EXHIBIT 13
Selected Consolidated Financial Data
The following selected consolidated financial and other data are derived from
the Company's Financial Statements and should be read with the Consolidated
Financial Statements and Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Consolidated
Balance Sheet as of December 31, 2000 and 1999, and the Consolidated Statement
of Income for the years ended December 31, 2000, 1999, and 1998, are included
elsewhere in this Annual Report.
(Dollars in thousands, except share and per share data)
At or For the Year Ended December 31
----------------------------------------
2000 1999 1998
----------------------------------------
Financial Condition
Total assets $ 499,813 $ 344,921 $ 189,229
Loans 410,676 285,374 137,882
Deposits 398,617 279,390 166,989
Securities 48,669 28,281 27,007
Shareholder's equity 38,128 34,526 19,611
Share Information
Basic and diluted earnings/(loss) per common share $ .93 .22 $ (1.22)
Book value per common share 10.62 9.62 8.05
Weighted average common and
potential dilutive shares outstanding 3,602,962 3,122,937 2,041,920
Shares outstanding at end of period 3,589,315 3,588,565 2,435,125
Operations
Interest income $ 34,338 $ 20,000 $ 6,804
Interest expense 17,738 9,428 3,190
Net interest income 16,600 10,572 3,614
Provision for loan losses 1,931 1,967 2,023
Net interest income after provision for loan losses 14,669 8,605 1,591
Total noninterest income 2,051 1,528 683
Total noninterest expense 12,672 9,440 4,763
Income/(loss) before tax 4,048 693 (2,489)
Federal income tax 699 -- --
Net income/(loss) $ 3,349 $ 693 $ (2,489)
Performance Ratios
Return on average equity 9.31% 2.43% (15.15)%
Return on average assets 0.80% 0.26% (2.91)%
Yield on average interest-earning assets 8.84% 8.27% 7.93%
Cost on average interest-bearing liabilities 5.20% 4.51% 4.77%
Average net interest spread 3.64% 3.76% 3.16%
Average net interest margin 4.27% 4.37% 4.21%
Capital Ratios
Equity to assets 7.63% 10.01% 10.36%
Total risk-based capital ratio 10.36% 14.00% 12.40%
Credit Quality Ratios
Allowance for loan losses to total loans 1.43% 1.40% 1.47%
Nonperforming assets to total assets 0.04% 0.03% 0.00%
Net charge-offs to average loans 0.02% 0.00% 0.00%
Quarterly Financial Data (unaudited)
A summary of selected quarterly results of operations for the years ended
December 31 follows:
Three Months Ended
---------------------------------------------------
March 31 June 30 September 30 December 31
---------------------------------------------------
2000
Interest income $7,105,931 $8,367,591 $9,026,075 $9,838,229
Net interest income 3,537,225 4,079,025 4,318,391 4,664,785
Provision for loan losses 487,000 595,000 434,000 415,000
Income before income tax expense 526,613 823,324 1,119,283 1,578,549
Net income 526,613 823,324 947,116 1,051,453
Net income per share
Basic .15 .23 .26 .29
Diluted .15 .23 .26 .29
1999
Interest income $3,635,152 $4,663,222 $5,475,441 $6,226,884
Net interest income 1,883,465 2,471,316 2,925,651 3,292,131
Provision for loan losses 450,000 545,000 505,000 467,000
Income (loss) before income tax expense (77,110) 44,116 301,171 425,089
Net income (loss) (77,110) 44,116 301,171 425,089
Net income (loss) per share
Basic (.03) .02 .08 .12
Diluted (.03) .02 .08 .12
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Management's discussion and analysis of financial condition and results of
operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Actual results could differ materially
from those projected in such forward-looking statements.
The following section presents additional information to assess the financial
condition and results of operations of the Company and the Bank. This section
should be read in conjunction with the consolidated financial statements and the
supplemental financial data contained elsewhere in this Annual Report.
Overview
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, through
its network of 13 full service branches located in communities in Ottawa county,
northern Allegan county and southwestern Kent county.
The Company has experienced rapid and substantial growth since opening in
November 1997. At December 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 December 31, 2000, had assets of approximately $274
million compared to approximately $183 million at December 31, 1999.
Financial Condition
Summary.
Total assets of the Company increased to $499.8 million at December 31, 2000
from $344.9 million at December 31, 1999, an increase of $154.9 million or
44.9%. We believe the strong asset growth reflects the acceptance of our
community banking philosophy in the growing communities we serve. Asset growth
consists primarily of growth in the loan portfolio as the Bank continues to
attract new loan customers despite the strong competition from other local
community banks and larger regional banks. The increase in total assets was
principally funded by strong deposit growth and the use of borrowed funds. Total
deposits grew $119.2 million or 42.7% to $398.6 million at December 31, 2000,
compared to $279.4 million at December 31, 1999. We attribute the strong deposit
growth to quality customer service, convenient and accessible branch locations
and the desire of customers to bank with a locally operated community
institution. We anticipate continued growth in total assets, due in part to the
consolidation of local competitors into large out-of-state regional banks, as
well as continued economic growth, and capturing additional market share.
Cash and Cash Equivalents.
Cash and cash equivalents, which include federal funds sold and short-term
investments, increased $5.7 million or 27.7% to $26.3 million at December 31,
2000, from $20.6 million at December 31, 1999. The increase is a result of
higher levels of customer deposit activity at year-end, which is subsequently
processed through the Banks' correspondent banks. Higher balances were required
to cover both uncollected funds deposited in the Bank's correspondent bank
accounts, as well as higher account balances to compensate for activity service
fees.
Securities.
Securities are purchased and classified as "available for sale". The securities
may be sold to meet the Bank's liquidity needs. The primary objective of the
Bank's investing activities is to provide for the safety of the principal
invested. Secondary considerations include earnings, liquidity and overall
exposure to changes in interest rates. Securities available for sale increased
$20.4 million or 72.1% to $48.7 million at December 31, 2000 from $28.3 million
at December 31, 1999. The Bank increased its portfolio during 2000 to support
the overall growth in deposits.
Securities Available for Sale Portfolio
(Dollars in thousands)
Year Ended December 31
---------------------------
2000 1999
---------------------------
U. S. Treasury and U.S. Government Agencies $45,991 $27,337
Michigan municipal bonds 2,678 944
---------------------------
$48,669 $28,281
---------------------------
Excluding those holdings of the investment portfolio in U.S. Treasury and U.S.
Government Agency Securities, there were no investments in securities of any one
issuer which exceeded 10% of shareholders' equity.
Schedule of Maturities of Investment Securities and Weighted Average Yields.
The following is a schedule of maturities and their weighted average yield of
each category of investment securities as of December 31, 2000.
(Dollars in thousands)
Investments With
Due Within One to Five to After No Contractual
One Year Five Years Ten Years Ten Years Maturity
---------------------------------------------------------------------------------------------------
Estimated Estimated Estimated Estimated Estimated
Market Average Market Average Market Average Market Average Market Average
Value Yield Value Yield Value Yield Value Yield Value Yield
---------------------------------------------------------------------------------------------------
Available for Sale:
U.S. Treasury
and U.S.
Government
Agencies $13,974 6.11% $32,017 6.33% - - - - - -
Tax-exempt
MI municipal bonds - - - - 430 4.96% 2,248 5.27% - -
---------------------------------------------------------------------------------------------------
Total $13,974 6.11% $32,017 6.33% $430 4.96% $2,248 5.27% - -
---------------------------------------------------------------------------------------------------
Loan Portfolio
The majority of loans are made to businesses in the form of commercial loans and
real estate mortgages. Commercial loans increased $92.1 million or 45.9% from
$201.4 million at December 31, 1999, to $293.5 million at December 31, 2000.
Commercial loans accounted for approximately 71% of the Bank's total loan
portfolio at year-end for both 2000 and 1999. The Bank's residential mortgage
loan portfolio comprises approximately 15% of total loans. However, residential
loan origination volume is significantly higher, with only a small portion of
these loans retained for the Bank's own portfolio. The Bank sells the majority
of it's fixed-rate obligations and does not retain servicing. The Bank
originated $91.5 million in residential mortgages in 2000 and $105 million in
1999. The higher overall interest levels experienced during most of 2000
resulted in lower levels of residential refinancing, and as a result, lower
overall loan originations as compared to 1999. The Bank's consumer loan
portfolio includes both loans secured by personal property, as well as home
equity fixed term and line of credit loans. Home equity loans totaled $33.5
million at December 31, 2000, compared to $22.1 million at December 31, 1999.
Approximately 89% of the Bank's equity loans are underwritten at terms of a loan
to value ratio of less than 90%, and are considered well collateralized.
Loan Portfolio Composition
(Dollars in thousands)
Year Ended December 31
------------------------------------------------
2000 1999
------------------------------------------------
Amount % Amount %
------------------------------------------------
Commercial real estate $ 79,444 19% $ 54,160 19%
Residential real estate 60,822 15% 44,734 15%
Other commercial 214,098 52 147,232 52%
Consumer 56,312 14% 39,248 14%
------------------------------------------------
Total loans $ 410,676 100% $ 285,374 100%
------------------------------------------------
Less:
Allowance for loan losses (5,854) (3,995)
------------------------------------------------
Total loans receivable, net $ 404,822 $ 281,379
------------------------------------------------
Maturities and Sensitivities of Loans to Changes in Interest Rates.
The following table shows the amount of total loans outstanding as of December
31, 2000 which, based on remaining scheduled repayments of principal, are due in
the periods indicated.
(Dollars in thousands)
Maturing
---------------------------------------------------------------
After One, But
---------------------------------------------------------------
Within One Year Within Five Years After Five Years Total
---------------------------------------------------------------
Commercial real estate $ 10,808 $ 64,843 $ 3,793 $ 79,444
Residential real estate 6,342 11,170 43,310 60,822
Other commercial 114,417 94,673 5,008 214,098
Consumer 7,310 32,230 16,772 56,312
------------------------------------------------------------
Totals $ 138,877 $ 202,916 $ 68,883 410,676
-------------------------------------------------
Allowance for loan losses (5,854)
---------
Total loans receivable, net $ 404,822
------------------------------------------------------------
Below is a schedule of the loan amounts maturing or repricing which are
classified according to their sensitivity to changes in interest rates.
Interest Sensitivity
(Dollars in thousands)
-----------------------------------------
Fixed Rate Variable Rate Total
-----------------------------------------
Due within 3 months $ 19,219 $ 157,259 $ 176,478
Due after 3 months, but within 1 year 34,994 715 35,709
Due after one but within five years 148,603 21,528 170,131
Due after five years 25,344 3,014 28,358
-----------------------------------------
Total $ 228,160 $ 182,516 410,676
--------------------------
Allowance for loan losses (5,854)
---------
Total loans receivable, net $ 404,822
-----------------------------------------
Nonperforming Assets.
Nonperforming loans includes loans on non-accrual, restructured loans, as well
as loans delinquent more than 90 days, but still accruing. Total nonperforming
loans as of December 31, 2000 totaled $196,000, compared to $101,000 at December
31, 1999. Loan performance is reviewed regularly by external loan review
specialists, loan officers, and senior management. When reasonable doubt exists
concerning collectibility of interest or principal, the loan will be placed in
non-accrual status. Any interest previously accrued but not collected at that
time will be reversed and charged against current earnings. As of December 31,
2000 there were no other interest bearing assets which required classification.
Management is not aware of any recommendations by regulatory agencies, which, if
implemented, would have a material impact on the Bank's liquidity, capital or
operations.
Loan Loss Experience
The following is a summary of loan balances at the end of 1each period and their
daily average balances, changes in the allowance for possible loan losses
arising from loans charged-off and recoveries on loans previously charged-off,
and additions to the allowance which have been expensed.
(Dollars in thousands)
December 31
-------------------------------------
2000 1999 1998
-------------------------------------
Loans:
Average daily balance of loans for the year $ 347,351 $ 213,472 $ 160,299
Amount of loans outstanding at end of period 410,676 285,374 137,882
Allowance for loan losses:
Balance at beginning of year 3,995 2,030 7
Addition to allowance charged to operations 1,931 1,967 2,023
Loans charged-off (87) (6) -
Recoveries 15 4 -
-------------------------------------
Balance at end of year $ 5,854 $ 3,995 $ 12,030
-------------------------------------
Ratios:
Net charge-offs to average loans outstanding .02% - -
Allowance for loan losses to loans outstanding at year end 1.43% 1.40% 1.47%
Allowance for Loan Losses
The allowance for loan losses as of December 31, 2000, was $5.9 million,
representing approximately 1.43% of total loans outstanding, compared to $4.0
million at December 31, 1999, or 1.40% of total loans outstanding. The Bank has
not experienced any material credit losses in the three years of operations
ended December 31, 2000. The allowance for loan losses is maintained at a level
management considers appropriate based upon its assessment of relevant
circumstances. Management prepares a quarterly evaluation of the allowance for
loan losses. The analysis is based upon a continuous review of the Bank's loan
portfolio, the Bank's and industry's historical loan loss experience, known and
inherent risks included in the loan portfolio, composition of loans, growth of
the portfolio, and current economic conditions. As part of the analysis,
management assigns a portion of the allowance to the entire portfolio by loan
type and loan grade, and to specific credits that have been identified as
problem loans, and also reviews past loss experience. The local economy and
particular concentrations are considered, as well as a number of other factors.
While the commercial loan portfolio has performed very well during the Bank's
first three years of existence, the allowance does reflect a higher percentage
allocation against that portfolio due to management's assessment of inherently
higher risks in commercial lending. By their very nature, loans are generally of
higher dollar amounts; industries financed and collateral taken can be extremely
varied, requiring more detail and in depth underwriting; and the underlying
companies' abilities to repay their obligations may be more dramatically
affected by overall economic conditions.
Allocation of the Allowance for Loan Losses
(Dollars in thousands)
Year Ended December 31
------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------
% of Each % of Each % of Each
Allowance Category to Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------------------------------------------------------------------------
Commercial $3,902 71.5% $2,784 70.6% $1,422 69.4%
Real estate mortgages 176 14.8% 112 15.7% 57 16.3%
Consumer 435 13.7% 297 13.7% 165 14.3%
Unallocated 1,341 - 802 - 386 -
------------------------------------------------------------------------
Total $5,854 100.0% $3,995 100.0% $2,030 100.0%
------------------------------------------------------------------------
The above allocations are not intended to imply limitations on usage of the
allowance. The entire allowance is available for any loan losses without regard
to loan type.
Premises and Equipment.
Bank premises and equipment increased $2.3 million to $12.3 million at December
31, 2000 compared to $10.0 million at December 31, 1999. The increase resulted
primarily from the purchase of a previously leased branch facility, as well as
the construction of a full service branch to replace a temporary storefront
branch. Additionally, the Bank invested in an item processing imaging system
that efficiently captures check images as items are processed. This allows
electronic retrieval of check images by bank staff today, and in the future will
enable the Bank to provide images to customers through on-line inquiries.
Deposits
Deposits are gathered from the communities we serve through our network of 13
branches. The Bank offers business and consumer checking accounts, regular and
money market savings accounts, and certificates of deposits having many options
in their terms.
Total deposits increased by $119.2 million to $398.6 million at December 31,
2000, compared to $279.4 million at December 31, 1999. The increase was
primarily as a result of deposits being obtained from new customers of the Bank.
Noninterest bearing demand accounts comprise approximately 13% of total
deposits, comparable to their percentage of total deposits in 1999 and 1998.
Savings accounts, including Money Market savings and NOW accounts comprised
approximately 48% of total deposits, a decrease from 54% in 1999 and 58% in
1998. Time accounts increased as a percent of total deposits to 39% at December
31, 2000, compared to 33% at the end of 1999 and 29% at the end of 1998. We
attribute the growth in time accounts to competitive pricing to maintain current
customer accounts, together with attracting new customers and new funds. The
Bank sets its deposit pricing to be competitive with other banks in its market
area, without being the price leader. This has enabled the Bank to increase
deposits from new, as well as existing customers, while maintaining a stable net
interest margin. The Bank periodically purchases brokered deposits to supplement
funding needs. These are Time accounts originated outside the Bank's local
market area. Brokered deposits comprised approximately 4% of total deposits at
December 31, 2000, compared to approximately 2% at prior year-end.
Average Daily Deposits
The following table sets forth the average deposit balances and the weighted
average rates paid thereon.
(Dollars in thousands)
Average for the Year
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
Amount Average Rate Amount Average Rate Amount Average Rate
--------------------------------------------------------------------------------
Noninterest bearing demand $ 39,946 - $ 27,186 - $ 8,991 -
NOW accounts 45,246 2.6% 29,721 2.6% 10,420 3.0%
MMDA/savings 131,069 4.7% 97,849 4.2% 35,743 4.7%
Time 123,756 6.4% 68,629 5.5% 20,899 5.7%
--------------------------------------------------------------------------------
Total deposits $ 340,017 4.5% $223,385 3.9% $ 76,053 4.2%
--------------------------------------------------------------------------------
Maturity Distribution of Time Deposits of $100,000 or More
The following table summarizes time deposits in amounts of $100,000 or more by
time remaining until maturity as of December 31, 2000:
(Dollars in thousands)
Amount
------------
Three months or less $ 31,280
Over 3 months through 6 months 14,345
Over 6 months through 1 year 18,191
Over 1 year 20,039
------------
$ 83,855
------------
The Bank operates in a very competitive environment, competing with other local
banks similar in size and with significantly larger regional banks. Management
monitors rates at other financial institutions in the area to ascertain that its
rates are competitive with the market. Management also attempts to offer a wide
variety of products to meet the needs of its customers.
MACATAWA BANK CORPORATION 25
Borrowed Funds.
Borrowed funds increased $31.2 million or 104% to $61.2 million at December 31,
2000, compared to $30.0 million at December 31, 1999. Borrowed funds consist
principally of advances from the Federal Home Loan Bank. These advances are
utilized to fund loan growth in excess of deposit growth. Borrowed funds also
includes federal funds purchased, which are utilized to settle the Banks daily
cash letter position with its correspondent banks. Additionally, the Company
secured a $5 million credit facility in September of 2000. As of December 31,
2000, $4 million has been advanced to provide additional capital to the Bank to
maintain regulatory capital levels at well capitalized level.
Retained Earnings.
The Company had retained earnings of $1,136,000 as of December 31, 2000,
compared to a retained earnings deficit of ($1,961,000) at December 31, 1999.
The retained deficit at the end of 1999 was primarily the result of startup
losses for two months of 1997, and the full year 1998. These initial year losses
included normal operating expenses, loan loss provision on a new and rapidly
growing loan portfolio, and costs associated with expanding the branch network.
Management believes that the expenditures made in 1997 and 1998 created the
infrastructure and laid the foundation for future growth and profitability in
subsequent years. The Company had net income of $693,000 in 1999 and $3.35
million in 2000. The Company also paid out cash dividends totaling $251,000
during the period ended December 31, 2000. There were no dividends paid out
during either the 1999 or the 1998 period.
Results of Operations
Summary of Results.
Net income for 2000 totaled $3.35 million compared to 1999 net income of
$693,000 and a 1998 net loss of $2.49 million. The increase in income is due to
the continued growth of the customer base and respective loan and deposit
portfolios, driving increased net interest income. The following table
summarizes net income and key performance measures for the three years
presented.
Performance Ratios
(Dollars in thousands, except of per share data)
Year Ended December 31
-------------------------------
2000 1999 1998
-------------------------------
Net income (loss) $ 3,349 $ 693 $ (2,489)
Basic and diluted earnings (loss) per share .93 .22 (1.22)
Earnings (loss) ratios:
Return on average assets .80% .26% (2.91%)
Return on average equity 9.31% 2.43% (15.15%)
Average equity to average assets 8.63% 10.86% 19.59%
Dividend payout ratio 7.53% N/A N/A
Net income for the year ended December 31, 2000 improved dramatically over 1999
as a result of improved net interest income. Continued strong growth in loans is
primarily responsible for the increases in net interest income. Net interest
income increased by $6.0 million or 56.6% to $16.6 million in 2000 compared to
$10.6 million in 1999.
Noninterest income totaled $2.1 million for 2000, as compared to $1.5 million
for 1999, and $683,000 for 1998. Noninterest expense totaled $12.7 million for
2000, as compared to $9.4 million for 1999, and $4.8 million for 1998. The
Company became fully taxable during 2000, after utilizing all tax loss carry
forwards from 1998 and 1997. Federal income tax expense totaled $699,000 for
2000, whereas both 1999 and 1998 did not include a provision for tax expense.
The Company expects the effective federal tax rate for future years will be 34%,
with a marginal rate of approximately 33.5% due to tax-free investments.
Analysis of Net Interest Income
The following schedule presents, for the periods indicated, information
regarding: (i) the total dollar amount of interest income from average earning
assets and the resultant average yields; (ii) the total dollar amount of
interest expense on average interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) interest rate spread; and (v) net
yield on average earning assets.
(Dollars in thousands)
Year Ended December 31
---------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------------------
Earning Assets
Taxable securities $ 35,459 $ 2,166 6.11% $ 221,444 $ 1,226 5.71% $ 16,471 $ 986 5.99%
Tax-exempt securities 1,639 86 5.25% 172 9 5.23% - - -
Loans 347,351 31,788 9.15% 213,472 18,379 8.61% 60,299 5,340 8.85%
Fed funds sold 1,616 99 6.13% 4,166 204 4.90% 8,421 446 5.30%
Short term investments 169 6 3.55% 1,132 56 4.95% 605 32 5.29%
Federal Home Loan Bank Stock 2,332 193 8.28% 1,593 127 7.97% - - -
---------------------------------------------------------------------------------------------------
Total earning assets 388,566 34,338 8.84% 241,979 20,001 8.27% 85,796 6,804 7.93%
Interest Bearing Liabilities
NOWs and MMDAs 159,419 6,655 4.17% 116,914 4,548 3.89% 43,336 1,915 4.42%
Savings 9,222 177 1.92% 6,123 117 1.91% 2,153 43 2.00%
IRAs 7,674 465 6.06% 4,533 247 5.45% 1,096 64 5.84%
Time deposits 123,756 7,916 6.40% 68,629 3,787 5.52% 20,304 1,164 5.73%
Fed Funds purchased 2,022 131 6.48% 695 37 5.32% 78 4 5.13%
Other borrowings 38,850 2,394 6.16% 12,126 692 5.71% - - -
---------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 340,943 17,738 5.20% 209,020 9,428 4.51% 66,967 3,190 4.77%
---------------------------------------------------------------------------------------------------
Net interest/spread $ 16,600 3.64% $ 10,573 3.76% $ 3,614 3.16%
---------------------------------------------------------------------------------------------------
Margin 4.27% 4.37% 4.21%
---------------------------------------------------------------------------------------------------
Net interest margin was 4.27% for full year 2000, a slight decrease from 1999
net interest margin of 4.37%. Net interest margin for 1998 was 4.21%. Net
interest spread, which is the difference between interest earning assets and
interest bearing liabilities, was 3.64% for 2000, as compared to 3.76% for 1999,
and 3.16% for 1998. The decrease in net interest spread reflected the cost of
interest-bearing liabilities rising slightly faster than the yield of interest
earning assets during 2000. The increasing cost reflects the impact of the
portfolio shifting to a higher mix of time accounts. Time accounts, with a
weighted average cost of 6.40% during 2000, comprised approximately 39% of
interest-bearing liabilities at December 31, 2000, as compared to approximately
33% at the end of 1999, and 29% at the end of 1998. The average cost of time
accounts was 5.52% during 1999, while the 1998 cost was 5.73%.
Rate/Volume Analysis of Net Interest Income
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of earning assets and interest-bearing
liabilities, distinguishing between changes related to outstanding balances and
changes due to interest rates.
(Dollars in thousands)
Year Ended December 31
--------------------------------------------------------------------
2000 vs 1999 1999 vs 1998
--------------------------------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Total Volume Rate Total
--------------------------------------------------------------------
Interest Income
Taxable securities $ 851 $ 89 $ 940 $ 286 $ (47) $ 239
Tax-exempt securities 77 - 77 9 - 9
Loans 12,186 1,223 13,409 13,192 (152) 13,040
Fed funds sold (147) 42 (105) (211) (31) (242)
Short term investments (38) (12) (50) 26 (2) 24
FHLB stock 61 5 66 127 - 127
--------------------------------------------------------------------
Total interest income $ 12,990 $ 1,347 $ 14,337 $ 13,429 $ (232) $ 13,197
--------------------------------------------------------------------
Interest Expense
NOWs and MMDAs $ 1,754 $ 353 $ 2,107 $ 2,888 $ (255) $ 2,633
Savings 59 1 60 76 (2) 74
IRAs 188 30 218 188 (5) 183
Time deposits 3,446 683 4,129 2,668 (45) 2,623
Fed funds purchased 84 10 94 33 - 33
Other borrowings 1,643 59 1,702 692 - 692
--------------------------------------------------------------------
Total interest expense 7,174 1,136 8,310 6,545 (307) 6,238
--------------------------------------------------------------------
Net interest income $ 5,816 $ 211 $ 6,027 $ 6,884 $ 75 $ 6,959
--------------------------------------------------------------------
Composition of Average Earning Assets and Interest Paying Liabilities
(Dollars in thousands)
Year Ended December 31
------------------------------------
2000 1999 1998
------------------------------------
As a Percent of Average Earning Assets
Loans 89.39% 80.22% 70.28%
Other earning assets 10.61% 11.78% 29.72%
Average earning assets $ 388,566 $ 241,979 $ 85,797
As a Percent of Average Interest Bearing Liabilities
Savings, MMS, IRA, and NOW accounts 51.71% 61.03% 68.76%
Time deposits 36.30% 32.83% 31.13%
Other borrowings 11.99% 6.14% 0.11%
Average Interest Bearing Liabilities $ 340,943 $ 209,021 $ 67,141
Earning asset ratio 1.14% 1.16% 1.28%
Provision for Loan Losses
The provision for loan losses is the amount added to the allowance for loan
losses to absorb probable loan losses. The amount of the provision is determined
by management, in its judgment, after reviewing the risk characteristics of the
loan portfolio, the Bank's and industry's historical loan loss experience, known
and inherent risks included in both originated loans and the portfolio, and
current economic conditions. The provision for loan losses for the year 2000
totaled $1.9 million, approximately the same as the $2.0 million provision in
both 1999 and 1998. While the Bank has not sustained any significant losses in
its 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.
Noninterest Income
Noninterest income totaled $2.1 million in 2000, an increase of 40% over 1999
noninterest income of $1.5 million. Non-interest income for 1998 totaled
$683,000. Deposit service charges increased by $483,000, or 73% during 2000
compared to 1999. The growth in service charge income reflects the significant
growth in the Bank's customer base. Trust revenues totaled $531,000 for 2000, an
increase of $303,000 or 133% over 1999 trust revenue of $228,000. 1999 was the
first year of operations for the Bank's Trust Department. We expect trust fee
income to continue to increase, as the amount of trust assets under management
increases. Gain on sale of loans declined $263,000 for the year 2000 to
$361,000. The higher overall level of interest rates reduced the mortgage loans
the Bank originated during 2000 compared to 1999, and resulted in fewer loans
sold in the secondary market. The following table details major components of
noninterest income for the years of 2000, 1999, and 1998.
Noninterest Income
(Dollars in thousands)
Year Ended December 31
--------------------------------
2000 1999 1998
--------------------------------
Deposit service charges $ 1,144 $ 661 $ 157
Net gains on asset sales:
Loans 361 624 521
Securities - - -
Trust fees 531 228 -
Other 16 15 5
--------------------------------
Total noninterest income $ 2,052 $ 1,528 $ 683
--------------------------------
Net Gains on the Sale of Residential Real Estate Mortgage Loans
(Dollars in thousands)
Year Ended December 31
--------------------------------
2000 1999 1998
--------------------------------
Real estate mortgage loan originated for sale $ 47,007 $ 54,715 $ 44,146
Real estate mortgage loan sales $ 47,368 $ 55,339 $ 44,667
Net gains on the sale of real estate mortgage loans 361 624 521
Net gains as a percent of real estate mortgage loan sales 0.76% 1.13% 1.17%
The Bank sells the majority of its fixed-rate obligations. Such loans are sold
and the Bank does not retain servicing rights.
Noninterest Expense
Noninterest expense for 2000 was $12.7 million, compared to $9.4 million for
1999, and $4.8 million for 1998. The main components of noninterest expense were
salaries and benefits, and occupancy and equipment expense. These items
comprised approximately 73% of noninterest expenses for 2000, down slightly from
approximately 74% for 1999 non-interest expense. Increases in both
salary/benefit and occupancy/equipment expenses are primarily due to full year
impact of five new branches, and related staffing, added in the last half of
1999. Other expense increases related to the expanded branch structure included
courier services, data processing, advertising, professional service fees,
postage, and telephone. The Company also became fully taxable for the Michigan
Single Business Tax during 2000. This new expense was the single largest
increase of expenses included in other operating expenses. SBT expense totaled
$231,000 for the year 2000. Total noninterest expense for 1999 was an increase
of $4.7 million, over 1998, reflecting the full year impact of six branches
which were opened throughout 1998. The following table details major components
of noninterest expense for the years of 2000, 1999, and 1998.
Noninterest Expense
(Dollars in thousands)
Year Ended December 31
--------------------------------
2000 1999 1998
--------------------------------
Salaries and employee benefits $ 6,865 $ 5,408 $ 2,726
Occupancy and equipment 1,094 841 305
Furniture and equipment expense 1,244 777 253
Legal and professional fees 248 135 199
Advertising 366 267 199
Supplies 348 343 233
Data processing fees 561 401 197
Other operating expenses 1,946 1,268 651
--------------------------------
Total noninterest expense $ 12,672 $ 9,440 $ 4,763
--------------------------------
Liquidity and Capital Resources
Equity Capital
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 was required to maintain capitalization sufficient to
provide a ratio of Tier 1 Capital to total assets of at least 8% through its
third year of operations, which ended in November of 2000. Due to the rapid
growth of the Bank, additional equity capital was required during 1999. 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 $10.0
million from the proceeds of this offering to the Bank's capital, raising the
Bank's Tier 1 Capital as a percent of total assets to 10.83% at June 30, 1999.
At December 31, 1999, this ratio decreased to 8.59%, due to asset growth. The
continuing asset growth required the Company to contribute an additional $8
million of capital to the Bank during 2000. The contributed capital came from
the Company's cash reserves, as well as from borrowings arranged to provide
capital flexibility. At December 31, 2000, the Bank's Tier 1 Capital was 8.90%.
The Company secured a $5 million credit facility during September 2000, to
provide additional capital required to maintain the Bank at or above required
regulatory capital levels. Based on continued projected asset growth, management
anticipates additional capital will be required during the first half of 2001.
Management will evaluate alternatives available to effectively increase capital
levels such as the sale of common stock or other securities. The Company has
drawn $4.0 million on the line of credit as of the end of December 2000, which
was contributed to the capital of the Bank.
The following table shows various capital ratios as of December 31, 2000.
Capital Resources
(Dollar in thousands)
Tier 1 Tier 1 Total
Leverage Capital Risk-Based
Ratio Ratio Capital Ratio
--------------------------------
Minimum regulatory requirement for capital adequacy 4.0% 4.0% 8.0%
Well capitalized regulatory level 5.0% 6.0% 10.0%
Consolidated 8.2% 9.1% 10.4%
Bank 8.9% 9.9% 11.1%
The following table shows the amounts by which the Company's capital (on a
consolidated basis) exceeds current regulatory requirements on a dollar amount
basis:
Capital balances at December 31, 2000
(Dollar in thousands)
Total
Tier 1 Tier 1 Risk-Based
Leverage Capital Capital
----------------------------------
Required regulatory capital $ 18,630 $ 16,849 $ 33,698
Capital in excess of regulatory minimums 19,749 21,530 9,946
----------------------------------
Actual capital balances $ 38,379 $ 38,379 $ 43,644
----------------------------------
The liquidity of a financial institution reflects its ability to provide funds
to meet loan requests, to accommodate possible outflows of deposits and to take
advantage of interest rate market opportunities. 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.
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 of dollars) at December 31, 2000.
Static Gap Analysis
(Dollars in thousands)
0 to 3 Months 4 to 12 Months 1 to 5 Years Over 5 Years Total
---------------------------------------------------------------------------
Assets:
Loans-fixed $ 19,219 $ 34,994 $ 148,603 $ 25,344 $ 228,160
Loans-variable 157,259 715 21,528 3,014 182,516
Taxable securities 1,996 11,978 32,016 - 45,990
Tax exempt securities - - - 2,678 2,678
Other securities - - - 2,550 2,550
Loan loss reserve - - - - (5,854)
Cash & due from banks - - - - 26,305
Fixed assets - - - - 12,264
Other assets - - - - 5,204
---------------------------------------------------------------------------
Total assets $ 178,474 $ 47,687 $ 202,147 $ 33,586 $ 499,813
Liabilities:
Time deposits $ 42,591 $ 60,896 $ 51,434 $ 33,58- $ 154,921
Savings 2,637 - 7,912 - 10,549
Other interest bearing deposits 96,156 - 86,245 - 182,401
Other borrowings 10,200 - 20,000 31,000 61,200
Noninterest bearing deposits - - - - 50,746
Other liabilities & equity - - - - 39,996
---------------------------------------------------------------------------
Total liabilities & equity $ 151,584 $ 60,896 $ 165,591 $ 31,000 $ 499,813
Period gap $ 26,890 $ (13,209) $ 36,556 $ 2,586 -
Cumulative gap $ 26,890 $ 13,681 $ 50,237 $ 52,823 -
Cumulative gap/total assets 5.38% 2.74% 10.05% 10.57% -
The above table shows that total assets maturing or repricing within one year
exceeds liabilities maturing within one year by $14 million. However, the
repricing and cash flows of certain categories of assets and liabilities are
subject to competitive and other influences that are beyond the control of the
Company. As a result, certain assets and liabilities indicated as maturing or
repricing within a stated period may, in fact, mature or reprice in other
periods or at different volumes. Based on this analysis, management does not
believe the Company would be materially impacted by changes in interest rates.
Recent Regulatory Developments
Recently enacted federal legislation (the Gramm-Leach-Bliley Act of 1999)
eliminates many federal and state law barriers to affiliations among banks and
other financial services providers. The legislation, which took effect March 11,
2000, establishes a statutory framework pursuant to which full affiliations can
occur between banks and securities firms, insurance companies, and other
financial companies. The legislation provides some degree of flexibility in
structuring these new affiliations, although certain activities may only be
conducted through a holding company structure. The legislation preserves the
role of the Board of Governors of the Federal Reserve System as the umbrella
supervisor for holding companies, but incorporates a system of functional
regulation pursuant to which the various federal and state financial supervisors
will continue to regulate the activities traditionally within their
jurisdictions. The legislation specifies that banks may not participate in the
new affiliations unless they are well-capitalized, well-managed and maintain a
rating under the Community Reinvestment Act of 1977 of at least "satisfactory"
among all affiliates.
At this time, the Company is unable to predict the impact this legislation may
have on the Company.
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, 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.
Report of Independent Auditors
Board of Directors and Shareholders Macatawa
Bank Corporation
Zeeland, Michigan
We have audited the accompanying consolidated balance sheets of Macatawa Bank
Corporation as of December 31, 2000 and 1999 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Macatawa Bank
Corporation at December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2000
in conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
January 24, 2001
Consolidated Balance Sheets
Year Ended December 31
--------------------------------
2000 1999
--------------------------------
Assets
Cash and due from banks $ 26,305,310 $ 20,554,039
Securities available for sale, at fair value 48,668,507 28,281,375
Federal Home Loan Bank stock 2,550,000 2,312,000
Total loans 410,675,682 285,374,451
Allowance for loan losses (5,853,972) (3,995,165)
--------------------------------
404,821,710 281,379,286
Premises and equipment - net 12,263,903 9,997,566
Accrued interest receivable 3,270,561 1,904,126
Other assets 1,932,509 492,743
--------------------------------
Total assets $ 499,812,500 $ 344,921,135
--------------------------------
Liabilities and Shareholders' Equity
Deposits
Noninterest-bearing $ 50,746,045 $ 34,384,932
Interest-bearing 347,871,072 245,004,950
--------------------------------
Total 398,617,117 279,389,882
Federal Home Loan Bank advances 51,000,000 30,000,000
Note payable 4,000,000 -
Federal funds purchased 6,200,000 -
Accrued expenses and other liabilities 1,867,325 1,005,100
--------------------------------
Total liabilities 461,684,442 310,394,982
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; 3,589,315 and 3,588,565 shares
issued and outstanding at December 31, 2000
and 1999, respectively 36,890,416 36,882,916
Retained earnings (deficit) 1,136,444 (1,960,810)
Accumulated other comprehensive income (loss) 101,198 (395,953)
--------------------------------
Total shareholders' equity 38,128,058 34,526,153
--------------------------------
Total liabilities and shareholders' equity $ 499,812,500 $ 344,921,135
--------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income
Year Ended December 31
------------------------------------------------------
2000 1999 1998
------------------------------------------------------
Interest income
Loans, including fees $ 31,787,360 $ 18,379,300 $ 5,338,963
Securities
Taxable 2,358,364 1,352,332 986,372
Tax-exempt 86,216 8,910
Other 105,886 260,157 478,770
------------------------------------------------------
Total interest income 34,337,826 20,000,699 6,804,105
Interest expense
Deposits 15,212,821 8,698,646 3,186,309
Other 2,525,579 729,490 3,928
------------------------------------------------------
Total interest expense 17,738,400 9,428,136 3,190,237
------------------------------------------------------
Net interest income 16,599,426 10,572,563 3,613,868
Provision for loan losses (1,931,000) (1,967,000) (2,022,500)
------------------------------------------------------
Net interest income after provision for loan losses 14,668,426 8,605,563 1,591,368
Noninterest income
Deposit service charges 1,143,535 660,920 157,109
Gain on sales of loans 361,509 623,520 520,645
Trust fees 530,726 228,588
Other 15,901 14,970 5,628
------------------------------------------------------
Total noninterest income 2,051,671 1,527,998 683,382
Noninterest expense
Salaries and benefits 6,864,909 5,408,024 2,726,885
Occupancy expense of premises 1,093,823 841,252 305,214
Furniture and equipment expense 1,244,066 777,249 253,074
Legal and professional fees 248,147 134,993 198,890
Advertising 365,759 266,917 198,826
Supplies 348,034 342,979 232,835
Data processing fees 560,702 400,591 196,665
Other expense 1,946,888 1,268,290 650,912
------------------------------------------------------
Total noninterest expenses 12,672,328 9,440,295 4,763,301
------------------------------------------------------
Income (loss) before income tax expense 4,047,769 693,266 (2,488,551)
Income tax expense 699,263 0
------------------------------------------------------
Net income (loss) $ 3,348,506 $ 693,266 $ (2,488,551)
------------------------------------------------------
Basic and diluted earnings (loss) per share $ .93 $ .22 $ (1.22)
------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 2000, 1999 and 1998
---------------------------------------------------------------
Accumulated
Retained Other Total
Common Earnings Comprehensive Shareholders'
Stock (Deficit) Income (Loss) Equity
---------------------------------------------------------------
Balance, January 1, 1998 $ 8,137,268 $ (165,525) $ 264 $ 7,972,007
Net loss - (2,488,551) - (2,488,551)
Other comprehensive income (loss):
Net change in unrealized appreciation on securities
available for sale, net of tax of $2,346 - - 4,554 4,554
------------
Comprehensive loss - - - (2,483,997)
Proceeds from sale of 1,495,000 shares
of common stock on April 7, 1998 14,123,378 - - 14,123,378
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 22,260,646 (2,654,076) 4,818 19,611,388
Net income - 693,266 - 693,266
Other comprehensive income (loss):
Net change in unrealized depreciation on securities
available for sale, net of tax of ($206,457) - - (400,771) (400,771)
------------
Comprehensive income 292,495
Proceeds from sale of 1,153,440 shares
of common stock on June 4, 1999 14,622,270 - - 14,622,270
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 36,882,916 (1,960,810) (395,953) 34,526,153
Net income - 3,348,506 - 3,348,506
Other comprehensive income (loss):
Net change in unrealized depreciation on securities
available for sale, net of tax of $256,108 - - 497,151 497,151
------------
Comprehensive income - - - 3,845,657
Common stock issued upon exercise of stock options
on November 2, 2000 (750 shares) 7,500 - - 7,500
Cash dividends at $.07 per share - (251,252) - (251,252)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $ 36,890,416 $ 1,136,444 $ 101,198 $ 38,128,058
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Year Ended December 31
-----------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 3,348,506 $ 693,266 $ (2,488,551)
Adjustments to reconcile net income (loss)
to net cash from operating activities
Depreciation and amortization (accretion) 1,232,386 736,691 271,458
Provision for loan losses 1,931,000 1,967,000 2,022,500
Origination of loans for sale (47,006,979) (54,714,982) (44,146,300)
Proceeds from sales of loans
originated for sale 47,368,488 55,338,502 44,666,945
Gain on sales of loans (361,509) (623,520) (520,645)
Net change in
Organizational costs - - 66,139
Accrued interest receivable and
and other assets (3,010,176) (1,106,688) (1,221,658)
Accrued expenses and other liabilities 810,092 582,948 588,301
-----------------------------------------------------------
Net cash from operating activities 4,311,808 2,873,217 (761,811)
Cash flows from investing activities
Loan originations and payments, net (125,373,424) (147,494,026) (137,384,556)
Purchase of FHLB stock (238,000) (2,312,000) -
Activity in securities available for sale
Purchases (19,598,460) (16,879,381) (29,000,000)
Maturities - 15,000,000 4,000,000
Additions to premises and equipment (3,534,136) (3,610,425) (6,715,406)
-----------------------------------------------------------
Net cash from investing activities (148,744,020) (155,295,832) (169,099,962)
Cash flows from financing activities
Net increase (decrease)
in short-term borrowings 6,200,000 (2,000,000) 2,000,000
Proceeds from note payable 4,000,000 - -
Proceeds from FHLB advances 56,000,000 51,000,000 -
Repayments on FHLB advances (35,000,000) (21,000,000) -
Net increase in deposits 119,227,235 112,401,207 164,276,452
Cash dividends paid (251,252) - -
Proceeds from the issuance of common stock 7,500 14,622,270 14,123,378
-----------------------------------------------------------
Net cash from financing activities 150,183,483 155,023,477 180,399,830
-----------------------------------------------------------
Net change in cash and cash equivalents 5,751,271 2,600,862 10,538,057
Beginning cash and cash equivalents 20,554,039 17,953,177 7,415,120
-----------------------------------------------------------
Ending cash and cash equivalents $ 26,305,310 $ 20,554,039 $ 17,953,177
-----------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the period for interest $ 17,099,894 $ 9,212,595 $ 2,725,880
Income taxes $ 1,975,000 - -
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Macatawa Bank Corporation (the "Company") became the bank holding company for
Macatawa Bank (the "Bank") on February 23, 1998, when all of the Bank's
outstanding common stock (817,500 shares) was converted into all of the
outstanding common stock of the Company (940,125 shares) and all of the Bank's
shareholders became all of the Company's shareholders. The exchange ratio in the
conversion was 1.15 shares of Company common stock for each share of Bank common
stock. The Bank's common stock had been issued to its shareholders as of
November 7, 1997 as a result of a private offering of the Bank's common stock at
a price of $10 per share or a total of $8,175,000. As this was essentially an
internal reorganization, the consolidated financial statements are presented by
including operations of the Company and Bank for all periods presented. Further
share and per share data has been adjusted for the conversion ratio of 1.15
shares of Company stock for one share of Bank stock.
Macatawa Bank Corporation is a regional, community-based financial institution,
located in Zeeland, Michigan. The Bank's primary services include accepting
deposits and making commercial, mortgage and installment loans in the Michigan
counties of Allegan, Ottawa, and Kent. The Bank also operates a Trust Department
which provides fiduciary, investment, and other related services. The Bank
commenced its application process on May 21, 1997, completed its common stock
sale on November 7, 1997 and opened for operations on November 25, 1997 after
several months of work by incorporators and employees in preparing applications
with the various regulatory agencies and obtaining insurance and building space.
The costs associated with the organization of the Company are included in the
1998 income statement.
The Company completed an underwritten initial public offering of common stock on
April 7, 1998, which resulted in net proceeds to the Company of $14,123,378. On
April 30, 1999, the Company had another common stock offering and sold 1,153,440
shares, raising $14,622,270.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Macatawa Bank, after elimination of intercompany
accounts and transactions.
Use of Estimates
To prepare financial statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions based on available
information. These estimates and assumptions affect the amounts reported in the
financial statements and the disclosures provided, and future results could
differ. The allowance for loan losses, and the fair values of financial
instruments are particularly subject to change.
Concentration of Credit Risk
Loans are granted to, and deposits are obtained from, customers primarily in the
Western Michigan area as described above. Substantially all loans are secured by
specific items of collateral, including residential real estate, commercial real
estate, commercial assets, and consumer assets. Other financial instruments,
which potentially subject the Company to concentrations of credit risk, include
deposit accounts in other financial institutions.
Cash Flow Reporting
Cash and cash equivalents include cash on hand, demand deposits with other
financial institutions, and short-term securities (securities with maturities of
equal to or less than 90 days and federal funds sold). Cash flows are reported
net for customer loan and deposit transactions, interest-bearing time deposits
with other financial institutions, and short-term borrowings with maturities of
90 days or less.
Securities
Securities available for sale consist of those securities which might be sold
prior to maturity due to changes in interest rates, prepayment risks, yield and
availability of alternative investments, liquidity needs or other factors.
Securities classified as available for sale are reported at their fair value and
the related unrealized holding gain or loss is reported in other comprehensive
income.
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
Loans
Loans are reported at the principal balance outstanding, net of the allowance
for loan losses, and charge-offs. Loans held for sale are reported at the lower
of cost or market, on an aggregate basis. While the Company does sell loans on
the secondary market, there were no loans held for sale at December 31, 2000 or
1999. Loans are sold servicing released, therefore no mortgage servicing right
assets are established. Interest income is reported on the interest method and
includes amortization of net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when the loan is impaired or payments are past due over 90 days (180 days for
residential mortgages). Payments received on such loans are reported as
principal reductions.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance, increased by the
provision for loan losses and recoveries, and decreased by charge-offs.
Management estimates the allowance balance required based on known and inherent
risks in the portfolio, economic conditions, and other factors. Allocations of
the allowance may be made for specific loans, but the entire allowance is
available for any loan that, in management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in aggregate for smaller-balance loans of
similar nature such as residential mortgage and consumer loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from collateral. Loans are
evaluated for impairment when payments are delayed, typically 90 days or more,
or when the internal grading system indicates a doubtful classification.
Foreclosed Assets
Assets acquired through or instead of loan foreclosure are initially recorded at
fair value when acquired, establishing a new cost basis. If fair value declines,
a valuation allowance is recorded through expense. Costs after acquisition are
expensed. The Bank held no foreclosed assets at December 31, 2000 or 1999.
Premises and Equipment
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using both straight-line and
accelerated methods over the estimated useful lives of the respective assets.
Maintenance, repairs, and minor alterations are charged to current operations as
expenditures occur and major improvements are capitalized. These assets are
reviewed for impairment under SFAS No. 121 when events indicate the carrying
amount may not be recoverable.
Stock Compensation
Employee compensation expense under stock option plans is reported if options
are granted below market price at grant date. Pro forma disclosures of net
income and earnings per share are shown using the fair value method of SFAS No.
123 to measure expense for options granted, using an option pricing model to
estimate fair value.
Income Taxes
Income tax expense is the sum of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.
Fair Values of Financial Instruments
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed separately. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates.
The fair value estimates of existing on-and-off balance sheet financial
instruments do not include the value of anticipated future business or the
values of assets and liabilities not considered financial instruments.
Earnings (Loss) Per Share
Basic earnings (loss) per share is net income (loss) divided by the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share includes the dilutive effect of additional potential common
shares issuable under stock options.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale, net of tax.
Segment Reporting
The Company, through the branch network of the Bank, provides a broad range of
financial services to individuals and companies in Western Michigan. These
services include demand, time and savings deposits, lending, ATM processing,
cash management, and trust services. While the Company's chief decision makers
monitor the revenue streams of the various Company products and services,
operations are managed and financial performance is evaluated on a Company-wide
basis. Accordingly, all of the Company's banking operations are considered by
management to be aggregated in one reportable operating segment.
New Accounting Pronouncements
Beginning January 1, 2001, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains and
losses on the hedge and on the hedges item, even if the fair value of the hedged
item is not otherwise recorded. Adoption of this standard on January 1, 2001 did
not have a material effect.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. Management
does not believe there now are such matters that will have a material effect on
the financial statements.
Dividend Restriction
Banking regulations require the maintaining certain capital levels and may limit
the dividends paid by the Bank to the Company or by the Company to shareholders.
Reclassifications
Certain amounts on the 1999 and 1998 consolidated financial statements have been
reclassified to conform with the 2000 presentation.
Note 2 - Cash and Due from Banks
The Company was required to have $5,120,000 and $2,597,000 of cash on hand or on
deposit with the Federal Reserve Bank to meet regulatory reserve and clearing
requirements at year end 2000 and 1999. These balances do not earn interest.
Note 3 - Securities
The amortized cost and fair values of securities at year-end were as follows:
Available for Sale
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
---------------------------------------------------------
2000
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $45,927,221 $ 191,469 $ (128,090) $45,990,600
---------------------------------------------------------
State and municipal bonds 2,587,955 89,952 - 2,677,907
---------------------------------------------------------
$48,515,176 $ 281,421 $ (128,090) $48,668,507
---------------------------------------------------------
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
---------------------------------------------------------
Contractual maturities of debt securities at year end 2000 were as follows:
Available for Sale
-----------------------------
Amortized Fair
Cost Value
-----------------------------
Due in one year or less $ 13,976,222 $ 13,973,980
Due from one to five years 31,950,999 32,016,620
Due from five to ten years 415,322 430,440
Due after ten years 2,172,633 2,247,467
-----------------------------
$ 48,515,176 $ 48,668,507
-----------------------------
At December 31, 2000 and 1999, securities with a book value of approximately
$1,000,000 and $1,500,000, respectively, were pledged as security for public
deposits and for other purposes required or permitted by law.
There were no sales of securities for the years ended December 31, 2000, 1999,
and 1998. In addition, $45,000,000 and $26,000,000 of the securities at year-end
2000 and 1999 were used as collateral for advances from the Federal Home Loan
Bank.
Note 4 - Loans
Year-end loans are as follows:
2000 1999
-----------------------------
Commercial $ 293,541,257 $ 201,391,721
Mortgage 60,822,360 44,734,529
Consumer 56,312,065 39,248,201
-----------------------------
$ 410,675,682 $ 285,374,451
-----------------------------
Activity in the allowance for loan losses is as follows:
2000 1999 1998
---------------------------------------
Beginning balance $ 3,995,165 $ 2,030,000 $ 2,037,500
Provision charged to operating expense 1,931,000 1,967,000 2,022,500
Loans charged-off (87,292) (5,538) -
Recoveries 15,099 3,703 -
---------------------------------------
Ending balance $ 5,853,972 $ 3,995,165 $ 2,030,000
---------------------------------------
Impaired loans were as follows:
2000 1999
----------------------
Year-end loans with no allocated allowance for loan losses $ 1,393,223 -
Year-end loans with allocated allowance for loan losses 231,247 -
Total $ 1,624,470 -
----------------------
$ 92,560 -
----------------------
Amount of the allowance for loan losses allocated
2000 1999 1998
------------------------------
Average of impaired loans during the year $ 471,776 - -
Interest income recognized during impairment 33,270 - -
Cash-basis interest income recognized 27,042 - -
Note 5 - Premises and Equipment - Net
Year-end premises and equipment are as follows:
2000 1999
------------------------------
Land $ 1,859,218 $ 1,574,218
Building 5,886,157 3,825,001
Leasehold improvements 1,048,559 1,090,251
Furniture and equipment 5,706,522 4,516,473
14,500,456 11,005,943
------------------------------
Less accumulated depreciation (2,236,553) (1,008,377)
------------------------------
$ 12,263,903 $ 9,997,566
------------------------------
Depreciation expense was $1,267,801, $738,616, and $271,458 for 2000, 1999, and
1998.
The Bank leases certain office and branch premises and equipment under operating
lease agreements. Total rental expense for all operating leases aggregated
$243,640 in 2000, $305,516 in 1999 and $117,886 in 1998. Future minimum rentals
under noncancelable operating leases as of December 31, 2000 are as follows:
2001 $ 228,216
2002 170,984
2003 58,325
2004 17,925
2005 -
-----------
$ 475,450
-----------
Note 6 - Deposits
Deposits at year-end are summarized as follows:
2000 1999
----------------------------
Noninterest-bearing demand $ 50,746,045 $ 34,384,932
Money Market 125,427,738 100,772,584
NOW and Super NOW 56,973,193 43,237,004
Savings 10,548,694 7,421,892
Certificates of deposit 154,921,447 93,573,470
----------------------------
$ 398,617,117 $ 279,389,882
----------------------------
At year-end 2000, maturities of certificates of deposits were as follows, for
the next five years:
2001 $ 103,503,373
2002 47,771,790
2003 2,438,186
2004 300,000
2005 905,829
The Bank had approximately $83,855,000 and $50,179,000 in time certificates of
deposit, which were in denominations of $100,000 or more at December 31, 2000
and 1999.
Brokered deposits totaled approximately $16,338,000 and $6,365,000 at year-end
2000 and 1999. At year-end 2000, brokered deposits had interest rates ranging
from 5.65% to 7.30% and maturities ranging from one month to three years.
Note 7 - Federal Home Loan Bank Advances
At year-end, advances from the Federal Home Loan Bank were as follows:
2000 1999
----------------------------
Maturities from April 2002 through December 2010, fixed rate
from 5.48% to 6.68%, averaging 5.94% $ 51,000,000 $ 15,000,000
Maturities from March 2000 through June 2000,
variable rates of 4.05% - 15,000,000
----------------------------
$ 51,000,000 $ 30,000,000
----------------------------
Each advance is payable at its maturity date, with a prepayment penalty. The
advances were collateralized by securities totaling $45,000,000 and $26,000,000
and first mortgage loans totaling $50,000,000 and $47,000,000 under a blanket
lien arrangement at year-end 2000 and 1999.
Maturities over the next five years are:
2001 $ -
2002 3,000,000
2003 3,000,000
2004 4,000,000
2005 10,000,000
Note 8 - Other Borrowings
The Company secured a $5,000,000 credit facility during September 2000 to
provide additional capital to maintain the Bank at or above the 8% required
regulatory capital. Maturity dates and interest rates on advances of this credit
facility are as follows:
Maturity Date Interest Rate December 31, 2000
----------------------------------------------------------
March 29, 2001 8.26% (fixed) $ 1,000,000
January 26, 2001 8.15% (fixed) 3,000,000
-----------------
$ 4,000,000
-----------------
These borrowings are secured with 228,155 shares of common stock of
Macatawa Bank.
Note 9 - Related Party Transactions
Loans to principal officers, directors, and their affiliates in 2000 were as
follows:
Beginning balance $ 9,466,663
New loans 12,576,849
Repayments (7,804,967)
-----------------
Ending balance $ 14,238,545
-----------------
Deposits from principal officers, directors, and their affiliates at year-end
2000 and 1999 were $5,397,000 and $3,183,000.
Note 10 - Stock Options
Options to buy stock are granted to officers and employees under the Employee
Stock Option Plan (the Employees' Plan), which provides for issue of up to
200,000 options. Options are also granted to directors under the Directors'
Stock Option Plan (the Directors' Plan), which provides for issue of up to
40,000 options. Exercise price is the market price at the date of grant for both
plans. The maximum option term is ten years with options vesting over a one-year
period for both the Employees' Plan and the Directors' Plan.
A summary of the activity in the plans is as follows:
Weighted
Options Average
Outstanding Exercise Price
------------------------------
Balance at December 31, 1997 - $ -
Granted 123,600 12.92
Exercised - -
Forfeited (100) 10.00
------------------------------
Balance at December 31, 1998 123,500 12.83
Granted 21,000 14.16
Exercised - -
Forfeited (4,200) 14.46
------------------------------
Balance at December 31, 1999 140,300 13.06
Granted 23,600 12.65
Exercised (750) 10.00
Forfeited - -
------------------------------
Balance at December 31, 2000 163,150 $ 13.02
------------------------------
For the options outstanding at December 31, 2000, the range of exercise prices
was $10.00 to $16.50 per share with a weighted average remaining contractual
life of 7.99 years. At December 31, 2000, 139,550 options were exercisable at a
weighted average price of $13.08 per share.
No compensation cost was recognized during 2000, 1999, or 1998. Had compensation
cost for stock options been measured using FASB Statement No. 123, net income
(loss) and basic income (loss) per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
2000 1999 1998
------------------------------------
Net income (loss) as reported $3,348,506 $ 693,266 $(2,488,551)
Pro forma net income (loss) 3,279,620 345,987 (2,752,080)
Basic earnings (loss) per share as reported .93 .22 (1.22)
Pro forma basic earnings (loss) per share .91 .11 (1.35)
Diluted earnings (loss) per share as reported .93 .22 (1.22)
Pro forma diluted earnings (loss) per share .91 .11 (1.35)
Weighted-average fair value of options granted during the year 3.82 5.19 4.74
The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.
2000 1999 1998
-----------------------------
Risk-free interest rate 5.26% 6.55% 4.72%
Expected option life 7 years 7 years 7 years
Expected stock price volatility 26.87% 17.29% 8.46%
Dividend yield 2.00% 0.00% 0.00%
Note 11 - Employee Benefits
The Company established a 401(k) plan in January 1999 covering substantially all
employees. Employees may elect to contribute to the plan from 1% to 15% of their
salary subject to statutory limitations. The Company makes matching
contributions equal to 100% of the first 3% of employee contributions. The
Company's contribution for the years ended December 31, 2000 and 1999 were
approximately $142,000 and $114,000.
Note 12 - Earnings Per Share
A reconciliation of the numerators and denominators of basic and diluted
earnings per share for the years ended December 31, 2000, 1999, and 1998 are as
follows:
2000 1999 1998
---------------------------------------------
Basic earnings (loss) per share
Net income (loss) $ 3,348,506 $ 693,266 $ (2,488,551)
---------------------------------------------
Weighted average common shares
common shares outstanding 3,588,686 3,101,908 2,041,920
---------------------------------------------
Basic earnings (loss) per share $ .93 $ .22 $ (1.22)
---------------------------------------------
Diluted earnings (loss) per share
Net income (loss) $ 3,348,506 $ 693,266 $ (2,488,551)
---------------------------------------------
Weighted average
common shares outstanding 3,588,686 3,101,908 2,041,920
Add: Dilutive effects of assumed
exercises of stock options 14,276 21,029 -
---------------------------------------------
Weighted average common and dilutive
potential common shares outstanding 3,602,962 3,122,937 2,041,920
---------------------------------------------
Diluted earnings (loss) per share $ .93 $ .22 $ (1.22)
=============================================
Stock options for 76,000, 57,000, and 123,500 shares of common stock were not
considered in computing diluted earnings (loss) per common share for 2000, 1999,
and 1998 because they were antidilutive.
Note 13 - Federal Income Taxes
The consolidated provision for income taxes is as follows:
2000 1999 1998
----------------------------------------
Current $ 1,888,945 $ 415,439 $ --
Deferred benefit (533,852) (173,533) (841,530)
Change in valuation allowance (655,830) (241,906) 841,530
----------------------------------------
$ 699,263 $ 0 $ 0
========================================
The recorded consolidated income tax provision in 2000, 1999, and 1998 differs
from that computed by multiplying pre-tax income by the statutory federal income
tax rates due to the valuation allowance, tax-exempt interest income, and
nondeductible expenses.
The net deferred tax asset recorded includes the following amounts of deferred
tax assets and liabilities as of December 31, 2000 and 1999:
2000 1999
----------------------------
Deferred tax asset
Allowance for loan losses $ 1,828,849 $ 1,198,530
Unrealized loss on securities available for sale - 203,975
Organization costs 13,857 34,098
Other 16,304 3,798
----------------------------
1,859,010 1,440,401
Deferred tax liabilities
Depreciation (296,851) (221,056)
Unrealized gain on securities available for sale (52,133) -
Accretion (12,937) -
----------------------------
(361,921) (221,056)
----------------------------
Net deferred tax asset before valuation allowance 1,497,089 1,219,345
Valuation allowance - (655,830)
----------------------------
Net deferred tax asset after valuation allowance $ 1,497,089 $ 563,515
============================
A valuation allowance related to deferred tax assets is required when it is
considered more likely than not that all or part of the benefit related to such
assets will not be realized. Management has determined that no valuation
allowance is required for 2000 and that a valuation allowance of $655,830 was
required for 1999.
Note 14 - Commitments and Off-Balance-Sheet Risk
Some financial instruments are used to meet customer financing needs and to
reduce exposure to interest rate changes. These financial instruments include
commitments to extend credit and standby letters of credit. These involve, to
varying degrees, credit and interest-rate risk in excess of the amount reported
in the financial statements.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment, and
generally have fixed expiration dates. Standby letters of credit are conditional
commitments to guarantee a customer's performance to a third party. Exposure to
credit loss if the other party does not perform is represented by the
contractual amount for commitments to extend credit and standby letters of
credit. Collateral or other security is normally not obtained for these
financial instruments prior to their use, and many of the commitments are
expected to expire without being used.
A summary of the notional or contractual amounts of financial instruments with
off-balance-sheet risk at year-end follows:
2000 1999
--------------------------------
Commitments to make loans $ 53,068,000 $ 14,973,000
Unused lines of credit and letters of credit 142,817,000 102,763,000
Approximately 50% of the Bank's commitments to make loans are at fixed rates,
offered at current market rates. The majority of the variable rate commitments
noted above are tied to prime and expire within 30 days. The majority of the
unused lines of credit are at variable rates tied to prime.
The Bank conducts substantially all of its business operations in Western
Michigan.
Note 15 - 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 weightings, 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 restoration are required.
At year-end, actual capital levels (in thousands) and minimum required levels
were:
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------------
2000
Total capital (to risk weighted assets)
Consolidated $ 43,644 10.4% $ 33,698 8.0% $ 42,123 10.0%
Bank 46,820 11.1 33,648 8.0 42,059 10.0
Tier 1 capital (to risk weighted assets)
Consolidated 38,379 9.1 16,849 4.0 25,274 6.0
Bank 41,563 9.9 16,824 4.0 25,236 6.0
Tier 1 capital (to average assets)
Consolidated 38,379 8.2 18,630 4.0 23,288 5.0
Bank 41,563 8.9 18,624 4.0 23,280 5.0
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
The Company and the Bank were categorized as well capitalized at year-end 2000
and 1999.
Banking regulations limit capital distributions. Generally, capital
distributions are limited to undistributed net income for the current and prior
two years. At year-end 2000, approximately $3,434,000 is available to pay
dividends to the holding company.
Note 16 - Fair Values of Financial Instruments
Carrying amount and estimated fair values of financial instruments were as
follows at year-end.
2000 1999
----------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------------------------------------------------------
Financial assets
Cash and cash equivalents $ 26,305,310 $ 26,305,310 $ 20,554,039 $ 20,554,039
Securities available for sale 48,668,507 48,668,507 28,281,375 28,281,375
Federal Home Loan Bank stock 2,550,000 2,550,000 2,312,000 2,312,000
Loans, net 404,821,710 399,462,680 281,379,286 279,901,275
Accrued interest receivable 3,270,561 3,270,561 1,904,126 1,904,126
Financial liabilities
Deposits (398,617,117) (398,755,454) (279,389,882) (279,506,286)
Note payable (4,000,000) (4,000,000) - -
Federal funds purchased (6,200,000) (6,200,000) - -
Federal Home Loan Bank advances (51,000,000) (52,345,922) (30,000,000) (29,910,492)
Accrued interest payable (1,326,715) (1,326,715) (684,803) (684,803)
The methods and assumptions used to estimate fair value are described as
follows:
Carrying amount is the estimated fair value for cash and cash equivalents,
Federal Home Loan Bank stock, short-term borrowings, accrued interest receivable
and payable, demand deposits, short-term debt, and variable rate loans or
deposits that reprice frequently and fully. Security fair values are based on
market prices or dealer quotes, and if no such information is available, on the
rate and term of the security and information about the issuer. For fixed rate
loans, deposits, and borrowings and for variable rate loans, deposits, and
borrowings with infrequent repricing or repricing limits, fair value is based on
discounted cash flows using current market rates applied to the estimated life
and credit risk.
Note 17 - Condensed Financial Statements (Parent Company Only)
Following are condensed parent company only financial statements:
Condensed Balance Sheets
Year Ended December 31
-------------------------------
2000 1999
-------------------------------
Assets
Cash and cash equivalents $ 422,767 $ 4,894,668
Investment in subsidiary 41,562,958 29,631,485
Other Assets 145,737 -
-------------------------------
Total assets $ 42,131,462 $ 34,526,153
===============================
Liabilities And Shareholders' Equity
Other borrowings $ 4,000,000 $ -
Other liabilities 3,404 -
--------------
Total liabilities 4,003,404 -
Shareholders' equity
Common stock 36,890,416 36,882,916
Retained earnings (deficit) 1,136,444 (1,960,810)
Accumulated other comprehensive income (loss) 101,198 (395,953)
-------------------------------
Total shareholders' equity 38,128,058 34,526,153
-------------------------------
Total liabilities and shareholders' equity $ 42,131,462 $ 34,526,153
===============================
Condensed Statements of Income
Period from
February 23, 1998
(Date of Inception)
Through
Year Ended December 31 December 31
-------------------------------------------------
2000 1999 1998
-------------------------------------------------
Expenses
Other operating expenses $ 231,552 $ 142,245 $ 54,840
-------------------------------------------------
Loss before income tax and equity (231,552) (142,245) (54,840)
in undistributed net loss of subsidiaries
Equity in undistributed net income (loss) of subsidiary 3,434,321 835,511 (2,185,393)
-------------------------------------------------
Income (loss) before income tax 3,202,769 693,266 (2,240,233)
Federal income tax expense (benefit) (145,737) -- --
-------------------------------------------------
Net income (loss) $ 3,348,506 $ 693,266 $ 2,240,233
-------------------------------------------------
Condensed Statements of Cash Flows
Period from
February 23, 1998
(Date of Inception)
Through
Year Ended December 31 December 31
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 3,348,506 $ 693,266 $ (2,240,233)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Equity in undistributed net (income) loss of subsidiary (3,434,321) (835,511) 2,185,393
Increase in other assets (145,738) -- --
Increase in other liabilities 3,404 -- --
---------------------------------------------------
Net cash from operating activities (228,149) (142,245) (54,840)
Cash flows from investing activities
Investment in subsidiary (8,000,000) (10,500,000) (13,153,895)
---------------------------------------------------
Net cash from investing activities (8,000,000) (10,500,000) (13,153,895)
Cash flows from financing activities
Other borrowings 4,000,000 -- --
Proceeds from issuance of common stock 7,500 14,622,270 14,123,378
Dividends paid (251,252) -- --
----------------------------------------------------
Net cash from financing activities 3,756,248 14,622,270 14,123,378
-----------------------------------------------------
Net change in cash and cash equivalents (4,471,901) 3,980,025 914,643
Cash and cash equivalents at beginning of period 4,894,668 9,14,643 --
---------------------------------------------------
Cash and cash equivalents at end of period $ 422,767 $ 4,894,668 $ 914,643
---------------------------------------------------
Noncash transaction related to origination of
holding company in 1998
Investment in subsidiary $ -- -- $ (7,723,689)
Common stock -- -- 8,137,268
Retained deficit -- -- (413,843)
Accumulated other comprehensive income -- -- 264
Note 18 - Quarterly Financial Data (unaudited)
Interest Net Interest Net Income Earnings (Loss) per Share
Income Income (Loss) Basic Fully Diluted
------------------------------------------------------------------------------------
2000
First quarter $ 7,105,931 $ 3,537,225 $ 526,613 $ .15 $ .15
Second quarter 8,367,591 4,079,025 823,324 .23 .23
Third quarter 9,026,075 4,318,391 947,116 .26 .26
Fourth quarter 9,838,229 4,664,785 1,051,453 .29 .29
1999
First quarter $ 3,635,152 $ 1,883,465 $ (77,110) $ (.03) $ (.03)
Second quarter 4,663,222 2,471,316 44,116 .02 .02
Third quarter 5,475,441 2,925,651 301,171 .08 .08
Fourth quarter 6,226,884 3,292,131 425,089 .12 .12
Board of Directors of Macatawa Bank
[PICTURES APPEARS HERE]
Benj. A. Smith III (1.)
Chairman and CEO
Macatawa Bank Corporation President
Smith & Associates
Philip J. Koning (1.)
President and CEO Macatawa
Bank
James L. Batts
Vice Chairman
Belfry Development Corporation
G. Thomas Boylan (1.)
President
Light Metals Corporation
Jessie F. Dalman
Former Representative Michigan
House of Representatives
Robert Den Herder (1.)
Business Consultant, Investor
Former President, Uniform Color Company
Wayne J. Elhart
President
Elhart Pontiac GMC Jeep
Vice President Elhart Dodge
Nissan
James L. Jurries
President
Jurries Capital Management, Inc.
John F. Koetje (1.)
Partner
John F. Koetje and Associates
(1.) Also serve as director of Macatawa Bank Corporation
Macatawa Bank Management Team
Philip J. Koning
President and Chief Executive Officer
Ray D. Tooker
Senior Vice President - Loan Administration
Steven L. Germond
Vice President - Chief Financial Officer
Richard D. Wieringa
Vice President - Commercial Loans
Vicki K. DenBoer
Vice President - Consumer Loans
Alan K. Yamaoka
Vice President - Mortgage Loans
Jill A. Walcott
Vice President - Branch Administration
Colette S. Neumann
Vice President - Controller and Operations
Linda Elenbaas
Vice President - Operations and Technology
Marcia Cross - Human Resources
Sandy Tanis - Trust Operations
Macatawa Bank Branch Locations
Allendale
6299 Lake Michigan Drive - 616.895.9892
Douglas
132 South Washington - 616.857.8398
Hamilton
4758 136th Avenue - 616.751.2505
Holland
139 East 8th Street - 616.820.1320
701 Maple Avenue - 616.820.1330
489 Butternut Drive - 616.786.9555
699 East 16th Street - 616.393.8527
20 E. Lakewood Boulevard - 616.594.2100
Hudsonville
5215 Cherry Avenue - 616.379.1375
Jenison
2020 Baldwin Street - 616.662.5419
Zeeland
51 East Main - 616.748.9491
41 North State Street - 616.748.9847
Wyoming
1760 44th Street SW, 2-B - 616.531.0051
Administrative Offices
348 South Waverly Road, 2-C
Holland - 616.820.1444
Trust Department
106 East 8th Street
Holland - 616.820.1350
Commercial Lending Center
348 South Waverly Road,
2-D Holland - 616.820.1438
Retail Lending Center
348 South Waverly Road,
2-A Holland - 616.393.0583
Quarterly Stock Price Information
The Company's common stock has been quoted on the Nasdaq SmallCap Market since
December 27, 1999. From the completion of the Company's initial public offering
in April 1998 through December 27, 1999, the Company's common stock was quoted
on the OTC Bulletin Board. High and low bid prices (as reported on the OTC
Bulletin Board) and high and low sales prices (as reported on the Nasdaq
SmallCap Market) for each quarter for the years ended December 31, 2000 and
1999, are as follows:
2000 1999
-----------------------------------
High Low High Low
-----------------------------------
Quarter
First Quarter $15.50 $13.13 $17.00 $14.75
Second Quarter $13.88 $11.50 $15.50 $13.50
Third Quarter $13.25 $10.63 $15.50 $14.00
Fourth Quarter $14.00 $11.00 $16.00 $13.00
For the period during which the common stock was quoted on the OTC Bulletin
Board, the quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions and do not
include intra-day highs and lows. On February 28, 2001 there were approximately
658 owners of record and, in addition, approximately 1,809 beneficial owners of
the Company's common stock.
The Company declared its first cash dividend during the fourth quarter of 2000.
The dividend amount was $.07 per share, and was paid December 29, 2000.
Shareholder Information
Administrative Offices Transfer Agent
348 South Waverly Road Registrar and Transfer Company
Holland, MI 49423 10 Commerce Drive
616-820-1444 Cranford, New Jersey 07016-3572
1.800.368.5948
E-mail Info@RTCo.com
Annual Meeting Internet www.RTCO.com
Ridgepoint Community Church
340 104th Avenue
Holland, MI 49423 General Counsel
Date: April 19, 2001 Varnum, Riddering, Schmidt & Howlett LLP
Time: 10:00 a.m.
Independent Auditor
Investor Relations and Form 10-K Crowe, Chizek and Company LLP
Questions regarding corporate earnings releases,
financial information, and other investor Online Information For the
data should be addressed to: most current News releases
Macatawa Bank and Macatawa Bank
348 South Waverly Road Corporation financial
Holland, MI 49423 reports and product
616-820-1435 information, visit our
Website at
www.macatawabank.com