Company Quick10K Filing
Quick10K
Macatawa Bank
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$10.00 34 $340
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-05-07 Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-18 Other Events
8-K 2019-03-21 Officers
8-K 2019-02-05 Officers
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-24 Earnings, Exhibits
8-K 2018-10-29 Regulation FD, Other Events, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-08 Shareholder Vote
8-K 2018-01-29 Regulation FD, Other Events, Exhibits
8-K 2018-01-25 Earnings, Exhibits
8-K 2018-01-09
ALLY Ally Financial 12,149
CSFL Centerstate Bank 2,956
SSB South State 2,565
COLB Columbia Banking System 2,538
FSB Franklin Financial Network 418
BHB Bar Harbor Bankshares 357
HBMD Howard Bancorp 281
UBFO United Security Bancshares 177
ESXB Community Bankers Trust 169
ICBK County Bancorp 118
MCBC 2019-06-30
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 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 2019-06-30

MCBC 10Q Quarterly Report

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 June 30, 2019

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 and post 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: 34,064,831 shares of the Company’s Common Stock (no par value) were outstanding as of July 25, 2019.



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 future levels of earning assets, future composition of our loan portfolio, trends in credit quality metrics, future capital levels and capital needs, including the impact of Basel III, 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. Our ability to sell other real estate owned at its carrying value or at all, successfully implement new programs and initiatives, increase efficiencies, maintain our current levels of deposits and other sources of funding, maintain liquidity, respond to declines in collateral values and credit quality, increase loan volume, originate high quality loans, maintain or improve mortgage banking income, realize the benefit of our deferred tax assets, continue payment of dividends and improve profitability is not entirely within our control and is not assured. 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, 2018. 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.


37




Item 3.


49




Item 4.


50



Part II.
Other Information:





Item 2.


51




Item 6.


51




52

Part I
Financial Information
Item 1.

MACATAWA BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30, 2019 (unaudited) and December 31, 2018
(Dollars in thousands, except per share data)


 
June 30,
2019
   
December 31,
2018
 
ASSETS
           
Cash and due from banks
 
$
30,943
   
$
40,526
 
Federal funds sold and other short-term investments
   
199,940
     
130,758
 
Cash and cash equivalents
   
230,883
     
171,284
 
Debt securities available for sale, at fair value
   
222,825
     
226,986
 
Debt securities held to maturity (fair value 2019 - $81,900 and 2018 - $71,505)
   
79,054
     
70,334
 
Federal Home Loan Bank (FHLB) stock
   
11,558
     
11,558
 
Loans held for sale, at fair value
   
1,016
     
415
 
Total loans
   
1,343,512
     
1,405,658
 
Allowance for loan losses
   
(16,886
)
   
(16,876
)
Net loans
   
1,326,626
     
1,388,782
 
Premises and equipment – net
   
44,424
     
44,862
 
Accrued interest receivable
   
5,487
     
5,279
 
Bank-owned life insurance
   
41,695
     
41,185
 
Other real estate owned - net
   
3,067
     
3,380
 
Net deferred tax asset
   
2,107
     
3,380
 
Other assets
   
9,663
     
7,679
 
Total assets
 
$
1,978,405
   
$
1,975,124
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Deposits
               
Noninterest-bearing
 
$
476,700
   
$
485,530
 
Interest-bearing
   
1,184,406
     
1,191,209
 
Total deposits
   
1,661,106
     
1,676,739
 
Other borrowed funds
   
60,000
     
60,000
 
Long-term debt
   
41,238
     
41,238
 
Accrued expenses and other liabilities
   
10,542
     
6,294
 
Total liabilities
   
1,772,886
     
1,784,271
 
Commitments and contingent liabilities
   
     
 
Shareholders’ equity
               
Common stock, no par value, 200,000,000 shares authorized; 34,064,831 and 34,045,411 shares issued and outstanding at June 30, 2019 and December 31, 2018
   
217,942
     
217,783
 
Retained deficit
   
(13,764
)
   
(24,652
)
Accumulated other comprehensive income (loss)
   
1,341
     
(2,278
)
Total shareholders’ equity
   
205,519
     
190,853
 
Total liabilities and shareholders’ equity
 
$
1,978,405
   
$
1,975,124
 

See accompanying notes to consolidated financial statements.

-4-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three and six month periods ended June 30, 2019 and 2018
(unaudited)
(Dollars in thousands, except per share data)

   
Three Months
Ended
June 30,
2019
   
Three Months
Ended
June 30,
2018
   
Six Months
Ended
June 30,
2019
   
Six Months
Ended
June 30,
2018
 
Interest income
                       
Loans, including fees
 
$
16,125
   
$
14,406
   
$
32,576
   
$
28,116
 
Securities
                               
Taxable
   
988
     
917
     
1,984
     
1,785
 
Tax-exempt
   
865
     
905
     
1,704
     
1,780
 
FHLB Stock
   
157
     
121
     
317
     
318
 
Federal funds sold and other short-term investments
   
1,104
     
487
     
1,848
     
856
 
Total interest income
   
19,239
     
16,836
     
38,429
     
32,855
 
Interest expense
                               
Deposits
   
2,365
     
1,319
     
4,622
     
2,312
 
Other borrowings
   
345
     
322
     
672
     
692
 
Long-term debt
   
574
     
542
     
1,159
     
1,015
 
Total interest expense
   
3,284
     
2,183
     
6,453
     
4,019
 
Net interest income
   
15,955
     
14,653
     
31,976
     
28,836
 
Provision for loan losses
   
(200
)
   
(300
)
   
(450
)
   
(400
)
Net interest income after provision for loan losses
   
16,155
     
14,953
     
32,426
     
29,236
 
Noninterest income
                               
Service charges and fees
   
1,078
     
1,060
     
2,128
     
2,110
 
Net gains on mortgage loans
   
614
     
222
     
825
     
363
 
Trust fees
   
1,003
     
945
     
1,893
     
1,870
 
ATM and debit card fees
   
1,481
     
1,414
     
2,808
     
2,692
 
Gain on sales of securities
   
     
     
     
 
Bank owned life insurance (“BOLI”) income
   
249
     
237
     
485
     
475
 
Other
   
673
     
590
     
1,287
     
1,089
 
Total noninterest income
   
5,098
     
4,468
     
9,426
     
8,599
 
Noninterest expense
                               
Salaries and benefits
   
6,379
     
6,389
     
12,623
     
12,583
 
Occupancy of premises
   
996
     
973
     
2,089
     
2,045
 
Furniture and equipment
   
866
     
773
     
1,710
     
1,578
 
Legal and professional
   
211
     
215
     
441
     
417
 
Marketing and promotion
   
233
     
229
     
461
     
457
 
Data processing
   
761
     
797
     
1,491
     
1,493
 
FDIC assessment
   
119
     
132
     
239
     
264
 
Interchange and other card expense
   
365
     
359
     
711
     
691
 
Bond and D&O Insurance
   
103
     
110
     
206
     
219
 
Net (gains) losses on repossessed and foreclosed properties
   
(34
)
   
17
     
(69
)
   
423
 
Administration and disposition of problem assets
   
49
     
66
     
137
     
121
 
Other
   
1,286
     
1,199
     
2,534
     
2,402
 
Total noninterest expenses
   
11,334
     
11,259
     
22,573
     
22,693
 
Income before income tax
   
9,919
     
8,162
     
19,279
     
15,142
 
Income tax expense
   
1,916
     
1,434
     
3,630
     
2,659
 
Net income
 
$
8,003
   
$
6,728
   
$
15,649
   
$
12,483
 
Basic earnings per common share
 
$
0.24
   
$
0.20
   
$
0.46
   
$
0.37
 
Diluted earnings per common share
 
$
0.24
   
$
0.20
   
$
0.46
   
$
0.37
 
Cash dividends per common share
 
$
0.07
   
$
0.06
   
$
0.14
   
$
0.12
 

See accompanying notes to consolidated financial statements.

-5-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three and six month periods ended June 30, 2019 and 2018
(unaudited)
(Dollars in thousands)


 
Three Months
Ended
June 30,
2019
   
Three Months
Ended
June 30,
2018
   
Six Months
Ended
June 30,
2019
   
Six Months
Ended
June 30,
2018
 
Net income
 
$
8,003
   
$
6,728
   
$
15,649
   
$
12,483
 
Other comprehensive income:
                               
Unrealized gains (losses):
                               
Net change in unrealized gains (losses) on debt securities available for sale
   
2,320
     
(571
)
   
4,581
     
(2,869
)
Tax effect
   
(487
)
   
120
     
(962
)
   
602
 
Net change in unrealized gains (losses) on debt securities available for sale, net of tax
   
1,833
     
(451
)
   
3,619
     
(2,267
)
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
   
1,833
     
(451
)
   
3,619
     
(2,267
)
Comprehensive income
 
$
9,836
   
$
6,277
   
$
19,268
   
$
10,216
 

See accompanying notes to consolidated financial statements.

-6-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three and six month periods ended June 30, 2019 and 2018
(unaudited)
(Dollars in thousands, except per share data)


 
Common
Stock
   
Retained
Deficit
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Shareholders’
Equity
 
Balance, April 1, 2018
 
$
217,573
   
$
(38,836
)
 
$
(3,361
)
 
$
175,376
 
Net income for the three months ended June 30, 2018
   
     
6,728
     
     
6,728
 
Cash dividends at $.06 per share
   
     
(2,041
)
   
     
(2,041
)
Net change in unrealized loss on debt securities available for sale, net of tax
   
     
     
(451
)
   
(451
)
Stock compensation expense
   
102
     
     
     
102
 
Balance, June 30, 2018
 
$
217,675
   
$
(34,149
)
 
$
(3,812
)
 
$
179,714
 
                                 
Balance, April 1, 2019
 
$
217,842
   
$
(19,384
)
 
$
(492
)
 
$
197,966
 
Net income for the three months ended June 30, 2019
   
     
8,003
     
     
8,003
 
Cash dividends at $.07 per share
   
     
(2,383
)
   
     
(2,383
)
Repurchase of 452 shares for taxes withheld on vested restricted stock
   
(5
)
   
     
     
(5
)
Net change in unrealized gain on debt securities available for sale, net of tax
   
     
     
1,833
     
1,833
 
Stock compensation expense
   
105
     
     
     
105
 
Balance, June 30, 2019
 
$
217,942
   
$
(13,764
)
 
$
1,341
   
$
205,519
 


 
Common
Stock
   
Retained
Deficit
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Shareholders’
Equity
 
Balance, January 1, 2018, as reported
 
$
217,081
   
$
(42,804
)
 
$
(1,291
)
 
$
172,986
 
Cumulative effect adjustment upon adoption of ASU 2018-02
   
     
278
     
(278
)
   
 
Balance, January 1, 2018, adjusted
 
$
217,081
   
$
(42,526
)
 
$
(1,569
)
 
$
172,986
 
Reclassification for equity securities upon adoption of ASU 2016-01
   
     
(24
)
   
24
     
 
Net income for the six months ended June 30, 2018
   
     
12,483
     
     
12,483
 
Cash dividends at $.12 per share
   
     
(4,082
)
   
     
(4,082
)
Repurchase of 452 shares for taxes withheld on vested restricted stock
   
(5
)
   
     
     
(5
)
Issuance of 45,000 shares for stock option exercise
   
386
     
     
     
386
 
Net change in unrealized loss on debt securities available for sale, net of tax
   
     
     
(2,267
)
   
(2,267
)
Stock compensation expense
   
213
     
     
     
213
 
Balance, June 30, 2018
 
$
217,675
   
$
(34,149
)
 
$
(3,812
)
 
$
179,714
 
                                 
Balance, January 1, 2019
 
$
217,783
   
$
(24,652
)
 
$
(2,278
)
 
$
190,853
 
Net income for the six months ended June 30, 2019
   
     
15,649
     
     
15,649
 
Cash dividends at $.14 per share
   
     
(4,761
)
   
     
(4,761
)
Repurchase of 452 shares for taxes withheld on vested restricted stock
   
(5
)
   
     
     
(5
)
Net change in unrealized gain on debt securities available for sale, net of tax
   
     
     
3,619
     
3,619
 
Stock compensation expense
   
164
     
     
     
164
 
Balance, June 30, 2019
 
$
217,942
   
$
(13,764
)
 
$
1,341
   
$
205,519
 

See accompanying notes to consolidated financial statements.

-7-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six month periods ended June 30, 2019 and 2018
(unaudited)
(Dollars in thousands)


 
Six Months
Ended
June 30,
2019
   
Six Months
Ended
June 30,
2018
 
Cash flows from operating activities
           
Net income
 
$
15,649
   
$
12,483
 
Adjustments to reconcile net income to net cash from operating activities:
               
Depreciation and amortization
   
1,328
     
1,257
 
Stock compensation expense
   
164
     
213
 
Provision for loan losses
   
(450
)
   
(400
)
Origination of loans for sale
   
(28,815
)
   
(13,531
)
Proceeds from sales of loans originated for sale
   
29,039
     
15,041
 
Net gains on mortgage loans
   
(825
)
   
(363
)
Write-down of other real estate
   
10
     
291
 
Net (gain) loss on sales of other real estate
   
(79
)
   
132
 
Deferred income tax expense
   
311
     
427
 
Change in accrued interest receivable and other assets
   
(2,217
)
   
(1,799
)
Earnings in bank-owned life insurance
   
(485
)
   
(475
)
Change in accrued expenses and other liabilities
   
2,501
     
581
 
Net cash from operating activities
   
16,131
     
13,857
 
Cash flows from investing activities
               
Loan originations and payments, net
   
62,606
     
(7,175
)
Purchases of securities available for sale
   
(14,869
)
   
(19,096
)
Purchases of securities held to maturity
   
(12,497
)
   
(5,515
)
Proceeds from:
               
Maturities and calls of securities
   
25,142
     
24,465
 
Principal paydowns on securities
   
3,944
     
4,018
 
Sales of other real estate
   
382
     
1,765
 
Additions to premises and equipment
   
(841
)
   
(564
)
Net cash from investing activities
   
63,867
     
(2,102
)
Cash flows from financing activities
               
Change in deposits
   
(15,633
)
   
1,451
 
Repayments and maturities of other borrowed funds
   
(10,000
)
   
(31,451
)
Proceeds from other borrowed funds
   
10,000
     
5,000
 
Proceeds from exercise of stock options
   
     
386
 
Repurchase of shares for taxes withheld on vested restricted stock
   
(5
)
   
(5
)
Cash dividends paid
   
(4,761
)
   
(4,082
)
Net cash from financing activities
   
(20,399
)
   
(28,701
)
Net change in cash and cash equivalents
   
59,599
     
(16,946
)
Cash and cash equivalents at beginning of period
   
171,284
     
161,467
 
Cash and cash equivalents at end of period
 
$
230,883
   
$
144,521
 

See accompanying notes to consolidated financial statements.

-8-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six month periods ended June 30, 2019 and 2018
(unaudited)
(Dollars in thousands)

   
Six Months
Ended
June 30,
2019
   
Six Months
Ended
June 30,
2018
 
Supplemental cash flow information
           
Interest paid
 
$
6,047
   
$
3,920
 
Income taxes paid
   
825
     
1,100
 
Supplemental noncash disclosures:
               
Transfers from loans to other real estate
   
     
293
 
Security settlement
   
1,747
     
 
Reclassification for equity securities upon adoption of ASU 2016-01
   
     
1,470
 

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.
 
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 and six month periods ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018.
 
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 June 30, 2019, 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.

-10-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
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.
 
During the first quarter of 2018, the Company adopted ASU 2018-02, allowing for the reclassification of the income tax effects of the revaluation the deferred tax impact on accumulated other comprehensive income (AOCI) due to the enactment of tax reform at the end of 2017.  The Company’s only component of AOCI is the fair value adjustment for securities available for sale.  Upon adoption of this ASU, a transfer was made from AOCI to retained earnings in the amount of $278,000.
 
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 five freestanding interest rate swaps, each of which is carried at fair value.  As the terms mirror each other, there is no income statement impact to the Bank.  At June 30, 2019 and December 31, 2018, the total notional amount of such agreements was $59.4 million and $66.0 million, respectively, and resulted in a derivative asset with a fair value of $1,745,000 and $700,000, respectively, which were included in other assets and a derivative liability of $1,745,000 and $700,000, respectively, which were included in other liabilities.
 
Reclassifications: Some items in the prior period financial statements were reclassified to conform to the current presentation.
 
Adoption of New Accounting Standards:  FASB issued ASU 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  As the Company owns most of its branch locations, this ASU applies primarily to operating leases and the impact of adoption of this ASU by the Company had a nominal income impact and resulted in a right-of-use asset of $800,000 and a corresponding lease obligation liability of $800,000 being established as of January 1, 2019.  The right-of-use asset is included in other assets and the lease obligation liability is included in other liabilities in the June 30, 2019 consolidated balance sheet.

-11-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities.  This ASU simplifies and expands the eligible hedging strategies for financial and nonfinancial risks by more closely aligning hedge accounting with a company’s risk management activities, and also simplifies the application of Topic 815, Derivatives and Hedging , through targeted improvements in key practice areas.  This includes expanding the list of items eligible to be hedged and amending the methods used to measure the effectiveness of hedging relationships.  In addition, the ASU prescribes how hedging results should be presented and requires incremental disclosures.  These changes are intended to allow preparers more flexibility and to enhance the transparency of how hedging results are presented and disclosed.  Further, the ASU provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings in the current period.   The ASU was effective for years beginning after December 15, 2018, and interim periods within those years.  The impact of adoption of this ASU was not material.
 
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. This ASU is effective for fiscal years beginning after December 15, 2019, and for interim periods within those years.  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 first quarter of 2019 and will continue throughout 2019.  In the second quarter of 2019, the Company modeled the various methods prescribed in the ASU against the Company’s identified loan segments.  The Company anticipates running parallel computations in the latter part of 2019 and continues to evaluate the impact of adoption of the new standard.  On July 17, 2019, FASB voted to delay the effective date of this ASU for smaller reporting companies, such as the Company, until fiscal years beginning after December 15, 2022.

-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
 
June 30, 2019
                       
Available for Sale
                       
U.S. Treasury and federal agency securities
 
$
92,516
   
$
56
   
$
(269
)
 
$
92,303
 
U.S. Agency MBS and CMOs
   
34,404
     
542
     
(17
)
   
34,929
 
Tax-exempt state and municipal bonds
   
45,848
     
1,069
     
(9
)
   
46,908
 
Taxable state and municipal bonds
   
43,231
     
351
     
(61
)
   
43,521
 
Corporate bonds and other debt securities
   
5,128
     
47
     
(11
)
   
5,164
 

 
$
221,127
   
$
2,065
   
$
(367
)
 
$
222,825
 
Held to Maturity
                               
Tax-exempt state and municipal bonds
 
$
79,054
   
$
2,877
   
$
(31
)
 
$
81,900
 

   
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
December 31, 2018
                       
Available for Sale
                       
U.S. Treasury and federal agency securities
 
$
97,102
   
$
6
   
$
(1,710
)
 
$
95,398
 
U.S. Agency MBS and CMOs
   
33,287
     
97
     
(494
)
   
32,890
 
Tax-exempt state and municipal bonds
   
45,212
     
246
     
(331
)
   
45,127
 
Taxable state and municipal bonds
   
46,565
     
59
     
(690
)
   
45,934
 
Corporate bonds and other debt securities
   
7,703
     
2
     
(68
)
   
7,637
 

 
$
229,869
   
$
410
   
$
(3,293
)
 
$
226,986
 
Held to Maturity
                               
Tax-exempt state and municipal bonds
 
$
70,334
   
$
1,488
   
$
(317
)
 
$
71,505
 

There were no sales of securities in the three and six month periods ended June 30, 2019 and 2018.

Contractual maturities of debt securities at June 30, 2019 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
 
$
16,122
   
$
16,164
   
$
26,113
   
$
26,085
 
Due from one to five years
   
30,532
     
31,309
     
120,665
     
121,061
 
Due from five to ten years
   
12,760
     
13,407
     
40,636
     
41,464
 
Due after ten years
   
19,640
     
21,020
     
33,713
     
34,215
 

 
$
79,054
   
$
81,900
   
$
221,127
   
$
222,825
 

-13-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 – SECURITIES (Continued)

Securities with unrealized losses at June 30, 2019 and December 31, 2018, 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
 
June 30, 2019
 
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
 
Available for Sale
                                   
U.S. Treasury and federal agency securities
 
$
5,990
   
$
(9
)
 
$
52,205
   
$
(260
)
 
$
58,195
   
$
(269
)
U.S. Agency MBS and CMOs
   
19
     
     
3,066
     
(17
)
   
3,085
     
(17
)
Tax-exempt state and municipal bonds
   
759
     
(2
)
   
2,015
     
(7
)
   
2,774
     
(9
)
Taxable state and municipal bonds
   
     
     
17,162
     
(61
)
   
17,162
     
(61
)
Corporate bonds and other debt securities
   
     
     
1,606
     
(11
)
   
1,606
     
(11
)
Total
 
$
6,768
   
$
(11
)
 
$
76,054
   
$
(356
)
 
$
82,822
   
$
(367
)

                                               
Held to Maturity
                                               
Tax-exempt state and municipal bonds
 
$
3,169
   
$
(31
)
 
$
   
$
   
$
3,169
   
$
(31
)

   
Less than 12 Months
   
12 Months or More
   
Total
 
December 31, 2018
 
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
   
Fair
Value
   
Unrealized
Loss
 
Available for Sale
                                   
U.S. Treasury and federal agency securities
 
$
1,974
   
$
(26
)
 
$
82,895
   
$
(1,622
)
 
$
84,869
   
$
(1,648
)
U.S. Agency MBS and CMOs
   
1,728
     
(13
)
   
18,712
     
(481
)
   
20,440
     
(494
)
Tax-exempt state and municipal bonds
   
8,987
     
(69
)
   
10,785
     
(262
)
   
19,772
     
(331
)
Taxable state and municipal bonds
   
4,035
     
(19
)
   
37,021
     
(671
)
   
41,056
     
(690
)
Corporate bonds and other debt securities
   
2,698
     
(12
)
   
8,170
     
(118
)
   
10,868
     
(130
)
Total temporarily impaired
 
$
19,422
   
$
(139
)
 
$
157,583
   
$
(3,154
)
 
$
177,005
   
$
(3,293
)

                                               
Held to Maturity
                                               
Tax-exempt state and municipal bonds
 
$
8,533
   
$
(76
)
 
$
4,683
   
$
(241
)
 
$
13,216
   
$
(317
)

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 June 30, 2019, 98 securities available for sale with fair values totaling $83.0 million had unrealized losses totaling $367,000.  At June 30, 2019, 4 securities held to maturity with fair values totaling $3.2 million had unrealized losses totaling $31,000.  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 and six month periods ended June 30, 2019 and 2018 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 $2.0 million were pledged as security for public deposits, letters of credit and for other purposes required or permitted by law at June 30, 2019 and December 31, 2018.

-14-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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


 
June 30,
2019
   
December 31,
2018
 
Commercial and industrial
 
$
466,590
   
$
513,345
 
Commercial real estate:
               
Residential developed
   
14,582
     
14,825
 
Unsecured to residential developers
   
     
 
Vacant and unimproved
   
37,455
     
44,169
 
Commercial development
   
689
     
712
 
Residential improved
   
98,608
     
98,500
 
Commercial improved
   
292,381
     
295,618
 
Manufacturing and industrial
   
120,228
     
114,887
 
Total commercial real estate
   
563,943
     
568,711
 
Consumer
               
Residential mortgage
   
233,271
     
238,174
 
Unsecured
   
338
     
130
 
Home equity
   
72,676
     
78,503
 
Other secured
   
6,694
     
6,795
 
Total consumer
   
312,979
     
323,602
 
Total loans
   
1,343,512
     
1,405,658
 
Allowance for loan losses
   
(16,886
)
   
(16,876
)

 
$
1,326,626
   
$
1,388,782
 

-15-

MACATAWA BANK CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3 – LOANS (Continued)

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

Three months ended June 30, 2019
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
6,989
   
$
6,447
   
$
3,426
   
$
30
   
$
16,892
 
Charge-offs
   
     
     
(41
)
   
     
(41
)
Recoveries
   
141
     
67
     
27
     
     
235
 
Provision for loan losses
   
101
     
(205
)
   
(116
)
   
20
     
(200
)
Ending Balance
 
$
7,231
   
$
6,309
   
$
3,296
   
$
50
   
$
16,886
 

Three months ended June 30, 2018
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
6,506
   
$
6,532
   
$
3,603
   
$
34
   
$
16,675
 
Charge-offs
   
     
     
(30
)
   
     
(30
)
Recoveries
   
55
     
257
     
38
     
     
350
 
Provision for loan losses
   
(412
)
   
87
     
40
     
(15
)
   
(300
)
Ending Balance
 
$
6,149
   
$
6,876
   
$
3,651
   
$
19
   
$
16,695
 

Six months ended June 30, 2019
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
6,856
   
$
6,544
   
$
3,449
   
$
27
   
$
16,876
 
Charge-offs
   
     
(132
)
   
(66
)
   
     
(198
)
Recoveries
   
277
     
291
     
90
     
     
658
 
Provision for loan losses
   
98
     
(394
)
   
(177
)
   
23
     
(450
)
Ending Balance
 
$
7,231
   
$
6,309
   
$
3,296
   
$
50
   
$
16,886
 

Six months ended June 30, 2018
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Beginning balance
 
$
6,478
   
$
6,590
   
$
3,494
   
$
38
   
$
16,600
 
Charge-offs
   
(66
)
   
     
(60
)
   
     
(126
)
Recoveries
   
89
     
460
     
72
     
     
621
 
Provision for loan losses
   
(352
)
   
(174
)
   
145
     
(19
)
   
(400
)
Ending Balance
 
$
6,149
   
$
6,876
   
$
3,651
   
$
19
   
$
16,695
 

-16-

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):

June 30, 2019
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Allowance for loan losses:
                             
Ending allowance attributable to loans:
                             
Individually reviewed for impairment
 
$
779
   
$
34
   
$
417
   
$
   
$
1,230
 
Collectively evaluated for impairment
   
6,452
     
6,275
     
2,879
     
50
     
15,656
 
Total ending allowance balance
 
$
7,231
   
$
6,309
   
$
3,296
   
$
50
   
$
16,886
 
Loans:
                                       
Individually reviewed for impairment
 
$
2,910
   
$
3,303
   
$
5,466
   
$
   
$
11,679
 
Collectively evaluated for impairment
   
463,680
     
560,640
     
307,513
     
     
1,331,833
 
Total ending loans balance
 
$
466,590
   
$
563,943
   
$
312,979
   
$
   
$
1,343,512
 

December 31, 2018
 
Commercial
and
Industrial
   
Commercial
Real Estate
   
Consumer
   
Unallocated
   
Total
 
Allowance for loan losses:
                             
Ending allowance attributable to loans:
                             
Individually reviewed for impairment
 
$
449
   
$
181
   
$
468
   
$
   
$
1,098
 
Collectively evaluated for impairment
   
6,407
     
6,363
     
2,981
     
27
     
15,778
 
Total ending allowance balance
 
$
6,856
   
$
6,544
   
$
3,449
   
$
27
   
$
16,876
 
Loans:
                                       
Individually reviewed for impairment
 
$
7,375
   
$
3,499
   
$
6,347
   
$
   
$
17,221
 
Collectively evaluated for impairment
   
505,970
     
565,212
     
317,255
     
     
1,388,437
 
Total ending loans balance
 
$
513,345
   
$
568,711
   
$
323,602
   
$
   
$
1,405,658
 

-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 June 30, 2019 (dollars in thousands):

June 30, 2019
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
Allocated
 
With no related allowance recorded:
                 
Commercial and industrial
 
$
1,180
   
$
1,180
   
$
 
Commercial real estate:
                       
Residential developed
   
     
     
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
124
     
124
     
 
Commercial development
   
     
     
 
Residential improved
   
491
     
491
     
 
Commercial improved
   
1,501
     
1,501
     
 
Manufacturing and industrial
   
     
     
 

   
2,116
     
2,116
     
 
Consumer:
                       
Residential mortgage
   
     
     
 
Unsecured
   
     
     
 
Home equity
   
     
     
 
Other secured
   
     
     
 

   
     
     
 
Total with no related allowance recorded
 
$
3,296
   
$
3,296
   
$
 
With an allowance recorded:
                       
Commercial and industrial
 
$
1,730
   
$
1,730
   
$
779
 
Commercial real estate:
                       
Residential developed
   
170
     
170
     
3
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
     
     
 
Commercial development
   
     
     
 
Residential improved
   
60
     
60
     
5
 
Commercial improved
   
589
     
589
     
16
 
Manufacturing and industrial
   
368
     
368
     
10
 

   
1,187
     
1,187
     
34
 
Consumer:
                       
Residential mortgage
   
4,443
     
4,443
     
328
 
Unsecured
   
     
     
 
Home equity
   
1,023
     
1,023
     
89
 
Other secured
   
     
     
 

   
5,466
     
5,466
     
417
 
Total with an allowance recorded
 
$
8,383
   
$
8,383
   
$
1,230
 
Total
 
$
11,679
   
$
11,679
   
$
1,230
 

-18-

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, 2018 (dollars in thousands):

December 31, 2018
 
Unpaid
Principal
Balance
   
Recorded
Investment
   
Allowance
Allocated
 
With no related allowance recorded:
                 
Commercial and industrial
 
$
2,515
   
$
1,375
   
$
 
Commercial real estate:
                       
Residential developed
   
     
     
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
143
     
143
     
 
Commercial development
   
     
     
 
Residential improved
   
140
     
140
     
 
Commercial improved
   
1,675
     
1,675
     
 
Manufacturing and industrial
   
     
     
 

   
1,958
     
1,958
     
 
Consumer:
                       
Residential mortgage
   
     
     
 
Unsecured
   
     
     
 
Home equity
   
     
     
 
Other secured
   
     
     
 

   
     
     
 
Total with no related allowance recorded
 
$
4,473
   
$
3,333
   
$
 
With an allowance recorded:
                       
Commercial and industrial
 
$
6,000
   
$
6,000
   
$
449
 
Commercial real estate:
                       
Residential developed
   
172
     
172
     
2
 
Unsecured to residential developers
   
     
     
 
Vacant and unimproved
   
     
     
 
Commercial development
   
     
     
 
Residential improved
   
193
     
193
     
13
 
Commercial improved
   
794
     
794
     
155
 
Manufacturing and industrial
   
382
     
382
     
11
 

   
1,541
     
1,541
     
181
 
Consumer: