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, 2022

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: 34,253,147 shares of the Company’s Common Stock (no par value) were outstanding as of July 28, 2022.


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  COVID-19 pandemic on the business, financial conditions 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, future amounts of unrecognized tax benefits 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, 2021. 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.


38




Item 3.


53




Item 4.


54



Part II.
Other Information:





Item 2.


55




Item 6.


55




56

Part I
Financial Information
Item 1.
MACATAWA BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30, 2022 (unaudited) and December 31, 2021
(Dollars in thousands, except per share data)


   
June 30,
2022
   
December 31,
2021
 
ASSETS
           
Cash and due from banks
 
$
38,376
   
$
23,669
 
Federal funds sold and other short-term investments
   
721,826
     
1,128,119
 
Cash and cash equivalents
   
760,202
     
1,151,788
 
Debt securities available for sale, at fair value
   
435,628
     
416,063
 
Debt securities held to maturity (fair value 2022 - $341,274 and 2021 - $139,272)
   
352,721
     
137,003
 
Federal Home Loan Bank (FHLB) stock
   
10,211
     
11,558
 
Loans held for sale, at fair value
   
1,163
     
1,407
 
Total loans
   
1,111,915
     
1,108,993
 
Allowance for loan losses
   
(14,631
)
   
(15,889
)
Net loans
   
1,097,284
     
1,093,104
 
Premises and equipment – net
   
41,088
     
41,773
 
Accrued interest receivable
   
5,108
     
4,088
 
Bank-owned life insurance
   
52,963
     
52,468
 
Other real estate owned - net
   
2,343
     
2,343
 
Net deferred tax asset
   
6,516
     
2,163
 
Other assets
   
15,981
     
14,993
 
Total assets
 
$
2,781,208
   
$
2,928,751
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Deposits
               
Noninterest-bearing
 
$
903,334
   
$
886,115
 
Interest-bearing
   
1,591,249
     
1,691,843
 
Total deposits
   
2,494,583
     
2,577,958
 
Other borrowed funds
   
30,000
     
85,000
 
Accrued expenses and other liabilities
   
13,516
     
11,788
 
Total liabilities
   
2,538,099
     
2,674,746
 
Commitments and contingent liabilities
   
     
 
Shareholders’ equity
               
Common stock, no par value, 200,000,000 shares authorized; 34,253,147 and 34,259,945 shares issued and outstanding at June 30, 2022 and December 31, 2021
   
219,456
     
219,082
 
Retained earnings
   
42,332
     
35,220
 
Accumulated other comprehensive loss
   
(18,679
)
   
(297
)
Total shareholders’ equity
   
243,109
     
254,005
 
Total liabilities and shareholders’ equity
 
$
2,781,208
   
$
2,928,751
 

See accompanying notes to consolidated financial statements.

-4-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three and six month periods ended June 30, 2022 and 2021
(unaudited)
(Dollars in thousands, except per share data)

   
Three Months
Ended
June 30,
2022
   
Three Months
Ended
June 30,
2021
   
Six Months
Ended
June 30,
2022
   
Six Months
Ended
June 30,
2021
 
Interest income
                       
Loans, including fees
 
$
10,344
   
$
13,303
   
$
20,741
   
$
26,770
 
Securities
                               
Taxable
   
2,618
     
792
     
4,052
     
1,579
 
Tax-exempt
   
702
     
760
     
1,434
     
1,518
 
FHLB Stock
   
51
     
56
     
102
     
117
 
Federal funds sold and other short-term investments
   
1,720
     
273
     
2,249
     
474
 
Total interest income
   
15,435
     
15,184
     
28,578
     
30,458
 
Interest expense
                               
Deposits
   
245
     
244
     
403
     
523
 
Other borrowings
   
347
     
328
     
667
     
681
 
Long-term debt
   
     
155
     
     
307
 
Total interest expense
   
592
     
727
     
1,070
     
1,511
 
Net interest income
   
14,843
     
14,457
     
27,508
     
28,947
 
Provision for loan losses
   
     
(750
)
   
(1,500
)
   
(750
)
Net interest income after provision for loan losses
   
14,843
     
15,207
     
29,008
     
29,697
 
Noninterest income
                               
Service charges and fees
   
1,218
     
1,065
     
2,430
     
2,057
 
Net gains on mortgage loans
   
199
     
1,311
     
508
     
3,326
 
Trust fees
   
1,096
     
1,133
     
2,184
     
2,138
 
ATM and debit card fees
   
1,762
     
1,683
     
3,360
     
3,168
 
Bank owned life insurance (“BOLI”) income
   
230
     
250
     
470
     
526
 
Other
   
626
     
727
     
1,144
     
1,492
 
Total noninterest income
   
5,131
     
6,169
     
10,096
     
12,707
 
Noninterest expense
                               
Salaries and benefits
   
6,402
     
6,502
     
12,691
     
12,914
 
Occupancy of premises
   
1,071
     
994
     
2,243
     
2,031
 
Furniture and equipment
   
988
     
978
     
2,004
     
1,915
 
Legal and professional
   
271
     
274
     
465
     
496
 
Marketing and promotion
   
195
     
175
     
390
     
350
 
Data processing
   
924
     
855
     
1,808
     
1,762
 
FDIC assessment
   
197
     
159
     
377
     
329
 
Interchange and other card expense
   
406
     
388
     
779
     
746
 
Bond and D&O Insurance
   
129
     
111
     
259
     
222
 
Other
   
1,330
     
1,282
     
2,636
     
2,438
 
Total noninterest expenses
   
11,913
     
11,718
     
23,652
     
23,203
 
Income before income tax
   
8,061
     
9,658
     
15,452
     
19,201
 
Income tax expense
   
1,493
     
1,840
     
2,884
     
3,605
 
Net income
 
$
6,568
   
$
7,818
   
$
12,568
   
$
15,596
 
Basic earnings per common share
 
$
0.19
   
$
0.23
   
$
0.37
   
$
0.46
 
Diluted earnings per common share
 
$
0.19
   
$
0.23
   
$
0.37
   
$
0.46
 
Cash dividends per common share
 
$
0.08
   
$
0.08
   
$
0.16
   
$
0.16
 

See accompanying notes to consolidated financial statements.

-5-


MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three and six month periods ended June 30, 2022 and 2021
(unaudited)
(Dollars in thousands)

   
Three Months
Ended
June 30,
2022
   
Three Months
Ended
June 30,
2021
   
Six Months
Ended
June 30,
2022
   
Six Months
Ended
June 30,
2021
 
Net income
 
$
6,568
   
$
7,818
   
$
12,568
   
$
15,596
 
Other comprehensive income (loss):
                               
Unrealized gains (losses):
                               
Net change in unrealized gains (losses) on debt securities available for sale
   
(8,251
)
   
739
     
(23,371
)
   
(2,651
)
Net unrealized gain at time of transfer on securities transferred to held-to-maturity
                113        
Amortization of net unrealized gains on securities transferred to held-to-maturity
    (6 )           (10 )      
Tax effect
   
1,734
     
(155
)
   
4,886
     
557
 
Net change in unrealized gains (losses) on debt securities available for sale, net of tax
   
(6,523
)
   
584
     
(18,382
)
   
(2,094
)
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
   
(6,523
)
   
584
     
(18,382
)
   
(2,094
)
Comprehensive income (loss)
 
$
45
   
$
8,402
   
$
(5,814
)
 
$
13,502
 

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, 2022 and 2021
(unaudited)
(Dollars in thousands, except per share data)

   
Common
Stock
   
Retained Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Shareholders’
Equity
 
Balance, April 1, 2021
 
$
218,687
   
$
22,156
   
$
1,536
   
$
242,379
 
Net income for the three months ended June 30, 2021
   
     
7,818
     
     
7,818
 
Cash dividends at $0.08 per share
   
     
(2,723
)
   
     
(2,723
)
Repurchase of 815 shares for taxes withheld on vested restricted stock
    (7 )                 (7 )
Other comprehensive income, net of tax
   
     
     
584
     
584
 
Stock compensation expense
   
166
     
     
     
166
 
Balance, June 30, 2021
 
$
218,846
   
$
27,251
   
$
2,120
   
$
248,217
 
                                 
                                 
Balance, April 1, 2022
 
$
219,266
   
$
38,492
   
$
(12,156
)
 
$
245,602
 
Net income for the three months ended June 30, 2022
   
     
6,568
     
     
6,568
 
Cash dividends at $0.08 per share
   
     
(2,728
)
   
     
(2,728
)
Repurchase of 815 shares for taxes withheld on vested restricted stock
   
(7
)
   
     
     
(7
)
Other comprehensive income, net of tax
   
     
     
(6,523
)
   
(6,523
)
Stock compensation expense
   
197
     
     
     
197
 
Balance, June 30, 2022
 
$
219,456
   
$
42,332
   
$
(18,679
)
 
$
243,109
 

   
Common
Stock
   
Retained Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
Shareholders’
Equity
 
Balance, January 1, 2021
 
$
218,528
   
$
17,101
   
$
4,214
   
$
239,843
 
Net income for the six months ended June 30, 2021
   
     
15,596
     
     
15,596
 
Cash dividends at $0.16 per share
   
     
(5,446
)
   
     
(5,446
)
Repurchase of 1,341 shares for taxes withheld on vested restricted stock
   
(12
)
   
     
     
(12
)
Other comprehensive income, net of tax
   
     
     
(2,094
)
   
(2,094
)
Stock compensation expense
   
330
     
     
     
330
 
Balance, June 30, 2021
 
$
218,846
   
$
27,251
   
$
2,120
   
$
248,217
 
                                 
                                 
Balance, January 1, 2022
 
$
219,082
   
$
35,220
   
$
(297
)
 
$
254,005
 
Net income for the six months ended June 30, 2022
   
     
12,568
     
     
12,568
 
Cash dividends at $0.16 per share
   
     
(5,456
)
   
     
(5,456
)
Repurchase of 2,153 shares for taxes withheld on vested restricted stock
   
(20
)
   
     
     
(20
)
Other comprehensive income, net of tax
   
     
     
(18,382
)
   
(18,382
)
Stock compensation expense
   
394
     
     
     
394
 
Balance, June 30, 2022
 
$
219,456
   
$
42,332
   
$
(18,679
)
 
$
243,109
 

See accompanying notes to consolidated financial statements.

-7-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six month periods ended June 30, 2022 and 2021
(unaudited)
(Dollars in thousands)


   
Six Months
Ended
June 30,
2022
   
Six Months
Ended
June 30,
2021
 
Cash flows from operating activities
           
Net income
 
$
12,568
   
$
15,596
 
Adjustments to reconcile net income to net cash from operating activities:
               
Depreciation and amortization
   
1,204
     
1,143
 
Stock compensation expense
   
394
     
330
 
Provision for loan losses
   
(1,500
)
   
(750
)
Origination of loans for sale
   
(18,548
)
   
(86,498
)
Proceeds from sales of loans originated for sale
   
19,300
     
90,494
 
Net gains on mortgage loans
   
(508
)
   
(3,326
)
Write-down of other real estate
   
     
4
 
Net loss on sales of other real estate
   
     
20
 
Deferred income tax expense (benefit)
   
533
     
(144
)
Earnings in bank-owned life insurance
   
(470
)
   
(526
)
Change in accrued interest receivable and other assets
   
(2,008
)
   
1,384
 
Change in accrued expenses and other liabilities
   
66
     
(803
)
Net cash from operating activities
   
11,031
     
16,924
 
Cash flows from investing activities
               
Loan originations and payments, net
   
(2,680
)
   
191,152
 
Purchases of securities available for sale
   
(186,326
)
   
(50,605
)
Purchases of securities held to maturity
   
(137,355
)
   
(51,232
)
Purchase of bank-owned life insurance
          (10,000 )
Proceeds from:
               
Maturities and calls of securities
   
22,746
     
31,013
 
Principal paydowns on securities
   
43,968
     
23,429
 
Sales of other real estate
   
     
170
 
Proceeds from redemption of FHLB stock
    1,347        
Proceeds from payout of bank-owned insurance claim
   
     
560
 
Additions to premises and equipment
   
(466
)
   
(861
)
Net cash from investing activities
   
(258,766
)
   
133,626
 
Cash flows from financing activities
               
Change in deposits
   
(83,375
)
   
301,489
 
Repayments and maturities of other borrowed funds
    (80,000 )     (10,000 )
Proceeds from other borrowed funds
   
25,000
     
 
Repurchase of shares for taxes withheld on vested restricted stock
   
(20
)
   
(12
)
Cash dividends paid
   
(5,456
)
   
(5,446
)
Net cash from financing activities
   
(143,851
)
   
286,031
 
Net change in cash and cash equivalents
   
(391,586
)
   
436,581
 
Cash and cash equivalents at beginning of period
   
1,151,788
     
783,736
 
Cash and cash equivalents at end of period
 
$
760,202
   
$
1,220,317
 

See accompanying notes to consolidated financial statements.

-8-

MACATAWA BANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Six month periods ended June 30, 2022 and 2021
(unaudited)
(Dollars in thousands)


   
Six Months
Ended
June 30,
2022
   
Six Months
Ended
June 30,
2021
 
Supplemental cash flow information
           
Interest paid
 
$
1,106
   
$
1,535
 
Income taxes paid
   
3,000
     
4,000
 
Supplemental noncash disclosures:
               
Security settlement
   
1,662
     
736
 
Transfer of securities from available for sale to held to maturity
    123,469