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Press Release : Macatawa Bank Corporation

Macatawa Bank Corporation Reports First Quarter 2019 Results

Company Release - 4/25/2019 4:15 PM ET

HOLLAND, Mich., April 25, 2019 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ: MCBC) today announced its results for the first quarter of 2019, reflecting continued strong financial performance.

  • Net income of $7.6 million in first quarter 2019 versus $5.8 million in first quarter 2018 – up 33%
  • Growth in net interest income – up $1.8 million (13%) from first quarter 2018
  • Net interest margin of 3.54% in first quarter 2019, up from 3.34% in first quarter 2018
  • Decrease in total non-interest expense – down $196,000 (-2%) from first quarter 2018
  • Loan portfolio balances up by $59 million (4%) from first quarter 2018
  • Core deposit balances up by $57 million (4%) from first quarter 2018
  • Asset quality metrics remained strong

Macatawa reported net income of $7.6 million, or $0.22 per diluted share, in the first quarter 2019 compared to $5.8 million, or $0.17 per diluted share, in the first quarter 2018. 

"We are pleased to report a continuation of strong performance for the first quarter of 2019,” said Ronald L. Haan, President and CEO of the Company.  “Revenue growth, primarily from higher net interest income, along with a reduction in total non-interest expense resulted in a 33 percent increase in net income compared to the first quarter of 2018.  Continued growth in our balances of loans has positively affected our net interest income while expenses have remained well-controlled.” 

Mr. Haan concluded:  "Our commitment to operating a well-disciplined company that delivers superior financial services to the communities of Western Michigan has again resulted in strong and consistent financial performance for our shareholders.  The banking environment in Western Michigan remains highly competitive, and our continued success is a result of the efforts of a strong and committed team of professional bankers.”

Operating Results 
Net interest income for the first quarter 2019 totaled $16.0 million, an increase of $392,000 from the fourth quarter 2018 and an increase of $1.8 million from the first quarter 2018.  Net interest margin was 3.54 percent, up 8 basis points from the fourth quarter 2018, and up 20 basis points from the first quarter 2018.  Net interest income for the first quarter 2019 benefitted from the collection of $251,000 in prepayment fees on commercial loans, primarily related to one commercial relationship.  Prepayment fees were only $16,000 in the fourth quarter 2018 and $2,000 in the first quarter 2018.

Average interest earning assets for the first quarter 2019 increased $27.7 million from the fourth quarter 2018 and were up $103.3 million from the first quarter 2018.  This growth along with the improvement in net interest margin from rising rates and the prepayment fees discussed above were the primary contributors to the improvement in net interest income.

Non-interest income decreased $77,000 in the first quarter 2019 compared to the fourth quarter 2018 and increased $196,000 from the first quarter 2018.  These changes were largely due to fluctuations in gains on sales of mortgage loans.  Gains on sales of mortgage loans in the first quarter 2019 were down $80,000 compared to the fourth quarter 2018 and were up $70,000 from the first quarter 2018.  The Bank originated $6.8 million in mortgage loans for sale in the first quarter 2019 compared to $9.9 million in the fourth quarter 2018 and $5.1 million in the first quarter 2018.  The Bank originated $6.2 million in portfolio mortgage loans in the first quarter 2019 compared to $16.4 million in the fourth quarter 2018 and $16.1 million in the first quarter 2018.  Investment service fees were up $30,000 in the first quarter 2019 compared to the fourth quarter 2018 and were up $72,000 compared to the first quarter 2018.

Non-interest expense was $11.2 million for the first quarter 2019, compared to $10.4 million for the fourth quarter 2018 and $11.4 million for the first quarter 2018.  The largest component of non-interest expense was salaries and benefit expenses.  Salaries and benefit expenses were down $21,000 compared to the fourth quarter 2018 and were up $50,000 compared to the first quarter 2018.  The increase compared to the first quarter 2018 was due to annual merit and inflationary increases in salaries.  The decrease from the fourth quarter 2018 was due to a higher level of variable based compensation in the fourth quarter 2018.

Nonperforming asset expenses increased $635,000 in the first quarter 2019 compared to the fourth quarter 2018 and decreased $408,000 compared to the first quarter 2018.  Net losses of $126,000 were incurred on sales of foreclosed properties in the first quarter 2018, while net gains of $45,000 and $689,000 were incurred on sales in the first quarter 2019 and in the fourth quarter 2018, respectively.  Net gains in the fourth quarter of 2018 were unusually high due to the sale of a property obtained upon default of a loan for a gain of $675,000. Additionally, writedowns on other real estate totaled $10,000 in the first quarter 2019 compared to $32,000 in fourth quarter 2018 and $280,000 in first quarter 2018.  Other categories of non-interest expense were relatively flat compared to the fourth quarter 2018 and the first quarter 2018 due to a continued focus on expense management. 

Federal income tax expense was $1.7 million for the first quarter 2019 compared to $1.7 million for the fourth quarter 2018 and $1.2 million for the first quarter 2018.  The effective tax rate was 18.3 percent for the first quarter 2019, compared to 19.8 percent for the fourth quarter 2018 and 17.6 percent for the first quarter 2018. 

Asset Quality
As a result of the consistent improvements in nonperforming loans and past due loans over the past several quarters, the continued low historical loan loss ratios, and net loan recoveries experienced in the first quarter 2019, a negative provision for loan losses of $250,000 was recorded in the first quarter 2019.  Net loan recoveries for the first quarter 2019 were $266,000, compared to fourth quarter 2018 net loan charge-offs of $776,000 and first quarter 2018 net loan recoveries of $175,000.  The Company has experienced net loan recoveries in sixteen of the past seventeen quarters. Total loans past due on payments by 30 days or more amounted to $674,000 at March 31, 2019, down 23 percent from $877,000 at December 31, 2018 and down 59 percent from $1.6 million at March 31, 2018.  Delinquency as a percentage of total loans was 0.05 percent at March 31, 2019, well below the Company’s peer level.

The allowance for loan losses of $16.9 million was 1.22 percent of total loans at March 31, 2019, compared to 1.20 percent of total loans at December 31, 2018, and 1.26 percent at March 31, 2018.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 41.3-to-1 as of March 31, 2019.

At March 31, 2019, the Company's nonperforming loans were $409,000, representing 0.03 percent of total loans.  This compares to $1.3 million (0.09 percent of total loans) at December 31, 2018 and $324,000 (0.02 percent of total loans) at March 31, 2018.  Other real estate owned and repossessed assets were $3.3 million at March 31, 2019, compared to $3.4 million at December 31, 2018 and $5.2 million at March 31, 2018. Total nonperforming assets, including other real estate owned and nonperforming loans, decreased by $1.9 million, or 34 percent, from March 31, 2018 to March 31, 2019.

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

Dollars in 000s Mar 31,
2019
 Dec 31,
2018
 Sept 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 
                
Commercial Real Estate $213 $318 $121 $121 $121 
Commercial and Industrial  ---  873  ---  2  201 
Total Commercial Loans  213  1,191  121  123  322 
Residential Mortgage Loans  195  112  2  2  2 
Consumer Loans  1  1  ---  ---  --- 
Total Non-Performing Loans $409 $1,304 $123 $125 $324 
                 

Total non-performing assets were $3.7 million, or 0.19 percent of total assets, at March 31, 2019.  A break-down of non-performing assets is shown in the table below.

Dollars in 000s Mar 31,
2019
 Dec 31,
2018
 Sept 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 
                
Non-Performing Loans $409 $1,304 $123 $125 $324 
Other Repossessed Assets  ---  ---  ---  ---  --- 
Other Real Estate Owned  3,261  3,380  3,465  3,872  5,223 
Total Non-Performing Assets $3,670 $4,684 $3,588 $3,997 $5,547 
                 

Balance Sheet, Liquidity and Capital
Total assets were $1.93 billion at March 31, 2019, a decrease of $49.2 million from $1.98 billion at December 31, 2018 and an increase of $62.1 million from $1.86 billion at March 31, 2018.  Year-end assets typically increase due to seasonal inflow of business and municipal deposits.   Total loans were $1.38 billion at March 31, 2019, a decrease of $21.1 million from $1.41 billion at December 31, 2018 and an increase of $59.0 million from $1.33 billion at March 31, 2018.

Commercial loans increased by $59.7 million from March 31, 2018 to March 31, 2019, along with an increase of $2.8 million in the residential mortgage portfolio, partially offset by a decrease of $3.5 million in the consumer loan portfolio.  Commercial real estate loans increased by $42.9 million while commercial and industrial loans increased by $16.8 million during the same period. 

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

Dollars in 000s Mar 31,
2019
 Dec 31,
2018
 Sept 30,
2018
 Jun 30,
2018
 Mar 31,
2018
 
                
Construction and Development $102,133 $99,867 $93,794 $85,193 $81,948 
Other Commercial Real Estate  470,667  468,840  459,146  461,808  447,922 
Commercial Loans Secured by Real Estate  572,800  568,707  552,940  547,001  529,870 
Commercial and Industrial  493,891  513,347  467,703  458,468  477,088 
Total Commercial Loans $1,066,691 $1,082,054 $1,020,643 $1,005,469 $1,006,958 
                 

Bond financing to commercial customers decreased by $9.9 million from March 31, 2018 to March 31, 2019.  This decrease in bond financing combined with loan portfolio growth led to a total growth rate of 4% from March 31, 2018 to March 31, 2019. 

Total deposits were $1.62 billion at March 31, 2019, down $58.9 million from $1.68 billion at December 31, 2018 and were up $57.0 million, or 4 percent, from $1.56 billion at March 31, 2018.  The decrease in total deposits from December 31, 2018 was primarily in demand deposits (down $68.6 million) as municipal and business customers deployed their seasonal increase of year-end deposits in the first quarter 2019.  Demand deposits were up $21.9 million in the first quarter 2019 compared to the first quarter 2018.  Money market deposits and savings deposits were down $5.0 million from the fourth quarter 2018 and were down $10.2 million from the first quarter 2018.  Certificates of deposit were up $14.7 million in the first quarter 2019 compared to December 31, 2018 and were up $45.4 million compared to March 31, 2018.  As deposit rates have risen, the Bank has experienced some shifting between deposit types.  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 March 31, 2019 compared to March 31, 2018 and December 31, 2018 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 March 31, 2019.

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 “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 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, 2018.  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)
            
      1st Qtr 4th Qtr 1st Qtr 
EARNINGS SUMMARY      2019   2018   2018  
Total interest income     $19,189  $18,496  $16,019  
Total interest expense      3,169   2,868   1,837  
Net interest income      16,020   15,628   14,182  
Provision for loan losses      (250)  850   (100) 
Net interest income after provision for loan losses      16,270   14,778   14,282  
            
NON-INTEREST INCOME           
Deposit service charges      1,050   1,135   1,049  
Net gains on mortgage loans      211   291   141  
Trust fees      890   884   925  
Other      2,177   2,095   2,017  
Total non-interest income      4,328   4,405   4,132  
            
NON-INTEREST EXPENSE           
Salaries and benefits      6,244   6,265   6,194  
Occupancy      1,093   948   1,072  
Furniture and equipment      844   787   805  
FDIC assessment      120   127   132  
Problem asset costs, including losses and (gains)      53   (582)  461  
Other      2,884   2,852   2,770  
Total non-interest expense      11,238   10,397   11,434  
Income before income tax      9,360   8,786   6,980  
Income tax expense      1,714   1,743   1,225  
Net income     $7,646  $7,043  $5,755  
            
Basic earnings per common share     $0.22  $0.21  $0.17  
Diluted earnings per common share     $0.22  $0.21  $0.17  
Return on average assets      1.57%  1.47%  1.25% 
Return on average equity      15.81%  15.12%  13.24% 
Net interest margin (fully taxable equivalent)      3.54%  3.46%  3.34% 
Efficiency ratio      55.23%  51.90%  62.43% 
            
BALANCE SHEET DATA      March 31 December 31 March 31 
Assets      2019   2018   2018  
Cash and due from banks     $28,143  $40,526  $26,954  
Federal funds sold and other short-term investments      115,843   130,758   103,898  
Debt securities available for sale      224,645   226,986   214,269  
Debt securities held to maturity      70,336   70,334   90,513  
Federal Home Loan Bank Stock      11,558   11,558   11,558  
Loans held for sale      512   415   -  
Total loans      1,384,567   1,405,658   1,325,545  
Less allowance for loan loss      16,892   16,876   16,675  
Net loans      1,367,675   1,388,782   1,308,870  
Premises and equipment, net      44,805   44,862   46,110  
Bank-owned life insurance      41,433   41,185   40,494  
Other real estate owned      3,261   3,380   5,223  
Other assets      17,669   16,338   15,891  
            
Total Assets     $1,925,880  $1,975,124  $1,863,780  
            
Liabilities and Shareholders' Equity           
Noninterest-bearing deposits     $466,631  $485,530  $453,993  
Interest-bearing deposits      1,151,233   1,191,209   1,106,879  
Total deposits      1,617,864   1,676,739   1,560,872  
Other borrowed funds      60,000   60,000   80,667  
Long-term debt      41,238   41,238   41,238  
Other liabilities      8,812   6,294   5,627  
Total Liabilities      1,727,914   1,784,271   1,688,404  
            
Shareholders' equity      197,966   190,853   175,376  
            
Total Liabilities and Shareholders' Equity     $1,925,880  $1,975,124  $1,863,780  
            


MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
            
  Quarterly 
            
  1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 
   2019   2018   2018   2018   2018  
EARNINGS SUMMARY           
Net interest income $16,020  $15,628  $15,162  $14,653  $14,182  
Provision for loan losses  (250)  850   -   (300)  (100) 
Total non-interest income  4,328   4,405   4,499   4,468   4,132  
Total non-interest expense  11,238   10,397   11,239   11,259   11,434  
Federal income tax expense  1,714   1,743   1,570   1,434   1,225  
Net income $7,646  $7,043  $6,852  $6,728  $5,755  
            
Basic earnings per common share $0.22  $0.21  $0.20  $0.20  $0.17  
Diluted earnings per common share $0.22  $0.21  $0.20  $0.20  $0.17  
            
MARKET DATA           
Book value per common share $5.81  $5.61  $5.41  $5.28  $5.16  
Tangible book value per common share $5.81  $5.61  $5.41  $5.28  $5.16  
Market value per common share $9.94  $9.62  $11.71  $12.14  $10.27  
Average basic common shares  34,040,380   34,031,454   34,014,319   34,016,679   34,010,396  
Average diluted common shares  34,040,380   34,031,454   34,014,319   34,016,679   34,011,592  
Period end common shares  34,044,149   34,045,411   34,014,319   34,014,319   34,017,525  
            
PERFORMANCE RATIOS           
Return on average assets  1.57%  1.47%  1.43%  1.44%  1.25% 
Return on average equity  15.81%  15.12%  15.12%  15.23%  13.24% 
Net interest margin (fully taxable equivalent)  3.54%  3.46%  3.37%  3.37%  3.34% 
Efficiency ratio  55.23%  51.90%  57.16%  58.88%  62.43% 
Full-time equivalent employees (period end)  332   334   332   339   332  
            
ASSET QUALITY           
Gross charge-offs $157  $1,179  $30  $30  $97  
Net charge-offs/(recoveries) $(266) $776  $(108) $(320) $(175) 
Net charge-offs to average loans (annualized)  -0.08%  0.23%  -0.03%  -0.10%  -0.05% 
Nonperforming loans $409  $1,304  $123  $125  $324  
Other real estate and repossessed assets $3,261  $3,380  $3,465  $3,872  $5,223  
Nonperforming loans to total loans  0.03%  0.09%  0.01%  0.01%  0.02% 
Nonperforming assets to total assets  0.19%  0.24%  0.19%  0.21%  0.30% 
Allowance for loan losses $16,892  $16,876  $16,803  $16,695  $16,675  
Allowance for loan losses to total loans  1.22%  1.20%  1.25%  1.26%  1.26% 
Allowance for loan losses to nonperforming loans  4130.07%  1293.18%  13660.98%  13356.00%  5146.60% 
            
CAPITAL           
Average equity to average assets  9.93%  9.71%  9.47%  9.44%  9.42% 
Common equity tier 1 to risk weighted assets (Consolidated)  12.55%  12.01%  12.13%  11.83%  11.67% 
Tier 1 capital to average assets (Consolidated)  12.22%  12.12%  11.90%  11.91%  11.83% 
Total capital to risk-weighted assets (Consolidated)  16.14%  15.54%  15.79%  15.49%  15.36% 
Common equity tier 1 to risk weighted assets (Bank)  14.66%  14.09%  14.28%  14.01%  13.87% 
Tier 1 capital to average assets (Bank)  11.90%  11.78%  11.56%  11.58%  11.50% 
Total capital to risk-weighted assets (Bank)  15.73%  15.13%  15.36%  15.09%  14.96% 
Tangible common equity to assets  10.29%  9.67%  9.59%  9.60%  9.42% 
            
END OF PERIOD BALANCES           
Total portfolio loans $1,384,567  $1,405,658  $1,344,683  $1,327,686  $1,325,545  
Earning assets  1,809,469   1,849,630   1,804,672   1,751,167   1,751,315  
Total assets  1,925,880   1,975,124   1,919,273   1,872,541   1,863,780  
Deposits  1,617,864   1,676,739   1,617,743   1,580,461   1,560,872  
Total shareholders' equity  197,966   190,853   183,976   179,714   175,376  
            
AVERAGE BALANCES           
Total portfolio loans $1,399,464  $1,363,548  $1,325,268  $1,327,408  $1,314,838  
Earning assets  1,833,924   1,806,229   1,799,600   1,756,909   1,730,576  
Total assets  1,948,301   1,918,543   1,915,655   1,872,559   1,845,911  
Deposits  1,646,268   1,618,861   1,614,151   1,575,408   1,537,376  
Total shareholders' equity  193,463   186,361   181,329   176,749   173,913  
            

Contact:
Jon Swets, CFO
616-494-7645

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Source: Macatawa Bank Corporation