Macatawa Hit With Loan Losses

December 19, 2007
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HOLLAND — Macatawa Bank Corp. has increased its loan loss provision by $9.5 million to address the risks associated with loans to residential developers. The additional charge will result in a decrease in earnings of approximately $6.2 million after tax, or 36 cents per diluted share, for the 2007 fourth quarter and year end.

In its filing with the Securities and Exchange Commission on Dec. 18, bank officials explained there had been an adverse development with respect to certain loans to residential developers.

Deterioration has continued in the West Michigan real estate markets, especially in the type of properties held by residential developers, Macatawa Chairman and CEO Benjamin Smith III told the SEC. Within the bank’s portfolio, loans secured by developed residential land amount to approximately $120 million. Of that amount, $44 million has been identified as impaired losses. Smith said the remaining loans, which represent two-thirds of that portfolio, are paying as agreed, and management believes they have sufficient collateral values relative to loan balances. 

Loans in the bank’s residential developer portfolio are secured by unimproved and improved land, residential lots and single family homes and condominium units, he said.

“Of these collateral types, loans secured by residential lots are experiencing the most weakness,” Smith wrote. “Generally, current lot sales by the developers/borrowers are taking place at a very slow pace. This slow pace has significantly increased the timeframe over which the borrowers must service their debt. The additional loan carrying time has caused borrowers to exhaust payment sources. Within the last few months, several of the bank’s customers reached this point where payment sources have been exhausted. ”

Smith said the company will remain well capitalized under federal regulatory capital requirements after the fourth-quarter charge.

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