SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 333-45755
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 issuers classes of common stock,
as of the latest practicable date: 2,435,125 shares of the Company's Common
Stock (no par value) were outstanding as of May 10, 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 Securities 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 March 31, 1999 (unaudited) and December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
March 31, December 31,
1999 1998
--------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,907,514 $ 11,453,177
Federal funds sold 7,700,000 --
Short-term investments 2,000,000 6,500,000
---------- ---------
Cash and cash equivalents 19,607,514 17,953,177
Securities available for sale, at fair value 17,143,218 27,007,300
Total loans 177,120,291 137,882,260
Allowance for loan losses (2,480,000) (2,030,000)
174,640,291 135,852,260
Premises and equipment - net 7,692,025 7,125,755
Accrued interest receivable 1,197,189 1,226,199
Other assets 168,516 63,982
------------- --------------
Total Assets $220,448,753 $189,228,673
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 19,457,256 $18,517,550
Interest-bearing 170,766,071 148,471,125
----------- -----------
Total 190,233,327 166,988,675
Federal funds purchased -- 2,000,000
Federal Home Loan Bank Borrowings 10,000,000 -
Accrued expenses and other liabilities 744,596 628,610
------------ -------------
Total liabilities 200,967,923 169,617,285
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; 2,435,125 shares
issued and outstanding as of March 31, 1999 and
December 31, 1998, respectively 22,260,646 22,260,646
Retained deficit (2,731,186) (2,654,076)
Net unrealized appreciation (depreciation) on securities
available for sale, net of tax (48,630) 4,818
------------ ---------------
Total shareholders' equity 19,480,830 19,611,388
---------- -----------
Total liabilities and shareholders' equity $220,448,753 $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 March 31, 1999 and March 31, 1998
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months Three Months
ended ended
March 31, 1999 March 31, 1998
-------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Interest Income
Loans, including fees $ 3,278,369 $ 145,511
Investments 356,783 197,961
------------ -----------
Total interest income 3,635,152 343,472
Interest expense
Deposits 1,749,202 138,344
Other 2,485 39
------------ -----------
Total interest expense 1,751,687 138,383
Net interest income 1,883,465 205,089
Provision for loan losses (450,000) (200,500)
Net interest income after provision for loan losses 1,433,465 4,589
Noninterest income 389,145 3,441
Noninterest expense
Salaries and benefits 1,101,157 292,398
Occupancy expense of premises 158,390 29,295
Furniture and equipment expense 138,957 29,364
Legal and professional fees 32,865 44,664
Advertising 40,424 26,615
Data Processing 42,386 11,481
Supplies 67,671 24,474
Other expense 317,870 74,947
----------- ----------
Total noninterest expenses 1,899,720 533,238
Loss before federal income tax (77,110) (525,208)
Federal income tax 0 0
----------- ----------
Net loss $ ( 77,110) $ (525,208)
=========== ==========
Basic and diluted loss per share (.03) (.56)
Average shares outstanding 2,435,125 940,125
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
MACATAWA BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Month Periods Ended March 31, 1999 and March 31, 1998
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months Three Months
ended ended
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (77,110) $ (525,208)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation and amortization 137,209 25,273
Provision for loan losses 450,000 200,500
Net change in
Organizational costs - 5,512
Accrued interest receivable and other assets (75,524) (355,601)
Accrued expenses and other liabilities 143,520 131,477
---------- -----------
Net cash from operating activities 578,095 (518,047)
---------- -----------
Purchase of Cash flows from investing activities
Net increase in loans (39,238,031) (13,365,057)
Purchase of Federal Home Loan Bank Stock (1,216,900) -
Purchases of Securities available for sale (4,000,000) (14,000,000)
Proceeds from Maturities and calls of securities available for sale 15,000,000 2,000,000
Purchases of Premises and equipment (703,479) (782,087)
----------- -----------
Net cash from investing activities (30,158,410) (26,147,144)
Cash flows from financing activities
Net increase in deposits 23,234,652 24,171,635
Net decrease in short term borrowings (2,000,000)
Net increase in Federal Home Loan Bank borrowings 10,000,000
Net cash from financing activities 31,234,652 24,171,635
---------- -----------
Net change in cash and cash equivalents 1,654,337 (2,493,556)
Cash and cash equivalents at beginning of period 17,953,177 7,415,120
---------- -----------
Cash and cash equivalents at end of period $19,607,514 $ 4,921,564
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 1,775,073 $ 87,005
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
MACATAWA BANK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY Three Month Periods Ended
March 31, 1999 and March 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Accumulated
Other Total
Common Retained Comprehensive Shareholders'
Stock Deficit Income Equity
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $8,137,268 $ (165,525) $ 264 $7,972,007
Net loss for three months ended
March 31, 1998 (unaudited) (525,208) (525,208)
Other comprehensive income, net of tax:
Unrealized gains/losses on securities (36,734) (36,734)
----------
Other comprehensive income (36,734)
----------
Comprehensive Income (561,942)
---------- ------------ ----------- ----------
Balance, March 31, 1998 $8,137,268 $ (690,733) $ (36,470) $7,410,065
========== ============ =========== ==========
</TABLE>
<TABLE>
Accumulated
Other Total
Common Retained Comprehensive Shareholders'
Stock Deficit Income Equity
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $22,260,646 $(2,654,076) $ 4,818 $19,611,388
Net loss for three months ended
March 31, 1999 (unaudited) (77,110) (77,110)
Other comprehensive income, net of tax:
Unrealized gains/losses on securities
Other comprehensive income (53,448) (53,448)
Comprehensive Income (130,558)
----------- ------------ ---------- -----------
Balance, March 31, 1999 $22,260,646 $(2,731,186) $ (48,630) $19,480,830
=========== ============ ========== ===========
</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 three month period
ended March 31, 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 is offering for sale up to
1,200,000 shares at a purchase price of $12.75 per share. The purpose of the
offering is to strengthen the Company's capital position in anticipation of
future growth.
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 quarter ended March 31, 1998, was the Company's first full quarter of
operations and therefore differs substantially from the financial results for
the quarter ended March 31, 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>
March 31, 1999 (Unaudited)
Other Equity Securities $ 1,216,900 $ 0 $ 0 $ 1,216,900
U.S. Treasury securities and
obligations of U.S. Government
corporation and agencies 16,000,000 0 $ (73,682) 15,926,318
----------- --------- ---------- -----------
Total Securities $17,216,900 $ 0 $ (73,682) $17,143,218
=========== ========= ========== ===========
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 March 31, 1999, were as follows. No
held-to-maturity securities existed at March 31, 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 $ 10,000,000 $9,958,728
Due from 2003 to 2007 6,000,000 5,967,590
No maturity $ 1,216,900 $1,216,900
------------ ----------
Total $ 17,216,900 $17,143,218
============ ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
-8-
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (unaudited) and December 31, 1998
- --------------------------------------------------------------------------------
NOTE 7 - LOANS
Loans are as follows:
<TABLE>
March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Commercial $124,952,245 $95,669,151
Mortgage 27,469,671 22,528,687
Consumer 24,698,375 19,684,422
------------ ------------
177,120,291 137,882,260
Allowance for loan losses (2,480,000) (2,030,000)
------------ ------------
$174,640,291 $135,852,260
============ ============
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
Three Three
months months
ended ended
March 31, March 31
1999 1998
(Unaudited)
<S> <C> <C>
Balance at beginning of period $2,030,000 $ 7,500
Provision charged to operating expense 450,000 200,500
---------- ----------
Balance at end of period $2,480,000 $ 208,000
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
-9-
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998 (unaudited) and December 31, 1998
- --------------------------------------------------------------------------------
NOTE 8 - PREMISES AND EQUIPMENT - NET
Premises and equipment are as follows:
<TABLE>
March 31, December 31
1999 1998
<S> <C> <C>
Land $ 1,377,184 $1,177,184
Building and improvements 3,814,733 3,661,701
Furniture and equipment 2,913,054 2,553,229
------------ -----------
8,104,971 7,392,114
Less accumulated depreciation 412,946 266,359
------------ -----------
$ 7,692,025 $7,125,755
============ ===========
</TABLE>
NOTE 9 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
March 31, December 31,
1999 1998
<S> <C> <C>
Noninterest-bearing demand deposit accounts $19,457,256 $ 18,517,550
Money market accounts 80,333,043 71,091,206
NOW and Super NOW accounts 23,605,995 22,425,439
Savings accounts 5,207,170 5,812,028
Certificates of deposit 61,629,863 49,142,452
------------ ------------
190,233,327 $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 31, 1999,
the Bank utilized this resource and borrowed $10,000,000 as follows:
<TABLE>
March 31, December 31,
1999 1998
Maturity Date Interest Rate
<S> <C> <C> <C>
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 -
----------- ----------
$10,000,000 $ -
=========== ==========
</TABLE>
Each advance is payable in full at its respective maturity date. These advances
were required to be collateralized by at least $16,000,000 of the Bank's first
mortgage loans under a blanket loan arrangement at March 31, 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 in 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 $220,448,753 at March 31, 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 is offering 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 March 31, 1999, had assets of
approximately $47.1 million.
Financial Condition
Total assets of the Company increased by $31,220,080 to $220,448,753 at
March 31, 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 first quarter of 1999
was the Company's fifth full quarter of operations, and the number of deposit
accounts increased from approximately 14,000 at December 31, 1998, to
approximately 17,115 deposit accounts at March 31, 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 $1,654,337 to $19,607,514 at December 31,1998, 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 $9,864,082 to $17,143,218 at March
31, 1999 from $27,007,300 at December 31, 1998. The decrease is the result of
called securities.
Total loans increased $39,238,031 to $177,120,291 at March 31, 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 March 31, 1999, was $2,480,000
representing approximately 1.4% of gross loans outstanding, compared to
$2,030,000 at December 31, 1998. Macatawa Bank has not experienced any material
credit losses as of March 31, 1999.
Bank premises and equipment increased to $7,692,025 at March 31, 1999 from
$7,125,755 at December 31, 1997. The increase resulted from the purchase of
furniture and equipment.
Deposits increased to $190,233,327 at March 31, 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
A line by line comparison of results of operations for the three month
periods ended March 31, 1999, and March 31, 1998 is not provided.
The net loss for the three months ended March 31, 1999, was $77,110. As of
March 31, 1999, the Company had a retained deficit of $2,731,186, and as of
December 31, 1998, the Company had a retained deficit of $2,654,076. The
retained deficit and net losses are primarily the result of provisions for loan
losses which totaled $2,480,000 at March 31, 1999. Wages paid to employees and
fees and expenses incurred in forming the Company and applying for regulatory
approval for the Bank's existing and proposed branches also contributed to the
retained deficit and net losses. 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 and 1998 will create the infrastructure and lay the
foundation for future growth and profitability in subsequent years.
Interest income for the three months ended March 31, 1999 was $3,635,152,
related to interest income on securities, loans, and interest earning deposits.
Interest expense was $1,751,687 for the three months ended March 31, 1999,
related to interest incurred on interest bearing deposits.
The Company had an allowance for loan losses of approximately 1.4% of total
loans at March 31, 1999. The provision for loan losses for the three months
ended March 31, 1999 was $450,000. This amount was provided as a result of the
increase in the total loan portfolio. Management considered it prudent during
the first year 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 March 31, 1999, was
$389,145, 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 first 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 March 31, 1999, was
$1,899,720. Other significant components of non-interest expense consisted of
occupancy and equipment expenses, legal and accounting fees, marketing expenses,
data processing 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. Given the rapid growth
of the Bank, it is expected that additional equity capital will be required
during 1999. The Company has 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 is being offered exclusively to shareholders of the Company as
of April 9, 1999. Shareholders are entitled to purchase one share for each two
shares of Common Stock they owned on April 9, 1999. Shareholders must exercise
their right to purchase by June 4, 1999. There can be no assurance as to the
total dollar amount of subscriptions that will be received as a result of this
offering.
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%. The Company has approximately $1 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 interest 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 presently anticipates that it will complete its Year 2000
assessment and 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
-13-
<PAGE>
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.
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" or similar expressions. 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 subsidiaries 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.
None.
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 March 31, 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: May 12, 1999
-16-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information from SEC Form 10-QSB and is
qualfied in its entirety by reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,907,514
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,143,218
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 177,120,291
<ALLOWANCE> 2,480,000
<TOTAL-ASSETS> 220,448,753
<DEPOSITS> 190,233,327
<SHORT-TERM> 0
<LIABILITIES-OTHER> 744,596
<LONG-TERM> 0
0
0
<COMMON> 22,260,646
<OTHER-SE> (2,731,186)
<TOTAL-LIABILITIES-AND-EQUITY> 220,448,753
<INTEREST-LOAN> 3,278,369
<INTEREST-INVEST> 356,783
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,635,152
<INTEREST-DEPOSIT> 1,749,202
<INTEREST-EXPENSE> 1,751,687
<INTEREST-INCOME-NET> 1,883,465
<LOAN-LOSSES> 450,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,899,720
<INCOME-PRETAX> (77,110)
<INCOME-PRE-EXTRAORDINARY> (77,110)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,110)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<YIELD-ACTUAL> 4.16
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,030,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,480,000
<ALLOWANCE-DOMESTIC> 2,480,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
