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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 333-45755
MACATAWA BANK CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3391345
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
348 Waverly Road, Holland, Michigan 49423
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(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 Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
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Stock. Indicate by check mark whether the issuer: (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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 X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained in this form and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. [_]
The registrant's revenues for 2000 were $36,389,497. The aggregate market value
of the voting and non-voting common equity held by non-affiliates of the
Registrant, based on a per share price of $14.50 as of March 2, 2001, was
$42,875,746 (common stock, no par value). As of March 2, 2001, there were
outstanding 3,589,315 shares of the Company's common stock (no par value).
Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held April 19, 2001 are incorporated by reference into Part II and Part
III of this Report.
PART I
ITEM 1: Business
General
Macatawa Bank Corporation (the "Company") is a bank holding company
organized in 1997 under Michigan law. The Company owns all of the common stock
of Macatawa Bank (the "Bank"). The Bank was organized and commenced operations
in November, 1997 as a Michigan chartered bank with depository accounts insured
by the FDIC to the extent permitted by law. The Bank provides a full range of
commercial and consumer banking services, through its network of 13 full service
branches located in communities in Ottawa county, northern Allegan county, and
southwestern Kent county. The Bank's services include checking and savings
accounts (including certificates of deposit), safe deposit boxes, travelers
checks, money orders, trust services and commercial, mortgage and consumer
loans. As of December 31, 2000, the Company had total assets of $499.8 million,
total deposits of $398.6 million, approximately 38,000 deposit accounts and
shareholders' equity of $38.1 million.
The Company's administrative office is located at 348 Waverly Road,
Holland, Michigan 49423, and its telephone number is (616) 820-1444. Unless the
context clearly suggests otherwise, financial information and other references
to the Company include the Bank.
Products and Services
Deposit Services. The Bank offers a broad range of deposit services,
including checking accounts, savings accounts and time deposits of various
types. Transaction accounts and time certificates are tailored to the principal
market area at rates competitive with those offered in the area. All deposit
accounts are insured by the FDIC up to the maximum amount permitted by law. The
Bank solicits these accounts from individuals, businesses, associations,
churches, nonprofit organizations, financial institutions and government
authorities. The Bank may also use alternative funding sources as needed,
including advances from Federal Home Loan Banks, conduit financing and the
packaging of loans for securitization and sale.
Real Estate Loans. The Bank originates residential mortgage loans,
which are generally long-term with either fixed or variable interest rates. The
Bank's general policy, which is subject to review by management as a result of
changing market and economic conditions and other factors, is to retain all
variable interest rate mortgage loans in the Bank's loan portfolio and to sell
all fixed rate loans in the secondary market. The Bank also offers home equity
loans.
The retention of variable rate loans on the Bank's loan portfolio helps
to reduce the Bank's exposure to fluctuations in interest rates. However, such
loans generally pose credit risks different from the risks inherent in fixed
rate loans, primarily because as interest rates rise, the underlying payments
from the borrowers rise, thereby increasing the potential for default.
Personal Loans and Lines of Credit. The Bank makes personal loans and
lines of credit available to consumers for various purposes, such as the
purchase of automobiles, boats and other recreational vehicles, home
improvements and personal investments. The Bank's current policy is to retain
substantially all of such loans.
Commercial Loans. Commercial loans are made primarily to small and
mid-sized businesses. These loans are and will be both secured and unsecured and
are made available for general operating purposes, acquisition of fixed assets
including real estate, purchases of equipment and machinery, financing of
inventory and accounts receivable, as well as any other purposes considered
appropriate. The Bank generally looks to a borrower's business operations as the
principal source of repayment, but will also receive, when appropriate,
mortgages on real estate, security interests in inventory, accounts receivable
and other personal property and/or personal guarantees.
Although the Bank takes a progressive and competitive approach to
lending, it stresses high quality in its loans. On a regular basis, the Board of
Directors reviews selected loans. In addition, a loan committee of the Board of
Directors
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of the Bank also reviews larger loans for prior approval when the loan request
exceeds the established limits for the lending officers. The Bank also maintains
a loan review process designed to promote early identification of credit quality
problems. Any past due loans and identified problem loans will be reviewed with
the Board of Directors on a regular basis.
Regulatory and supervisory loan-to-value limits are established by
Section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). The Bank's internal limitations follow those limits and in certain
cases are more restrictive than those required by the regulators.
The Bank has established relationships with correspondent banks and
other independent financial institutions to provide other services requested by
its customers, including loan participations where the requested loan amounts
exceed the Bank's policies or legal lending limits.
Trust Services. The Bank began offering trust services in January,
1999, to further provide for the financial needs of its customers. As of
December 31, 2000, the Trust Department had assets of approximately $273.7
million.
Competition
The Company's primary market area includes Ottawa County, northern
Allegan County and southwestern Kent County, all located in Western Michigan.
There are many bank, thrift and credit union offices located within the
Company's market area. Most are branches of larger financial institutions. The
Company also faces competition from finance companies, insurance companies,
mortgage companies, securities brokerage firms, money market funds and other
providers of financial services. Most of the Company's competitors have been in
business a number of years, have established customer bases, are larger and have
higher lending limits than the Company. The Company competes for loans
principally through its ability to communicate effectively with its customers
and to understand and meet their needs. Management believes that the Company's
personal service philosophy enhances its ability to compete favorably in
attracting individuals and small businesses. The Company actively solicits
customers and competes for deposits by offering customers personal attention,
professional service, and competitive interest rates.
Environmental Matters
The Company does not believe that existing environmental regulations
will have any material effect upon the capital expenditures, earnings, and
competitive position of the Company.
Employees
As of December 31, 2000, the Bank had 124 full-time and 58 part-time
employees. The Company has assembled a staff of experienced, dedicated and
highly qualified professionals whose goal is to provide outstanding service. The
majority of the Company's management team have at least 10 years of banking
experience, and several key personnel have more than 20 years of banking
experience. None of the Company's employees are represented by collective
bargaining agents.
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SUPERVISION AND REGULATION
The following is a summary of certain statutes and regulations
affecting the Company and the Bank. This summary is qualified in its entirety by
such statutes and regulations. A change in applicable laws or regulations may
have a material effect on the Company, the Bank and the business of the Company
and the Bank.
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes administered
by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the FDIC,
the Commissioner of the Michigan Office of Financial and Insurance Services,
Division of Financial Institutions ("Commissioner"), the Internal Revenue
Service, and state taxing authorities. The effect of such statutes, regulations
and policies can be significant, and cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, lending activities and practices, the nature and amount
of collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to the
Company and the Bank establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds, the depositors of the Bank, and the public, rather than
shareholders of the Bank or the Company.
Federal law and regulations establish supervisory standards applicable
to the lending activities of the Bank, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
Recent Legislation
The enactment of the Gramm-Leach-Bliley Act of 1999 (the "GLB Act")
represents a pivotal point in the history of the financial services industry.
The GLB Act modifies many of the principal federal laws which regulate financial
institutions and sweeps away large parts of a regulatory framework that had its
origins in the Depression Era of the 1930s.
Effective March 11, 2000, new opportunities became available for
banking organizations, other depository institutions, insurance companies and
securities firms to enter into combinations that permit a single financial
services organization to offer customers a more complete array of financial
products and services. Specifically, the GLB Act provides two new vehicles
through which a banking organization can engage in a variety of activities
which, prior to the Act, they were not allowed to engage in. First, a bank
holding company meeting certain requirements may elect to become a financial
holding company ("FHC"). FHCs are generally authorized to engage in all
"financial activities" and, under certain circumstances, to make equity
investments in other companies (i.e., merchant banking). In order to be eligible
to elect to become a FHC, a bank holding company and all of its depositary
financial institutions must: (1) be "well capitalized"; (2) be "well managed";
and (3) have a rating of "satisfactory" or better in their most recent Community
Reinvestment Act examination. Both the bank holding company and all of its
depositary financial institutions must also continue to satisfy these
requirements after the bank holding company elects to become a FHC or else the
FHC will be subject to various restrictions. The Federal Reserve Board will be
the umbrella regulator of FHCs, but functional regulation of a FHC's separately
regulated subsidiaries will be conducted by their primary functional regulator.
Second, the GLB Act also provides that a national bank (and a state
bank, so long as otherwise allowable under its state's law), which satisfies
certain requirements, may own a new type of subsidiary called a financial
subsidiary ("FS"). The GLB Act authorizes FSs to engage in many (but not all) of
the activities that FHCs are authorized to engage in. In order
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to be eligible to own a FS, a bank must satisfy the three requirements noted
above, plus several additional requirements.
The GLB Act also imposes several rules that are designed to protect the
privacy of the customers of financial institutions. For example, the GLB Act
requires financial institutions to annually adopt and disseminate a privacy
policy and prohibits financial institutions from disclosing certain customer
information to "non-affiliated third parties" for certain uses. All financial
institutions, regardless of whether they elect to utilize FHCs or FSs, are
subject to the GLB Act's privacy provisions. The Company and the Bank are also
subject to certain state laws that deal with the use and distribution of
non-public personal information. In addition to its privacy provisions, the GLB
Act also contains various other provisions that apply to banking organizations,
regardless of whether they elect to utilize FHCs or FSs.
The Company believes that the GLB Act could significantly increase
competition in its business and is evaluating the desirability of electing to
become a FHC. The Company believes that it is qualified to elect FHC status but
has not yet decided to do so.
The Company
General. The Company is a bank holding company and, as such, is
registered with, and subject to regulation by, the Federal Reserve Board under
the Bank Holding Company Act, as amended (the "BHCA"). Under the BHCA, the
Company is subject to periodic examination by the Federal Reserve Board, and is
required to file with the Federal Reserve Board periodic reports of its
operations and such additional information as the Federal Reserve Board may
require.
In accordance with Federal Reserve Board policy, the Company is
expected to act as a source of financial strength to the Bank and to commit
resources to support the Bank in circumstances where the Company might not do so
absent such policy. In addition, if the Commissioner deems the Bank's capital to
be impaired, the Commissioner may require the Bank to restore its capital by a
special assessment upon the Company as the Bank's sole shareholder. If the
Company were to fail to pay any such assessment, the directors of the Bank would
be required, under Michigan law, to sell the shares of the Bank's stock owned by
the Company to the highest bidder at either a public or private auction and use
the proceeds of the sale to restore the Bank's capital.
Investments and Activities. In general, any direct or indirect
acquisition by the Company of any voting shares of any bank which would result
in the Company's direct or indirect ownership or control of more than 5% of any
class of voting shares of such bank, and any merger or consolidation of the
Company with another bank company, will require the prior written approval of
the Federal Reserve Board under the BHCA. In acting on such applications, the
Federal Reserve Board must consider various statutory factors, including among
others, the effect of the proposed transaction on competition in relevant
geographic and product markets, and each party's financial condition, managerial
resources, and record of performance under the Community Reinvestment Act.
Effective September 29, 1995, bank holding companies may acquire banks located
in any state in the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring company and all of its insured depository institution
affiliates.
The merger or consolidation of an existing bank subsidiary of the
Company with another bank, or the acquisition by such a subsidiary of assets of
another bank, or the assumption of liability by such a subsidiary to pay any
deposits in another bank, will require the prior written approval of the
responsible Federal depository institution regulatory agency under the Bank
Merger Act, based upon a consideration of statutory factors similar to those
outlined above with respect to the BHCA. In addition, in certain such cases an
application to, and the prior approval of, the Federal Reserve Board under the
BHCA and/or the Commissioner under the Michigan Banking Code, may be required.
With certain limited exceptions, the BHCA prohibits any bank company
from engaging, either directly or indirectly through a subsidiary, in any
activity other than managing or controlling banks unless the proposed
non-banking activity is one that the Federal Reserve Board has determined to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto. Under current Federal Reserve Board regulations, such
permissible non-banking activities include such things as mortgage banking,
equipment leasing, securities brokerage, and consumer and commercial finance
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company operations. As a result of recent amendments to the BHCA, well-
capitalized and well-managed bank holding companies may engage de novo in
certain types of non-banking activities without prior notice to, or approval of,
the Federal Reserve Board, provided that written notice of the new activity is
given to the Federal Reserve Board within 10 business days after the activity is
commenced. If a bank company wishes to engage in a non-banking activity by
acquiring a going concern, prior notice and/or prior approval will be required,
depending upon the activities in which the company to be acquired is engaged,
the size of the company to be acquired and the financial and managerial
condition of the acquiring bank company.
In evaluating a proposal to engage (either de novo or through the
acquisition of a going concern) in a non-banking activity, the Federal Reserve
Board will consider various factors, including among others the financial and
managerial resources of the bank company, and the relative public benefits and
adverse effects which may be expected to result from the performance of the
activity by an affiliate of the bank company. The Federal Reserve Board may
apply different standards to activities proposed to be commenced de novo and
activities commenced by acquisition, in whole or in part, of a going concern.
Capital Requirements. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank company may, among other things,
be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: (i) a
leverage capital requirement expressed as a percentage of total assets, and (ii)
a risk-based requirement expressed as a percentage of total risk-weighted
assets. The leverage capital requirement consists of a minimum ratio of Tier 1
capital (which consists principally of shareholders' equity) to total assets of
3% for the most highly rated companies, with minimum requirements of 4% to 5%
for all others. The risk-based requirement consists of a minimum ratio of total
capital to total risk-weighted assets of 8%, of which at least one-half must be
Tier 1 capital.
The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. For example, Federal Reserve Board regulations
provide that additional capital may be required to take adequate account of,
among other things, interest rate risk and the risks posed by concentrations of
credit, nontraditional activities or securities trading activities. Further, any
banking organization experiencing or anticipating significant growth would be
expected to maintain capital ratios, including tangible capital positions (i.e.,
Tier 1 capital less all intangible assets), well above the minimum levels. The
Federal Reserve Board has not advised the Company of any specific minimum Tier 1
Capital leverage ratio applicable to it.
Dividends. The Company is a corporation separate and distinct from the
Bank. Most of the Company's revenues will be received by it in the form of
dividends, if any, paid by the Bank. Thus, the Company's ability to pay
dividends to its shareholders will indirectly be limited by statutory
restrictions on its ability to pay dividends. See "Supervision and Regulation -
the Bank - Dividends." Further, the Federal Reserve Board has issued a policy
statement on the payment of cash dividends by bank holding companies. In the
policy statement, the Federal Reserve Board expressed its view that a bank
company experiencing earnings weaknesses should not pay cash dividends exceeding
its net income or which can only be funded in ways that weakened the bank
company's financial health, such as by borrowing. Additionally, the Federal
Reserve Board possesses enforcement powers over bank holding companies and their
non-bank subsidiaries to prevent or remedy actions that represent unsafe or
unsound practices or violations of applicable statutes and regulations. Among
these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies. Similar enforcement powers over the Bank are possessed
by the FDIC. The "prompt corrective action" provisions of federal law and
regulation authorizes the Federal Reserve Board to restrict the payment of
dividends by the Company for an insured bank which fails to meet specified
capital levels.
In addition to the restrictions on dividends imposed by the Federal
Reserve Board, the Michigan Business Corporation Act provides that dividends may
be legally declared or paid only if after the distribution a corporation, such
as the Company, can pay its debts as they come due in the usual course of
business and its total assets equal or exceed the sum of its liabilities plus
the amount that would be needed to satisfy the preferential rights upon
dissolution of any holders of
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preferred stock whose preferential rights are superior to those receiving the
distribution. The Company is authorized to issue preferred stock but it has no
current plans to issue any such preferred stock.
The Bank
General. The Bank is a Michigan banking corporation and its deposit
accounts are insured by the Bank Insurance Fund (the "BIF") of the FDIC. As a
BIF-insured Michigan chartered bank, the Bank is subject to the examination,
supervision, reporting and enforcement requirements of the Commissioner, as the
chartering authority for Michigan banks, and the FDIC, as administrator of the
BIF. These agencies and the federal and state laws applicable to the Bank and
its operations, extensively regulate various aspects of the banking business
including, among other things, permissible types and amounts of loans,
investments and other activities, capital adequacy, branching, interest rates on
loans and on deposits, the maintenance of non-interest bearing reserves on
deposit accounts, and the safety and soundness of banking practices.
Deposit Insurance. As an FDIC-insured institution, the Bank is required
to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums, based upon
their respective levels of capital and results of supervisory evaluation.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.
The Federal Deposit Insurance Act ("FDIA") requires the FDIC to
establish assessment rates at levels which will maintain the Deposit Insurance
Fund at a mandated reserve ratio of not less than 1.25% of estimated insured
deposits. Accordingly, the FDIC established the schedule of BIF insurance
assessments for the first semi-annual assessment period of 1998, ranging from 0%
of deposits for institutions in the lowest risk category to .27% of deposits for
institutions in the highest risk category.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution or its
directors have engaged or are engaging in unsafe or unsound practices, or have
violated any applicable law, regulation, order, or any condition imposed in
writing by, or written agreement with, the FDIC, or if the institution is in an
unsafe or unsound condition to continue operations. The FDIC may also suspend
deposit insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible capital.
Commissioner Assessments. Michigan banks are required to pay
supervisory fees to the Commissioner to fund the operations of the Commissioner.
The amount of supervisory fees paid by a bank is based upon the bank's total
assets, as reported to the Commissioner.
FICO Assessments. Pursuant to federal legislation enacted September 30,
1996, the Bank, as a member of the BIF, is subject to assessments to cover the
payments on outstanding obligations of the Financing Corporation ("FICO"). FICO
was created in 1987 to finance the recapitalization of the Federal Savings and
Loan Insurance Corporation, the predecessor to the FDIC's Savings Association
Insurance Fund (the "SAIF") which insures the deposits of thrift institutions.
Until January 1, 2000, the FICO assessments made against BIF members may not
exceed 20% of the amount of FICO assessments made against SAIF members.
Currently, SAIF members pay FICO assessments at a rate equal to approximately
0.063% of deposits while BIF members pay FICO assessments at a rate equal to
approximately 0.013% of deposits. Between January 1, 2000 and the maturity of
the outstanding FICO obligations in 2019, BIF members and SAIF members will
share the cost of the interest on the FICO bonds on a pro rata basis. It is
estimated that FICO assessments during this period will be less than 0.025% of
deposits
Capital Requirements. The FDIC has established the following minimum
capital standards for state-chartered, FDIC-insured non-member banks, such as
the Bank: a leverage requirement consisting of a minimum ratio of Tier 1 capital
to total assets of 3% for the most highly-rated banks with minimum requirements
of 4% to 5% for all others, and a risk-based capital requirement consisting of a
minimum ratio of total capital to total risk-weighted assets of 8%, at least
one-half of which must be Tier 1 capital. Tier 1 capital consists principally of
shareholders' equity. These capital requirements are
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minimum requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual institutions. For
example, FDIC regulations provide that higher capital may be required to take
adequate account of, among other things, interest rate risk and the risks posed
by concentrations of credit, nontraditional activities or securities trading
activities. As a condition to regulatory approval of the Bank's formation, the
Bank was required to have an initial capitalization sufficient to provide a
ratio of Tier 1 capital to total estimated assets of at least 8% at the end of
the third year of operation.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Federal regulations define these capital categories as
follows:
Total Tier 1
Risk-Based Risk-Based
Capital Ratio Capital Ratio Leverage Ratio
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Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -- -- A ratio of tangible
Equity to total assets
Of 2% or less
As of December 31, 2000, the Company was "well capitalized."
Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include: requiring the submission of
a capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital levels if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
Dividends. Under Michigan law, the Bank is restricted as to the maximum
amount of dividends it may pay on its common stock. The Bank may not pay
dividends except out of net profits after deducting its losses and bad debts. A
Michigan state bank may not declare or pay a dividend unless the bank will have
a surplus amounting to at least 20% of its capital after the payment of the
dividend. If the Bank has a surplus less than the amount of its capital, it may
not declare or pay any dividend until an amount equal to at least 10% of net
profits for the preceding one-half year (in the case of quarterly or semi-annual
dividends) or full-year (in the case of annual dividends) has been transferred
to surplus. A Michigan state bank may, with the approval of the Commissioner, by
vote of shareholders owning 2/3 of the stock eligible to vote increase its
capital stock by a declaration of a stock dividend, provided that after the
increase the bank's surplus equals at least 20% of its capital stock, as
increased. The Bank may not declare or pay any dividend until the cumulative
dividends on preferred stock (should any such stock be issued and outstanding)
have been paid in full. The Bank's Articles of Incorporation do not authorize
the issuance of preferred stock and there are no current plans to seek such
authorization.
Federal law generally prohibits a depository institution from making
any capital distribution (including payment of a dividend) or paying any
management fee to its company if the depository institution would thereafter be
undercapitalized.
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The FDIC may prevent an insured bank from paying dividends if the bank is in
default of payment of any assessment due to the FDIC. In addition, the FDIC may
prohibit the payment of dividends by the Bank, if such payment is determined, by
reason of the financial condition of the Bank, to be an unsafe and unsound
banking practice.
Insider Transactions. The Bank is subject to certain restrictions
imposed by the Federal Reserve Act on any extensions of credit to the Company or
its subsidiaries, on investments in the stock or other securities of the Company
or its subsidiaries and the acceptance of the stock or other securities of the
Company or its subsidiaries as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by the Bank to
its directors and officers, to directors and officers of the Company and its
subsidiaries, to principal shareholders of the Company, and to "related
interests" of such directors, officers and principal shareholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Company or one of its subsidiaries or a principal
shareholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
Safety and Soundness Standards. The federal banking agencies have
adopted guidelines to promote the safety and soundness of federally insured
depository institutions. These guidelines establish standards for internal
controls, information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits, asset quality and earnings. In general, the guidelines prescribe
the goals to be achieved in each area, and each institution will be responsible
for establishing its own procedures to achieve those goals. If an institution
fails to comply with any of the standards set forth in the guidelines, the
institution's primary federal regulator may require the institution to submit a
plan for achieving and maintaining compliance. The preamble to the guidelines
states that the agencies expect to require a compliance plan from an institution
whose failure to meet one or more of the standards is of such severity that it
could threaten the safe and sound operation of the institution. Failure to
submit an acceptable compliance plan, or failure to adhere to a compliance plan
that has been accepted by the appropriate regulator, would constitute grounds
for further enforcement action.
State Bank Activities. Under federal law and FDIC regulations,
FDIC-insured state banks are prohibited, subject to certain exceptions, from
making or retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law, as implemented by FDIC
regulations, also prohibits FDIC-insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible investments
and activities must be divested or discontinued within certain time frames set
by the FDIC in accordance with federal law. These restrictions are not currently
expected to have a material impact on the operations of the Bank.
Consumer Protection Laws. The Bank's business includes making a variety
of types of loans to individuals. In making these loans, the Bank is subject to
State usury and regulatory laws and to various federal statutes, such as the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Real Estate Settlement Procedures Act, and the Home Mortgage
Disclosure Act, and the regulations promulgated thereunder, which prohibit
discrimination, specify disclosures to be made to borrowers regarding credit and
settlement costs, and regulate the mortgage loan servicing activities of the
Bank, including the maintenance and operation of escrow accounts and the
transfer of mortgage loan servicing. In receiving deposits, the Bank is subject
to extensive regulation under State and federal law and regulations, including
the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy
Act, the Electronic Funds Transfer Act, and the Federal Deposit Insurance Act.
Violation of these laws could result in the imposition of significant damages
and fines upon the Bank and its directors and officers.
Branching Authority. Michigan banks, such as the Bank, have the
authority under Michigan law to establish branches anywhere in the State of
Michigan, subject to receipt of all required regulatory approvals (including the
approval of the Commissioner and the FDIC).
Effective June 1, 1997 (or earlier if expressly authorized by
applicable state law), the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "IBBEA") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits
9
that may be held by the surviving bank and all of its insured depository
institution affiliates. The establishment of de novo interstate branches or the
acquisition of individual branches of a bank in another state (rather than the
acquisition of an out-of-state bank in its entirety) is allowed by IBBEA only if
specifically authorized by state law. The legislation allowed individual states
to "opt-out" of interstate branching authority by enacting appropriate
legislation prior to June 1, 1997.
Michigan did not opt out of IBBEA, and now permits both U.S. and
non-U.S. banks to establish branch offices in Michigan. The Michigan Banking
Code permits, in appropriate circumstances and with the approval of the
Commissioner, (i) the acquisition of all or substantially all of the assets of a
Michigan-chartered bank by an FDIC-insured bank, savings bank, or savings and
loan association located in another state, (ii) the acquisition by a
Michigan-chartered bank of all or substantially all of the assets of an
FDIC-insured bank, savings bank or savings and loan association located in
another state, (iii) the consolidation of one or more Michigan-chartered banks
and FDIC-insured banks, savings banks or savings and loan associations located
in other states having laws permitting such consolidation, with the resulting
organization chartered by Michigan, (iv) the establishment by a foreign bank,
which has not previously designated any other state as its home state under the
International Banking Act of 1978, of branches located in Michigan, and (v) the
establishment or acquisition of branches in Michigan by FDIC-insured banks
located in other states, the District of Columbia or U.S. territories or
protectorates having laws permitting Michigan-chartered banks to establish
branches in such jurisdiction. Further, the Michigan Banking Code permits, upon
written notice to the Commissioner, (i) the acquisition by a Michigan-chartered
bank of one or more branches (not comprising all or substantially all of the
assets) of an FDIC-insured bank, savings bank or savings and loan association
located in another state, the District of Columbia, or a U.S. territory or
protectorate, (ii) the establishment by Michigan-chartered banks of branches
located in other states, the District of Columbia, or U.S. territories or
protectorates, and (iii) the consolidation of one or more Michigan-chartered
banks and FDIC-insured banks, savings banks or savings and loan associations
located in other states, with the resulting organization chartered by one of
such other states.
ITEM 2: Description of Property.
The Company's administrative offices are located at 348 Waverly Road,
Holland, Michigan 49423. The Bank's main banking office is located at 51 E. Main
Street, Zeeland, Michigan 49464, and the telephone number is (616) 748-9491. The
main office consists of approximately 1,820 square feet located on the first
floor of an office building and approximately 1,500 square feet in the basement.
This location is in the heart of the City of Zeeland on Main Street, which
management believes provides recognition and a visible presence in the
Holland-Zeeland community. The main office includes three teller stations, two
customer service offices, two administrative offices, two commercial lending
offices, and a vault and safe deposit boxes. The Bank has entered into a three
year lease with respect to its main office, with renewal options for up to four
successive three year terms. The initial rental rate, after amendments for
additional office space, is $900.00 per month , which increases by 7.5% for each
three year renewal period. The Bank is also obligated to pay all costs
associated with taxes, assessments, maintenance, utilities and insurance.
10
The Company owns or leases facilities located in Ottawa County, Allegan
County and Kent County, Michigan. The Company's facilities as of February 1,
2001, were as follows:
Location of Facility Use
-------------------- -------------------------
51 E. Main Street, Zeeland* Main Branch
250 E. 8th Street, Holland* Operations Center
139 E. 8th Street, Holland* Branch Office
489 Butternut Dr., Holland Branch Office
701 Maple Avenue, Holland Branch Office
699 E. 16th Street, Holland Branch Office
106 E. 8th Street, Holland* Trust Department
348 Waverly Road, Holland* Loan Center and Administrative Offices
41 N. State Street, Zeeland Branch Office
2020 Baldwin Street, Jenison Branch Office
6299 Lake Michigan Dr., Allendale Branch Office
102 South Washington, Douglas Branch Office
4758 - 136th Street, Hamilton* Branch Office
5215 Cherry Avenue, Hudsonville* Branch Office
1760 - 44th Street, Wyoming* Branch Office
20 E. Lakewood Blvd., Holland Branch Office
*Leased facility
The Company believes its facilities are well-maintained and adequately
insured. Because of the Company's growth, the Company is continually evaluating
the need for additional space and branches.
ITEM 3: Legal Proceedings.
As the date hereof, there were no material pending legal proceedings,
other than routine litigation incidental to the business of banking to which the
Company or any of its subsidiaries is a party of or which any of its properties
is the subject.
ITEM 4: Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of 2000 to a vote
of the Registrant's stockholders.
11
ADDITIONAL ITEM: Executive Officers of the Registrant.
Certain information relating to Executive Officers of the Company is as
follows:
Year Elected Positions
an Executive with the
Name Age Officer Company
- ---- --- ------- -------
Benj. A. Smith, III 57 1997 Chairman of the Board
and Chief Executive Officer of
the Company and a director of the Bank.
Philip J. Koning 46 1997 President and Chief Executive Officer
of the Bank and Treasurer and
Secretary of the Company.
Steven L. Germond 47 2000 Chief Financial Officer of the Company
and the Bank.
Ray D. Tooker 57 2000 Senior Vice President
Loan Administration of the Bank.
12
PART II
ITEM 5: Market for Common Equity and Related Stockholder Matters.
The Company's common stock has been quoted on the Nasdaq SmallCap
Market since December 27, 1999. From the completion of the Company's initial
public offering in April 1998 through December 31, 1999, the Company's common
stock was quoted on the OTC Bulletin Board. High and low bid prices (as reported
on the OTC Bulletin Board) and high and low sales prices (as reported on the
Nasdaq SmallCap Market) for each quarter are as follows:
2000 1999
------------------------------------------
Quarter High Low High Low
--------------- ---- --- ---- ---
First Quarter $15.50 $13.13 $17.00 $14.75
Second Quarter $13.88 $11.50 $15.50 $13.50
Third Quarter $13.25 $10.63 $15.50 $14.00
Fourth Quarter $14.00 $11.00 $16.00 $13.00
For the period during which the common stock was quoted on the OTC
Bulletin Board, the quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions and
do not include intra-day highs and lows. On February 28, 2001, there were
approximately 652 owners of record and, in addition, approximately 1,800
beneficial owners of the Company's common stock.
The Company declared its first cash dividend during the fourth quarter
of 2000. The dividend amount was $.07 per share, and was paid December 29, 2000.
It is anticipated the Company will pay quarterly cash dividends of similar
amounts going forward.
ITEM 6: Selected Financial Data.
The information set forth under the caption "Selected Consolidated
Financial Data" in the Company's Annual Report to Shareholders for the year
ended December 31, 2000, is incorporated by reference and is filed as part of
Exhibit 13 to this form 10-K Annual Report.
ITEM 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations," in the Company's
Annual Report to Shareholders for the year ended December 31, 2000, is hereby
incorporated by reference and is filed as part of Exhibit 13 to this Form 10-K
Annual Report.
ITEM 7A: Quantitative and Qualitative Disclosures About Market Risk.
The information set forth under the captions "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Asset Liability
Management and Market Risk Analysis" in the Company's Annual Report to
Shareholders for the year ended December 31, 2000, is hereby incorporated by
reference and is filed as part of Exhibit 13 to this Form 10-K Annual Report.
13
ITEM 8: Financial Statements and Supplementary Data.
The information set forth under the captions "Quarterly Financial
Data," "Report of Independent Auditors," "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Changes in
Shareholders' Equity," "Consolidated Statements of Cash Flow," and "Notes to
Consolidated Financial Statements" in the Company's Annual Report to
Shareholders for the year ended December 31, 2000, is hereby incorporated by
reference and is filed as part of Exhibit 13 to this Form 10-K Annual Report.
ITEM 9: Changes in and Disagreements With Accountants and Financial
Disclosure.
There have been no disagreements with the Company's independent public
accountants.
PART III
ITEM 10: Directors and Executive Officers of the Registrant.
The information set forth on page 3, under the caption "Information
About Directors" and on page 10 under the caption "Section 19(a) Beneficial
Ownership Reporting Compliance" in the Registrant's definitive Proxy Statement
dated March 9, 2001, relating to the Registrant's 2001 Annual Meeting of
Shareholders and the information within that section is incorporated by
reference. Information relating to Executive Officers of the Registrant is
included in Part I hereof entitled "Executive Officers of the Registrant." There
are no family relationships between or among the above-named executive officers.
There are no arrangements or understandings between any of the above-named
officers pursuant to which any of them was named an officer.
ITEM 11: Executive Compensation.
Information relating to compensation of the Registrant's executive
officers and directors is contained under the captions "Director Compensation"
and "Executive Compensation," in the Registrant's definitive Proxy Statement
dated March 9, 2001, relating to the Registrant's 2001 Annual Meeting of
Shareholders and the information within those sections is incorporated by
reference.
ITEM 12: Security Ownership of Certain Beneficial Owners and Management.
Information relating to security ownership of certain beneficial owners
and management is contained on Page 2 under the caption "Voting Securities and
Principal Holders Thereof" and on page 9 under the caption "Security Ownership
of Management" in the Registrant's definitive Proxy Statement dated March 9,
2001, relating to the Registrant's 2001 Annual Meeting of Shareholders and the
information within that section is incorporated by reference.
ITEM 13: Certain Relationships and Related Transactions.
Information relating to certain relationships and related transactions
is contained on page 10, under the caption "Transactions Involving Management"
in the Registrant's definitive Proxy Statement dated March 9, 2001, relating to
the Registrant's 2001 Annual Meeting of Shareholders and the information within
that section is incorporated by reference.
14
PART IV
ITEM 14: Exhibits, Financial Statements, Schedules, and Reports on Form 8-K.
(a) Financial Statements.
1. The following documents are filed as part of Item 8 of this
report:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Income for the years ended December
31, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
2. Schedules to the consolidated financial statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
3. The following exhibits are filed as part of this report:
Reference is made to the exhibit index which follows the
signature page of this report.
The Registrant will furnish a copy of any exhibits listed on the
Exhibit Index to any shareholder of the Registrant without charge
upon written request of Steven L. Germond, Macatawa Bank
Corporation, 348 Waverly Road, Holland, Michigan 49423.
(b) Reports on Form 8-K
During the last quarter of the period covered by this report, the
Registrant filed no Current Reports on Form 8-K.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, dated March 2, 2001.
MACATAWA BANK CORPORATION
/s/ Benj. A. Smith, III
--------------------------------------------
Benj. A. Smith, III
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Steven L. Germond
--------------------------------------------
Steven L. Germond
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 2, 2001, by the following persons on
behalf of the Registrant and in the capacities indicated. Each director of the
Registrant, whose signature appears below, hereby appoints Benj. A. Smith, III
and Philip J. Koning, and each of them severally, as his attorney-in-fact, to
sign in his name and on his behalf, as a director of the Registrant, and to file
with the Commission any and all Amendments to this Report on Form 10-K.
Signature
/s/ Benj. A. Smith, III March 2, 2001
- --------------------------------------------------------------
Benj. A. Smith, III, Principal Executive Officer and a Director
/s/ Steven L. Germond March 2, 2001
- --------------------------------------------------------------
Steven L. Germond, Principal Financial and Accounting Officer
/s/ G. Thomas Boylan March 2, 2001
- --------------------------------------------------------------
G. Thomas Boylan, Director
/s/ Robert E. DenHerder March 2, 2001
- --------------------------------------------------------------
Robert E. DenHerder, Director
/s/ John F. Koetje March 2, 2001
- --------------------------------------------------------------
John F. Koetje, Director
/s/ Philip J. Koning March 2, 2001
- --------------------------------------------------------------
Philip J. Koning, Director and President
16
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number and Description Page
------------------------------ --------------
2 Consolidation Agreement dated December 10, 1997, incorporated by
reference to Exhibit 2 to the Macatawa Bank Corporation Registration
Statement on Form SB-2 (Registration No. 333-45755).
3.1 Articles of Incorporation of Macatawa Bank Corporation, incorporated by
reference to Exhibit 3.1 to the Macatawa Bank Corporation Registration
Statement on Form SB-2 (Registration No. 333-45755).
3.2 Bylaws of Macatawa Bank Corporation, incorporated by reference to
Exhibit 3.2 to the Macatawa Bank Corporation Registration Statement on
Form SB-2 (Registration No. 333-45755).
4 Specimen stock certificate of Macatawa Bank Corporation, incorporated
by reference to Exhibit 4 to the Macatawa Bank Corporation Registration
Statement on Form SB-2 (Registration No. 333-45755).
10.1 Macatawa Bank Corporation Stock Compensation Plan, incorporated by
reference to Exhibit 10.1 to the Macatawa Bank Corporation Registration
Statement on Form SB-2 (Registration No. 333-45755).
10.2 Macatawa Bank Corporation 1998 Directors' Stock Option Plan,
incorporated by reference to Exhibit 10.2 to the Macatawa Bank
Corporation Registration Statement on Form SB-2 (Registration No. 333-
45755).
10.3 Lease Agreement dated July 8, 1997, for the facility located at 51 E.
Main, incorporated by reference to Exhibit 10.3 to the Macatawa Bank
Corporation Registration Statement on Form SB-2 (Registration No. 333-
45755).
10.4 Lease Agreement dated January 1, 1998, for the facility located at 139
East 8th Street, Holland, Michigan 49423, incorporated by reference to
Exhibit 10.4 to the Macatawa Bank Corporation Registration Statement on
Form SB-2 (Registration No. 333-45755).
17
10.5 Lease Agreement dated December 22, 1997, for the facility located at
106 E. 8th Street, Holland, Michigan 49423, incorporated by reference
to Exhibit 10.5 to the Macatawa Bank Corporation Registration Statement
on Form SB-2 (Registration No. 333-45755).
10.6 Data Processing Agreement between Rurbanc Data Services, Inc. and
Macatawa Bank dated July 1, 2000.
10.7 MagicLine Product Services Agreement between MagicLine, Inc. and
Macatawa Bank dated October 1, 1997., incorporated by reference to
Exhibit 10.9 to the Macatawa Bank Corporation Registration Statement on
Form SB-2 (Registration No. 333-45755).
10.8 FTB Participating Bank Agreement between First Tennessee Bank National
Association and Macatawa Bank dated October 24, 1997, incorporated by
reference to Exhibit 10.10 to the Macatawa Bank Corporation
Registration Statement on Form SB-2 (Registration No. 333-45755).
13 Annual Report to Shareholders for the year ended December 31, 2000.
This exhibit, except for those portions expressly incorporated by
reference in this filing, is furnished for the information of the
Securities and Exchange Commission and is not deemed "filed" as part of
this filing. This information was delivered to the Company's
shareholders in compliance with Rule 14a-3 of the Securities Exchange
Act of 1934, as amended.
21 Subsidiaries of the Registrant
23 Consent of Crowe, Chizek and Company LLP, independent public
accountants
24 Power of Attorney (included on the signature page on page 15 of the
Annual Report on Form 10-K)
18