Macatawa Bank Corporation Reports Second Quarter 2015 Results

HOLLAND, Mich., July 23, 2015 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ:MCBC) today announced its results for the second quarter of 2015, reflecting continued improvement in financial performance.

• Net income of $3.2 million in the second quarter 2015, up 17% from $2.8 million in the second quarter 2014
  
• Second quarter revenue growth of $1.1 million, or 8%, compared to second quarter 2014 resulting from increases in net interest income and gains on sales of mortgage loans
  
• Reduction in total non-interest expenses compared to the first quarter of 2015 and the second quarter of 2014
  
• Despite seasonal paydowns, continued growth in performing loans - up $808,000 from the first quarter 2015  
  
• Nonperforming loans at lowest level since 2005
  
• Past due loans only 0.17% total loans at end of second quarter 2015, another all-time low for the Company
  

Macatawa reported net income of $3.2 million, or $0.09 per diluted share, in the second quarter 2015 compared to $2.8 million, or $0.08 per diluted share, in the second quarter 2014.  For the first six months of 2015, Macatawa reported net income of $6.1 million, or $0.18 per diluted share, compared to $5.4 million, or $0.16 per diluted share, for the same period in 2014.

"The Company’s operating performance continued to improve in the second quarter with 17 percent earnings improvement over the same period in 2014”, said Ronald L. Haan, President and CEO of the Company. “We achieved revenue growth while containing total non-interest expense. Despite significant seasonal paydowns in our agricultural loan portfolio, performing loans continued to grow, increasing by $808,000 during the second quarter. This growth added with growth in the previous three quarters continued to improve our net interest income. Asset quality also improved during the quarter. The Company achieved another record low for quarter-end loan delinquencies at just 0.17 percent of total loans.  Nonperforming loans of $3.7 million were our lowest level since 2005.  Expenses associated with the administration and disposition of problem assets were also down significantly in both the second quarter and year to date periods.” 

Mr. Haan continued: "Non-interest income categories also improved during the second quarter of 2015. Mortgage banking, card services and trust and investment services revenues all increased compared to the second quarter of 2014. Mortgage banking revenues in the second quarter of 2015 exceeded the second quarter of 2014 by $353,000.  Marketing and cross-selling efforts designed to increase debit and ATM card penetration into our customer base were also successful resulting in improved revenue from card services.”

Mr. Haan concluded: "We are pleased with our progress during the first half of 2015. Customer demand for both loan and deposit products remains strong, and continued growth in our loan portfolios in the second half of 2015 should have a positive impact on our earnings performance. Our long-term strategy to drive profitable growth remains unchanged and we are pleased with these results."

Operating Results
Net interest income for the second quarter 2015 totaled $10.8 million, an increase of $193,000 from the first quarter 2015 and an increase of $689,000 from the second quarter 2014.  Net interest margin was 3.01 percent, down 6  basis points from the first quarter 2015, and down 5  basis points from the second quarter 2014. 

Average interest earning assets for the second quarter 2015 increased $44.4 million from the first quarter 2015 and were up $122.2 million from the second quarter 2014. 

Non-interest income increased $217,000 in the second quarter 2015 compared to the first quarter 2015 and increased $444,000 from the second quarter 2014. The increase from the second quarter 2014 was primarily due to increases in gains on sales of mortgage loans as the market for this activity rebounded in late 2014 with a drop in long term interest rates. This continued into the first half of 2015. The Bank originated $28.0 million in loans for sale in the second quarter 2015 compared to $23.4 million in loans for sale in the first quarter 2015 and $12.6 million in loans for sale in the second quarter 2014. Trust and investment services fees were also up in the second quarter of 2015 due to growth in the Bank’s customer base and improved investment market conditions.

Non-interest expense was $11.2 million for the second quarter 2015, compared to $11.9 million for the first quarter 2015 and $11.2 million for the second quarter 2014. The largest fluctuations in non-interest expense related to costs associated with the administration and disposition of problem loans and non-performing assets, which decreased $575,000 compared to the first quarter 2015 and decreased $634,000 compared to the second quarter 2014. Salaries and benefits were down $47,000 compared to the first quarter 2015 and were up $590,000 compared to the second quarter 2014 due a higher level of variable and incentive based compensation and an increase in medical insurance expense resulting from a higher level of claims experienced in 2015.

Federal income tax expense was $1.4 million for the second quarter 2015 compared to $1.2 million for the first quarter 2015 and $1.2 million for the second quarter 2014. The effective tax rate decreased from 30.88% for the second quarter 2014 to 30.63% for the second quarter 2015 as a result of an increase in tax-free municipal investments. 

Asset Quality
As a result of the consistent improvements in nonperforming loans and past due loans over the past several quarters, the reduction in historical loan loss ratios, and large loan recoveries experienced in the second quarter 2015, a negative provision for loan losses of $500,000 was recorded in the second quarter 2015. Net loan recoveries for the second quarter 2015 were $1,000, compared to first quarter 2015 net loan recoveries of $718,000 and second quarter 2014 net loan recoveries of $666,000. The Bank has experienced net loan recoveries in four of the past five quarters, and in eight of the past ten quarters. Total loans past due on payments by 30 days or more amounted to $1.9 million at June 30, 2015, down 34 percent from $2.8 million at December 31, 2014 and down 63 percent from $5.2 million at June 30, 2014.  Delinquency as a percentage of total loans was 0.17 percent at June 30, 2015, another new quarterly low for the Bank.

The allowance for loan losses of $18.1 million was 1.61 percent of total loans at June 30, 2015, compared to 1.70 percent of total loans at December 31, 2014, and 1.92 percent at June 30, 2014.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 489.26 percent as of June 30, 2015, compared to 225.04 percent at December 31, 2014, and 248.59 percent at June 30, 2014. 

At June 30, 2015, the Company's nonperforming loans were $3.7 million, representing 0.33 percent of total loans. This compares to $8.4 million (0.75 percent of total loans) at December 31, 2014 and $8.1 million (0.77 percent of total loans) at June 30, 2014. Other real estate owned and repossessed assets were $26.3 million at June 30, 2015, compared to $28.3 million at December 31, 2014 and $31.6 million at June 30, 2014. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $9.6 million, or 24 percent, from June 30, 2014 to June 30, 2015.

A break-down of non-performing loans is shown in the table below.

Total non-performing assets were $30.0 million, or 1.86 percent of total assets, at June 30, 2015.  A break-down of non-performing assets is shown in the table below.

Balance Sheet, Liquidity and Capital
Total assets were $1.62 billion at June 30, 2015, an increase of $34.2 million from $1.58 billion at December 31, 2014 and an increase of $126.9 million from $1.49 billion at June 30, 2014. Total loans were $1.13 billion at June 30, 2015, an increase of $11.5 million from $1.12 billion at December 31, 2014 and an increase of $86.5 million from $1.04 billion at June 30, 2014.

Commercial loans increased by $6.4 million from December 31, 2014 to June 30, 2015, along with an increase of $5.1 million in our residential mortgage and consumer loan portfolios. Commercial real estate loans decreased by $16.1 million, as the Company continued its efforts to reduce exposure in this segment, and commercial and industrial loans increased by $22.5 million during the same period. 

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

At June 30, 2015, total performing loans amounted to $1.13 billion, an increase of $808,000 from March 31, 2015.  This increase came despite the Bank receiving seasonal paydowns of $28.1 million during the quarter on a portion of its agricultural loan portfolio.

Total deposits were $1.33 billion at June 30, 2015, up $21.5 million from $1.31 billion at December 31, 2014 and were up $112.1 million from $1.22 billion at June 30, 2014. The increase from June 30, 2014 was primarily related to increases in checking, savings and money market accounts, which grew by $146.0 million, or 13 percent, compared to the second quarter 2014. The Bank continues to be successful at attracting and retaining core deposit customers.  Customer deposit accounts remain insured to the highest levels available under FDIC deposit insurance.

The Bank's risk-based regulatory capital ratios decreased slightly in the first quarter 2015 due to asset growth and the impact of applying the new Basel III capital requirements, but increased again in the second quarter 2015 and continue to be at levels among the highest in Bank history, comfortably above levels required to be categorized as “well capitalized” under applicable regulatory capital guidelines. As such, the Bank was categorized as "well capitalized" at June 30, 2015.

About Macatawa Bank
Headquartered in Holland, Mich., Macatawa Bank offers a full range of banking, retail and commercial lending, wealth management and ecommerce services to individuals, businesses and governmental entities from a network of 26 full-service branches located throughout communities in Kent, Ottawa and northern Allegan counties. The bank is recognized for its local management team and decision making, along with providing customers excellent service, a rewarding experience and superior financial products. Macatawa Bank has been awarded for its exceptional commitment to service by readers of the Holland Sentinel as the “Best Bank on the Lakeshore” since 2002, and “Best Bank in Grand Rapids” by readers of Grand Rapids Magazine since 2009. The bank has also been recognized for the past four consecutive years as “West Michigan’s 101 Best and Brightest Companies to Work For”. For more information, visit www.macatawabank.com.

CAUTIONARY STATEMENT: This press release contains forward-looking statements that are based on management's current beliefs, expectations, assumptions, estimates, plans and intentions.  Forward-looking statements are identifiable by words or phrases such as "believe," "may," “should,” "will," "continue," "improving," "additional," "focus," "future," “efforts,” “strategy,” “momentum,” "well positioned," and other similar words or phrases.  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 statements include, among others, statements related to trends in our key operating metrics and financial performance, future levels of earnings and profitability, future levels of earning assets, future asset quality, future growth, future yield compression and future net interest margin. All statements with references to future time periods are forward-looking.  Management's determination of the provision and allowance for loan losses, the appropriate carrying value of intangible assets (including deferred tax assets) and other real estate owned and the fair value of investment securities (including whether any impairment on any investment security is temporary or other-than-temporary and the amount of any impairment) involves judgments that are inherently forward-looking. Our ability to sell other real estate owned at its carrying value or at all, utilize our deferred tax asset, successfully implement new programs and initiatives, increase efficiencies, maintain our current level of deposits and other sources of funding, maintain liquidity, respond to declines in collateral values and credit quality, improve profitability, and produce consistent core earnings is not entirely within our control and is not assured. The future effect of changes in the real estate, financial and credit markets and the national and regional economy on the banking industry, generally, and Macatawa Bank Corporation, specifically, are also inherently uncertain. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions ("risk factors") that are difficult to predict with regard to timing, extend, likelihood and degree of occurrence.  Therefore, actual results and outcomes may materially differ from what may be expressed in or implied by such forward-looking statements. 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.

Risk factors include, but are not limited to, the risk factors described in "Item 1A - Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2014. These and other factors are representative of the risk factors that may emerge and could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

CONTACT:
Macatawa Bank Corporation
macatawabank.com 

Released July 23, 2015