Macatawa Bank Corporation Reports

Third Quarter 2015 Results

Holland, Michigan, (October 22, 2015) – Macatawa Bank Corporation (NASDAQ: MCBC) today announced its results for the third quarter of 2015, reflecting continued improvement in financial performance.

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Net income of $3.2 million in the third  quarter 2015, up 16% from $2.8 million in the third quarter 2014

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Strong growth in performing loans - up $62.4 million from the second quarter 2015 and $142.3 million, or 14%, from third quarter 2014

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Third quarter revenue growth of $1.0 million, or 7%, compared to third quarter 2014 resulting primarily from increases in net interest income

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Reduction in total non-interest expenses compared to the third quarter 2014

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Past due loans only 0.25% of total loans at end of third quarter 2015, up slightly from second quarter 2015 and down significantly from 0.48% at end of third quarter 2014

Macatawa reported net income of $3.2 million, or $0.09 per diluted share, in the third quarter 2015 compared to $2.8 million, or $0.08 per diluted share, in the third quarter 2014.  For the first nine months of 2015, Macatawa reported net income of $9.3 million, or $0.27 per diluted share, compared to $8.2 million, or $0.24 per diluted share, for the same period in 2014.

"The Company’s operating performance continued to improve in the third quarter 2015 with 16 percent earnings improvement over the same period in 2014”, said Ronald L. Haan, President and CEO of the Company.  “We achieved revenue growth while containing total non-interest expense.  We had strong growth in our performing loans, increasing by 14% from a year ago.  This growth continued to improve our net interest income, which was up over $800,000 for the third quarter 2015 compared to the prior year.  Asset quality continues to be strong, with low quarter-end loan delinquencies and nonperforming loans.  Expenses associated with the administration and disposition of problem assets were down again, declining $628,000 from the third quarter 2014 and down nearly $1 million for the year to date period.”

Mr. Haan continued:  "Non-interest income categories also improved during the third quarter of 2015.  Mortgage banking, card services and trust and investment services revenues all increased compared to the third quarter of 2014.  We are pleased with the increase in virtually all of our revenue sources as this diverse growth fosters further stability in our earnings performance.”

Mr. Haan concluded:  "We continue to make excellent progress with strong momentum for continued growth and improved operating performance.  Our entire team remains focused on driving profitable growth as customer demand for both loan and deposit products remains strong.  Growing loans and deposits while decreasing expenses associated with the administration and disposition of problem assets puts us in a strong position to deliver even better operating performance going forward."

 

Macatawa Bank Corporation 3Q Results / page 2 of 4

Operating Results

Net interest income for the third quarter 2015 totaled $11.1 million, an increase of $276,000 from the second quarter 2015 and an increase of $817,000 from the third quarter 2014.  Net interest margin was 2.92 percent, down 9 basis points from the second quarter 2015, and down 12 basis points from the third quarter 2014.

Average interest earning assets for the third quarter 2015 increased $72.5 million from the second quarter 2015 and were up $174.3 million from the third quarter 2014.

Non-interest income decreased $28,000 in the third quarter 2015 compared to the second quarter 2015 and increased $181,000 from the third quarter 2014.  The increase from the third quarter 2014 was primarily due to increases in gains on sales of mortgage loans as the market for this activity rebounded in late 2014 with a drop in long term interest rates.  This continued into 2015.  The Bank originated $25.2 million in loans for sale in the third quarter 2015 compared to $28.0 million in loans for sale in the second quarter 2015 and $24.7 million in loans for sale in the third quarter 2014.  Trust and investment services fees were also up in the third quarter of 2015 due to growth in the Bank’s customer base and improved investment market conditions.

Non-interest expense was $11.3 million for the third quarter 2015, compared to $11.2 million for the second quarter 2015 and $11.4 million for the third quarter 2014.  The largest fluctuations in non-interest expense related to costs associated with the administration and disposition of problem loans and non-performing assets, which decreased $20,000 compared to the second quarter 2015 and decreased $628,000 compared to the third quarter 2014.  Salaries and benefits were up $64,000 compared to the second quarter 2015 and were up $348,000 compared to the third quarter 2014 due a higher level of variable and incentive based compensation and an increase in medical insurance expense resulting from a higher level of claims experienced in 2015.

Federal income tax expense was $1.4 million for the third quarter 2015 compared to $1.4 million for the second quarter 2015 and $1.2 million for the third quarter 2014.  The effective tax rate was stable at  30.4% for both the third quarter 2015 and the third quarter 2014.

Asset Quality

As a result of the consistent improvements in nonperforming loans and past due loans over the past several quarters, the reduction in historical loan loss ratios, net loan recoveries experienced in the third quarter 2015, and a reduction in specific reserves on impaired loans, a negative provision for loan losses of $250,000 was recorded in the third quarter 2015.  Net loan recoveries for the third quarter 2015 were $285,000, compared to second quarter 2015 net loan recoveries of $1,000 and third quarter 2014 net loan recoveries of $330,000.  The Bank has experienced net loan recoveries in four of the past five quarters, and in eight of the past ten quarters. Total loans past due on payments by 30 days or more amounted to $2.9 million at September 30, 2015, up 3 percent from $2.8 million at December 31, 2014 and down 42 percent from $5.1 million at September 30, 2014.  Delinquency as a percentage of total loans was 0.25 percent at September 30, 2015.

The allowance for loan losses of $18.2 million was 1.53 percent of total loans at September 30, 2015, compared to 1.70 percent of total loans at December 31, 2014, and 1.86 percent at September 30, 2014.    The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 432.61 percent as of September 30, 2015, compared to 225.04 percent at December 31, 2014, and 232.99 percent at September 30, 2014.

At September 30, 2015, the Company's nonperforming loans were $4.2 million, representing 0.35 percent of total loans.  This compares to $8.4 million (0.75 percent of total loans) at December 31, 2014 and $8.4 million (0.80 percent of total loans) at September 30, 2014.  Other real estate owned and repossessed assets were $25.7 million at September 30, 2015, compared to $28.3 million at December 31, 2014 and $28.8 million at September 30, 2014. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $7.3 million, or 19.7 percent, from September 30, 2014 to September 30, 2015.

 

Macatawa Bank Corporation 3Q Results / page 3 of 4

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

 

(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 $29.9 million, or 1.80 percent of total assets, at September 30, 2015.  A break-down of non-performing assets is shown in the table below.

Balance Sheet, Liquidity and Capital

Total assets were $1.66 billion at September 30, 2015, an increase of $75.5 million from $1.58 billion at December 31, 2014 and an increase of $169.7 million from $1.49 billion at September 30, 2014.  Total loans were $1.19 billion at September 30, 2015, an increase of $74.4 million from $1.12 billion at December 31, 2014 and an increase of $138.1 million from $1.05 billion at September 30, 2014.

Commercial loans increased by $63.9 million from December 31, 2014 to September 30, 2015, along with an increase of $10.5 million in our residential mortgage and consumer loan portfolios.  Commercial real estate loans increased by $14.6 million and commercial and industrial loans increased by $49.3 million during the same period.

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

(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.

At September 30, 2015, total performing loans amounted to $1.19 billion, an increase of $62.4 million from June 30, 2015 and an increase of $78.6 million from December 31, 2014.

 

Macatawa Bank Corporation 3Q Results / page 4 of 4

Total deposits were $1.37 billion at September 30, 2015, up $60.5 million from $1.31 billion at December 31, 2014 and were up $150.8 million, or 12.4%, from $1.22 billion at September 30, 2014.  The increase from September 30, 2014 was primarily related to increases in checking, savings and money market accounts, which grew by $188.6 million compared to the third quarter 2014, while higher costing time deposits were down $37.8 million in the same period.  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 risk-based regulatory capital ratios decreased slightly in the first quarter 2015 due to asset growth and the impact of applying the new Basel III capital requirements, but increased again in the second quarter 2015.  These levels decreased slightly again in the third quarter 2015 as a result of loan growth during the quarter, but continue to be at levels comfortably above those required to be categorized as “well capitalized” under applicable regulatory capital guidelines.  As such, the Bank was categorized as "well capitalized" at September 30, 2015.

About Macatawa Bank

Headquartered in Holland, Mich., Macatawa Bank offers a full range of banking, retail and commercial lending, wealth management and ecommerce services to individuals, businesses and governmental entities from a network of 26 full-service branches located throughout communities in Kent, Ottawa and northern Allegan counties.  The bank is recognized for its local management team and decision making, along with providing customers excellent service, a rewarding experience and superior financial products.  Macatawa Bank has been awarded for its exceptional commitment to service by readers of the Holland Sentinel as the “Best Bank on the Lakeshore” since 2002, and “Best Bank in Grand Rapids” by readers of Grand Rapids Magazine since 2009. The bank has also been recognized for the past four consecutive years as “West Michigan’s 101 Best and Brightest Companies to Work For”. For more information, visit www.macatawabank.com.

 

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MACATAWA BANK CORPORATION

CONSOLIDATED FINANCIAL SUMMARY

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(Dollars in thousands except per share information)

 

MACATAWA BANK CORPORATION

SELECTED CONSOLIDATED FINANCIAL DATA

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(Dollars in thousands except per share information)

 

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