Macatawa Bank Corporation Reports Third Quarter 2015 Results

HOLLAND, Mich., Oct. 22, 2015 (GLOBE NEWSWIRE) — Macatawa Bank Corporation (NASDAQ:MCBC) today announced its results for the third quarter of 2015, reflecting continued improvement in financial performance.

  • Net income of $3.2 million in the third quarter 2015, up 16% from $2.8 million in the third quarter 2014
  • Strong growth in performing loans – up $62.4 million from the second quarter 2015 and $142.3 million, or 14%, from third quarter 2014
  • Third quarter revenue growth of $1.0 million, or 7%, compared to third quarter 2014 resulting primarily from increases in net interest income
  • Reduction in total non-interest expenses compared to the third quarter 2014
  • Past due loans only 0.25% of total loans at end of third quarter 2015, up slightly from second quarter 2015 and down significantly from 0.48% at end of third quarter 2014

Macatawa reported net income of $3.2 million, or $0.09 per diluted share, in the third quarter 2015 compared to $2.8 million, or $0.08 per diluted share, in the third quarter 2014. For the first nine months of 2015, Macatawa reported net income of $9.3 million, or $0.27 per diluted share, compared to $8.2 million, or $0.24 per diluted share, for the same period in 2014.

“The Company’s operating performance continued to improve in the third quarter 2015 with 16 percent earnings improvement over the same period in 2014,” said Ronald L. Haan, President and CEO of the Company. “We achieved revenue growth while containing total non-interest expense. We had strong growth in our performing loans, increasing by 14% from a year ago. This growth continued to improve our net interest income, which was up over $800,000 for the third quarter 2015 compared to the prior year. Asset quality continues to be strong, with low quarter-end loan delinquencies and nonperforming loans. Expenses associated with the administration and disposition of problem assets were down again, declining $628,000 from the third quarter 2014 and down nearly $1 million for the year to date period.” 

Mr. Haan continued: “Non-interest income categories also improved during the third quarter of 2015. Mortgage banking, card services and trust and investment services revenues all increased compared to the third quarter of 2014. We are pleased with the increase in virtually all of our revenue sources as this diverse growth fosters further stability in our earnings performance.”

Mr. Haan concluded: “We continue to make excellent progress with strong momentum for continued growth and improved operating performance. Our entire team remains focused on driving profitable growth as customer demand for both loan and deposit products remains strong. Growing loans and deposits while decreasing expenses associated with the administration and disposition of problem assets puts us in a strong position to deliver even better operating performance going forward.”

Operating Results

Net interest income for the third quarter 2015 totaled $11.1 million, an increase of $276,000 from the second quarter 2015 and an increase of $817,000 from the third quarter 2014.  Net interest margin was 2.92 percent, down 9 basis points from the second quarter 2015, and down 12  basis points from the third quarter 2014. 

Average interest earning assets for the third quarter 2015 increased $72.5 million from the second quarter 2015 and were up $174.3 million from the third quarter 2014.

Non-interest income decreased $28,000 in the third quarter 2015 compared to the second quarter 2015 and increased $181,000 from the third quarter 2014. The increase from the third quarter 2014 was primarily due to increases in gains on sales of mortgage loans as the market for this activity rebounded in late 2014 with a drop in long term interest rates. This continued into 2015. The Bank originated $25.2 million in loans for sale in the third quarter 2015 compared to $28.0 million in loans for sale in the second quarter 2015 and $24.7 million in loans for sale in the third quarter 2014. Trust and investment services fees were also up in the third quarter of 2015 due to growth in the Bank’s customer base and improved investment market conditions.

Non-interest expense was $11.3 million for the third quarter 2015, compared to $11.2 million for the second quarter 2015 and $11.4 million for the third quarter 2014. The largest fluctuations in non-interest expense related to costs associated with the administration and disposition of problem loans and non-performing assets, which decreased $20,000 compared to the second quarter 2015 and decreased $628,000 compared to the third quarter 2014. Salaries and benefits were up $64,000 compared to the second quarter 2015 and were up $348,000 compared to the third quarter 2014 due a higher level of variable and incentive based compensation and an increase in medical insurance expense resulting from a higher level of claims experienced in 2015.

Federal income tax expense was $1.4 million for the third quarter 2015 compared to $1.4 million for the second quarter 2015 and $1.2 million for the third quarter 2014. The effective tax rate was stable at 30.4% for both the third quarter 2015 and the third quarter 2014. 

Asset Quality

As a result of the consistent improvements in nonperforming loans and past due loans over the past several quarters, the reduction in historical loan loss ratios, net loan recoveries experienced in the third quarter 2015, and a reduction in specific reserves on impaired loans, a negative provision for loan losses of $250,000 was recorded in the third quarter 2015. Net loan recoveries for the third quarter 2015 were $285,000, compared to second quarter 2015 net loan recoveries of $1,000 and third quarter 2014 net loan recoveries of $330,000. The Bank has experienced net loan recoveries in four of the past five quarters, and in eight of the past ten quarters. Total loans past due on payments by 30 days or more amounted to $2.9 million at September 30, 2015, up 3 percent from $2.8 million at December 31, 2014 and down 42 percent from $5.1 million at September 30, 2014. Delinquency as a percentage of total loans was 0.25 percent at September 30, 2015.

The allowance for loan losses of $18.2 million was 1.53 percent of total loans at September 30, 2015, compared to 1.70 percent of total loans at December 31, 2014, and 1.86 percent at September 30, 2014. The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 432.61 percent as of September 30, 2015, compared to 225.04 percent at December 31, 2014, and 232.99 percent at September 30, 2014.

At September 30, 2015, the Company’s nonperforming loans were $4.2 million, representing 0.35 percent of total loans. This compares to $8.4 million (0.75 percent of total loans) at December 31, 2014 and $8.4 million (0.80 percent of total loans) at September 30, 2014. Other real estate owned and repossessed assets were $25.7 million at September 30, 2015, compared to $28.3 million at December 31, 2014 and $28.8 million at September 30, 2014. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $7.3 million, or 19.7 percent, from September 30, 2014 to September 30, 2015.

A break-down of non-performing loans is shown in the table below.

 

Dollars in 000s   September 30,
2015
  June 30,
2015
  March 31,
2015
  December 31,
2014
  September 30,
2014
 
                               
Commercial Real Estate   $ 922    $   1,188    $   2,610    $   2,023    $ 3,499  
Commercial and Industrial       3,119       2,392       6,732       5,605     4,372  
Total Commercial Loans       4,041       3,580       9,342       7,628     7,871  
Residential Mortgage Loans       42       2       64       305     144  
Consumer Loans       128       134       405       493     410  
Total Non-Performing Loans   $ 4,211   $ 3,716   $   9,811   $   8,426   $ 8,425  
                                 
Residential Developer Loans (a)   $   369   $   174   $   213   $   245   $ 2,245  
                                 
(a) Represents the amount of loans to residential developers secured by single family residential property which is included in non-performing commercial loans secured by real estate.   
       

Total non-performing assets were $29.9 million, or 1.80 percent of total assets, at September 30, 2015.  A break-down of non-performing assets is shown in the table below.

Dollars in 000s   September 30,
2015
  June 30,
2015
  March 31,
2015
  December 31,
2014
  September 30,
2014
 
                               
Non-Performing Loans   $ 4,211   $ 3,716   $ 9,811   $ 8,426   $ 8,425  
Other Repossessed Assets             38     38     38  
Other Real Estate Owned     25,671     26,303     27,038     28,242     28,763  
Total Non-Performing Assets   $ 29,882   $ 30,019   $ 36,887   $ 36,706   $ 37,226  

Balance Sheet, Liquidity and Capital

Total assets were $1.66 billion at September 30, 2015, an increase of $75.5 million from $1.58 billion at December 31, 2014 and an increase of $169.7 million from $1.49 billion at September 30, 2014. Total loans were $1.19 billion at September 30, 2015, an increase of $74.4 million from $1.12 billion at December 31, 2014 and an increase of $138.1 million from $1.05 billion at September 30, 2014.

Commercial loans increased by $63.9 million from December 31, 2014 to September 30, 2015, along with an increase of $10.5 million in our residential mortgage and consumer loan portfolios. Commercial real estate loans increased by $14.6 million and commercial and industrial loans increased by $49.3 million during the same period. 

The composition of the commercial loan portfolio is shown in the table below:

 
Dollars in 000s
  September 30,
2015
  June 30,
2015
  March 31,
2015
  December 31,
2014
  September 30,
2014
 
                               
Construction and Development   $   77,320   $   77,363   $   77,494   $   81,296   $ 82,485  
Other Commercial Real Estate       427,797       397,042       410,578       409,235     385,432  
Commercial Loans Secured by Real Estate          505,117       474,405      488,072       490,531      467,917  
Commercial and Industrial       376,966       350,202       341,530       327,674     285,833  
Total Commercial Loans   $   882,083   $   824,607   $   829,602   $   818,205   $ 753,750  
                                 
Residential Developer Loans (a)   $   32,147   $   29,741   $   29,415   $   29,804   $ 32,441  
                                 
(a) Represents the amount of loans to residential developers secured by single family residential property which is included in commercial loans secured by real estate.   
       

At September 30, 2015, total performing loans amounted to $1.19 billion, an increase of $62.4 million from June 30, 2015 and an increase of $78.6 million from December 31, 2014.  

Total deposits were $1.37 billion at September 30, 2015, up $60.5 million from $1.31 billion at December 31, 2014 and were up $150.8 million, or 12.4%, from $1.22 billion at September 30, 2014. The increase from September 30, 2014 was primarily related to increases in checking, savings and money market accounts, which grew by $188.6 million compared to the third quarter 2014, while higher costing time deposits were down $37.8 million in the same period. The Bank continues to be successful at attracting and retaining core deposit customers. Customer deposit accounts remain insured to the highest levels available under FDIC deposit insurance.

The Bank’s risk-based regulatory capital ratios decreased slightly in the first quarter 2015 due to asset growth and the impact of applying the new Basel III capital requirements, but increased again in the second quarter 2015. These levels decreased slightly again in the third quarter 2015 as a result of loan growth during the quarter, but continue to be at levels comfortably above those required to be categorized as “well capitalized” under applicable regulatory capital guidelines. As such, the Bank was categorized as “well capitalized” at September 30, 2015.

About Macatawa Bank

Headquartered in Holland, Mich., Macatawa Bank offers a full range of banking, retail and commercial lending, wealth management and ecommerce services to individuals, businesses and governmental entities from a network of 26 full-service branches located throughout communities in Kent, Ottawa and northern Allegan counties. The bank is recognized for its local management team and decision making, along with providing customers excellent service, a rewarding experience and superior financial products. Macatawa Bank has been awarded for its exceptional commitment to service by readers of the Holland Sentinel as the “Best Bank on the Lakeshore” since 2002, and “Best Bank in Grand Rapids” by readers of Grand Rapids Magazine since 2009. The bank has also been recognized for the past four consecutive years as “West Michigan’s 101 Best and Brightest Companies to Work For.” For more information, visit www.macatawabank.com.

CAUTIONARY STATEMENT: This press release contains forward-looking statements that are based on management’s current beliefs, expectations, assumptions, estimates, plans and intentions. Forward-looking statements are identifiable by words or phrases such as “believe,” “may,” “should,” “will,” “continue,” “improving,” “additional,” “focus,” “forward,” “future,” “efforts,” “strategy,” “momentum,” “positioned,” and other similar words or phrases. 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, statements related to trends in our key operating metrics and financial performance, future levels of earnings and profitability, future levels of earning assets, future asset quality, future growth, future yield compression and future net interest margin. All statements with references to future time periods are forward-looking. 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. Our ability to sell other real estate owned at its carrying value or at all, utilize our deferred tax asset, successfully implement new programs and initiatives, increase efficiencies, maintain our current level of deposits and other sources of funding, maintain liquidity, respond to declines in collateral values and credit quality, improve profitability, and produce consistent core earnings 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, extend, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed in or implied by 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, 2014. 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.

MACATAWA BANK CORPORATION                            
CONSOLIDATED FINANCIAL SUMMARY                            
(Unaudited)                            
                             
(Dollars in thousands except per share information)                            
                Three Months Ended   Nine Months Ended
                September 30   September 30
EARNINGS SUMMARY                 2015       2014       2015       2014  
Total interest income               $   12,427     $   11,674     $   36,676     $   35,172  
Total interest expense                   1,306         1,370         4,058         4,237  
Net interest income                   11,121         10,304         32,618         30,935  
Provision for loan losses                   (250 )       (750 )       (1,750 )       (2,750 )
Net interest income after provision for loan losses                   11,371         11,054         34,368         33,685  
                             
NON-INTEREST INCOME                            
Deposit service charges                   1,150         1,163         3,248         3,219  
Net gains on mortgage loans                   705         679         2,249         1,405  
Trust fees                   711         669         2,168         2,002  
Other                    1,918         1,792         5,626         5,255  
Total non-interest income                   4,484         4,303         13,291         11,881  
                             
NON-INTEREST EXPENSE                            
Salaries and benefits                   6,158         5,810         18,474         17,177  
Occupancy                   948         897         2,823         2,837  
Furniture and equipment                   835         803         2,431         2,394  
FDIC assessment                   283         287         854         934  
Administration and disposition of problem assets                   233         861         1,313         2,218  
Other                   2,797         2,731         8,443         8,237  
Total non-interest expense                   11,254         11,389         34,338         33,797  
Income before income tax                   4,601         3,968         13,321         11,769  
Income tax expense                   1,400         1,206         4,065         3,614  
Net income               $   3,201     $   2,762     $   9,256     $   8,155  
                             
Basic earnings per common share               $   0.09     $   0.08     $   0.27     $   0.24  
Diluted earnings per common share               $   0.09     $   0.08     $   0.27     $   0.24  
Return on average assets                  0.77 %     0.74 %     0.77 %     0.73 %
Return on average equity                 8.64 %     7.94 %     8.44 %     7.94 %
Net interest margin                 2.92 %     3.04 %     3.00 %     3.08 %
Efficiency ratio                 72.12 %     77.97 %     74.80 %     78.94 %
                             
BALANCE SHEET DATA                    September 30   December 31   September 30
Assets                     2015       2014       2014  
Cash and due from banks                   $   23,468     $   31,503     $   24,731  
Federal funds sold and other short-term investments                       100,285         97,952         74,808  
Interest-bearing time deposits in other financial institutions                       20,000         20,000         20,000  
Securities available for sale                       161,515         161,874         162,101  
Securities held to maturity                       40,434         31,585         31,744  
Federal Home Loan Bank Stock                       11,558         11,238         11,236  
Loans held for sale                       2,895         2,347         905  
Total loans                       1,192,878         1,118,483         1,054,788  
Less allowance for loan loss                       18,217         18,962         19,629  
Net loans                       1,174,661         1,099,521         1,035,159  
Premises and equipment, net                       51,725         52,894         53,292  
Bank-owned life insurance                       28,697         28,195         28,021  
Other real estate owned                       25,671         28,242         28,763  
Other assets                       18,430         18,495         18,904  
                             
Total Assets                   $   1,659,339     $   1,583,846     $   1,489,664  
                             
Liabilities and Shareholders’ Equity                            
Noninterest-bearing deposits                   $   442,316     $   404,143     $   385,182  
Interest-bearing deposits                       924,533         902,182         830,907  
Total deposits                       1,366,849         1,306,325         1,216,089  
Other borrowed funds                       96,169         88,107         88,107  
Long-term debt                       41,238         41,238         41,238  
Other liabilities                       5,350         5,657         3,761  
Total Liabilities                       1,509,606         1,441,327         1,349,195  
                             
Shareholders’ equity                       149,733         142,519         140,469  
                             
Total Liabilities and Shareholders’ Equity                   $   1,659,339     $   1,583,846     $   1,489,664  
                             
                             
MACATAWA BANK CORPORATION                            
SELECTED CONSOLIDATED FINANCIAL DATA                            
(Unaudited)                            
                             
(Dollars in thousands except per share information)                            
    Quarterly   Year to Date
                             
     3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr        
      2015       2015       2015       2014       2014       2015       2014  
EARNINGS SUMMARY                            
Net interest income   $   11,121     $   10,845     $   10,652     $   10,457     $   10,304     $   32,618     $   30,935  
Provision for loan losses       (250 )       (500 )       (1,000 )       (600 )       (750 )       (1,750 )       (2,750 )
Total non-interest income       4,484         4,512         4,295         4,333         4,303         13,291         11,881  
Total non-interest expense       11,254         11,222         11,862         12,113         11,389         34,338         33,797  
Federal income tax expense       1,400         1,420         1,245         960         1,206         4,065         3,614  
Net income   $   3,201     $   3,215     $   2,840     $   2,317     $   2,762     $   9,256     $   8,155  
                             
Basic earnings per common share   $   0.09     $   0.09     $   0.08     $   0.07     $   0.08     $   0.27     $   0.24  
Diluted earnings per common share   $   0.09     $   0.09     $   0.08     $   0.07     $   0.08     $   0.27     $   0.24  
                             
MARKET DATA                            
Book value per common share   $   4.42     $   4.34     $   4.30     $   4.21     $   4.15     $   4.42     $   4.15  
Tangible book value per common share   $   4.42     $   4.34     $   4.30     $   4.21     $   4.15     $   4.42     $   4.15  
Market value per common share   $   5.18     $   5.30     $   5.35     $   5.44     $   4.80     $   5.18     $   4.80  
Average basic common shares       33,866,789         33,866,789         33,866,789         33,837,334         33,795,384         33,866,789         33,791,470  
Average diluted common shares       33,866,789         33,866,789         33,866,789         33,837,334         33,795,384         33,866,789         33,791,470  
Period end common shares       33,866,789         33,866,789         33,866,789         33,866,789         33,803,823         33,866,789         33,808,823  
                             
PERFORMANCE RATIOS                            
Return on average assets     0.77 %     0.81 %     0.73 %     0.61 %     0.74 %     0.77 %     0.73 %
Return on average equity     8.64 %     8.78 %     7.89 %     6.54 %     7.94 %     8.44 %     7.94 %
Net interest margin (fully taxable equivalent)     2.92 %     3.01 %     3.07 %     3.05 %     3.04 %     3.00 %     3.08 %
Efficiency ratio     72.12 %     73.07 %     79.36 %     81.90 %     77.97 %     74.80 %     78.94 %
Full-time equivalent employees (period end)     347       347       351       355       352       347       352  
                             
ASSET QUALITY                            
Gross charge-offs   $   170     $   202     $   78     $   382     $   120     $   450     $   294  
Net charge-offs   $   (285 )   $   (1 )   $   (718 )   $   67     $   (330 )   $   (1,005 )   $   (1,581 )
Net charge-offs to average loans (annualized)     -0.10 %     0.00 %     -0.26 %     0.02 %     -0.13 %     -0.12 %     -0.20 %
Nonperforming loans   $   4,211     $   3,716     $   9,811     $   8,426     $   8,425     $   4,211     $   8,425  
Other real estate and repossessed assets   $   25,671     $   26,303     $   27,076     $   28,280     $   28,801     $   25,671     $   28,801  
Nonperforming loans to total loans     0.35 %     0.33 %     0.86 %     0.75 %     0.80 %     0.35 %     0.80 %
Nonperforming assets to total assets     1.80 %     1.86 %     2.29 %     2.32 %     2.50 %     1.80 %     2.50 %
Allowance for loan losses   $   18,217     $   18,181     $   18,680     $   18,962     $   19,629     $   18,217     $   19,629  
Allowance for loan losses to total loans     1.53 %     1.61 %     1.65 %     1.70 %     1.86 %     1.53 %     1.86 %
Allowance for loan losses to nonperforming loans     432.61 %     489.26 %     190.40 %     225.04 %     232.99 %     432.61 %     232.99 %
                             
CAPITAL                            
Average equity to average assets     8.89 %     9.18 %     9.29 %     9.40 %     9.29 %     9.11 %     9.19 %
Common equity tier 1 to risk weighted assets (Consolidated)     10.54 %     10.87 %     10.74 %   N/A   N/A     10.54 %   N/A
Tier 1 capital to average assets (Consolidated)     11.34 %     11.70 %     11.90 %     11.61 %     11.55 %     11.34 %     11.55 %
Total capital to risk-weighted assets (Consolidated)     14.61 %     15.09 %     14.97 %     15.55 %     16.27 %     14.61 %     16.27 %
Common equity tier 1 to risk weighted assets (Bank)     12.98 %     13.44 %     13.31 %   N/A   N/A     12.98 %   N/A
Tier 1 capital to average assets (Bank)     11.03 %     11.38 %     11.57 %     11.41 %     11.36 %     11.03 %     11.36 %
Total capital to risk-weighted assets (Bank)     14.23 %     14.69 %     14.57 %     15.27 %     15.98 %     14.23 %     15.98 %
Tangible common equity to assets     9.03 %     9.09 %     9.05 %     9.05 %     9.49 %     9.03 %     9.49 %
                             
END OF PERIOD BALANCES                            
Total portfolio loans   $   1,192,878     $   1,130,024     $   1,135,311     $   1,118,483     $   1,054,788     $   1,192,878     $   1,054,788  
Earning assets       1,527,714         1,480,839         1,471,945         1,442,651         1,355,635         1,527,714         1,355,635  
Total assets       1,659,339         1,618,014         1,610,209         1,583,845         1,489,664         1,659,339         1,489,664  
Deposits       1,366,849         1,327,813         1,320,516         1,306,325         1,216,089         1,366,849         1,216,089  
Total shareholders’ equity       149,733         146,843         145,581         142,519         140,469         149,733         140,469  
                             
AVERAGE BALANCES                            
Total portfolio loans   $   1,155,339     $   1,138,880     $   1,120,395     $   1,072,585     $   1,043,774     $   1,138,333     $   1,040,644  
Earning assets       1,532,562         1,460,025         1,415,643         1,373,157         1,358,219         1,469,838         1,348,701  
Total assets       1,667,736         1,594,365         1,550,377         1,508,441         1,497,386         1,604,589         1,489,249  
Deposits       1,376,257         1,302,349         1,271,228         1,232,343         1,224,041         1,316,996         1,217,721  
Total shareholders’ equity       148,214         146,404         144,062         141,720         139,107         146,242         136,936  
                             

 

CONTACT: Macatawa Bank Corporation
macatawabank.com

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