Macatawa Bank Corporation Reports 2nd Quarter Results
HOLLAND, Mich., July 20, 2009 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its results for the second quarter of 2009.
The Company's second quarter results were impacted by:
* A non-cash charge of $11 million included in federal income tax expense to establish a valuation allowance on deferred tax assets. * A one-time charge of $5.5 million ($3.6 million after-tax) associated with the settlement of the substantial majority of the Trade Partners litigation disclosed in previous announcements. * A $960,000 ($624,000 after-tax) special FDIC assessment applicable to all FDIC insured institutions. * These items total $15.2 million or $0.88 per diluted common share.
These charges led to a net loss of $18.6 million for the second quarter of 2009 compared to a net loss of $8.1 million for the second quarter of 2008. The net loss for the first six months of 2009 totaled $22.7 million compared to a net loss of $5.7 million for the six months ended June 30, 2008. Loss per diluted common share was $1.13 for the second quarter of 2009 compared to a loss per diluted common share of $0.48 for the same period in the prior year. For the six months ended June 30, 2009 the loss per diluted common share was $1.43 compared to a loss per diluted common share of $0.33 for the same period in the prior year.
The Company and its wholly-owned subsidiary, Macatawa Bank, continue to maintain capital levels well in excess of regulatory minimums for well capitalized bank holding companies and banks.
"Our second quarter results were impacted by three unusual charges that will not negatively impact future results," commented Philip J. Koning, Co-Chief Executive Officer of Macatawa Bank Corporation. "We expect to recapture the tax valuation allowance over time when we move beyond this current credit cycle and return to profitability. We are also pleased to have put the Trade Partners litigation behind us such that we can fully focus on our core business."
Similar to most banking companies, Macatawa has a net deferred tax asset for expected future tax deductions. The valuation allowance was established against the entire balance of deferred tax assets and was due primarily to the Company's recent quarterly losses resulting from the challenging operating environment currently confronting banks. The charge does not affect the Company's liquidity position and was already excluded from its regulatory capital. The valuation allowance will be analyzed quarterly for changes affecting the deferred tax assets, and will be reversed in accordance with the accounting rules when conditions allow for it.
As previously disclosed in an SEC Form 8-K dated June 16, 2009, the Company settled substantially all of its exposure with respect to the Trade Partners litigation, which had been in the courts for the past six years. The Settlement Agreement did not contain any admission of liability or wrongdoing by the Company or Macatawa Bank.
"Our efforts remain focused on building and preserving capital, improving asset quality, containing credit costs and emphasizing improved operating efficiencies within this sustained economic downturn," commented Ronald L. Haan, Co-Chief Executive Officer of Macatawa Bank Corporation.
The Company earlier increased its capital through the sale of $31.3 million of preferred stock in the fourth quarter of 2008. In the second quarter of 2009, the Company began its second phase of raising private capital by issuing $4.9 million of common stock, preferred stock and subordinated debt in a private placement.
Operating results
Second quarter net interest income totaled $13.4 million, an increase of $602,000 from the first quarter of 2009 and a decrease of $1.7 million from the second quarter of 2008. The net interest margin was 2.79 percent for the quarter, up 13 basis points from 2.66 percent for the first quarter of 2009 and down 27 basis points from 3.06 percent for the second quarter of 2008. Approximately nine of the 13 basis points of improvement in margin over the last quarter was primarily from a decline in the Company's costs of funds in excess of the decline in asset yields. The remaining improvement was from a reduced negative impact from non-performing assets.
"While we recognize our margin will be constrained in the near term due to the lack of earnings associated with our nonperforming assets, we are extremely pleased with the stabilization that has occurred in our margin," commented Mr. Koning.
Approximately 18 basis points of the decline in margin from the prior year was from higher balances of non-performing assets with the remainder largely from the Federal funds rate cuts that occurred throughout 2008. Average earning assets declined by $19.0 million from the first quarter of 2009 and by $40.1 million from the second quarter of 2008.
Non-interest income was $4.2 million for the second quarter of 2009, a decrease of $831,000 compared to $5.1 million for the second quarter of 2008. Non-interest income for the second quarter of 2008 included approximately $412,000 and $243,000, respectively, of gains on the sale of securities and the termination of certain borrowings. Increases in net gains from mortgage lending activities and revenue from ATM and debit card processing were offset by declines in revenue from deposit, trust and brokerage services.
Non-interest expense was $21.3 million for the quarter compared to $14.5 million for the second quarter of 2008. The current quarter includes the $5.5 million one-time charge associated with the Trade Partners settlement. Costs associated with the administration and disposition of problem loans and non-performing assets amounted to approximately $2.4 million in the current quarter compared to $1.5 million in the second quarter of 2008. FDIC insurance assessments amounted to $1.7 million compared to $361,000 for the same quarter in the prior year due to an industry-wide special assessment, which amounted to $960,000 for Macatawa Bank, and from higher assessment rates implemented by the FDIC in late 2008.
When excluding these costs, non-interest expense would have been approximately $11.6 million for the quarter, down 8 percent from $12.6 million for the second quarter of 2008. Salaries and employee benefit costs led the decline, decreasing $643,000 or 9.5 percent for the quarter compared to the second quarter of 2008. "We continue to see the positive results from our expense reduction initiatives, which included a selective reduction in staff and the elimination of bonuses and merit increases in 2009," stated Mr. Koning.
Asset Quality
Although elevated, the provision for loan losses of $8.4 million for the second quarter of 2009 was down compared to $10.5 million for the prior quarter and $18.5 million for the second quarter of 2008.
The Company recorded $15.2 million in net charge-offs for the quarter in response to elevated non-performing asset levels and sustained declines in valuations for real estate secured loans. The charge-offs exceeded the loan loss provision for the quarter as there were significant specific reserves previously established for much of the charge-offs. In addition, the decrease in the overall loan portfolio and the decrease in non-performing loans supported the decline in required reserves at June 30, 2009. The loan loss reserve was 1.98 percent of total loans at June 30, 2009 compared to 2.16 percent at December 31, 2008 and 1.69 percent at June 30, 2008.
"Our provision and charge-offs remained elevated in the second quarter as we respond to prolonged weakness with certain credits, primarily in our residential land development portfolio. We did, however, see a decline in total non-performing loan levels. Although an encouraging sign, we recognize it will take time for marked improvement in non-performing levels considering the depth of this economic downturn," commented Mr. Haan.
The Company's non-performing assets were $126.9 million and represent 6.27 percent of total assets at June 30, 2009. The majority of the non-performing asset portfolio is secured by real estate, primarily residential land development.
A breakdown of non-performing assets is shown in the table below:
Dollars in 000s June 30, March 31, Dec 31, June 30,
2009 2009 2008 2008
-------- -------- -------- --------
Total Commercial Real Estate $ 94,237 $100,064 $ 80,466 $ 66,620
Commercial and Industrial 5,657 9,462 9,005 9,871
-------- -------- -------- --------
Total Commercial Loans 99,894 109,526 89,471 76,491
Residential Mortgage Loans 1,702 3,071 1,906 1,634
Consumer Loans 1,468 1,010 893 770
-------- -------- -------- --------
Total Non-Performing Loans $103,064 $113,607 $ 92,270 $ 78,895
Other Repossessed Assets 339 564 306 218
Other Real Estate Owned 23,516 18,510 19,516 7,225
-------- -------- -------- --------
Total Non-Performing Assets $126,919 $132,681 $112,092 $ 86,338
======== ======== ======== ========
Loans for the development or sale of 1-4 family residential properties that were in a non-performing status were approximately $64.0 million or 62 percent of total non-performing loans at June 30, 2009 compared to $59.9 million or 65 percent at December 31, 2008 and $62.9 million or 78 percent at June 30, 2008.
Balance Sheet, Liquidity and Capital
Total assets were $2.02 billion at June 30, 2009 a decrease of $125.2 million compared to $2.15 billion at December 31, 2008 and a decrease of $85.5 million compared to $2.11 billion at June 30, 2008. Total loans were $1.63 billion at June 30, 2009, down $145.3 million from December 31, 2008 and down $119.8 million from June 30, 2008.
Commercial loans declined by $103.6 million representing the majority of the decline since December 31. Commercial and industrial loans declined by $47.2 million from both seasonal declines in lines of credit and a general decline in business activity. The commercial real estate portfolio declined by $56.4 million, including $21.5 million in loans tied to residential development.
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 $96.0 million at June 30, 2009, up $56.9 million from December 31, 2008 and up $88.2 million from June 30, 2008.
"We continue to succeed at improving the liquidity of our Balance Sheet and the diversification of our loan portfolio by reducing our exposure to certain loan sectors," stated Mr. Haan. The composition of the commercial loan portfolio is shown in the table below:
Dollars in 000s June 30, March 31, December 31,
2009 2009 2008
---------- ---------- ----------
Construction and development $ 213,831 $ 228,499 $ 237,108
Commercial real estate 657,373 688,068 690,525
---------- ---------- ----------
Total Commercial Real Estate 871,204 916,567 927,633
Commercial and Industrial 404,660 415,635 451,826
---------- ---------- ----------
Total Commercial Loans $1,275,864 $1,332,202 $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 $182.2 million at June 30, 2009 compared to $196.9 million at March 31, 2009 and $203.7 million at December 31, 2008. Of the total at June 30, approximately $25.1 million was secured by vacant land, $106.5 million was secured by developed residential land and $50.6 million was secured by properties held for speculative purposes.
The Company remained well capitalized with a total risk based capital ratio of 10.88 percent at June 30, 2009.
"Although we expect the difficult economic conditions to persist, Macatawa remains well capitalized with a more liquid and diversified Balance Sheet. Our entire team is focused on further strengthening our financial condition while expanding the breadth and depth of our customer relationships to position ourselves well for an eventual recovery," concluded Mr. Koning and Mr. Haan.
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.
Conference Call
Macatawa Bank Corporation will hold its quarterly earnings conference call on Tuesday, July 21, at 10:00 A.M. Persons who wish to access the call may do so via the Internet by visiting www.macatawabank.com and clicking on the webcast link in the Investor Information section. It may also be accessed by logging on to www.streetevents.com. A replay of the call will be available for 30 days following the call.
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.
"CAUTIONARY STATEMENT: This press release contains certain forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services, and pricing. These statements include, among others, statements related to future changes to the valuation allowance, 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. 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 Ended Six Months Ended
June 30 June 30
------------------ ------------------
EARNINGS SUMMARY 2009 2008 2009 2008
-------- -------- -------- --------
Total interest income $ 24,531 $ 29,199 $ 49,655 $ 60,515
Total interest expense 11,133 14,112 23,461 30,731
-------- -------- -------- --------
Net interest income 13,398 15,087 26,194 29,784
Provision for loan loss 8,400 18,460 18,930 21,160
-------- -------- -------- --------
Net interest income after
provision for loan loss 4,998 (3,373) 7,264 8,624
NON-INTEREST INCOME
Deposit service charges 1,210 1,322 2,439 2,563
Net gains on mortgage loans 501 343 2,123 819
Trust fees 984 1,164 1,917 2,334
Other 1,529 2,226 3,068 4,342
-------- -------- -------- --------
Total non-interest income 4,224 5,055 9,547 10,058
NON-INTEREST EXPENSE
Salaries and benefits 6,232 6,875 12,375 13,776
Occupancy 1,056 1,114 2,212 2,339
Furniture and equipment 995 992 2,012 1,985
Other 12,981 5,510 19,146 9,982
-------- -------- -------- --------
Total non-interest expense 21,264 14,491 35,745 28,082
-------- -------- -------- --------
Income (loss) before
income tax (12,042) (12,809) (18,934) (9,400)
Federal income tax expense
(benefit) 6,528 (4,703) 3,778 (3,732)
-------- -------- -------- --------
Net income (loss) $(18,570) $ (8,106) $(22,712) $ (5,668)
-------- -------- -------- --------
Dividends declared on
preferred shares 939 -- 1,878 --
-------- -------- -------- --------
Net income (loss) available
to common shares $(19,509) $ (8,106) $(24,590) $ (5,668)
======== ======== ======== ========
Basic earnings per
common share $ (1.13) $ (0.48) $ (1.43) $ (0.33)
Diluted earnings per
common share $ (1.13) $ (0.48) $ (1.43) $ (0.33)
Return on average assets -3.59% -1.52% -2.18% -0.53%
Return on average equity -52.85% -19.74% -31.19% -6.90%
Net interest margin 2.79% 3.06% 2.72% 3.03%
Efficiency ratio 120.67% 71.94% 100.01% 70.48%
BALANCE SHEET DATA June 30 December 31 June 30
Assets 2009 2008 2008
---------- ---------- ----------
Cash and due from banks $ 23,057 $ 29,188 $ 41,243
Federal funds sold and other
short-term investments 96,013 39,096 7,777
Securities available for sale 159,194 184,681 169,378
Securities held to maturity 656 1,835 1,840
Federal Home Loan Bank Stock 12,275 12,275 12,275
Loans held for sale 811 2,261 992
Total loans 1,628,794 1,774,063 1,748,629
Less allowance for loan loss 32,291 38,262 29,579
---------- ---------- ----------
Net loans 1,596,503 1,735,801 1,719,050
---------- ---------- ----------
Premises and equipment, net 62,327 63,482 64,284
Acquisition intangibles 731 874 28,722
Bank-owned life insurance 23,932 23,645 23,164
Other real estate owned 23,516 19,516 7,225
Other assets 25,153 36,718 33,687
---------- ---------- ----------
Total Assets $2,024,168 $2,149,372 $2,109,637
========== ========== ==========
Liabilities and
Shareholders' Equity
Noninterest-bearing deposits $ 219,229 $ 192,842 $ 186,688
Interest-bearing deposits 1,356,823 1,472,919 1,417,324
---------- ---------- ----------
Total deposits 1,576,052 1,665,761 1,604,012
Federal funds purchased -- -- 8,500
Other borrowed funds 268,690 284,790 295,775
Surbordinated debt 950 -- --
Long-term debt 41,238 41,238 41,238
Other liabilities 8,375 8,370 9,563
---------- ---------- ----------
Total Liabilities 1,895,305 2,000,159 1,959,088
Shareholders' equity 128,863 149,213 150,549
---------- ---------- ----------
Total Liabilities and
Shareholders' Equity $2,024,168 $2,149,372 $2,109,637
========== ========== ==========
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
Quarterly
----------------------------------------------------------
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
2009 2009 2008 2008 2008
---------- ---------- ---------- ---------- ----------
EARNINGS
SUMMARY
Net
interest
income $ 13,398 $ 12,796 $ 13,510 $ 14,836 $ 15,087
Provision
for loan
loss 8,400 10,530 13,850 2,425 18,460
Total non-
interest
income 4,224 5,323 3,949 4,138 5,055
Total non-
interest
expense 21,264 14,481 43,946 14,039 14,491
Federal
income tax
expense
(benefit) 6,528 (2,750) (5,280) 639 (4,703)
Net income
(loss) (18,570) (4,142) (35,057) 1,871 (8,106)
Dividends
declared
on
preferred
shares 939 939 817 -- --
Net income
(loss)
available
to common
shares $ (19,509) $ (5,081) $ (35,874) $ 1,871 $ (8,106)
Basic
earnings
per common
share $ (1.13) $ (0.30) $ (2.10) $ 0.11 $ (0.48)
Diluted
earnings
per common
share $ (1.13) $ (0.30) $ (2.10) $ 0.11 $ (0.48)
MARKET DATA
Book value
per common
share $ 5.43 $ 6.64 $ 6.91 $ 8.93 $ 8.84
Tangible
book value
per common
share $ 5.40 $ 6.61 $ 6.88 $ 7.31 $ 7.21
Market
value per
common
share $ 2.82 $ 3.70 $ 3.47 $ 6.99 $ 8.00
Average
basic
common
shares 17,260,269 17,162,237 17,066,897 17,022,393 17,020,517
Average
diluted
common
shares 17,260,269 17,162,237 17,066,897 17,044,979 17,020,517
Period end
common
shares 17,659,264 17,166,515 17,161,515 17,024,850 17,021,379
PERFORMANCE
RATIOS
Return on
average
assets -3.59% -0.79% -6.59% 0.35% -1.52%
Return on
average
equity -52.85% -10.99% -84.90% 4.92% -19.74%
Net
interest
margin
(fully
taxable
equiv-
alent) 2.79% 2.66% 2.74% 2.98% 3.06%
Efficiency
ratio 120.67% 79.92% 251.71% 73.99% 71.94%
ASSET
QUALITY
Net charge-
offs $ 15,205 $ 9,696 $ 6,078 $ 1,514 $ 20,835
Nonper-
forming
loans $ 103,064 $ 113,607 $ 92,270 $ 86,446 $ 78,895
Other real
estate and
reposs-
essed
assets $ 23,855 $ 19,074 $ 19,822 $ 9,626 $ 7,443
Nonper-
forming
loans to
total
loans 6.33% 6.68% 5.20% 4.91% 4.51%
Nonper-
forming
assets to
total
assets 6.27% 6.33% 5.21% 4.38% 4.09%
Net charge-
offs to
average
loans
(annual-
ized) 3.62% 2.23% 1.38% 0.34% 4.71%
Allowance
for loan
loss to
total
loans 1.98% 2.30% 2.16% 1.73% 1.69%
CAPITAL &
LIQUIDITY
Average
equity to
average
assets 6.79% 7.18% 7.76% 7.11% 7.70%
Tier 1
capital to
risk-
weighted
assets 9.62% 9.91% 10.01% 8.94% 8.93%
Total
capital to
risk-
weighted
assets 10.88% 11.17% 11.26% 10.20% 10.18%
Loans to
deposits +
other
borrowings 88.29% 89.78% 90.95% 88.57% 92.04%
END OF
PERIOD
BALANCES
Total
portfolio
loans $1,628,794 $1,699,945 $1,774,063 $1,761,431 $1,748,629
Earning
assets 1,894,536 1,957,043 2,009,859 2,027,350 1,938,098
Total
assets 2,024,168 2,092,792 2,149,372 2,194,658 2,109,637
Deposits 1,576,052 1,624,703 1,665,761 1,693,601 1,604,012
Total
share-
holders'
equity 128,863 144,644 149,213 152,098 150,549
AVERAGE
BALANCES
Total
portfolio
loans $1,678,648 $1,735,738 $1,764,235 $1,757,583 $1,768,983
Earning
assets 1,940,364 1,959,359 1,969,524 1,984,547 1,980,470
Total
assets 2,071,098 2,100,924 2,128,975 2,142,065 2,131,979
Deposits 1,611,922 1,620,159 1,611,709 1,640,986 1,593,452
Total
share-
holders'
equity 140,556 150,747 165,170 152,219 164,229
Year to Date
----------------------
2009 2008
---------- ----------
EARNINGS SUMMARY
Net interest income $ 26,194 $ 29,784
Provision for loan loss 18,930 21,160
Total non-interest income 9,547 10,058
Total non-interest expense 35,745 28,082
Federal income tax expense (benefit) 3,778 (3,732)
Net income (loss) (22,712) (5,668)
Dividends declared on preferred shares 1,878 --
Net income (loss) available to common shares $ (24,590) $ (5,668)
Basic earnings per common share $ (1.43) $ (0.33)
Diluted earnings per common share $ (1.43) $ (0.33)
MARKET DATA
Book value per common share $ 5.43 $ 8.84
Tangible book value per common share $ 5.40 $ 7.21
Market value per common share $ 2.82 $ 8.00
Average basic common shares 17,211,524 17,008,834
Average diluted common shares 17,211,524 17,008,834
Period end common shares 17,659,264 17,021,379
PERFORMANCE RATIOS
Return on average assets -2.18% -0.53%
Return on average equity -31.19% -6.90%
Net interest margin (fully taxable equivalent) 2.72% 3.03%
Efficiency ratio 100.01% 70.48%
ASSET QUALITY
Net charge-offs $ 24,901 $ 25,003
Nonperforming loans $ 103,064 $ 78,895
Other real estate and repossessed assets $ 23,855 $ 7,443
Nonperforming loans to total loans 6.33% 4.51%
Nonperforming assets to total assets 6.27% 4.09%
Net charge-offs to average loans (annualized) 2.92% 2.84%
Allowance for loan loss to total loans 1.98% 1.69%
CAPITAL & LIQUIDITY
Average equity to average assets 6.99% 7.74%
Tier 1 capital to risk-weighted assets 9.62% 8.93%
Total capital to risk-weighted assets 10.88% 10.18%
Loans to deposits + other borrowings 88.29% 92.04%
END OF PERIOD BALANCES
Total portfolio loans $1,628,794 $1,748,629
Earning assets 1,894,536 1,938,098
Total assets 2,024,168 2,109,637
Deposits 1,576,052 1,604,012
Total shareholders' equity 128,863 150,549
AVERAGE BALANCES
Total portfolio loans $1,707,035 $1,763,308
Earning assets 1,949,809 1,975,628
Total assets 2,084,530 2,124,292
Deposits 1,616,018 1,570,927
Total shareholders' equity 145,623 164,366
CONTACT: Macatawa Bank Corporation
Jon Swets, CFO
616.494.7645
Released July 20, 2009