Macatawa Bank Corporation Reports Third Consecutive Quarter of Profitability and Year-end Results
HOLLAND, Mich., Feb. 3, 2011 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its fourth quarter 2010 earnings, marking the Company's third consecutive quarter of profitability and continued improvements in several key capital and operational ratios. The Company's results for the fourth quarter (unaudited) included:
Net income of $835,000, compared to a loss of $9.2 million in the same quarter of last year and net income of $703,000 in the third quarter of 2010 Continued improvement in asset quality metrics, with nonperforming loans down 11 percent and total past due loans down 31 percent compared to third quarter 2010 Net charge offs of $5.2 million, down 65.6 percent from $15.0 million in the fourth quarter 2009 Year-over-year improvement in net interest margin, now at 3.38 percent Improvement in capital ratios Deposit accounts remain insured by the FDIC up to the maximum amount permitted by law
Macatawa reported net income available to common shares of $835,000, or $0.05 per diluted share, for the fourth quarter 2010, compared to a net loss available to common shares of $9.2 million, or $0.52 per diluted share, for the fourth quarter 2009 and net income of $703,000 for the third quarter 2010. For the full year 2010, the Company's net loss available to common shares totaled $17.9 million, down from a net loss of $66.5 million for the same period in 2009.
"We are pleased with our fourth quarter profit and the progress we believe we have made in 2010," said Richard L. Postma, Chairman of Macatawa Bank Corporation. "Our results continued to reflect the process improvements and disciplined approach we began to implement in 2009. The fourth quarter of 2010 represented our third consecutive quarter of profitability, along with continued improvements in several key capital and performance metrics. These are important achievements in our continued efforts to build accountability, confidence and performance in Macatawa Bank. We must continue to focus on improvement of the Bank's capital ratios, further reduction of non-performing loans and increasing sales of other-real-estate-owned. Through the collective efforts of the Board of Directors, management and our employees, we intend to continue to move the Bank toward a position of sustained profitability in order to serve West Michigan as a strong community bank."
Over the last year, under the direction of the Board of Directors and Chairman Richard Postma, the Company has navigated a difficult banking environment and critical transition period. Under this leadership, the Bank improved business and banking principles, added experienced personnel, and bolstered the Bank's risk management functions by adding key individuals in its Special Assets and Loan Review groups. The Bank added a new Chief Credit Officer and implemented new and more disciplined lending and loan risk management policies and new procedures for loan administration and loan review. The Company also added two new directors in the fourth quarter 2010. Each of these directors brings expertise in financial and accounting matters, further strengthening the Board of Directors. Macatawa continued its focus on reducing nonperforming loans during the fourth quarter 2010 by accelerating workout strategies with some of its more stressed loan customers.
Operating Results
Net interest income for the fourth quarter 2010 totaled $12.3 million, a decrease of $153,000 from the third quarter 2010 and a decrease of $1.1 million from the fourth quarter 2009. Net interest margin was 3.38 percent, up 16 basis points from 3.22 percent on a consecutive quarter basis and up 34 basis points from 3.04 percent in the fourth quarter 2009. The fourth quarter 2010 net interest margin was positively impacted by the continued payoff of higher-cost wholesale funds.
Average interest earning assets for the fourth quarter 2010 declined $92.2 million from the third quarter 2010 and declined $346.0 million from the fourth quarter 2009, negatively impacting net interest income. The decline in assets reflected the Bank's continued focus on capital ratio maintenance, liquidity improvement, and reduction in credit exposure within certain segments of its loan portfolio. While the size of the balance sheet has decreased, the underlying profitability of the earning assets has improved as evidenced by the increase in net interest margin.
Non-interest income of $4.5 million for the fourth quarter 2010 was up $782,000 from the third quarter 2010, and up $992,000 from the fourth quarter 2009. The comparative increase was primarily due to increased gains on sales of mortgage loans, a $574,000 gain in the fourth quarter 2010 on the sale of a property that had been held for branch expansion, and income recognized on leases of other-real-estate-owned.
Non-interest expense was $15.6 million for the fourth quarter 2010, compared to $14.9 million for the third quarter 2010 and $15.9 million for the fourth quarter 2009. In the most recent quarter, costs associated with the administration and disposition of problem loans and non-performing assets were $4.2 million, compared to $3.2 million in the third quarter 2010 and $3.7 million in the fourth quarter 2009. This increase was primarily due to further write-downs in the carrying value of other-real-estate-owned. FDIC insurance assessments remained elevated at $1.0 million in the most recent quarter compared to $1.2 million in the third quarter 2010 and $1.0 million in the fourth quarter 2009, as a result of higher assessment rates implemented by the FDIC.
When excluding nonperforming asset costs and FDIC assessments, non-interest expense was $10.3 million for the most recent quarter, down from $10.5 million in the third quarter 2010 and $11.3 million in the fourth quarter 2009. Salaries and employee benefits were down $210,000 in the fourth quarter 2010 compared to the third quarter 2010 and down $476,000 from the prior year quarter as a result of a reduction in overall staffing levels due to the Company scaling its operations to respond to the impact of the prolonged economic weakness.
Asset Quality
The provision for loan losses of $400,000 for the fourth quarter 2010 declined 27 percent from $550,000 in the third quarter 2010, and declined approximately 98 percent from $21.6 million in the fourth quarter 2009. Net charge-offs were $5.2 million compared to $4.6 million for the third quarter 2010 and $15.0 million for the fourth quarter 2009.
The allowance for loan losses of $47.4 million was 3.90 percent of total loans at December 31, 2010, compared with 4.08 percent at September 30, 2010 and 3.62 percent at December 31, 2009. The loan loss reserve coverage to nonperforming loans increased to 62.9 percent of non-performing loans at December 31, 2010, compared to 61.8 percent at September 30, 2010 and 52.6 percent at December 31, 2009.
At December 31, 2010, the Company's non-performing loans were $75.4 million, the lowest level since the fourth quarter of 2007, representing 6.19 percent of total loans. This compares to $84.4 million (6.61 percent of total loans) at September 30, 2010 and $103.9 million (6.88% of total loans) at December 31, 2009. However, other-real-estate-owned is higher at $58.0 million as of December 31, 2010 compared to $54.0 million at September 30, 2010 and $37.2 million at December 31, 2009. These balances have increased as our problem loans have migrated through the normal collection process. Sales of other-real-estate-owned continued to improve as compared to 2009, with the Bank disposing of $16.8 million in real estate during 2010, compared to $7.5 million for the same period in 2009. The total of nonperforming loans and other-real-estate-owned has decreased by $7.8 million from December 31, 2009 to December 31, 2010.
A break-down of non-performing loans is shown in the table below.
Dollars in 000s
December 31,
2010 September 30,
2010 June 30,
2010 March 31,
2010 December 31,
2009
Commercial Real Estate $ 60,186 $ 72,310 $ 81,319 $ 81,669 $ 87,321
Commercial and Industrial 12,170 8,326 10,418 17,782 12,713
Total Commercial Loans 72,356 80,636 91,737 99,451 100,034
Residential Mortgage Loans 1,830 2,702 1,976 1,849 2,719
Consumer Loans 1,175 1,110 1,345 1,248 1,132
Total Non-Performing Loans $ 75,361 $ 84,448 $ 95,058 $ 102,548 $ 103,885
Residential Developer Loans (a) $ 22,137 $ 32,822 $ 37,939 $ 36,594 $ 50,002
(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 $133.4 million, or 8.45 percent of total assets, at December 31, 2010. A break-down of non-performing assets is shown in the table below.
Dollars in 000s
December 31,
2010 September 30,
2010 June 30,
2010 March 31,
2010 December 31,
2009
Non-Performing Loans $ 75,361 $ 84,448 $ 95,058 $ 102,548 $ 103,885
Other Repossessed Assets 50 130 81 84 124
Other Real Estate Owned 57,984 53,982 48,672 45,790 37,184
Total Non-Performing Assets $ 133,395 $ 138,560 $ 143,811 $ 148,422 $ 141,193
Balance Sheet, Liquidity and Capital
Total assets were $1.58 billion at December 31, 2010, a decrease of $253 million from $1.83 billion at December 31, 2009. Total loans were $1.2 billion at December 31, 2010, down $294 million from $1.51 billion at December 31, 2009.
Commercial loans decreased by $238.7 million representing the majority of the decrease in total loans since December 31, 2009. The commercial real estate portfolio was reduced by $127.1 million as the Company continued its efforts to reduce exposure in these segments. Commercial and industrial loans declined by $92.8 million due, in part, to a general decline in business activity. Of the decline in commercial real estate loans, $57.5 million of the decrease was in loans to residential developers, the portfolio that has caused the majority of stress within the Company's loan portfolio.
The composition of the commercial loan portfolio is shown in the table below:
Dollars in 000s
December 31,
2010 September 30,
2010 June 30,
2010 March 31,
2010 December 31,
2009
Construction and development $ 133,228 $ 139,579 $ 150,443 $ 156,867 $ 162,615
Other commercial real estate 535,960 548,071 582,882 611,904 640,437
Commercial Loans Secured by Real Estate 669,188 687,650 733,325 768,771 803,052
Commercial and Industrial 264,680 285,924 314,087 344,294 369,523
Total Commercial Loans $ 933,868 $ 973,574 $1,047,412 $1,113,065 $1,172,575
Residential Developer Loans (a) $ 95,736 $ 106,372 $ 120,344 $ 130,727 $ 153,327
(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
The reduction in loans since year-end 2009 allowed the Company to reduce wholesale funding during 2010, including out-of-market deposits acquired through brokers, by $158.4 million and other borrowed funds by $92.7 million. Total deposits were $1.28 billion at December 31, 2010, down $139.7 million from $1.42 billion at December 31, 2009, primarily from the run-off of brokered deposits. Customer deposit accounts remain fully insured to the highest levels available under the FDIC insurance programs.
At December 31, 2010, two of the three regulatory capital ratios for Macatawa Bank, including the tier one risk-based capital ratio and the tier one leverage capital ratio, were maintained at levels in excess of those ordinarily required to be categorized as "well capitalized" under applicable regulatory capital guidelines, but the Bank did not have capital at levels required by its Consent Order. At December 31, 2010, the Bank's total risk-based capital ratio of 9.68 percent was below the 10.0 percent minimum ordinarily required to be categorized as "well capitalized" and below the 11.0 percent minimum required by the Consent Order, but this ratio has improved since March 31, 2010 when it was 8.14 percent. Because the Bank is subject to the Consent Order, it cannot be categorized as "well capitalized" regardless of actual capital levels. The Bank needed $17.2 million of additional qualifying capital to comply with the Consent Order at December 31, 2010, compared to $43.2 million at March 31, 2010.
Mr. Postma concluded, "through a combination of improving earnings, effective balance sheet management and disciplined administration of non performing assets, we have improved the Bank's total risk-based capital ratio since its low-point at March 31, 2010. The amount of additional qualifying capital needed to comply with the Consent Order has been reduced from $43.2 million at March 31, 2010 to $17.2 million at December 31, 2010. Our goal remains to return to "well-capitalized" status, and we continue to work closely with regulators in our efforts to comply with the terms of the Consent Order."
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 "will," "believe," "continue," "ahead of us," "intend," "goal," "efforts" "proposed," "further," "toward," 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 our ability to build accountability, confidence and performance in Macatawa Bank, our ability to comply with our Consent Order and return to "well capitalized" status and our ability to continue to move Macatawa Bank toward a position of sustained 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 goodwill, mortgage servicing rights and deferred tax assets) 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 fully comply with our Consent Order, raise additional capital, improve regulatory capital ratios, successfully implement new programs and initiatives, increase efficiencies, address regulatory issues, 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. Failure to comply with the agreements in our Consent Order could result in further regulatory action which could have a material adverse effect on Macatawa Bank Corporation and its shareholders. 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, 2009 and in "Part II, Item 1A - Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010. 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
December 31 Twelve Months Ended
December 31
EARNINGS SUMMARY 2010 2009 2010 2009
Total interest income $ 17,084 $ 22,690 $ 76,003 $ 95,878
Total interest expense 4,800 9,284 25,436 43,085
Net interest income 12,284 13,406 50,567 52,793
Provision for loan loss 400 21,600 22,460 74,340
Net interest income after provision for loan loss 11,884 (8,194) 28,107 (21,547)
NON-INTEREST INCOME
Deposit service charges 1,027 1,131 4,252 4,776
Net gains on mortgage loans 538 112 1,462 2,388
Trust fees 697 940 3,079 3,806
Net gains on security sales -- -- 2,715 --
Other 2,246 1,332 6,515 5,727
Total non-interest income 4,508 3,515 18,023 16,697
NON-INTEREST EXPENSE
Salaries and benefits 5,336 5,812 21,886 24,349
Occupancy 989 1,052 4,056 4,343
Furniture and equipment 831 971 3,554 4,026
FDIC assessment 1,025 987 4,706 4,495
Administration and disposition of problem assets 4,196 3,670 15,415 11,395
Trade Partners litigation settlement -- -- -- 5,533
Other 3,180 3,423 13,064 13,250
Total non-interest expense 15,557 15,915 62,681 67,391
Income (loss) before income tax 835 (20,594) (16,551) (72,241)
Income tax expense (benefit) -- (11,385) 1,303 (8,600)
Net income (loss) $ 835 $ (9,209) $ (17,854) $ (63,641)
Dividends declared on preferred shares -- 2,870
Net income (loss) available to common shares $ 835 $ (9,209) $ (17,854) $ (66,511)
Basic earnings per common share $ 0.05 $ (0.52) $ (1.01) $ (3.81)
Diluted earnings per common share $ 0.05 $ (0.52) $ (1.01) $ (3.81)
Return on average assets 0.20% -1.95% -1.08% -3.16%
Return on average equity 4.93% -38.85% -24.99% -50.60%
Net interest margin 3.38% 3.04% 3.28% 2.82%
Efficiency ratio 92.65% 94.05% 91.39% 96.98%
BALANCE SHEET DATA
Assets December 31
2010 December 31
2009
Cash and due from banks $ 21,274 $ 24,687
Federal funds sold and other short-term investments 214,853 54,062
Securities available for sale 9,120 129,090
Securities held to maturity 83 414
Federal Home Loan Bank Stock 11,932 12,275
Loans held for sale 2,537 649
Total loans 1,217,196 1,510,816
Less allowance for loan loss 47,426 54,623
Net loans 1,169,770 1,456,193
Premises and equipment, net 56,988 61,015
Acquisition intangibles 322 592
Bank-owned life insurance 25,014 24,395
Other real estate owned 57,984 37,183
Other assets 8,384 29,617
Total Assets $ 1,578,261 $ 1,830,172
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 255,897 $ 221,470
Interest-bearing deposits 1,020,723 1,194,867
Total deposits 1,276,620 1,416,337
Other borrowed funds 185,336 278,023
Subordinated debt 1,650 1,650
Long-term debt 41,238 41,238
Other liabilities 5,575 4,933
Total Liabilities 1,510,419 1,742,181
Shareholders' equity 67,842 87,991
Total Liabilities and Shareholders' Equity $ 1,578,261 $ 1,830,172
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
Quarterly Year to Date
4th Qtr
2010 3rd Qtr
2010 2nd Qtr
2010 1st Qtr
2010 4th Qtr
2009 2010 2009
EARNINGS SUMMARY
Net interest income $ 12,284 $ 12,437 $ 12,818 $ 13,028 $ 13,406 $ 50,567 $ 52,793
Provision for loan loss 400 550 1,800 19,710 21,600 22,460 74,340
Total non-interest income 4,508 3,726 6,322 3,468 3,515 18,023 16,697
Total non-interest expense 15,557 14,910 14,289 17,926 15,915 62,681 67,391
Federal income tax expense (benefit) -- -- 1,303 -- (11,385) 1,303 (8,600)
Net income (loss) $ 835 $ 703 $ 1,748 $ (21,140) $ (9,209) $ (17,854) $ (63,641)
Dividends declared on preferred shares -- -- -- -- -- -- 2,870
Net income (loss) available to common shares $ 835 $ 703 $ 1,748 $ (21,140) $ (9,209) $ (17,854) $ (66,511)
Basic earnings per common share $ 0.05 $ 0.04 $ 0.10 $ (1.19) $ (0.52) $ (1.01) $ (3.81)
Diluted earnings per common share $ 0.05 $ 0.04 $ 0.10 $ (1.19) $ (0.52) $ (1.01) $ (3.81)
MARKET DATA
Book value per common share $ 1.96 $ 1.91 $ 1.87 $ 1.91 $ 3.10 $ 1.96 $ 3.10
Tangible book value per common share $ 1.94 $ 1.89 $ 1.85 $ 1.88 $ 3.07 $ 1.94 $ 3.07
Market value per common share $ 4.12 $ 1.48 $ 1.20 $ 1.75 $ 2.09 $ 4.12 $ 2.09
Average basic common shares 17,679,884 17,677,284 17,692,231 17,696,922 17,699,552 17,686,362 17,449,943
Average diluted common shares 17,679,884 17,677,284 17,692,231 17,696,922 17,699,552 17,686,362 17,449,943
Period end common shares 17,679,621 17,680,211 17,682,458 17,696,423 17,698,108 17,679,621 17,698,108
PERFORMANCE RATIOS
Return on average assets 0.20% 0.17% 0.41% -4.74% -1.95% -1.08% -3.16%
Return on average equity 4.93% 4.21% 10.32% -101.04% -38.85% -24.99% -50.60%
Net interest margin (fully taxable equivalent) 3.38% 3.22% 3.29% 3.22% 3.04% 3.28% 2.82%
Efficiency ratio 92.65% 92.25% 74.66% 108.67% 94.05% 91.39% 96.98%
Full-time equivalent employees (period end) 382 387 391 375 380 382 380
ASSET QUALITY
Gross charge-offs $ 5,637 $ 5,114 $ 6,851 $ 14,235 $ 15,563 $ 31,838 $ 59,942
Net charge-offs $ 5,167 $ 4,644 $ 6,296 $ 13,550 $ 15,026 $ 29,657 $ 57,979
Net charge-offs to average loans (annualized) 1.66% 1.41% 1.79% 3.68% 3.91% 2.18% 3.54%
Nonperforming loans $ 75,361 $ 84,448 $ 95,058 $ 102,548 $ 103,885 $ 75,361 $ 103,885
Other real estate and repossessed assets $ 58,034 $ 54,112 $ 48,753 $ 45,874 $ 37,308 $ 58,034 $ 37,308
Nonperforming loans to total loans 6.19% 6.61% 6.96% 7.13% 6.88% 6.19% 6.88%
Nonperforming assets to total assets 8.45% 8.49% 8.72% 8.64% 7.71% 8.45% 7.71%
Allowance for loan loss $ 47,426 $ 52,192 $ 56,286 $ 60,782 $ 54,623 $ 47,426 $ 54,623
Allowance for loan loss to total loans 3.90% 4.08% 4.12% 4.23% 3.62% 3.90% 3.62%
Allowance for loan loss to nonperforming loans 62.93% 61.80% 59.21% 59.27% 52.58% 62.93% 52.58%
CAPITAL & LIQUIDITY
Average equity to average assets 4.14% 4.09% 4.02% 4.69% 5.01% 4.30% 6.24%
Tier 1 capital to average assets (Consolidated) 5.82% 5.42% 5.25% 4.80% 6.01% 5.82% 6.01%
Total capital to risk-weighted assets (Consolidated) 9.65% 9.30% 8.81% 8.27% 9.23% 9.65% 9.23%
Tier 1 capital to average assets (Bank) 7.10% 6.55% 6.31% 5.83% 6.58% 7.10% 6.58%
Total capital to risk-weighted assets (Bank) 9.68% 9.23% 8.70% 8.14% 9.07% 9.68% 9.07%
END OF PERIOD BALANCES
Total portfolio loans $ 1,217,196 $ 1,278,298 $ 1,364,881 $ 1,438,107 $ 1,510,816 $ 1,217,196 $ 1,510,816
Earning assets 1,453,041 1,480,046 1,517,318 1,589,670 1,702,227 1,453,041 1,702,227
Total assets 1,578,261 1,611,395 1,649,747 1,718,429 1,830,172 1,578,261 1,830,172
Deposits 1,276,620 1,279,710 1,312,701 1,370,767 1,416,337 1,276,620 1,416,337
Total shareholders' equity 67,842 66,992 66,241 66,917 87,991 67,842 87,991
AVERAGE BALANCES
Total portfolio loans $ 1,244,148 $ 1,319,029 $ 1,408,672 $ 1,473,337 $ 1,538,038 $ 1,360,548 $ 1,637,143
Earning assets 1,423,287 1,515,501 1,555,372 1,649,121 1,769,242 1,535,146 1,884,431
Total assets 1,634,249 1,634,249 1,686,311 1,785,286 1,893,275 1,660,910 2,016,879
Deposits 1,224,156 1,297,498 1,341,243 1,394,701 1,467,497 1,313,886 1,563,466
Total shareholders' equity 67,735 66,860 67,733 83,692 94,819 71,445 125,776
CONTACT: Macatawa Bank Corporation
Jon Swets, SVP and CFO
616.494.7645
Source: Macatawa Bank Corporation
Released February 3, 2011