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Press Release : Macatawa Bank Corporation

Macatawa Bank Corporation Reports Fourth Quarter and Full Year 2018 Results

Company Release - 1/24/2019 4:15 PM ET

HOLLAND, Mich., Jan. 24, 2019 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ: MCBC) today announced its results for the fourth quarter and full year of 2018, reflecting continued strong financial performance.

  • Net income of $7.0 million in fourth quarter 2018 versus $2.2 million in the fourth quarter 2017
  • Full year 2018 net income of $26.4 million versus $16.3 million in 2017 – up 62%
  • 2018 earnings positively impacted by tax reform enacted at end of 2017
  • Pretax earnings increased by 32% and 20% for the fourth quarter and full year 2018 compared to the same periods in the prior year, reflecting healthy core earnings improvement
  • Continued trend of increased total revenue while holding expenses flat
    • Full year net interest income up $7.7 million, or 15%, over 2017
    • Full year non-interest expense up $641,000, or 1%, over 2017
  • Loan portfolio balances up by $85.3 million (6%), from a year ago
  • Core deposit balances up by $97.7 million (6%), from a year ago
  • Asset quality metrics remained strong

Macatawa reported net income of $7.0 million, or $0.21 per diluted share, in the fourth quarter 2018 compared to $2.2 million, or $0.06 per diluted share, in the fourth quarter 2017.  For the full year 2018, the Company reported net income of $26.4 million, or $0.78 per diluted share compared to $16.3 million, or $0.48 per diluted share, for the same period in 2017.  The fourth quarter and full year 2017 earnings were reduced by $2.5 million resulting from an increase in federal income tax expense necessary to revalue the Company’s net deferred tax assets at the end of the year as a result of tax reform enacted at the end of 2017.  Tax expense for 2018 was positively impacted by the reduction in the corporate tax rate from 35% to 21%.

“We are pleased to report strong operating performance for the fourth quarter and full year of 2018,” said Ronald L. Haan, President and CEO of the Company.  “Earnings improvement has been driven primarily by growth in net interest income.  This was the result of growth in balances of loans and improvement in net interest margin, supported by growth in core deposit funding.  Portfolio loans and core deposits each grew by 6% in 2018.  Net interest margin was up 21 basis points in the fourth quarter of 2018 compared to the fourth quarter of 2017.  At the same time, asset quality remained strong with low levels of past due loans and non-performing assets.  While we did have net loan charge-offs in 2018 after five consecutive years of net loan recoveries, net charge-offs remained at low levels.”

Mr. Haan concluded, “Our focus on profitable growth continues to deliver strong and consistent financial performance for our shareholders.  We remain committed to operating a well-disciplined company in order to produce these kinds of results again in the upcoming year and beyond.”

Operating Results
Net interest income for the fourth quarter 2018 totaled $15.6 million, an increase of $466,000 from the third quarter 2018 and an increase of $2.1 million from the fourth quarter 2017.  Net interest margin was 3.46 percent, up 9 basis points from the third quarter 2018, and up 21 basis points from the fourth quarter 2017.

Average interest earning assets for the fourth quarter 2018 increased $6.6 million from the third quarter 2018 and were up $124.9 million from the fourth quarter 2017 primarily due to growth in portfolio loans.    

Non-interest income decreased $94,000 in the fourth quarter 2018 compared to the third quarter 2018 and decreased $5,000 from the fourth quarter 2017.  In the fourth quarter 2018, the Bank determined it would sell a property it had held for several years as a potential branch location.  The Bank recorded a valuation writedown on this property in the fourth quarter 2018, accounting for most of the decrease in non-interest income from the third quarter 2018 and the fourth quarter 2017.  Gains on sales of mortgage loans continued its downward trend as overall mortgage volume has been down in recent quarters, due primarily to increased market rates as well as a shortage in housing inventory.  The Bank has also continued to experience a shift in more origination volume being held in portfolio as customers choose adjustable rate mortgage loans versus longer term fixed rate products.  The Bank holds adjustable rate mortgages in its portfolio and sells long-term fixed rate mortgages into the secondary market in order to appropriately manage the Bank’s interest rate risk.  Gains on sales of mortgage loans in the fourth quarter 2018 were up $21,000 compared to the third quarter 2018 and down $10,000 from the fourth quarter 2017.  Other categories of non-interest income in the fourth quarter 2018 were relatively flat compared to the third quarter 2018 and the fourth quarter 2017.

Non-interest expense was $10.4 million for the fourth quarter 2018, compared to $11.2 million for the third quarter 2018 and $11.3 million for the fourth quarter 2017.  The largest component of non-interest expense was salaries and benefit expenses.  Salaries and benefit expenses were down $95,000 compared to the third quarter 2018 and were down $175,000 compared to the fourth quarter 2017.  For the full year 2018, salaries and benefits were up $404,000 compared to 2017.  Total salaries and benefits expense has remained at a consistent level over the past several quarters and full years due to efforts to prudently manage overall cost levels.

The largest fluctuation between periods in non-interest expense was in nonperforming asset expenses.  Net nonperforming asset expenses decreased $690,000 compared to the third quarter 2018 and decreased $787,000 compared to the fourth quarter 2017.  During the fourth quarter 2018, the Bank sold a property it had obtained upon default of a loan for a gain of $675,000.  This accounts for most of the variance between quarterly periods. For the full year, net nonperforming asset expenses were just $69,000 in 2018, compared to $65,000 in 2017.  Other categories of non-interest expense in the fourth quarter 2018 were relatively flat compared to the third quarter 2018 and the fourth quarter 2017.

For the full year, total revenue, including both net interest income and non-interest income, grew by $7.8 million compared to 2017 while non-interest expenses increased by $641,000.

Federal income tax expense was $1.7 million for the fourth quarter 2018 compared to $1.6 million for the third quarter 2018 and $4.5 million for the fourth quarter 2017.  Federal income tax expense for the fourth quarter 2017 included a $2.5 million expense to revalue the Company’s net deferred tax assets in response to the tax reform law enacted in December 2017.

Asset Quality
Overall loan portfolio quality remained strong through 2018.  A provision for loan losses of $850,000 was recorded in the fourth quarter 2018, primarily as a result of net charge-offs of $776,000 for the quarter as well as loan portfolio growth.  The Bank had net loan recoveries in the third quarter 2018 of $108,000 and net loan recoveries of $166,000 in the fourth quarter 2017.  The Company has experienced net loan recoveries in fifteen of the past sixteen quarters and in the five consecutive full years through December 31, 2017.  While net recoveries changed to net charge-offs in 2018, the total for the whole year was $174,000, only 0.01 percent of total loans.  Total loans past due on payments by 30 days or more were negligible and amounted to $877,000 at December 31, 2018, down 12 percent from $995,000 at December 31, 2017.  Delinquency as a percentage of total loans was 0.06 percent at December 31, 2018, down from 0.08 percent at December 31, 2017.

The allowance for loan losses of $16.9 million was 1.20 percent of total loans at December 31, 2018, compared to 1.25 percent of total loans at September 30, 2018, and 1.26 percent at December 31, 2017.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 13-to-1 as of December 31, 2018.

At December 31, 2018, the Company's nonperforming loans were $1.3 million, representing 0.09 percent of total loans.  This compares to $123,000 (0.01 percent of total loans) at September 30, 2018 and $395,000 (0.03 percent of total loans) at December 31, 2017.  Other real estate owned and repossessed assets were $3.4 million at December 31, 2018, compared to $3.5 million at September 30, 2018 and $5.8 million at December 31, 2017.  Total nonperforming assets, including other real estate owned and nonperforming loans, decreased by $1.5 million, or 24 percent, from December 31, 2017 to December 31, 2018.

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

 

Dollars in 000s
 Dec 31,
2018
 Sept 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 Dec 31,
2017
 
                
Commercial Real Estate $318 $121 $121 $121 $385 
Commercial and Industrial  873    ---    2  201  4 
Total Commercial Loans  1,191  121  123  322  389 
Residential Mortgage Loans  112  2  2  2  2 
Consumer Loans  1  ---  ---  ---  4 
Total Non-Performing Loans $1,304 $123 $125 $324 $395 

Total non-performing assets were $4.7 million, or 0.24 percent of total assets, at December 31, 2018.  A break-down of non-performing assets is shown in the table below.

 

Dollars in 000s
 Dec 31,
2018
 Sept 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 Dec 31,
2017
 
                
Non-Performing Loans $1,304 $123 $125 $324 $395 
Other Repossessed Assets  ---  ---  ---  ---  11 
Other Real Estate Owned  3,380  3,465  3,872  5,223  5,767 
Total Non-Performing Assets $4,684 $3,588 $3,997 $5,547 $6,173 


Balance Sheet, Liquidity and Capital
Total assets were $1.98 billion at December 31, 2018, an increase of $55.9 million from $1.92 billion at September 30, 2018 and an increase of $84.9 million from $1.89 billion at December 31, 2017.  Total loans were $1.41 billion at December 31, 2018, an increase of $61.0 million from $1.34 billion at September 30, 2018 and an increase of $85.3 million from $1.32 billion at December 31, 2017.

Commercial loans increased by $74.9 million from December 31, 2017 to December 31, 2018, while residential mortgage loans increased by $13.7 million and consumer loans decreased by $3.3 million.  Commercial real estate loans increased by $26.8 million while commercial and industrial loans increased by $48.1 million during the same period. 

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

 

Dollars in 000s
 Dec 31,
2018
 Sept 30,
2018
 Jun 30,
2018
 Mar 31,
2018
  Dec 31,
2017
 
             
                 
                 
Construction and Development $99,867 $93,794 $85,193 $81,948 $92,241 
Other Commercial Real Estate  468,840  459,146  461,808  447,922  449,694 
Commercial Loans Secured
by Real Estate
   

568,707
   

552,940
   

547,001
   

529,870
   

541,935
 
Commercial and Industrial  513,347  467,703  458,468  477,088  465,208 
Total Commercial Loans $1,082,054 $1,020,643 $1,005,469 $1,006,958 $1,007,143 
                   

Total deposits were $1.68 billion at December 31, 2018, up $59.0 million from $1.62 billion at September 30, 2018 and were up $97.7 million, or 6 percent, from $1.58 billion at December 31, 2017.  The increase in total deposits from December 31, 2017 was across most deposit types.  The increase in interest-bearing checking of $47.4 million was partially offset by a decrease of $5.1 million in non-interest checking.  The other categories of deposits each increased including money market deposits (up $19.6 million), savings (up $1.1 million) and certificates of deposit (up $34.7 million).  The Bank continues to be successful at attracting and retaining core deposit customers.

The Bank's risk-based regulatory capital ratios at December 31, 2018 decreased slightly compared to September 30, 2018 and were up compared to December 31, 2017 due to asset growth and earnings growth.  All categories 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 December 31, 2018.

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 seven 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 "anticipates," "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 future levels of earnings and profitability.  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, reduce future tax liabilities, 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, 2017.  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 Twelve Months Ended
      4th Qtr 3rd Qtr 4th Qtr December 31
EARNINGS SUMMARY      2018   2018   2017   2018   2017 
Total interest income     $  18,496  $  17,687  $  15,159  $  69,037  $  57,676 
Total interest expense        2,868     2,525     1,642     9,411     5,732 
  Net interest income        15,628     15,162     13,517     59,626     51,944 
Provision for loan losses        850     -      -      450     (1,350)
  Net interest income after provision for loan losses        14,778     15,162     13,517     59,176     53,294 
               
NON-INTEREST INCOME              
Deposit service charges        1,135     1,132     1,125     4,377     4,466 
Net gains on mortgage loans        291     270     301     924     1,574 
Trust fees        884     889     866     3,643     3,277 
Other         2,095     2,208     2,118     8,559     8,102 
  Total non-interest income        4,405     4,499     4,410     17,503     17,419 
               
NON-INTEREST EXPENSE              
Salaries and benefits        6,265     6,360     6,440     25,207     24,803 
Occupancy        948     939     926     3,931     3,864 
Furniture and equipment        787     760     772     3,125     3,050 
FDIC assessment        127     127     135     518     539 
Problem asset costs, including losses and (gains)        (582)    108     205     69     65 
Other        2,852     2,945     2,775     11,479     11,367 
  Total non-interest expense        10,397     11,239     11,253     44,329     43,688 
Income before income tax        8,786     8,422     6,674     32,350     27,025 
Income tax expense        1,743     1,570     4,480     5,971     10,733 
Net income     $  7,043  $  6,852  $  2,194  $  26,379  $  16,292 
               
Basic earnings per common share     $  0.21  $  0.20  $  0.06  $  0.78  $  0.48 
Diluted earnings per common share     $  0.21  $  0.20  $  0.06  $  0.78  $  0.48 
Return on average assets       1.47%  1.43%  0.49%  1.40%  0.93%
Return on average equity      15.12%  15.12%  5.03%  14.69%  9.60%
Net interest margin (fully taxable equivalent)      3.46%  3.37%  3.25%  3.38%  3.24%
Efficiency ratio      51.90%  57.16%  62.77%  57.47%  62.98%
               
BALANCE SHEET DATA          December 31 September 30 December 31
Assets          2018   2018   2017 
Cash and due from banks         $  40,526  $  30,837  $  34,945 
Federal funds sold and other short-term investments            130,758     152,339     126,522 
Debt securities available for sale            226,986     218,615     219,250 
Debt securities held to maturity            70,334     71,688     85,827 
Federal Home Loan Bank Stock            11,558     11,558     11,558 
Loans held for sale            415     -      1,208 
Total loans            1,405,658     1,344,683     1,320,309 
Less allowance for loan loss            16,876     16,803     16,600 
  Net loans            1,388,782     1,327,880     1,303,709 
Premises and equipment, net            44,862     45,631     46,629 
Bank-owned life insurance            41,185     40,996     40,243 
Other real estate owned            3,380     3,465     5,767 
Other assets            16,338     16,264     14,574 
               
Total Assets         $  1,975,124  $  1,919,273  $  1,890,232 
               
Liabilities and Shareholders' Equity              
Noninterest-bearing deposits         $  485,530  $  500,680  $  490,583 
Interest-bearing deposits            1,191,209     1,117,063     1,088,427 
  Total deposits            1,676,739     1,617,743     1,579,010 
Other borrowed funds            60,000     70,000     92,118 
Long-term debt            41,238     41,238     41,238 
Other liabilities            6,294     6,316     4,880 
Total Liabilities            1,784,271     1,735,297     1,717,246 
               
Shareholders' equity            190,853     183,976     172,986 
               
Total Liabilities and Shareholders' Equity         $  1,975,124  $  1,919,273  $  1,890,232 
               
               
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
               
  Quarterly Year to Date
               
  4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr    
   2018   2018   2018   2018   2017   2018   2017 
EARNINGS SUMMARY              
Net interest income $  15,628  $  15,162  $  14,653  $  14,182  $  13,517  $  59,626  $  51,944 
Provision for loan losses    850     -      (300)    (100)    -      450     (1,350)
Total non-interest income    4,405     4,499     4,468     4,132     4,410     17,503     17,419 
Total non-interest expense    10,397     11,239     11,259     11,434     11,253     44,329     43,688 
Federal income tax expense    1,743     1,570     1,434     1,225     4,480     5,971     10,733 
Net income $  7,043  $  6,852  $  6,728  $  5,755  $  2,194  $  26,379  $  16,292 
               
Basic earnings per common share $  0.21  $  0.20  $  0.20  $  0.17  $  0.06  $  0.78  $  0.48 
Diluted earnings per common share $  0.21  $  0.20  $  0.20  $  0.17  $  0.06  $  0.78  $  0.48 
               
MARKET DATA              
Book value per common share $  5.61  $  5.41  $  5.28  $  5.16  $  5.10  $  5.61  $  5.10 
Tangible book value per common share $  5.61  $  5.41  $  5.28  $  5.16  $  5.10  $  5.61  $  5.10 
Market value per common share $  9.62  $  11.71  $  12.14  $  10.27  $  10.00  $  9.62  $  10.00 
Average basic common shares    34,031,454     34,014,319     34,016,679     34,010,396     33,958,992     34,018,259     33,946,520 
Average diluted common shares    34,031,454     34,014,319     34,016,679     34,011,592     33,965,344     34,018,554     33,952,872 
Period end common shares    34,045,411     34,014,319     34,014,319     34,017,525     33,972,977     34,045,411     33,972,977 
               
PERFORMANCE RATIOS              
Return on average assets  1.47%  1.43%  1.44%  1.25%  0.49%  1.40%  0.93%
Return on average equity  15.12%  15.12%  15.23%  13.24%  5.03%  14.69%  9.60%
Net interest margin (fully taxable equivalent)  3.46%  3.37%  3.37%  3.34%  3.25%  3.38%  3.24%
Efficiency ratio  51.90%  57.16%  58.88%  62.43%  62.77%  57.47%  62.98%
Full-time equivalent employees (period end)  334   332   339   332   340   334   340 
               
ASSET QUALITY              
Gross charge-offs $  1,179  $  30  $  30  $  97  $  45  $  1,335  $  266 
Net charge-offs/(recoveries) $  776  $  (108) $  (320) $  (175) $  (166) $  174  $  (988)
Net charge-offs to average loans (annualized)  0.23%  -0.03%  -0.10%  -0.05%  -0.05%  0.01%  -0.08%
Nonperforming loans $  1,304  $  123  $  125  $  324  $  395  $  1,304  $  395 
Other real estate and repossessed assets $  3,380  $  3,465  $  3,872  $  5,223  $  5,778  $  3,380  $  5,778 
Nonperforming loans to total loans  0.09%  0.01%  0.01%  0.02%  0.03%  0.09%  0.03%
Nonperforming assets to total assets  0.24%  0.19%  0.21%  0.30%  0.33%  0.24%  0.33%
Allowance for loan losses $  16,876  $  16,803  $  16,695  $  16,675  $  16,600  $  16,876  $  16,600 
Allowance for loan losses to total loans  1.20%  1.25%  1.26%  1.26%  1.26%  1.20%  1.26%
Allowance for loan losses to nonperforming loans  1293.18%  13660.98%  13356.00%  5146.60%  4202.53%  1293.18%  4202.53%
               
CAPITAL              
Average equity to average assets  9.71%  9.47%  9.44%  9.42%  9.68%  9.51%  9.68%
Common equity tier 1 to risk weighted assets (Consolidated)  12.01%  12.13%  11.83%  11.67%  11.31%  12.01%  11.31%
Tier 1 capital to average assets (Consolidated)  12.12%  11.90%  11.91%  11.83%  11.88%  12.12%  11.88%
Total capital to risk-weighted assets (Consolidated)  15.54%  15.79%  15.49%  15.36%  14.99%  15.54%  14.99%
Common equity tier 1 to risk weighted assets (Bank)  14.09%  14.28%  14.01%  13.87%  13.54%  14.09%  13.54%
Tier 1 capital to average assets (Bank)  11.78%  11.56%  11.58%  11.50%  11.56%  11.78%  11.56%
Total capital to risk-weighted assets (Bank)  15.13%  15.36%  15.09%  14.96%  14.62%  15.13%  14.62%
Tangible common equity to assets  9.67%  9.59%  9.60%  9.42%  9.15%  9.67%  9.15%
               
END OF PERIOD BALANCES              
Total portfolio loans $  1,405,658  $  1,344,683  $  1,327,686  $  1,325,545  $  1,320,309  $  1,405,658  $  1,320,309 
Earning assets    1,849,630     1,804,672     1,751,167     1,751,315     1,767,752     1,849,630     1,767,752 
Total assets    1,975,124     1,919,273     1,872,541     1,863,780     1,890,232     1,975,124     1,890,232 
Deposits    1,676,739     1,617,743     1,580,461     1,560,872     1,579,010     1,676,739     1,579,010 
Total shareholders' equity    190,853     183,976     179,714     175,376     172,986     190,853     172,986 
               
AVERAGE BALANCES              
Total portfolio loans $  1,363,548  $  1,325,268  $  1,327,408  $  1,314,838  $  1,285,688  $  1,332,878  $  1,265,682 
Earning assets    1,806,229     1,799,600     1,756,909     1,730,576     1,681,297     1,773,608     1,627,330 
Total assets    1,918,543     1,915,655     1,872,559     1,845,911     1,802,386     1,888,441     1,752,303 
Deposits    1,618,861     1,614,151     1,575,408     1,537,376     1,497,213     1,586,748     1,449,393 
Total shareholders' equity    186,361     181,329     176,749     173,913     174,427     179,627     169,776 
               
Contact:
Jon Swets, CFO
616-494-7645

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Source: Macatawa Bank Corporation