SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 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 May 10, 2000.
Transitional Small Business Disclosure Format (check one): Yes _____ No __X__
<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 12
Item 3.
Quantitative and Qualitative Disclosures 15
About Market Risk
Part II. Other Information
Item 1.
Legal Proceedings 16
Item 2.
Changes in Securities and Use of Proceeds 16
Item 3.
Defaults Upon Senior Securities 16
Item 4.
Submission of Matters to a Vote of Security Holders 16
Item 5.
Other Information 16
Item 6.
Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
Part I Financial Information
MACATAWA BANK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2000 (unaudited) and December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 23,344,536 $ 20,554,039
Federal funds sold 1,500,000 --
---------- ------------
Cash and cash equivalents 24,844,536 20,554,039
Securities available for sale, at fair value 29,581,543 28,281,375
Federal Home Loan Bank Stock 2,312,000 2,312,000
Total loans 325,952,756 285,374,451
Allowance for loan losses (4,482,165) (3,995,165)
------------ ---------------
321,470,591 281,379,286
Premises and equipment - net 11,666,705 9,997,566
Accrued interest receivable 2,097,691 1,904,126
Other assets 736,185 492,743
------------ --------------
Total Assets $392,709,251 $344,921,135
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 36,191,301 $34,542,493
Interest-bearing 285,393,853 244,847,389
----------- -----------
Total 321,585,154 279,389,882
Federal Home Loan Bank Borrowings 35,000,000 30,000,000
Accrued expenses and other liabilities 1,122,006 1,005,100
------------ ------------
Total liabilities 357,707,160 310,394,982
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 shares issued
and outstanding as of March 31, 2000 and
December 31, 1999. 36,882,916 36,822,916
Retained deficit (1,434,197) (1,960,810)
Accumulated other comprehensive income (446,628) (395,953)
----------- -----------
Total shareholders' equity 35,002,091 34,526,153
---------- -----------
Total liabilities and shareholders' equity $392,709,251 $344,921,135
============ ============
</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, 2000 and March 31, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months Three Months
ended ended
March 31, 2000 March 31, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Interest Income
Loans, including fees $6,610,646 $3,278,369
Investments 495,285 356,783
----------- ---------
Total interest income 7,105,931 3,635,152
Interest expense
Deposits 3,056,181 1,749,202
Other 512,525 2,485
----------- -----------
Total interest expense 3,568,706 1,751,687
Net interest income 3,537,225 1,883,465
Provision for loan losses (487,000) (450,000)
Net interest income after
provision for loan losses 3,050,225 1,433,465
Noninterest income
Service charges on deposit accounts 200,959 89,514
Gain (loss) on sale of loans 39,321 255,988
Trust revenue 113,366 --
Other 52,004 43,643
--------- ---------
Total noninterest income 405,650 389,145
Noninterest expense
Salaries and benefits 1,648,019 1,101,157
Occupancy expense of premises 255,264 158,390
Furniture and equipment expense 262,996 138,957
Legal and professional fees 51,044 32,865
Advertising 69,753 40,424
Data Processing 73,807 42,386
Shareholder Services 18,174 6,380
Supplies 104,157 67,671
Other expense 446,048 311,490
-------- ----------
Total noninterest expenses 2,929,262 1,899,720
Income/(Loss) before federal income tax 526,613 (77,110)
Federal income tax 0 0
--- ---
Net income/(loss) $ 526,613 $ (77,110)
========= ==========
Basic and diluted income/(loss) per share .15 (.03)
Average shares outstanding 3,558,565 2,435,125
</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, 2000 and March 31, 1999
(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
Three Months Three Months
ended ended
March 31, 2000 March 31, 1999
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net Income $ 526,613 $ (77,110)
Adjustments to reconcile net loss to net
cash from operating activities
Depreciation and amortization 249,464 137,209
Provision for loan losses 487,000 450,000
Net change in
Accrued interest receivable and other assets (437,007) (75,524)
Accrued expenses and other liabilities 143,011 143,520
--------- -----------
Net cash from operating activities 969,081 578,095
Purchase of Cash flows from investing activities
Net increase in loans (40,578,305) (39,238,031)
Purchase of Federal Home Loan Bank Stock -- (1,216,900)
Purchases of securities available for sale (1,371,656) (4,000,000)
Proceeds from maturities and calls of securities available for sale -- 15,000,000
Purchases of premises and equipment (1,923,895) (703,479)
------------ ----------
Net cash from investing activities (43,873,856) (30,158,410)
Cash flows from financing activities
Net increase in deposits 42,195,272 23,234,652
Net increase (decrease) in short term borrowings -- (2,000,000)
Advances of Federal Home Loan Bank Borrowings 25,000,000 10,000,000
Repayments of Federal Home Loan Bank Borrowings (20,000,000) --
----------- -----------
Net cash from financing activities 47,195,272 31,234,652
Net change in cash and cash equivalents 4,290,497 1,654,337
Cash and cash equivalents at beginning of period 20,554,039 17,953,177
---------- -----------
Cash and cash equivalents at end of period $24,844,536 $19,607,514
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 2,844,098 $ 1,775,073
</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, 2000 and March 31, 1999
(unaudited)
- --------------------------------------------------------------------------------
<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 (53,448) (53,448)
------------
Other comprehensive income (53,448)
------------
Comprehensive loss (130,558)
----------- ------------ ---------- -------------
Balance, March 31, 1999 $22,260,646 $ (2,731,186) $ (48,630) $ 19,480,830
=========== ============ ========== =============
Accumulated
Other Total
Common Retained Comprehensive Shareholders'
Stock Deficit Income Equity
--------- ---------- ----------- ----------
Balance, December 31, 1999 $ 36,882,916 $ (1,960,810) $ (395,953) 34,526,153
Net income for three months ended
March 31, 2000 (unaudited) 526,613 526,613
Other comprehensive income, net of tax:
Unrealized gains/losses on securities (50,675) (50,675)
---------- --------
Other comprehensive income (50,675) (50,675)
---------- --------
Comprehensive income 475,938
------------ ------------ ---------- ------------
Balance, March 31, 2000 $ 36,882,916 $ (1,434,197) $ (446,628) $ 35,002,091
============ ============ ========== ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and March 31, 1999
(unaudited)
- --------------------------------------------------------------------------------
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-Q 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,
2000, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Proxy
Statement dated March 20, 2000, containing financial statements for the year
ended December 31, 1999.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
Basic and diluted 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.
7
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and March 31, 1999
(unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - SECURITIES
The amortized cost and fair values of securities were as follows:
<TABLE>
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
March 31, 2000 (Unaudited)
U.S. Treasury securities and $28,928,489 $ 590 $ (675,389) $28,253,690
obligations of U.S. Government
corporation and agencies
Tax Exempt Municipal Bonds 1,329,763 3,127 (5,037) 1,327,853
----------- -------- ---------- -----------
Total Securities $30,258,252 $ 3,717 $ (680,426) $29,581,543
=========== ======== ========== ===========
December 31, 1999
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $27,925,926 $ (589,036) $27,336,890
State and municipal bonds 955,377 $ 852 (11,744) 944,485
----------- -------- ---------- -----------
$28,881,303 $ 852 $ (600,780) $28,281,375
========== ======== ========== ===========
</TABLE>
Contractual maturities of debt securities at March 31, 2000, were as follows. No
held-to-maturity securities existed at March 31, 2000. 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 one to five $19,984,497 $19,597,490
Due from five to ten 8,943,992 8,656,200
Due after ten years 1,329,763 1,327,853
----------- -----------
Total $30,258,252 $29,581,543
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
8
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and March 31, 1999
(unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - LOANS
Loans are as follows:
<TABLE>
March 31, December 31,
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Commercial $231,615,620 $201,391,721
Mortgage 49,494,376 44,734,529
Consumer 44,842,760 39,248,201
------------ -------------
325,952,756 285,374,451
Allowance for loan losses (4,482,165) (3,995,165)
------------ -------------
$321,470,591 $ 281,379,286
============ =============
</TABLE>
Activity in the allowance for loan losses is as follows:
<TABLE>
Three Three
months months
ended ended
March 31, March 31,
2000 1999
---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Balance at beginning of period $3,995,165 $2,030,000
Provision charged to operating expense 487,000 450,000
---------- ----------
Balance at end of period $4,482,165 $2,480,000
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
9
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and March 31, 1999
(unaudited)
- --------------------------------------------------------------------------------
NOTE 6 - PREMISES AND EQUIPMENT - NET
Premises and equipment are as follows:
<TABLE>
March 31 December 31
2000 1999
---- ----
<S> <C> <C>
Land $ 1,869,218 $1,574,218
Building and improvements 6,053,369 4,915,252
Furniture and equipment 5,007,252 4,516,473
------------ -----------
12,929,839 11,005,943
Less accumulated depreciation (1,263,134) (1,008,377)
------------ -----------
$11,666,705 $9,997,566
=========== ==========
</TABLE>
NOTE 7 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
March 31 December 31
2000 1999
---- ----
<S> <C> <C>
Noninterest-bearing demand deposit accounts $ 36,191,301 $ 34,542,493
Money market account 110,101,540 100,642,349
NOW and Super NOW accounts 42,393,162 43,237,004
Savings accounts 8,837,950 7,411,691
Certificates of deposit 124,061,201 93,556,345
----------- ------------
$321,585,154 $279,389,882
============ ============
</TABLE>
NOTE 8 - FEDERAL HOME LOAN BANK BORROWINGS
The Bank was approved in the first quarter of 1999 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. Maturity
dates and interest rates on these advances are as follows:
<TABLE>
March 31 December 31
2000 1999
Maturity Date Interest Rate ---- ----
------------- -------------
<S> <C> <C> <C>
March 27, 2000 5.44% (initial rate) 0 $5,000,000
June 19, 2000 5.65% (initial rate) 0 5,000,000
June 26, 2000 3.85% (initial rate) 0 5,000,000
April 1, 2002 5.63% (fixed) 3,000,000 3,000,000
March 31, 2003 5.77% (fixed) 3,000,000 3,000,000
March 30, 2004 5.84% (fixed) 4,000,000 4,000,000
Sept. 1, 2009 5.80% (fixed) 5,000,000 5,000,000
January 7, 2005 6.68% (fixed) 5,000,000 0
January 7, 2005 6.465% (fixed) 5,000,000 0
March 23, 2010 5.99% (fixed) 10,000,000 0
----------- -----------
$35,000,000 $30,000,000
=========== ===========
</TABLE>
Each advance is payable in full at its respective maturity date. These advances
were required to be collateralized by at least $56,000,000 of the Bank's first
mortgage loans under a blanket loan arrangement at March 31, 2000.
10
<PAGE>
MACATAWA BANK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (unaudited) and December 31, 1999
- --------------------------------------------------------------------------------
NOTE 9 - REGULATORY MATTERS
The Company and the Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weighting, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If only adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restorations required
At March 31, 2000 and December 31, 1999, actual capital levels (in thousands)
and minimum required levels for the Company and the Bank were:
<TABLE>
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
March 31, 2000 Amount Ratio Amount Ratio Amount Ratio
- -------------- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets)
Consolidated $39,931 12.2% $26,100 8.0% $32,626 10.0%
Bank 38,066 12.2 26,097 8.0 32,622 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 35,449 10.9 13,050 4.0 19,575 6.0
Bank 33,584 10.9 13,049 4.0 19,573 6.0
Tier 1 capital (to average assets)
Consolidated 35,449 9.8 14,452 4.0 18,065 5.0
Bank 33,584 9.4 14,451 4.0 18,064 5.0
December 31, 1999
- -----------------
Total capital (to risk weighted assets)
Consolidated $38,358 14.0% $21,989 8.0% $27,489 10.0%
Bank 33,463 12.2 21,992 8.0 27,491 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 34,922 12.7 10,994 4.0 16,491 6.0
Bank 30,027 10.9 10,996 4.0 16,494 6.0
Tier 1 capital (to average assets)
Consolidated 34,922 10.8 12,940 4.0 16,175 5.0
Bank 30,027 9.4 12,811 4.0 16,014 5.0
</TABLE>
The Company and the Bank were categorized as well capitalized at March 31, 2000
and at year-end 1999.
11
<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 has experienced rapid and substantial growth since opening in
November 1997. At March 31, 2000, the Bank had thirteen branch banking offices
and two service facilities. The Company completed an underwritten initial public
offering of common stock on April 7, 1998, resulting in net proceeds of $14.1
million. In June 1999, the Company completed an offering of common stock to its
shareholders resulting in net proceeds of $14.6 million.
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, 2000, had assets of
approximately $208 million.
Financial Condition
Total assets of the Company increased by $47,788,116 to $392,709,251 at
March 31, 2000 from $344,921,135 at December 31, 1999. The increase in assets is
primarily attributable to the Bank continuing to attract customer deposits and
then lending and otherwise investing these funds. The number of deposit accounts
increased from approximately 27,000 at December 31, 1999, to approximately
30,000 deposit accounts at March 31, 2000. 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.
Cash and cash equivalents, which include federal funds sold and short-term
investments, increased $4,290,497 to $24,844,536 at March 31, 2000, from
$20,554,039 at December 31, 1999. The increase is due to an increase in deposits
on the last day of the quarter. These funds will be used as a means to fund
future loan growth.
Securities available for sale increased $1,300,168 to $29,581,543 at March
31, 2000 from $28,281,375 at December 31, 1999. The increase is the result of
purchasing additional securities as a means of strengthening the Bank's
liquidity ratio.
Total loans increased $40,578,305 to $325,952,756 at March 31, 2000 from
$285,374,451 to December 31, 1999, or 11.7%. Commercial loans increased
$30,223,899 from $201,391,721 at December 31, 1999 to $231,615,620 at March 31,
2000, an increase of 15%. Commercial loans account for approximately 71% of the
Bank's total loan portfolio.
The allowance for loan losses as of March 31, 2000 was $4,482,165
representing approximately 1.38% of gross loans outstanding, compared to
$3,995,165 at December 31, 1999. The Bank has not experienced any material
credit losses as of March 31, 2000.
Bank premises and equipment increased to $11,666,705 at March 31, 2000 from
$9,997,566 at December 31, 1999. The increase resulted primarily from the
purchase of a branch facility operated by the Bank and located at 699 E. 16th
Street in Holland. The Bank previously leased this facility.
Deposits increased to $321,585,154 at March 31, 2000, from $279,389,882 at
December 31, 1999. This was primarily as a result of deposits being obtained
from new customers of the Bank. Noninterest bearing demand deposit accounts
increased by $1,648,808 to $36,191,301 at March 31, 2000 from $34,542,493 at
December 31, 1999. These accounts are comprised primarily of business checking
accounts and represented approximately 10% of total deposits at March 31, 2000.
Results of Operations
Net income for the quarter ended March 31, 2000, was $526,613, an increase
of $603,723 over
12
<PAGE>
the same period last year. The primary reason for the increase in income is due
to the continued growth of the Company resulting in an increase of net interest
income. Net interest income for the quarter ended March 31, 2000 was $3,537,225
and $1,883,465 for the quarter ended March 31, 1999. Interest income for the
quarter ended March 31, 2000 was $7,105,931, related to interest income on
securities, loans and interest earning deposits. Interest expense was $3,568,706
for the quarter ended 2000, related to interest incurred on interest bearing
deposits, fed funds purchased and Federal Home Loan Bank advances.
The Company had an allowance for loan losses of approximately 1.38% of
total loans at March 31, 2000. The provision for loan losses for the quarter
ended March 31, 2000 was $487,000. 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 level which is
consistent with levels maintained by banks with 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.
Non-interest income for the quarter ended March 31, 2000 was $405,650, an
increase of $16,505 over the same period last year. Gains on sales of loans
decreased by $216,667 to $39,321 at March 31, 2000, from $255,988 at March 31,
1999. The decrease can be attributed primarily to a decline in refinancing of
residential mortgages as a result of recent market rate increases. Another
component of non-interest income is service charges on deposit accounts which
increased by $111,445 to $200,959 at March 31, 2000 from $89,514 at March 31,
1999. This is the result of an increase in the number of deposit accounts to
approximately 30,000 at March 31, 2000 from approximately 17,000 at March 31,
1999. Trust revenues also contributed to non-interest income. The Trust
Department began business on January 3, 1999. Trust revenues for the quarter
ended March 31, 2000 were $113,366 compared to no revenues for the quarter ended
March 31, 1999. Trust revenues continue to improve each quarter, commensurate
with the growth of trust assets.
Non-interest expense for the quarter ended March 31, 2000 was $2,929,262,
compared to $1,899,728 at March 31, 1999, an increase of $1,029,534. The
increase in the main components of non-interest expense can be attributed
primarily to the growth of the Bank and building the infrastructure for future
growth. The main components of non-interest expense were primarily salaries and
benefits which totaled $1,648,019, an increase of $546,862 over March 31, 1999
of $1,101,157. Other significant components of non-interest expense consisted of
occupancy and equipment expenses, supplies, data processing advertising and
legal and accounting fees. These components, in aggregate, totaled to $817,021
at March 31, 2000, an increase of $336,328 from $480,693 at March 31, 1999.
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 of $14.1 million in its initial public offering
completed in April, 1998. 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% through the end of the
third year of operations. The Bank will complete its third year of operations on
November 25, 2000. 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. In June 1999, the Company raised $14.6 million of equity
capital net proceeds in an offering made to the Company's shareholders. The
Company contributed $10 million from the proceeds of this offering to the Bank's
capital. Due to continued growth of the Bank, an additional $3 million was
contributed to the Bank from the Company's cash reserves of approximately $5
million. At March 31, 2000, the Bank's Tier 1 Capital as a percent of total
assets was 8.44%.
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. 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.
13
<PAGE>
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.
The Company has not experienced any Year 2000 problems. Although considered
unlikely, unanticipated problems, including problems associated with
non-compliant third parties, could still occur. The Company will continue to
manage its business and address any issues that may arise.
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>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Asset Liability Management and Market Risk Analysis
Asset liability management aids the Company in maintaining liquidity while
maintaining a balance between interest earning assets and interest bearing
liabilities. 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. Certain savings accounts and
interest bearing checking accounts are shown as repricing other than
contractually due to the stability of these products in a rate changing
environment. Management monitors the Company's exposure to interest rate changes
using a GAP analysis. The following table illustrates the Company's GAP position
at various intervals (in thousands) at March 31, 2000.
<TABLE>
Less than
3 Months 3 - 12 Months 1 - 5 Years Over 5 Years Total
<S> <C> <C> <C> <C> <C>
Assets:
Loans-Fixed 15,888 26,880 117,114 26,223 186,105
Loans-Variable 119,885 323 17,159 2,479 139,846
Taxable Securities - - 28,254 - 28,254
Tax-Exempt Securities - - - 1,328 1,328
Other Securities - - - 2,312 2,312
Federal Funds Sold 1,500 - - - 1,500
Loan Loss Reserve - - - - (4,482)
Cash & Due From Banks - - - - 23,345
Fixed Assets - - - - 11,667
Other Assets - - - - 2,834
----------- ---------- ---------- --------- ---------
TOTAL 137,273 27,203 162,527 32,342 392,709
Liabilities:
CD's 100M and Over 35,065 25,887 11,601 - 72,553
CD's-Less than 100M 7,061 19,514 19,033 - 45,608
Repo's & Borrowed Money - - 20,000 15,000 35,000
Savings & IRA's 2,495 1,736 10,344 788 15,363
NOW & MMDA's 78,930 - 72,940 - 151,870
Non-Interest Bearing Deposits - - - - 36,191
Other Liabilities & Equity - - - - 36,124
----------- ---------- ---------- --------- ---------
123,551 47,137 133,918 15,788 392,709
TOTAL
Period Gap: 13,722 (19,934) 28,609 16,554
Cumulative Gap: 13,722 (6,212) 22,397 38,951
Cumulative Gap/Total Assets 3.49% -1.58% 5.70% 9.92%
RSA/RSL 1.11 0.58 1.21 2.05
Cumulative RSA/RSL 1.11 0.96 1.07 1.12
</TABLE>
Based on this analysis, Management does not believe the Company would be
materially impacted by changes in interest rates.
15
<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.
16
<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-Q
for the quarter ended March 31, 2000, 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, 2000
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information from SEC Form 10-Q and is
qualified in its entirety by reference to such financial information.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 23,224,518
<INT-BEARING-DEPOSITS> 120,018
<FED-FUNDS-SOLD> 1,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,893,543
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 325,952,756
<ALLOWANCE> 4,482,165
<TOTAL-ASSETS> 392,709,251
<DEPOSITS> 321,585,154
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,122,006
<LONG-TERM> 35,000,000
0
0
<COMMON> 36,882,916
<OTHER-SE> (1,880,825)
<TOTAL-LIABILITIES-AND-EQUITY> 392,709,251
<INTEREST-LOAN> 6,610,646
<INTEREST-INVEST> 495,285
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,105,931
<INTEREST-DEPOSIT> 3,056,181
<INTEREST-EXPENSE> 3,568,706
<INTEREST-INCOME-NET> 3,537,225
<LOAN-LOSSES> 487,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,929,262
<INCOME-PRETAX> 526,613
<INCOME-PRE-EXTRAORDINARY> 526,613
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 526,613
<EPS-BASIC> .15
<EPS-DILUTED> .15
<YIELD-ACTUAL> 3.94
<LOANS-NON> 115,348
<LOANS-PAST> 14,748
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,995,165
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 4,482,165
<ALLOWANCE-DOMESTIC> 4,482,165
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
