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Press Release : Macatawa Bank Corporation

Macatawa Bank Corporation Reports Second Quarter 2017 Results

Company Release - 7/27/2017 4:15 PM ET

HOLLAND, Mich., July 27, 2017 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ:MCBC) today announced its results for the second quarter of 2017, reflecting continued strong financial performance.

 Net income of $4.8 million in second quarter 2017, up 27% from $3.7 million in second quarter 2016
 Continued trend of increased revenue on reduced expenses
   Net interest income up $1.1 million for second quarter 2017 compared to second quarter 2016
   Net interest margin up 16 basis points from second quarter 2016 
   Noninterest expense down $678,000, or 6%, in second quarter 2017 compared to second quarter 2016
 Reduced other real estate owned by $7.0 million, or 50%, compared to second quarter 2016
 Core deposit balances up by $104.9 million, nearly 8%, from a year ago
 Past due loans remained at very low levels - only 0.07% of total loans at end of second quarter 2017
 Favorable loan collection results – ten consecutive quarters of net recoveries

Macatawa reported net income of $4.8 million, or $0.14 per diluted share, in the second quarter 2017 compared to $3.7 million, or $0.11 per diluted share, in the second quarter 2016.  For the first six months of 2017, Macatawa reported net income of $9.2 million, or $0.27 per diluted share, compared to $7.2 million, or $0.21 per diluted share, for the same period in 2016.

"We are pleased to report strong performance for the second quarter of 2017,” said Ronald L. Haan, President and CEO of the Company.  “Operating performance continues to improve, asset quality remains strong, capital levels are high, and the number of customer relationships continues to expand.  Our long term strategy of driving profitable growth through consistent increases in quality business loans, while maintaining a disciplined approach to managing expenses remains the same.” 

Mr. Haan concluded:  "Earnings improvement has been driven primarily by improvement in net interest income, which has benefited from the combination of our strong core deposit funding base, growth in average balances of business loans, and the recent increases in short term interest rates.  We remain well positioned to benefit from future rate increases, and expect the favorable trends we experienced in the first half of this year to continue as we look to the remainder of 2017.”

Operating Results
Net interest income for the second quarter 2017 totaled $12.7 million, an increase of $122,000 from the first quarter 2017 and an increase of $1.1 million from the second quarter 2016.  Net interest margin was 3.24 percent, down 2 basis points from the first quarter 2017, and up 16 basis points from the second quarter 2016.  Net interest income for the first quarter 2017 benefitted from a payoff of a loan that had been on nonaccrual, resulting in recognition of $267,000 in interest income that had been deferred.

Average interest earning assets for the second quarter 2017 increased $15.1 million from the first quarter 2017 and were up $63.3 million from the second quarter 2016. 

Non-interest income increased $247,000 in the second quarter 2017 compared to the first quarter 2017 and decreased $58,000 from the second quarter 2017.  These fluctuations were primarily driven by gains on sales of mortgage loans.  Gains on sales of mortgage loans in the second quarter 2017 were up $48,000 compared to the first quarter 2017 and down $96,000 from the second quarter 2016.  The Bank originated $16.7 million in loans for sale in the second quarter 2017 compared to $17.0 million in loans for sale in the first quarter 2017 and $19.0 million in loans for sale in the second quarter 2016.

Non-interest expense was $10.8 million for the second quarter 2017, compared to $10.9 million for the first quarter 2017 and $11.5 million for the second quarter 2016.  The largest fluctuations in non-interest expense related to salaries and benefit expenses and costs associated with the administration and disposition of problem loans and non-performing assets.  Salaries and benefit expenses were up $154,000 compared to the first quarter 2017 and were down $15,000 compared to the second quarter 2016.  The increase over the first quarter of 2017 related primarily to annual performance adjustments to salaries awarded at the beginning of the second quarter of this year.  The decrease from the second quarter of last year was primarily due to lower medical benefit expenses from lower actual claims experienced in the current quarter.  Nonperforming asset expenses decreased $253,000 compared to the first quarter 2017 and decreased $618,000 compared to the second quarter 2016 due to continued reductions in the level of foreclosed properties and net gains realized on sales of such properties in 2017.  During the second quarter 2017, the Bank sold its largest individual foreclosed property at a net gain of $68,000.  Total realized gains for the first six months of 2017 amounted to $470,000.  Other categories of non-interest expense were relatively flat compared to the first quarter 2017 and the second quarter 2016. 

Federal income tax expense was $2.1 million for the second quarter 2017 compared to $2.0 million for the first quarter 2017 and $1.7 million for the second quarter 2016.  The effective tax rate was 30.9% for the second quarter 2017, compared to 30.6% for the first quarter 2017 and 31.0% for the second quarter 2016. 

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, and net loan recoveries experienced in the second quarter 2017, a negative provision for loan losses of $500,000 was recorded in the second quarter 2017.  Net loan recoveries for the second quarter 2017 were $374,000, compared to first quarter 2017 net loan recoveries of $234,000 and second quarter 2016 net loan recoveries of $580,000.  The Company has experienced net loan recoveries in each of the past ten quarters, and in fifteen of the past sixteen quarters. Total loans past due on payments by 30 days or more amounted to $815,000 at June 30, 2017, down 44 percent from $1.4 million at December 31, 2016 and down 17 percent from $979,000 at June 30, 2016.  Delinquency as a percentage of total loans was 0.07 percent at June 30, 2017.

The allowance for loan losses of $16.6 million was 1.32 percent of total loans at June 30, 2017, compared to 1.32 percent of total loans at December 31, 2016, and 1.40 percent at June 30, 2016.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 2,473 percent as of June 30, 2017, compared to 5,564 percent at December 31, 2016, and 4,845 percent at June 30, 2016. 

At June 30, 2017, the Company's nonperforming loans had declined to $670,000, representing 0.05 percent of total loans.  This compares to $300,000 (0.02 percent of total loans) at December 31, 2016 and $350,000 (0.03 percent of total loans) at June 30, 2016.  Other real estate owned and repossessed assets were $7.1 million at June 30, 2017, compared to $12.3 million at December 31, 2016 and $14.1 million at June 30, 2016. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $6.6 million, or 46 percent, from June 30, 2016 to June 30, 2017.

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

           
Dollars in 000s Jun 30,
2017
 Mar 31,
2017
 Dec 31,
2016
 Sept 30,
2016
 Jun 30,
2016
               
Commercial Real Estate $436 $252 $183 $192 $291
Commercial and Industrial  6  127  36  9  26
Total Commercial Loans  442  379  219  201  317
Residential Mortgage Loans  206  2  58  2  2
Consumer Loans  22  20  23  30  31
Total Non-Performing Loans $670 $401 $300 $233 $350
                

Total non-performing assets were $7.8 million, or 0.44 percent of total assets, at June 30, 2017.  A break-down of non-performing assets is shown in the table below.

           
Dollars in 000s Jun 30,
2017
 Mar 31,
2017
 Dec 31,
2016
 Sept 30,
2016
 Jun30,
2016
               
Non-Performing Loans $670 $401 $300 $233 $350
Other Repossessed Assets  ---  ---  ---  ---  ---
Other Real Estate Owned  7,097  12,074  12,253  13,110  14,066
Total Non-Performing Assets $7,767 $12,475 $12,553 $13,343 $14,416
                

Balance Sheet, Liquidity and Capital
Total assets were $1.76 billion at June 30, 2017, an increase of $18.1 million from $1.74 billion at December 31, 2016 and an increase of $92.5 million from $1.67 billion at June 30, 2016.  Year end assets typically increase due to year end seasonal inflow of business and municipal deposits.   Total loans were $1.25 billion at June 30, 2017, a decrease of $29.5 million from $1.28 billion at December 31, 2016 and an increase of $39.5 million from $1.21 billion at June 30, 2016.

Commercial loans increased by $55.3 million from June 30, 2016 to June 30, 2017, partially offset by a decrease of $15.8 million in our residential mortgage and consumer loan portfolios.  Commercial real estate loans increased by $1.2 million while commercial and industrial loans increased by $54.2 million during the same period. 

Commercial loan production volume was down compared to the first quarter of 2017, but stable as compared to the second quarter of 2016.  The following table shows a breakout of the Bank’s commercial loan activity:

           
Dollars in 000s 2nd Qtr
2017
 1st Qtr
2017
 4th Qtr
2016
 3rd Qtr
2016
 2nd Qtr
2016
               
Commerical loans originated $33,435  $60,356  $78,398  $61,112  $34,892 
Repayments of commercial loans  (30,090)  (58,600)  (40,768)  (35,869)  (21,389)
Change in undist.–available credit  (15,706)  (6,960)  6,523   3,494   164 
Net change in commercial loans $(12,361) $(5,204) $44,153  $28,737  $13,667 
                     

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

           
Dollars in 000s Jun 30,
2017
 Mar 31,
2017
 Dec 31,
2016
 Sept 30,
2016
 Jun 30,
2016
               
Construction and Development $82,317 $78,910 $79,596 $76,077 $74,339
Other Commercial Real Estate  432,223  429,898  438,385  423,991  439,036
Commercial Loans Secured by Real Estate  514,540  508,808  517,981  500,068  513,375
Commercial and Industrial  435,218  453,311  449,342  423,102  381,058
Total Commercial Loans $949,758 $962,119 $967,323 $923,170 $894,433
                
Residential Developer Loans (a) $21,244 $24,662 $26,003 $26,890 $29,771
                
(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.
 

Total deposits were $1.46 billion at June 30, 2017, up $11.3 million from $1.45 billion at December 31, 2016 and were up $104.9 million, or 7.7 percent, from $1.36 billion at June 30, 2016.  The increase in total deposits from December 31, 2016 was primarily in interest-bearing checking (up $1.8 million), money market deposits (up $17.4 million), savings (up $7.7 million) and certificates of deposit (up $4.0 million), partially offset by decreases in noninterest checking account balances (down $19.7 million).  The balances of noninterest checking accounts typically are higher at the end of the year as certain businesses and municipal customers have a year-end seasonal increase in their noninterest-bearing checking balances.  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 were higher at June 30, 2017 compared to June 30, 2016 and December 31, 2016 due to earnings growth, and 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 June 30, 2017.

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 recognized for the past five 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," "expect," "may," "should," "will," ”intend,” "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, 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, reduce non-performing asset expenses, 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, extent, 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, 2016.  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)
               
      Quarterly Six Months ended
      2nd Qtr 1st Qtr 2nd Qtr June 30,
EARNINGS SUMMARY      2017   2017   2016   2017   2016 
Total interest income     $14,042  $13,848  $12,873  $27,890  $25,881 
Total interest expense      1,337   1,265   1,265   2,602   2,535 
Net interest income      12,705   12,583   11,608   25,288   23,346 
Provision for loan losses      (500)  (500)  (750)  (1,000)  (850)
Net interest income after provision for loan losses      13,205   13,083   12,358   26,288   24,196 
               
NON-INTEREST INCOME              
Deposit service charges      1,110   1,060   1,112   2,170   2,159 
Net gains on mortgage loans      476   428   572   904   1,060 
Trust fees      833   778   788   1,611   1,496 
Other      2,059   1,965   2,064   4,024   4,429 
Total non-interest income      4,478   4,231   4,536   8,709   9,144 
               
NON-INTEREST EXPENSE              
Salaries and benefits      6,153   5,999   6,168   12,152   12,355 
Occupancy      991   1,026   901   2,017   1,883 
Furniture and equipment      750   732   839   1,482   1,704 
FDIC assessment      134   136   220   270   472 
Problem asset costs, including losses      (158)  95   460   (63)  871 
Other      2,922   2,900   2,882   5,821   5,736 
Total non-interest expense      10,792   10,888   11,470   21,679   23,021 
Income before income tax      6,891   6,426   5,424   13,318   10,319 
Income tax expense      2,129   1,966   1,679   4,095   3,079 
Net income     $4,762  $4,460  $3,745  $9,223  $7,240 
               
Basic earnings per common share     $0.14  $0.13  $0.11  $0.27  $0.21 
Diluted earnings per common share     $0.14  $0.13  $0.11  $0.27  $0.21 
Return on average assets      1.11%  1.05%  0.91%  1.08%  0.87%
Return on average equity      11.32%  10.86%  9.56%  11.09%  9.31%
Net interest margin (fully taxable equivalent)      3.24%  3.26%  3.08%  3.25%  3.09%
Efficiency ratio      62.81%  64.76%  71.05%  63.77%  70.86%
               
BALANCE SHEET DATA          June 30, March 31, June 30,
Assets          2017   2017   2016 
Cash and due from banks         $31,165  $30,631  $30,045 
Federal funds sold and other short-term investments          114,104   83,118   94,888 
Securities available for sale          184,761   184,605   173,580 
Securities held to maturity          68,818   68,473   49,373 
Federal Home Loan Bank Stock          11,558   11,558   11,558 
Loans held for sale          3,184   2,767   1,138 
Total loans          1,251,355   1,266,128   1,211,844 
Less allowance for loan loss          16,570   16,696   16,959 
Net loans          1,234,785   1,249,432   1,194,885 
Premises and equipment, net          48,626   49,832   50,639 
Bank-owned life insurance          39,781   39,524   28,942 
Other real estate owned          7,097   12,074   14,066 
Other assets          15,184   16,839   17,433 
               
Total Assets         $1,759,063  $1,748,853  $1,666,547 
               
Liabilities and Shareholders' Equity              
Noninterest-bearing deposits         $481,769  $466,415  $451,644 
Interest-bearing deposits          978,221   966,731   903,434 
Total deposits          1,459,990   1,433,146   1,355,078 
Other borrowed funds          82,785   102,785   104,840 
Long-term debt          41,238   41,238   41,238 
Other liabilities          4,875   5,539   6,929 
Total Liabilities          1,588,888   1,582,708   1,508,085 
               
Shareholders' equity          170,175   166,145   158,462 
               
Total Liabilities and Shareholders' Equity         $1,759,063  $1,748,853  $1,666,547 
               
               
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
               
  Quarterly Year to Date
               
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr    
   2017   2017   2016   2016   2016   2017   2016 
EARNINGS SUMMARY              
Net interest income $12,705  $12,583  $12,292  $11,902  $11,608  $25,288  $23,346 
Provision for loan losses  (500)  (500)  (250)  (250)  (750)  (1,000)  (850)
Total non-interest income  4,478   4,231   4,856   5,075   4,536   8,709   9,144 
Total non-interest expense  10,792   10,888   11,488   11,273   11,470   21,679   23,021 
Federal income tax expense  2,129   1,966   1,802   1,350   1,679   4,095   3,079 
Net income $4,762  $4,460  $4,108  $4,604  $3,745  $9,223  $7,240 
               
Basic earnings per common share $0.14  $0.13  $0.12  $0.14  $0.11  $0.27  $0.21 
Diluted earnings per common share $0.14  $0.13  $0.12  $0.14  $0.11  $0.27  $0.21 
               
MARKET DATA              
Book value per common share $5.01  $4.89  $4.78  $4.78  $4.67  $5.01  $4.67 
Tangible book value per common share $5.01  $4.89  $4.78  $4.78  $4.67  $5.01  $4.67 
Market value per common share $9.54  $9.88  $10.41  $7.99  $7.42  $9.54  $7.42 
Average basic common shares  33,942,318   33,941,010   33,920,535   33,921,599   33,922,506   33,941,668   33,923,810 
Average diluted common shares  33,948,127   33,948,584   33,923,371   33,921,599   33,922,506   33,948,371   33,923,810 
Period end common shares  33,938,486   33,944,788   33,940,788   33,920,740   33,922,289   33,938,486   33,922,289 
               
PERFORMANCE RATIOS              
Return on average assets  1.11%  1.05%  0.97%  1.10%  0.91%  1.08%  0.87%
Return on average equity  11.32%  10.86%  10.08%  11.50%  9.56%  11.09%  9.31%
Net interest margin (fully taxable equivalent)  3.24%  3.26%  3.17%  3.08%  3.08%  3.25%  3.09%
Efficiency ratio  62.81%  64.76%  66.99%  66.40%  71.05%  63.77%  70.86%
Full-time equivalent employees (period end)  344   338   342   337   343   344   343 
               
ASSET QUALITY              
Gross charge-offs $139  $26  $47  $46  $36  $165  $112 
Net charge-offs $(374) $(234) $(364) $(138) $(580) $(608) $(728)
Net charge-offs to average loans (annualized)  -0.12%  -0.07%  -0.12%  -0.05%  -0.19%  -0.10%  -0.12%
Nonperforming loans $670  $401  $300  $233  $350  $670  $350 
Other real estate and repossessed assets $7,097  $12,074  $12,253  $13,110  $14,066  $7,097  $14,066 
Nonperforming loans to total loans  0.05%  0.03%  0.02%  0.02%  0.03%  0.05%  0.03%
Nonperforming assets to total assets  0.44%  0.71%  0.72%  0.81%  0.87%  0.44%  0.87%
Allowance for loan losses $16,570  $16,696  $16,962  $16,847  $16,959  $16,570  $16,959 
Allowance for loan losses to total loans  1.32%  1.32%  1.32%  1.36%  1.40%  1.32%  1.40%
Allowance for loan losses to nonperforming loans  2473.13%  4163.34%  5654.00%  7230.47%  4845.43%  2473.13%  4845.43%
               
CAPITAL              
Average equity to average assets  9.76%  9.63%  9.62%  9.53%  9.47%  9.76%  9.37%
Common equity tier 1 to risk weighted assets (Consolidated)  11.60%  11.28%  11.03%  11.30%  11.14%  11.60%  11.14%
Tier 1 capital to average assets (Consolidated)  12.21%  12.11%  12.01%  11.97%  11.93%  12.21%  11.93%
Total capital to risk-weighted assets (Consolidated)  15.45%  15.12%  14.88%  15.30%  15.18%  15.45%  15.18%
Common equity tier 1 to risk weighted assets (Bank)  13.89%  13.60%  13.35%  13.71%  13.59%  13.89%  13.59%
Tier 1 capital to average assets (Bank)  11.87%  11.79%  11.69%  11.64%  11.61%  11.87%  11.61%
Total capital to risk-weighted assets (Bank)  15.02%  14.73%  14.49%  14.90%  14.80%  15.02%  14.80%
Tangible common equity to assets  9.70%  9.51%  9.33%  9.82%  9.52%  9.70%  9.52%
                             
END OF PERIOD BALANCES                            
Total portfolio loans $1,251,355  $1,266,128  $1,280,812  $1,236,395  $1,211,844  $1,251,355  $1,211,844 
Earning assets  1,633,383   1,617,331   1,612,533   1,514,797   1,539,877   1,633,383   1,539,877 
Total assets  1,759,063   1,748,853   1,741,013   1,653,686   1,666,547   1,759,063   1,666,547 
Deposits  1,459,990   1,433,146   1,448,724   1,358,627   1,355,078   1,459,990   1,355,078 
Total shareholders' equity  170,175   166,145   162,239   162,245   158,462   170,175   158,462 
               
AVERAGE BALANCES              
Total portfolio loans $1,260,051  $1,264,835  $1,245,093  $1,215,953  $1,212,836  $1,262,430  $1,207,759 
Earning assets  1,594,849   1,579,758   1,566,238   1,555,550   1,531,535   1,587,345   1,535,351 
Total assets  1,723,575   1,706,643   1,696,007   1,680,097   1,654,325   1,715,156   1,658,958 
Deposits  1,419,775   1,397,596   1,401,186   1,377,462   1,346,703   1,408,747   1,356,292 
Total shareholders' equity  168,240   164,317   163,092   160,196   156,664   166,289   155,454 
               


Contact:
Jon Swets, CFO
616-494-7645

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Source: Macatawa Bank Corporation