Macatawa Bank Corporation is a Michigan corporation and a registered bank holding
company. The Company was incorporated in 1997. Our business is concentrated
in a single industry segment - commercial banking. Through our wholly-owned
subsidiary, Macatawa Bank, we offer a full range of commercial and personal
banking services, including checking, savings and certificates of deposit accounts,
cash management, safe deposit boxes, trust services and commercial, mortgage
and consumer loans through our twenty-six branch offices and a lending and operation
service facility in Ottawa County, Kent County and northern Allegan County,
Michigan. Other services we offer include ATMs, internet banking, telephone
banking and debit cards. The Bank provides various brokerage services, including
discount brokerage through Infinex, personal financial planning and consultation
regarding mutual funds.
We have historically offered a broad range of loan products to business customers,
including commercial and industrial and commercial real estate loans, and to
retail customers, including residential mortgage and consumer loans. Given current
soft economic conditions, new commercial loan origination activity has been
lower than it was before the recession of 2008-2009. However, select, well-managed
loan renewal activity is taking place and we are seeing growth in our commercial
and consumer loan portfolios and pipelines. Following is a discussion of our
various types of lending activities.
Commercial and Industrial Loans
Our commercial and industrial lending portfolio contains loans with a variety
of purposes and security, including loans to finance operations and equipment.
Generally, our commercial and industrial lending has been limited to borrowers
headquartered, or doing business, in our primary market area. These credit relationships
typically require the satisfaction of appropriate loan covenants and debt formulas,
and generally require that the Bank be the primary depository bank of the business.
These loan covenants and debt formulas are monitored through periodic, required
reporting of accounts receivable aging schedules and financial statements, and
in the case of larger business operations, reviews or audits by independent
professional firms.
Commercial and industrial loans typically are made on the basis of the borrowers
ability to make repayment from the cash flow of the borrowers business. As
a result, the availability of funds for the repayment of commercial business
loans may be substantially dependent on the success of the business itself and
economic conditions. Further, the collateral securing the loans may depreciate
over time, may be difficult to appraise and may fluctuate in value based on
the success of the business.
Commercial Real Estate Loans
Our commercial real estate loans consist primarily of construction and development
loans and multi-family and other non-residential real estate loans.
Construction and Development Loans. These consist of construction loans to
commercial customers for the construction of their business facilities. They
also include construction loans to builders and developers for the construction
of one- to four-family residences and the development of one- to four-family
lots, residential subdivisions, condominium developments and other commercial
developments.
This portfolio was particularly adversely affected by job losses, declines
in real estate value, declines in home sale volumes, and declines in new home
building in 2008 and 2009. Declining real estate values resulted in sharp increases
in losses, particularly in the land development and construction loan portfolios
to residential developers. During the past several years, we made a significant
effort to reduce exposure to residential land development and other construction
and development loans.
Multi-Family and Other Non-Residential Real Estate Loans. These are permanent
loans secured by multi-family and other non-residential real estate and include
loans secured by apartment buildings, condominiums, small office buildings,
small business facilities, medical facilities and other non-residential building
properties, substantially all of which are located within our primary market
area.
Multi-family and other non-residential real estate loans generally present
a higher level of risk than loans secured by owner occupied one- to four-family
residences. This greater risk is due to several factors, including the concentration
of principal in a limited number of loans and borrowers, the effects of general
economic conditions on income producing properties and the increased difficulty
of evaluating and monitoring these types of loans. Furthermore, the repayment
of these loans is typically dependent upon the successful operation of the related
real estate project. For example, if leases are not obtained or renewed, or
a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill
its lease obligations, cash flow from the project will be reduced. If cash flow
from the project is reduced, the borrowers ability to repay the loan may be
impaired.
Retail Loans
Our retail loans are loans to consumers and consist primarily of residential
mortgage loans and consumer loans.
Residential Mortgage Loans. We originate construction loans to individuals
for the construction of their residences and owner-occupied residential mortgage
loans, which are generally long-term with either fixed or adjustable interest
rates. Our general policy is to sell the majority of our fixed rate residential
mortgage loans in the secondary market due primarily to the interest rate risk
associated with these loans.
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