Macatawa Bank Corporation Reports Second Quarter 2014 Results

HOLLAND, Mich., July 24, 2014 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its results for the second quarter of 2014, continuing its trend of improvement in key operating metrics and financial performance.

  • Net income increased to $2.8 million in the second quarter 2014 from $2.6 million in the second quarter 2013
  • Paid second consecutive quarterly cash dividend - $0.02 per share paid on May 29, 2014 to shareholders of record on May 8, 2014
  • Total performing loan portfolio growth of $20.9 million in the second quarter 2014
  • Strong loan collection results exemplified by net recoveries once again – net recoveries of $666,000 for the second quarter 2014, net recoveries in five of the previous six quarters
  • Low loan delinquency rate of 0.50% - lowest level in over 11 years
  • Decrease in mortgage banking activity – gains on sales down consistent with industry-wide declines
  • Further expense reductions – total non-interest expense decreased by $637,000 for the second quarter 2014 compared to the second quarter 2013

Macatawa reported net income of $2.8 million, or $0.08 per diluted share, in the second quarter 2014 compared to net income of $2.6 million, or $0.10 per diluted share, for the second quarter 2013. For the first six months of 2014, Macatawa reported $5.4 million, or $0.16 per diluted share, compared to $5.1 million, or $0.19 per diluted share, for the same period in 2013. The 2014 per share information reflects the impact of the exchange of all of our outstanding preferred stock for common stock and cash completed at the end of 2013.

"The Company is pleased to report improved earnings in the second quarter 2014 compared to both the second quarter 2013 and the first quarter 2014," said Ronald L. Haan, President and CEO of the Company. "With asset quality improving, we continue to increase our focus on the operating fundamentals of our business. Our financial performance continues to improve quarter over quarter, and we are well positioned for profitable growth."

Mr. Haan continued: "Net income for the second quarter 2014 reflected continued improvement in operating results. Our collection efforts yielded strong loan recoveries which led to further favorable levels of provision for loan losses. Noninterest income increased in all categories except for net gains on sales of mortgage loans, which were down this quarter due to the lower mortgage volumes experienced throughout the industry. We made significant progress towards eliminating the costs associated with holding and disposing of nonperforming assets, and also reduced several other core expense categories reflecting our ongoing focus on improving earnings performance."

Mr. Haan concluded: "Looking forward, our commercial loan pipeline is strong and we are focused on profitable growth. Performing loan portfolio balances increased $20.9 million since the end of the first quarter 2014 and we believe we are well positioned for additional growth over the remainder of 2014. This growth is the foundation for producing stronger future earnings for our shareholders."

Operating Results

Net interest income for the second quarter 2014 totaled $10.2 million, a decrease of $319,000 from the first quarter 2014 and a decrease of $307,000 from the second quarter 2013. Net interest margin was 3.06 percent, down 9 basis points from the first quarter 2014 and from the second quarter 2013. Margin in the first quarter 2014 benefitted from a large interest recovery on a previously charged off loan. Loan yield compression seems to be bottoming, and adjustments made to rates on certain deposit products in the middle of the first quarter 2014 will further benefit margin in future quarters. 

Average interest earning assets for the second quarter 2014 decreased $12.1 million from the first quarter 2014 and were up $6.3 million from the second quarter 2013. 

Non-interest income increased $558,000 in the second quarter 2014 compared to the first quarter 2014 and decreased $143,000 from the second quarter 2013. The increase from the first quarter 2014 was due to increased ATM and debit card interchange income and increased gains on sales of mortgage loans. The decrease from the second quarter 2013 was due to decreases in gains on sales of mortgage loans as the market for this activity contracted beginning in the second part of 2013 with the rise in market interest rates.  The Bank originated $12.6 million in loans for sale in the second quarter 2014 compared to $14.1 million in loans for sale in the first quarter 2014 and $33.4 million in loans for sale in the second quarter 2013. All other categories of non-interest income improved in the second quarter 2014.

Non-interest expense was $11.2 million for the second quarter 2014, compared to $11.2 million for the first quarter 2014 and $11.9 million for the second quarter 2013. The largest fluctuations in non-interest expense related to costs associated with the administration and disposition of problem loans and non-performing assets, which increased $416,000 compared to the first quarter 2014 and decreased $412,000 compared to the second quarter 2013. The increase compared to the first quarter 2014 was due to net gains on sales of other real estate owned in the first quarter of $484,000. The decrease from the second quarter of 2013 related to an overall general decline in these expenses as a result of the Company's success in reducing non-performing assets. Salaries and benefits were down $279,000 compared to the first quarter 2014 and were down $188,000 compared to the second quarter 2013 due to lower levels of medical insurance costs and lower commissions paid for mortgage origination activity. 

Federal income tax expense was $1.2 million for the second quarter 2014 compared to $1.2 million for the first quarter 2014 and $1.2 million for the second quarter 2013. The effective tax rate decreased from 31.48% for the second quarter 2013 to 30.88% for the second quarter 2014 as a result of an increase in tax-exempt municipal investments. 

Asset Quality

As a result of the consistent improvements in nonperforming loans and past due loans over the past several quarters, and the reduction in historical loan loss ratios, a negative provision for loan losses of $1.0 million was recorded in the second quarter 2014. Net loan recoveries for the second quarter 2014 were $666,000, compared to first quarter 2014 net loan recoveries of $585,000 and second quarter 2013 net loan charge-offs of $238,000. The Bank has experienced net loan recoveries in five of the past six quarters. Total loans past due on payments by 30 days or more amounted to $5.2 million at June 30, 2014, down from $6.6 million at March 31, 2014 and $6.7 million at June 30, 2014. Delinquency as a percentage of total loans was 0.50% at June 30, 2014, the lowest quarterly level for the Bank in 11 years.

The allowance for loan losses of $20.0 million was 1.92 percent of total loans at June 30, 2014, compared to 1.98 percent of total loans at March 31, 2014, and 2.20 percent at June 30, 2013. The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 248.59 percent as of June 30, 2014, compared to 131.10 percent at March 31, 2014, and 206.50 percent at June 30, 2013. 

At June 30, 2014, the Company's nonperforming loans were $8.1 million, representing 0.77 percent of total loans. This compares to $15.5 million (1.51 percent of total loans) at March 31, 2014 and $10.8 million (1.06 percent of total loans) at June 30, 2013. Other real estate owned and repossessed assets were $31.6 million at June 30, 2014, compared to $34.1 million at March 31, 2014, and were down significantly from $45.8 million at June 30, 2013. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $17.0 million, or 30 percent, from June 30, 2013 to June 30, 2014.

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

Dollars in 000s June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
           
Commercial Real Estate $ 3,955 $ 6,299 $ 5,706 $ 4,934 $ 5,701
Commercial and Industrial  3,485 8,077 5,625 4,240 4,081
 Total Commercial Loans 7,440 14,376 11,331 9,174 9,782
Residential Mortgage Loans 142 762 639 639 619
Consumer Loans 483 410 365 407 373
 Total Non-Performing Loans $ 8,065 $ 15,548 $ 12,335 $ 10,220 $ 10,774
           
Residential Developer Loans (a) $ 2,249 $ 2,205 $ 2,591 $ 2,651 $ 2,723
 
(a) Represents the amount of loans to residential developers secured by single family residential property which is included in non-performing commercial loans secured by real estate.

Total non-performing assets were $39.6 million, or 2.66 percent of total assets, at June 30, 2014. A break-down of non-performing assets is shown in the table below.

Dollars in 000s June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
           
Non-Performing Loans $ 8,065 $ 15,548 $ 12,335 $ 10,220 $ 10,774
Other Repossessed Assets 48 42 40 -- --
Other Real Estate Owned 31,523 34,035 36,796 42,796 45,845
Total Non-Performing Assets $ 39,636 $ 49,625 $ 49,171 $ 53,016 $ 56,619

Balance Sheet, Liquidity and Capital

Total assets were $1,491.1 million at June 30, 2014, a decrease of $26.3 million from $1,517.4 million at December 31, 2013 and an increase of $14.3 million from $1,476.8 million at June 30, 2013. Total loans were $1,043.5 million at June 30, 2014, an increase of $1.2 million from $1,042.4 million at December 31, 2013 and an increase of $30.6 million from $1,012.9 million at June 30, 2013.

Commercial loans increased by $2.3 million from December 31, 2013 to June 30, 2014, partially offset by a decrease of $1.2 million in our residential mortgage and consumer loan portfolios. Commercial real estate loans were reduced by $7.7 million, as the Company continued its efforts to reduce exposure in this segment, and commercial and industrial loans increased by $10.1 million during the same period. 

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

Dollars in 000s June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
June 30,
2013
           
Construction and Development $ 84,448 $ 84,875 $ 86,413 $ 86,824 $ 81,841
Other Commercial Real Estate 380,146 378,322 385,927 395,108 397,814
Commercial Loans Secured by Real Estate 464,594 463,197 472,340 481,932 479,655
Commercial and Industrial 284,152 271,924 274,099 253,216 242,759
Total Commercial Loans $ 748,746 $ 735,121 $ 746,439 $ 735,148 $ 722,414
           
Residential Developer Loans (a) $ 33,622 $ 33,970 $ 35,164 $ 39,886 $ 41,903
 
(a) Represents the amount of loans to residential developers secured by single family residential property which is included in commercial loans secured by real estate.

Total deposits were $1,215.7 million at June 30, 2014, down $34.0 million from $1,249.7 million at December 31, 2013 and were up $16.1 million from $1,199.6 million at June 30, 2013. Balances in checking, savings and money market accounts grew by 4.63 percent compared to the second quarter 2013. Partially offsetting this was continued intentional run-off of higher costing certificates of deposit. These balances decreased $32.0 million from June 30, 2013. 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 regulatory capital increased in the second quarter 2014 and continued 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. The Bank was categorized as "well capitalized" at June 30, 2014.

About Macatawa Bank

Headquartered in Holland, Michigan, Macatawa Bank Corporation is the parent company for Macatawa Bank. Through its banking subsidiary, the Company 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 Company emphasizes its local management team and decision making, along with providing customers excellent service and superior financial products.

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," "will," "continue," "improving," "efforts," "focus," "future," "well positioned," "looking forward," "seems" 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, our ability to further reduce nonperforming asset levels and related expenses and future earnings for our shareholders. The declaration and payment of future dividends to common shareholders will be considered by the Board of Directors in its discretion and will depend on a number of factors, including our financial condition and anticipated profitability. 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, 2013. 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.

               
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   2014 2013 2014 2013    
Total interest income    $ 11,528  $ 12,307  $ 23,498  $ 24,740    
Total interest expense    1,372  1,844  2,867  3,793    
Net interest income    10,156  10,463  20,631  20,947    
Provision for loan losses    (1,000)  (1,000)  (2,000)  (1,750)    
Net interest income after provision for loan losses    11,156  11,463  22,631  22,697    
               
NON-INTEREST INCOME              
Deposit service charges    1,065  1,017  2,056  1,969    
Net gains on mortgage loans    468  708  726  1,533    
Trust fees    701  625  1,332  1,213    
Other     1,834  1,861  3,464  3,459    
Total non-interest income    4,068  4,211  7,578  8,174    
               
NON-INTEREST EXPENSE              
Salaries and benefits    5,544  5,732  11,367  11,525    
Occupancy    932  905  1,940  1,851    
Furniture and equipment    751  845  1,591  1,595    
FDIC assessment    320  345  647  817    
Administration and disposition of problem assets    887  1,299  1,357  2,261    
Other    2,804  2,749  5,506  5,407    
Total non-interest expense    11,238  11,875  22,408  23,456    
Income before income tax    3,986  3,799  7,801  7,415    
Income tax expense    1,231  1,196  2,408  2,338    
Net income    $ 2,755  $ 2,603  $ 5,393  $ 5,077    
Net income attributable to common shareholders    $ 2,755  $ 2,603  $ 5,393  $ 5,077    
               
Basic earnings per common share    $ 0.08  $ 0.10  $ 0.16  $ 0.19    
Diluted earnings per common share    $ 0.08  $ 0.10  $ 0.16  $ 0.19    
Return on average assets    0.75% 0.70% 0.73% 0.69%    
Return on average equity   8.03% 7.74% 7.94% 7.62%    
Net interest margin   3.06% 3.15% 3.10% 3.14%    
Efficiency ratio   79.01% 80.93% 79.44% 80.55%    
               
               
               
BALANCE SHEET DATA      June 30 December 31 June 30    
Assets     2014 2013 2013    
Cash and due from banks      $ 37,533  $ 38,714  $ 27,605    
Federal funds sold and other short-term investments      80,432  118,178  129,849    
Interest-bearing time deposits in other financial institutions      32,500  25,000  25,000    
Securities available for sale      152,227  139,659  129,659    
Securities held to maturity      19,123  19,248  5,380    
Federal Home Loan Bank Stock      11,236  11,236  11,236    
Loans held for sale      1,409  1,915  4,553    
Total loans      1,043,529  1,042,377  1,012,887    
Less allowance for loan loss      20,049  20,798  22,248    
Net loans      1,023,480  1,021,579  990,639    
Premises and equipment, net      53,308  53,641  53,302    
Bank-owned life insurance      27,845  27,517  27,162    
Other real estate owned      31,523  36,796  45,845    
Other assets      20,526  23,922  26,598    
               
Total Assets      $ 1,491,142  $ 1,517,405  $ 1,476,828    
               
Liabilities and Shareholders' Equity              
Noninterest-bearing deposits      $ 383,102  $ 344,550  $ 318,981    
Interest-bearing deposits      832,622  905,184  880,597    
Total deposits      1,215,724  1,249,734  1,199,578    
Other borrowed funds      88,774  89,991  90,658    
Subordinated debt      --   --   1,650    
Long-term debt      41,238  41,238  41,238    
Other liabilities      7,314  3,920  10,452    
Total Liabilities      1,353,050  1,384,883  1,343,576    
               
Shareholders' equity      138,092  132,522  133,252    
               
Total Liabilities and Shareholders' Equity      $ 1,491,142  $ 1,517,405  $ 1,476,828    
               
               
MACATAWA BANK CORPORATION              
SELECTED CONSOLIDATED FINANCIAL DATA              
(Unaudited)              
               
(Dollars in thousands except per share information)              
  Quarterly Year to Date
               
  2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr    
  2014 2014 2013 2013 2013 2014 2013
EARNINGS SUMMARY              
Net interest income  $ 10,156  $ 10,475  $ 10,212  $ 10,124  $ 10,463  $ 20,631  $ 20,947
Provision for loan losses  (1,000)  (1,000)  (1,000)  (1,500)  (1,000)  (2,000)  (1,750)
Total non-interest income  4,068  3,510  4,016  3,951  4,211  7,578  8,174
Total non-interest expense  11,238  11,169  12,036  12,362  11,875  22,408  23,456
Federal income tax expense (benefit)  1,231  1,177  958  975  1,196  2,408  2,338
Net income  $ 2,755  $ 2,639  $ 2,234  $ 2,238  $ 2,603 $ 5,393 $ 5,077
               
Basic earnings per common share  $ 0.08  $ 0.08  $ (0.56)  $ 0.08  $ 0.10  $ 0.16  $ 0.19
Diluted earnings per common share  $ 0.08  $ 0.08  $ (0.56)  $ 0.08  $ 0.10  $ 0.16  $ 0.19
               
MARKET DATA              
Book value per common share  $ 4.09  $ 4.00  $ 3.92  $ 3.77  $ 3.68  $ 4.09  $ 3.68
Tangible book value per common share  $ 4.09  $ 4.00  $ 3.92  $ 3.77  $ 3.68  $ 4.09  $ 3.68
Market value per common share  $ 5.07  $ 5.04  $ 5.00  $ 5.38  $ 5.04  $ 5.07  $ 5.04
Average basic common shares  33,788,431  33,790,542  27,276,722  27,261,325  27,260,748  33,789,481  27,185,505
Average diluted common shares  33,788,431  33,790,542  27,276,722  27,261,325  27,260,748  33,789,481  27,185,505
Period end common shares  33,788,431  33,788,431  33,801,097  27,261,325  27,261,325  33,788,431  27,261,325
               
PERFORMANCE RATIOS              
Return on average assets 0.75% 0.71% 0.58% 0.59% 0.70% 0.73% 0.68%
Return on average equity 8.03% 7.85% 6.54% 6.67% 7.74% 7.94% 7.62%
Net interest margin (fully taxable equivalent) 3.06% 3.15% 2.95% 2.96% 3.15% 3.11% 3.14%
Efficiency ratio 79.01% 79.86% 84.59% 87.83% 80.93% 79.44% 80.55%
Full-time equivalent employees (period end) 348 354 361 363 360 348 360
               
ASSET QUALITY              
Gross charge-offs  $ 92  $ 82  $ 508  $ 354  $ 698  $ 174  $ 1,341
Net charge-offs  $ (666)  $ (585)  $ (526)  $ (523)  $ 238  $ (1,251)  $ (260)
Net charge-offs to average loans (annualized) -0.26% -0.23% -0.20% -0.21% 0.09% -0.24% -0.05%
Nonperforming loans  $ 8,065  $ 15,548  $ 12,335  $ 10,220  $ 10,774  $ 8,065  $ 10,774
Other real estate and repossessed assets  $ 31,571  $ 34,077  $ 36,836  $ 42,796  $ 45,845  $ 31,571  $ 45,845
Nonperforming loans to total loans 0.77% 1.51% 1.18% 0.99% 1.06% 0.77% 1.06%
Nonperforming assets to total assets 2.66% 3.33% 3.24% 3.39% 3.83% 2.66% 3.83%
Allowance for loan losses  $ 20,049  $ 20,383  $ 20,798  $ 21,272  $ 22,248  $ 20,049  $ 22,248
Allowance for loan losses to total loans 1.92% 1.98% 2.00% 2.07% 2.20% 1.92% 2.20%
Allowance for loan losses to nonperforming loans 248.59% 131.10% 168.61% 208.14% 206.50% 248.59% 206.50%
               
CAPITAL              
Average equity to average assets 9.29% 9.01% 8.95% 8.86% 9.03% 9.15% 8.89%
Tier 1 capital to average assets 11.43% 11.06% 10.61% 10.89% 10.85% 11.43% 10.85%
Total capital to risk-weighted assets 16.33% 16.11% 15.69% 16.04% 16.12% 16.33% 16.12%
Tier 1 capital to average assets (Bank) 11.26% 10.99% 10.45% 10.80% 10.72% 11.26% 10.72%
Total capital to risk-weighted assets (Bank) 16.06% 16.00% 15.45% 15.90% 15.80% 16.06% 15.80%
Tangible common equity to assets 9.34% 9.15% 8.82% 6.63% 6.87% 9.34% 6.87%
               
END OF PERIOD BALANCES              
Total portfolio loans  $ 1,043,529  $ 1,030,111  $ 1,042,377  $ 1,028,793  $ 1,012,887  $ 1,043,529  $ 1,012,887
Earning assets  1,340,438  1,337,512  1,359,686  1,402,703  1,320,540  1,340,438  1,320,540
Total assets  1,491,142  1,490,899  1,517,405  1,562,680  1,476,828  1,491,142  1,476,828
Deposits  1,215,724  1,216,778  1,249,734  1,288,041  1,199,578  1,215,724  1,199,578
Total shareholders' equity  138,092  135,188  132,522  135,507  133,252  138,092  133,252
               
AVERAGE BALANCES              
Total portfolio loans  $ 1,040,413  $ 1,037,678  $ 1,026,603  $ 1,012,361  $ 1,035,564  $ 1,039,053  $ 1,042,237
Earning assets  1,337,822  1,349,971  1,380,510  1,362,223  1,331,557  1,343,863  1,340,082
Total assets  1,477,114  1,493,201  1,527,910  1,514,555  1,489,887  1,485,113  1,498,258
Deposits  1,205,194  1,223,928  1,255,221  1,238,303  1,212,089  1,214,509  1,222,232
Total shareholders' equity  137,163  134,488  136,718  134,118  134,537  135,833  133,246
CONTACT: Macatawa Bank Corporation
         macatawabank.com
Source: Macatawa Bank Corporation