Macatawa Bank Corporation Reports Second Quarter Results

HOLLAND, Mich., July 26, 2012 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its results for the second quarter of 2012, again showing continued improvement in key operating metrics and financial performance.

• Earnings increased to $3.2 million in the second quarter of 2012 versus $2.4 million in the second quarter of 2011
• Continued improvement in loan portfolio quality

• Total loan delinquencies decreased again, now at 0.66% of total loans – well below industry averages
• Low net loan charge-offs for the most recent quarter and the last 12 months – well below industry averages
• Nonperforming loans decreased by 20% for the most recent quarter and are at their lowest level since the first quarter of 2007

• Coverage of allowance for loan losses to nonperforming loans strong with a ratio well above 1-to-1 at 143.79%
• Regulatory capital ratios at their highest levels in twelve years and comfortably above the minimums to be categorized as "well capitalized" under regulatory standards
• Strong in-market core deposit growth during the most recent quarter – key categories of deposits increased by 18%
• While decreasing, costs associated with nonperforming assets remained high - $3.2 million for the most recent quarter

Macatawa reported net income available to common shares of $3.2 million, or $0.12 per diluted share, in the second quarter of 2012 compared to net income of $2.4 million, or $0.13 per diluted share, for the second quarter of 2011. For the first six months of 2012, the Company reported net income of $7.7 million, or $0.28 per diluted share, compared to net income of $3.7 million, or $0.20 per diluted share, for the same period in 2011.

"The Company's second quarter 2012 results represent our ninth consecutive quarter of positive net income and reflect continued progress," said Richard L. Postma, Chairman of the Board of the Company. "Our earnings have grown and our loan portfolio quality continued its trend of improvement. While our favorable performance trends continued and our earnings improved, the ongoing costs associated with nonperforming assets, primarily other real estate owned, continued to be a significant strain on earnings. These costs were $3.2 million for the second quarter 2012. While this is a decrease from $3.7 million in the second quarter of 2011, we must continue to focus on reducing these costs and our level of nonperforming assets to acceptable levels. We sold $4.2 million of our other real estate owned in the second quarter of 2012 and $8.6 million in the first half of 2012, but we still had a total of $62.0 million in other real estate owned at the end of the most recent quarter. Disposing of other real estate owned is a top priority so that we will be better positioned to produce consistent, core earnings." 

Mr. Postma further stated: "We are beginning to see the positive impact of the change in perception of the Bank among our customers and community, as our in-market, core deposit portfolio showed good growth for the most recent quarter. The time has come for us to have as a top priority prudent growth of the Bank and creation of shareholder value. We are seeking opportunities to conservatively build our loan portfolio to produce high quality earning asset growth."

Operating Results

Net interest income for the second quarter 2012 totaled $11.3 million, an increase of $41,000 from the first quarter 2012 and a decrease of $460,000 from the second quarter 2011, due primarily to a reduction in our earning assets. Net interest margin was 3.32 percent, unchanged from the first quarter 2012, and down 7 basis points from 3.39 percent for the second quarter 2011. The margin decrease from the second quarter 2011 was due primarily to the impact of a decreasing rate environment on the Company's earning asset base.

Average interest earning assets for the second quarter 2012 increased $5.8 million from the first quarter 2012 and were down $19.5 million from the second quarter 2011. The increase from the first quarter 2012 reflected the positive impact of our investment portfolio building strategy. The decrease from 2011 reflected the Bank's continued focus on reduction in credit exposure within certain segments of its loan portfolio.

Non-interest income increased $289,000 in the second quarter 2012 compared to the first quarter 2012 and $384,000 from the second quarter 2011, primarily as a result of increased gains on sales of mortgage loans due to higher production volume.

Non-interest expense was $13.9 million for the second quarter 2012, compared to $14.1 million for the first quarter 2012 and $15.0 million for the second quarter 2011. 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 $132,000 compared to the first quarter 2012 and were down $551,000 compared to the second quarter 2011. FDIC insurance assessments declined $231,000 compared to the first quarter 2012 due to the termination of the Bank's Consent Order, and were $362,000 lower than the second quarter 2011 due to the reduction in total assets of the Bank, changes to the FDIC assessment methodology and the termination of the Consent Order.

Asset Quality

As a result of the low level of charge-offs during the second quarter of 2012, along with the consistent improvements in nonperforming loans and past due loans over the past several quarters, and continued shrinkage of the loan portfolio, a negative provision for loan losses of $1.75 million was recorded in the second quarter 2012. Net charge-offs for the second quarter 2012 were $551,000, compared to first quarter 2012 net recoveries of $1.4 million and second quarter 2011 net charge-offs of $2.9 million. Total loans past due on payments by 30 days or more amounted to $6.9 million at June 30, 2012, down from $8.9 million at March 31, 2012, $13.1 million at December 31, 2011 and $30.4 million at June 30, 2011. 

The allowance for loan losses of $27.2 million was 2.62 percent of total loans at June 30, 2012, compared to 2.78 percent of total loans at March 31, 2012, 2.95 percent at December 31, 2011 and 3.41 percent of total loans at June 30, 2011. While this overall loan coverage ratio declined, the coverage ratio of allowance for loan losses to nonperforming loans continued to significantly improve, well exceeding 1-to-1 coverage at 143.97 percent at June 30, 2012, compared to 125.36 percent at March 31, 2012, 109.31 percent at December 31, 2011 and 92.66 percent at June 30, 2011. This ratio was at its highest level since March 2007.

At June 30, 2012, the Company's non-performing loans were $18.9 million, representing 1.82 percent of total loans, the lowest level since the second quarter of 2007. This compares to $23.5 million (2.22 percent of total loans) at March 31, 2012, $28.9 million (2.70 percent of total loans) at December 31, 2011 and $40.4 million (3.68 percent of total loans) at June 30, 2011. Other real estate owned decreased to $62.0 million compared to $66.4 million at December 31, 2011 and decreased $3.4 million from $65.4 million at June 30, 2011. These balances have remained high over these periods. However, total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $25.0 million, over 23 percent, from June 30, 2011 to June 30, 2012.

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

Total non-performing assets were $80.9 million, or 5.33 percent of total assets, at June 30, 2012. A break-down of non-performing assets is shown in the table below.

Balance Sheet, Liquidity and Capital

Total assets were $1,520.3 million at June 30, 2012, an increase of $12.6 million from $1,507.7 million at December 31, 2011. Total loans were $1,037.0 million at June 30, 2012, down $34.0 million from $1,071.0 million at December 31, 2011.

Commercial loans decreased by $41.8 million during the first half of 2012, partially offset by increases of $2.3 million in our residential mortgage and consumer loan portfolios. The commercial real estate portfolio was reduced by $36.3 million during the six months ended June 30, 2012 as the Company continued its efforts to reduce exposure in these segments. Commercial and industrial loans decreased by $5.4 million during the same period. 

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

Total deposits increased to $1,235.5 million at June 30, 2012, up $20.2 million from $1,215.3 million at December 31, 2011. Balances in checking, savings and money market accounts grew by over 18% on an annualized basis during the second quarter of 2012. The Bank continues to be successful at attracting and retaining core deposit customers. Customer deposit accounts remain fully insured to the highest levels available under FDIC deposit insurance.

The Bank's capital ratios continued to improve in the second quarter 2012. At June 30, 2012, all of the regulatory capital ratios for Macatawa Bank were maintained at levels comfortably above those required to be categorized as "well capitalized" under applicable regulatory capital guidelines. Further, the Bank's regulatory capital ratios at June 30, 2012 were at their highest levels since December 31, 1999. The Bank was categorized as "well capitalized" at June 30, 2012.

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 "trend," "beginning," "perception," "seeking," "opportunities," "continue," "focus," "positioned," "strategy," "efforts" 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 credit quality metrics, the impact of change in perception of the Bank among our customers and in the community, opportunities to conservatively build our loan portfolio to produce high quality earning asset growth, creation of shareholder value, future levels of profitability, and our ability to reduce our level of other real estate owned. 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 goodwill, mortgage servicing rights and 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, 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, and improve profitability 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, 2011. 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 26, 2012