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These excerpts taken from the MCBC 10-K filed Mar 11, 2009. ITEM 7A: Quantitative and Qualitative Disclosures About Market Risk.Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Macatawa Bank has only limited agricultural-related loan assets, and therefore has no significant exposure to changes in commodity prices. Our market risk exposure is mainly comprised of our sensitivity to interest rate risk. Our balance sheet has sensitivity, in various categories of assets and liabilities, to changes in prevailing rates in the U.S., including the Federal funds rate, the prime rate, mortgage rates, U.S. Treasury rates and various money market indexes. As part of our asset/liability management process, we identify and evaluate opportunities to structure our balance sheet to maximize our earnings while balancing our liquidity and interest rate risk within established parameters. We utilize a simulation model as our primary measurement technique in our interest rate risk management. Our simulation analyses monitors the direction and magnitude of variations in net interest income and the economic value of equity (“EVE”) resulting from potential changes in market interest rates. Key assumptions in the model include the repricing of cash flows and maturities of interest-sensitive assets and interest-sensitive liabilities at current market rates, prepayment speeds on certain assets, and changes in market conditions impacting loan and deposit pricing. We also assume certain levels of rate sensitivity to changes in market rates of our non-maturing transaction deposits based upon our historical sensitivity under previous interest rate cycles, and we include pricing floors on discretionary priced liability products which limit how low various checking and savings products could go under declining interest rates. These assumptions reflect our pricing philosophy in response to changing interest rates. We forecast the next twelve months of net interest income under an assumed environment of gradual changes in market interest rates under various scenarios. The resulting change in net interest income is an indication of the sensitivity of our earnings to directional changes in market interest rates. The simulation also measures the change in EVE, or the net present value of our assets and liabilities, under the same shifts in interest rates, as calculated by discounting the estimated future cash flows using a market-based discount rate. The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE based on our balance sheet as of December 31, 2008 (dollars in thousands).
This analysis suggests that we are well-balanced, with limited fluctuations in net interest income under each scenario over the next twelve months. Further, our balanced sensitivity in time horizons beyond one year results in little fluctuation in EVE under the various rate shock scenarios. We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions. The quarterly simulation analysis is monitored against acceptable interest rate risk parameters by the Asset/Liability Committee and reported to the Board of Directors. In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; economic and competitive conditions; potential changes in lending, investing and deposit gathering strategies; and client preferences. -38-
ITEM 7A: Quantitative | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Rate Scenario | Economic Value of Equity | Percent Change | Net Interest Income | Percent Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Interest Rates | ||||||||||||||
| 200 basis point rise | $ | 166,777 | (7.9 | 4)% | $ | 55,557 | (2.2 | 8)% | ||||||
| 100 basis point rise | 174,505 | (3.6 | 8) | 55,192 | (2.9 | 3) | ||||||||
| Base-rate scenario | 181,171 | --- | 56,856 | --- | ||||||||||
| 100 basis point decline | 182,329 | 0.64 | 58,094 | 2.18 | ||||||||||
| 200 basis point decline | 182,037 | 0.48 | 58,815 | 3.45 | ||||||||||
This analysis suggests that we are
well-balanced, with limited fluctuations in net interest income under each scenario over
the next twelve months. Further, our balanced sensitivity in time horizons beyond one year
results in little fluctuation in EVE under the various rate shock scenarios.
We also forecast the impact of
immediate and parallel interest rate shocks on net interest income under various scenarios
to measure the sensitivity of our earnings under extreme conditions.
The quarterly simulation analysis is
monitored against acceptable interest rate risk parameters by the Asset/Liability
Committee and reported to the Board of Directors.
In addition to changes in interest
rates, the level of future net interest income is also dependent on a number of other
variables, including: the growth, composition and absolute levels of loans, deposits, and
other earning assets and interest-bearing liabilities; economic and competitive
conditions; potential changes in lending, investing and deposit gathering strategies; and
client preferences.
-38-
ITEM 7A: Quantitative
and Qualitative Disclosures About Market Risk.
Our primary market risk exposure is
interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are
denominated in U.S. dollars with no specific foreign exchange exposure. Macatawa Bank has
only limited agricultural-related loan assets, and therefore has no significant exposure
to changes in commodity prices.
Our market risk exposure is mainly
comprised of our sensitivity to interest rate risk. Our balance sheet has sensitivity, in
various categories of assets and liabilities, to changes in prevailing rates in the U.S.,
including the Federal funds rate, the prime rate, mortgage rates, U.S. Treasury rates and
various money market indexes. As part of our asset/liability management process, we
identify and evaluate opportunities to structure our balance sheet to maximize our
earnings while balancing our liquidity and interest rate risk within established
parameters.
We utilize a simulation model as our
primary measurement technique in our interest rate risk management. Our simulation
analyses monitors the direction and magnitude of variations in net interest income and the
economic value of equity (“EVE”) resulting from potential changes in market
interest rates.
Key assumptions in the model include
the repricing of cash flows and maturities of interest-sensitive assets and
interest-sensitive liabilities at current market rates, prepayment speeds on certain
assets, and changes in market conditions impacting loan and deposit pricing. We also
assume certain levels of rate sensitivity to changes in market rates of our non-maturing
transaction deposits based upon our historical sensitivity under previous interest rate
cycles, and we include pricing floors on discretionary priced liability products which
limit how low various checking and savings products could go under declining interest
rates. These assumptions reflect our pricing philosophy in response to changing interest
rates.
We forecast the next twelve months of
net interest income under an assumed environment of gradual changes in market interest
rates under various scenarios. The resulting change in net interest income is an
indication of the sensitivity of our earnings to directional changes in market interest
rates. The simulation also measures the change in EVE, or the net present value of our
assets and liabilities, under the same shifts in interest rates, as calculated by
discounting the estimated future cash flows using a market-based discount rate.
The following table shows the impact
of changes in interest rates on net interest income over the next twelve months and EVE
based on our balance sheet as of December 31, 2008 (dollars in thousands).
| Interest Rate Scenario | Economic Value of Equity | Percent Change | Net Interest Income | Percent Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Interest Rates | ||||||||||||||
| 200 basis point rise | $ | 166,777 | (7.9 | 4)% | $ | 55,557 | (2.2 | 8)% | ||||||
| 100 basis point rise | 174,505 | (3.6 | 8) | 55,192 | (2.9 | 3) | ||||||||
| Base-rate scenario | 181,171 | --- | 56,856 | --- | ||||||||||
| 100 basis point decline | 182,329 | 0.64 | 58,094 | 2.18 | ||||||||||
| 200 basis point decline | 182,037 | 0.48 | 58,815 | 3.45 | ||||||||||
This analysis suggests that we are
well-balanced, with limited fluctuations in net interest income under each scenario over
the next twelve months. Further, our balanced sensitivity in time horizons beyond one year
results in little fluctuation in EVE under the various rate shock scenarios.
We also forecast the impact of
immediate and parallel interest rate shocks on net interest income under various scenarios
to measure the sensitivity of our earnings under extreme conditions.
The quarterly simulation analysis is
monitored against acceptable interest rate risk parameters by the Asset/Liability
Committee and reported to the Board of Directors.
In addition to changes in interest
rates, the level of future net interest income is also dependent on a number of other
variables, including: the growth, composition and absolute levels of loans, deposits, and
other earning assets and interest-bearing liabilities; economic and competitive
conditions; potential changes in lending, investing and deposit gathering strategies; and
client preferences.
-38-
ITEM 7A: Quantitative
and Qualitative Disclosures About Market Risk.
Our primary market risk exposure is
interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are
denominated in U.S. dollars with no specific foreign exchange exposure. Macatawa Bank has
only limited agricultural-related loan assets, and therefore has no significant exposure
to changes in commodity prices.
Our market risk exposure is mainly
comprised of our sensitivity to interest rate risk. Our balance sheet has sensitivity, in
various categories of assets and liabilities, to changes in prevailing rates in the U.S.,
including the Federal funds rate, the prime rate, mortgage rates, U.S. Treasury rates and
various money market indexes. As part of our asset/liability management process, we
identify and evaluate opportunities to structure our balance sheet to maximize our
earnings while balancing our liquidity and interest rate risk within established
parameters.
We utilize a simulation model as our
primary measurement technique in our interest rate risk management. Our simulation
analyses monitors the direction and magnitude of variations in net interest income and the
economic value of equity (“EVE”) resulting from potential changes in market
interest rates.
Key assumptions in the model include
the repricing of cash flows and maturities of interest-sensitive assets and
interest-sensitive liabilities at current market rates, prepayment speeds on certain
assets, and changes in market conditions impacting loan and deposit pricing. We also
assume certain levels of rate sensitivity to changes in market rates of our non-maturing
transaction deposits based upon our historical sensitivity under previous interest rate
cycles, and we include pricing floors on discretionary priced liability products which
limit how low various checking and savings products could go under declining interest
rates. These assumptions reflect our pricing philosophy in response to changing interest
rates.
We forecast the next twelve months of
net interest income under an assumed environment of gradual changes in market interest
rates under various scenarios. The resulting change in net interest income is an
indication of the sensitivity of our earnings to directional changes in market interest
rates. The simulation also measures the change in EVE, or the net present value of our
assets and liabilities, under the same shifts in interest rates, as calculated by
discounting the estimated future cash flows using a market-based discount rate.
The following table shows the impact
of changes in interest rates on net interest income over the next twelve months and EVE
based on our balance sheet as of December 31, 2008 (dollars in thousands).
| Interest Rate Scenario | Economic Value of Equity | Percent Change | Net Interest Income | Percent Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Interest Rates | ||||||||||||||
| 200 basis point rise | $ | 166,777 | (7.9 | 4)% | $ | 55,557 | (2.2 | 8)% | ||||||
| 100 basis point rise | 174,505 | (3.6 | 8) | 55,192 | (2.9 | 3) | ||||||||
| Base-rate scenario | 181,171 | --- | 56,856 | --- | ||||||||||
| 100 basis point decline | 182,329 | 0.64 | 58,094 | 2.18 | ||||||||||
| 200 basis point decline | 182,037 | 0.48 | 58,815 | 3.45 | ||||||||||
This analysis suggests that we are
well-balanced, with limited fluctuations in net interest income under each scenario over
the next twelve months. Further, our balanced sensitivity in time horizons beyond one year
results in little fluctuation in EVE under the various rate shock scenarios.
We also forecast the impact of
immediate and parallel interest rate shocks on net interest income under various scenarios
to measure the sensitivity of our earnings under extreme conditions.
The quarterly simulation analysis is
monitored against acceptable interest rate risk parameters by the Asset/Liability
Committee and reported to the Board of Directors.
In addition to changes in interest
rates, the level of future net interest income is also dependent on a number of other
variables, including: the growth, composition and absolute levels of loans, deposits, and
other earning assets and interest-bearing liabilities; economic and competitive
conditions; potential changes in lending, investing and deposit gathering strategies; and
client preferences.
-38-
ITEM 7A: Quantitative
and Qualitative Disclosures About Market Risk.
Our primary market risk exposure is
interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are
denominated in U.S. dollars with no specific foreign exchange exposure. Macatawa Bank has
only limited agricultural-related loan assets, and therefore has no significant exposure
to changes in commodity prices.
Our market risk exposure is mainly
comprised of our sensitivity to interest rate risk. Our balance sheet has sensitivity, in
various categories of assets and liabilities, to changes in prevailing rates in the U.S.,
including the Federal funds rate, the prime rate, mortgage rates, U.S. Treasury rates and
various money market indexes. As part of our asset/liability management process, we
identify and evaluate opportunities to structure our balance sheet to maximize our
earnings while balancing our liquidity and interest rate risk within established
parameters.
We utilize a simulation model as our
primary measurement technique in our interest rate risk management. Our simulation
analyses monitors the direction and magnitude of variations in net interest income and the
economic value of equity (“EVE”) resulting from potential changes in market
interest rates.
Key assumptions in the model include
the repricing of cash flows and maturities of interest-sensitive assets and
interest-sensitive liabilities at current market rates, prepayment speeds on certain
assets, and changes in market conditions impacting loan and deposit pricing. We also
assume certain levels of rate sensitivity to changes in market rates of our non-maturing
transaction deposits based upon our historical sensitivity under previous interest rate
cycles, and we include pricing floors on discretionary priced liability products which
limit how low various checking and savings products could go under declining interest
rates. These assumptions reflect our pricing philosophy in response to changing interest
rates.
We forecast the next twelve months of
net interest income under an assumed environment of gradual changes in market interest
rates under various scenarios. The resulting change in net interest income is an
indication of the sensitivity of our earnings to directional changes in market interest
rates. The simulation also measures the change in EVE, or the net present value of our
assets and liabilities, under the same shifts in interest rates, as calculated by
discounting the estimated future cash flows using a market-based discount rate.
The following table shows the impact
of changes in interest rates on net interest income over the next twelve months and EVE
based on our balance sheet as of December 31, 2008 (dollars in thousands).
| Interest Rate Scenario | Economic Value of Equity | Percent Change | Net Interest Income | Percent Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change in Interest Rates | ||||||||||||||
| 200 basis point rise | $ | 166,777 | (7.9 | 4)% | $ | 55,557 | (2.2 | 8)% | ||||||
| 100 basis point rise | 174,505 | (3.6 | 8) | 55,192 | (2.9 | 3) | ||||||||
| Base-rate scenario | 181,171 | --- | 56,856 | --- | ||||||||||
| 100 basis point decline | 182,329 | 0.64 | 58,094 | 2.18 | ||||||||||
| 200 basis point decline | 182,037 | 0.48 | 58,815 | 3.45 | ||||||||||
This analysis suggests that we are
well-balanced, with limited fluctuations in net interest income under each scenario over
the next twelve months. Further, our balanced sensitivity in time horizons beyond one year
results in little fluctuation in EVE under the various rate shock scenarios.
We also forecast the impact of
immediate and parallel interest rate shocks on net interest income under various scenarios
to measure the sensitivity of our earnings under extreme conditions.
The quarterly simulation analysis is
monitored against acceptable interest rate risk parameters by the Asset/Liability
Committee and reported to the Board of Directors.
In addition to changes in interest
rates, the level of future net interest income is also dependent on a number of other
variables, including: the growth, composition and absolute levels of loans, deposits, and
other earning assets and interest-bearing liabilities; economic and competitive
conditions; potential changes in lending, investing and deposit gathering strategies; and
client preferences.
-38-
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Analysis
Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Macatawa Bank has only limited agricultural-related loan assets, and therefore has no significant exposure to changes in commodity prices.
Our market risk exposure is mainly comprised of our sensitivity to interest rate risk. Our balance sheet has sensitivity, in various categories of assets and liabilities, to changes in prevailing rates in the U.S., including the Federal funds rate, the prime rate, mortgage rates, U.S. Treasury rates and various money market indexes. As part of our asset/liability management process, we identify and evaluate opportunities to structure our balance sheet to maximize our earnings while balancing our liquidity and interest rate risk within established parameters.
We utilize a simulation model as our primary measurement technique in our interest rate risk management. Our simulation analyses monitors the direction and magnitude of variations in net interest income and the economic value of equity (“EVE”) resulting from potential changes in market interest rates.
Key assumptions in the model include the repricing of cash flows and maturities of interest-sensitive assets and interest-sensitive liabilities at current market rates, prepayment speeds on certain assets, and changes in market conditions impacting loan and deposit pricing. We also assume certain levels of rate sensitivity to changes in market rates of our non-maturing transaction deposits based upon our historical sensitivity under previous interest rate cycles, and we include pricing floors on discretionary priced liability products which limit how low various checking and savings products could go under declining interest rates. These assumptions reflect our pricing philosophy in response to changing interest rates.
We forecast the next twelve months of net interest income under an assumed environment of gradual changes in market interest rates under various scenarios. The resulting change in net interest income is an indication of the sensitivity of our earnings to directional changes in market interest rates. The simulation also measures the change in EVE, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates.
The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE based on our balance sheet as of September 30, 2008 (dollars in thousands).
| Interest Rate Scenario | Economic Value of Equity |
Percent Change |
Net Interest Income |
Percent Change |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest rates up 200 basis points | $ | 136,255 | (15.24 | )% | $ | 60,869 | 4.44 | % | ||||||
| Interest rates up 100 basis points | 150,255 | (6.53 | ) | 59,633 | 2.32 | |||||||||
| No change in interest rates | 160,755 | -- | 58,281 | -- | ||||||||||
| Interest rates down 100 basis points | 159,036 | (1.07 | ) | 57,135 | (1.97 | ) | ||||||||
| Interest rates down 200 basis points | 150,876 | (6.15 | ) | 57,171 | (1.90 | ) | ||||||||
This analysis suggests that net interest income will stay within a narrow range over the next twelve months under the differing rate scenarios. If interest rates were to rise, this analysis suggests that we are positioned for improvement in net interest income over the next twelve months.
We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions.
33
The quarterly simulation analysis is monitored against acceptable interest rate risk parameters by the Asset/Liability Committee and reported to the Board of Directors.
In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; economic and competitive conditions; potential changes in lending, investing and deposit gathering strategies; and client preferences.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Analysis
Our primary market risk exposure is interest rate risk and, to a lesser extent, liquidity risk. All of our transactions are denominated in U.S. dollars with no specific foreign exchange exposure. Macatawa Bank has only limited agricultural-related loan assets, and therefore has no significant exposure to changes in commodity prices.
Our market risk exposure is mainly comprised of our sensitivity to interest rate risk. Our balance sheet has sensitivity, in various categories of assets and liabilities, to changes in prevailing rates in the U.S., including the Federal funds rate, the prime rate, mortgage rates, U.S. Treasury rates and various money market indexes. As part of our asset/liability management process, we identify and evaluate opportunities to structure our balance sheet to maximize our earnings while balancing our liquidity and interest rate risk within established parameters.
We utilize a simulation model as our primary measurement technique in our interest rate risk management. Our simulation analyses monitors the direction and magnitude of variations in net interest income and the economic value of equity (“EVE”) resulting from potential changes in market interest rates.
Key assumptions in the model include the repricing of cash flows and maturities of interest-sensitive assets and interest-sensitive liabilities at current market rates, prepayment speeds on certain assets, and changes in market conditions impacting loan and deposit pricing. We also assume certain levels of rate sensitivity to changes in market rates of our non-maturing transaction deposits based upon our historical sensitivity under previous interest rate cycles, and we include pricing floors on discretionary priced liability products which limit how low various checking and savings products could go under declining interest rates. These assumptions reflect our pricing philosophy in response to changing interest rates.
We forecast the next twelve months of net interest income under an assumed environment of gradual changes in market interest rates under various scenarios. The resulting change in net interest income is an indication of the sensitivity of our earnings to directional changes in market interest rates. The simulation also measures the change in EVE, or the net present value of our assets and liabilities, under an immediate shift, or shock, in interest rates under various scenarios, as calculated by discounting the estimated future cash flows using market-based discount rates.
The following table shows the impact of changes in interest rates on net interest income over the next twelve months and EVE based on our balance sheet as of June 30, 2008 (dollars in thousands).
| Interest Rate Scenario | Economic Value of Equity |
Percent Change |
Net Interest Income |
Percent Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Interest rates up 200 basis points | $ 199,338 | (9.39 | ) | $ 63,411 | 3.34 | % | ||||||||
| Interest rates up 100 basis points | 212,007 | (3.63 | ) | 62,423 | 1.73 | |||||||||
| No change in interest rates | 220,003 | -- | 61,359 | -- | ||||||||||
| Interest rates down 100 basis points | 219,837 | (0.08 | ) | 60,498 | (1.40 | ) | ||||||||
| Interest rates down 200 basis points | 216,442 | (1.62 | ) | 60,281 | (1.76 | ) | ||||||||
This analysis suggests that net interest income will stay within a narrow range over the next twelve months under the differing rate scenarios. If interest rates were to rise, this analysis suggests that we are positioned for improvement in net interest income over the next twelve months.
33
We also forecast the impact of immediate and parallel interest rate shocks on net interest income under various scenarios to measure the sensitivity of our earnings under extreme conditions.
The quarterly simulation analysis is monitored against acceptable interest rate risk parameters by the Asset/Liability Committee and reported to the Board of Directors.
In addition to changes in interest rates, the level of future net interest income is also dependent on a number of other variables, including: the growth, composition and absolute levels of loans, deposits, and other earning assets and interest-bearing liabilities; economic and competitive conditions; potential changes in lending, investing and deposit gathering strategies; and client preferences.
EXCERPTS ON THIS PAGE:
| 10-K (5 sections) | Mar 11, 2009 |
| 10-Q | Nov 10, 2008 |
| 10-Q | Oct 17, 2008 |
| |||||||
