10753 Macatawa Drive
Holland, MI 49424
10753 Macatawa Drive
Holland, MI 49424
NEWS RELEASE
NASDAQ NATIONAL MARKET: MCBC
FOR RELEASE:
Immediate
DATE:
January 14, 2008
Contact:
Jon Swets, CFO
616.494.7645
Holland, Michigan, January 14, 2008 — Macatawa Bank Corporation today announced its results for the fourth quarter of 2007 and for the full year.
In December, the Company announced that its 4th quarter earnings would be impacted by the need for additional loan loss provisions of $9.5 million because of a growing weakness in residential development loans. This brought the Company’s total 4th quarter provisions to $10.3 million and led to a net loss of $2.80 million, or a $0.16 loss per share, for the fourth quarter of 2007. This compares to net income of $2.85 million, or $0.16 earnings per diluted share, for the same period in 2006.
For all of 2007, net income was $9.08 million, or $0.53 per diluted share, compared to net income of $19.83 million, or $1.14 per diluted share, for 2006.
“As we told the investment community in December, we considered these extra provisions both necessary and prudent in light of West Michigan’s soft economic conditions, as reflected in declining property values throughout our community,” commented Ben Smith, Chairman and CEO. “Many financial institutions across the state and around the country have found themselves in a similar position because of issues related to residential real estate.”
The Company’s credit exposure is primarily isolated in residential development loans, a narrow and declining slice of its total portfolio. The Company does not have any exposure to subprime mortgage loans.
The Company’s non-performing loans increased $25.2 million during the quarter to $73.9 million and represent about 4.22% of total loans at December 31, 2007. Loans to residential developers comprised most of the increase in non-performing loans. With the additional provisions provided in the fourth quarter, management believes non-performing loans are either well collateralized or adequately reserved.
“Despite a disappointing quarter, we are nevertheless very proud of the franchise we have built,” Mr. Smith said. “This past November the Company celebrated its 10th anniversary as a community bank. From a single branch with 10 employees, the Company has grown to become one of the top banks in Michigan. More importantly, Macatawa holds the largest market share in Ottawa County – and we remain focused on becoming the market leader in Kent and Allegan counties.”
During 2007, the Company opened more than 25,000 new accounts. Smith attributed the increase to Macatawa’s combination of highly personalized service and broad product offerings, which continues to resonate with both individual and business customers.
“As we begin 2008, we have made every effort to identify our credit exposure based on the current environment,” Mr. Smith stated. “While we do not have a crystal ball, we have confidence in the West Michigan economy and its ability to recover. We remain well-capitalized. Our loan loss reserve is a healthy 1.91% of total loans, we have a strong balance sheet and we remain profitable.”
— more —
Macatawa Bank 4Q Results / page 2 of 3
A breakdown of non-performing assets is shown in the table below:
| Dollars in 000s | December 31, 2007 | September 30, 2007 | ||||||
|---|---|---|---|---|---|---|---|---|
| Commercial Real Estate | $ | 68,634 | $ | 44,153 | ||||
| Commercial and Industrial | 4,116 | 3,424 | ||||||
| Total Commercial Loans | 72,750 | 47,577 | ||||||
| Residential Mortgage Loans | 641 | 487 | ||||||
| Consumer Loans | 518 | 639 | ||||||
| Total Non-Performing Loans | $ | 73,909 | $ | 48,703 | ||||
| Other Repossessed Assets | 172 | 158 | ||||||
| Other Real Estate Owned | 5,704 | 6,095 | ||||||
| Total Non-Performing Assets | $ | 79,785 | $ | 54,956 | ||||
Loans for the development or sale of 1-4 family residential properties that were in a non-performing status were approximately $57.4 million or 78% of total non-performing loans at December 31, 2007.
Fourth quarter net interest income totaled $14.7 million, a decrease of $2.4 million compared to the fourth quarter of 2006. The decrease in net interest income was primarily from a decline in the net interest margin partially offset by an increase in average earning assets. Average earning assets grew by 3% or $50.7 million from the fourth quarter of 2006 to the fourth quarter of 2007. The net interest margin was 3.00% for the quarter, down 20 basis points from 3.20% for the third quarter of 2007 and 55 basis points from 3.55% for the fourth quarter of 2006.
On a consecutive quarter basis, 16 of the 20 basis points decline in the net interest margin was related to rising balances of non-performing loans. Only 3 basis points of the net interest margin decline can be attributed to the 100 basis point cuts in the Federal funds and prime rates since late September. Despite the Company’s significant variable rate loan portfolio, it has been able to minimize the impact of the recent decline in short-term rates by the Federal Reserve Bank. Future rate cuts will have a slight negative impact on net interest income in the near term, although over a full twelve month period the overall impact on earnings is expected to be neutral. The Company’s variable rate loan portfolio exceeds the level of variable rate funding, but the fixed rate funding portfolio that reprices over the next twelve months will offset this excess.
Non-interest income was $4.0 million for the fourth quarter of 2007, an increase of $173,000 compared to the fourth quarter of 2006. The Company continues to grow its non-interest revenue across the majority of its service delivery channels. Growth in revenue from deposit, trust and card services more than offset lower gains on sales of loans.
Non-interest expense was $13.1 million for the quarter as compared to $11.2 million for the fourth quarter of 2006. The increases in salaries and benefits, occupancy and furniture and equipment primarily relate to operating costs associated with the new Asset Management Services group and the opening of four new facilities since the beginning of the year. Despite these significant investments for the future, the Company has been able to successfully manage these overhead components within a tight range. The $1,188,000 increase in other expense is primarily related to increases in legal and other carrying costs associated with non-performing assets and an increase of $235,000 in FDIC assessments. The additional FDIC assessments relate to a change by the FDIC in their charges for all banks effective January 1.
Total assets increased $55.2 million during the year to $2.13 billion at December 31, 2007. Total loans increased $39.2 million, primarily in consumer mortgages, to $1.75 billion at December 31, 2007. Within the commercial loan portfolio, there was a shift between commercial real estate and commercial and industrial loans.
— more —
Macatawa Bank 4Q Results / page 3 of 3
The composition of the commercial loan portfolio is shown in the table below:
| Dollars in 000s | December 31, 2007 | September 30, 2007 | December 31, 2006 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Construction and land development | $ | 335,366 | $ | 354,897 | $ | 360,372 | |||||
| Farmland & agricultural | 30,371 | 25,438 | 37,426 | ||||||||
| Non-farm, non-residential | 454,764 | 454,220 | 439,436 | ||||||||
| Multi-family | 35,381 | 37,618 | 38,483 | ||||||||
| Total Commercial Real Estate | 855,882 | 872,173 | 875,717 | ||||||||
| Commercial and Industrial | 438,743 | 427,508 | 416,135 | ||||||||
| Total Commercial Loans | $ | 1,294,625 | $ | 1,299,681 | $ | 1,291,852 | |||||
Commercial real estate loans declined $19.8 million while commercial and industrial loans grew by $22.6 million since December 31, 2006. Loans for the development or sale of 1-4 family residential properties declined $24.3 million since September 30 to $235.8 million at December 31, 2007. Of this total, approximately $29.5 million is secured by vacant land, $125.6 million is secured by developed residential land and $80.7 million is secured by 1-4 family properties held for speculative purposes.
Total deposits decreased $144.0 million since December 31, 2006. This was attributed primarily to one of the Company’s institutional depositors, which withdrew approximately $147 million in the latter half of the year. The withdrawals were associated with planned distributions and the depositor remains an excellent customer for the Company.
The Company has also reduced its holdings of deposits generated from out-of-market brokers during the year. Brokered deposits have declined $70.1 million since December 31, 2006. Accordingly, growth from deposits within the Company’s markets has been approximately $73 million since the beginning of the year. The Company remained well-capitalized at December 31, 2007 with a total risk-based capital ratio of 10.7%.
“We continue to focus on what we can control through our commitment to excellence – seize opportunities to diversify and expand our franchise, exceed our customer and community needs and provide the highest quality service. Macatawa is well positioned to capitalize on the recovery of West Michigan. We have strong roots in this community, and understand and believe in its potential. The Macatawa team is excited and enthusiastic, poised better than ever for long-term success,” concluded Mr. Smith.
Conference Call
Macatawa Bank Corporation will hold its quarterly earnings conference call on Tuesday, January 15, 2008, at 10:00 A.M. Persons who wish to access the call may do so via the Internet by visiting www.macatawabank.com and clicking on the webcast link in the Investor Information section. It may also be accessed by logging on to www.streetevents.com. A replay of the call will be available for 30 days following the call.
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 certain forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, economic, competitive, governmental and technological factors affecting our operations, markets, products, services, and pricing. These statements include, among others, statements related to 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. Annualized growth rates are not intended to imply future growth at those rates. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. 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."
MACATAWA BANK
CORPORATION
CONSOLIDATED FINANCIAL SUMMARY
(Unaudited)
(Dollars in thousands except per share information)
| Three Months Ended December 31 | Twleve Months Ended December 31 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EARNINGS SUMMARY | 2007 | 2006 | 2007 | 2006 | ||||||||||
| Total interest income | $ | 33,368 | $ | 35,589 | $ | 139,372 | $ | 133,506 | ||||||
| Total interest expense | 18,681 | 18,544 | 76,456 | 66,089 | ||||||||||
| Net interest income | 14,687 | 17,045 | 62,916 | 67,417 | ||||||||||
| Provision for loan loss | 10,270 | 5,725 | 15,750 | 7,715 | ||||||||||
| Net interest income after provision for loan loss | 4,417 | 11,320 | 47,166 | 59,702 | ||||||||||
| NON-INTEREST INCOME | ||||||||||||||
| Deposit service charges | 1,331 | 1,231 | 5,087 | 4,874 | ||||||||||
| Gain on sale of loans | 221 | 433 | 1,290 | 1,721 | ||||||||||
| Trust fees | 1,237 | 1,096 | 4,906 | 3,589 | ||||||||||
| Other | 1,235 | 1,091 | 4,527 | 3,993 | ||||||||||
| Total non-interest income | 4,024 | 3,851 | 15,810 | 14,177 | ||||||||||
| NON-INTEREST EXPENSE | ||||||||||||||
| Salaries and benefits | 6,562 | 6,268 | 25,499 | 24,791 | ||||||||||
| Occupancy | 1,054 | 928 | 4,185 | 3,558 | ||||||||||
| Furniture and equipment | 1,149 | 859 | 3,956 | 3,221 | ||||||||||
| Other | 4,370 | 3,182 | 16,619 | 13,343 | ||||||||||
| Total non-interest expense | 13,135 | 11,237 | 50,259 | 44,913 | ||||||||||
| Income before income tax | (4,694 | ) | 3,934 | 12,717 | 28,966 | |||||||||
| Federal income tax expense | (1,895 | ) | 1,089 | 3,635 | 9,135 | |||||||||
| Net income | $ | (2,799 | ) | $ | 2,845 | $ | 9,082 | $ | 19,831 | |||||
| Basic earnings per share | $ | (0.16 | ) | $ | 0.17 | $ | 0.53 | $ | 1.17 | |||||
| Diluted earnings per share | $ | (0.16 | ) | $ | 0.16 | $ | 0.53 | $ | 1.14 | |||||
| Return on average assets | -0.53 | % | 0.56 | % | 0.43 | % | 1.01 | % | ||||||
| Return on average equity | -6.72 | % | 7.17 | % | 5.51 | % | 13.09 | % | ||||||
| Net interest margin | 3.00 | % | 3.55 | % | 3.21 | % | 3.67 | % | ||||||
| Efficiency ratio | 70.20 | % | 53.78 | % | 63.84 | % | 55.04 | % | ||||||
| BALANCE SHEET DATA | December 31, 2007 | December 31, 2006 | ||||||
|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||
| Cash and due from banks | $ | 49,816 | $ | 39,882 | ||||
| Securities available for sale | 201,498 | 198,546 | ||||||
| Securities held to maturity | 1,917 | 2,711 | ||||||
| Federal Home Loan Bank Stock | 12,275 | 12,275 | ||||||
| Loans held for sale | 3,127 | 1,547 | ||||||
| Total loans | 1,750,632 | 1,711,450 | ||||||
| Less allowance for loan loss | 33,422 | 23,259 | ||||||
| Net loans | 1,717,210 | 1,688,191 | ||||||
| Premises and equipment, net | 64,564 | 60,731 | ||||||
| Acquisition intangibles | 28,942 | 25,478 | ||||||
| Bank-owned life insurance | 22,703 | 21,843 | ||||||
| Other assets | 27,914 | 23,612 | ||||||
| Total Assets | $ | 2,129,966 | $ | 2,074,816 | ||||
| Liabilities and Shareholders' Equity | ||||||||
| Noninterest-bearing deposits | $ | 185,681 | $ | 180,032 | ||||
| Interest-bearing deposits | 1,337,872 | 1,487,525 | ||||||
| Total deposits | 1,523,553 | 1,667,557 | ||||||
| Federal funds purchased | 46,467 | 11,990 | ||||||
| Other borrowed funds | 354,052 | 192,018 | ||||||
| Long-term debt | 41,238 | 41,238 | ||||||
| Other liabilities | 4,031 | 5,164 | ||||||
| Total Liabilities | 1,969,341 | 1,917,967 | ||||||
| Shareholders' equity | 160,625 | 156,849 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 2,129,966 | $ | 2,074,816 | ||||
MACATAWA BANK
CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
| Quarterly | Year to Date | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 4th Qtr 2007 | 3rd Qtr 2007 | 2nd Qtr 2007 | 1st Qtr 2007 | 4th Qtr 2006 | 2007 | 2006 | |||||||||||||||||
| EARNINGS SUMMARY | |||||||||||||||||||||||
| Net interest income | $ | 14,687 | $ | 15,835 | $ | 16,335 | $ | 16,059 | $ | 17,045 | $ | 62,916 | $ | 67,417 | |||||||||
| Provision for loan loss | 10,270 | 3,640 | 965 | 875 | 5,725 | 15,750 | 7,715 | ||||||||||||||||
| Total non-interest income | 4,024 | 4,031 | 4,020 | 3,735 | 3,851 | 15,810 | 14,177 | ||||||||||||||||
| Total non-interest expense | 13,135 | 12,732 | 12,605 | 11,787 | 11,237 | 50,259 | 44,913 | ||||||||||||||||
| Income taxes | (1,895 | ) | 1,037 | 2,195 | 2,297 | 1,089 | 3,635 | 9,135 | |||||||||||||||
| Net income | $ | (2,799 | ) | $ | 2,457 | $ | 4,590 | $ | 4,835 | $ | 2,845 | $ | 9,082 | $ | 19,831 | ||||||||
| Basic earnings per share | $ | (0.16 | ) | $ | 0.14 | $ | 0.27 | $ | 0.28 | $ | 0.17 | $ | 0.53 | $ | 1.17 | ||||||||
| Diluted earnings per share | $ | (0.16 | ) | $ | 0.14 | $ | 0.26 | $ | 0.28 | $ | 0.16 | $ | 0.53 | $ | 1.14 | ||||||||
| MARKET DATA | |||||||||||||||||||||||
| Book value per share | $ | 9.47 | $ | 9.64 | $ | 9.52 | $ | 9.49 | $ | 9.19 | $ | 9.47 | $ | 9.19 | |||||||||
| Market value per share | $ | 8.59 | $ | 13.53 | $ | 15.91 | $ | 17.52 | $ | 20.25 | $ | 8.59 | $ | 20.25 | |||||||||
| Average basic common shares | 16,969,316 | 17,082,023 | 17,191,063 | 17,221,595 | 17,038,967 | 17,109,664 | 17,011,590 | ||||||||||||||||
| Average diluted common shares | 16,969,316 | 17,232,709 | 17,405,018 | 17,499,098 | 17,380,901 | 17,283,344 | 17,379,473 | ||||||||||||||||
| Period end common shares | 16,968,398 | 16,982,794 | 17,170,235 | 17,226,564 | 17,067,350 | 16,968,398 | 17,067,350 | ||||||||||||||||
| PERFORMANCE RATIOS | |||||||||||||||||||||||
| Return on average assets | -0.53 | % | 0.46 | % | 0.87 | % | 0.93 | % | 0.56 | % | 0.43 | % | 1.01 | % | |||||||||
| Return on average equity | -6.72 | % | 5.91 | % | 11.08 | % | 12.06 | % | 7.17 | % | 5.51 | % | 13.09 | % | |||||||||
| Net interest margin (FTE) | 3.00 | % | 3.20 | % | 3.32 | % | 3.35 | % | 3.55 | % | 3.21 | % | 3.67 | % | |||||||||
| Efficiency ratio | 70.20 | % | 64.09 | % | 61.93 | % | 59.55 | % | 53.78 | % | 63.84 | % | 55.04 | % | |||||||||
| ASSET QUALITY | |||||||||||||||||||||||
| Net charge-offs | $ | 2,764 | $ | 1,667 | $ | 711 | $ | 445 | $ | 4,894 | $ | 5,587 | $ | 5,448 | |||||||||
| Nonperforming loans | $ | 73,909 | $ | 48,703 | $ | 29,470 | $ | 16,985 | $ | 22,290 | $ | 73,909 | $ | 22,290 | |||||||||
| Other real estate and repossessed assets | $ | 5,876 | $ | 6,253 | $ | 6,302 | $ | 3,891 | $ | 3,293 | $ | 5,876 | $ | 3,293 | |||||||||
| Nonperforming loans to total loans | 4.22 | % | 2.80 | % | 1.71 | % | 0.99 | % | 1.30 | % | 4.22 | % | 1.30 | % | |||||||||
| Nonperforming assets to total assets | 3.75 | % | 2.61 | % | 1.69 | % | 0.98 | % | 1.23 | % | 3.75 | % | 1.23 | % | |||||||||
| Net charge-offs to average loans (annualized) | 0.64 | % | 0.39 | % | 0.16 | % | 0.10 | % | 1.16 | % | 0.32 | % | 0.33 | % | |||||||||
| Allowance for loan loss to total loans | 1.91 | % | 1.49 | % | 1.39 | % | 1.38 | % | 1.36 | % | 1.91 | % | 1.36 | % | |||||||||
| CAPITAL & LIQUIDITY | |||||||||||||||||||||||
| Average equity to average assets | 7.93 | % | 7.85 | % | 7.83 | % | 7.71 | % | 7.77 | % | 7.83 | % | 7.69 | % | |||||||||
| Tier 1 capital to risk-weighted assets | 9.42 | % | 9.66 | % | 9.57 | % | 9.53 | % | 9.49 | % | 9.42 | % | 9.49 | % | |||||||||
| Total capital to risk-weighted assets | 10.67 | % | 10.91 | % | 10.93 | % | 10.89 | % | 10.85 | % | 10.67 | % | 10.85 | % | |||||||||
| Loans to deposits + other borrowings | 93.24 | % | 95.35 | % | 90.47 | % | 90.26 | % | 92.03 | % | 93.24 | % | 92.03 | % | |||||||||
| END OF PERIOD BALANCES | |||||||||||||||||||||||
| Total portfolio loans | $ | 1,750,632 | $ | 1,736,370 | $ | 1,724,773 | $ | 1,721,192 | $ | 1,711,450 | $ | 1,750,632 | $ | 1,711,450 | |||||||||
| Earning assets | 1,966,732 | 1,949,608 | 1,966,563 | 1,972,111 | 1,921,735 | 1,966,732 | 1,921,735 | ||||||||||||||||
| Total assets | 2,129,966 | 2,102,733 | 2,116,295 | 2,120,043 | 2,074,816 | 2,129,966 | 2,074,816 | ||||||||||||||||
| Deposits | 1,523,553 | 1,522,003 | 1,661,686 | 1,639,332 | 1,667,557 | 1,523,553 | 1,667,557 | ||||||||||||||||
| Total shareholders' equity | 160,625 | 163,731 | 163,524 | 163,406 | 156,849 | 160,625 | 156,849 | ||||||||||||||||
| AVERAGE BALANCES | |||||||||||||||||||||||
| Total portfolio loans | $ | 1,734,325 | $ | 1,721,543 | $ | 1,732,553 | $ | 1,713,204 | $ | 1,686,139 | $ | 1,725,453 | $ | 1,635,391 | |||||||||
| Earning assets | 1,949,756 | 1,966,155 | 1,967,055 | 1,937,392 | 1,903,566 | 1,955,154 | 1,834,673 | ||||||||||||||||
| Total assets | 2,099,826 | 2,116,474 | 2,114,974 | 2,078,501 | 2,042,005 | 2,102,541 | 1,970,305 | ||||||||||||||||
| Deposits | 1,485,232 | 1,654,354 | 1,645,849 | 1,645,806 | 1,616,606 | 1,607,498 | 1,574,444 | ||||||||||||||||
| Total shareholders' equity | 166,591 | 166,196 | 165,702 | 160,348 | 158,716 | 164,730 | 151,479 | ||||||||||||||||