Market Overview

Macatawa Bank Corporation Reports Third Quarter 2016 Results

Share:

HOLLAND, Mich., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (Nasdaq: MCBC) today announced its results for the third quarter of 2016, reflecting continued improvement in financial performance.

 Net income of $4.6 million in third quarter 2016, up 44% from $3.2 million in third quarter 2015
 Total loans up $24.6 million for the quarter, an annualized growth rate of 8.1%
 Revenue increase of $1.4 million in third quarter 2016 from third quarter 2015 while expenses were flat
 Net interest income increase of $781,000 aided by growth in loans
 Past due loans remained at very low levels - only 0.03% of total loans at end of third quarter 2016
 Nonperforming assets down 55% from third quarter 2015
 Favorable loan collection results – seven consecutive quarters of net recoveries
 Strong capital levels

Macatawa reported net income of $4.6 million, or $0.14 per diluted share, in the third quarter 2016 compared to $3.2 million, or $0.09 per diluted share, in the third quarter 2015. For the first nine months of 2016, Macatawa reported net income of $11.8 million, or $0.35 per diluted share, compared to $9.3 million, or $0.27 per diluted share, for the same period in 2015.

"We continued to improve our financial performance in the third quarter showing 44% growth in earnings over the third quarter of last year," said Ronald L. Haan, President and CEO of the Company. "Our earnings improvement was due primarily to increased net interest income and gains on sales of mortgage loans, while holding level our noninterest expenses. Our increase in net interest income was fueled by growth in portfolio loans. Consistent with our objectives, we have achieved this loan growth while also maintaining the quality of our loan portfolio. Quarter end delinquencies were negligible, and we experienced net loan recoveries again this quarter and have for the past seven quarters. As a result, we again had a modest negative provision for loan losses. Gains on sales of mortgage loans in the third quarter of 2016 doubled from the second quarter and were 67 percent higher than in the third quarter of 2015. The level of total noninterest expense in the third quarter of 2016 was the same as it was in the third quarter of last year, reflecting our efforts to control expenses." 

Mr. Haan concluded: "For the last several quarters we have been able to grow our revenue while maintaining a disciplined approach to expenses. We have also been able to grow our loan portfolio while strengthening our capital levels. These achievements reflect a discipline that will continue to guide our focus in coming quarters."

Operating Results
Net interest income for the third quarter 2016 totaled $11.9 million, an increase of $294,000 from the second quarter 2016 and an increase of $781,000 from the third quarter 2015. Net interest margin was 3.04% for the third quarter 2016. Net interest margin on a fully tax equivalent basis was 3.08 percent for the third quarter 2016, consistent with the second quarter 2016, and up 16 basis points from the third quarter 2015.(1) 

Average interest earning assets for the third quarter 2016 increased $24.0 million from the second quarter 2016 and were up $23.0 million from the third quarter 2015. 

Non-interest income increased by $539,000 in the third quarter 2016 compared to the second quarter 2016 and by $591,000 compared to the third quarter 2015. These increases were primarily driven by a higher level of gains on mortgage loans. The Bank originated $38.2 million in loans for sale in the third quarter 2016 compared to $19.0 million in loans for sale in the second quarter 2016 and $25.2 million in loans for sale in the third quarter 2015. 

Non-interest expense was $11.3 million for the third quarter 2016, compared to $11.5 million for the second quarter 2016 and $11.3 million for the third quarter 2015. All categories of non-interest expense were essentially flat from period to period. The largest fluctuations in non-interest expense related to problem asset costs, which decreased $135,000 in third quarter 2016 compared to second quarter 2016 and increased $92,000 compared to third quarter 2015. These costs fluctuated as a result of writedowns on other real estate owned property.

Federal income tax expense was $1.4 million for the third quarter 2016 compared to $1.7 million for the second quarter 2016 and $1.4 million for the third quarter 2015. The effective tax rate was 22.7 percent for the third quarter 2016, compared to 31.0 percent for the second quarter 2016 and 30.4 percent for the third quarter 2015. The decrease in the effective tax rate for the third quarter 2016 was due to tax credits and other adjustments recognized in the Company's federal income tax return which was filed in the third quarter 2016. 

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 third quarter 2016, a negative provision for loan losses of $250,000 was recorded in the third quarter 2016. Net loan recoveries for the third quarter 2016 were $138,000, compared to second quarter 2016 net loan recoveries of $580,000 and third quarter 2015 net loan recoveries of $285,000. The Company has experienced net loan recoveries in each of the past seven quarters, and in twelve of the past thirteen quarters. Total loans past due on payments by 30 days or more amounted to $345,000 at September 30, 2016, down 75 percent from $1.4 million at December 31, 2015 and down 88 percent from $2.9 million at September 30, 2015. Delinquency as a percentage of total loans was 0.03 percent at September 30, 2016. 

(1) Net interest margin on a fully tax equivalent basis is a non-GAAP measure but is customary in the banking industry. Management believes this non-GAAP measure is useful because it ensures comparability of yields on taxable and tax-exempt investment securities. See section on "Use of non-GAAP financial measures" for additional information.

The allowance for loan losses of $16.8 million was 1.36 percent of total loans at September 30, 2016, compared to 1.43 percent of total loans at December 31, 2015, and 1.53 percent at September 30, 2015. The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 7,230 percent as of September 30, 2016, compared to 2,259 percent at December 31, 2015, and 433 percent at September 30, 2015. 

At September 30, 2016, the Company's nonperforming loans had declined to $233,000, representing 0.02 percent of total loans. This compares to $756,000 (0.06 percent of total loans) at December 31, 2015 and $4.2 million (0.35 percent of total loans) at September 30, 2015. Other real estate owned and repossessed assets were $13.1 million at September 30, 2016, compared to $17.6 million at December 31, 2015 and $25.7 million at September 30, 2015. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $16.5 million, or 55 percent, from September 30, 2015 to September 30, 2016.

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

Dollars in 000s Sept 30, 2016 Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Sept 30, 2015 
                
Commercial Real Estate $192 $291 $312 $525 $922 
Commercial and Industrial  9  26  79  174  3,119 
Total Commercial Loans  211  317  391  699  4,041 
Residential Mortgage Loans  2  2  2  2  42 
Consumer Loans  30  31  34  55  128 
Total Non-Performing Loans $233 $350 $427 $756 $4,211 
                 

Total non-performing assets were $13.3 million, or 0.81 percent of total assets, at September 30, 2016. A break-down of non-performing assets is shown in the table below.

Dollars in 000s Sept 30, 2016 Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Sept 30, 2015 
                
Non-Performing Loans $233 $350 $427 $756 $4,211 
Other Repossessed Assets  ---  ---  ---  ---  --- 
Other Real Estate Owned  13,110  14,066  16,162  17,572  25,671 
Total Non-Performing Assets $13,343 $14,416 $16,589 $18,328 $29,882 
                 

Balance Sheet, Liquidity and Capital

Total assets were $1.65 billion at September 30, 2016, a decrease of $76.0 million from $1.73 billion at December 31, 2015 and a decrease of $5.7 million from $1.66 billion at September 30, 2015. Total assets were elevated at December 31, 2015 due to a year end seasonal inflow of business and municipal deposits. Total loans were $1.24 billion at September 30, 2016, an increase of $24.6 million from $1.21 billion at December 31, 2015 and an increase of $43.5 million from $1.19 billion at September 30, 2015.

Commercial loans increased by $41.1 million from September 30, 2015 to September 30, 2016, along with an increase of $2.4 million in our residential mortgage and consumer loan portfolios. Commercial real estate loans decreased by $5.0 million and commercial and industrial loans increased by $46.1 million during the same period. 

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

Dollars in 000s Sept 30, 2016 Jun 30, 2016 Mar 31, 2016 Dec 31, 2015 Sept 30, 2015 
                
Construction and Development $76,077 $74,339 $73,621 $74,210 $77,320 
Other Commercial Real Estate  423,991  439,036  443,095  434,462  427,797 
Commercial Loans Secured by Real Estate   500,068  513,375  516,716   508,672   505,117 
Commercial and Industrial  423,102  381,058  388,625  377,298  376,966 
Total Commercial Loans $923,170 $894,433 $905,341 $885,970 $882,083 
                 
Residential Developer Loans (a) $26,890 $29,771 $28,521 $30,112 $32,147 
                 


(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, 2016, total performing loans amounted to $1.24 billion, an increase of $39.0 million from December 31, 2015 and an increase of $47.5 million from September 30, 2015. 

Total deposits were $1.36 billion at September 30, 2016, down $76.9 million from $1.44 billion at December 31, 2015 and were down $8.2 million from $1.37 billion at September 30, 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. The decrease in total deposits from September 30, 2015 were due to a lower level of deposits held by municipal customers. Higher costing time deposits were also down $13.7 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 September 30, 2016 compared to September 30, 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 September 30, 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.

Use of Non-GAAP Financial Measures
The presentation of net interest margin on a fully tax equivalent ("FTE") basis is not in accordance with GAAP but is customary in the banking industry. Management believes this non-GAAP measure is useful because it ensures comparability of yields on taxable and tax-exempt investment securities. For further information see "Reconciliation of Net Interest Margin, Fully Taxable Equivalent (Non-GAAP)" in the Selected Consolidated Financial Data section that follows.

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)
               
      Quarterly Nine Months Ended
      3rd Qtr 2nd Qtr 3rd Qtr September 30
EARNINGS SUMMARY      2016   2016   2015   2016   2015 
Total interest income     $  13,122  $  12,873  $  12,427  $  39,003  $  36,676 
Total interest expense        1,220     1,265     1,306     3,755     4,058 
Net interest income        11,902     11,608     11,121     35,248     32,618 
Provision for loan losses        (250)    (750)    (250)    (1,100)    (1,750)
Net interest income after provision for loan losses        12,152     12,358     11,371     36,348     34,368 
               
NON-INTEREST INCOME              
Deposit service charges        1,152     1,112     1,150     3,312     3,248 
Net gains on mortgage loans        1,175     572     705     2,235     2,249 
Trust fees        790     788     711     2,286     2,168 
Other         1,958     2,064     1,918     6,386     5,626 
Total non-interest income        5,075     4,536     4,484     14,219     13,291 
               
NON-INTEREST EXPENSE              
Salaries and benefits        6,166     6,168     6,158     18,521     18,474 
Occupancy        901     901     948     2,784     2,823 
Furniture and equipment        772     839     835     2,476     2,431 
FDIC assessment        166     220     283     638     854 
Problem asset costs, including losses        325     460     233     1,196     1,313 
Other        2,943     2,882     2,797     8,679     8,443 
Total non-interest expense        11,273     11,470     11,254     34,294     34,338 
Income before income tax        5,954     5,424     4,601     16,273     13,321 
Income tax expense        1,350     1,679     1,400     4,429     4,065 
Net income     $  4,604  $  3,745  $  3,201  $  11,844  $  9,256 
               
Basic earnings per common share     $  0.14  $  0.11  $  0.09  $  0.35  $  0.27 
Diluted earnings per common share     $  0.14  $  0.11  $  0.09  $  0.35  $  0.27 
Return on average assets       1.10%  0.91%  0.77%  0.95%  0.77%
Return on average equity      11.50%  9.56%  8.64%  10.06%  8.44%
Net interest margin (fully taxable equivalent)(1)      3.08%  3.08%  2.92%  3.09%  3.00%
Efficiency ratio      66.40%  71.05%  72.12%  69.33%  74.80%
               
BALANCE SHEET DATA          September 30 June 30 September 30
Assets          2016   2016   2015 
Cash and due from banks         $  31,879  $  30,045  $  23,468 
Federal funds sold and other short-term investments            25,872     94,888     100,285 
Interest-bearing time deposits in other financial institutions          ---   ---     20,000 
Securities available for sale            184,403     173,580     161,515 
Securities held to maturity            58,893     49,373     40,434 
Federal Home Loan Bank Stock            11,558     11,558     11,558 
Loans held for sale            2,013     1,138     2,895 
Total loans            1,236,395     1,211,844     1,192,878 
Less allowance for loan loss            16,847     16,959     18,217 
Net loans            1,219,548     1,194,885     1,174,661 
Premises and equipment, net            50,174     50,639     51,725 
Bank-owned life insurance            39,088     28,942     28,697 
Other real estate owned            13,110     14,066     25,671 
Other assets            17,148     17,433     18,430 
               
Total Assets         $  1,653,686  $  1,666,547  $  1,659,339 
               
Liabilities and Shareholders' Equity              
Noninterest-bearing deposits         $  455,164  $  451,644  $  442,316 
Interest-bearing deposits            903,463     903,434     924,533 
Total deposits            1,358,627     1,355,078     1,366,849 
Other borrowed funds            84,173     104,840     96,169 
Long-term debt            41,238     41,238     41,238 
Other liabilities            7,403     6,929     5,350 
Total Liabilities            1,491,441     1,508,085     1,509,606 
               
Shareholders' equity            162,245     158,462     149,733 
               
Total Liabilities and Shareholders' Equity         $  1,653,686  $  1,666,547  $  1,659,339 
               
(1)Net interest margin on a fully taxable equivalent basis is a non-GAAP measure.  For more information please refer to RECONCILIATION OF NET INTEREST MARGIN, FULLY TAXABLE EQUIVALENT (NON-GAAP) section below.
               
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    
   2016   2016   2016   2015   2015   2016   2015 
EARNINGS SUMMARY              
Net interest income $  11,902  $  11,608  $  11,738  $  11,461  $  11,121  $  35,248  $  32,618 
Provision for loan losses    (250)    (750)    (100)    (1,750)    (250)    (1,100)    (1,750)
Total non-interest income    5,075     4,536     4,608     4,503     4,484     14,219     13,291 
Total non-interest expense    11,273     11,470     11,551     12,615     11,254     34,294     34,338 
Federal income tax expense    1,350     1,679     1,400     1,561     1,400     4,429     4,065 
Net income $  4,604  $  3,745  $  3,495  $  3,538  $  3,201  $  11,844  $  9,256 
               
Basic earnings per common share $  0.14  $  0.11  $  0.10  $  0.10  $  0.09  $  0.35  $  0.27 
Diluted earnings per common share $  0.14  $  0.11  $  0.10  $  0.10  $  0.09  $  0.35  $  0.27 
               
MARKET DATA              
Book value per common share $  4.78  $  4.67  $  4.58  $  4.48  $  4.42  $  4.78  $  4.42 
Tangible book value per common share $  4.78  $  4.67  $  4.58  $  4.48  $  4.42  $  4.78  $  4.42 
Market value per common share $  7.99  $  7.42  $  6.25  $  6.05  $  5.18  $  7.99  $  5.18 
Average basic common shares    33,921,599     33,922,506     33,925,113     33,891,429     33,866,789     33,923,067     33,866,789 
Average diluted common shares    33,921,599     33,922,506     33,925,113     33,891,429     33,866,789     33,923,067     33,866,789 
Period end common shares    33,920,740     33,922,289     33,925,113     33,925,113     33,866,789     33,920,740     33,866,789 
               
PERFORMANCE RATIOS              
Return on average assets  1.10%  0.91%  0.84%  0.85%  0.77%  0.95%  0.77%
Return on average equity  11.50%  9.56%  9.06%  9.40%  8.64%  10.06%  8.44%
Net interest margin (fully taxable equivalent)  3.08%  3.08%  3.09%  3.03%  2.92%  3.09%  3.00%
Efficiency ratio  66.40%  71.05%  70.67%  79.02%  72.12%  69.33%  74.80%
Full-time equivalent employees (period end)  337   343   338   342   347   337   347 
               
ASSET QUALITY              
Gross charge-offs $  46  $  36  $  76  $  252  $  170  $  158  $  450 
Net charge-offs $  (138) $  (580) $  (148) $  (614) $  (285) $  (866) $  (1,005)
Net charge-offs to average loans (annualized)  -0.05%  -0.19%  -0.05%  -0.21%  -0.10%  -0.10%  -0.12%
Nonperforming loans $  233  $  350  $  427  $  756  $  4,211  $  233  $  4,211 
Other real estate and repossessed assets $  13,110  $  14,066  $  16,162  $  17,572  $  25,671  $  13,110  $  25,671 
Nonperforming loans to total loans  0.02%  0.03%  0.04%  0.06%  0.35%  0.02%  0.35%
Nonperforming assets to total assets  0.81%  0.87%  1.01%  1.06%  1.80%  0.81%  1.80%
Allowance for loan losses $  16,847  $  16,959  $  17,129  $  17,081  $  18,217  $  16,847  $  18,217 
Allowance for loan losses to total loans  1.36%  1.40%  1.41%  1.43%  1.53%  1.36%  1.53%
Allowance for loan losses to nonperforming loans  7230.47%  4845.43%  4011.48%  2259.39%  432.61%  7230.47%  432.61%
               
CAPITAL              
Average equity to average assets  9.53%  9.47%  9.27%  9.07%  8.89%  9.43%  9.11%
Common equity tier 1 to risk weighted assets (Consolidated)  11.25%  11.14%  10.95%  10.75%  10.54%  11.25%  10.54%
Tier 1 capital to average assets (Consolidated)  11.97%  11.93%  11.69%  11.54%  11.34%  11.97%  11.34%
Total capital to risk-weighted assets (Consolidated)  15.23%  15.18%  15.01%  14.80%  14.61%  15.23%  14.61%
Common equity tier 1 to risk weighted assets (Bank)  13.71%  13.59%  13.41%  13.22%  12.98%  13.71%  12.98%
Tier 1 capital to average assets (Bank)  11.64%  11.61%  11.38%  11.24%  11.03%  11.64%  11.03%
Total capital to risk-weighted assets (Bank)  14.90%  14.80%  14.63%  14.43%  14.23%  14.90%  14.23%
Tangible common equity to assets  9.82%  9.52%  9.47%  8.79%  9.03%  9.82%  9.03%
               
END OF PERIOD BALANCES              
Total portfolio loans $  1,236,395  $  1,211,844  $  1,216,184  $  1,197,932  $  1,192,878  $  1,236,395  $  1,192,878 
Earning assets    1,514,797     1,539,877     1,518,752     1,602,599     1,527,714     1,514,797     1,527,714 
Total assets    1,653,686     1,666,547     1,639,985     1,729,643     1,659,339     1,653,686     1,659,339 
Deposits    1,358,627     1,355,078     1,340,834     1,435,512     1,366,849     1,358,627     1,366,849 
Total shareholders' equity    162,245     158,462     155,241     151,977     149,733     162,245     149,733 
               
AVERAGE BALANCES              
Total portfolio loans $  1,215,953  $  1,212,836  $  1,202,682  $  1,190,328  $  1,155,339  $  1,210,511  $  1,138,333 
Earning assets    1,555,550     1,531,535     1,539,166     1,527,116     1,532,562     1,542,133     1,469,838 
Total assets    1,680,097     1,654,325     1,663,590     1,660,869     1,667,736     1,666,055     1,604,589 
Deposits    1,377,462     1,346,703     1,365,881     1,365,990     1,376,257     1,363,400     1,316,996 
Total shareholders' equity    160,196     156,664     154,244     150,583     148,214     157,046     146,242 
               
RECONCILIATION OF NET INTEREST MARGIN, FULLY TAXABLE EQUIVALENT (NON-GAAP)        
Net interest income $  11,902  $  11,608  $  11,738  $  11,461  $  11,121  $  35,248  $  32,618 
Plus taxable equivalent adjustment    193     189     186     190     169     567     477 
Net interest income - taxable equivalent $  12,095  $  11,797  $  11,924  $  11,651  $  11,290  $  35,815  $  33,095 
Net interest margin (GAAP)  3.04%  3.04%  3.06%  2.98%  2.88%  3.04%  2.97%
Net interest margin (FTE) - non-GAAP  3.08%  3.08%  3.09%  3.03%  2.92%  3.09%  3.00%
                             


CONTACT: Macatawa Bank Corporation macatawabank.com

Primary Logo

View Comments and Join the Discussion!