Macatawa Bank Corporation Reports 2nd Quarter Results
HOLLAND, Mich., July 14, 2008 (PRIME NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its results for the second quarter of 2008.
Net income amounted to $2.17 million, or $0.13 per diluted share, for the 2nd quarter of 2008 compared to net income of $4.59 million, or $0.26 per diluted share, for the same period in 2007. Net income for the first six months of 2008 totaled $4.61 million, or $0.27 per diluted share, compared to net income of $9.43 million, or $0.54 per diluted share, for the six months ended June 30, 2007. The Company recorded loan loss provisions of $3.5 million in the 2nd quarter of 2008. The elevated loan loss provision led to the reduced earnings for the current quarter when compared to the prior year.
"As we move through 2008, local, regional and national banks continue to report significant loan losses and contingent capital plans to respond to the struggling economy and the shift occurring within the credit markets. Although we are not immune to the impact this is having on bank loan portfolios, Macatawa remains profitable, well capitalized and sufficiently reserved for possible future loan losses," commented Ben Smith, Chairman and CEO. Although elevated, the Company's loan loss provision continues to moderate since the fourth quarter of last year. "We remain intensely focused upon improving loan quality," added Mr. Smith. The Company's loan loss reserve remained flat since the first quarter at 1.80% of total loans at June 30, 2008.
Second quarter net interest income totaled $15.1 million, a decrease of $1.2 million compared to the second 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 $13.4 million from the second quarter of 2007 to the second quarter of 2008. The net interest margin was 3.06% for the quarter, down 26 basis points from 3.32% for the second quarter of 2007. Only 6 of the 26 basis point decline in the net interest margin over the last twelve months related to the impact of Federal funds rate cuts. The remaining margin decline was associated with higher balances of non-performing assets.
However, on a consecutive quarter basis the net interest margin of 3.06% was an improvement by seven basis points from 2.99% for the first quarter of 2008. The Company was able to improve its net interest margin despite significant interest rate cuts by the Federal Reserve. The increase was primarily because the costs of funds declined faster than the yield on assets despite the 225 basis point cuts in the Federal funds and prime rates that have occurred since the beginning of the year. The combination of deposit repricing, the rollover of time deposits and the repositioning of other borrowings within the lower rate environment are the reasons for the decline in the costs of funds. This stability in net interest margin indicates that the Company has a well balanced interest rate risk position.
Non-interest income was $5.1 million for the second quarter of 2008, an increase of $1.0 million compared to the second quarter of 2007. The increase includes approximately $412,000 and $243,000, respectively, of gains on the sale of securities and the termination of certain borrowings. The Company chose to execute these transactions to support its shift to a more balanced sensitivity to future interest rate changes.
The Company also experienced growth in noninterest income across many service offerings. Increases in revenues from deposit services, investment services, ATM and debit card processing and reverse mortgages offset slight 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 rising mortgage rates associated with corrections in the housing market have caused the decrease in gains on mortgage loans sold. "Despite these market headwinds, we are encouraged by our momentum within each of our lines of business," stated Mr. Smith.
Non-interest expense was $13.6 million for the quarter as compared to $12.6 million for the second quarter of 2007. The $530,000 increase in salaries and benefits relates to general staff additions and merit increases since the prior year. The staff additions were in varied positions throughout the Company including risk management, credit administration and problem asset departments, and selective sales personnel to support growth in deposits and commercial and industrial lending. The $353,000 increase in other expense includes increases in costs associated with administration and disposition of non-performing assets, FDIC insurance premium assessments and third party processing costs from increased customer usage of ATM and debit cards. Costs associated with administration and disposition of non-performing assets amounted to $662,000 in the current quarter compared to $231,000 for the second quarter of 2007. The Company has been able to manage costs in other areas to offset these increases.
Total assets were $2.12 billion at both June 30, 2008 and 2007. Total loans increased $41.0 million since June 30, 2007, primarily in consumer mortgages, to $1.77 billion at June 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 June 30, December 31, June 30,
2008 2007 2007
---------- ---------- ----------
Construction and land development $ 319,379 $ 335,366 $ 348,510
Farmland & agricultural 23,185 30,371 27,890
Non-farm, non-residential 462,204 454,764 462,805
Multi-family 29,921 35,381 36,642
---------- ---------- ----------
Total Commercial Real Estate 834,690 855,882 875,847
Commercial and Industrial 441,882 438,743 429,639
---------- ---------- ----------
Total Commercial Loans $1,276,572 $1,294,625 $1,305,486
========== ========== ==========
Commercial real estate loans declined $41.2 million while commercial and industrial loans grew by $12.2 million since June 30, 2007. Loans for the development or sale of 1-4 family residential properties were $242.9 million at June 30, 2008. Of this total, approximately $31.9 million is secured by vacant land, $132.8 million is secured by developed residential land and $78.2 million is secured by 1-4 family properties held for speculative purposes.
The Company's non-performing loans increased $4.6 million to $80.2 million since the prior quarter and represent about 4.54% of total loans at June 30, 2008. The increase was largely from loans already identified on the Company's internal watch list. Loans to residential developers comprise the majority of the balance in non-performing loans. Management believes non-performing loans are either well collateralized or adequately reserved.
A breakdown of non-performing assets is shown in the table below:
Dollars in 000s June 30, December 31,
2008 2007
-------- --------
Commercial Real Estate $ 71,860 $ 68,634
Commercial and Industrial 5,929 4,116
-------- --------
Total Commercial Loans 77,789 72,750
Residential Mortgage Loans 1,634 641
Consumer Loans 770 518
-------- --------
Total Non-Performing Loans $ 80,193 $ 73,909
Other Repossessed Assets 333 172
Other Real Estate Owned 7,960 5,704
-------- --------
Total Non-Performing Assets $ 88,486 $ 79,785
======== ========
Loans for the development or sale of 1-4 family residential properties that were in a non-performing status were approximately $62.9 million or 78% of non-performing loans at June 30, 2008 compared to $57.4 million or 78% of total non-performing loans at December 31, 2007.
Total deposits grew $80.5 million since December 31, 2007 to $1.60 billion at June 30, 2008. Approximately $41 million of the growth was from deposits generated within the Company's markets while the remaining $39.2 million was from deposits generated through brokers. The growth in deposits allowed the Company to reduce its other borrowing levels since the beginning of the year.
Since June 30, 2007, total deposits declined by $57.7 million. The decline was primarily attributed to one of the Company's institutional depositors whose balances decreased by $140 million during the last twelve months. The withdrawals were associated with planned distributions and the depositor remains an excellent customer for the Company. Excluding the impact of these withdrawals, deposits have grown by approximately $82 million since June 30, 2007.
The Company remained well-capitalized at June 30, 2008 with a total risk-based capital ratio of 10.7%. "The Macatawa franchise remains strong. We are committed to West Michigan, continually positioning ourselves for its ultimate recovery," concluded Mr. Smith.
Conference Call
Macatawa Bank Corporation will hold its quarterly earnings conference call on Tuesday, July 15, 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 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 2008 2007 2008 2007
-------- -------- -------- --------
Total interest income $ 29,199 $ 35,683 $ 60,515 $ 70,615
Total interest expense 14,112 19,348 30,731 38,220
-------- -------- -------- --------
Net interest income 15,087 16,335 29,784 32,395
Provision for loan loss 3,500 965 6,200 1,840
-------- -------- -------- --------
Net interest income
after provision for
loan loss 11,587 15,370 23,584 30,555
NON-INTEREST INCOME
Deposit service charges 1,322 1,306 2,563 2,448
Gain on sale of loans 343 370 819 813
Trust fees 1,164 1,209 2,334 2,406
Other 2,226 1,135 4,342 2,088
-------- -------- -------- --------
Total non-interest
income 5,055 4,020 10,058 7,755
NON-INTEREST EXPENSE
Salaries and benefits 6,875 6,345 13,776 12,475
Occupancy 1,114 1,020 2,339 2,075
Furniture and equipment 992 933 1,985 1,825
Other 4,660 4,307 9,132 8,018
-------- -------- -------- --------
Total non-interest
expense 13,641 12,605 27,232 24,393
-------- -------- -------- --------
Income before income
tax 3,001 6,785 6,410 13,917
Federal income tax
expense 830 2,195 1,801 4,492
-------- -------- -------- --------
Net income $ 2,171 $ 4,590 $ 4,609 $ 9,425
======== ======== ======== ========
Basic earnings per share $ 0.13 $ 0.27 $ 0.27 $ 0.55
Diluted earnings per
share $ 0.13 $ 0.26 $ 0.27 $ 0.54
Return on average assets 0.41% 0.87% 0.43% 0.90%
Return on average equity 5.29% 11.08% 5.61% 11.56%
Net interest margin 3.06% 3.32% 3.03% 3.33%
Efficiency ratio 67.72% 61.93% 68.35% 60.75%
BALANCE SHEET DATA June 30, December 31, June 30,
Assets 2008 2007 2007
----------- ----------- -----------
Cash and due from banks $ 41,261 $ 49,816 $ 33,192
Federal funds sold 7,759 -- 30,123
Securities available
for sale 169,378 201,498 194,066
Securities held to
maturity 1,840 1,917 1,921
Federal Home Loan Bank
Stock 12,275 12,275 12,275
Loans held for sale 992 3,127 1,597
Total loans 1,765,779 1,750,632 1,724,773
Less allowance for loan
loss 31,769 33,422 23,943
----------- ----------- -----------
Net loans 1,734,010 1,717,210 1,700,830
----------- ----------- -----------
Premises and equipment,
net 64,284 64,564 64,202
Acquisition intangibles 28,722 28,942 29,166
Bank-owned life
insurance 23,164 22,703 22,258
Other assets 35,041 27,914 26,665
----------- ----------- -----------
Total Assets $2,118,726 $ 2,129,966 $ 2,116,295
=========== =========== ===========
Liabilities and
Shareholders' Equity
Noninterest-bearing
deposits $ 186,688 $ 185,681 $ 170,308
Interest-bearing deposits 1,417,324 1,337,872 1,491,378
----------- ----------- -----------
Total deposits 1,604,012 1,523,553 1,661,686
Federal funds purchased 8,500 46,467 -
Other borrowed funds 295,775 354,052 244,760
Long Term Debt 41,238 41,238 41,238
Other liabilities 8,375 4,031 5,087
----------- ----------- -----------
Total Liabilities 1,957,900 1,969,341 1,952,771
Shareholders' equity 160,826 160,625 163,524
----------- ----------- -----------
Total Liabilities and
Shareholders' Equity $ 2,118,726 $ 2,129,966 $ 2,116,295
=========== =========== ===========
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
2008 2008 2007 2007 2007
----------- ----------- ----------- ----------- -----------
EARNINGS
SUMMARY
Net
interest
income $ 15,087 $ 14,697 $ 14,687 $ 15,835 $ 16,335
Provision
for loan
loss 3,500 2,700 10,270 3,640 965
Total non-
interest
income 5,055 5,003 4,312 4,031 4,020
Total non-
interest
expense 13,641 13,591 13,135 12,732 12,605
Income
taxes 830 971 (1,794) 1,037 2,195
Net
income $ 2,171 $ 2,438 $ (2,612) $ 2,457 $ 4,590
Basic
earnings
per
share $ 0.13 $ 0.14 $ (0.15) $ 0.14 $ 0.27
Diluted
earnings
per
share $ 0.13 $ 0.14 $ (0.15) $ 0.14 $ 0.26
MARKET
DATA
Book
value
per
share $ 9.45 $ 9.58 $ 9.47 $ 9.64 $ 9.52
Market
value
per
share $ 8.00 $ 10.41 $ 8.59 $ 13.53 $ 15.91
Average
basic
common
shares 16,970,634 16,951,183 16,969,316 17,082,023 17,191,063
Average
diluted
common
shares 17,015,207 17,003,229 16,969,316 17,232,709 17,405,018
Period
end
common
shares 17,021,379 17,017,028 16,968,398 16,982,794 17,170,235
PERFORMANCE
RATIOS
Return on
average
assets 0.41% 0.46% -0.50% 0.46% 0.87%
Return on
average
equity 5.29% 5.93% -6.27% 5.91% 11.08%
Net interest
margin (FTE) 3.06% 2.99% 3.00% 3.20% 3.32%
Efficiency
ratio 67.72% 68.99% 69.14% 64.09% 61.93%
ASSET
QUALITY
Net
charge-
offs $ 3,685 $ 4,168 $ 2,764 $ 1,667 $ 711
Nonperform-
ing
loans $ 80,193 $ 75,571 $ 73,909 $ 48,703 $ 29,470
Other
real
estate
and
repos-
sessed
assets $ 8,293 $ 8,598 $ 5,876 $ 6,253 $ 6,302
Nonperform-
ing loans
to total
loans 4.54% 4.28% 4.22% 2.80% 1.71%
Nonperform-
ing assets
to total
assets 4.18% 3.93% 3.75% 2.61% 1.69%
Net charge-
offs to
average
loans
(annualized) 0.83% 0.95% 0.64% 0.39% 0.16%
Allowance
for loan
loss to
total loans 1.80% 1.81% 1.91% 1.49% 1.39%
CAPITAL &
LIQUIDITY
Average
equity to
average
assets 7.70% 7.77% 7.93% 7.85% 7.83%
Tier 1
capital to
risk-
weighted
assets 9.44% 9.41% 9.40% 9.66% 9.57%
Total
capital to
risk-
weighted
assets 10.70% 10.67% 10.66% 10.91% 10.93%
Loans to
deposits +
other
borrowings 92.95% 92.66% 93.24% 95.35% 90.47%
END OF
PERIOD
BALANCES
Total
portfolio
loans $1,765,779 $1,764,377 $1,750,632 $1,736,370 $1,724,773
Earning
assets 1,955,248 1,972,355 1,966,732 1,949,608 1,966,563
Total
assets 2,118,726 2,139,213 2,129,966 2,102,733 2,116,295
Deposits 1,604,012 1,570,428 1,523,553 1,522,003 1,661,686
Total
sharehold-
ers'
equity 160,826 162,986 160,625 163,731 163,524
AVERAGE
BALANCES
Total
portfolio
loans $1,768,983 $1,757,633 $1,734,325 $1,721,543 $1,732,553
Earning
assets 1,980,470 1,970,785 1,949,756 1,966,155 1,967,055
Total
assets 2,131,979 2,116,605 2,099,826 2,116,474 2,114,974
Deposits 1,593,452 1,548,402 1,485,232 1,654,354 1,645,849
Total
sharehold-
ers'
equity 164,229 164,503 166,591 166,196 165,702
Year to Date
------------------------
2008 2007
----------- -----------
EARNINGS SUMMARY
Net interest income $ 29,784 $ 32,395
Provision for loan loss 6,200 1,840
Total non-interest income 10,058 7,755
Total non-interest expense 27,232 24,393
Income taxes 1,801 4,492
Net income $ 4,609 $ 9,425
Basic earnings per share $ 0.27 $ 0.55
Diluted earnings per share $ 0.27 $ 0.54
MARKET DATA
Book value per share $ 9.45 $ 9.52
Market value per share $ 8.00 $ 15.91
Average basic common shares 16,960,909 17,195,050
Average diluted common shares 17,009,528 17,443,100
Period end common shares 17,021,379 17,170,235
PERFORMANCE RATIOS
Return on average assets 0.43% 0.90%
Return on average equity 5.61% 11.56%
Net interest margin (FTE) 3.03% 3.33%
Efficiency ratio 68.35% 60.75%
ASSET QUALITY
Net charge-offs $ 7,853 $ 1,156
Nonperforming loans $ 80,193 $ 29,470
Other real estate and repossessed assets $ 8,293 $ 6,302
Nonperforming loans to total loans 4.54% 1.71%
Nonperforming assets to total assets 4.18% 1.69%
Net charge-offs to average loans
(annualized) 0.89% 0.13%
Allowance for loan loss to total loans 1.80% 1.39%
CAPITAL & LIQUIDITY
Average equity to average assets 7.74% 7.78%
Tier 1 capital to risk-weighted assets 9.44% 9.57%
Total capital to risk-weighted assets 10.70% 10.93%
Loans to deposits + other borrowings 92.95% 90.47%
END OF PERIOD BALANCES
Total portfolio loans $ 1,765,779 $ 1,724,773
Earning assets 1,955,248 1,966,563
Total assets 2,118,726 2,116,295
Deposits 1,604,012 1,661,686
Total shareholders' equity 160,826 163,524
AVERAGE BALANCES
Total portfolio loans $ 1,763,308 $ 1,722,932
Earning assets 1,975,628 1,952,305
Total assets 2,124,292 2,096,838
Deposits 1,570,927 1,645,828
Total shareholders' equity 164,366 163,040
CONTACT: Macatawa Bank Corporation
Jon Swets, CFO
616.494.7645
Released July 14, 2008