Total Securities $22,312,000 $ 0 $ (356,190) $21,955,810
=========== ========== =========== ===========
December 31, 1998
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $27,000,000 $ 35,700 $ (28,400) $27,007,300
=========== ========== =========== ===========
</TABLE>
Contractual maturities of debt securities at June 30, 1999, were as follows. No
held-to-maturity securities existed at June 30, 1999. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
Available-for-Sale Securities
-------------------------------
Amortized Fair
Cost Values
----------- --------
<S> <C> <C>
Due from 1999 to 2002 $12,000,000 $11,826,420
Due from 2003 to 2007 8,000,000 7,817,390
No maturity $ 2,312,000 $2,312,000
------------ ----------
Total $22,312,000 $21,955,810
=========== ===========
</TABLE>
________________________________________________________________________________
(Continued)
8
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (unaudited) and December 31, 1998
________________________________________________________________________________
NOTE 7 - LOANS
Loans are as follows:
<TABLE>
June 30, December 31,
1999 1998
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Commercial $153,041,401 $ 95,669,151
Mortgage 33,666,129 22,528,687
Consumer 30,831,332 19,684,422
------------ -------------
217,538,862 137,882,260
Allowance for loan losses (3,024,493) (2,030,000)
------------ -------------
$214,514,369 $ 135,852,260
============ =============
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
Six Six
months months
ended ended
June 30, June 30
1999 1998
-------- --------
(Unaudited) (Unaudited)
<S> <C> <C>
Balance at beginning of period $2,030,000 $ 7,500
Provision charged to operating expense 995,000 902,500
Charge Offs (507) -
---------- ----------
Balance at end of period $3,024,493 $ 910,000
========== ==========
</TABLE>
________________________________________________________________________________
(Continued)
9
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 (unaudited) and December 31, 1998
________________________________________________________________________________
NOTE 8 - PREMISES AND EQUIPMENT - NET
Premises and equipment are as follows:
<TABLE>
June 30 December 31
1999 1998
-------- ----------
<S> <C> <C>
Land $ 1,377,184 $1,177,184
Building and improvements 4,100,402 3,661,701
Furniture and equipment 3,583,204 2,553,229
------------ -----------
9,060,790 7,392,114
Less accumulated depreciation 581,493 266,359
------------ -----------
$ 8,479,297 $7,125,755
============ ===========
</TABLE>
NOTE 9 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
June 30 December 31
1999 1998
------------ -----------
<S> <C> <C>
Noninterest-bearing demand deposit accounts $ 26,539,550 $ 18,517,550
Money market accounts 85,518,386 71,091,206
NOW and Super NOW accounts 27,562,733 22,425,439
Savings accounts 6,675,591 5,812,028
Certificates of deposit 71,246,573 49,142,452
------------ ------------
217,542,833 $166,988,675
============ ============
</TABLE>
NOTE 10 - FEDERAL HOME LOAN BANK BORROWINGS
The Bank was approved in the first quarter to be a member of the Federal Home
Loan Bank of Indianapolis. As a result, the Bank now has availability to Federal
Home Loan Bank advances as an additional funding resource. On March 30, 1999,
the Bank utilized this resource and borrowed $10,000,000 in fixed rate loans.
The Bank borrowed an additional $6,000,000 on June 29, 1999 with a variable
rate. Maturity dates and interest rates on these advances are as follows:
<TABLE>
June 30 December 31
1999 1998
Maturity Date Interest Rate -------- -----------
------------- -------------
<S> <C> <C> <C>
June 29, 1999 5.10% (initial rate) $ 6,000,000 -
April 1, 2002 5.63% (fixed) 3,000,000 -
March 31, 2003 5.77% (fixed) 3,000,000 -
March 30, 2004 5.84% (fixed) 4,000,000 -
----------- ---------
$16,000,000 -
=========== =========
</TABLE>
Each advance is payable in full at its respective maturity date. These advances
were required to be collateralized by at least $26,000,000 of the Bank's first
mortgage loans under a blanket loan arrangement at June 30, 1999.
________________________________________________________________________________
(Continued)
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Macatawa Bank Corporation (the "Company") is a Michigan corporation and is
the bank holding company for Macatawa Bank (the "Bank"). The Bank commenced
operations on November 25, 1997. The Bank is a Michigan chartered bank with
depository accounts insured by the Federal Deposit Insurance Corporation. The
Bank provides a full range of commercial and consumer banking services,
primarily in the communities of Holland and Zeeland, Michigan, as well as the
surrounding market area primarily located i Ottawa County, Michigan.
The Company's initial plan of operation in November 1997 was to establish
its management team within the first few months of its operations. Management
believes that it has been successful in establishing a very experienced and
capable management team which can administer the Company's growth.
The Company has experienced rapid and substantial growth since opening in
November 1997 as total assets increased from $10,722,193 at December 31, 1997,
to $268,231,490 at June 30, 1999. At December 31, 1998, the Bank had a total of
eight branch banking offices and two service facilities. The Company also
completed an underwritten initial public offering of common stock on April 7,
1998. By a prospectus dated April 30, 1999, the Company offered to its
shareholders up to 1,200,000 shares of common stock at a purchase price of
$12.75 per share. Although management believes the Company will continue to grow
in 1999, the rate of increase is not expected to be as rapid as it was in 1998.
The Bank established a Trust Department in the fourth quarter of 1998 to
further provide for customers' financial needs. The Trust Department began
business on January 3, 1999 and as of June 30, 1999, had assets of approximately
$123 million.
Financial Condition
Total assets of the Company increased by $79,001,542 to $268,231,490 at
June 30, 1999, from $189,228,673 at December 31, 1998. The increase in assets is
primarily attributable to the Bank continuing to attract customer deposits and
then lending and otherwise investing these funds. The second quarter of 1999 was
the Company's sixth full quarter of operations, and the number of deposit
accounts increased from approximately 14,000 at December 31, 1998, to
approximately 20,000 deposit accounts at June 30, 1999. Management attributes
the strong growth in deposits to quality customer service, the desire of
customers to deal with a local bank, and convenient accessibility through the
expansion of branches. The Company anticipates that the Bank's assets will
continue to increase during 1999, which will be the Bank's second full year of
operations. However, management does not believe that the rate of increase will
be as rapid as it was during 1998.
Cash and cash equivalents, which include federal funds sold and short-term
investments, increased $3,732,885 to $21,686,062 at June 30,1999, from
$17,953,177 at December 31, 1998. The increase is primarily the result of
deposit growth since December 31, 1998.
Securities available for sale decreased $5,051,490 to $21,955,810 at June
30, 1999 from $27,007,300 at December 31, 1998. The decrease is the result of
called securities.
Total loans increased $79,656,602 to $217,538,862 at June 30, 1999 from
$137,882,260 at December 31, 1998. While management believes that total loans
will continue to increase, the rate of increase in the future will be
substantially less than the rate of increase during the Company's first full
year of operations.
11
<PAGE>
The allowance for loan losses as of June 30, 1999, was $3,024,493
representing approximately 1.39% of gross loans outstanding, compared to
$2,030,000 at December 31, 1998. Macatawa Bank has not experienced any material
credit losses as of June 30, 1999.
Bank premises and equipment increased to $8,479,297 at June 30, 1999 from
$7,125,755 at December 31, 1998. The increase resulted primarily from the
purchase of furniture and equipment.
Deposits increased to $217,542,833 at June 30, 1999, from $166,988,675 at
December 31, 1998. This was primarily as a result of deposits being obtained
from new customers of the Bank.
Results of Operations
Management believes that the Company will realize a modest profit for 1999.
Earnings will continue to be curtailed for much of 1999 as a result of
additional loan loss reserves, together with the time needed to more effectively
utilize its capital and generate loan interest and fee income by making
additional loans. Management believes that the expenditures made in 1997, 1998
and 1999 will create the infrastructure and lay the foundation for future growth
and profitability in subsequent years.
Interest income for the three months ended June 30, 1999 in the amount of
$4,663,222, related to interest income on securities, loans, and interest
earning deposits. Interest expense was $2,191,906 for the three months ended
June 30, 1999, and was related to interest incurred on interest bearing deposits
and FHLB borrowings.
The Company had an allowance for loan losses of approximately 1.39% of
total loans at June 30, 1999. The provision for loan losses for the three months
ended June 30, 1999 was $545,000. This amount was provided as a result of the
increase in the total loan portfolio. Management considers it prudent during the
first years of operations to provide for loan losses at a relatively high
percentage of total loans to be consistent with the loss inherent in similar
loan portfolios. Management will continue to monitor its loan loss performance
and adjust its loan loss reserve to more closely align itself to its own history
of loss experience. This may reduce its loan loss reserve as a percentage of
total loans in the future.
Non-interest income for the three months ended June 30, 1999, was $362,580,
consisting primarily of gain on sales of loans. These loans consisted primarily
of conforming mortgage loans which were sold to the secondary market. Management
believes this activity will continue to be a significant source of non-interest
income in 1999. At the present time, the Bank is not servicing the loans it
sells, but may consider doing so in the future. The Bank also recorded a modest
amount of trust fee income in the second quarter. As trust assets grow,
management believes that trust assets will be a significant source of
non-interest income during 1999.
The main components of non-interest expense were primarily salaries and
benefits. Non-interest expense for the three months ended June 30, 1999, was
$2,244,780. Other significant components of non-interest expense consisted of
occupancy and equipment expenses, legal and accounting fees, marketing expenses,
data processing, shareholder services and supplies.
12
<PAGE>
Liquidity and Capital Resources
The Company obtained its initial equity capital as a result of a private
placement on behalf of the Bank to investors in November, 1997. The Company
raised additional equity capital in its initial public offering completed April
7, 1998, which resulted in net proceeds of $14,123,378. As a condition to
regulatory approval of the Bank's formation, the Bank is required to maintain
capitalization sufficient to provide a ratio of Tier 1 Capital to total assets
of at least 8% at the end of the third year of its operations. At March 31, 1999
the Bank's Tier 1 Capital as a percent of total assets was 8.43% Due to the
rapid growth of the Bank, additional equity capital was required. The Company
filed a Registration Statement with the Securities and Exchange Commission to
register and offer to the Company's shareholders up to 1,200,000 shares of
Common Stock for a purchase price of $12.75 per share. The common stock was
offered exclusively to shareholders of the Company as of April 9, 1999.
Shareholders were entitled to purchase one share for each two shares of Common
Stock they owned on April 9, 1999. The rights offering was completed on June 4,
1999 and resulted in additional equity capital to the company in the amount of
$14,636,431. The Company added $10,000,000 from the proceeds of the offering to
the Bank's capital. At June 30, 1999, the Bank's Tier 1 Capital as a percent of
total assets was 10.83%. The Company has approximately $5 million in additional
capital which it could contribute to the Bank's capital if necessary.
The Company's sources of liquidity include loan payments by borrowers,
maturity and sales of securities available for sale, growth of deposits and
deposit equivalents, federal funds sold, borrowings from the Federal Home Loan
Bank, and the issuance of common stock.
Asset liability management aids the Company in maintaining liquidity while
maintaining a balance between interest earning assets and interest bearing
liabilities. Liquidity management involves the ability to meet the cash flow
requirements of the Company's customers. These customers may be either borrowers
with credit needs or depositors wanting to withdraw funds. Management of
interest rate sensitivity attempts to avoid widely varying net interest margins
and to achieve consistent net interes income through periods of changing
interest rates.
Year 2000 Compliance
Because many computerized systems use only two digits to record the year in
date fields (for example, the year 1998 is recorded as 98), such systems may not
be able to accurately process dates ending in the year 2000 and after. The
effects of the issue will vary from system to system and may adversely affect
the ability of a financial institution's operations as well as its ability to
prepare financial statements. The Company and the Bank were organized in 1997
and the Company acquired its computer equipment within the past eighteen months
and has contracted with a leading supplier of information processing services.
This equipment and these services were purchased with manufacturer assurances of
Year 2000 compliance.
Company management has developed and the Board of Directors has approved a
comprehensive Year 2000 Compliance Plan. The plan consists of five phases:
awareness, assessment, renovation, validation and implementation. The Company
has an internal task force to assess Year 2000 compliance by the Company, its
vendors, and major deposit customers. In addition, the Bank asks commercial
borrowers about Year 2000 compliance as part of the loan application and review
process.
To date, the Company has spent approximately $28,000 on Year 2000
compliance. Management believes that the additional costs to complete the
Company's Year 2000 compliance will be minimal.
The Company completed its Year 2000 assessment and made any necessary
remediation by June 30, 1999. However, there can be no assurance that the
Company will be successful in implementing its Year 2000 remediation plan
according to the anticipated schedule. In addition, the Company may be adversely
affected by the inability of other companies whose systems interact with the
Company to become Year 2000 compliant.
The Bank's core processing applications are provided by a third party
vendor, Rurbanc Data Services, Inc. (RDSI). The Company receives regular
correspondence from RDSI which documents the status of their Year 2000
compliance. The Company has been advised that RDSI's software has been
successfully tested for Year 2000 compliance.
13
<PAGE>
Although the Company expects its internal systems to be Year 2000 compliant
as described above, the Company is in the process of preparing a contingency
plan that will specify what it plans to do if important internal or external
systems are not Year 2000 compliant in a timely manner.
Management does not anticipate that the Company will incur material
operating expenses or be required to invest heavily in computer system
improvements to be Year 2000 compliant. Nevertheless, the inability of the
Company to successfully address Year 2000 issues could result in interruptions
in the Company's business and have a material adverse effect on the Company's
results of operations.
Recent Regulatory Developments
Various bills have been introduced in the Congress that would allow bank
holding companies to engage in a wider range of nonbanking activities, including
greater authority to engage in securities and insurance activities. While the
scope of permissible nonbanking activities and the conditions under which the
new powers could be exercised varies among the bills, the expanded powers
generally would be available to a bank holding company only if the bank holding
company and its bank subsidiaries remain well-capitalized and well-managed. The
bills also impose various restrictions on transactions between the depository
institution subsidiaries of bank holding companies and their non-bank
affiliates. These restrictions are intended to protect the depository
institutions from the risks of the new nonbanking activities permitted to such
affiliates. At this time, the Company is unable to predict whether any of the
pending bills will be enacted and, therefore, is unable to predict the impact
such legislation may have on the operations of the Company and the Bank.
Forward Looking Statements
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," "may" or similar expressions. The
presentation and discussion of the provision and allowance for loan losses,
statements concerning future profitability or future growth or increases, and
the Year 2000 readiness discussion are examples of inherently forward looking
statements in that they involve judgements and statements of belief as to the
outcome of future events. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse affect on the operations and future prospects of
the Company and the Bank include, but are not limited to, changes in: interest
rates, general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the Company's market area and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
(a) The annual meeting of shareholders of the Corporation was held on
April 15, 1999 ("Annual Meeting")
(b) The following directors were elected at the Annual Meeting for
terms expiring in 2002: Robert E. Den Herder, James L. Jurries
and Philip J. Koning. Other directors whose terms continued after
the meeting are as follows: James J. Batts, G. Thomas Boylan,
Wayne J. Elhart and Benjamin A. Smith III, whose terms expire in
2000; and Jessie F. Dalman, John F. Koetje and Brian J. Hansen,
whose terms expire in 2001.
(c) At the Annual Meeting, three directors were elected for terms
expiring in 2002 and shareholders approved an amendment to the
Stock Compensation Plan increasing the maximum number of shares
available under the Plan from 100,000 to 200,000.
The vote was as follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
(Including Broker Nonvotes)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Director Nominees:
- -----------------------------------------------------------------------------------------------------------------------
Robert E. Den Herder 1,946,366 920 60,430
- -----------------------------------------------------------------------------------------------------------------------
James L. Jurries 1,946,836 450 60,430
- -----------------------------------------------------------------------------------------------------------------------
Philip J. Koning 1,947,026 260 60,430
- -----------------------------------------------------------------------------------------------------------------------
Amendment to Stock
Compensation Plan 1,877,830 54,303 75,583
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
27 Financial Data Schedule
(EDGAR version only)
(b) Reports on Form 8-K - None.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1999, to be signed on its behalf by the
undersigned, thereunto duly authorized.
MACATAWA BANK CORPORATION
/s/ Benj. A. Smith, III
Benj. A. Smith, III
Chairman and Chief Executive Officer
/s/ Philip J. Koning
Philip J. Koning
Treasurer and Secretary
(Principal Accounting Officer)
DATE: August 11, 1999
16
::ODMA\PCDOCS\GRR\290618\2
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information from SEC Form 10-QSB and is
qualified in its entirety by reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,686,062
<INT-BEARING-DEPOSITS> 152,118
<FED-FUNDS-SOLD> 9,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,955,810
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 217,538,862
<ALLOWANCE> 3,024,493
<TOTAL-ASSETS> 268,231,490
<DEPOSITS> 217,542,833
<SHORT-TERM> 6,000,000
<LIABILITIES-OTHER> 713,725
<LONG-TERM> 10,000,000
0
0
<COMMON> 36,895,802
<OTHER-SE> (2,687,070)
<TOTAL-LIABILITIES-AND-EQUITY> 268,231,490
<INTEREST-LOAN> 7,568,141
<INTEREST-INVEST> 730,233
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 8,298,374
<INTEREST-DEPOSIT> 3,759,357
<INTEREST-EXPENSE> 3,943,593
<INTEREST-INCOME-NET> 4,354,781
<LOAN-LOSSES> 995,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,144,500
<INCOME-PRETAX> (32,994)
<INCOME-PRE-EXTRAORDINARY> (32,994)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,994)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
<YIELD-ACTUAL> 4.29
<LOANS-NON> 0
<LOANS-PAST> 248,104
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,030,000
<CHARGE-OFFS> 507
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 3,024,493
<ALLOWANCE-DOMESTIC> 3,024,493
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
