Macatawa Bank Corporation Reports Third Quarter Earnings
Files Lawsuit to Recover Previously Reported Loan Loss
HOLLAND, Mich., Oct. 15, 2007 (PRIME NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced net income for the third quarter of 2007.
Net income for the quarter was $2.46 million, or $0.14 per diluted share, compared to net income of $6.01 million, or $0.35 per diluted share, for the third quarter of 2006. Net income for the first nine months of 2007 totaled $11.88 million, or $0.68 per diluted share, compared to net income of $16.99 million, or $0.98 per diluted share, for the nine months ended September 30, 2006.
"This is proving to be a challenging year for financial institutions across the country, and Macatawa Bank Corporation is no exception," commented Ben Smith, Chairman and CEO. "These results are not where we want them to be. The third quarter of 2006 was the single best quarter in the history of the Company, which makes the year-over-year comparison particularly disappointing."
The Company's third-quarter 2007 earnings are lower than anticipated because it made extra provisions for loan losses related to residential land development loans. This type of loan is utilized by developers to build housing communities, and many of these developments are underperforming. The residential real estate market throughout the country has declined. In Michigan, this decline is compounded by continued softness in the State's economy.
The provision for loan losses was $3.6 million for the quarter compared to $490,000 for the third quarter of 2006. The Company's non-performing loans increased to $48.7 million and represent about 2.8 percent of total loans at September 30, 2007. The majority of the increase was in loans to residential land developers.
"We felt it was fiscally prudent to increase our loan-loss provision for the third quarter because of these challenging market conditions," Mr. Smith said. "It's important to note that residential development loans are small relative to our overall portfolio, accounting for approximately 14 percent of our loans. The remaining 86 percent of the Company's loan portfolio, which includes commercial, industrial, retail and individual mortgages, continues to perform well."
Macatawa Bank has also filed a lawsuit to recover approximately $4.7 million in commercial loans to Grand Rapids resident Michael Vorce and two of his businesses. The lawsuit, which was filed today, October 15, in Kent County Circuit Court, alleges breach of contract, fraud and unjust enrichment against Vorce in connection to loans that he and his business entities obtained from the bank and then failed to repay.
"We believe these loans were falsely secured with collateral that does not exist," said Phil Koning, President. "For the past seven months, Macatawa Bank has led a group of affected banks in collection efforts to mitigate our losses.
"We reported these impaired loans in our fourth-quarter and year-end financial results, taking a one-time charge against earnings that was recorded entirely in 2006. At that time, we told our shareholders and employees that we would aggressively seek to recover these funds. In addition to our ongoing collection efforts, today's lawsuit, which is also asking the courts for interest and attorneys' fees is another step in that direction."
Third quarter net interest income totaled $15.8 million, a decrease of $1.2 million compared to the third quarter of 2006. 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 5% or $93.0 million from the third quarter of 2006 to the third quarter of 2007. The net interest margin was 3.20% for the quarter, down 12 basis points from 3.32% for the second quarter of 2007 and 42 basis points from 3.62% for the third quarter of 2006.
On a consecutive quarter basis, the decline was primarily from a decrease in the yield on loans related to rising balances of non-performing loans. The cost of funds has remained flat for the last two quarters. The recent 50 basis point cut in the Federal funds and prime rates will have a negative impact on net interest income in the near term, although over a full twelve month period the overall impact on earnings is expected to be neutral. The Company's variable rate loan portfolio exceeds the level of variable rate funding, but the fixed rate funding portfolio that reprices over the next twelve months will offset this excess.
Non-interest income was $4.0 million for the third quarter of 2007, an increase of $528,000 or 15% compared to the third quarter of 2006. The Company continues to grow its non-interest revenue across the majority of its service delivery channels. Trust revenue grew $392,000 and revenue from deposit, investment and card services grew as well, more than offsetting lower gains on sales of loans.
Non-interest expense was $12.7 million for the quarter as compared to $11.3 million for the third quarter of 2006. The increases in salaries and benefits, occupancy and furniture and equipment primarily relate to operating costs associated with the new Asset Management Services group and the opening of four new facilities since the beginning of the year. Despite these significant investments for the future, the Company has been able to successfully manage these overhead components within a tight range. The $867,000 increase in other expense is primarily related to increases in legal and other carrying costs associated with non-performing assets and an increase of $249,000 in FDIC assessments. The additional FDIC assessments relate to a change by the FDIC in their charges for all banks effective January 1.
Total assets increased $62.0 million and total loans increased $54.0 million since September 30, 2006. Since the beginning of the year, total assets and total loans have grown $27.9 million and $24.9 million, respectively. Total deposits decreased $110.8 million since September 30, 2006 and $145.6 million since December 31, 2006. One of the Company's institutional depositors withdrew approximately $104 million during the quarter. The withdrawals were associated with planned distributions and the depositor remains an excellent customer for the Company.
The Company has also reduced its holdings of deposits generated from out-of-market brokers during the year. Brokered deposits have declined $90.1 million since December 31, 2006. Accordingly, growth from deposits within the Company's markets has been approximately $45 million since the beginning of the year. The Company remained well-capitalized at September 30, 2007 with a total risk-based capital ratio of 10.9%.
"Macatawa Bank Corporation has always been conservative in our approach to loan-loss reserves. This philosophy, in combination with our strong financial foundation and solid balance sheet, will sustain us through this challenging time. Macatawa Bank Corporation remains confident in the long-term economic health of West Michigan. We are a well-capitalized financial institution committed to the growth and vitality of our community," concluded Mr. Smith.
Conference Call
Macatawa Bank Corporation will hold its quarterly earnings conference call on Tuesday, October 16, 2007, 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, ATMs 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.
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 2007 2006 2007 2006
---------- ---------- ---------- ----------
Total interest
income $ 35,391 $ 34,779 $ 106,005 $ 97,916
Total interest
expense 19,556 17,696 57,776 47,544
---------- ---------- ---------- ----------
Net interest
income 15,835 17,083 48,229 50,372
Provision for
loan loss 3,640 490 5,480 1,990
---------- ---------- ---------- ----------
Net interest
income after
provision for
loan loss 12,195 16,593 42,749 48,382
NON-INTEREST INCOME
Deposit service
charges 1,309 1,256 3,757 3,642
Gain on sale of
loans 255 365 1,068 1,288
Trust fees 1,263 871 3,669 2,493
Other 1,204 1,011 3,292 2,903
---------- ---------- ---------- ----------
Total
non-interest
income 4,031 3,503 11,786 10,326
NON-INTEREST
EXPENSE
Salaries and
benefits 6,461 6,193 18,937 18,524
Occupancy 1,057 910 3,132 2,630
Furniture and
equipment 983 790 2,807 2,362
Other 4,231 3,364 12,249 10,160
---------- ---------- ---------- ----------
Total
non-interest
expense 12,732 11,257 37,125 33,676
---------- ---------- ---------- ----------
Income before
income tax 3,494 8,839 17,410 25,032
Federal income
tax expense 1,037 2,830 5,529 8,046
---------- ---------- ---------- ----------
Net income $ 2,457 $ 6,009 $ 11,881 $ 16,986
========== ========== ========== ==========
Basic earnings
per share $ 0.14 $ 0.35 $ 0.69 $ 1.00
Diluted earnings
per share $ 0.14 $ 0.35 $ 0.68 $ 0.98
Return on average
assets 0.46% 1.20% 0.75% 1.16%
Return on average
equity 5.91% 15.69% 9.65% 15.20%
Net interest
margin 3.20% 3.62% 3.29% 3.71%
Efficiency ratio 64.09% 54.68% 61.86% 55.48%
BALANCE SHEET DATA Sept. 30 Sept. 30 Dec. 31
Assets 2007 2006 2006
---------- ---------- ----------
Cash and due from
banks $ 33,186 $ 36,916 $ 39,882
Federal funds sold -- 5,457 --
Securities
available for
sale 200,058 192,864 198,546
Securities held
to maturity 1,920 2,713 2,711
Federal Home Loan
Bank Stock 12,275 12,915 12,275
Loans held for
sale 1,241 2,232 1,547
Total loans 1,736,370 1,682,359 1,711,450
Less allowance
for loan loss 25,916 22,427 23,259
---------- ---------- ----------
Net loans 1,710,454 1,659,932 1,688,191
---------- ---------- ----------
Premises and
equipment, net 64,054 57,853 60,731
Acquisition
intangibles 29,054 25,571 25,478
Bank-owned life
insurance 22,476 21,558 21,843
Other assets 28,015 23,020 23,612
---------- ---------- ----------
Total Assets $2,102,733 $2,041,031 $2,074,816
========== ========== ==========
Liabilities and
Shareholders'
Equity
Noninterest-bearing
deposits $ 170,792 $ 168,438 $ 180,032
Interest-bearing
deposits 1,351,211 1,464,378 1,487,525
---------- ---------- ----------
Total deposits 1,522,003 1,632,816 1,667,557
Federal funds
purchased 67,974 - 11,990
Other borrowed funds 299,093 202,055 192,018
Long-term debt 41,238 41,238 41,238
Other liabilities 8,694 9,797 5,164
---------- ---------- ----------
Total Liabilities 1,939,002 1,885,906 1,917,967
Shareholders'
equity 163,731 155,125 156,849
---------- ---------- ----------
Total Liabilities
and Shareholders'
Equity $2,102,733 $2,041,031 $2,074,816
========== ========== ==========
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
2007 2007 2007 2006 2006
---------- ---------- ---------- ---------- ----------
EARNINGS SUMMARY
Net
interest
income $ 15,835 $ 16,335 $ 16,059 $ 17,045 $ 17,083
Provision
for loan
loss 3,640 965 875 5,725 490
Total
non-
interest
income 4,031 4,020 3,735 3,851 3,503
Total
non-
interest
expense 12,732 12,605 11,787 11,237 11,257
Income
taxes 1,037 2,195 2,297 1,089 2,830
Net
income $ 2,457 $ 4,590 $ 4,835 $ 2,845 $ 6,009
Basic
earnings
per share $ 0.14 $ 0.27 $ 0.28 $ 0.17 $ 0.35
Diluted
earnings
per share $ 0.14 $ 0.26 $ 0.28 $ 0.16 $ 0.35
MARKET DATA
Book
value
per
share $ 9.65 $ 9.52 $ 9.49 $ 9.20 $ 9.11
Market
value
per
share $ 13.53 $ 15.91 $ 17.52 $ 20.25 $ 21.80
Average
basic
common
shares 17,082,023 17,191,063 17,221,595 17,038,967 17,025,110
Average
diluted
common
shares 17,232,709 17,405,018 17,499,098 17,380,901 17,385,741
Period
end
common
shares 16,962,245 17,170,235 17,226,564 17,044,838 17,032,766
PERFORMANCE RATIOS
Return on
average
assets 0.46% 0.87% 0.93% 0.56% 1.20%
Return on
average
equity 5.91% 11.08% 12.06% 7.17% 15.69%
Net
interest
margin
(FTE) 3.20% 3.32% 3.35% 3.55% 3.62%
Efficiency
ratio 64.09% 61.93% 59.55% 53.78% 54.68%
ASSET QUALITY
Net
charge-
offs $ 1,667 $ 711 $ 445 $ 4,894 $ 208
Nonper-
forming
loans $ 48,703 $ 29,470 $ 16,985 $ 22,290 $ 5,768
Other
real
estate
and re-
possessed
assets $ 6,253 $ 6,302 $ 3,891 $ 3,293 $ 2,758
Nonper-
forming
loans to
total
loans 2.80% 1.71% 0.99% 1.30% 0.34%
Nonper-
forming
assets
to total
assets 2.61% 1.69% 0.98% 1.23% 0.42%
Net
charge-
offs to
average
loans
(annual-
ized) 0.39% 0.16% 0.10% 1.16% 0.05%
Allowance
for loan
loss to
total
loans 1.49% 1.39% 1.38% 1.36% 1.33%
CAPITAL & LIQUIDITY
Average
equity
to
average
assets 7.85% 7.83% 7.71% 7.77% 7.62%
Tier 1
capital
to risk-
weighted
assets 9.66% 9.57% 9.53% 9.49% 9.59%
Total
capital
to risk-
weighted
assets 10.91% 10.93% 10.89% 10.85% 10.95%
Loans to
deposits
+ other
borrow-
ings 95.35% 90.47% 90.26% 92.03% 91.69%
END OF PERIOD BALANCES
Total
port-
folio
loans $1,736,370 $1,724,773 $1,721,192 $1,711,450 $1,682,359
Earning
assets 1,949,608 1,966,563 1,972,111 1,921,735 1,897,447
Total
assets 2,102,733 2,116,295 2,120,043 2,074,816 2,041,031
Deposits 1,522,003 1,661,686 1,639,332 1,667,557 1,632,816
Total
share-
holders'
equity 163,731 163,524 163,406 156,849 155,125
AVERAGE BALANCES
Total
portfolio
loans $1,721,543 $1,732,553 $1,713,204 $1,686,139 $1,664,378
Earning
assets 1,966,155 1,967,055 1,937,392 1,903,566 1,873,191
Total
assets 2,116,474 2,114,974 2,078,501 2,042,005 2,010,840
Deposits 1,654,354 1,645,849 1,645,806 1,616,606 1,605,567
Total
share-
holders'
equity 166,196 165,702 160,348 158,716 153,147
Year to Date
-------------------------
2007 2006
---------- ----------
EARNINGS SUMMARY
Net interest income $ 48,229 $ 50,372
Provision for loan loss 5,480 1,990
Total non-interest income 11,786 10,326
Total non-interest expense 37,125 33,676
Income taxes 5,529 8,046
Net income $ 11,881 $ 16,986
Basic earnings per share $ 0.69 $ 1.00
Diluted earnings per share $ 0.68 $ 0.98
MARKET DATA
Book value per share $ 9.65 $ 9.11
Market value per share $ 13.53 $ 21.80
Average basic common shares 17,156,961 17,002,363
Average diluted common shares 17,369,413 17,397,065
Period end common shares 16,962,245 17,032,766
PERFORMANCE RATIOS
Return on average assets 0.75% 1.16%
Return on average equity 9.65% 15.20%
Net interest margin (FTE) 3.29% 3.71%
Efficiency ratio 61.86% 55.48%
ASSET QUALITY
Net charge-offs $ 2,823 $ 554
Nonperforming loans $ 48,703 $ 5,768
Other real estate and
repossessed assets $ 6,253 $ 2,758
Nonperforming loans to
total loans 2.80% 0.34%
Nonperforming assets
to total assets 2.61% 0.42%
Net charge-offs to average
loans (annualized) 0.22% 0.05%
Allowance for loan loss
to total loans 1.49% 1.33%
CAPITAL & LIQUIDITY
Average equity to average
assets 7.80% 7.66%
Tier 1 capital to risk-weighted
assets 9.66% 9.59%
Total capital to risk-weighted
assets 10.91% 10.95%
Loans to deposits + other
borrowings 95.35% 91.69%
END OF PERIOD BALANCES
Total portfolio loans $1,736,370 $1,682,359
Earning assets 1,949,608 1,897,447
Total assets 2,102,733 2,041,031
Deposits 1,522,003 1,632,816
Total shareholders' equity 163,731 155,125
AVERAGE BALANCES
Total portfolio loans $1,722,464 $1,618,289
Earning assets 1,956,973 1,811,457
Total assets 2,103,455 1,946,142
Deposits 1,648,701 1,560,236
Total shareholders' equity 164,103 149,040
CONTACT: Macatawa Bank
Jon Swets, CFO
616.494.7645
Released October 15, 2007