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Macatawa Bank Corporation Reports Fourth Quarter and Full Year 2015 Results

HOLLAND, Mich., Jan. 28, 2016 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ:MCBC) today announced its results for the fourth quarter and full year of 2015, reflecting continued improvement in financial performance.

  • Net income of $3.5 million in the fourth quarter 2015, up 53% from $2.3 million in the fourth quarter 2014. Full year net income of $12.8 million, up 22% from $10.5 million in 2014
  • Strong growth in performing loans - up $87.1 million, or 7.8%, for the full year 2015
  • Net interest income increase aided by growth in loans
  • Fourth quarter revenue growth of $1.2 million, or 8%, compared to fourth quarter 2014
  • Sales of $7.9 million of other real estate owned in the fourth quarter 2015
  • Past due loans only 0.11% of total loans at end of 2015, down from 0.25% at the end of 2014
  • Nonperforming assets down 50% from fourth quarter 2014
  • Strong loan collection results – 2015 was the third consecutive full year of net recoveries

Macatawa reported net income of $3.5 million, or $0.10 per diluted share, in the fourth quarter 2015 compared to $2.3 million, or $0.07 per diluted share, in the fourth quarter 2014. For the full year of 2015, the Company reported net income of $12.8 million, or $0.38 per diluted share, compared to $10.5 million, or $0.31 per diluted share, for the same period in 2014.

"We made excellent progress in 2015 with improved earnings performance and significant reductions in non-performing and substandard assets. Fourth quarter net income grew by 53% over the prior year fourth quarter, and full year net income increased by 22% to $12.8 million over prior year earnings,” said Ronald L. Haan, President and CEO of the Company. “Our earnings improvement was driven primarily by growth in net interest income, which increased by $2.7 million for the full year 2015. While expenses associated with the administration and disposition of problem assets remained elevated during 2015, we saw a 50% reduction of non-performing assets during 2015, the majority of which took place in the fourth quarter when we sold our largest other real estate owned property. With a 50% reduction of non-performing assets during 2015, we expect to see significant reductions in non-performing asset expenses in 2016.”

Mr. Haan continued: "Non-interest income categories also improved during the fourth quarter and for the full year of 2015. Deposit service charges, mortgage banking, and trust service revenues all increased compared to prior periods. We are pleased with the increase in 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, and this is being reflected in our operating results. The continued growth in our loan and deposit portfolios and significant reduction in problem assets puts us in a strong position to deliver even better operating performance going forward."

Operating Results
Net interest income for the fourth quarter 2015 totaled $11.5 million, an increase of $340,000 from the third quarter 2015 and an increase of $1.0 million from the fourth quarter 2014. Net interest margin was 3.03 percent, up 11 basis points from the third quarter 2015, and down 2 basis points from the fourth quarter 2014.

Average interest earning assets for the fourth quarter 2015 decreased $5.4 million from the third quarter 2015 and were up $154.0 million from the fourth quarter 2014.

Non-interest income increased $19,000 in the fourth quarter 2015 compared to the third quarter 2015 and increased $170,000 from the fourth quarter 2014. The increase from the fourth 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, which continued into 2015. The Bank originated $23.4 million in loans for sale in the fourth quarter 2015 compared to $25.2 million in loans for sale in the third quarter 2015 and $22.0 million in loans for sale in the fourth quarter 2014.

Non-interest expense was $12.6 million for the fourth quarter 2015, compared to $11.3 million for the third quarter 2015 and $12.1 million for the fourth 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 increased $1.5 million compared to the third quarter 2015 and increased $866,000 compared to the fourth quarter 2014. These increases were due to a $1.1 million loss taken on the sale of the Bank’s largest individual other real estate owned property at the end of the fourth quarter 2015. Salaries and benefits were up $36,000 compared to the third quarter 2015 and were up $235,000 compared to the fourth quarter 2014 due to an increase in medical insurance expense resulting from a higher level of claims experienced in 2015. Marketing and promotion expenses were down $142,000 from the third quarter 2015 and were down $120,000 from the fourth quarter 2014. The fourth quarter 2014 marketing and promotion expenses were higher due to a branding campaign that occurred in late 2014.

Federal income tax expense was $1.6 million for the fourth quarter 2015 compared to $1.4 million for the third quarter 2015 and $1.0 million for the fourth quarter 2014. The effective tax rate was 30.6% for the fourth quarter 2015, compared to 30.4% for the third quarter 2015 and 29.3% for the fourth 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 fourth quarter 2015, and a reduction of $1.5 million in specific reserves on impaired loans, a negative provision for loan losses of $1.75 million was recorded in the fourth quarter 2015. Net loan recoveries for the fourth quarter 2015 were $614,000, compared to third quarter 2015 net loan recoveries of $285,000 and fourth quarter 2014 net loan chargeoffs of $67,000. 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 $1.4 million at December 31, 2015, down 53 percent from $2.9 million at September 30, 2015 and down 42 percent from $2.8 million at December 31, 2014. Delinquency as a percentage of total loans was 0.11 percent at December 31, 2015, a new quarterly low for the Bank.

The allowance for loan losses of $17.1 million was 1.43 percent of total loans at December 31, 2015, compared to 1.53 percent of total loans at September 30, 2015, and 1.70 percent at December 31, 2014. The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 2,259.39 percent as of December 31, 2015, compared to 432.61 percent at September 30, 2015, and 232.99 percent at September 30, 2014.

At December 31, 2015, the Company's nonperforming loans had declined to $756,000, representing 0.06 percent of total loans. This compares to $4.2 million (0.35 percent of total loans) at September 30, 2015 and $8.4 million (0.75 percent of total loans) at December 31, 2015. Other real estate owned and repossessed assets were $17.5 million at December 31, 2015, compared to $25.7 million at September 30, 2015 and $28.3 million at December 31, 2014. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $18.4 million, or 50 percent, from December 31, 2014 to December 31, 2015.

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


Dollars in 000s
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
December 31,
2014
Commercial Real Estate $525 $922 $ 1,188 $ 2,610 $ 2,023
Commercial and Industrial 174 3,119 2,392 6,732 5,605
Total Commercial Loans 699 4,041 3,580 9,342 7,628
Residential Mortgage Loans 2 42 2 64 305
Consumer Loans 55 128 134 405 493
Total Non-Performing Loans $756 $4,211 $3,716 $ 9,811 $ 8,426
Residential Developer Loans (a) $ 195 $ 369 $ 174 $ 213 $ 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 $18.3 million, or 1.06 percent of total assets, at December 31, 2015. A break-down of non-performing assets is shown in the table below.


Dollars in 000s
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
December 31,
2014
Non-Performing Loans $756 $4,211 $3,716 $9,811 $8,426
Other Repossessed Assets --- --- --- 38 38
Other Real Estate Owned 17,572 25,671 26,303 27,038 28,242
Total Non-Performing Assets $18,328 $29,882 $30,019 $36,887 $36,706

Balance Sheet, Liquidity and Capital
Total assets were $1.73 billion at December 31, 2015, an increase of $70.7 million from $1.66 billion at September 30, 2015 and an increase of $146.2 million from $1.58 billion at December 31, 2014. Total loans were $1.20 billion at December 31, 2015, an increase of $5.1 million from $1.19 billion at September 30, 2015 and an increase of $79.4 million from $1.12 billion at December 31, 2014.

Commercial loans increased by $67.8 million from December 31, 2014 to December 31, 2015, along with an increase of $11.7 million in our residential mortgage and consumer loan portfolios. Commercial real estate loans increased by $18.1 million and commercial and industrial loans increased by $49.6 million during the same period.

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


Dollars in 000s
December 31,
2015
September 30,
2015
June 30,
2015
March 31,
2015
December 31,
2014
Construction and Development $ 74,210 $ 77,320 $ 77,363 $ 77,494 $ 81,296
Other Commercial Real Estate 434,462 427,797 397,042 410,578 409,235
Commercial Loans Secured by Real Estate 508,672 505,117 474,405 488,072 490,531
Commercial and Industrial 377,298 376,966 350,202 341,530 327,674
Total Commercial Loans $ 885,970 $ 882,083 $ 824,607 $ 829,602 $ 818,205
Residential Developer Loans (a) $ 30,112 $ 32,147 $ 29,741 $ 29,415 $ 29,804


(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 December 31, 2015, total performing loans amounted to $1.20 billion, an increase of $8.5 million from September 30, 2015 and an increase of $87.1 million from December 31, 2014.

Total deposits were $1.44 billion at December 31, 2015, up $68.7 million from $1.37 billion at September 30, 2015 and were up $129.2 million, or 9.9 percent, from $1.31 billion at December 31, 2014. The increase from 2014 was primarily related to increases in checking, savings and money market accounts, which grew by $161.6 million compared to December 31, 2014, while higher costing time deposits were down $32.4 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 and fourth quarters of 2015 as a result of loan growth, 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 December 31, 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 recognized for the past five 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," "expect," "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, reduce non-performing asset expenses, 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 Twelve Months Ended
December 31 December 31
EARNINGS SUMMARY 2015 2014 2015 2014
Total interest income $ 12,709 $ 11,816 $ 49,386 $ 46,988
Total interest expense 1,248 1,359 5,306 5,596
Net interest income 11,461 10,457 44,080 41,392
Provision for loan losses (1,750) (600) (3,500) (3,350)
Net interest income after provision for loan losses 13,211 11,057 47,580 44,742
NON-INTEREST INCOME
Deposit service charges 1,129 1,115 4,377 4,334
Net gains on mortgage loans 675 534 2,925 1,939
Trust fees 759 699 2,927 2,701
Other 1,940 1,985 7,564 7,240
Total non-interest income 4,503 4,333 17,793 16,214
NON-INTEREST EXPENSE
Salaries and benefits 6,194 5,959 24,668 23,137
Occupancy 891 1,003 3,714 3,840
Furniture and equipment 806 796 3,237 3,190
FDIC assessment 283 284 1,137 1,218
Administration and disposition of problem assets 1,720 853 3,032 3,071
Other 2,721 3,218 11,165 11,454
Total non-interest expense 12,615 12,113 46,953 45,910
Income before income tax 5,099 3,277 18,420 15,046
Income tax expense 1,561 960 5,626 4,573
Net income $ 3,538 $ 2,317 $ 12,794 $ 10,473
Basic earnings per common share $ 0.10 $ 0.07 $ 0.38 $ 0.31
Diluted earnings per common share $ 0.10 $ 0.07 $ 0.38 $ 0.31
Return on average assets 0.85% 0.61% 0.79% 0.70%
Return on average equity 9.40% 6.54% 8.68% 7.58%
Net interest margin 3.03% 3.05% 3.01% 3.07%
Efficiency ratio 79.02% 81.90% 75.89% 79.70%
BALANCE SHEET DATA December 31 December 31
Assets 2015 2014
Cash and due from banks $ 29,104 $ 31,503
Federal funds sold and other short-term investments 152,372 97,952
Interest-bearing time deposits in other financial institutions 20,000 20,000
Securities available for sale 166,815 161,874
Securities held to maturity 51,856 31,585
Federal Home Loan Bank Stock 11,558 11,238
Loans held for sale 2,776 2,347
Total loans 1,197,932 1,118,483
Less allowance for loan loss 17,081 18,962
Net loans 1,180,851 1,099,521
Premises and equipment, net 51,456 52,894
Bank-owned life insurance 28,858 28,195
Other real estate owned 17,572 28,242
Other assets 16,425 18,495
Total Assets $ 1,729,643 $ 1,583,846
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 477,032 $ 404,143
Interest-bearing deposits 958,480 902,182
Total deposits 1,435,512 1,306,325
Other borrowed funds 96,169 88,107
Long-term debt 41,238 41,238
Other liabilities 4,747 5,657
Total Liabilities 1,577,666 1,441,327
Shareholders' equity 151,977 142,519
Total Liabilities and Shareholders' Equity $ 1,729,643 $ 1,583,846
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
Quarterly Year to Date
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
2015 2015 2015 2015 2014 2015 2014
EARNINGS SUMMARY
Net interest income $ 11,461 $ 11,121 $ 10,845 $ 10,652 $ 10,457 $ 44,080 $ 41,392
Provision for loan losses (1,750) (250) (500) (1,000) (600) (3,500) (3,350)
Total non-interest income 4,503 4,484 4,512 4,295 4,333 17,793 16,214
Total non-interest expense 12,615 11,254 11,222 11,862 12,113 46,953 45,910
Federal income tax expense 1,561 1,400 1,420 1,245 960 5,626 4,573
Net income $ 3,538 $ 3,201 $ 3,215 $ 2,840 $ 2,317 $ 12,794 $ 10,473
Basic earnings per common share $ 0.10 $ 0.09 $ 0.09 $ 0.08 $ 0.07 $ 0.38 $ 0.31
Diluted earnings per common share $ 0.10 $ 0.09 $ 0.09 $ 0.08 $ 0.07 $ 0.38 $ 0.31
MARKET DATA
Book value per common share $ 4.48 $ 4.42 $ 4.34 $ 4.30 $ 4.21 $ 4.48 $ 4.21
Tangible book value per common share $ 4.48 $ 4.42 $ 4.34 $ 4.30 $ 4.21 $ 4.48 $ 4.21
Market value per common share $ 6.05 $ 5.18 $ 5.30 $ 5.35 $ 5.44 $ 6.05 $ 5.44
Average basic common shares 33,891,429 33,866,789 33,866,789 33,866,789 33,837,334 33,872,814 33,803,030
Average diluted common shares 33,891,429 33,866,789 33,866,789 33,866,789 33,837,334 33,872,814 33,803,030
Period end common shares 33,925,113 33,866,789 33,866,789 33,866,789 33,866,789 33,925,113 33,866,789
PERFORMANCE RATIOS
Return on average assets 0.85% 0.77% 0.81% 0.73% 0.61% 0.79% 0.70%
Return on average equity 9.40% 8.64% 8.78% 7.89% 6.54% 8.68% 7.58%
Net interest margin (fully taxable equivalent) 3.03% 2.92% 3.01% 3.07% 3.05% 3.01% 3.07%
Efficiency ratio 79.02% 72.12% 73.07% 79.36% 81.90% 75.89% 79.70%
Full-time equivalent employees (period end) 342 347 347 351 355 342 355
ASSET QUALITY
Gross charge-offs $ 252 $ 170 $ 202 $ 78 $ 382 $ 702 $ 676
Net charge-offs $ (614) $ (285) $ (1) $ (718) $ 67 $ (1,619) $ (1,514)
Net charge-offs to average loans (annualized) -0.21% -0.10% 0.00% -0.26% 0.02% -0.14% -0.14%
Nonperforming loans $ 756 $ 4,211 $ 3,716 $ 9,811 $ 8,426 $ 756 $ 8,426
Other real estate and repossessed assets $ 17,572 $ 25,671 $ 26,303 $ 27,076 $ 28,280 $ 17,572 $ 28,280
Nonperforming loans to total loans 0.06% 0.35% 0.33% 0.86% 0.75% 0.06% 0.75%
Nonperforming assets to total assets 1.06% 1.80% 1.86% 2.29% 2.32% 1.06% 2.32%
Allowance for loan losses $ 17,081 $ 18,217 $ 18,181 $ 18,680 $ 18,962 $ 17,081 $ 18,962
Allowance for loan losses to total loans 1.43% 1.53% 1.61% 1.65% 1.70% 1.43% 1.70%
Allowance for loan losses to nonperforming loans 2259.39% 432.61% 489.26% 190.40% 225.04% 2259.39% 225.04%
CAPITAL
Average equity to average assets 9.07% 8.89% 9.18% 9.29% 9.40% 9.10% 9.25%
Common equity tier 1 to risk weighted assets (Consolidated) 10.75% 10.54% 10.87% 10.74% N/A 10.75% N/A
Tier 1 capital to average assets (Consolidated) 11.54% 11.34% 11.70% 11.90% 11.61% 11.54% 11.61%
Total capital to risk-weighted assets (Consolidated) 14.80% 14.61% 15.09% 14.97% 15.55% 14.80% 15.55%
Common equity tier 1 to risk weighted assets (Bank) 13.22% 12.98% 13.44% 13.31% N/A 13.22% N/A
Tier 1 capital to average assets (Bank) 11.24% 11.03% 11.38% 11.57% 11.41% 11.24% 11.41%
Total capital to risk-weighted assets (Bank) 14.43% 14.23% 14.69% 14.57% 15.27% 14.43% 15.27%
Tangible common equity to assets 8.79% 9.03% 9.09% 9.05% 9.05% 8.79% 9.05%
END OF PERIOD BALANCES
Total portfolio loans $ 1,197,932 $ 1,192,878 $ 1,130,024 $ 1,135,311 $ 1,118,483 $ 1,197,932 $ 1,118,483
Earning assets 1,602,599 1,527,714 1,480,839 1,471,945 1,442,651 1,602,599 1,442,651
Total assets 1,729,643 1,659,339 1,618,014 1,610,209 1,583,845 1,729,643 1,583,845
Deposits 1,435,512 1,366,849 1,327,813 1,320,516 1,306,325 1,435,512 1,306,325
Total shareholders' equity 151,977 149,733 146,843 145,581 142,519 151,977 142,519
AVERAGE BALANCES
Total portfolio loans $ 1,190,328 $ 1,155,339 $ 1,138,880 $ 1,120,395 $ 1,072,585 $ 1,151,438 $ 1,048,496
Earning assets 1,527,116 1,532,562 1,460,025 1,415,643 1,373,157 1,484,275 1,354,865
Total assets 1,660,869 1,667,736 1,594,365 1,550,377 1,508,441 1,618,776 1,494,086
Deposits 1,365,990 1,376,257 1,302,349 1,271,228 1,232,343 1,329,345 1,221,407
Total shareholders' equity 150,583 148,214 146,404 144,062 141,720 147,336 138,142

CONTACT: Macatawa Bank Corporation macatawabank.com

Source:Macatawa Bank Corporation