Macatawa Bank Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2020

SHAREHOLDERS' EQUITY [Abstract]

SHAREHOLDERS' EQUITY

NOTE 12 – SHAREHOLDERS' EQUITY

Regulatory Capital

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.

The prompt corrective action regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is only adequately capitalized, regulatory approval is required to, among other things, accept, renew or roll-over brokered deposits. If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans for capital restoration are required.

In July 2013, the Board of Governors of the Federal Reserve Board and the FDIC approved the rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). The rules include a common equity Tier 1 capital to risk-weighted assets ratio (CET1 ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which effectively results in a minimum CET1 ratio of 7.0%. The minimum ratio of Tier 1 capital to risk-weighted assets is 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5%), which effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer), and requires a minimum leverage ratio of 4.0%.

At September 30, 2020 and December 31, 2019, actual capital levels and minimum required levels were (dollars in thousands):

						Minimum Capital					Minimum Capital Adequacy With					To Be Well Capitalized Under Prompt Corrective
	Actual					Adequacy					Capital Buffer					Action Regulations
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2020
CET1 capital (to risk weighted assets)
Consolidated	$	229,270		15.3	%	$	67,421		4.5	%	$	104,876		7.0	%		N/A		N/A
Bank		242,425		16.2			67,435		4.5			104,899		7.0		$	97,406		6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		249,270		16.6			89,894		6.0			127,350		8.5			N/A		N/A
Bank		242,425		16.2			89,914		6.0			127,378		8.5			119,885		8.0
Total capital (to risk weighted assets)
Consolidated		265,828		17.7			119,859		8.0			157,315		10.5			N/A		N/A
Bank		258,983		17.3			119,885		8.0			157,349		10.5			149,856		10.0
Tier 1 capital (to average assets)
Consolidated		249,270		9.8			101,930		4.0			N/A		N/A			N/A		N/A
Bank		242,425		9.5			101,900		4.0			N/A		N/A			127,374		5.0

December 31, 2019
CET1 capital (to risk weighted assets)
Consolidated	$	215,925	13.5	%	$	72,187	4.5	%	$	112,290	7.0	%		N/A	N/A
Bank		228,761	14.3			72,182	4.5			112,284	7.0		$	104,263	6.5	%
Tier 1 capital (to risk weighted assets)
Consolidated		235,925	14.7			96,249	6.0			136,353	8.5			N/A	N/A
Bank		228,761	14.3			96,243	6.0			136,344	8.5			128,324	8.0
Total capital (to risk weighted assets)
Consolidated		253,125	15.8			128,332	8.0			168,436	10.5			N/A	N/A
Bank		245,961	15.3			128,324	8.0			168,425	10.5			160,405	10.0
Tier 1 capital (to average assets)
Consolidated		235,925	11.5			82,130	4.0			N/A	N/A			N/A	N/A
Bank		228,761	11.2			82,070	4.0			N/A	N/A			102,587	5.0

The full $20.0 million balance of trust preferred securities outstanding at September 30, 2020 and December 31, 2019, respectively, qualified as Tier 1 capital. Refer to our 2019 Form 10-K for more information on the trust preferred securities.

The Bank was categorized as "well capitalized" at September 30, 2020 and December 31, 2019.

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

+ References + Details