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Macatawa Bank Corporation Reports Third Quarter 2014 Results

HOLLAND, Mich., Oct. 23, 2014 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq:MCBC) today announced its results for the third quarter of 2014, continuing its trend of improvement in key operating metrics and financial performance.

  • Net income of $2.8 million in the third quarter 2014, a 23% increase over third quarter 2013 net income of $2.2 million
  • Total performing loan portfolio growth of $10.9 million in the third quarter 2014
  • Strong loan collection results exemplified by net recoveries once again – net recoveries of $330,000 for the third quarter 2014, net recoveries in six of the previous seven quarters
  • Low loan delinquency rate of 0.48% - lowest level in over 11 years
  • Strong growth in non-interest income – up $352,000 from third quarter 2013
  • Further expense reductions – total non-interest expense decreased by $973,000 from third quarter 2013
  • Paid third consecutive quarterly cash dividend - $0.02 per share paid on August 28, 2014 to shareholders of record on August 7, 2014

Macatawa reported net income of $2.8 million, or $0.08 per diluted share, in the third quarter 2014 compared to net income of $2.2 million, or $0.08 per diluted share, for the third quarter 2013. For the first nine months of 2014, Macatawa reported $8.2 million, or $0.24 per diluted share, compared to $7.3 million, or $0.27 per diluted share, for the same period in 2013. The 2014 per share information reflects the impact of the exchange of all of Macatawa's outstanding preferred stock for common stock and cash completed at the end of 2013.

"The Company is pleased to report improved earnings in the third quarter 2014 compared to both the third quarter 2013 and the second quarter 2014," said Ronald L. Haan, President and CEO of the Company. "Our asset quality continues to improve, net interest margin has stabilized and we saw growth in the loan portfolio again. Our financial performance continues to improve quarter over quarter, and we are well positioned for continued profitable growth."

Mr. Haan continued: "Net income for the third quarter 2014 reflected continued improvement in operating results. Our collection efforts yielded strong loan recoveries which led to further favorable levels of provision for loan losses. Non-interest income increased in all categories, including net gains on sales of mortgage loans, which had been down in the previous quarter. We continue to make progress towards eliminating the costs associated with holding and disposing of nonperforming assets, and also reduced several other core expense categories reflecting our ongoing focus on improving earnings performance."

Mr. Haan concluded: "Looking forward, our commercial loan pipeline is strong and we are focused on profitable growth. Total performing loan portfolio balances increased $10.9 million after growing $20.9 million in the second quarter 2014 and we believe we are well positioned for additional growth over the remainder of 2014. This growth is the foundation for producing stronger future earnings for our shareholders."

Operating Results

Net interest income for the third quarter 2014 totaled $10.3 million, an increase of $148,000 from the second quarter 2014 and an increase of $180,000 from the third quarter 2013. Net interest margin was 3.04 percent, down 2 basis points from the second quarter 2014 and up 8 basis points from the third quarter 2013. The Company believes that loan yield compression is bottoming and adjustments made to rates on certain deposit products early in 2014 will further benefit net interest margin in future quarters.

Average interest earning assets for the third quarter 2014 increased $20.4 million from the second quarter 2014 and were down $4.0 million from the third quarter 2013.

Non-interest income increased $235,000 in the third quarter 2014 compared to the second quarter 2014 and $352,000 from the third quarter 2013. The increase from the second quarter 2014 was due primarily to increased gains on sales of mortgage loans, which were up $212,000 for the quarter. The increase from the third quarter 2013 was due to increases in gains on sales of mortgage loans, trust fees and debit card interchange income. The Bank originated $24.5 million in loans for sale in the third quarter 2014 compared to $12.6 million in loans for sale in the second quarter 2014 and $28.0 million in loans for sale in the third quarter 2013.

Non-interest expense was $11.4 million for the third quarter 2014, compared to $11.2 million for the second quarter 2014 and $12.4 million for the third quarter 2013. 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 $26,000 compared to the second quarter 2014 and $950,000 compared to the third quarter 2013. The large decrease from the third quarter of 2013 related to an overall general decline in these expenses as a result of the Company's success in reducing non-performing assets. Salaries and benefits were up $266,000 compared to the second quarter 2014 due to a lower level of medical insurance costs from actual claims in the second quarter 2014 and were down $24,000 compared to the third quarter 2013 due to lower incentive compensation payouts.

Federal income tax expense was $1.2 million for the third quarter 2014 compared to $1.2 million for the second quarter 2014 and $975,000 for the third quarter 2013. The effective tax rate was 30.39% for the third quarter 2014, 30.89% for the second quarter 2014 and 30.34% for the third quarter 2013.

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 loan loss ratios, a negative provision for loan losses of $750,000 was recorded in the third quarter 2014. Net loan recoveries for the third quarter 2014 were $330,000, compared to second quarter 2014 net loan recoveries of $666,000 and third quarter 2013 net loan recoveries of $523,000. The Bank has experienced net loan recoveries in six of the past seven quarters. Total loans past due on payments by 30 days or more amounted to $5.1 million at September 30, 2014, down from $5.2 million at June 30, 2014 and $7.8 million at September 30, 2013. Delinquency as a percentage of total loans was 0.48% at September 30, 2014, the lowest quarterly level for the Bank in 11 years.

The allowance for loan losses of $19.6 million was 1.86 percent of total loans at September 30, 2014, compared to 1.92 percent of total loans at June 30, 2014, and 2.07 percent at September 30, 2013. The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 232.99 percent as of September 30, 2014, compared to 248.59 percent at June 30, 2014, and 208.14 percent at September 30, 2013.

At September 30, 2014, the Company's nonperforming loans were $8.4 million, representing 0.80 percent of total loans. This compares to $8.1 million (0.77 percent of total loans) at June 30, 2014 and $10.2 million (0.99 percent of total loans) at September 30, 2013. Other real estate owned and repossessed assets were $28.8 million at September 30, 2014, compared to $31.6 million at June 30, 2014, and were down significantly from $42.8 million at September 30, 2013. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $15.8 million, or 29.8 percent, from September 30, 2013 to September 30, 2014.

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

Dollars in 000s September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
Commercial Real Estate $ 3,499 $ 3,955 $ 6,299 $ 5,706 $ 4,934
Commercial and Industrial 4,372 3,485 8,077 5,625 4,240
Total Commercial Loans 7,871 7,440 14,376 11,331 9,174
Residential Mortgage Loans 144 142 762 639 639
Consumer Loans 410 483 410 365 407
Total Non-Performing Loans $ 8,425 $ 8,065 $ 15,548 $ 12,335 $ 10,220
Residential Developer Loans (a) $ 2,245 $ 2,249 $ 2,205 $ 2,591 $ 2,651
(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 $37.2 million, or 2.50 percent of total assets, at September 30, 2014. A break-down of non-performing assets is shown in the table below.

Dollars in 000s September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
Non-Performing Loans $ 8,425 $ 8,065 $ 15,548 $ 12,335 $ 10,220
Other Repossessed Assets 38 48 42 40 ---
Other Real Estate Owned 28,763 31,523 34,035 36,796 42,796
Total Non-Performing Assets $ 37,226 $ 39,636 $ 49,625 $ 49,171 $ 53,016

Balance Sheet, Liquidity and Capital

Total assets were $1,489.7 million at September 30, 2014, a decrease of $27.7 million from $1,517.4 million at December 31, 2013 and a decrease of $73.0 million from $1,562.7 million at September 30, 2013. Total loans were $1,054.8 million at September 30, 2014, an increase of $12.4 million from $1,042.4 million at December 31, 2013 and an increase of $26.0 million from $1,028.8 million at September 30, 2013.

Commercial loans increased by $7.3 million from December 31, 2013 to September 30, 2014, along with an increase of $5.1 million in the Company's residential mortgage and consumer loan portfolios. Commercial real estate loans were reduced by $4.4 million, as the Company continued its efforts to reduce exposure in this segment, and commercial and industrial loans increased by $11.7 million during the same period.

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

Dollars in 000s September 30,
2014
June 30,
2014
March 31,
2014
December 31,
2013
September 30,
2013
Construction and Development $ 82,485 $ 84,448 $ 84,875 $ 86,413 $ 86,824
Other Commercial Real Estate 385,432 380,146 378,322 385,927 395,108
Commercial Loans Secured by Real Estate 467,917 464,594 463,197 472,340 481,932
Commercial and Industrial 285,833 284,152 271,924 274,099 253,216
Total Commercial Loans $ 753,750 $ 748,746 $ 735,121 $ 746,439 $ 735,148
Residential Developer Loans (a) $ 32,441 $ 33,622 $ 33,970 $ 35,164 $ 39,886
(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.

Total deposits were $1,216.1 million at September 30, 2014, down $33.6 million from $1,249.7 million at December 31, 2013 and were down $71.9 million from $1,288.0 million at September 30, 2013. Since September 30, 2013, balances in noninterest checking and savings increased by $43.8 million, offset by decreases of $24.5 million in interest bearing checking, $61.8 million in money market accounts and $29.5 million in higher costing certificates of deposit. 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 increased in the third quarter 2014 and continued to be at levels among the highest in Bank history, comfortably above levels required to be categorized as "well capitalized" under applicable regulatory capital guidelines. The Bank was categorized as "well capitalized" at September 30, 2014.

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.

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 "believe," "may," "will," "continue," "improving," "efforts," "focus," "future," "well positioned," "looking forward," "seems" 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 levels of earning assets, future asset quality, future growth, future yield compression and future net interest margin. The declaration and payment of future dividends to common shareholders will be considered by the Board of Directors in its discretion and will depend on a number of factors, including our financial condition and anticipated 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 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, 2013. 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
September 30
Nine Months Ended
September 30
EARNINGS SUMMARY 2014 2013 2014 2013
Total interest income $ 11,674 $ 11,919 $ 35,172 $ 36,659
Total interest expense 1,370 1,795 4,237 5,588
Net interest income 10,304 10,124 30,935 31,071
Provision for loan losses (750) (1,500) (2,750) (3,250)
Net interest income after provision for loan losses 11,054 11,624 33,685 34,321
NON-INTEREST INCOME
Deposit service charges 1,163 1,072 3,219 3,041
Net gains on mortgage loans 679 612 1,405 2,145
Trust fees 669 584 2,002 1,797
Other 1,792 1,683 5,255 5,142
Total non-interest income 4,303 3,951 11,881 12,125
NON-INTEREST EXPENSE
Salaries and benefits 5,810 5,834 17,177 17,359
Occupancy 897 908 2,837 2,759
Furniture and equipment 803 819 2,394 2,414
FDIC assessment 287 317 934 1,133
Administration and disposition of problem assets 861 1,811 2,218 4,072
Other 2,731 2,673 8,237 8,081
Total non-interest expense 11,389 12,362 33,797 35,818
Income before income tax 3,968 3,213 11,769 10,628
Income tax expense 1,206 975 3,614 3,313
Net income $ 2,762 $ 2,238 $ 8,155 $ 7,315
Net income attributable to common shareholders $ 2,762 $ 2,238 $ 8,155 $ 7,315
Basic earnings per common share $ 0.08 $ 0.08 $ 0.24 $ 0.27
Diluted earnings per common share $ 0.08 $ 0.08 $ 0.24 $ 0.27
Return on average assets 0.74% 0.59% 0.73% 0.65%
Return on average equity 7.94% 6.67% 7.94% 7.30%
Net interest margin 3.04% 2.96% 3.08% 3.08%
Efficiency ratio 77.97% 87.83% 78.94% 82.92%
BALANCE SHEET DATA
Assets September 30
2014
December 31
2013
September 30
2013
Cash and due from banks $ 24,731 $ 38,714 $ 35,592
Federal funds sold and other short-term investments 74,808 118,178 178,263
Interest-bearing time deposits in other financial institutions 20,000 25,000 25,000
Securities available for sale 162,101 139,659 135,439
Securities held to maturity 31,744 19,248 18,995
Federal Home Loan Bank Stock 11,236 11,236 11,236
Loans held for sale 905 1,915 2,983
Total loans 1,054,788 1,042,377 1,028,793
Less allowance for loan loss 19,629 20,798 21,272
Net loans 1,035,159 1,021,579 1,007,521
Premises and equipment, net 53,292 53,641 52,916
Bank-owned life insurance 28,021 27,517 27,343
Other real estate owned 28,763 36,796 42,796
Other assets 18,904 23,922 24,596
Total Assets $ 1,489,664 $ 1,517,405 $ 1,562,680
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 385,182 $ 344,550 $ 352,879
Interest-bearing deposits 830,907 905,184 935,162
Total deposits 1,216,089 1,249,734 1,288,041
Other borrowed funds 88,107 89,991 89,991
Subordinated debt -- -- --
Long-term debt 41,238 41,238 41,238
Other liabilities 3,761 3,920 7,903
Total Liabilities 1,349,195 1,384,883 1,427,173
Shareholders' equity 140,469 132,522 135,507
Total Liabilities and Shareholders' Equity $ 1,489,664 $ 1,517,405 $ 1,562,680
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
Quarterly Year to Date
3rd Qtr
2014
2nd Qtr
2014
1st Qtr
2014
4th Qtr
2013
3rd Qtr
2013
2014 2013
EARNINGS SUMMARY
Net interest income $ 10,304 $ 10,156 $ 10,475 $ 10,212 $ 10,124 $ 30,935 $ 31,071
Provision for loan losses (750) (1,000) (1,000) (1,000) (1,500) (2,750) (3,250)
Total non-interest income 4,303 4,068 3,510 4,016 3,951 11,881 12,125
Total non-interest expense 11,389 11,238 11,169 12,036 12,362 33,797 35,818
Federal income tax expense (benefit) 1,206 1,231 1,177 958 975 3,614 3,313
Net income $ 2,762 $ 2,755 $ 2,639 $ 2,234 $ 2,238 $ 8,155 $ 7,315
Basic earnings per common share $ 0.08 $ 0.08 $ 0.08 $ (0.56) $ 0.08 $ 0.24 $ 0.27
Diluted earnings per common share $ 0.08 $ 0.08 $ 0.08 $ (0.56) $ 0.08 $ 0.24 $ 0.27
MARKET DATA
Book value per common share $ 4.15 $ 4.09 $ 4.00 $ 3.92 $ 3.77 $ 4.15 $ 3.77
Tangible book value per common share $ 4.15 $ 4.09 $ 4.00 $ 3.92 $ 3.77 $ 4.15 $ 3.77
Market value per common share $ 4.80 $ 5.07 $ 5.04 $ 5.00 $ 5.38 $ 4.80 $ 5.38
Average basic common shares 33,795,384 33,788,431 33,790,542 27,276,722 27,261,325 33,791,470 27,244,741
Average diluted common shares 33,795,384 33,788,431 33,790,542 27,276,722 27,261,325 33,791,470 27,244,741
Period end common shares 33,803,823 33,788,431 33,788,431 33,801,097 27,261,325 33,808,823 27,261,325
PERFORMANCE RATIOS
Return on average assets 0.74% 0.75% 0.71% 0.58% 0.59% 0.73% 0.65%
Return on average equity 7.94% 8.03% 7.85% 6.54% 6.67% 7.94% 7.30%
Net interest margin (fully taxable equivalent) 3.04% 3.06% 3.15% 2.95% 2.96% 3.08% 3.08%
Efficiency ratio 77.97% 79.01% 79.86% 84.59% 87.83% 78.94% 82.92%
Full-time equivalent employees (period end) 352 348 354 361 363 352 363
ASSET QUALITY
Gross charge-offs $ 120 $ 92 $ 82 $ 508 $ 354 $ 294 $ 1,695
Net charge-offs $ (330) $ (666) $ (585) $ (526) $ (523) $ (1,581) $ (783)
Net charge-offs to average loans (annualized) -0.13% -0.26% -0.23% -0.20% -0.21% -0.20% -0.10%
Nonperforming loans $ 8,425 $ 8,065 $ 15,548 $ 12,335 $ 10,220 $ 8,425 $ 10,220
Other real estate and repossessed assets $ 28,801 $ 31,571 $ 34,077 $ 36,836 $ 42,796 $ 28,801 $ 42,796
Nonperforming loans to total loans 0.80% 0.77% 1.51% 1.18% 0.99% 0.80% 0.99%
Nonperforming assets to total assets 2.50% 2.66% 3.33% 3.24% 3.39% 2.50% 3.39%
Allowance for loan losses $ 19,629 $ 20,049 $ 20,383 $ 20,798 $ 21,272 $ 19,629 $ 21,272
Allowance for loan losses to total loans 1.86% 1.92% 1.98% 2.00% 2.07% 1.86% 2.07%
Allowance for loan losses to nonperforming loans 232.99% 248.59% 131.10% 168.61% 208.14% 232.99% 208.14%
CAPITAL
Average equity to average assets 9.29% 9.29% 9.01% 8.95% 8.86% 9.19% 8.88%
Tier 1 capital to average assets 11.55% 11.43% 11.06% 10.61% 10.89% 11.55% 10.89%
Total capital to risk-weighted assets 16.27% 16.33% 16.11% 15.69% 16.04% 16.27% 16.04%
Tier 1 capital to average assets (Bank) 11.36% 11.26% 10.99% 10.45% 10.80% 11.36% 10.80%
Total capital to risk-weighted assets (Bank) 15.98% 16.06% 16.00% 15.45% 15.90% 15.98% 15.90%
Tangible common equity to assets 9.49% 9.34% 9.15% 8.82% 6.63% 9.49% 6.63%
END OF PERIOD BALANCES
Total portfolio loans $ 1,054,788 $ 1,043,529 $ 1,030,111 $ 1,042,377 $ 1,028,793 $ 1,054,788 $ 1,028,793
Earning assets 1,355,635 1,340,438 1,337,512 1,359,686 1,402,703 1,355,635 1,402,703
Total assets 1,489,664 1,491,142 1,490,899 1,517,405 1,562,680 1,489,664 1,562,680
Deposits 1,216,089 1,215,724 1,216,778 1,249,734 1,288,041 1,216,089 1,288,041
Total shareholders' equity 140,469 138,092 135,188 132,522 135,507 140,469 135,507
AVERAGE BALANCES
Total portfolio loans $ 1,043,774 $ 1,040,413 $ 1,037,678 $ 1,026,603 $ 1,012,361 $ 1,040,644 $ 1,032,169
Earning assets 1,358,219 1,337,822 1,349,971 1,380,510 1,362,223 1,348,701 1,347,544
Total assets 1,497,386 1,477,114 1,493,201 1,527,910 1,514,555 1,489,249 1,503,750
Deposits 1,224,041 1,205,194 1,223,928 1,255,221 1,238,303 1,217,721 1,227,648
Total shareholders' equity 139,107 137,163 134,488 136,718 134,118 136,936 133,540

CONTACT: Macatawa Bank Corporation macatawabank.com

Source:Macatawa Bank Corporation