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Macatawa Bank Corporation Reports Third Quarter 2015 Results

HOLLAND, Mich., Oct. 22, 2015 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ:MCBC) today announced its results for the third quarter of 2015, reflecting continued improvement in financial performance.

  • Net income of $3.2 million in the third quarter 2015, up 16% from $2.8 million in the third quarter 2014
  • Strong growth in performing loans - up $62.4 million from the second quarter 2015 and $142.3 million, or 14%, from third quarter 2014
  • Third quarter revenue growth of $1.0 million, or 7%, compared to third quarter 2014 resulting primarily from increases in net interest income
  • Reduction in total non-interest expenses compared to the third quarter 2014
  • 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."

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.

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



Dollars in 000s
September 30,
2015
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
Commercial Real Estate $922 $ 1,188 $ 2,610 $ 2,023 $3,499
Commercial and Industrial 3,119 2,392 6,732 5,605 4,372
Total Commercial Loans 4,041 3,580 9,342 7,628 7,871
Residential Mortgage Loans 42 2 64 305 144
Consumer Loans 128 134 405 493 410
Total Non-Performing Loans $4,211 $3,716 $ 9,811 $ 8,426 $8,425
Residential Developer Loans (a) $ 369 $ 174 $ 213 $ 245 $2,245
(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.


Dollars in 000s
September 30,
2015
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
Non-Performing Loans $4,211 $3,716 $9,811 $8,426 $8,425
Other Repossessed Assets --- --- 38 38 38
Other Real Estate Owned 25,671 26,303 27,038 28,242 28,763
Total Non-Performing Assets $29,882 $30,019 $36,887 $36,706 $37,226

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:


Dollars in 000s
September 30,
2015
June 30,
2015
March 31,
2015
December 31,
2014
September 30,
2014
Construction and Development $ 77,320 $ 77,363 $ 77,494 $ 81,296 $82,485
Other Commercial Real Estate 427,797 397,042 410,578 409,235 385,432
Commercial Loans Secured by Real Estate 505,117 474,405 488,072 490,531 467,917
Commercial and Industrial 376,966 350,202 341,530 327,674 285,833
Total Commercial Loans $ 882,083 $ 824,607 $ 829,602 $ 818,205 $753,750
Residential Developer Loans (a) $ 32,147 $ 29,741 $ 29,415 $ 29,804 $32,441
(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.

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.

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," “should,” "will," "continue," "improving," "additional," "focus," “forward,” "future," “efforts,” “strategy,” “momentum,” "positioned," 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. 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, 2014. 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 Nine Months Ended
September 30 September 30
EARNINGS SUMMARY 2015 2014 2015 2014
Total interest income $ 12,427 $ 11,674 $ 36,676 $ 35,172
Total interest expense 1,306 1,370 4,058 4,237
Net interest income 11,121 10,304 32,618 30,935
Provision for loan losses (250) (750) (1,750) (2,750)
Net interest income after provision for loan losses 11,371 11,054 34,368 33,685
NON-INTEREST INCOME
Deposit service charges 1,150 1,163 3,248 3,219
Net gains on mortgage loans 705 679 2,249 1,405
Trust fees 711 669 2,168 2,002
Other 1,918 1,792 5,626 5,255
Total non-interest income 4,484 4,303 13,291 11,881
NON-INTEREST EXPENSE
Salaries and benefits 6,158 5,810 18,474 17,177
Occupancy 948 897 2,823 2,837
Furniture and equipment 835 803 2,431 2,394
FDIC assessment 283 287 854 934
Administration and disposition of problem assets 233 861 1,313 2,218
Other 2,797 2,731 8,443 8,237
Total non-interest expense 11,254 11,389 34,338 33,797
Income before income tax 4,601 3,968 13,321 11,769
Income tax expense 1,400 1,206 4,065 3,614
Net income $ 3,201 $ 2,762 $ 9,256 $ 8,155
Basic earnings per common share $ 0.09 $ 0.08 $ 0.27 $ 0.24
Diluted earnings per common share $ 0.09 $ 0.08 $ 0.27 $ 0.24
Return on average assets 0.77% 0.74% 0.77% 0.73%
Return on average equity 8.64% 7.94% 8.44% 7.94%
Net interest margin 2.92% 3.04% 3.00% 3.08%
Efficiency ratio 72.12% 77.97% 74.80% 78.94%
BALANCE SHEET DATA September 30 December 31 September 30
Assets 2015 2014 2014
Cash and due from banks $ 23,468 $ 31,503 $ 24,731
Federal funds sold and other short-term investments 100,285 97,952 74,808
Interest-bearing time deposits in other financial institutions 20,000 20,000 20,000
Securities available for sale 161,515 161,874 162,101
Securities held to maturity 40,434 31,585 31,744
Federal Home Loan Bank Stock 11,558 11,238 11,236
Loans held for sale 2,895 2,347 905
Total loans 1,192,878 1,118,483 1,054,788
Less allowance for loan loss 18,217 18,962 19,629
Net loans 1,174,661 1,099,521 1,035,159
Premises and equipment, net 51,725 52,894 53,292
Bank-owned life insurance 28,697 28,195 28,021
Other real estate owned 25,671 28,242 28,763
Other assets 18,430 18,495 18,904
Total Assets $ 1,659,339 $ 1,583,846 $ 1,489,664
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 442,316 $ 404,143 $ 385,182
Interest-bearing deposits 924,533 902,182 830,907
Total deposits 1,366,849 1,306,325 1,216,089
Other borrowed funds 96,169 88,107 88,107
Long-term debt 41,238 41,238 41,238
Other liabilities 5,350 5,657 3,761
Total Liabilities 1,509,606 1,441,327 1,349,195
Shareholders' equity 149,733 142,519 140,469
Total Liabilities and Shareholders' Equity $ 1,659,339 $ 1,583,846 $ 1,489,664
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
Quarterly Year to Date
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
2015 2015 2015 2014 2014 2015 2014
EARNINGS SUMMARY
Net interest income $ 11,121 $ 10,845 $ 10,652 $ 10,457 $ 10,304 $ 32,618 $ 30,935
Provision for loan losses (250) (500) (1,000) (600) (750) (1,750) (2,750)
Total non-interest income 4,484 4,512 4,295 4,333 4,303 13,291 11,881
Total non-interest expense 11,254 11,222 11,862 12,113 11,389 34,338 33,797
Federal income tax expense 1,400 1,420 1,245 960 1,206 4,065 3,614
Net income $ 3,201 $ 3,215 $ 2,840 $ 2,317 $ 2,762 $ 9,256 $ 8,155
Basic earnings per common share $ 0.09 $ 0.09 $ 0.08 $ 0.07 $ 0.08 $ 0.27 $ 0.24
Diluted earnings per common share $ 0.09 $ 0.09 $ 0.08 $ 0.07 $ 0.08 $ 0.27 $ 0.24
MARKET DATA
Book value per common share $ 4.42 $ 4.34 $ 4.30 $ 4.21 $ 4.15 $ 4.42 $ 4.15
Tangible book value per common share $ 4.42 $ 4.34 $ 4.30 $ 4.21 $ 4.15 $ 4.42 $ 4.15
Market value per common share $ 5.18 $ 5.30 $ 5.35 $ 5.44 $ 4.80 $ 5.18 $ 4.80
Average basic common shares 33,866,789 33,866,789 33,866,789 33,837,334 33,795,384 33,866,789 33,791,470
Average diluted common shares 33,866,789 33,866,789 33,866,789 33,837,334 33,795,384 33,866,789 33,791,470
Period end common shares 33,866,789 33,866,789 33,866,789 33,866,789 33,803,823 33,866,789 33,808,823
PERFORMANCE RATIOS
Return on average assets 0.77% 0.81% 0.73% 0.61% 0.74% 0.77% 0.73%
Return on average equity 8.64% 8.78% 7.89% 6.54% 7.94% 8.44% 7.94%
Net interest margin (fully taxable equivalent) 2.92% 3.01% 3.07% 3.05% 3.04% 3.00% 3.08%
Efficiency ratio 72.12% 73.07% 79.36% 81.90% 77.97% 74.80% 78.94%
Full-time equivalent employees (period end) 347 347 351 355 352 347 352
ASSET QUALITY
Gross charge-offs $ 170 $ 202 $ 78 $ 382 $ 120 $ 450 $ 294
Net charge-offs $ (285) $ (1) $ (718) $ 67 $ (330) $ (1,005) $ (1,581)
Net charge-offs to average loans (annualized) -0.10% 0.00% -0.26% 0.02% -0.13% -0.12% -0.20%
Nonperforming loans $ 4,211 $ 3,716 $ 9,811 $ 8,426 $ 8,425 $ 4,211 $ 8,425
Other real estate and repossessed assets $ 25,671 $ 26,303 $ 27,076 $ 28,280 $ 28,801 $ 25,671 $ 28,801
Nonperforming loans to total loans 0.35% 0.33% 0.86% 0.75% 0.80% 0.35% 0.80%
Nonperforming assets to total assets 1.80% 1.86% 2.29% 2.32% 2.50% 1.80% 2.50%
Allowance for loan losses $ 18,217 $ 18,181 $ 18,680 $ 18,962 $ 19,629 $ 18,217 $ 19,629
Allowance for loan losses to total loans 1.53% 1.61% 1.65% 1.70% 1.86% 1.53% 1.86%
Allowance for loan losses to nonperforming loans 432.61% 489.26% 190.40% 225.04% 232.99% 432.61% 232.99%
CAPITAL
Average equity to average assets 8.89% 9.18% 9.29% 9.40% 9.29% 9.11% 9.19%
Common equity tier 1 to risk weighted assets (Consolidated) 10.54% 10.87% 10.74% N/A N/A 10.54% N/A
Tier 1 capital to average assets (Consolidated) 11.34% 11.70% 11.90% 11.61% 11.55% 11.34% 11.55%
Total capital to risk-weighted assets (Consolidated) 14.61% 15.09% 14.97% 15.55% 16.27% 14.61% 16.27%
Common equity tier 1 to risk weighted assets (Bank) 12.98% 13.44% 13.31% N/A N/A 12.98% N/A
Tier 1 capital to average assets (Bank) 11.03% 11.38% 11.57% 11.41% 11.36% 11.03% 11.36%
Total capital to risk-weighted assets (Bank) 14.23% 14.69% 14.57% 15.27% 15.98% 14.23% 15.98%
Tangible common equity to assets 9.03% 9.09% 9.05% 9.05% 9.49% 9.03% 9.49%
END OF PERIOD BALANCES
Total portfolio loans $ 1,192,878 $ 1,130,024 $ 1,135,311 $ 1,118,483 $ 1,054,788 $ 1,192,878 $ 1,054,788
Earning assets 1,527,714 1,480,839 1,471,945 1,442,651 1,355,635 1,527,714 1,355,635
Total assets 1,659,339 1,618,014 1,610,209 1,583,845 1,489,664 1,659,339 1,489,664
Deposits 1,366,849 1,327,813 1,320,516 1,306,325 1,216,089 1,366,849 1,216,089
Total shareholders' equity 149,733 146,843 145,581 142,519 140,469 149,733 140,469
AVERAGE BALANCES
Total portfolio loans $ 1,155,339 $ 1,138,880 $ 1,120,395 $ 1,072,585 $ 1,043,774 $ 1,138,333 $ 1,040,644
Earning assets 1,532,562 1,460,025 1,415,643 1,373,157 1,358,219 1,469,838 1,348,701
Total assets 1,667,736 1,594,365 1,550,377 1,508,441 1,497,386 1,604,589 1,489,249
Deposits 1,376,257 1,302,349 1,271,228 1,232,343 1,224,041 1,316,996 1,217,721
Total shareholders' equity 148,214 146,404 144,062 141,720 139,107 146,242 136,936


Macatawa Bank Corporation macatawabank.com

Source:Macatawa Bank Corporation