Add
MCBC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| MCBC > SEC Filings for MCBC > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
Macatawa Bank Corporation is a Michigan corporation and is the holding company for a wholly owned subsidiary, Macatawa Bank and for two trusts, Macatawa Statutory Trust I and Macatawa Statutory Trust II. Macatawa Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The bank operates twenty-six branch offices and a lending and operational service facility, providing a full range of commercial and consumer banking and trust and brokerage services in Kent County, Ottawa County, and northern Allegan County, Michigan. Macatawa Statutory Trusts I and II are grantor trusts and issued $20.0 million each of pooled trust preferred securities. These trusts are not consolidated in the Company's financial statements. For further information regarding consolidation, see the Notes to the Consolidated Financial Statements included herein.
Since opening in November of 1997, Macatawa Bank has generally experienced rapid growth. Since the end of 2007, the Company has managed its growth at a slower rate to focus on maintaining asset quality amidst the weak economic conditions in West Michigan. We believe that growth in core deposits is key to our long-term success and it is our primary funding source for asset growth. Establishing a branching network in our markets has been of high importance in order to facilitate this core deposit growth. We have gained community awareness and acceptance in our markets through our expanding branch network and high quality service standards.
The West Michigan markets within which we operate have provided expansion opportunities for us. We anticipate expansion opportunities to occur when economic conditions begin to strengthen again, adding to growth in our balance sheet and earnings. We anticipate additional branch openings within the next few years in the greater Grand Rapids area as we believe there is a significant opportunity for market share growth in this market. We also continue to enjoy success in building new and existing relationships in both our Holland/Zeeland and Grand Haven markets.
RESULTS OF OPERATIONS
Summary: Net loss available to common shares for the quarter ended June 30, 2009 was $31.3 million, compared to second quarter 2008 net loss of $8.1 million. Loss per common share on a diluted basis was $1.82 for the second quarter of 2009 compared to a loss per common share of $0.48 for the same period in 2008. Net loss available to common shares for the six months ended June 30, 2009 was $36.4 million compared to a net loss of $5.7 million for the same period in the prior year. Loss per common share on a diluted basis were $2.12 for the six months ended June 30, 2009 compared to $0.33 for the same period in the prior year.
The decrease in net income for both the three and six months ended June 30, 2009 compared to the same periods in the prior year was partly due to a non-cash charge of $14.9 million included in federal income tax expense to establish a valuation allowance for deferred tax assets, a $5.5 million one-time charge associated with the settlement of the Trade Partners lawsuit and a $960,000 special FDIC assessment.
Each period has also been significantly impacted by the cost associated with problem loans and non-performing assets. The provision for loan losses remains elevated and was $20.6 million and $31.2 million for the three and six months ended June 30, 2009 compared to $18.5 million and $21.2 million for the three and six months ended June 30, 2008. Costs associated with nonperforming assets were $2.4 million and $4.6 million for the three and six months ended June 30, 2009 compared to $1.5 million and $1.9 million for the three and six months ended June 30, 2008. Lost interest from rising balances of non-performing assets was approximately $2.2 million and $4.6 million for the three and six months ended June 30, 2009 compared to $1.3 million and $2.7 million for the three and six months ended June 30, 2008. Each of these items is discussed more fully below.
The net interest margin decreased 27 basis points to 2.79% for the second quarter of 2009 and 31 basis points to 2.72% for the first six months of 2009 when compared to the same periods in the prior year. The net interest margin of 2.79% for the second quarter of 2009 was up 13 basis points compared to the first quarter of 2009.
The majority of the decline in net interest margin for both the three and six month periods ended June 30, 2009 compared to the same periods in the prior year were related to higher balances of non-performing assets. Approximately 18 basis points of the decline in margin or $900,000 of the decrease in net interest income, and 20 basis points of the decline in margin or $1.9 million of the decline in net interest income, respectively, for the three and six month periods was from lost interest from higher balances of non-performing assets and interest reversals on loans moved into non-accrual status during these periods. Also contributing to the margin declines was the Federal funds and prime rate cuts that occurred throughout 2008.
Average earning assets decreased $40.1 million to $1.94 billion for the second quarter of 2009 and $25.8 million to $1.95 billion for the six month period ended June 30, 2009 compared to the same periods of the prior year.
During both the three and six month periods, the decrease in the yield on earning assets exceeded the decrease in the cost of interest bearing funds and was the primary reason for the decline in the net interest margin. The yield on earning assets decreased by 83 basis points for the three months ended June 30, 2009 and 100 basis points for the six months ended June 30, 2009 compared to the same periods in the prior year. The short-term interest rate cuts that began in the third quarter of 2007 and continued throughout 2008 caused a decrease in the yield on our variable rate loan portfolio and was the primary reason for the decrease in yield on earning assets. The decline was also impacted by an increase in lower yielding short-term investments and rising balances of non-accrual loans. The Company has chosen to hold excess investable funds in these lower yielding short-term investments to improve its balance sheet liquidity during the current economic downturn.
The rising balances of non-accrual loans throughout 2008 and into 2009 resulted in a decline in the yield on earning assets of approximately 14 and 16 basis points, respectively, for the three and six months ended June 30, 2009 compared to the same periods in the prior year. Average non-accrual loans were $110.4 million and $75.5 million for the three month periods ended June 30, 2009 and 2008, resulting in an estimated reduction of 39 basis points and 25 basis points, respectively, in the yield on earning assets for each period. Average non-accrual loans were $103.7 million and $76.6 million for the six month periods June 30, 2009 and 2008, resulting in an estimated reduction of 41 basis points and 25 basis points, respectively, in the yield on earning assets for each period.
The cost of funds decreased 57 basis points for the three months ended June 30, 2009 and 74 basis points for the six months ended June 30, 2009 compared to the same periods in the prior year. A decrease in the rates paid on our deposit accounts in response to declining market rates, the rollover of time deposits at lower rates, and the repositioning of other borrowings within the lower rate environment were the primary reasons for the decrease in the cost of funds.
The level of earning assets is expected to decline in the near term due to the generally weak economic conditions in Michigan. A continued decline in the cost of funds, primarily from the repricing of term funding at lower costs, is expected to continue to have a positive impact on net interest income throughout the remainder of 2009.
For the three months ended June 30,
------------------------------------------------------------------------------------------------------
2009 2008
------------------------------------------------ ------------------------------------------------
Interest Average Interest Average
Earned or Yield or Earned or Yield or
Average Balance paid cost Average Balance paid cost
----------------- ----------- ------------ ----------------- ----------- ------------
(Dollars in thousands)
Assets
Taxable securities $ 110,085 $ 1,102 4.00 % $ 135,826 $ 1,497 4.41 %
Tax-exempt securities (1) 51,023 535 6.46 % 51,427 543 6.50 %
Loans (2) 1,682,433 22,698 5.36 % 1,771,590 26,934 6.03 %
Federal Home Loan Bank
stock 12,275 68 2.19 % 12,275 174 5.60 %
Federal funds sold and
other short-term
investments 84,548 128 0.60 % 9,352 51 2.15 %
----------------- ----------- ------------ ----------------- ----------- ------------
Total interest earning
assets (1) 1,940,364 24,531 5.08 % 1,980,470 29,199 5.91 %
Noninterest earning assets:
Cash and due from banks 22,275 25,940
Other 108,459 125,569
----------------- -----------------
Total assets $ 2,071,098 $ 2,131,979
----------------- -----------------
Liabilities
Deposits:
Interest bearing demand $ 234,972 352 0.60 % $ 250,804 682 1.10 %
Savings and money market
accounts 412,001 693 0.67 % 400,201 1,581 1.59 %
Time deposits 761,521 7,057 3.72 % 773,927 7,820 4.06 %
Borrowings:
Other borrowed funds 268,690 2,606 3.84 % 310,072 3,379 4.31 %
Long-term debt 41,395 425 4.06 % 41,238 603 5.66 %
Federal funds purchased 176 --- --- % 10,473 47 2.23 %
----------------- ----------- ------------ ----------------- ----------- ------------
Total interest bearing
liabilities 1,718,755 11,133 2.59 % 1,786,715 14,112 3.16 %
Noninterest bearing
liabilities:
Noninterest bearing demand
accounts 203,428 168,520
Other noninterest bearing
liabilities 8,359 12,515
Shareholders' equity 140,556 164,229
----------------- -----------------
Total liabilities and
shareholders' equity $ 2,071,098 $ 2,131,979
----------------- -----------------
Net interest income $ 13,398 $ 15,087
----------- -----------
Net interest spread (1) 2.49 % 2.75 %
Net interest margin (1) 2.79 % 3.06 %
Ratio of average interest
earning assets to
average interest bearing
liabilities 112.89 % 110.84 %
|
(1) Yield adjusted to fully tax equivalent.
(2) Includes non-accrual loans of approximately $110.4 million for the three months ended June 30, 2009 and approximately $75.5 million for the three months ended June 30, 2008.
For the six months ended June 30,
--------------------------------------------------------------------------------------------------
2009 2008
----------------------------------------------- -----------------------------------------------
Interest Average Interest Average
Earned or Yield or Earned or Yield or
Average Balance paid cost Average Balance paid cost
----------------- ----------- ------------ ----------------- ----------- ------------
(Dollars in thousands)
Assets
Taxable securities $ 117,341 $ 2,365 4.03 % $ 140,477 $ 3,140 4.47 %
Tax-exempt securities (1) 51,520 1,082 6.46 % 51,423 1,085 6.49 %
Loans (2) 1,710,552 45,844 5.34 % 1,765,774 55,899 6.28 %
Federal Home Loan Bank stock 12,275 192 3.10 % 12,275 327 5.27 %
Federal funds sold and other
short-term
investments 58,121 172 0.59 % 5,679 64 2.23 %
----------------- ----------- ------------ ----------------- ----------- ------------
Total interest earning assets (1) 1,949,809 49,655 5.13 % 1,975,628 60,515 6.14 %
Noninterest earning assets:
Cash and due from banks 22,730 26,846
Other 111,991 121,818
----------------- -----------------
Total assets $ 2,084,530 $ 2,124,292
----------------- -----------------
Liabilities
Deposits:
Interest bearing demand $ 232,732 755 0.66 % $ 256,117 1,854 1.46 %
Savings and money market accounts 409,374 1,567 0.77 % 401,147 3,975 2.00 %
Time deposits 786,672 14,760 3.78 % 749,140 16,088 4.32 %
Borrowings:
Other borrowed funds 272,718 5,508 4.02 % 324,363 7,234 4.41 %
Long-term debt 41,317 871 4.19 % 41,238 1,371 6.57 %
Federal funds purchased 102 --- --- % 13,726 209 3.02 %
----------------- ----------- ------------ ----------------- ----------- ------------
Total interest bearing liabilities 1,742,915 23,461 2.70 % 1,785,731 30,731 3.44 %
Noninterest bearing liabilities:
Noninterest bearing demand accounts 187,240 164,523
Other noninterest bearing
liabilities 8,752 9,672
Shareholders' equity 145,623 164,366
----------------- -----------------
Total liabilities and shareholders'
equity $ 2,084,530 $ 2,124,292
----------------- -----------------
Net interest income $ 26,194 $ 29,784
----------- -----------
Net interest spread (1) 2.43 % 2.70 %
Net interest margin (1) 2.72 % 3.03 %
Ratio of average interest earning
assets to
average interest bearing liabilities 111.87 % 110.63 %
|
(1) Yield adjusted to fully tax equivalent.
(2) Includes non-accrual loans of approximately $103.7 million for the six months ended June 30, 2009 and approximately $76.6 million for the six months ended June 30, 2008.
The amounts of loan loss provision in both the current and prior year period were a byproduct of establishing our allowance for loan losses at levels deemed necessary in our methodology for determining the adequacy of the allowance. For more information about our allowance for loan losses and our methodology for establishing its level, see the discussion below under Portfolio Loans and Asset Quality.
Noninterest Income:Noninterest income for the three and six month periods ended June 30, 2009 decreased to $4.2 million and $9.5 million, respectively, from $5.1 million and $10.1 million for the same periods in the prior year. Non-interest income for the second quarter of 2008 included approximately $412,000 and $243,000, respectively, of gains on the sale of securities and the termination of certain borrowings. The six month period ended June 30, 2008 also included $832,000 of gains realized on the settlement of interest rate swaps.
Increases in net gains from mortgage lending activities and revenue from ATM and debit card processing for both the three and six months periods ended June 30, 2009 were offset by declines in revenue from deposit, trust and brokerage services compared to the same periods in the prior year. The decline in mortgage rates that began in the first quarter of 2009 led to a significant increase in refinancing activity and is the primary reason for the $158,000 and $1.3 million increase in net gains on mortgage loans for the three and six months ended June 30, 2009 compared to the same periods in the prior year. The lower level of equity market valuations for the first six months of 2009 compared to the same period in 2008 continued to be the primary reason for the decline in trust income.
Noninterest Expense:Noninterest expense for the three and six month periods ended June 30, 2009 increased to $21.3 million and $35.7 million, respectively, from $14.5 million and $28.1 million for the same periods in the prior year. The increase was primarily related to a $5.5 million one-time charge associated with the Trade Partners litigation settlement discussed in the Notes to the financial statements. FDIC assessments increased by $1.3 million to $1.7 for the second quarter of 2009 compared to $361,000 for the second quarter of 2008 and by $1.8 million to $2.5 million for the six month period ended June 30, 2009 compared to the same period in the prior year. The increase was due to an industry-wide special assessment, which amounted to $960,000 for Macatawa Bank, and from higher assessment rates implemented by the FDIC in late 2008.
Costs associated with nonperforming assets include legal costs, repossessed and foreclosed property administration expense and losses on repossessed and foreclosed properties. Repossessed and foreclosed property administration expense includes survey and appraisal, property maintenance and management and other disposition and carrying costs. Losses on repossessed and foreclosed properties include both net losses on the sale of properties and subsequent reductions from value declines for outstanding properties. For the three and six month periods ended June 30, 2009 these costs increased to $2.4 million and $4.6 million, respectively, from $1.5 million and $1.9 million for the same periods in the prior year.
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
------------ ------------ ------------ ------------
Legal and professional $ 431 $ 121 $ 668 $ 206
Repossessed and foreclosed
property administration 1,178 235 2,092 504
Losses on repossessed and foreclosed
properties 830 1,128 1,838 1,151
------------ ------------ ------------ ------------
Total $ 2,439 $ 1,484 $ 4,598 $ 1,861
------------ ------------ ------------ ------------
|
When excluding the Trade Partners litigation settlement charge, FDIC assessments and nonperforming asset costs, non-interest expense would have been approximately $11.6 million for the three month period ended June 30, 2009, down 8% from $12.6 million for the same period of 2008; and would have been approximately $23.1 million for the six months period, down 9% from $25.5 million for the same period of 2008.
Expense reduction initiatives that began in early 2008 have allowed the Company to manage costs in nearly all other areas of non-interest expense to offset the increases driven by higher nonperforming asset levels. Salaries and benefit expense decreased $643,000, or 9%, and $1.4 million, or 10% for the three and six month periods ended June 30, 2009 compared to the same periods of 2008 largely due to staff reductions that occurred in 2008 and a curtailment of bonuses and wage increases in response to the deteriorating economic conditions. We expect efficiency to continue to improve throughout 2009 in response to these initiatives.
Federal Income Tax Expense (Benefit): The Company recorded federal income tax expense of $6.1 million and $3.4 million for the three and six month periods ended June 30, 2009 compared to a federal income tax benefit of $4.7 million and $3.7 million for the same periods in the prior year. The expense for the three and six month periods ended June 30, 2009 included a $14.9 million valuation allowance on deferred tax assets as described in the Notes to the financial statements. The remaining tax benefit recorded for the 2009 periods was primarily a result of the net operating loss recorded.
FINANCIAL CONDITION
Summary: Total assets were $2.01 billion at June 30, 2009 a decrease of $137.4 million from $2.15 billion at December 31, 2008. The overall decrease in total assets reflected a decline of $152.2 million in our loan portfolio and $25.5 million in available for sale securities partially used to increase short-term investments by $56.9 million. The decline in assets was primarily offset by a decline in deposits generated through brokers, rate sensitive in-market deposits and other borrowed funds as discussed more fully below.
Federal Funds Sold and Other Short Term Investments: The increase in Federal funds sold and other short-term investments to $96.0 at June 30, 2009 was from liquid money market investments held to improve the liquidity of the balance sheet during this period of economic slowdown. The Company expects to maintain these higher balances until conditions improve and more attractive investment opportunities emerge.
Securities Available for Sale: Securities available for sale were $159.2 million at June 30, 2009 compared to $184.7 million at December 31, 2008. The decrease . . .
|
|