Company Quick10K Filing
Macatawa Bank
Price10.43 EPS1
Shares34 P/E12
MCap355 P/FCF15
Net Debt41 EBIT46
TEV396 TEV/EBIT9
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-04-23
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-30 Filed 2019-10-25
10-Q 2019-06-30 Filed 2019-07-25
10-Q 2019-03-31 Filed 2019-04-25
10-K 2018-12-31 Filed 2019-02-14
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-04-26
10-K 2017-12-31 Filed 2018-02-15
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-16
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-28
10-Q 2016-03-31 Filed 2016-04-28
10-K 2015-12-31 Filed 2016-02-18
10-Q 2015-09-30 Filed 2015-10-22
10-Q 2015-06-30 Filed 2015-07-23
10-Q 2015-03-31 Filed 2015-04-23
10-K 2014-12-31 Filed 2015-02-19
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10-Q 2014-06-30 Filed 2014-07-24
10-Q 2014-03-31 Filed 2014-04-24
10-K 2013-12-31 Filed 2014-02-20
10-Q 2013-09-30 Filed 2013-10-24
10-Q 2013-06-30 Filed 2013-07-25
10-Q 2013-03-31 Filed 2013-04-25
10-K 2012-12-31 Filed 2013-02-21
10-Q 2012-09-30 Filed 2012-10-25
10-Q 2012-06-30 Filed 2012-07-26
10-Q 2012-03-31 Filed 2012-04-26
10-K 2011-12-31 Filed 2012-03-07
10-Q 2011-09-30 Filed 2011-10-27
10-Q 2011-06-30 Filed 2011-07-28
10-Q 2011-03-31 Filed 2011-04-28
10-K 2010-12-31 Filed 2011-02-24
10-Q 2010-09-30 Filed 2010-10-28
10-Q 2010-06-30 Filed 2010-07-29
10-Q 2010-03-31 Filed 2010-04-29
10-K 2009-12-31 Filed 2010-03-30
8-K 2020-05-05
8-K 2020-04-23
8-K 2020-04-17
8-K 2020-04-16
8-K 2020-04-06
8-K 2020-01-27
8-K 2020-01-23
8-K 2019-12-31
8-K 2019-10-24
8-K 2019-07-25
8-K 2019-05-07
8-K 2019-04-25
8-K 2019-04-18
8-K 2019-03-21
8-K 2019-02-05
8-K 2019-01-24
8-K 2018-10-29
8-K 2018-10-25
8-K 2018-07-26
8-K 2018-05-08
8-K 2018-04-26
8-K 2018-01-29
8-K 2018-01-25
8-K 2018-01-09

MCBC 10Q Quarterly Report

Part I Financial Information
Item 1.
Note 1 - Summary of Significant Accounting Policies
Note 2 - Securities
Note 3 - Loans
Note 4 - Other Real Estate Owned
Note 5 - Fair Value
Note 6 - Deposits
Note 7 - Other Borrowed Funds
Note 8 - Earnings per Common Share
Note 9 - Federal Income Taxes
Note 10 - Commitments and Off Balance - Sheet Risk
Note 11 - Contingencies
Note 12 - Shareholders' Equity
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4: Controls and Procedures
Part II - Other Information
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32.1 ex32_1.htm

Macatawa Bank Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 000-25927

MACATAWA BANK CORPORATION
(Exact name of registrant as specified in its charter)

Michigan

38-3391345
(State or other jurisdiction of  incorporation or organization)
 
(I.R.S. Employer Identification No.)

10753 Macatawa Drive, Holland, Michigan 49424
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (616) 820-1444

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol
Name of each exchange on which registered
Common stock
MCBC
NASDAQ

Indicate by checkmark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
 
The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 34,107,995 shares of the Company's Common Stock (no par value) were outstanding as of April 23, 2020.



Forward-Looking Statements
 
This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and Macatawa Bank Corporation. Forward-looking statements are identifiable by words or phrases such as “outlook”, “plan” or “strategy”; that an event or trend “could”, “may”, “should”, “will”, “is likely”, or is “possible” or “probable” to occur or “continue”, has “begun” or “is scheduled” or “on track” or that the Company or its management “anticipates”, “believes”, “estimates”, “plans”, “forecasts”, “intends”, “predicts”, “projects”, or “expects” a particular result, or is “committed”, “confident”, “optimistic” or has an “opinion” that an event will occur, or other words or phrases such as “ongoing”, “future”, “signs”, “efforts”, “tend”, “exploring”, “appearing”, “until”, “near term”, “concern”, “going forward”, “focus”, “starting”, “initiative,” “trend” and variations of such words and similar expressions. Such statements are based upon current beliefs and expectations and involve substantial risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These statements include, among others, those related to the risks and uncertainties related to, and the impact of, the global coronavirus (COVID-19) pandemic on the business, financial condition and results of operations of our company and our customers, future levels of earning assets, future composition of our loan portfolio, trends in credit quality metrics, future capital levels and capital needs, real estate valuation, future levels of repossessed and foreclosed properties and nonperforming assets, future levels of losses and costs associated with the administration and disposition of repossessed and foreclosed properties and nonperforming assets, future levels of loan charge-offs, future levels of other real estate owned, future levels of provisions for loan losses and reserve recoveries, the rate of asset dispositions, future dividends, future growth and funding sources, future cost of funds, future liquidity levels, future profitability levels, future interest rate levels, future net interest margin levels, the effects on earnings of changes in interest rates, future economic conditions, future effects of new or changed accounting standards, future loss recoveries, loan demand and loan growth and the future level of other revenue sources. Management's determination of the provision and allowance for loan losses, the appropriate carrying value of intangible assets (including deferred tax assets) and other real estate owned, and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) involves judgments that are inherently forward-looking. All statements with references to future time periods are forward-looking. All of the information concerning interest rate sensitivity is forward-looking. The future effect of changes in the real estate, financial and credit markets and the national and regional economy on the banking industry, generally, and Macatawa Bank Corporation, specifically, are also inherently uncertain. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Macatawa Bank Corporation does not undertake to update forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.
 
Risk factors include, but are not limited to, the risk factors described in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.


INDEX

   
Page
Number
     
Part I.
Financial Information:
 
     
 
Item 1.
 
  4
     
  10
     
 
Item 2.
 
  34
     
 
Item 3.
 
  47
     
 
Item 4.
 
  48
     
Part II.
Other Information:
 
     
 
Item 1A.
 
 
49
     
 
Item 2.
 
 
50
     
 
Item 6.
 
 
50
     
51

Part I  Financial Information
Item 1.
MACATAWA BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
As of March 31, 2020 (unaudited) and December 31, 2019
(Dollars in thousands, except per share data)
 

   
March 31,
2020
   
December 31,
2019
 
ASSETS
           
Cash and due from banks
 
$
25,861
   
$
31,942
 
Federal funds sold and other short-term investments
   
181,334
     
240,508
 
Cash and cash equivalents
   
207,195
     
272,450
 
Debt securities available for sale, at fair value
   
243,368
     
225,249
 
Debt securities held to maturity (fair value 2020 - $84,866 and 2019 - $85,128)
   
82,514
     
82,720
 
Federal Home Loan Bank (FHLB) stock
   
11,558
     
11,558
 
Loans held for sale, at fair value
   
1,966
     
3,294
 
Total loans
   
1,395,341
     
1,385,627
 
Allowance for loan losses
   
(18,889
)
   
(17,200
)
Net loans
   
1,376,452
     
1,368,427
 
Premises and equipment – net
   
43,461
     
43,417
 
Accrued interest receivable
   
5,356
     
4,866
 
Bank-owned life insurance
   
42,411
     
42,156
 
Other real estate owned - net
   
2,626
     
2,748
 
Net deferred tax asset
   
1,728
     
2,078
 
Other assets
   
12,455
     
9,807
 
Total assets
 
$
2,031,090
   
$
2,068,770
 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Deposits
               
Noninterest-bearing
 
$
492,409
   
$
482,499
 
Interest-bearing
   
1,212,971
     
1,270,795
 
Total deposits
   
1,705,380
     
1,753,294
 
Other borrowed funds
   
70,000
     
60,000
 
Long-term debt
   
20,619
     
20,619
 
Accrued expenses and other liabilities
   
11,511
     
17,388
 
Total liabilities
   
1,807,510
     
1,851,301
 
Commitments and contingent liabilities
   
     
 
Shareholders' equity
               
Common stock, no par value, 200,000,000 shares authorized; 34,107,995 and 34,103,542 shares issued and outstanding at March 31, 2020 and December 31, 2019
   
218,207
     
218,109
 
Retained earnings (deficit)
   
1,507
     
(2,184
)
Accumulated other comprehensive income
   
3,866
     
1,544
 
Total shareholders' equity
   
223,580
     
217,469
 
Total liabilities and shareholders' equity
 
$
2,031,090
   
$
2,068,770
 

See accompanying notes to consolidated financial statements.

-4-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three month periods ended March 31, 2020 and 2019
(unaudited)
(Dollars in thousands, except per share data)
 

   
Three Months
Ended
March 31,
2020
   
Three Months
Ended
March 31,
2019
 
Interest income
           
Loans, including fees
 
$
14,851
   
$
16,450
 
Securities
               
Taxable
   
1,061
     
996
 
Tax-exempt
   
882
     
839
 
FHLB Stock
   
124
     
160
 
Federal funds sold and other short-term investments
   
576
     
744
 
Total interest income
   
17,494
     
19,189
 
Interest expense
               
Deposits
   
1,603
     
2,256
 
Other borrowings
   
349
     
327
 
Long-term debt
   
239
     
586
 
Total interest expense
   
2,191
     
3,169
 
Net interest income
   
15,303
     
16,020
 
Provision for loan losses
   
700
     
(250
)
Net interest income after provision for loan losses
   
14,603
     
16,270
 
Noninterest income
               
Service charges and fees
   
1,110
     
1,050
 
Net gains on mortgage loans
   
650
     
211
 
Trust fees
   
935
     
890
 
ATM and debit card fees
   
1,337
     
1,326
 
Gain on sales of securities
   
     
 
Bank owned life insurance ("BOLI") income
   
242
     
236
 
Other
   
685
     
615
 
Total noninterest income
   
4,959
     
4,328
 
Noninterest expense
               
Salaries and benefits
   
6,691
     
6,244
 
Occupancy of premises
   
1,009
     
1,093
 
Furniture and equipment
   
855
     
844
 
Legal and professional
   
291
     
230
 
Marketing and promotion
   
238
     
228
 
Data processing
   
760
     
730
 
FDIC assessment
   
     
120
 
Interchange and other card expense
   
347
     
345
 
Bond and D&O Insurance
   
105
     
104
 
Net (gains) losses on repossessed and foreclosed properties
   
31
     
(35
)
Administration and disposition of problem assets
   
30
     
88
 
Other
   
1,365
     
1,247
 
Total noninterest expenses
   
11,722
     
11,238
 
Income before income tax
   
7,840
     
9,360
 
Income tax expense
   
1,429
     
1,714
 
Net income
 
$
6,411
   
$
7,646
 
Basic earnings per common share
 
$
0.19
   
$
0.22
 
Diluted earnings per common share
 
$
0.19
   
$
0.22
 
Cash dividends per common share
 
$
0.08
   
$
0.07
 

See accompanying notes to consolidated financial statements.

-5-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three month periods ended March 31, 2020 and 2019
(unaudited)
(Dollars in thousands)
 

   
Three Months
Ended
March 31,
2020
   
Three Months
Ended
March 31,
2019
 
Net income
 
$
6,411
   
$
7,646
 
Other comprehensive income:
               
Unrealized gains (losses):
               
Net change in unrealized gains (losses) on debt securities available for sale
   
2,939
     
2,261
 
Tax effect
   
(617
)
   
(475
)
Net change in unrealized gains (losses) on debt securities available for sale, net of tax
   
2,322
     
1,786
 
Less: reclassification adjustments:
               
Reclassification for gains included in net income
   
     
 
Tax effect
   
     
 
Reclassification for gains included in net income, net of tax
   
     
 
Other comprehensive income (loss), net of tax
   
2,322
     
1,786
 
Comprehensive income
 
$
8,733
   
$
9,432
 

See accompanying notes to consolidated financial statements.

-6-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three month periods ended March 31, 2020 and 2019
(unaudited)
(Dollars in thousands, except per share data)
 

   
Common
Stock
   
Retained
Deficit
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Shareholders'
Equity
 
Balance, January 1, 2019
 
$
217,783
   
$
(24,652
)
 
$
(2,278
)
 
$
190,853
 
Net income for the three months ended March 31, 2019
   
     
7,646
     
     
7,646
 
Cash dividends at $.07 per share
   
     
(2,378
)
   
     
(2,378
)
Net change in unrealized loss on debt securities available for sale, net of tax
   
     
     
1,786
     
1,786
 
Stock compensation expense
   
59
     
     
     
59
 
Balance, March 31, 2019
 
$
217,842
   
$
(19,384
)
 
$
(492
)
 
$
197,966
 

   
Common
Stock
   
Retained
Earnings (Deficit)
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Shareholders'
Equity
 
Balance, January 1, 2020
 
$
218,109
   
$
(2,184
)
 
$
1,544
   
$
217,469
 
Net income for the three months ended March 31, 2020
   
     
6,411
     
     
6,411
 
Cash dividends at $.08 per share
   
     
(2,720
)
   
     
(2,720
)
Repurchase of 1,608 shares for taxes withheld on vested restricted stock
   
(11
)
                   
(11
)
Net change in unrealized loss on debt securities available for sale, net of tax
   
     
     
2,322
     
2,322
 
Stock compensation expense
   
109
     
     
     
109
 
Balance, March 31, 2020
 
$
218,207
   
$
1,507
   
$
3,866
   
$
223,580
 

See accompanying notes to consolidated financial statements.

-7-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three month periods ended March 31, 2020 and 2019
(unaudited)
(Dollars in thousands)
 

   
Three Months
Ended
March 31,
2020
   
Three Months
Ended
March 31,
2019
 
Cash flows from operating activities
           
Net income
 
$
6,411
   
$
7,646
 
Adjustments to reconcile net income to net cash from operating activities:
               
Depreciation and amortization
   
721
     
632
 
Stock compensation expense
   
109
     
59
 
Provision for loan losses
   
700
     
(250
)
Origination of loans for sale
   
(29,356
)
   
(6,881
)
Proceeds from sales of loans originated for sale
   
31,334
     
6,995
 
Net gains on mortgage loans
   
(650
)
   
(211
)
Write-down of other real estate
   
31
     
10
 
Net gain (loss) on sales of other real estate
   
     
(45
)
Deferred income tax expense
   
(271
)
   
245
 
Change in accrued interest receivable and other assets
   
(3,138
)
   
(2,063
)
Earnings in bank-owned life insurance
   
(242
)
   
(236
)
Change in accrued expenses and other liabilities
   
4,276
     
2,771
 
Net cash from operating activities
   
9,925
     
8,672
 
Cash flows from investing activities
               
Loan originations and payments, net
   
(8,725
)
   
21,357
 
Purchases of securities available for sale
   
(49,894
)
   
(5,297
)
Purchases of securities held to maturity
   
(5,876
)
   
(498
)
Proceeds from:
               
Maturities and calls of securities
   
26,544
     
8,300
 
Principal paydowns on securities
   
3,949
     
1,835
 
Sales of other real estate
   
91
     
154
 
Additions to premises and equipment
   
(624
)
   
(568
)
Net cash from investing activities
   
(34,535
)
   
25,283
 
Cash flows from financing activities
               
Change in deposits
   
(47,914
)
   
(58,875
)
Repayments and maturities of other borrowed funds
   
     
(10,000
)
Proceeds from other borrowed funds
   
10,000
     
10,000
 
Repurchase of shares for taxes withheld on vested restricted stock
   
(11
)
   
 
Cash dividends paid
   
(2,720
)
   
(2,378
)
Net cash from financing activities
   
(40,645
)
   
(61,253
)
Net change in cash and cash equivalents
   
(65,255
)
   
(27,298
)
Cash and cash equivalents at beginning of period
   
272,450
     
171,284
 
Cash and cash equivalents at end of period
 
$
207,195
   
$
143,986
 

See accompanying notes to consolidated financial statements.

-8-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Three month periods ended March 31, 2020 and 2019
(unaudited)
(Dollars in thousands)
 

   
Three Months
Ended
March 31,
2020
   
Three Months
Ended
March 31,
2019
 
Supplemental cash flow information
           
Interest paid
 
$
2,234
   
$
2,788
 
Income taxes paid
   
     
 
Supplemental noncash disclosures:
               
Transfers from loans to other real estate
   
     
 
Security settlement
   
(10,153
)
   
(253
)

See accompanying notes to consolidated financial statements.

-9-

MACATAWA BANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Macatawa Bank Corporation ("the Company", "our", "we") and its wholly-owned subsidiary, Macatawa Bank ("the Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation.

Macatawa Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank operates 26 full service branch offices providing a full range of commercial and consumer banking and trust services in Kent County, Ottawa County, and northern Allegan County, Michigan.

The Company owns all of the common stock of Macatawa Statutory Trust I and Macatawa Statutory Trust II. These are grantor trusts that issued trust preferred securities and are not consolidated with the Company under accounting principles generally accepted in the United States of America.

Recent Events: In December 2019, news began to surface regarding an influenza pandemic in China, known as the novel coronavirus, or COVID-19. In January 2020, the United States restricted entry to anyone traveling from China.  In February 2020, the pandemic spread broadly and swiftly throughout Europe and the Middle East, particularly in Italy and Iran. Cases began to surface in the United States in February 2020 and accelerated in early March 2020.  The Federal Reserve reduced the overnight federal funds rate by 50 basis points on March 3, 2020 and by another 100 basis points on March 15, 2020 and announced the resumption of quantitative easing.  During the week of March 9, 2020, individual states began implementing restrictions and promoting “social distancing”.  These restrictions included closure of schools, restrictions on the number of public gatherings, encouragement of work at home arrangements and other measures. In Michigan, Governor Gretchen Whitmer issued a “stay home, stay safe” executive order effective March 24, 2020, which required residents to remain at home "to the maximum extent feasible" and prohibited in-person work that "is not necessary to sustain or protect life." Pursuant to the order, no person or entity was permitted to operate a business that required workers to leave their homes except to the extent that those workers were necessary (i) to conduct minimum basic operations or (ii) to sustain or protect life. On April 9, 2020, the Governor issued a revised executive order, which is effective through April 30, 2020. This revised executive order further limits travel, provides guidance regarding the definition of critical infrastructure workers, places additional requirements on businesses remaining open including limiting goods that can be sold by retailers and implementing social distancing practices, and incorporates guidance issued under the earlier order. It is possible that the Governor will issue one or more additional executive orders extending the existing orders or imposing additional restrictions on the activities of individuals or businesses.  Congress passed a number of measures in late March 2020, designed to infuse cash into the economy to offset the negative impacts of business closings and restrictions.  The COVID-19 pandemic is a highly unusual, unprecedented and evolving public health and economic crisis and may have a negative material impact on the Company’s financial condition and results of operations.  The Company is in an asset-sensitive position, so decreases in short-term rates have a net negative impact on the Company’s net interest income as the Company’s interest-earning assets will reprice faster than its interest-bearing liabilities.  Additionally, the negative consequences of the unprecedented economic shutdown nationally and in Michigan is likely to result in a higher level of delinquencies and loan losses and require additional provisions for loan losses, which will have a negative impact on our results of operations.

We quickly responded to the changing environment by executing our business continuity plan and purchasing and deploying additional equipment to allow for a majority of our workforce to work remotely. Our branch facilities remain open, but lobbies have been closed with transactions being conducted through drive-up windows or on-line channels. We have implemented rotations for onsite personnel, implemented enhanced daily cleaning of facilities and instructed personnel to maintain appropriate social distancing in our offices.

On March 22, 2020, the federal banking agencies issued an “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus”.  This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19.  The guidance goes on to explain that in consultation with the FASB staff that the federal banking agencies conclude that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not Troubled Debt Restructurings (“TDRs”).  The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was passed by Congress on March 27, 2020.  Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.  Through March 31, 2020, the Bank had applied this guidance and modified 179 individual loans with aggregate principal balances totaling $88.0 million.  More of these types of modifications are likely to be executed in the second quarter of 2020.  The majority of these modifications involved three-month extensions of interest-only periods.

The CARES Act included an allocation of $349 billion for loans to be issued by financial institutions through the Small Business Administration (“SBA”).  This program is known as the Paycheck Protection Program (“PPP”).   PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP.  These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.  Payments are deferred for the first six months of the loan. The loans are 100% guaranteed by the SBA.  The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan.  The SBA began accepting submissions for these PPP loans on Friday, April 3, 2020.  In the first weekend, we originated over $100 million of these PPP loans and through April 16, 2020, the date the SBA reached the limit of funds available to disburse under this program, we had received SBA authorizations for PPP loans totaling $311.6 million.  Participation in the PPP will likely have a significant impact on our asset mix and net interest margin for the remainder of 2020.  At March 31, 2020, we had $181.3 million in federal funds sold and $359.4 million of available borrowing capacity from our correspondent banks.  In addition, the Federal Reserve has implemented a liquidity facility available to financial institutions participating in the PPP.  As such, the Bank believes it has sufficient liquidity sources to fund all pending PPP loans and to continue to provide this important service to local businesses if additional funds are appropriated for the PPP.

-10-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) believed necessary for a fair presentation have been included.
 
Operating results for the three month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
 
Use of Estimates:  To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, 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, valuation of deferred tax assets, loss contingencies, fair value of other real estate owned and fair values of financial instruments are particularly subject to change.

Allowance for Loan Losses: The allowance for loan losses (allowance) is a valuation allowance for probable incurred credit losses inherent in our loan portfolio, increased by the provision for loan losses and recoveries, and decreased by charge-offs of loans. Management believes the allowance for loan losses balance to be adequate based on known and inherent risks in the portfolio, past loan loss experience, information about specific borrower situations and estimated collateral values, economic conditions and other relevant 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 losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the allowance for loan losses.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current qualitative factors. The Company maintains a loss migration analysis that tracks loan losses and recoveries based on loan class and the loan risk grade assignment for commercial loans. At March 31, 2020, an 18 month annualized historical loss experience was used for commercial loans and a 12 month historical loss experience period was applied to residential mortgage loans and consumer loans. These historical loss percentages are adjusted (both upwards and downwards) for certain qualitative factors, including economic trends, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, external factors and other considerations.
 
A loan is impaired when, based on current information and events, it is believed to be probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified and a concession has been made, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.
 
Commercial and commercial real estate loans with relationship balances exceeding $500,000 and an internal risk grading of 6 or worse are evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated and the loan is reported at the present value of estimated future cash flows using the loan’s existing interest rate or at the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment and they are not separately identified for impairment disclosures.
 
Troubled debt restructurings are also considered impaired with impairment generally measured at the present value of estimated future cash flows using the loan’s effective rate at inception or using the fair value of collateral, less estimated costs to sell, if repayment is expected solely from the collateral.
 
Foreclosed Assets: Assets acquired through or instead of loan foreclosure, primarily other real estate owned, are initially recorded at fair value less estimated costs to sell when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed unless they add value to the property.
 
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.

The Company recognizes a tax position as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The Company recognizes interest and penalties related to income tax matters in income tax expense.

-11-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition:  The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured.  The Company’s primary source of revenue is interest income from the Bank’s loans and investment securities.  The Company also earns noninterest revenue from various banking services offered by the Bank.

Interest Income: The Company’s largest source of revenue is interest income which is primarily recognized on an accrual basis based on contractual terms written into loans and investment contracts.
 
Noninterest Revenue:  The Company derives the majority of its noninterest revenue from: (1) service charges for deposit related services, (2) gains related to mortgage loan sales, (3) trust fees and (4) debit and credit card interchange income.  Most of these services are transaction based and revenue is recognized as the related service is provided.
 
Derivatives:  Certain of the Bank’s commercial loan customers have entered into interest rate swap agreements directly with the Bank.  At the same time the Bank enters into a swap agreement with its customer, the Bank enters into a corresponding interest rate swap agreement with a correspondent bank at terms mirroring the Bank’s interest rate swap with its commercial loan customer.   This is known as a back-to-back swap agreement.  Under this arrangement the Bank has two freestanding interest rate swaps, each of which are carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At March 31, 2020 and December 31, 2019, the total notional amount of such agreements was $75.9 million and $70.3 million, respectively, and resulted in a derivative asset with a fair value of $4.3 million and $1.8 million, respectively, which were included in other assets and a derivative liability of $4.3 million and $1.8 million, respectively, which were included in other liabilities.
 
Reclassifications: Some items in the prior period financial statements were reclassified to conform to the current presentation.

Newly Issued Not Yet Effective Standards:  FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This ASU provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The new guidance eliminates the probable initial recognition threshold and, instead, reflects an entity’s current estimate of all expected credit losses. The new guidance broadens the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually to include forecasted information, as well as past events and current conditions. There is no specified method for measuring expected credit losses, and an entity is allowed to apply methods that reasonably reflect its expectations of the credit loss estimate. Although an entity may still use its current systems and methods for recording the allowance for credit losses, under the new rules, the inputs used to record the allowance for credit losses generally will need to change to appropriately reflect an estimate of all expected credit losses and the use of reasonable and supportable forecasts. Additionally, credit losses on available-for-sale debt securities will now have to be presented as an allowance rather than as a write-down.

ASU No. 2019-10 Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) – Effective Dates updated the effective date of this ASU for smaller reporting companies, such as the Company, to fiscal years beginning after December 15, 2022.  The Company selected a software vendor for applying this new ASU, began implementation of the software in the second quarter of 2018, completed integration during the third quarter of 2018 and ran parallel computations with both systems using the current GAAP incurred loss model in the fourth quarter of 2018.  The Company went live with this software beginning in January 2019 for its monthly incurred loss computations and began modeling the new current expected credit loss model assumptions to the allowance for loan losses computation.  In the second, third and fourth quarters of 2019, the Company modeled the various methods prescribed in the ASU against the Company’s identified loan segments.  The Company anticipates continuing to run parallel computations and fine tune assumptions as it continues to evaluate the impact of adoption of the new standard.  The COVID-19 pandemic that broke out in the United States in the first quarter of 2020 may have a significant impact on allowance computations under the incurred loss model which would be amplified under the new standard.  Efforts are underway in Congress and with banking regulators to require a further deferral of implementation of ASU No. 2016-13.
 
On March 12, 2020, the Securities Exchange Commission finalized amendments to the definitions of “accelerated” and “large accelerated filer” definitions. The amendments increase the threshold criteria for meeting these categories and are effective on April 27, 2020.  Prior to these changes, the Company was designated as an “accelerated” filer as it had more than $75 million in public float but less than $700 million at the end of the Company’s most recent second quarter.  The rule change expands the definition of “smaller reporting companies” to include entities with public float of less than $700 million and less than $100 million in annual revenues.  The Company expects to meet this expanded category of small reporting company and will no longer be considered an accelerated filer.  If the Company’s annual revenues exceed $100 million, its category will change back to “accelerated filer”.  The categorization of “accelerated” or “large accelerated filer” drives the requirement for a public company to obtain an auditor attestation of its internal control over financial reporting.  Smaller reporting companies also have additional time to file quarterly and annual financial statements.  All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of internal control over financial reporting, but the external auditor attestation of internal control over financial reporting is not required if not an accelerated or large accelerated filer.  As the Bank has total assets exceeding $1.0 billion, it remains subject to FDICIA, which requires an auditor attestation of internal controls over the Bank’s regulatory financial reporting.  As such, other than the additional time provided to file quarterly and annual financial statements, this change does not significantly change the Company’s annual reporting and audit requirements.

-12-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 2 – SECURITIES
 
The amortized cost and fair value of securities at period-end were as follows (dollars in thousands):

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
March 31, 2020
                       
Available for Sale
                       
U.S. Treasury and federal agency securities
 
$
67,794
   
$
584
   
$
   
$
68,378
 
U.S. Agency MBS and CMOs
   
62,555
     
2,118
     
     
64,673
 
Tax-exempt state and municipal bonds
   
45,820
     
1,123
     
(13
)
   
46,930
 
Taxable state and municipal bonds
   
55,015
     
1,102
     
(46
)
   
56,071
 
Corporate bonds and other debt securities
   
7,290
     
41
     
(15
)
   
7,316
 
   
$
238,474
   
$
4,968
   
$
(74
)
 
$
243,368
 
Held to Maturity
                               
Tax-exempt state and municipal bonds
 
$
82,514
   
$
2,352
   
$
   
$
84,866
 

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
December 31, 2019
                       
Available for Sale
                       
U.S. Treasury and federal agency securities
 
$
74,839
   
$
95
   
$
(185
)
 
$
74,749
 
U.S. Agency MBS and CMOs
   
45,795
     
474
     
(68
)
   
46,201
 
Tax-exempt state and municipal bonds
   
44,718
     
1,244
     
     
45,962
 
Taxable state and municipal bonds
   
51,683
     
404
     
(65
)
   
52,022
 
Corporate bonds and other debt securities
   
6,263
     
55
     
(3
)
   
6,315
 
   
$
223,298
   
$
2,272
   
$
(321
)
 
$
225,249
 
Held to Maturity
                               
Tax-exempt state and municipal bonds
 
$
82,720
   
$
2,408
   
$
   
$
85,128
 

There were no sales of securities in the three month periods ended March 31, 2020 and 2019.

Contractual maturities of debt securities at March 31, 2020 were as follows (dollars in thousands):

   
Held–to-Maturity Securities
   
Available-for-Sale Securities
 
   
Amortized
Cost
   
Fair
Value
   
Amortized
Cost
   
Fair
Value
 
Due in one year or less
 
$
18,583
   
$
18,669
   
$
30,761
   
$
30,926
 
Due from one to five years
   
31,133
     
31,895
     
84,398
     
85,879
 
Due from five to ten years
   
14,173
     
14,869
     
60,823
     
62,003
 
Due after ten years
   
18,625
     
19,433
     
62,492
     
64,560
 
   
$
82,514
   
$
84,866
   
$
238,474
   
$
243,368
 

-13-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 2 – SECURITIES (Continued)

Securities with unrealized losses at March 31, 2020 and December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (dollars in thousands):

   
Less than 12 Months
   
12 Months or More
   
Total
 
March 31, 2020
 
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
 
Available for Sale
                                   
U.S. Treasury and federal agency securities
 
$
   
$
   
$
   
$
   
$
   
$
 
U.S. Agency MBS and CMOs
   
     
     
     
     
     
 
Tax-exempt state and municipal bonds
   
503
     
(3
)
   
     
     
503
     
(3
)
Taxable state and municipal bonds
   
5,053
     
(56
)
   
     
     
5,053
     
(56
)
Corporate bonds and other debt securities
   
2,980
     
(14
)
   
351
     
(1
)
   
3,331
     
(15
)
Total
 
$
8,536
   
$
(73
)
 
$
351
   
$
(1
)
 
$
8,887
   
$
(74
)
                                                 
Held to Maturity
                                               
Tax-exempt state and municipal bonds
 
$
   
$
   
$
   
$
   
$
   
$
 

   
Less than 12 Months
   
12 Months or More
   
Total
 
December 31, 2019
 
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
 
Available for Sale
                                   
U.S. Treasury and federal agency securities
 
$
15,009
   
$
(97
)
 
$
27,026
   
$
(87
)
 
$
42,035
   
$
(184
)
U.S. Agency MBS and CMOs
   
19,117
     
(56
)
   
1,196
     
(12
)
   
20,313
     
(68
)
Tax-exempt state and municipal bonds
   
319
     
     
     
     
319
     
 
Taxable state and municipal bonds
   
8,569
     
(57
)
   
2,981
     
(9
)
   
11,550
     
(66
)
Corporate bonds and other debt securities
   
932
     
     
852
     
(3
)
   
1,784
     
(3
)
Total temporarily impaired
 
$
43,946
   
$
(210
)
 
$
32,055
   
$
(111
)
 
$
76,001
   
$
(321
)
                                                 
Held to Maturity
                                               
Tax-exempt state and municipal bonds
 
$
   
$
   
$
   
$
   
$
   
$
 

Other-Than-Temporary-Impairment
 
Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. At March 31, 2020, 17 securities available for sale with fair values totaling $8.9 million had unrealized losses totaling approximately $74,000.  At March 31, 2020, no securities held to maturity had unrealized losses.  Management has the intent and ability to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities.  In addition, management believes it is more likely than not that the Company will not be required to sell any if its investment securities before a recovery of cost.  Management determined that the unrealized losses for the three month periods ended March 31, 2020 and 2019 were attributable to changes in interest rates and not due to credit quality.  As such, no OTTI charges were necessary during each period.
 
Securities with a carrying value of approximately $5.1 million and $3.0 million were pledged as security for public deposits, letters of credit and for other purposes required or permitted by law at March 31, 2020 and December 31, 2019, respectively.

-14-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 3 – LOANS
 
Portfolio loans were as follows (dollars in thousands):

   
March 31,
2020
   
December 31,
2019
 
Commercial and industrial
 
$
527,590
   
$
499,572
 
Commercial real estate:
               
Residential developed
   
12,795
     
14,705
 
Unsecured to residential developers
   
5,000
     
 
Vacant and unimproved
   
42,761
     
41,796
 
Commercial development
   
623
     
665
 
Residential improved
   
131,954
     
130,861
 
Commercial improved
   
284,565
     
292,799
 
Manufacturing and industrial
   
114,953
     
117,632
 
Total commercial real estate
   
592,651
     
598,458
 
Consumer
               
Residential mortgage
   
198,585
     
211,049
 
Unsecured
   
247
     
274
 
Home equity
   
71,462
     
70,936
 
Other secured
   
4,806
     
5,338
 
Total consumer
   
275,100
     
287,597
 
Total loans
   
1,395,341
     
1,385,627
 
Allowance for loan losses
   
(18,889
)
   
(17,200
)
   
$
1,376,452
   
$
1,368,427
 

Activity in the allowance for loan losses by portfolio segment was as follows (dollars in thousands):

Three months ended March 31, 2020
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
7,658
   
$
6,521
   
$
3,009
   
$
12
   
$
17,200
 
Charge-offs
   
     
     
(39
)
   
     
(39
)
Recoveries
   
19
     
974
     
35
     
     
1,028
 
Provision for loan losses
   
1,130
     
(582
)
   
125
     
27
     
700
 
Ending Balance
 
$
8,807
   
$
6,913
   
$
3,130
   
$
39
   
$
18,889
 

Three months ended March 31, 2019
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
6,856
   
$
6,544
   
$
3,449
   
$
27
   
$
16,876
 
Charge-offs
   
     
(132
)
   
(25
)
   
     
(157
)
Recoveries
   
136
     
224
     
63
     
     
423
 
Provision for loan losses
   
(3
)
   
(189
)
   
(61
)
   
3
     
(250
)
Ending Balance
 
$
6,989
   
$
6,447
   
$
3,426
   
$
30
   
$
16,892
 

The provision for loan losses for the three months ended March 31, 2020 was $700,000 compared to a negative $250,000 for the same period in 2019.  Positively impacting the provisions for loan losses for each period were the continued stabilization of real estate values on problem credits and asset quality metrics, and net loan recoveries of $989,000 in the three months ended March 31, 2020 and $266,000 in the same period in 2019. Negatively impacting the provision for loan losses for the first quarter of 2020 was the estimated impact of COVID-19, which impact will be far-reaching and take time to be fully realized. The Bank has been actively working with its borrowers at risk who are impacted by the stay-at-home orders issued by the Governor of the State of Michigan on March 23, 2020 and April 9, 2020, respectively. These actions include short-term extensions and acceptance of interest-only payments on a short-term basis. Many of the Bank’s customers have been applying for and receiving Paycheck Protection Program loans as well. The Bank believes these measures will partially mitigate the impact of these stay-at home orders, but it is likely that the Bank will experience increased delinquencies and loan losses as a result of the economic fallout from COVID-19.

-15-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 3 – LOANS (Continued)
 
The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method (dollars in thousands):

March 31, 2020
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Allowance for loan losses:
                             
Ending allowance attributable to loans:
                             
Individually reviewed for impairment
 
$
1,720
   
$
36
   
$
359
   
$
   
$
2,115
 
Collectively evaluated for impairment
   
7,087
     
6,877
     
2,771
     
39
     
16,774
 
Total ending allowance balance
 
$
8,807
   
$
6,913
   
$
3,130
   
$
39
   
$
18,889
 
Loans:
                                       
Individually reviewed for impairment
 
$
7,164
   
$
8,356
   
$
4,820
   
$
   
$
20,340
 
Collectively evaluated for impairment
   
520,426
     
584,295
     
270,280
     
     
1,375,001
 
Total ending loans balance
 
$
527,590
   
$
592,651
   
$
275,100
   
$
   
$
1,395,341
 

December 31, 2019
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Allowance for loan losses:
                             
Ending allowance attributable to loans:
                             
Individually reviewed for impairment
 
$
1,213
   
$
32
   
$
379
   
$
   
$
1,624
 
Collectively evaluated for impairment
   
6,445
     
6,489
     
2,630
     
12
     
15,576
 
Total ending allowance balance
 
$
7,658
   
$
6,521
   
$
3,009
   
$
12
   
$
17,200
 
Loans:
                                       
Individually reviewed for impairment
 
$
5,797
   
$
2,928
   
$
5,140
   
$
   
$
13,865
 
Collectively evaluated for impairment
   
493,775
     
595,530
     
282,457
     
     
1,371,762
 
Total ending loans balance
 
$
499,572
   
$
598,458
   
$
287,597
   
$
   
$
1,385,627
 

-16-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 3 – LOANS (Continued)
 
The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2020 (dollars in thousands):

March 31, 2020
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
Allocated
 
With no related allowance recorded:
                 
Commercial and industrial
 
$
168
   
$
168
   
$
 
Commercial real estate:
                       
Residential developed
   
     
     
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
     
     
 
Commercial development
   
     
     
 
Residential improved
   
200
     
200
     
 
Commercial improved
   
7,157
     
7,157
     
 
Manufacturing and industrial
   
     
     
 
     
7,357
     
7,357
     
 
Consumer:
                       
Residential mortgage
   
     
     
 
Unsecured
   
     
     
 
Home equity
   
     
     
 
Other secured
   
     
     
 
     
     
     
 
Total with no related allowance recorded
 
$
7,525
   
$
7,525
   
$
 
With an allowance recorded:
                       
Commercial and industrial
 
$
6,996
   
$
6,996
   
$
1,720
 
Commercial real estate:
                       
Residential developed
   
73
     
73
     
3
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
     
     
 
Commercial development
   
     
     
 
Residential improved
   
     
     
 
Commercial improved
   
571
     
571
     
19
 
Manufacturing and industrial
   
355
     
355
     
14
 
     
999
     
999
     
36
 
Consumer:
                       
Residential mortgage
   
4,116
     
4,116
     
307
 
Unsecured
   
179
     
179
     
13
 
Home equity
   
499
     
499
     
37
 
Other secured
   
26
     
26
     
2
 
     
4,820
     
4,820
     
359
 
Total with an allowance recorded
 
$
12,815
   
$
12,815
   
$
2,115
 
Total
 
$
20,340
   
$
20,340
   
$
2,115
 

-17-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 3 – LOANS (Continued)
 
The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2019 (dollars in thousands):

December 31, 2019
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
Allocated
 
With no related allowance recorded:
                 
Commercial and industrial
 
$
180
   
$
180
   
$
 
Commercial real estate:
                       
Residential developed
   
     
     
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
130
     
130
     
 
Commercial development
   
     
     
 
Residential improved
   
377
     
377
     
 
Commercial improved
   
1,380
     
1,380
     
 
Manufacturing and industrial
   
     
     
 
 
   
1,887
     
1,887
     
 
Consumer:
                       
Residential mortgage
   
     
     
 
Unsecured
   
     
     
 
Home equity
   
     
     
 
Other secured
   
     
     
 
     
     
     
 
Total with no related allowance recorded
 
$
2,067
   
$
2,067
   
$
 
With an allowance recorded:
                       
Commercial and industrial
 
$
5,617
   
$
5,617
   
$
1,213
 
Commercial real estate:
                       
Residential developed
   
76
     
76
     
3
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
     
     
 
Commercial development
   
     
     
 
Residential improved
   
28
     
28
     
2
 
Commercial improved
   
578
     
578
     
16
 
Manufacturing and industrial
   
359
     
359
     
11
 
 
   
1,041
     
1,041
     
32
 
Consumer:
                       
Residential mortgage
   
4,242
     
4,242
     
313
 
Unsecured
   
198
     
198
     
14
 
Home equity
   
677
     
677
     
50
 
Other secured
   
23
     
23
     
2
 
     
5,140
     
5,140
     
379
 
Total with an allowance recorded
 
$
11,798
   
$
11,798
   
$
1,624
 
Total
 
$
13,865
   
$
13,865
   
$
1,624
 

-18-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 
NOTE 3 – LOANS (Continued)
 
The following table presents information regarding average balances of impaired loans and interest recognized on impaired loans for the three month periods ended March 31, 2020 and 2019 (dollars in thousands):

   
Three
Months
Ended
March 31,
2020
   
Three
Months
Ended
March 31,
2019
 
Average of impaired loans during the period:
           
Commercial and industrial
 
$
6,615
   
$
6,825
 
Commercial real estate:
               
Residential developed
   
74
     
172
 
Unsecured to residential developers
   
     
 
Vacant and unimproved
   
     
138
 
Commercial development
   
     
 
Residential improved
   
267
     
308
 
Commercial improved
   
5,822
     
2,340
 
Manufacturing and industrial
   
356
     
379
 
Consumer
   
4,914
     
6,197
 
Interest income recognized during impairment:
               
Commercial and industrial
   
273
     
288
 
Commercial real estate
   
99
     
44
 
Consumer
   
57
     
75
 
Cash-basis interest income recognized
               
Commercial and industrial
   
275
     
282
 
Commercial real estate
   
128
     
49
 
Consumer
   
60
     
76
 

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of March 31, 2020 and 2019:

March 31, 2020
 
Nonaccrual
   
Over 90
days
Accruing
 
Commercial and industrial
 
$
1,211
   
$
 
Commercial real estate:
               
Residential developed
   
     
 
Unsecured to residential developers
   
     
 
Vacant and unimproved
   
     
 
Commercial development
   
     
 
Residential improved
   
97
     
 
Commercial improved
   
5,811
     
 
Manufacturing and industrial
   
     
 
 
   
5,908
     
 
Consumer:
               
Residential mortgage
   
103
     
 
Unsecured
   
     
 
Home equity
   
8
     
 
Other secured
   
     
 
     
111
     
 
Total
 
$
7,230
   
$
 

-19-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 3 – LOANS (Continued)

December 31, 2019
 
Nonaccrual
   
Over 90 days
Accruing
 
Commercial and industrial
 
$
   
$
 
Commercial real estate:
               
Residential developed
   
     
 
Unsecured to residential developers
   
     
 
Vacant and unimproved
   
     
 
Commercial development
   
     
 
Residential improved
   
98
     
 
Commercial improved
   
     
 
Manufacturing and industrial
   
     
 
 
   
98
     
 
Consumer: