Macatawa Bank Corporation Reports Fourth Quarter Results
HOLLAND, Mich., Jan. 28, 2010 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its results for the fourth quarter 2009. The Company's results for the quarter included:
-- Net loss of $9.2 million, inclusive of an $11.4 million favorable tax
benefit
-- Net interest margin of 3.04 percent, the highest level in six quarters
-- Aggressive building of reserves for future loan losses - increase in
allowance for loan loss coverage to 3.62 percent of total loans, up from
3.09 percent at September 30, 2009
-- Implemented strict governance and process improvements, expense
reductions and capital preserving efforts
Macatawa Bank reported a net loss available to common shares of $9.2 million, or $0.52 per diluted share, for the fourth quarter 2009, compared to a net loss of $35.1 million, or $2.11 per diluted share, for the fourth quarter 2008. The net loss for the full year 2009 totaled $63.6 million, or $3.81 per diluted share, compared with net loss of $38.9 million, or $2.34 per diluted share, for 2008.
Net income in the current quarter and year included an $11.4 million favorable tax benefit resulting from a recent tax law change extending the carry-back of net operating losses to five years from the previous two-year carry-back period. This carry-back extension was only available to financial institutions such as Macatawa Bank Corporation that did not receive capital under the U.S. Treasury's Troubled Asset Relief Program (TARP).
"Our results, while headed in the right direction, clearly show we've not yet reached an end to the difficult economic conditions in Michigan," said Ronald L. Haan, CEO of Macatawa Bank Corporation. "Our focus is on managing what we can control. In the fourth quarter, this entailed aggressively building reserves for future loan losses, process improvements and added governance, spearheaded by our new Board Chairman, Richard L. Postma. Mr. Postma and the Board of Directors have implemented very disciplined business and banking principles throughout the Corporation including strict lending and compliance rules, early problem loan identification and resolution practices, as well as cost reductions and operational efficiencies. He and the Board of Directors have also required that the Board of Directors be in full control of all of the Corporation's activities including the approval and monitoring of sound policies and objectives."
Operating Results
Net interest income for the fourth quarter 2009 totaled $13.4 million, an increase over the prior three quarters in 2009 and only a slight decline from the $13.5 million reported in the prior year fourth quarter. The net interest margin increased to 3.04 percent, up 21 basis points from 2.83 percent on a consecutive quarter basis and up 30 basis points from 2.74 percent in the fourth quarter 2008; representing a $5 million annualized increase in net interest income for the fourth quarter of 2009.
"Net interest margin continues to improve and is now at the highest level it has been since the second quarter of 2008," said Haan. "This is the direct result of lower cost funding, greater emphasis on customer deposits, and continued focus on improving the performance of our loan portfolios."
Average earning assets for the fourth quarter 2009 declined $101.8 million from the third quarter 2009 and $200.3 million from the fourth quarter 2008. This decline reflects a continued focus on liquidity improvement, capital preservation and a reduction in credit exposure within certain segments.
Non-interest income of $3.5 million for the fourth quarter 2009 was down from $3.9 million for the fourth quarter 2008. The decrease was from a reduction in NSF fee revenue of $252,000, consistent with declines across the broader banking industry, and a decline in trust fees and mortgage banking revenue. These declines were partially offset by growth in revenue from other deposit and ATM and debit card services from increased penetration within our customer base.
Non-interest expense was $15.9 million for the fourth quarter 2009 compared to $43.9 million for the fourth quarter 2008. Non-recurring impairment charges totaling $27.6 million for goodwill and intangible assets were recorded during the fourth quarter 2008. Costs associated with the administration and disposition of problem loans and non-performing assets amounted to $3.7 million in the current quarter compared to $3.3 million in the fourth quarter 2008. FDIC insurance assessments amounted to $1.0 million in the current quarter compared to $358,000 in the fourth quarter 2008 from higher assessment rates implemented by the FDIC in late 2008. When excluding the impairment charges, nonperforming asset costs and FDIC assessments, non-interest expense was $11.3 million for the quarter, down from $11.6 million for the third quarter 2009 and $12.7 million for the fourth quarter 2008.
"We are clearly improving productivity during these difficult times. We are a leaner organization with improved process and stronger governance. At the same time, our non-performing asset costs remain at unacceptable levels," stated Haan. The Company continues to strengthen process and position personnel to improve its ability to accelerate non-performing asset dispositions. "Despite an extended recession in the real estate markets, momentum in this area is encouraging as we prepare for further market improvement," added Haan.
Asset Quality
The provision for loan losses of $21.6 million for the fourth quarter 2009 was the same compared to the third quarter 2009, but up from $13.9 million for the fourth quarter 2008. Net charge-offs were $15 million compared to $11.2 million for the third quarter and $6.1 million for the fourth quarter 2008. During this latest quarter, the Company thoroughly reevaluated its loan portfolio at the direction of Mr. Postma. The heightened levels of provisions for future loan losses and charge-offs were partially due to this reevaluation, in addition to responding to ongoing weakness in the regional economy.
The amount of provision for loan losses in excess of net charge-offs increased the coverage of the allowance as a percent of total loans. The loan loss reserve of $54.6 million was 3.62 percent of total loans at the end of 2009 compared with 3.09 percent at the previous quarter's end and 2.16 percent at the end of 2008. In addition, this elevated loan loss reserve was in excess of 52 percent of non-performing loans at December 31, 2009.
At December 31, 2009, the Company's non-performing loans were $103.9 million or 6.88 percent of total loans, an increase from $88.2 million at September 30, 2009 and $92.2 million at December 31, 2008.
"We are strengthening our conservative stance amidst an unsettled real estate market. Some of the positive indicators we have seen are still offset by an increase in our non-performing loans," said Haan. "We have responded by eliminating nearly $9 million in annualized expenses, suspending payment of dividends on our preferred stock and deferring payment of interest on our trust preferred securities during the fourth quarter, and tightening our controls to position the portfolio for better performance in 2010."
A further break-down of non-performing loans is shown in the table below.
March 31,
December September June 30, December 31,
Dollars in 000s 31, 2009 30, 2009 2009 2009 2008
--------- --------- -------- --------- ---------------
Total Commercial Real Estate $ 87,321 $ 77,461 $ 87,337 $100,064 $ 80,466
Commercial and Industrial 12,713 8,477 5,657 9,462 8,984
--------- --------- -------- --------- ---------------
Total Commercial Loans 100,034 85,938 92,994 109,526 89,450
Residential Mortgage Loans 2,719 917 1,702 3,071 1,906
Consumer Loans 1,132 1,305 1,468 1,010 893
--------- --------- -------- --------- ---------------
Total Non-Performing Loans $ 103,885 $ 88,160 $ 96,164 $ 113,607 $ 92,249
========= ========= ======== ========= ===============
Residential Developer Loans (a) $ 54,178 $ 43,989 $ 54,587 $ 62,669 $ 55,255
========= ========= ======== ========= ===============
(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 $141.2 million, or 7.71 percent of total assets, at December 31, 2009. A break-down of non-performing assets is shown in the table below.
December September June 30, March 31, December
Dollars in 000s 31, 2009 30, 2009 2009 2009 31, 2008
--------- --------- --------- --------- ---------
Non-Performing Loans 103,885 88,160 96,164 113,607 92,270
Other Repossessed Assets 124 224 339 564 306
Other Real Estate Owned 37,184 33,419 23,516 18,510 19,516
--------- --------- --------- --------- ---------
Total Non-Performing Assets $ 141,193 $ 121,803 $ 120,019 $ 132,681 $ 112,092
========= ========= ========= ========= =========
Balance Sheet, Liquidity and Capital
Total assets were $1.83 billion at December 31, 2009, a decrease of $319.2 million from $2.15 billion at December 31, 2008. Total loans were $1.51 billion at December 31, 2009, down $263.2 million from $1.77 billion at December 31, 2008.
Commercial loans declined by $206.9 million representing the majority of the decline since December 31, 2008. The commercial real estate portfolio declined by $124.6 million, primarily in construction and land development loans, due to substantial effort to reduce exposure in these segments. Commercial and industrial loans declined by $82.3 million due to a general decline in business activity.
Of the decline in commercial real estate, $51.2 million was from 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:
December 31, September 30, March 31,
Dollars in 000s 2009 2009 June 30, 2009 2009 December 31, 2008
------------- ------------- ------------- ------------- ------------------
Construction and development $ 162,615 $ 195,712 $ 211,247 $ 228,499 $ 237,108
Other commercial real estate 640,437 638,952 653,058 688,068 690,525
------------- ------------- ------------- ------------- ------------------
Commercial Loans Secured by
Real Estate 803,052 834,664 864,305 916,567 927,633
Commercial and Industrial 369,523 375,636 404,660 415,635 451,826
------------- ------------- ------------- ------------- ------------------
Total Commercial Loans $ 1,172,575 $ 1,210,300 $ 1,268,965 $1,332,202 $ 1,379,459
============= ============= ============= ============= ==================
Residential Developer Loans (a) $ 153,327 $164,852 $178,319 $196,919 $204,412
============= ============= ============= ============= ==================
(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 December 31, 2008 allowed the Company to reduce wholesale funding, including out-of-market deposits from brokers by $131.3 million, and higher costing deposits. Total deposits were $1.42 billion at December 31, 2009, down $249.4 million, from $1.67 billion at December 31, 2008. In addition to the decline in brokered deposits, local jumbo time deposits were down $86.6 million. In addition to the reductions in these funding concentrations, the Company held $54 million of short-term, highly liquid investments at December 31, 2009, contributing to significant improvement in the liquidity of the Company's balance sheet.
Macatawa Bank's total risk-based capital was 9.07 percent at December 31, 2009 compared to 9.32 percent at September 30, 2009 and 10.71 percent at December 31, 2008. The Bank's tier one leverage capital ratio was 6.58 percent at December 31, 2009 compared to 6.70 percent at September 30, 2009 and 8.26 percent at December 31, 2008.
"2009 was one of the most challenging years on record for most financial institutions, including Macatawa Bank," Haan said. "Macatawa Bank was built on relationships with our customers, our shareholders and our community. We appreciate their continued support as we work through the challenges of this environment, and look forward with a sense of optimism to better market conditions in the future. While 2010 may yet bring uneven improvement in operating results, we do expect the overall trend to be positive over the course of the year."
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, ATM's 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.
"CAUTIONARY STATEMENT: This press release contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and Macatawa Bank Corporation. 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 real estate valuation, future levels of non-performing loans, the rate of asset dispositions, capital raising activities, dividends, future growth and funding sources, future profitability levels, the effects on earnings of changes in interest rates and the future level of other revenue sources. Management's determination of the provision and allowance for loan losses, the appropriate carrying value of intangible assets (including goodwill and mortgage servicing rights) and the fair value of investment security (including whether any impairment on any investment security is temporary or other-than-temporary) involves judgments that are inherently forward-looking. Our ability to successfully implement new programs and initiatives, increase efficiencies, address regulatory issues, 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 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 or forecasted in 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. Further information concerning our business, including additional factors that could materially affect our financial results, is included in our filings with the Securities and Exchange Commission," including, but not limited to, the risk factors described in "Item 1A- Risk Factors" of the Company's Annual Report on Form 10-K for the year ended December 31, 2008.
MACATAWA BANK CORPORATION
CONSOLIDATED FINANCIAL
SUMMARY
(Unaudited)
(Dollars in thousands except
per share information)
Three Months Ended Twelve Months Ended
December 31 December 31
----------------------- ----------------------
EARNINGS SUMMARY 2009 2008 2009 2008
----------- ---------- ---------- ----------
Total interest income $22,690 $26,945 $95,878 $116,075
Total interest expense 9,284 13,435 43,085 57,944
----------- ---------- ---------- ----------
Net interest income 13,406 13,510 52,793 58,131
Provision for loan loss 21,600 13,850 74,340 37,435
----------- ---------- ---------- ----------
Net interest income after
provision for loan loss (8,194) (340) (21,547) 20,696
NON-INTEREST INCOME
Deposit service charges 1,131 1,396 4,776 5,342
Net gains on mortgage loans 112 263 2,388 1,250
Trust fees 940 1,001 3,806 4,448
Other 1,332 1,289 5,727 7,104
----------- ---------- ---------- ----------
Total non-interest income 3,515 3,949 16,697 18,144
NON-INTEREST EXPENSE
Salaries and benefits 5,812 6,246 24,349 26,547
Occupancy 1,052 951 4,343 4,402
Furniture and equipment 971 1,053 4,026 4,079
FDIC assessment 987 358 4,495 1,438
Administration and
disposition of problem
assets 3,670 3,266 11,395 6,694
Impairment of goodwill and
acquisition intangibles -- 27,634 -- 27,634
Trade Partners litigation
settlement -- -- 5,533 --
Other 3,423 4,438 13,250 15,273
----------- ---------- ---------- ----------
Total non-interest expense 15,915 43,946 67,391 86,067
----------- ---------- ---------- ----------
Income (loss) before income
tax (20,594) (40,337) (72,241) (47,227)
Income tax expense (benefit) (11,385) (5,280) (8,600) (8,373)
----------- ---------- ---------- ----------
Net income (loss) $(9,209) $(35,057) $(63,641) $(38,854)
----------- ---------- ---------- ----------
Dividends declared on
preferred shares 817 2,870 817
----------- ---------- ---------- ----------
Net income (loss) available
to common shares $(9,209) $(35,874) $(66,511) $(39,671)
=========== ========== ========== ==========
Basic earnings per common
share $(0.52) $(2.11) $(3.81) $(2.34)
Diluted earnings per common
share $(0.52) $(2.11) $(3.81) $(2.34)
Return on average assets -1.95% -6.59% -3.16% -1.82%
Return on average equity -38.85% -84.90% -50.60% -24.06%
Net interest margin 3.04% 2.74% 2.82% 2.94%
Efficiency ratio 94.05% 251.71% 96.98% 112.84%
December December
BALANCE SHEET DATA 31 31
Assets 2009 2008
---------- ----------
Cash and due from banks $24,687 $29,188
Federal funds sold and other
short-term investments 54,062 39,096
Securities available for sale 129,090 184,681
Securities held to maturity 414 1,835
Federal Home Loan Bank Stock 12,275 12,275
Loans held for sale 649 2,261
Total loans 1,510,816 1,774,063
Less allowance for loan loss 54,623 38,262
---------- ----------
Net loans 1,456,193 1,735,801
---------- ----------
Premises and equipment, net 61,015 63,482
Acquisition intangibles 592 874
Bank-owned life insurance 24,395 23,645
Other real estate owned 37,183 19,516
Other assets 29,617 36,718
---------- ----------
Total Assets $1,830,172 $2,149,372
========== ==========
Liabilities and Shareholders'
Equity
Noninterest-bearing deposits $221,470 $192,842
Interest-bearing deposits 1,194,867 1,472,919
---------- ----------
Total deposits 1,416,337 1,665,761
Other borrowed funds 278,023 284,790
Surbordinated debt 1,650 --
Long-term debt 41,238 41,238
Other liabilities 4,933 8,370
---------- ----------
Total Liabilities 1,742,181 2,000,159
Shareholders' equity 87,991 149,213
---------- ----------
Total Liabilities and
Shareholders' Equity $1,830,172 $2,149,372
========== ==========
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED
FINANCIAL DATA
(Unaudited)
(Dollars in thousands except
per share information)
Quarterly Year to Date
------------------------------------------------------------ ----------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
2009 2009 2009 2009 2008 2009 2008
---------- ----------- ---------- ----------- ---------- ---------- ----------
EARNINGS SUMMARY
Net interest income $13,406 $13,194 $13,398 $12,796 $13,510 $52,793 $58,131
Provision for loan loss 21,600 21,580 20,630 10,530 13,850 74,340 37,435
Total non-interest income 3,515 3,634 4,224 5,323 3,949 16,697 18,144
Total non-interest expense 15,915 15,731 21,264 14,481 43,946 67,391 86,067
Federal income tax expense
(benefit) (11,385) (600) 6,134 (2,750) (5,280) (8,600) (8,373)
Net income (loss) $(9,209) $(19,883) $(30,406) $(4,142) $(35,057) $(63,641) $(38,854)
Dividends declared on
preferred shares -- 991 939 939 817 2,870 817
Net income (loss) available
to common shares $(9,209) $(20,874) $(31,345) $(5,081) $(35,874) $(66,511) $(39,671)
Basic earnings per common
share $(0.52) $(1.18) $(1.82) $(0.30) $(2.11) $(3.81) $(2.34)
Diluted earnings per common
share $(0.52) $(1.18) $(1.82) $(0.30) $(2.11) $(3.81) $(2.34)
MARKET DATA
Book value per common share $3.10 $3.64 $4.74 $6.64 $6.91 $3.10 $6.91
Tangible book value per
common share $3.07 $3.62 $4.71 $6.61 $6.88 $3.07 $6.88
Market value per common share $2.09 $2.60 $2.82 $3.70 $3.47 $2.09 $3.47
Average basic common shares 17,699,552 17,669,440 17,260,269 17,162,237 16,977,883 17,449,943 16,968,293
Average diluted common shares 17,699,552 17,669,440 17,260,269 17,162,237 16,977,883 17,449,943 16,968,293
Period end common shares 17,698,108 17,701,817 17,659,264 17,166,515 17,161,515 17,698,108 17,161,515
PERFORMANCE RATIOS
Return on average assets -1.95% -3.97% -5.87% -0.79% -6.59% -3.16% -1.82%
Return on average equity -38.85% -67.58% -86.53% -10.99% -84.90% -50.60% -24.06%
Net interest margin (fully
taxable equivalent) 3.04% 2.83% 2.79% 2.66% 2.74% 2.82% 2.94%
Efficiency ratio 94.05% 93.48% 120.67% 79.92% 251.71% 96.98% 112.84%
Full-time equivalent
employees (period end) 380 395 400 407 406 380 406
ASSET QUALITY
Gross charge-offs $15,563 $11,758 $22,317 $10,304 $6,227 $59,942 $33,317
Net charge-offs $15,026 $11,152 $22,105 $9,696 $6,078 $57,979 $32,595
Net charge-offs to average
loans (annualized) 3.91% 2.79% 5.27% 2.23% 1.38% 3.54% 1.85%
Nonperforming loans $103,885 $88,160 $96,164 $113,607 $92,249 $103,885 $92,249
Other real estate and
repossessed assets $37,308 $33,643 $23,855 $19,074 $19,822 $37,308 $19,822
Nonperforming loans to total
loans 6.88% 5.66% 5.93% 6.68% 5.20% 6.88% 5.20%
Nonperforming assets to total
assets 7.71% 6.15% 5.97% 6.33% 5.21% 7.71% 5.21%
Allowance for loan loss $54,623 $48,049 $37,621 $39,096 $38,262 $54,623 $38,262
Allowance for loan loss to
total loans 3.62% 3.09% 2.32% 2.30% 2.16% 3.62% 2.16%
Allowance for loan loss to
nonperforming loans 52.58% 54.50% 39.12% 34.41% 41.48% 52.58% 41.48%
CAPITAL & LIQUIDITY
Average equity to average
assets 5.01% 5.94% 6.79% 7.18% 7.76% 6.24% 7.58%
Tier 1 capital to average
assets (Consolidated) 6.01% 6.30% 7.44% 8.52% 8.75% 6.01% 8.75%
Total capital to
risk-weighted assets
(Consolidated) 9.23% 9.46% 10.33% 11.17% 11.26% 9.23% 11.26%
Tier 1 capital to average
assets (Bank) 6.58% 6.70% 7.43% 8.09% 8.26% 6.58% 8.26%
Total capital to
risk-weighted assets (Bank) 9.07% 9.32% 10.16% 10.67% 10.71% 9.07% 10.71%
END OF PERIOD BALANCES
Total portfolio loans $1,510,816 $ 1,556,903 $1,621,895 $ 1,699,945 $1,774,063 $1,510,816 $1,774,063
Earning assets 1,702,227 1,857,467 1,887,636 1,957,043 2,009,859 1,702,227 2,009,859
Total assets 1,830,172 1,981,772 2,011,939 2,092,792 2,149,372 1,830,172 2,149,372
Deposits 1,416,337 1,546,311 1,576,052 1,624,703 1,665,761 1,416,337 1,665,761
Total shareholders' equity 87,991 97,674 116,634 144,644 149,213 87,991 149,213
AVERAGE BALANCES
Total portfolio loans $1,538,038 $ 1,598,743 $1,678,648 $ 1,735,738 $1,764,235 $1,637,143 $1,762,102
Earning assets 1,769,242 1,870,995 1,940,364 1,959,359 1,969,524 1,884,431 1,976,336
Total assets 1,893,275 2,001,415 2,071,098 2,100,924 2,128,975 2,016,879 2,129,937
Deposits 1,467,497 1,554,127 1,611,922 1,620,159 1,611,709 1,563,466 1,598,789
Total shareholders' equity 94,819 117,687 140,556 150,747 165,170 125,776 161,515
CONTACT: Macatawa Bank Corporation
Jon Swets, CFO
616.494.7645
Released January 28, 2010