Macatawa Bank Corporation Reports 3rd Quarter Results
HOLLAND, Mich., Oct. 20, 2008 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation today announced net income of $1.87 million, or $0.11 per diluted share, for the 3rd quarter of 2008 compared to net income of $2.46 million, or $0.14 per diluted share, for the same period in 2007. For the first nine months of 2008, the Company incurred a net loss of $3.8 million, or $0.22 per diluted share, compared to net income of $11.9 million, or $0.68 per diluted share, for the same period in 2007.
On September 29, the Company reported that it was taking steps to maintain its financial strength. This included the need to record an additional $15 million of loan loss provisions as of June 30, 2008. Including this 2nd quarter adjustment, the Company has recorded total loan loss provisions of $23.6 million for the first nine months of 2008 compared to $5.5 million for the same period in the prior year. This elevated loan loss provision has led to the reduced earnings for the first nine months of 2008 compared to the same period in the prior year.
"Since the prior quarter, a lot has changed. The national and world economies and the financial and credit markets have come under extreme stress," stated Ben Smith, Chairman and CEO. The Company has avoided many of the issues affecting the broader market, such as subprime loans, mortgage-backed securities and investments in Fannie Mae and Freddie Mac stock. "We are, however, not immune to the impact of these trying times," added Mr. Smith. The Company's credit exposure is primarily isolated in residential development loans, a narrow and declining slice of its total portfolio.
"Although the loan loss provisions have impacted our near term performance, we remain well capitalized and we continue to take specific steps to ensure the strength of our capital position. We are working hard to raise additional capital and expect to report the successful conclusion of these efforts during the fourth quarter," commented Mr. Smith. The Company also temporarily suspended the cash dividend to supplement its capital position. "The Board is committed to reinstituting the dividend as our capital situation improves," added Mr. Smith.
Third quarter net interest income totaled $14.8 million, a decrease of $1.0 million compared to the third quarter of 2007. The decrease in net interest income was primarily from a decline in the net interest margin partially offset by an increase in average earning assets. Average earning assets grew by $18.4 million from the third quarter of 2007 to the third quarter of 2008. The net interest margin was 2.98% for the quarter, down 22 basis points from 3.20% for the third quarter of 2007. Higher balances of non-performing assets accounted for 12 of the 22 basis point decline in the net interest margin over the last twelve months. Approximately half of the remaining decline was attributable to the Federal funds rate cuts that began in late-2007.
On a consecutive quarter basis, the net interest margin declined by eight basis points from 3.06% for the second quarter of 2008. Seasonal deposit inflows were temporarily invested in lower yielding marketable investments during the quarter. This resulted in the yield on assets declining slightly more than the cost of funds during the quarter, and is the primary reason for the consecutive quarter net interest margin decline.
Despite declines in the Company's net interest margin compared to prior year quarters, the rate of decline continues to moderate despite significant interest rate cuts by the Federal Reserve. This stability in net interest margin confirms that the Company has maintained a well balanced interest rate risk position. Although the Company expects the recent 50 basis point reduction in the prime rate to negatively impact near term results, corresponding declines in the cost of funds are expected to offset this decline over time.
Non-interest income was $4.1 million for the third quarter of 2008 compared to $4.0 million for the third quarter of 2007. Growth in revenue from deposit services, investment services, and ATM and debit card processing offset declines in trust income and gains on mortgage loans sold. The decline in the stock market was the primary reason for the decrease in trust income, and a combination of elevated mortgage rates and lower mortgage volume associated with corrections in the housing market have caused the decrease in gains on mortgage loans sold.
Non-interest expense was $14.0 million for the quarter as compared to $14.5 million for the second quarter of 2008 and $12.7 million for the third quarter of 2007. The overall increase compared to the prior year quarter relates to a $1.3 million increase in costs associated with the administration and disposition of problem loans and non-performing assets. These costs amounted to approximately $1.6 million in the current quarter compared to $1.5 million in the second quarter of 2008 and $312,000 for the third quarter of 2007. When excluding these costs, non-interest expense was down from the second quarter of 2008 and flat compared to the third quarter of 2007. Expense management initiatives that began in early 2008 have begun to positively impact the bottom line.
Total assets were $2.20 billion at September 30, 2008, an increase of $93.0 million compared to $2.10 billion at September 30, 2007. The increase was primarily from recent growth in short-term investments of $88 million, primarily associated with an increase in seasonal deposits. Total loans increased $20.5 million since September 30, 2007, primarily in consumer mortgages, to $1.76 billion at September 30, 2008. Within the commercial loan portfolio, there continues to be a shift in mix from commercial real estate loans to commercial and industrial loans.
The composition of the commercial loan portfolio is shown in the table below:
Dollars in 000s September 30, December 31, September 30,
------------- ------------ -------------
2008 2007 2007
---- ---- ----
Construction and land
development $ 305,264 $ 335,366 $ 354,897
Farmland & agricultural 24,482 30,371 25,438
Non-farm, non-residential 467,202 454,764 454,220
Multi-family 29,640 35,381 37,618
----------- ----------- -----------
Total Commercial
Real Estate 826,588 855,882 872,173
Commercial and Industrial 436,633 438,743 427,508
----------- ----------- -----------
Total Commercial
Loans $ 1,263,221 $ 1,294,625 $ 1,299,681
=========== =========== ===========
Commercial real estate loans declined $45.6 million while commercial and industrial loans grew by $9.1 million since September 30, 2007. Loans for the development or sale of 1-4 family residential properties were $224.1 million at September 30, 2008. Of the total, approximately $33.7 million was secured by vacant land, $117.7 million was secured by developed residential land and $72.7 million was secured by 1-4 family properties held for speculative purposes.
The Company's non-performing loans increased $7.6 million to $86.4 million since the prior quarter and represent 4.91% of total loans at September 30, 2008. Late in the second quarter and into the third quarter of 2008, management took aggressive steps to again reevaluate its loan portfolio considering the continuing stress in the residential real estate markets. This resulted in additional charge-offs, additional balances in and reserves for problem credits and corresponding increases to the loan loss provision. The majority of the resulting non-performing loan portfolio is secured by real estate, primarily residential land development. Despite the difficulty in valuing this type of collateral in the current market, management believes non-performing loans are either well collateralized or have been appropriately discounted with adequate reserves.
A breakdown of non-performing assets is shown in the table below:
Dollars in 000s September 30, December 31,
------------- ------------
2008 2007
---- ----
Commercial Real Estate $ 77,888 $ 68,634
Commercial and Industrial 7,360 4,116
-------- --------
Total Commercial Loans 85,248 72,750
Residential Mortgage Loans 906 641
Consumer Loans 292 518
-------- --------
Total Non-Performing Loans 86,446 73,909
Other Repossessed Assets 272 172
Other Real Estate Owned 9,354 5,704
-------- --------
Total Non-Performing Assets $ 96,072 $ 79,785
======== ========
Within commercial real estate, loans for the development or sale of 1-4 family residential properties that were in a non-performing status were approximately $63.5 million or 72% of total non-performing loans at September 30, 2008 compared to $57.4 million or 78% of total non-performing loans at December 31, 2007.
Total deposits grew $171.6 million since September 30, 2007 to $1.69 billion at September 30, 2008. Approximately $59.1 million of the growth was from deposits generated within the Company's markets while the remaining $112.5 million was from deposits generated through brokers. The growth in deposits allowed the Company to reduce its other borrowing levels while improving its liquidity position since the prior year.
The Company remained well-capitalized at September 30, 2008 with a total risk-based capital ratio of 10.2%. "During these difficult times, we believe, more than ever, in the value of our local commitment to West Michigan. We see opportunities, and we are confident the steps we are taking are positioning ourselves to capitalize on them," concluded Mr. Smith.
Conference Call
Macatawa Bank Corporation will hold its quarterly earnings conference call on Tuesday, October 21, 2008, 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 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 Nine Months Ended
September 30, September 30,
------------------- --------------------
EARNINGS SUMMARY 2008 2007 2008 2007
-------- -------- -------- --------
Total interest income $ 28,614 $ 35,391 $ 89,130 $106,005
Total interest expense 13,778 19,556 44,509 57,776
-------- -------- -------- --------
Net interest income 14,836 15,835 44,621 48,229
Provision for loan loss 2,425 3,640 23,585 5,480
-------- -------- -------- --------
Net interest income
after provision for
loan loss 12,411 12,195 21,036 42,749
NON-INTEREST INCOME
Deposit service charges 1,383 1,309 3,946 3,757
Gain on sale of loans 78 255 897 1,068
Trust fees 1,113 1,263 3,447 3,669
Other 1,564 1,204 5,905 3,292
-------- -------- -------- --------
Total non-interest
income 4,138 4,031 14,195 11,786
NON-INTEREST EXPENSE
Salaries and benefits 6,526 6,461 20,302 18,937
Occupancy 1,111 1,057 3,451 3,132
Furniture and equipment 1,041 983 3,026 2,807
Other 5,361 4,231 15,342 12,249
-------- -------- -------- --------
Total non-interest
expense 14,039 12,732 42,121 37,125
-------- -------- -------- --------
Income before income
tax 2,510 3,494 (6,890) 17,410
Federal income tax
expense 639 1,037 (3,093) 5,529
-------- -------- -------- --------
Net income $ 1,871 $ 2,457 $ (3,797) $ 11,881
======== ======== ======== ========
Basic earnings per
share $ 0.11 $ 0.14 $ (0.22) $ 0.69
Diluted earnings per
share $ 0.11 $ 0.14 $ (0.22) $ 0.68
Return on average
assets 0.35% 0.46% -0.24% 0.75%
Return on average
equity 4.92% 5.91% -3.16% 9.65%
Net interest margin 2.98% 3.20% 3.01% 3.29%
Efficiency ratio 73.99% 64.09% 71.61% 61.86%
BALANCE SHEET DATA Sept. 30, Dec. 31, Sept. 30,
Assets 2008 2007 2007
---------- ---------- ----------
Cash and due from
banks $ 39,284 $ 49,816 $ 33,186
Federal funds sold
and other
short-term
investments 88,224 -- --
Securities available
for sale 163,771 201,498 200,058
Securities held to
maturity 1,838 1,917 1,920
Federal Home Loan
Bank Stock 12,275 12,275 12,275
Loans held for sale 983 3,127 1,241
Total loans 1,761,431 1,750,632 1,736,370
Less allowance for
loan loss 30,491 33,422 25,916
---------- ---------- ----------
Net loans 1,730,940 1,717,210 1,710,454
---------- ---------- ----------
Premises and
equipment, net 64,149 64,564 64,054
Acquisition
intangibles 28,615 28,942 29,054
Bank-owned life
insurance 23,410 22,703 22,476
Other assets 42,271 27,914 28,015
---------- ---------- ----------
Total Assets $2,195,760 $2,129,966 $2,102,733
========== ========== ==========
Liabilities and
Shareholders' Equity
Noninterest-bearing
deposits $ 184,952 $ 185,681 $ 170,792
Interest-bearing
deposits 1,508,649 1,337,872 1,351,211
---------- ---------- ----------
Total deposits 1,693,601 1,523,553 1,522,003
Federal funds
purchased -- 46,467 67,974
Other borrowed funds 295,109 354,052 299,093
Long-term debt 41,238 41,238 41,238
Other liabilities 13,714 4,031 8,694
---------- ---------- ----------
Total Liabilities 2,043,662 1,969,341 1,939,002
Shareholders' equity 152,098 160,625 163,731
---------- ---------- ----------
Total Liabilities
and Shareholders'
Equity $2,195,760 $2,129,966 $2,102,733
========== ========== ==========
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
2008 2008 2008 2007 2007
---------- ---------- ---------- ---------- ----------
EARNINGS
SUMMARY
Net
interest
income $ 14,836 $ 15,087 $ 14,697 $ 14,687 $ 15,835
Provision
for loan
loss 2,425 18,460 2,700 10,270 3,640
Total non-
interest
income 4,138 5,055 5,003 4,312 4,031
Total non-
interest
expense 14,039 14,491 13,591 13,135 12,732
Income
taxes 639 (4,703) 971 (1,794) 1,037
Net income $ 1,871 $ (8,106) $ 2,438 $ (2,612) $ 2,457
Basic
earnings
per share $ 0.11 $ (0.48) $ 0.14 $ (0.15) $ 0.14
Diluted
earnings
per share $ 0.11 $ (0.48) $ 0.14 $ (0.15) $ 0.14
MARKET DATA
Book value
per share $ 8.93 $ 8.84 $ 9.58 $ 9.47 $ 9.64
Market
value
per
share $ 6.99 $ 8.00 $ 10.41 $ 8.59 $ 13.53
Average
basic
common
shares 16,973,312 16,970,634 16,951,183 16,969,316 17,082,023
Average
diluted
common
shares 16,998,434 16,970,634 17,003,229 16,969,316 17,232,709
Period end
common
shares 17,024,850 17,021,379 17,017,028 16,968,398 16,982,794
PERFORMANCE
RATIOS
Return on
average
assets 0.35% -1.52% 0.46% -0.50% 0.46%
Return on
average
equity 4.92% -19.74% 5.93% -6.27% 5.91%
Net interest
margin
(FTE) 2.98% 3.06% 2.99% 3.00% 3.20%
Efficiency
ratio 73.99% 71.94% 68.99% 69.14% 64.09%
ASSET
QUALITY
Net
charge-
offs $ 1,514 $ 20,835 $ 4,168 $ 2,764 $ 1,667
Non-
performing
loans $ 86,446 $ 78,895 $ 75,571 $ 73,909 $ 48,703
Other real
estate
and
repossessed
assets $ 9,626 $ 7,443 $ 8,598 $ 5,876 $ 6,253
Non-
performing
loans
to total
loans 4.91% 4.51% 4.28% 4.22% 2.80%
Non-
performing
assets
to total
assets 4.38% 4.09% 3.93% 3.75% 2.61%
Net charge-
offs to
average
loans
(annualized) 0.34% 4.71% 0.95% 0.64% 0.39%
Allowance
for loan
loss to
total loans 1.73% 1.69% 1.81% 1.91% 1.49%
CAPITAL &
LIQUIDITY
Average
equity to
average
assets 7.11% 7.70% 7.77% 7.93% 7.85%
Tier 1
capital
to risk-
weighted
assets 8.94% 8.93% 9.41% 9.40% 9.66%
Total
capital
to risk-
weighted
assets 10.20% 10.18% 10.67% 10.66% 10.91%
Loans to
deposits
+ other
borrowings 88.57% 92.04% 92.66% 93.24% 95.35%
END OF
PERIOD
BALANCES
Total
portfolio
loans $1,761,431 $1,748,629 $1,764,377 $1,750,632 $1,736,370
Earning
assets 2,027,350 1,938,098 1,972,355 1,966,732 1,949,608
Total
assets 2,195,760 2,109,637 2,139,213 2,129,966 2,102,733
Deposits 1,693,601 1,604,012 1,570,428 1,523,553 1,522,003
Total
share-
holders'
equity 152,098 150,549 162,986 160,625 163,731
AVERAGE
BALANCES
Total
portfolio
loans $1,757,583 $1,768,983 $1,757,633 $1,734,325 $1,721,543
Earning
assets 1,984,547 1,980,470 1,970,785 1,949,756 1,966,155
Total
assets 2,142,065 2,131,979 2,116,605 2,099,826 2,116,474
Deposits 1,640,986 1,593,452 1,548,402 1,485,232 1,654,354
Total
share-
holders'
equity 152,219 164,229 164,503 166,591 166,196
Year to Date
-------------------------------
2008 2007
------------ ------------
EARNINGS SUMMARY
Net interest income $ 44,621 $ 48,229
Provision for loan loss 23,585 5,480
Total non-interest income 14,195 11,786
Total non-interest expense 42,121 37,125
Income taxes (3,093) 5,529
Net income $ (3,797) $ 11,881
Basic earnings per share $ (0.22) $ 0.69
Diluted earnings per share $ (0.22) $ 0.68
MARKET DATA
Book value per share $ 8.93 $ 9.64
Market value per share $ 6.99 $ 13.53
Average basic common shares 16,965,073 17,156,961
Average diluted
common shares 16,965,073 17,369,413
Period end common shares 17,024,850 16,982,794
PERFORMANCE RATIOS
Return on average assets -0.24% 0.75%
Return on average equity -3.16% 9.65%
Net interest margin (FTE) 3.01% 3.29%
Efficiency ratio 71.61% 61.86%
ASSET QUALITY
Net charge-offs $ 26,517 $ 2,823
Nonperforming loans $ 86,446 $ 48,703
Other real estate and
repossessed assets $ 9,626 $ 6,253
Nonperforming loans
to total loans 4.91% 2.80%
Nonperforming assets
to total assets 4.38% 2.61%
Net charge-offs to
average loans
(annualized) 2.01% 0.22%
Allowance for loan
loss to total loans 1.73% 1.49%
CAPITAL & LIQUIDITY
Average equity to
average assets 7.52% 7.80%
Tier 1 capital to
risk-weighted assets 8.94% 9.66%
Total capital to
risk-weighted assets 10.20% 10.91%
Loans to deposits +
other borrowings 88.57% 95.35%
END OF PERIOD BALANCES
Total portfolio loans $ 1,761,431 $ 1,736,370
Earning assets 2,027,350 1,949,608
Total assets 2,195,760 2,102,733
Deposits 1,693,601 1,522,003
Total shareholders' equity 152,098 163,731
AVERAGE BALANCES
Total portfolio loans $ 1,761,386 $ 1,722,464
Earning assets 1,978,623 1,956,973
Total assets 2,130,259 2,103,455
Deposits 1,594,450 1,648,701
Total shareholders' equity 160,287 164,103
CONTACT: Macatawa Bank Corporation
Jon Swets, CFO
616.494.7645
Released October 20, 2008