Macatawa Bank Corporation
Q4 2008 Earnings Call Transcript
Published:
- Operator:
- Good morning. My name is Patricia and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Fourth Quarter Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Ben Smith, you may begin your conference.
- Benj. A. Smith III:
- Thank you. Good morning and thank you all for joining us for Macatawa's fourth quarter conference call. We have just completed one of the most difficult years that we've experienced and a very difficult quarter. One of the most significant events that occurred last year was our successful completion of raising 31.4 million in preferred stock. We very much appreciate the confidence that our investors shared with us by investing in Macatawa Bank. With the additional input of the new capital, we remain confident that we will be able to weather the current economic storm and return to some form of high profitability in the near future. This morning joining me are
- Jon W. Swets:
- Yes. Thank you, Ben. There were a few topics I wanted to touch on just to clarify from the press release. First of all, was the goodwill impairment. We took an impairment charge of 26 million on goodwill. We completely wrote off all the goodwill on our books. So, there is none left. In addition, there was 1.7 million in other acquisition intangibles that we wrote off in the process. So the total goodwill acquisition intangible write off was 27.7 million. What that leaves on our books is really just one remaining acquisition-related intangible asset, a core deposit intangible asset of 875,000. All the other acquisitions intangibles and goodwill are completely written off. Our net interest margin, just want to make a couple of brief comments there as well; for the quarter, it was 2.74%, down 24 basis points on a linked-quarter basis. So kind of a frustrating decline in the net interest margin. That's a... of that 24 basis points, 13 basis points really relates to continuing non-performing asset activity. We saw our non-performing asset balances grow during the fourth quarter, and in that growth had the effect of decreasing net interest margin by about 7 basis points, plus there were additional interest reversals on those loans, as we moved them in the non-accrual status of another 6 basis points, all of those things amounting to about 13 basis points. So a little over half of that decline on a consecutive quarter basis does relate to the non-performing asset activity. Just a couple of other pieces of info about net interest margin
- Philip J. Koning:
- Thank you, Jon. I'd like to just add a couple of comments about deposits in our West Michigan economy. We were pleased with the stability of our deposit base with core deposits up slightly for the year. We continue to open new accounts and gain new households, although at a somewhat slower pace than in previous years. Given challenging economic times, job losses and a net migration of people out of our state, we feel pretty good about this progress. We continue to be focused on growing core relationships and our deposit base. Also interest rates on deposits which Jon mentioned were very competitive, are still competitive but are beginning to drop to more reasonable levels. Relative to our West Michigan economy, these are obviously challenging times. The current downtown has affected almost every sector of our economy. Unemployment is up over 10% for the State of Michigan and in the high-single digits for our West Michigan marketplace. The latest economic forecasts project job losses in the 1 to 2% range in our marketplace for 2009. The efforts being made for several years now to diversify our economy are making some progress. Areas seeing growth are healthcare and biosciences, like medical devices and pharmaceuticals. We have seen growth in food processing and alternative energy like wind energy and solar energy. Education continues to expand with growing regional colleges and the recent move of Michigan State medical school to Grand Rapids. And while we are certainly not immune to contractions in our manufacturing base and other areas of our local economy, we believe West Michigan is still a desirable place to do business and will recover much quicker than our state as a whole. We've taken a lot of steps to improve our financial performance. We've cut our operating costs by almost 6 million on an annual basis as Jon mentioned. We've contracted our workforce by almost 10%. We've not paid any bonuses in 2007 or 2008. We've frozen all salaries at last year's levels. We're working hard to preserve capital, increase liquidity and improve our operating performance. We believe Macatawa has a great franchise and we are confident in its future. Ron?
- Ronald L. Haan:
- Thanks Phil. Maybe just a couple of comments on asset quality and long growth
- Benj. A. Smith III:
- Yeah, why don't we now throw the... throw it open for questions?
- Operator:
- (Operator Instructions). Your first question comes from the line of Jason Warner. Your line is open.
- Jason Werner:
- Good morning.
- Jon Swets:
- Good morning, Jason.
- Benj. Smith III:
- Good morning.
- Jason Werner:
- I guess my first question; could you guys tell us the status of the litigation settlement that you had announced with the trade partners. What's the status of that now?
- Philip Koning:
- I can report that that is basically settled. We have, let me... as a matter of fact I was in court yesterday, and there were some minor revisions to the original settlement due to changes in stock price, and they submitted that to the court. It has to go through a fair and a safe hearing by both courts. But in general, it was unchanged from the original agreement that we had with them. So, we expect to be able to announce, and I think we have to announce within four days of either the court approving that or whatever, exactly what those settlements are. But I think that's behind us, Jason.
- Jason Werner:
- Okay that will be expense in the first quarter then?
- Philip Koning:
- Yeah, I'm not sure. They probably won't get... it will probably be on the first quarter. That will be my guess. I don't know.
- Jon Swets:
- It's kind of hard for us to say, because a part of this settlement if you recall from the original settlement, it does require that Plaintiffs' Counsel has to go and get. 98% of plaintiffs' signed up for the settlement, for everything to go through and we're kind of in wait-and-see mode, to see if Plaintiffs' Counsel can do that.
- Philip Koning:
- We don't think that will happen before March, just based on the timing of the completion of the documentation and mailing out the notifications. So we probably, if the earliest, would have some indication in March, so that probably wouldn't be first quarter.
- Jon Swets:
- Yeah it could -- we'll just have to wait and see. We got to see how Plaintiffs' Counsel does.
- Jason Werner:
- Okay. And then with the increase in other real estate-owned, I was kind of curious if you would give us a little more color of where that came from. I had noticed that the loans to 1 to 4 properties (ph) for speculative purposes declined quite a bit. I was wondering if maybe that was the stores, isn't that for the construction of those were finished and that will be able to do OREO?
- Philip Koning:
- Yeah, I don't.... we don't have a huge inventory of houses in ORE Jason. That increase... really some of it is properties working their way through foreclosure as the redemption periods expire. We've taken it in. Again as I mentioned, it's not totally unexpected at least from our point of view, because we've been watching the stuff work its way through, and we've been trying to actively market them as best as we can during that process, and we're feeling pretty good right now. As I mentioned I think we've got contracts on sale for probably 5 or 6 million. That should close within the next 30 to 45 days.
- Jason Werner:
- Okay, just not clear. You said, you don't have a lot of inventory of homes, so won't that commercial real estate property then.
- Philip Koning:
- Yeah and a lot of it is land.
- Jason Werner:
- Okay.
- Operator:
- (Operator Instructions). And there are no questions at this time.
- Benj. Smith III:
- Alright, thank you very much for joining us. We appreciate that and look forward to talking to you at the end of next quarter.
- Operator:
- This thus concludes today's conference. You may now disconnect.