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10753 Macatawa Drive
Holland, Michigan 49424
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NASDAQ STOCK MARKET:
FOR RELEASE:
DATE:
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MCBC
Immediate
October 24, 2013
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Macatawa Bank Corporation Reports
Third Quarter 2013 Results
Holland, Michigan, October 24, 2013 – Macatawa Bank Corporation (Nasdaq: MCBC) today announced its results for the third quarter of 2013, continuing its trend of improvement in key operating metrics and financial performance.
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Earnings of $2.2 million in the third quarter of 2013, or $3.2 million before tax compared to $6.9 million before tax in the third quarter of 2012
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Earnings in the third quarter of the prior year were bolstered by a one-time loan prepayment fee of $2.8 million
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Total nonperforming assets decreased by $22.1 million, or 29%, from a year ago
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Continued strengthening in loan portfolio quality – decrease in nonperforming loans from a year ago, improvement in weighted average grade of commercial loans, and continued low past due loan levels
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Low net loan losses once again – net recoveries of $523,000 for the third quarter of 2013 and net loan recoveries in three of the previous five quarters
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Performing loan portfolio growth of $15.9 million for the third quarter of 2013
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Simplified and strengthened Company capital structure during the quarter
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Prepayment and redemption of all outstanding subordinated debt
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Resumption of regular quarterly interest payments on trust preferred securities
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Macatawa reported net income available to common shares of $2.2 million, or $0.08 per diluted share, in the third quarter of 2013 compared to net income available to common shares of $6.6 million, or $0.24 per diluted share, for the third quarter of 2012. For the first nine months of 2013, the Company reported net income of $7.3 million, or $0.27 per diluted share, compared to $14.3 million, or $0.53 per diluted share, for the same period in 2012.
"Reflecting sustained improvement in financial condition, a couple of significant events were executed in the third quarter," said Richard L. Postma, Chairman of the Board of the Company. "First, we prepaid and redeemed the $1.6 million of outstanding subordinated debt in August. Second, we paid the interest on trust preferred securities that had been deferred for 15 quarters."
Mr. Postma continued: "Bottom line profitability showed a reduction in the third quarter of 2013 compared to 2012 due to the 2012 period including a one-time $2.8 million loan prepayment fee collected by the Bank and the 2013 period now being taxable. Nonperforming asset expenses in the third quarter of 2013 were comparable to the third quarter of 2012, but were nearly $4 million lower for the first nine months of this year compared to the same period in the prior year. This significant cost reduction was accomplished through our focus on reducing the level of nonperforming assets. Our nonperforming assets decreased by over $22 million from a year ago, which, in turn, resulted in the decrease in associated costs. Proceeds on sales of other real estate owned amounted to $10.5 million so far in 2013, bringing total nonperforming assets down to $53.0 million at September 30, 2013. This is the lowest level of nonperforming assets for the Bank since the second quarter 2007. While these assets decreased, we accomplished growth in our performing loan portfolio during the quarter.”
Mr. Postma concluded: "We are pleased with the improvements in financial condition and the growth in loans. The growth is important to producing stronger future earnings for our shareholders. In addition, with the payment of deferred interest on our trust preferred securities and the prepayment and redemption of the subordinated debt, the Board of Directors can now focus on further improvements in our capital structure to enhance shareholder value."
-- more –
Macatawa Bank Corporation 3Q Results / page 2 of 4
Operating Results
Net interest income for the third quarter 2013 totaled $10.1 million, a decrease of $339,000 from the second quarter 2013 and a decrease of $3.8 million from the third quarter 2012. Net interest margin was 2.96 percent, down 19 basis points from the second quarter 2013, and down 106 basis points from the third quarter 2012. The decrease from the third quarter 2012 was largely due to the collection in 2012 of a $2.8 million one-time loan prepayment fee, which generated 82 basis points in yield. Net interest income and margin were further impacted by reduced yields from the loan portfolio resulting from the low level of market interest rates and significant competitive loan pricing pressures.
Average interest earning assets for the third quarter 2013 increased $30.7 million from the second quarter 2013 and were down $4.9 million from the third quarter 2012.
Non-interest income decreased $260,000 in the third quarter 2013 compared to the second quarter 2013 and decreased $155,000 from the third quarter 2012, primarily due to decreased level of gains on sales of mortgage loans. Much of this decrease was offset by increases in service charges on deposit accounts. The Bank originated $28.0 million in loans for sale in the third quarter 2013 compared to $33.4 million in loans for sale in the second quarter 2013 and $41.5 million in loans for sale in the third quarter 2012. While refinancing activity decreased in the third quarter 2013, the Bank was able to offset some of this reduction with increased loan originations related to purchases of homes.
Non-interest expense was $12.4 million for the third quarter 2013, compared to $11.9 million for the second quarter 2013 and $12.4 million for the third quarter 2012. 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 $511,000 compared to the second quarter 2013 and increased $87,000 compared to the third quarter 2012. FDIC insurance assessments declined $29,000 compared to the second quarter 2013 and declined $187,000 compared to the third quarter 2012 due primarily to the termination of the Bank's Memorandum of Understanding effective April 12, 2013. Salaries and benefits were down $102,000 compared to the second quarter 2013 due to reduced expense associated with medical insurance and were up $213,000 compared to the third quarter 2012 due to the reinstatement of the 401(k) plan matching contributions at the beginning of 2013.
Federal income tax expense was $975,000 for the third quarter 2013 compared to $1.2 million for the second quarter 2013 and $275,000 for the third quarter 2012. The Company reversed its deferred tax asset valuation allowance at December 31, 2012 resulting in a large benefit in the fourth quarter 2012. Before this reversal, under accounting standards, the Company’s results reflected no regular tax provisions. The $275,000 expense in the third quarter 2012 was due to the payment of alternative minimum tax.
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 loss ratios, a negative provision for loan losses of $1.5 million was recorded in the third quarter 2013. Net loan recoveries for the third quarter 2013 were $523,000, compared to second quarter 2013 net charge-offs of $238,000 and third quarter 2012 net loan recoveries of $341,000. The Bank has experienced net loan recoveries in 3 of the past 5 quarters and had net loan recoveries of $783,000 for the nine months ended September 30, 2013. Total loans past due on payments by 30 days or more amounted to $7.8 million at September 30, 2013, up from $6.7 million at June 30, 2013, down $55,000 from $7.9 million at December 31, 2012, and up $2.1 million from $5.7 million at September 30, 2012.
The allowance for loan losses of $21.3 million was 2.07 percent of total loans at September 30, 2013, compared to 2.20 percent of total loans at June 30, 2013, and 2.58 percent at September 30, 2012. The coverage ratio of allowance for loan losses to nonperforming loans continued to grow and exceeded 2-to-1 coverage at 208.14 percent as of September 30, 2013, compared to 206.5 percent at June 30, 2013, and 151.31 percent at September 30, 2012.
At September 30, 2013, the Company's nonperforming loans were $10.2 million, representing 0.99 percent of total loans, the lowest level since the third quarter of 2006. This compares to $10.8 million (1.06 percent of total loans) at June 30, 2013, and $17.4 million (1.70 percent of total loans) at September 30, 2012. Other real estate owned was $42.8 million at September 30, 2013, compared to $45.8 million at June 30, 2013 and $51.6 million at December 31, 2012, and down significantly from $57.8 million at September 30, 2012. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $22.1 million, or 29.5 percent, from September 30, 2012 to September 30, 2013.
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Macatawa Bank Corporation 3Q Results / page 3 of 4
A break-down of non-performing loans is shown in the table below.
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Dollars in 000s
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September 30,
2013
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June 30,
2013
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March 31,
2013
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December 31,
2012
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September 30,
2012
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Commercial Real Estate
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$ | 4,934 | $ | 5,701 | $ | 4,673 | $ | 7,255 | $ | 9,046 | ||||||||||
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Commercial and Industrial
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4,240 | 4,081 | 8,781 | 7,657 | 7,206 | |||||||||||||||
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Total Commercial Loans
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9,174 | 9,782 | 13,454 | 14,912 | 16,252 | |||||||||||||||
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Residential Mortgage Loans
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639 | 619 | 298 | 447 | 771 | |||||||||||||||
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Consumer Loans
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407 | 373 | 422 | 644 | 339 | |||||||||||||||
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Total Non-Performing Loans
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$ | 10,220 | $ | 10,774 | $ | 14,174 | $ | 16,003 | $ | 17,362 | ||||||||||
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Residential Developer Loans (a)
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$ | 2,651 | $ | 2,723 | $ | 2,265 | $ | 3,157 | $ | 5,183 | ||||||||||
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(a)
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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.
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Total non-performing assets were $53.0 million, or 3.39 percent of total assets, at September 30, 2013. A break-down of non-performing assets is shown in the table below.
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Dollars in 000s
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September 30,
2013
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June 30,
2013
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March 31,
2013
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December 31,
2012
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September 30,
2012
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Non-Performing Loans
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$ | 10,220 | $ | 10,774 | $ | 14,174 | $ | 16,003 | $ | 17,362 | ||||||||||
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Other Repossessed Assets
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--- | --- | 22 | 6 | 4 | |||||||||||||||
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Other Real Estate Owned
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42,796 | 45,845 | 51,593 | 51,582 | 57,778 | |||||||||||||||
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Total Non-Performing Assets
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$ | 53,016 | $ | 56,619 | $ | 65,789 | $ | 67,591 | $ | 75,144 | ||||||||||
Balance Sheet, Liquidity and Capital
Total assets were $1,562.7 million at September 30, 2013, an increase of $2.0 million from $1,560.7 million at December 31, 2012 and an increase of $45.6 million from $1,517.1 million at September 30, 2012. Total loans were $1,028.8 million at September 30, 2013, a decrease of $23.5 million from $1,052.3 million at December 31, 2012 and an increase of $9.6 million from $1,019.2 million at September 30, 2012.
Commercial loans decreased by $27.5 million during the first nine months of 2013, partially offset by increases of $4.0 million in our residential mortgage and consumer loan portfolios. Commercial real estate loans were reduced by $21.0 million, as the Company continued its efforts to reduce exposure in this segment, and commercial and industrial loans decreased by $6.5 million during the same period due primarily to seasonal paydowns on agricultural loans.
The composition of the commercial loan portfolio is shown in the table below:
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Dollars in 000s
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September 30,
2013
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June 30,
2013
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March 31,
2013
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December 31,
2012
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September 30,
2012
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Construction and Development
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$ | 86,824 | $ | 81,841 | $ | 88,670 | $ | 94,621 | $ | 95,322 | ||||||||||
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Other Commercial Real Estate
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395,108 | 397,814 | 408,860 | 408,338 | 420,105 | |||||||||||||||
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Commercial Loans Secured by
Real Estate
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481,932 | 479,655 | 497,530 | 502,959 | 515,427 | |||||||||||||||
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Commercial and Industrial
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253,216 | 242,759 | 259,145 | 259,700 | 218,839 | |||||||||||||||
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Total Commercial Loans
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$ | 735,148 | $ | 722,414 | $ | 756,675 | $ | 762,659 | $ | 734,266 | ||||||||||
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Residential Developer Loans (a)
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$ | 39,886 | $ | 41,903 | $ | 45,598 | $ | 53,847 | $ | 51,653 | ||||||||||
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(a)
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Represents the amount of loans to residential developers secured by single family residential property which is included in commercial loans secured by real estate.
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-- more –
Macatawa Bank Corporation 3Q Results / page 4 of 4
Total deposits increased to $1,288.0 million at September 30, 2013, up $1.8 million from $1,286.3 million at December 31, 2012. 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 ratios continued to improve in the third quarter of 2013 and were at their highest levels in its history. The Bank was categorized as "well capitalized" at September 30, 2013.
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.
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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," "continue," "expect," "should," "improving," "efforts," "further," "focus," "future" 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 improvements in our capital structure, our ability to further reduce nonperforming asset levels and related expenses and our ability to enhance shareholder value. 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, 2012. 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.
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MACATAWA BANK CORPORATION
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CONSOLIDATED FINANCIAL SUMMARY
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(Unaudited)
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(Dollars in thousands except per share information)
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Three Months Ended
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Nine Months Ended
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September 30
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September 30
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EARNINGS SUMMARY
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2013
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2012
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2013
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2012
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Total interest income
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$ | 11,919 | $ | 16,269 | $ | 36,659 | $ | 44,267 | ||||||||
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Total interest expense
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1,795 | 2,377 | 5,588 | 7,773 | ||||||||||||
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Net interest income
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10,124 | 13,892 | 31,071 | 36,494 | ||||||||||||
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Provision for loan losses
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(1,500 | ) | (1,250 | ) | (3,250 | ) | (6,600 | ) | ||||||||
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Net interest income after provision for loan losses
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11,624 | 15,142 | 34,321 | 43,094 | ||||||||||||
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NON-INTEREST INCOME
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Deposit service charges
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1,029 | 810 | 2,917 | 2,381 | ||||||||||||
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Net gains on mortgage loans
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612 | 940 | 2,145 | 2,192 | ||||||||||||
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Trust fees
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584 | 595 | 1,797 | 1,802 | ||||||||||||
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Other
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1,726 | 1,761 | 5,266 | 5,442 | ||||||||||||
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Total non-interest income
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3,951 | 4,106 | 12,125 | 11,817 | ||||||||||||
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NON-INTEREST EXPENSE
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Salaries and benefits
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5,834 | 5,621 | 17,359 | 17,065 | ||||||||||||
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Occupancy
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908 | 948 | 2,759 | 2,860 | ||||||||||||
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Furniture and equipment
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819 | 806 | 2,414 | 2,491 | ||||||||||||
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FDIC assessment
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317 | 504 | 1,133 | 1,692 | ||||||||||||
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Administration and disposition of problem assets
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1,811 | 1,724 | 4,072 | 7,973 | ||||||||||||
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Other
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2,673 | 2,785 | 8,081 | 8,299 | ||||||||||||
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Total non-interest expense
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12,362 | 12,388 | 35,818 | 40,380 | ||||||||||||
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Income before income tax
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3,213 | 6,860 | 10,628 | 14,531 | ||||||||||||
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Income tax expense
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975 | 275 | 3,313 | 275 | ||||||||||||
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Net income
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$ | 2,238 | $ | 6,585 | $ | 7,315 | $ | 14,256 | ||||||||
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Dividends declared on preferred shares
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- | - | - | - | ||||||||||||
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Net income available to common shares
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$ | 2,238 | $ | 6,585 | $ | 7,315 | $ | 14,256 | ||||||||
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Basic earnings per common share
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$ | 0.08 | $ | 0.24 | $ | 0.27 | $ | 0.53 | ||||||||
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Diluted earnings per common share
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$ | 0.08 | $ | 0.24 | $ | 0.27 | $ | 0.53 | ||||||||
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Return on average assets
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0.59 | % | 1.74 | % | 0.65 | % | 1.26 | % | ||||||||
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Return on average equity
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6.67 | % | 25.18 | % | 7.30 | % | 18.92 | % | ||||||||
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Net interest margin
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2.96 | % | 4.02 | % | 3.08 | % | 3.56 | % | ||||||||
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Efficiency ratio
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87.83 | % | 68.83 | % | 82.92 | % | 83.58 | % | ||||||||
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MACATAWA BANK CORPORATION
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CONSOLIDATED FINANCIAL SUMMARY
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(Unaudited)
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(Dollars in thousands except per share information)
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BALANCE SHEET DATA
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September 30
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December 31
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September 30
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Assets
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2013
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2012
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2012
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Cash and due from banks
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$ | 35,592 | $ | 33,556 | $ | 22,398 | ||||||||||
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Federal funds sold and other short-term investments
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178,263 | 192,802 | 211,853 | |||||||||||||
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Interest-bearing time deposits in other financial institutions
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25,000 | - | - | |||||||||||||
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Securities available for sale
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135,439 | 123,497 | 116,128 | |||||||||||||
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Securities held to maturity
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18,995 | 4,300 | 4,300 | |||||||||||||
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Federal Home Loan Bank Stock
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11,236 | 11,236 | 11,236 | |||||||||||||
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Loans held for sale
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2,983 | 8,130 | 11,063 | |||||||||||||
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Total loans
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1,028,793 | 1,052,348 | 1,019,185 | |||||||||||||
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Less allowance for loan loss
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21,272 | 23,739 | 26,271 | |||||||||||||
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Net loans
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1,007,521 | 1,028,609 | 992,914 | |||||||||||||
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Premises and equipment, net
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52,916 | 53,576 | 54,057 | |||||||||||||
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Bank-owned life insurance
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27,343 | 26,804 | 26,614 | |||||||||||||
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Other real estate owned
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42,796 | 51,582 | 57,778 | |||||||||||||
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Other assets
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24,596 | 26,626 | 8,776 | |||||||||||||
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Total Assets
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$ | 1,562,680 | $ | 1,560,718 | $ | 1,517,117 | ||||||||||
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Liabilities and Shareholders' Equity
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Noninterest-bearing deposits
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$ | 352,879 | $ | 339,520 | $ | 348,120 | ||||||||||
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Interest-bearing deposits
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935,162 | 946,741 | 896,628 | |||||||||||||
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Total deposits
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1,288,041 | 1,286,261 | 1,244,748 | |||||||||||||
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Other borrowed funds
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89,991 | 91,822 | 91,822 | |||||||||||||
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Subordinated debt
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- | 1,650 | 1,650 | |||||||||||||
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Long-term debt
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41,238 | 41,238 | 41,238 | |||||||||||||
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Other liabilities
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7,903 | 9,240 | 28,228 | |||||||||||||
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Total Liabilities
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1,427,173 | 1,430,211 | 1,407,686 | |||||||||||||
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Shareholders' equity
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135,507 | 130,507 | 109,431 | |||||||||||||
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Total Liabilities and Shareholders' Equity
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$ | 1,562,680 | $ | 1,560,718 | $ | 1,517,117 | ||||||||||