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Macatawa Bank Corporation Reports Third Quarter 2017 Results

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HOLLAND, Mich. , Oct. 26, 2017 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ:MCBC) today announced its results for the third quarter of 2017, reflecting continued strong financial performance.

•  Net income of $4.9 million in third quarter 2017, up 6% from $4.6 million in the third quarter 2016 which included a one-time adjustment to federal income tax expense that increased the prior period earnings by $512,000 
•  Year-to-date earnings through third quarter of 2017 were up 19% over the prior year 
•  Continued trend of increased overall revenue with reduction in expenses 
•  Core deposit balances up by $147 million, nearly 11%, from a year ago
•  Asset quality metrics remained strong: 

  • Past due loans remained at low levels - only 0.07% of total loans at end of third quarter 2017
  • Favorable loan collection results – eleven consecutive quarters of net recoveries

Macatawa reported net income of $4.9 million, or $0.14 per diluted share, in the third quarter 2017 compared to $4.6 million, or $0.14 per diluted share, in the third quarter 2016.  For the first nine months of 2017, Macatawa reported net income of $14.1 million, or $0.42 per diluted share, compared to $11.8 million, or $0.35 per diluted share, for the same period in 2016.

"We are pleased to report strong operating performance for the third quarter of 2017," said Ronald L. Haan, President and CEO of the Company.  "Our long term strategy of driving profitable growth remains the same, and we remain committed to building a well-disciplined company that will deliver superior financial services to the communities of Western Michigan, while also providing strong and consistent financial performance for our shareholders."

Mr. Haan concluded, "Earnings improvement continues to be driven primarily by improvement in net interest income resulting from growth in average balances of business loans and investment securities, and continued strong growth in core deposit funding. Overall, our financial condition is strong, and we are well positioned to support future growth and benefit from future interest rate increases." 

Operating Results
Net interest income for the third quarter 2017 totaled $13.1 million, an increase of $433,000 from the second quarter 2017 and an increase of $1.2 million from the third quarter 2016.  Net interest margin was 3.21 percent, down 3 basis points from the second quarter 2017, and up 13 basis points from the third quarter 2016. Increased levels of short-term low-yielding investments in the third quarter caused 7 basis points of downward pressure on net interest margin compared to the second quarter of 2017. 

Average interest earning assets for the third quarter 2017 increased $57.2 million from the second quarter 2017 and were up $96.5 million from the third quarter 2016 primarily due to growth on the funding side of the balance sheet in core deposits.    

Non-interest income decreased $178,000 in the third quarter 2017 compared to the second quarter 2017 and decreased $775,000 from the third quarter 2016.  These fluctuations were primarily driven by gains on sales of mortgage loans.  Gains on sales of mortgage loans in the third quarter 2017 were down $107,000 compared to the second quarter 2017 and down $806,000 from the third quarter 2016.  The Bank originated $11.3 million in loans for sale in the third quarter 2017 compared to $16.7 million in loans for sale in the second quarter 2017 and $38.2 million in loans for sale in the third quarter 2016.

Non-interest expense was $10.8 million for the third quarter 2017, compared to $10.8 million for the second quarter 2017 and $11.3 million for the third quarter 2016.  The largest component of non-interest expense was salaries and benefit expenses.  Salaries and benefit expenses were up $58,000 compared to the second quarter 2017 and were down $158,000 for the nine months ended September 30, 2017 compared to the same period in the prior year. Total salaries and benefits expense has remained at a consistent level over the past several quarters due to efforts to prudently manage overall cost levels.   The largest fluctuation between periods in non-interest expense was in nonperforming asset expenses.  Nonperforming asset expenses increased $81,000 compared to the second quarter 2017 and decreased $402,000 compared to the third quarter 2016 due to continued reductions in the level of foreclosed properties and net gains realized on sales of such properties in 2017.  Total net realized gains were $190,000 for the third quarter 2017 compared to $321,000 for the second quarter 2017 and $105,000 for the third quarter 2016.  Other categories of non-interest expense were relatively flat compared to the second quarter 2017 and the third quarter 2016. 

Federal income tax expense was $2.2 million for the third quarter 2017 compared to $2.1 million for the second quarter 2017 and $1.4 million for the third quarter 2016.  The effective tax rate was 30.7% for the third quarter 2017, compared to 30.9% for the second quarter 2017 and 22.7% for the third quarter 2016.  The effective tax rate for the third quarter 2016 was lower due to tax credits and other adjustments recognized during that quarter amounting to $512,000.

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 2017, a negative provision for loan losses of $350,000 was recorded in the third quarter 2017.  Net loan recoveries for the third quarter 2017 were $214,000, compared to second quarter 2017 net loan recoveries of $374,000 and third quarter 2016 net loan recoveries of $138,000.  The Company has experienced net loan recoveries in each of the past eleven quarters. Total loans past due on payments by 30 days or more were negligible and amounted to $872,000 at September 30, 2017, down 40 percent from $1.4 million at December 31, 2016 and up $527,000 from $345,000 at September 30, 2016.  Delinquency as a percentage of total loans was 0.07 percent at September 30, 2017.

The allowance for loan losses of $16.4 million was 1.30 percent of total loans at September 30, 2017, compared to 1.32 percent of total loans at December 31, 2016, and 1.36 percent at September 30, 2016.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 31.5-to-1 as of September 30, 2017. 

At September 30, 2017, the Company's nonperforming loans were $521,000, representing 0.04 percent of total loans.  This compares to $300,000 (0.02 percent of total loans) at December 31, 2016 and $233,000 (0.02 percent of total loans) at September 30, 2016.  Other real estate owned and repossessed assets were $6.7 million at September 30, 2017, compared to $12.3 million at December 31, 2016 and $13.1 million at September 30, 2016. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $6.2 million, or 46 percent, from September 30, 2016 to September 30, 2017.

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


Dollars in 000s
  Sept 30,
2017
    Jun 30,
2017
    Mar 31,
2017
    Dec 31,
2016
    Sept 30,
2016
 
                               
Commercial Real Estate   $ 440   $ 436   $ 252   $ 183   $ 192  
Commercial and Industrial     4     6     127     36     9  
Total Commercial Loans     444     442     379     219     201  
Residential Mortgage Loans     58     206     2     58     2  
Consumer Loans     19     22     20     23     30  
Total Non-Performing Loans                        $ 521   $ 670   $ 401   $ 300   $ 233  

Total non-performing assets were $7.2 million, or 0.40 percent of total assets, at September 30, 2017.  A break-down of non-performing assets is shown in the table below.

Dollars in 000s   Sept 30,
2017
  Jun 30,
2017
  Mar 31,
2017
  Dec 31,
2016
  Sept 30,
2016
 
                               
Non-Performing Loans   $ 521   $ 670   $ 401   $ 300   $ 233  
Other Repossessed Assets     ---     ---     ---     ---     ---  
Other Real Estate Owned     6,661     7,097     12,074     12,253     13,110  
Total Non-Performing Assets                          $ 7,182   $ 7,767   $ 12,475   $ 12,553   $ 13,343  


Balance Sheet, Liquidity and Capital

Total assets were $1.80 billion at September 30, 2017, an increase of $44.0 million from $1.76 billion at June 30, 2017 and an increase of $149.4 million from $1.65 billion at September 30, 2016.  Total loans were $1.26 billion at September 30, 2017, an increase of $8.7 million from $1.25 billion at June 30, 2017 and an increase of $23.6 million from $1.24 billion at September 30, 2016.

Commercial loans increased by $26.0 million from September 30, 2016 to September 30, 2017, partially offset by a decrease of $2.4 million in our residential mortgage and consumer loan portfolios.  Commercial real estate loans increased by $30.3 million while commercial and industrial loans decreased by $4.3 million during the same period. 

Commercial loan production volume was up compared to the second quarter of 2017, as well as compared to the third quarter of 2016.  The following table shows a breakout of the Bank's commercial loan activity:

Dollars in 000s   3rd Qtr
2017
  2nd Qtr
2017
  1st Qtr
2017
  4th Qtr
2016
  3rd Qtr
2016
                             
Commercial loans originated   $ 68,282      $ 33,435      $ 60,356      $ 78,398      $ 61,112   
Repayments of commercial loans     (37,138 )     (30,090 )     (58,600 )     (40,768 )     (35,869 )
Change in undist.–available credit     (31,702 )     (15,706 )     (6,960 )     6,523        3,494   
Net change in commercial loans      $ (558 )     $ (12,361 )     $ (5,204 )     $ 44,153       $ 28,737  

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

Dollars in 000s   Sept 30,
2017
  Jun 30,
2017
  Mar 31,
2017
  Dec 31,
2016
  Sept 30,
2016
 
                               
Construction and Development   $ 84,659   $ 82,317   $ 78,910   $ 79,596   $ 76,077  
Other Commercial Real Estate     445,703     432,223     429,898     438,385     423,991  
Commercial Loans Secured by Real Estate      530,362     514,540     508,808     517,981     500,068  
Commercial and Industrial     418,838     435,218     453,311     449,342     423,102  
Total Commercial Loans   $ 949,200   $ 949,758   $ 962,119   $ 967,323   $ 923,170  
                                 
Residential Developer Loans (a)    $ 24,507   $ 21,244   $ 24,662   $ 26,003   $ 26,890  


(a)   Represents the amount of loans to residential developers secured by single family residential property which is included in commercial loans secured by real estate.

Total deposits were $1.51 billion at September 30, 2017, up $46.2 million from $1.46 billion at June 30, 2017 and were up $147.6 million, or 11 percent, from $1.36 billion at September 30, 2016.  The increase in total deposits from September 30, 2016 was primarily in interest-bearing checking (up $58.4 million) and noninterest checking account balances (up $42.1 million).  The other categories of deposits also increased including money market deposits (up $20.2 million), savings (up $11.7 million) and certificates of deposit (up $15.2 million). 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 higher at September 30, 2017 compared to June 30, 2017 and September 30, 2016 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, 2017.

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 seven 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," "intend," "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, 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, extent, 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, 2016.  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             2017       2017       2016       2017       2016  
Total interest income           $   14,626     $   14,042     $   13,122     $   42,516     $   39,003  
Total interest expense               1,488         1,337         1,220         4,090         3,755  
Net interest income               13,138         12,705         11,902         38,426         35,248  
Provision for loan losses               (350 )       (500 )       (250 )       (1,350 )       (1,100 )
Net interest income after provision for loan losses               13,488         13,205         12,152         39,776         36,348  
                             
NON-INTEREST INCOME                            
Deposit service charges               1,172         1,110         1,152         3,342         3,312  
Net gains on mortgage loans               369         476         1,175         1,273         2,235  
Trust fees               801         833         790         2,412         2,286  
Other               1,958         2,059         1,958         5,982         6,386  
Total non-interest income               4,300         4,478         5,075         13,009         14,219  
                             
NON-INTEREST EXPENSE                            
Salaries and benefits               6,211         6,153         6,166         18,363         18,521  
Occupancy               922         991         901         2,939         2,784  
Furniture and equipment               797         750         772         2,278         2,476  
FDIC assessment               134         134         166         404         638  
Problem asset costs, including losses               (77 )       (158 )       325         (140 )       1,196  
Other               2,769         2,922         2,943         8,590         8,679  
Total non-interest expense               10,756         10,792         11,273         32,434         34,294  
Income before income tax               7,032         6,891         5,954         20,351         16,273  
Income tax expense               2,157         2,129         1,350         6,253         4,429  
Net income           $   4,875     $   4,762     $   4,604     $   14,098     $   11,844  
                             
Basic earnings per common share           $   0.14     $   0.14     $   0.14     $   0.42     $   0.35  
Diluted earnings per common share           $   0.14     $   0.14     $   0.14     $   0.42     $   0.35  
Return on average assets             1.10 %     1.11 %     1.10 %     1.08 %     0.95 %
Return on average equity             11.34 %     11.32 %     11.50 %     11.17 %     10.06 %
Net interest margin (fully taxable equivalent)             3.21 %     3.24 %     3.08 %     3.24 %     3.09 %
Efficiency ratio             61.68 %     62.81 %     66.40 %     63.06 %     69.33 %
                             
BALANCE SHEET DATA                    September 30   June 30   September 30
Assets                     2017       2017       2016  
Cash and due from banks                   $   28,318     $   31,165     $   31,879  
Federal funds sold and other short-term investments                       131,571         114,104         25,872  
Securities available for sale                       214,182         184,761         184,403  
Securities held to maturity                       61,927         68,818         58,893  
Federal Home Loan Bank Stock                       11,558         11,558         11,558  
Loans held for sale                       2,199         3,184         2,013  
Total loans                       1,260,037         1,251,355         1,236,395  
Less allowance for loan loss                       16,434         16,570         16,847  
Net loans                       1,243,603         1,234,785         1,219,548  
Premises and equipment, net                       46,822         48,626         50,174  
Bank-owned life insurance                       40,042         39,781         39,088  
Other real estate owned                       6,661         7,097         13,110  
Other assets                       16,163         15,184         17,148  
                             
Total Assets                   $   1,803,046     $   1,759,063     $   1,653,686  
                             
Liabilities and Shareholders' Equity                            
Noninterest-bearing deposits                   $   497,310     $   481,769     $   455,164  
Interest-bearing deposits                       1,008,868         978,221         903,463  
Total deposits                       1,506,178         1,459,990         1,358,627  
Other borrowed funds                       72,118         82,785         84,173  
Long-term debt                       41,238         41,238         41,238  
Other liabilities                       10,048         4,875         7,403  
Total Liabilities                       1,629,582         1,588,888         1,491,441  
                             
Shareholders' equity                       173,464         170,175         162,245  
                             
Total Liabilities and Shareholders' Equity                   $   1,803,046     $   1,759,063     $   1,653,686  
                             
                             
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        
      2017       2017       2017       2016       2016       2017       2016  
EARNINGS SUMMARY                            
Net interest income   $   13,138     $   12,705     $   12,583     $   12,292     $   11,902     $   38,426     $   35,248  
Provision for loan losses       (350 )       (500 )       (500 )       (250 )       (250 )       (1,350 )       (1,100 )
Total non-interest income       4,300         4,478         4,231         4,856         5,075         13,009         14,219  
Total non-interest expense       10,756         10,792         10,888         11,488         11,273         32,434         34,294  
Federal income tax expense       2,157         2,129         1,966         1,802         1,350         6,253         4,429  
Net income   $   4,875     $   4,762     $   4,460     $   4,108     $   4,604     $   14,098     $   11,844  
                             
Basic earnings per common share   $   0.14     $   0.14     $   0.13     $   0.12     $   0.14     $   0.42     $   0.35  
Diluted earnings per common share   $   0.14     $   0.14     $   0.13     $   0.12     $   0.14     $   0.42     $   0.35  
                             
MARKET DATA                            
Book value per common share   $   5.11     $   5.01     $   4.89     $   4.78     $   4.78     $   5.11     $   4.78  
Tangible book value per common share   $   5.11     $   5.01     $   4.89     $   4.78     $   4.78     $   5.11     $   4.78  
Market value per common share   $   10.26     $   9.54     $   9.88     $   10.41     $   7.99     $   10.26     $   7.99  
Average basic common shares       33,942,248         33,942,318         33,941,010         33,920,535         33,921,599         33,942,318         33,923,067  
Average diluted common shares       33,947,269         33,948,127         33,948,584         33,923,371         33,921,599         33,948,419         33,923,067  
Period end common shares       33,941,953         33,938,486         33,944,788         33,940,788         33,920,740         33,941,953         33,920,740  
                             
PERFORMANCE RATIOS                            
Return on average assets     1.10 %     1.11 %     1.05 %     0.97 %     1.10 %     1.08 %     0.95 %
Return on average equity     11.34 %     11.32 %     10.86 %     10.08 %     11.50 %     11.17 %     10.06 %
Net interest margin (fully taxable equivalent)     3.21 %     3.24 %     3.26 %     3.17 %     3.08 %     3.24 %     3.09 %
Efficiency ratio     61.68 %     62.81 %     64.76 %     66.99 %     66.40 %     63.06 %     69.33 %
Full-time equivalent employees (period end)     343       344       338       342       337       343       337  
                             
ASSET QUALITY                            
Gross charge-offs   $   55     $   139     $   26     $   47     $   46     $   221     $   158  
Net charge-offs   $   (214 )   $   (374 )   $   (234 )   $   (364 )   $   (138 )   $   (822 )   $   (866 )
Net charge-offs to average loans (annualized)     -0.07 %     -0.12 %     -0.07 %     -0.12 %     -0.05 %     -0.09 %     -0.10 %
Nonperforming loans   $   521     $   670     $   401     $   300     $   233     $   521     $   233  
Other real estate and repossessed assets   $   6,661     $   7,097     $   12,074     $   12,253     $   13,110     $   6,661     $   13,110  
Nonperforming loans to total loans     0.04 %     0.05 %     0.03 %     0.02 %     0.02 %     0.04 %     0.02 %
Nonperforming assets to total assets     0.40 %     0.44 %     0.71 %     0.72 %     0.81 %     0.40 %     0.81 %
Allowance for loan losses   $   16,434     $   16,570     $   16,696     $   16,962     $   16,847     $   16,434     $   16,847  
Allowance for loan losses to total loans     1.30 %     1.32 %     1.32 %     1.32 %     1.36 %     1.30 %     1.36 %
Allowance for loan losses to nonperforming loans     3154.32 %     2473.13 %     4163.34 %     5654.00 %     7230.47 %     3154.32 %     7230.47 %
                             
CAPITAL                            
Average equity to average assets     9.69 %     9.76 %     9.63 %     9.62 %     9.53 %     9.69 %     9.43 %
Common equity tier 1 to risk weighted assets (Consolidated)     11.70 %     11.60 %     11.28 %     11.03 %     11.30 %     11.70 %     11.30 %
Tier 1 capital to average assets (Consolidated)     12.04 %     12.21 %     12.11 %     12.01 %     11.97 %     12.04 %     11.97 %
Total capital to risk-weighted assets (Consolidated)     15.50 %     15.45 %     15.12 %     14.88 %     15.30 %     15.50 %     15.30 %
Common equity tier 1 to risk weighted assets (Bank)     13.99 %     13.89 %     13.60 %     13.35 %     13.71 %     13.99 %     13.71 %
Tier 1 capital to average assets (Bank)     11.72 %     11.87 %     11.79 %     11.69 %     11.64 %     11.72 %     11.64 %
Total capital to risk-weighted assets (Bank)     15.10 %     15.02 %     14.73 %     14.49 %     14.90 %     15.10 %     14.90 %
Tangible common equity to assets     9.63 %     9.70 %     9.51 %     9.33 %     9.82 %     9.63 %     9.82 %
                             
END OF PERIOD BALANCES                            
Total portfolio loans   $   1,260,037     $   1,251,355     $   1,266,128     $   1,280,812     $   1,236,395     $   1,260,037     $   1,236,395  
Earning assets       1,680,458         1,633,383         1,617,331         1,612,533         1,514,797         1,680,458         1,514,797  
Total assets       1,803,046         1,759,063         1,748,853         1,741,013         1,653,686         1,803,046         1,653,686  
Deposits       1,506,178         1,459,990         1,433,146         1,448,724         1,358,627         1,506,178         1,358,627  
Total shareholders' equity       173,464         170,175         166,145         162,239         162,245         173,464         162,245  
                             
AVERAGE BALANCES                            
Total portfolio loans   $   1,252,075     $   1,260,051     $   1,264,835     $   1,245,093     $   1,215,953     $   1,258,940     $   1,210,511  
Earning assets       1,652,028         1,594,849         1,579,758         1,566,238         1,555,550         1,609,143         1,542,133  
Total assets       1,775,302         1,723,575         1,706,643         1,696,007         1,680,097         1,735,425         1,666,055  
Deposits       1,481,539         1,419,775         1,397,596         1,401,186         1,377,462         1,433,277         1,363,400  
Total shareholders' equity       171,987         168,240         164,317         163,092         160,196         168,209         157,046  
                             


Contact: 
Jon Swets, CFO 
616-494-7645

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