Macatawa Bank Corporation Reports 3rd Quarter Results

HOLLAND, Mich., Oct. 30, 2009 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its results for the third quarter of 2009.



 * Net loss available to common shares of $20.9 million impacted by
   -- Provision for loan losses of $21.6 million.
   -- $3.1 million in costs associated with the administration and
      disposition of problem assets.
   -- FDIC insurance assessments of $1.0 million.
   -- These items total $25.7 million or $1.46 per diluted common
      share.
 * Allowance for loan loss coverage increased to 3.09% of total loans.
 * Second consecutive quarterly decline in non-performing loans.
 * Second consecutive quarterly increase in net interest margin.
 * Improved liquidity as evidenced by $148 million of liquid
   investments and over a $100 million reduction in out of market
   deposits.
 * Capital preservation and capital raising efforts continue.

Net loss available to common shares was $20.9 million, or $1.18 per share, for the third quarter of 2009 compared to net income of $1.9 million, or $0.11 per diluted share, for the third quarter of 2008. The net loss available to common shares for the first nine months of 2009 totaled $57.3 million, or $3.30 per share, compared to a net loss of $3.8 million, or $0.22 per share for the first nine months of 2008.

"The depth and persistency of the economic downturn in Michigan continues to have a significant impact on our loan customers, which in turn has impacted our operating results," commented Ronald L. Haan, Chief Executive Officer of Macatawa Bank Corporation. During the quarter, the Company proactively set aside additional reserves for the potential losses on these loans.

"Significant write-downs in the valuation of our problem assets and modest improvement in the real estate markets have given us the opportunity to accelerate the disposition of these assets. In addition, we continue to strengthen our team of professionals experienced in loan workouts and real estate sales," added Mr. Haan.

Operating results

Third quarter net interest income totaled $13.2 million, a decrease of $1.6 million from the third quarter of 2008. The net interest margin was 2.83 percent for the quarter, up 4 basis points from 2.79 percent for the second quarter of 2009 and down 15 basis points from 2.98 percent for the third quarter of 2008. The improvement in margin over the last quarter was primarily from a decrease in the Company's costs of funds from downward repricing of certificates of deposit and borrowings. The improvement was achieved despite a large increase in lower yielding short-term investments to enhance liquidity during the current economic downturn. The entire decline in margin from the prior year was from higher balances of non-performing assets.

Average earning assets declined by $69.4 million from the second quarter of 2009 and by $113.6 million from the third quarter of 2008. The decline reflects a continued focus on liquidity improvement, capital preservation and a reduction in credit exposure within certain loan segments.

Declines in revenue from deposit, trust and brokerage services during the third quarter of 2009 were the primary reasons for the $504,000 decline in noninterest income compared to the third quarter of 2008. The decline in revenue from deposit services is related to a decrease in NSF fee revenue, consistent with a decline across the entire banking industry. This decrease was partially offset by an increase in other deposit revenue sources, growth in core checking accounts, and expansion of services to business customers. The decline in trust and brokerage service revenue is related to both a challenging market for account growth, and volatility in equity market valuations.

Non-interest expense was $15.7 million for the quarter compared to $14.0 million for the third quarter of 2008. Costs associated with the administration and disposition of problem loans and non-performing assets amounted to approximately $3.1 million in the current quarter compared to $1.6 million in the third quarter of 2008. FDIC insurance assessments amounted to $1.0 million compared to $359,000 from higher assessment rates implemented by the FDIC in late 2008. When excluding the nonperforming asset costs and FDIC assessments, non-interest expense would have been approximately $11.6 million for the quarter, down 5 percent from $12.1 million for the third quarter of 2008. The decline continues to reflect the success of expense reduction initiatives that began in early 2008.

Asset Quality

The provision for loan losses was $21.6 million for the third quarter of 2009 compared to $20.6 million for the prior quarter and $2.4 million for the third quarter of 2008. Net charge-offs were $11.2 million compared to $22.1 million for the prior quarter and $1.5 million for the third quarter of 2008. The provision for loan losses and charge-offs remained elevated in response to prolonged weakness in the economy and its impact on valuations of real estate collateral.

"There have been signs of price stabilization in the real estate markets. Although valuations have declined, the rate of decline in such valuations has slowed," commented Mr. Haan.

The amount of provision for loan losses in excess of net charge-offs increased the coverage of the allowance as a percent of total loans as the Company remained focused on prudently setting aside reserves for future losses. The loan loss reserve was 3.09 percent of total loans at September 30, 2009 compared to 2.16 percent at December 31, 2008 and 1.73 percent at September 30, 2008.

The Company's non-performing loans were $88.2 million or 5.66 percent of total loans, down from $103.1 million at June 30, 2009 and $92.3 million at December 31, 2008. Loans for the development or sale of 1-4 family residential properties that were in a non-performing status were approximately $48.0 million or 54 percent of total non-performing loans at September 30, 2009 compared to $59.8 million or 62% at June 30, 2009 and $59.9 million or 65 percent at December 31, 2008.

"We are encouraged with the decline in non-performing loan levels since December 31, 2008, but clearly need to see further improvement," added Mr. Haan.

Total non-performing assets were $121.8 million or 6.15 percent of total assets at September 30, 2009. A breakdown of non-performing assets is shown in the table below:



 Dollars in 000s             Sept. 30,  June 30,   Dec. 31,  Sept. 30,
                               2009       2009       2008      2008
                            ---------  ---------  ---------  ---------

 Total Commercial
  Real Estate               $  77,461  $  94,237  $  80,466  $  77,888
 Commercial and Industrial      8,477      5,657      9,005      7,360
                            ---------  ---------  ---------  ---------
  Total Commercial Loans       85,938     99,894     89,471     85,248
 Residential Mortgage Loans       917      1,702      1,906        906
 Consumer Loans                 1,305      1,468        893        292
                            ---------  ---------  ---------  ---------
  Total Non-Performing Loans   88,160    103,064     92,270     86,446
 Other Repossessed Assets         224        339        306        272
 Other Real Estate Owned       33,419     23,516     19,516      9,354
                            ---------  ---------  ---------  ---------
  Total Non-
   Performing Assets        $ 121,803  $ 126,919  $ 112,092  $  96,072
                            =========  =========  =========  =========

Balance Sheet, Liquidity and Capital

Total assets were $1.98 billion at September 30, 2009, a decrease of $167.6 million compared to $2.15 billion at December 31, 2008 and a decrease of $212.9 million compared to $2.19 billion at September 30, 2008. Total loans were $1.56 billion at September 30, 2009, down $217.2 million from December 31, 2008 and down $204.5 million from September 30, 2008.

Commercial loans declined by $169.2 million representing the majority of the decline since December 31. The commercial real estate portfolio declined by $93.0 million, including $38.8 million in loans tied to residential development. Commercial and industrial loans declined by $76.2 million from a general decline in business activity.

The reduction in loans since the beginning of the year was primarily redeployed to build short-term investments. Federal funds sold and other short-term investments were $147.5 million at September 30, 2009, up $108.4 million from December 31, 2008.

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



 Dollars in 000s                     Sept. 30,    June 30,   Dec. 31,
                                        2009       2009       2008
                                    ----------  ----------  ----------

 Construction and development       $  195,712  $  213,831  $  237,108
 Commercial real estate                638,952     657,373     690,525
                                    ----------  ----------  ----------
  Total Commercial Real Estate         834,664     871,204     927,633
 Commercial and Industrial             375,636     404,660     451,826
  Total Commercial Loans            $1,210,300  $1,275,864  $1,379,459
                                    ==========  ==========  ==========

Commercial real estate consists primarily of loans to business owners and developers of owner and non-owner occupied properties, secured by single and multi-family residential as well as non-residential real estate. Loans for the development or sale of residential properties were approximately $164.9 million at September 30, 2009 compared to $182.2 million at June 30, 2009 and $203.7 million at December 31, 2008. Of the total at September 30, approximately $24.2 million was secured by vacant land, $96.8 million was secured by developed residential land and $43.9 million was secured by properties held for speculative purposes.

The Company continues to explore alternatives to increase its capital, including efforts to obtain either private capital in the form of common stock, preferred stock and subordinated debt or to obtain capital through public markets. The Company raised capital, including obtaining $31 million in the fourth quarter of 2008 and an additional $6 million in the second and third quarters of 2009. The Company's total risk based capital ratio was 9.46 percent at September 30, 2009.

"While challenges remain, we are 100% focused on improving our financial performance for the long-term," concluded Mr. Haan.

The Company has also filed on this date its Report on Form 10-Q for the quarter ended September 30, 2009 with the Securities and Exchange Commission.

About Macatawa Bank

Headquartered in Holland, Michigan, Macatawa Bank Corporation is the parent company for Macatawa Bank. Through its banking subsidiary, the Corporation offers a full range of banking, investment and trust services to individuals, businesses, and governmental entities from a network of 26 full service branches located in communities in Kent County, Ottawa County, and northern Allegan County. Services include commercial, consumer and real estate financing; business and personal deposit services, ATM's and Internet banking services, trust and employee benefit plan services, and various investment services. The Corporation emphasizes its local management team and decision making, along with providing customers excellent service and superior financial products.

The common stock, preferred stock and subordinated debt sold and any future securities that may be sold in the private offering have not been and will not be registered under the Securities Act of 1933 or any state securities laws and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements. This news release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sales of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such state or jurisdiction.

"CAUTIONARY STATEMENT: This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 risks and uncertainties include, but are not limited to, economic, competitive, and governmental factors affecting our operations, markets, products, services, and pricing. These statements include, among others, statements related to real estate valuation, future levels of non-performing loans, the rate of asset dispositions, capital raising activities, dividends, future growth and funding sources, future profitability levels, the effects on earnings of changes in interest rates and the future level of other revenue sources. Annualized growth rates are not intended to imply future growth at those rates. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. 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. Further information concerning our business, including additional factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission."



 MACATAWA BANK CORPORATION
 CONSOLIDATED FINANCIAL SUMMARY
 (Unaudited)

 (Dollars in thousands except per share information)


                             Three Months            Nine Months
                             Ended Sept. 30        Ended Sept. 30
                        ----------------------  ----------------------
 EARNINGS SUMMARY          2009        2008        2009         2008
                        ----------  ----------  ----------  ----------
 Total interest income  $   23,534  $   28,614  $   73,189  $   89,130
 Total interest expense     10,340      13,778      33,801      44,509
                        ----------  ----------  ----------  ----------
   Net interest income      13,194      14,836      39,388      44,621
 Provision for loan
  loss                      21,580       2,425      52,740      23,585
                        ----------  ----------  ----------  ----------
   Net interest income
    after provision for
    loan loss               (8,386)     12,411     (13,352)     21,036

 NON-INTEREST INCOME
 Deposit service
  charges                    1,205       1,383       3,644       3,946
 Net gains on mortgage
  loans                        153         168       2,276         987
 Trust fees                    948       1,113       2,865       3,447
 Other                       1,328       1,474       4,396       5,815
                        ----------  ----------  ----------  ----------
   Total non-interest
    income                   3,634       4,138      13,181      14,195

 ON-INTEREST EXPENSE
 Salaries and benefits       6,162       6,526      18,537      20,302
 Occupancy                   1,078       1,111       3,290       3,451
 Furniture and
  equipment                  1,010       1,041       3,056       3,026
 FDIC assessment             1,030         359       3,509       1,080
 Administration and
  disposition of
  problem assets             3,128       1,566       7,726       3,428
 Trade Partners
  litigation settlement         --          --       5,533          --
 Other                       3,323       3,436       9,825      10,834
                        ----------  ----------  ----------  ----------
   Total non-interest
    expense                 15,731      14,039      51,476      42,121
                        ----------  ----------  ----------  ----------
 Income (loss) before
  income tax               (20,483)      2,510     (51,647)     (6,890)
 Income tax expense
  (benefit)                   (600)        639       2,786      (3,093)
                        ----------  ----------  ----------  ----------

 Net income (loss)      $  (19,883) $    1,871  $  (54,433) $   (3,797)
                        ----------  ----------  ----------  ----------
 Dividends declared on
  preferred shares             991          --       2,869          --
                        ----------  ----------  ----------  ----------
 Net income (loss)
  available to common
  shares                $  (20,874) $    1,871  $  (57,302) $   (3,797)
                        ==========  ==========  ==========  ==========

 Basic earnings per
  common share          $    (1.18) $     0.11  $    (3.30) $    (0.22)
 Diluted earnings per
  common share          $    (1.18) $     0.11  $    (3.30) $    (0.22)
 Return on average
  assets                     -3.97%       0.35%      -3.53%      -0.24%
 Return on average
  equity                    -67.58%       4.92%     -53.28%      -3.16%
 Net interest margin          2.83%       2.98%       2.75%       3.01%
 Efficiency ratio            93.48%      73.99%      97.92%      71.61%



                                      Sept. 30     Dec. 31    Sept. 30
 BALANCE SHEET DATA                     2009         2008       2008
                                    ----------  ----------  ----------
 Assets
 Cash and due from
  banks                             $   22,441  $   29,188  $   39,252
 Federal funds sold
  and other short-term
  investments                          147,527      39,096      88,257
 Securities available
  for sale                             141,825     184,681     163,771
 Securities held to
  maturity                                 655       1,835       1,838
 Federal Home Loan
  Bank Stock                            12,275      12,275      12,275
 Loans held for sale                     2,934       2,261         983
 Total loans                         1,556,903   1,774,063   1,761,431
 Less allowance for
  loan loss                             48,049      38,262      30,491
                                    ----------  ----------  ----------
   Net loans                         1,508,854   1,735,801   1,730,940
                                    ----------  ----------  ----------
 Premises and
  equipment, net                        61,738      63,482      64,149
 Acquisition
  intangibles                              661         874      28,615
 Bank-owned life
  insurance                             24,165      23,645      23,410
 Other real estate
  owned                                 33,419      19,516       9,354
 Other assets                           25,278      36,718      31,784
                                    ----------  ----------  ----------

 Total Assets                       $1,981,772  $2,149,372  $2,194,628
                                    ==========  ==========  ==========
 Liabilities and
  Shareholders' Equity
 Noninterest-bearing
  deposits                          $  221,967  $  192,842  $  184,952
 Interest-bearing
  deposits                           1,324,344   1,472,919   1,508,649
                                    ----------  ----------  ----------
    Total deposits                   1,546,311   1,665,761   1,693,601
 Other borrowed funds                  288,023     284,790     295,109
 Surbordinated debt                      1,650          --          --
 Long-term debt                         41,238      41,238      41,238
 Other liabilities                       6,876       8,370      12,582
                                    ----------  ----------  ----------
 Total Liabilities                   1,884,098   2,000,159   2,042,530

 Shareholders' equity                   97,674     149,213     152,098
                                    ----------  ----------  ----------
 Total Liabilities and
  Shareholders' Equity              $1,981,772  $2,149,372  $2,194,628
                                    ==========  ==========  ==========


 MACATAWA BANK CORPORATION
 SELECTED CONSOLIDATED FINANCIAL DATA
 (Unaudited)

 (Dollars in thousands except per share information)

                                   Quarterly
          -----------------------------------------------------------
            3rd Qtr      2nd Qtr     1st Qtr     4th Qtr    3rd Qtr
             2009         2009        2009         2008       2008
          ----------- ----------- ----------- ----------- -----------

 EARNINGS
  SUMMARY
 Net
  inter-
  est
  income  $    13,194 $    13,398 $    12,796 $    13,510 $    14,836
 Provi-
  sion
  for
  loan
  loss         21,580      20,630      10,530      13,850       2,425
 Total
  non-
  inte-
  rest
  income        3,634       4,224       5,323       3,949       4,138
 Total
  non-
  inter-
  est
  expense      15,731      21,264      14,481      43,946      14,039
 Federal
  income
  tax
  expense
  (bene-
  fit)           (600)      6,134      (2,750)     (5,280)        639
 Net
  income
  (loss)  $   (19,883)$   (30,406)$    (4,142)$   (35,057)$     1,871
 Divid-
  ends
  dec-
  lared
  on
  pre-
  ferred
  shares          991         939         939         817          --
 Net
  income
  (loss)
  avail-
  able
  to
  common
  shares  $   (20,874)$   (31,345)$    (5,081)$   (35,874)$     1,871

 Basic
  earn-
  ings
  per
  com-
  mon
 share    $     (1.18)$     (1.82)$     (0.30)$     (2.10)$      0.11
 Diluted
  earn-
  ings
  per
  com-
  mon
  share   $     (1.18)$     (1.82)$     (0.30)$     (2.10)$      0.11

 MARKET
  DATA
 Book
  value
  per
  common
  share   $      3.64       $4.74 $      6.64 $      6.91 $      8.93
 Tangible
  book
  value
  per
  common
  share   $      3.62       $4.71 $      6.61 $      6.88 $      7.31
 Market
  value
  per
  common
  share   $      2.60 $      2.82 $      3.70 $      3.47 $      6.99
 Average
  basic
  common
  shares   17,669,440  17,260,269  17,162,237  17,066,897  17,022,393
 Average
  diluted
  common
  shares   17,669,440  17,260,269  17,162,237  17,066,897  17,044,979
 Period
  end
  common
  shares   17,701,817  17,659,264  17,166,515  17,161,515  17,024,850

 PERFORMANCE
  RATIOS
 Return
  on
  average
  assets        -3.97%      -5.87%      -0.79%      -6.59%       0.35%
 Return
  on
  average
  equity       -67.58%     -86.53%     -10.99%     -84.90%       4.92%
 Net
  inter-
  est
  margin
  (fully
  taxable
  equiva-
  lent)          2.83%       2.79%       2.66%       2.74%       2.98%
 Effi-
  ciency
  ratio         93.48%     120.67%      79.92%     251.71%      73.99%

 ASSET
  QUALITY
 Net
  charge-
  offs    $    11,152 $    22,105 $     9,696 $     6,078 $     1,513
 Nonper-
  forming
  loans   $    88,160 $    96,164 $   113,607 $    92,249 $    86,446
 Other
  real
  estate
  and
  reposs-
  essed
  assets  $    33,643 $    23,855 $    19,074 $    19,822 $     9,626
 Non-
  perform-
  ing
  loans
  to
  total
  loans          5.66%       5.93%       6.68%       5.20%       4.91%
 Non-
  perform-
  ing
  assets
  to total
  assets         6.15%       5.97%       6.33%       5.21%       4.38%
 Net
  charge-
  offs to
  average
  loans
  (annual-
  ized)          2.79%       5.27%       2.23%       1.38%       0.34%
 Allow-
  ance
  for
  loan
  loss
  to
  total
  loans          3.09%       2.32%       2.30%       2.16%       1.73%

 CAPITAL
  & LIQUIDITY
 Average
  equity
  to
  average
  assets         5.94%       6.79%       7.18%       7.76%       7.11%
 Tier 1
  capital
  to risk-
  weighted
  assets         7.58%       8.91%       9.91%      10.01%       8.94%
 Total
  capital
  to risk-
  weight-
  ed
  assets         9.46%      10.33%      11.17%      11.26%      10.20%
 Loans
  to
  depos-
  its +
  other
  borrow-
  ings          84.88%      87.92%      89.78%      90.95%      88.57%

 END OF
  PERIOD
  BALANCES
 Total
  port-
  folio
  loans   $ 1,556,903 $ 1,621,895 $ 1,699,945 $ 1,774,063 $ 1,761,431
 Earning
  assets    1,857,467   1,887,636   1,957,043   2,009,859   2,027,350
 Total
  assets    1,981,772   2,011,939   2,092,792   2,149,372   2,194,628
 Depos-
  its       1,546,311   1,576,052   1,624,703   1,665,761   1,693,601
 Total
  share-
  hold-
  ers'
  equity       97,674     116,634     144,644     149,213     152,098

 AVERAGE
  BALANCES
 Total
  port-
  folio
  loans   $ 1,598,743 $ 1,678,648 $ 1,735,738 $ 1,764,235 $ 1,757,583
 Earning
  assets    1,870,995   1,940,364   1,959,359   1,969,524   1,984,547
 Total
  assets    2,001,415   2,071,098   2,100,924   2,128,975   2,142,065
 Deposits   1,554,127   1,611,922   1,620,159   1,611,709   1,640,986
 Total
  share-
  hold-
  ers'
  equity      117,687     140,556     150,747     165,170     152,219


 MACATAWA BANK CORPORATION
 SELECTED CONSOLIDATED FINANCIAL DATA
 (Unaudited)

 (Dollars in thousands except per share
  information)

                                                   Year to Date
                                           ---------------------------

                                               2009            2008
  EARNINGS SUMMARY                         -----------     -----------
  Net interest income                      $    39,388     $    44,621
  Provision for loan loss                       52,740          23,585
  Total non-interest income                     13,181          14,195
  Total non-interest expense                    51,476          42,121
  Federal income tax expense (benefit)           2,786          (3,093)
  Net income (loss)                        $   (54,433)    $    (3,797)
  Dividends declared on preferred shares         2,869              --
  Net income (loss) available to common
   shares                                  $   (57,302)    $    (3,797)

  Basic earnings per common share          $     (3.30)    $     (0.22)
  Diluted earnings per common share        $     (3.30)    $     (0.22)

  MARKET DATA
  Book value per common share              $      3.64     $      8.93
  Tangible book value per common share     $      3.61     $      7.31
  Market value per common share            $      2.60     $      6.99
  Average basic common shares               17,365,840      17,013,386
  Average diluted common shares             17,365,840      17,013,386
  Period end common shares                  17,701,817      17,024,850

  PERFORMANCE RATIOS
  Return on average assets                       -3.53%          -0.24%
  Return on average equity                      -53.28%          -3.16%
  Net interest margin (fully taxable
   equivalent)                                    2.75%           3.01%
  Efficiency ratio                               97.92%          71.61%

  ASSET QUALITY
  Net charge-offs                          $    42,953     $    26,516
  Nonperforming loans                      $    88,160     $    86,446
  Other real estate and repossessed
   assets                                  $    33,643     $     9,626
  Nonperforming loans to total loans              5.66%           4.91%
  Nonperforming assets to total assets            6.15%           4.38%
  Net charge-offs to average loans
   (annualized)                                   3.43%           2.01%
  Allowance for loan loss to total loans          3.09%           1.73%

  CAPITAL & LIQUIDITY
  Average equity to average assets                6.62%           7.52%
  Tier 1 capital to risk-weighted assets          7.58%           8.94%
  Total capital to risk-weighted assets           9.46%          10.20%
  Loans to deposits + other borrowings           84.88%          88.57%

  END OF PERIOD BALANCES
  Total portfolio loans                    $ 1,556,903     $ 1,761,431
  Earning assets                             1,857,467       2,027,350
  Total assets                               1,981,772       2,194,628
  Deposits                                   1,546,311       1,693,601
  Total shareholders' equity                    97,674         152,098

  AVERAGE BALANCES
  Total portfolio loans                    $ 1,670,541     $ 1,761,385
  Earning assets                             1,923,249       1,978,623
  Total assets                               2,055,703       2,130,259
  Deposits                                   1,595,808       1,594,450
  Total shareholders' equity                   136,209         160,287
CONTACT:  Macatawa Bank Corporation
          Jon Swets, CFO
          616.494.7645