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Macatawa Bank Corporation Reports First Quarter 2016 Results

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HOLLAND, Mich., April 28, 2016 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ: MCBC) today announced its results for the first quarter of 2016, reflecting continued improvement in financial performance.

  • Net income of $3.5 million in first quarter 2016, up 23% from $2.8 million in first quarter 2015
  • Strong growth in total loans - up $18.3 million since year-end 2015
  • Net interest income increase aided by growth in loans
  • First quarter revenue growth of $1.4 million, or 9%, compared to first quarter 2015
  • Past due loans only 0.07% of total loans at end of first quarter 2016, down from 0.22% at the end of first quarter 2015
  • Nonperforming assets down 55% from first quarter 2015
  • Strong loan collection results – five consecutive quarters of net recoveries

Macatawa reported net income of $3.5 million, or $0.10 per diluted share, in the first quarter 2016 compared to $2.8 million, or $0.08 per diluted share, in the first quarter 2015. 

"We made excellent progress in the first quarter of 2016 with improved earnings performance, loan portfolio growth and improved asset quality.  First quarter net income grew by 23 percent over the prior year first quarter," said Ronald L. Haan, President and CEO of the Company.  "Our earnings improvement was due primarily to increased net interest income fueled by our continued growth in portfolio loans, which were up $18.3 million since year end 2015.  Consistent with our objectives, we have achieved this loan growth while also improving the quality of our loan portfolio.  Quarter end delinquencies reached a new Company low at 0.07 percent of total portfolio loans.  We experienced net loan recoveries again this quarter and have for the past five quarters.  As a result, we again had a negative provision for loan losses.  While expenses associated with the administration and disposition of problem assets remained elevated during the first quarter of 2016, they were half of the level we experienced in the first quarter of 2015, and we had a further 9 percent reduction in the level of our non-performing assets since year end 2015.  We expect to continue to see reductions in non-performing asset expenses through the remainder of 2016." 

Mr. Haan continued:  "Non-interest income categories also improved during the first quarter of 2016.  Deposit service charges and earnings on our bank owned life insurance drove the increase in non-interest income.  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 momentum for continued growth and improved operating performance on a strong capital base.  The continued growth in our loan and deposit portfolios and significant reduction in problem assets puts us in a position to deliver even better operating performance going forward." 

Operating Results
Net interest income for the first quarter 2016 totaled $11.7 million, an increase of $277,000 from the fourth quarter 2015 and an increase of $1.1 million from the first quarter 2015.  Net interest margin was 3.09 percent, up 6 basis points from the fourth quarter 2015, and up 2 basis points from the first quarter 2015. 

Average interest earning assets for the first quarter 2016 increased $12.1 million from the fourth quarter 2015 and were up $123.5 million from the first quarter 2015. 

Non-interest income increased $105,000 in the first quarter 2016 compared to the fourth quarter 2015 and increased $313,000 from the first quarter 2015.  The increase in the first quarter 2016 was primarily due to an increase in income from bank owned life insurance, partially offset by a reduction in gains on sales of mortgage loans.  The Bank originated $18.9 million in loans for sale in the first quarter 2016 compared to $23.4 million in loans for sale in the fourth quarter 2015 and $23.4 million in loans for sale in the first quarter 2015. 

Non-interest expense was $11.6 million for the first quarter 2016, compared to $12.6 million for the fourth quarter 2015 and $11.9 million for the first quarter 2015.  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 $1.3 million compared to the fourth quarter 2015 and $416,000 compared to the first quarter 2015.  The large fluctuation from the fourth quarter 2015 was 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.  Other categories of non-interest expense were relatively flat compared to the fourth quarter 2015 and the first quarter 2015. 

Federal income tax expense was $1.4 million for the first quarter 2016 compared to $1.6 million for the fourth quarter 2015 and $1.2 million for the first quarter 2015.  The effective tax rate was 28.6% for the first quarter 2016, compared to 30.6% for the fourth quarter 2015 and 30.4% for the first quarter 2015.  The decrease in the effective tax rate for the first quarter 2016 was due to the elevated level of earnings on bank owned life insurance during the quarter due to the payment of a death benefit during the quarter.

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 and net loan recoveries experienced in the first quarter 2016, a negative provision for loan losses of $100,000 was recorded in the first quarter 2016.  Net loan recoveries for the first quarter 2016 were $148,000, compared to fourth quarter 2015 net loan recoveries of $614,000 and first quarter 2015 net loan recoveries of $718,000.  The Company has experienced net loan recoveries in each of the past five quarters, and in nine of the past ten quarters. Total loans past due on payments by 30 days or more amounted to $796,000 at March 31, 2016, down 41.9 percent from $1.4 million at December 31, 2015 and down 68.0 percent from $2.5 million at March 31, 2015.  Delinquency as a percentage of total loans was 0.07 percent at March 31, 2016, a new quarterly low for the Company.

The allowance for loan losses of $17.1 million was 1.41 percent of total loans at March 31, 2016, compared to 1.43 percent of total loans at December 31, 2015, and 1.65 percent at March 31, 2015.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 4,011.48 percent as of December 31, 2015, compared to 2,259.39 percent at December 31, 2015, and 190.40 percent at March 31, 2015. 

At March 31, 2016, the Company's nonperforming loans had declined to $427,000, representing 0.04 percent of total loans.  This compares to $756,000 (0.06 percent of total loans) at December 31, 2015 and $9.8 million (0.86 percent of total loans) at March 31, 2015.  Other real estate owned and repossessed assets were $16.1 million at March 31, 2016, compared to $17.5 million at December 31, 2015 and $27.1 million at March 31, 2015. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $20.3 million, or 55.0 percent, from March 31, 2015 to March 31, 2016.

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

 

Dollars in 000s
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
                
Commercial Real Estate $312  $525  $922  $  1,188  $  2,610  
Commercial and Industrial    79    174    3,119    2,392    6,732 
Total Commercial Loans    391    699    4,041    3,580    9,342 
Residential Mortgage Loans    2    2    42    2    64 
Consumer Loans    34    55    128    134    405 
Total Non-Performing Loans $427 $756 $4,211 $3,716 $  9,811 
                 
Residential Developer Loans (a) $  --- $  195 $  369 $  174 $  213 


(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 $16.6 million, or 1.01 percent of total assets, at March 31, 2016.  A break-down of non-performing assets is shown in the table below.

 

Dollars in 000s
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
                
Non-Performing Loans $427 $756 $4,211 $3,716 $9,811 
Other Repossessed Assets  ---  ---  ---  ---  38 
Other Real Estate Owned  16,162  17,572  25,671  26,303  27,038 
Total Non-Performing Assets $16,589 $18,328 $29,882 $30,019 $36,887 


Balance Sheet, Liquidity and Capital

Total assets were $1.64 billion at March 31, 2016, a decrease of $89.7 million from $1.73 billion at December 31, 2015 and an increase of $29.8 million from $1.60 billion at March 31, 2015.  Total assets were elevated at December 31, 2015 due to a year end seasonal inflow of business and municipal deposits.  Total loans were $1.22 billion at March 31, 2016, an increase of $18.3 million from $1.20 billion at December 31, 2015 and an increase of $80.9 million from $1.14 billion at March 31, 2015.

Commercial loans increased by $75.7 million from March 31, 2015 to March 31, 2016, along with an increase of $5.1 million in our residential mortgage and consumer loan portfolios.  Commercial real estate loans increased by $28.6 million and commercial and industrial loans increased by $47.1 million during the same period. 

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

 

Dollars in 000s
 
March 31,
2016
 
December 31,
2015
 
September 30,
2015
 
June 30,
2015
 
March 31,
2015
 
                
Construction and Development $  73,621 $  74,210 $  77,320 $  77,363 $  77,494 
Other Commercial Real Estate  443,095     434,462    427,797    397,042    410,578 
 Commercial Loans Secured
  by Real Estate   
  
516,716 
  
508,672
   
505,117
  
474,405
   
488,072
 
Commercial and Industrial  388,625  377,298    376,966    350,202    341,530 
Total Commercial Loans $905,341  $  885,970 $  882,083 $  824,607 $  829,602 
                 
Residential Developer Loans (a) $28,521  $  30,112 $  32,147 $  29,741 $  29,415 


(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 March 31, 2016, total performing loans amounted to $1.22 billion, an increase of $18.6 million from December 31, 2015 and an increase of $90.3 million from March 31, 2015. 

Total deposits were $1.34 billion at March 31, 2016, down $94.7 million from $1.44 billion at December 31, 2015 and were up $20.3 million, or 1.5 percent, from $1.32 billion at March 31, 2015.  The decrease in total deposits from December 31, 2015 was primarily in demand deposits and money market deposits for municipal and business customers deploying their seasonal increase of year-end deposits in the first quarter of 2016.  Higher costing time deposits were also down $2.3 million from December 31, 2015.  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 were slightly higher at March 31, 2016 compared to March 31, 2015 and December 31, 2015 due to earnings growth, and 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 March 31, 2016.

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, 2015.  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)          
         
      1st Qtr 4th Qtr 1st Qtr
EARNINGS SUMMARY      2016   2015   2015 
Total interest income     $  13,008  $  12,709  $  12,011 
Total interest expense        1,270     1,248     1,359 
Net interest income        11,738     11,461     10,652 
Provision for loan losses        (100)    (1,750)    (1,000)
Net interest income after provision for loan losses        11,838     13,211     11,652 
           
NON-INTEREST INCOME          
Deposit service charges        1,047     1,129     1,001 
Net gains on mortgage loans        487     675     723 
Trust fees        708     759     734 
Other         2,366     1,940     1,837 
Total non-interest income        4,608     4,503     4,295 
           
NON-INTEREST EXPENSE          
Salaries and benefits        6,187     6,194     6,182 
Occupancy        982     891     972 
Furniture and equipment        865     806     783 
FDIC assessment        251     283     281 
Administration and disposition of problem assets        411     1,720     827 
Other        2,855     2,721     2,817 
Total non-interest expense        11,551     12,615     11,862 
Income before income tax        4,895     5,099     4,085 
Income tax expense        1,400     1,561     1,245 
Net income     $  3,495  $  3,538  $  2,840 
           
Basic earnings per common share     $  0.10  $  0.10  $  0.08 
Diluted earnings per common share     $  0.10  $  0.10  $  0.08 
Return on average assets       0.84%  0.85%  0.73%
Return on average equity      9.06%  9.40%  7.89%
Net interest margin      3.09%  3.03%  3.07%
Efficiency ratio      70.67%  79.02%  79.36%
           
BALANCE SHEET DATA      March 31, December 31 March 31,
Assets      2016   2015   2015 
Cash and due from banks     $  22,499  $  29,104  $  27,001 
Federal funds sold and other short-term investments        72,104     152,372     107,078 
Interest-bearing time deposits in other financial institutions        -     20,000     20,000 
Securities available for sale        168,041     166,815     155,640 
Securities held to maturity        51,303     51,856     43,042 
Federal Home Loan Bank Stock        11,558     11,558     11,238 
Loans held for sale        2,259     2,776     2,368 
Total loans        1,216,184     1,197,932     1,135,311 
Less allowance for loan loss        17,129     17,081     18,680 
Net loans        1,199,055     1,180,851     1,116,631 
Premises and equipment, net        50,944     51,456     52,506 
Bank-owned life insurance        28,784     28,858     28,357 
Other real estate owned        16,162     17,572     27,038 
Other assets        17,276     16,425     19,310 
           
Total Assets     $  1,639,985  $  1,729,643  $  1,610,209 
           
Liabilities and Shareholders' Equity          
Noninterest-bearing deposits     $  424,356  $  477,032  $  373,215 
Interest-bearing deposits        916,478     958,480     947,301 
Total deposits        1,340,834     1,435,512     1,320,516 
Other borrowed funds        94,840     96,169     96,836 
Long-term debt        41,238     41,238     41,238 
Other liabilities        7,832     4,747     6,038 
Total Liabilities        1,484,744     1,577,666     1,464,628 
           
Shareholders' equity        155,241     151,977     145,581 
           
Total Liabilities and Shareholders' Equity     $  1,639,985  $  1,729,643  $  1,610,209 
           
           
           
MACATAWA BANK CORPORATION          
SELECTED CONSOLIDATED FINANCIAL DATA          
(Unaudited)          
           
(Dollars in thousands except per share information)          
  Quarterly
           
  1st Qtr  4th Qtr  3rd Qtr 2nd Qtr 1st Qtr
   2016   2015   2015   2015   2015 
EARNINGS SUMMARY          
Net interest income $  11,738  $  11,461  $  11,121  $  10,845  $  10,652 
Provision for loan losses    (100)    (1,750)    (250)    (500)    (1,000)
Total non-interest income    4,608     4,503     4,484     4,512     4,295 
Total non-interest expense    11,551     12,615     11,254     11,222     11,862 
Federal income tax expense    1,400     1,561     1,400     1,420     1,245 
Net income $  3,495  $  3,538  $  3,201  $  3,215  $  2,840 
           
Basic earnings per common share $  0.10  $  0.10  $  0.09  $  0.09  $  0.08 
Diluted earnings per common share $  0.10  $  0.10  $  0.09  $  0.09  $  0.08 
           
MARKET DATA          
Book value per common share $  4.58  $  4.48  $  4.42  $  4.34  $  4.30 
Tangible book value per common share $  4.58  $  4.48  $  4.42  $  4.34  $  4.30 
Market value per common share $  6.25  $  6.05  $  5.18  $  5.30  $  5.35 
Average basic common shares    33,925,113     33,891,429     33,866,789     33,866,789     33,866,789 
Average diluted common shares    33,925,113     33,891,429     33,866,789     33,866,789     33,866,789 
Period end common shares    33,925,113     33,925,113     33,866,789     33,866,789     33,866,789 
           
PERFORMANCE RATIOS          
Return on average assets  0.84%  0.85%  0.77%  0.81%  0.73%
Return on average equity  9.06%  9.40%  8.64%  8.78%  7.89%
Net interest margin (fully taxable equivalent)  3.09%  3.03%  2.92%  3.01%  3.07%
Efficiency ratio  70.67%  79.02%  72.12%  73.07%  79.36%
Full-time equivalent employees (period end)  338   342   347   347   351 
           
ASSET QUALITY          
Gross charge-offs $  76  $  252  $  170  $  202  $  78 
Net charge-offs $  (148) $  (614) $  (285) $  (1) $  (718)
Net charge-offs to average loans (annualized)  -0.05%  -0.21%  -0.10%  0.00%  -0.26%
Nonperforming loans $  427  $  756  $  4,211  $  3,716  $  9,811 
Other real estate and repossessed assets $  16,162  $  17,572  $  25,671  $  26,303  $  27,076 
Nonperforming loans to total loans  0.04%  0.06%  0.35%  0.33%  0.86%
Nonperforming assets to total assets  1.01%  1.06%  1.80%  1.86%  2.29%
Allowance for loan losses $  17,129  $  17,081  $  18,217  $  18,181  $  18,680 
Allowance for loan losses to total loans  1.41%  1.43%  1.53%  1.61%  1.65%
Allowance for loan losses to nonperforming loans  4011.48%  2259.39%  432.61%  489.26%  190.40%
           
CAPITAL          
Average equity to average assets  9.27%  9.07%  8.89%  9.18%  9.29%
Common equity tier 1 to risk weighted assets (Consolidated)  10.95%  10.75%  10.54%  10.87%  10.74%
Tier 1 capital to average assets (Consolidated)  11.69%  11.54%  11.34%  11.70%  11.90%
Total capital to risk-weighted assets (Consolidated)  15.01%  14.80%  14.61%  15.09%  14.97%
Common equity tier 1 to risk weighted assets (Bank)  13.41%  13.22%  12.98%  13.44%  13.31%
Tier 1 capital to average assets (Bank)  11.38%  11.24%  11.03%  11.38%  11.57%
Total capital to risk-weighted assets (Bank)  14.63%  14.43%  14.23%  14.69%  14.57%
Tangible common equity to assets  9.47%  8.79%  9.03%  9.09%  9.05%
           
END OF PERIOD BALANCES          
Total portfolio loans $  1,216,184  $  1,197,932  $  1,192,878  $  1,130,024  $  1,135,311 
Earning assets    1,518,752     1,602,599     1,527,714     1,480,839     1,471,945 
Total assets    1,639,985     1,729,643     1,659,339     1,618,014     1,610,209 
Deposits    1,340,834     1,435,512     1,366,849     1,327,813     1,320,516 
Total shareholders' equity    155,241     151,977     149,733     146,843     145,581 
           
AVERAGE BALANCES          
Total portfolio loans $  1,202,682  $  1,190,328  $  1,155,339  $  1,138,880  $  1,120,395 
Earning assets    1,539,166     1,527,116     1,532,562     1,460,025     1,415,643 
Total assets    1,663,590     1,660,869     1,667,736     1,594,365     1,550,377 
Deposits    1,365,881     1,365,990     1,376,257     1,302,349     1,271,228 
Total shareholders' equity    154,244     150,583     148,214     146,404     144,062 
           
Contact: Macatawa Bank Corporation www.macatawabank.com

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