Market Overview

Macatawa Bank Corporation Reports Fourth Quarter and Full Year 2017 Results

Share:

HOLLAND, Mich., Jan. 25, 2018 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ:MCBC) today announced its results for the fourth quarter and full year of 2017, reflecting continued strong financial performance.

  • Net income of $2.2 million in fourth quarter 2017 versus $4.1 million in the fourth quarter 2016
  • Full year 2017 net income of $16.3 million versus $16.0 million in 2016
  • Fourth quarter and full year 2017 earnings were reduced by $2.5 million to record the impact of recently enacted tax reform on the value of the Company's net deferred tax assets
  • Pretax earnings increased by 13% and 22% for the fourth quarter and full year 2017, respectively, compared to the same periods in the prior year
  • Continued trend of increased total revenue with reduction in expenses
  • Loan portfolio balances up by $40 million (3%), from a year ago
  • Bond financing to business customers up by $26 million from a year ago
  • Core deposit balances up by $130 million (9%), from a year ago
  • Asset quality metrics remained strong

Macatawa reported net income of $2.2 million, or $0.06 per diluted share, in the fourth quarter 2017 compared to $4.1 million, or $0.12 per diluted share, in the fourth quarter 2016.  For the full year 2017, the Company reported net income of $16.3 million, or $0.48 per diluted share compared to $16.0 million, or $0.47 per diluted share, for the same period in 2016.  The fourth quarter and full year 2017 earnings were reduced by $2.5 million resulting from an increase in federal income tax expense necessary to revalue the Company's net deferred tax assets at the end of the year.

On December 22, 2017, "H.R.1", formerly known as the "Tax Cuts and Jobs Act", was signed into law.  This new tax law, among other items, reduces the Company's federal corporate tax rate from 35% to 21% effective January 1, 2018. Macatawa anticipates that this tax rate change should reduce its federal income tax liability in future years beginning with 2018.  However, the new tax law impacted the Company's 2017 operating results as well.  U.S. generally accepted accounting principles require companies to re-value their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment.  Since the enactment took place in December 2017, the Company revalued downward its net deferred tax assets in its reporting periods ended December 31, 2017 resulting in the $2.5 million reduction to earnings in those periods.

"We are pleased to report strong operating performance for the fourth quarter and full year of 2017", said Ronald L. Haan, President and CEO of the Company.  "Earnings improvement continues to be driven primarily by improvement in net interest income resulting from growth in balances of loans and bond financing to businesses, supported by strong growth in core deposit funding.  Portfolio loans and business bond financing, on a combined basis, grew by 5% while core deposits grew by 9% in 2017.  At the same time, asset quality remains strong with low levels of past due loans and non- performing assets, and now achieving five consecutive full years of net recoveries on previously charged-off loans."

Mr. Haan concluded, "Our long term strategy of driving profitable growth continues to deliver results as we remain committed to operating 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."

Operating Results
Net interest income for the fourth quarter 2017 totaled $13.5 million, an increase of $379,000 from the third quarter 2017 and an increase of $1.2 million from the fourth quarter 2016.  Net interest margin was 3.25 percent, up 4 basis points from the third quarter 2017, and up 8 basis points from the fourth quarter 2016.

Average interest earning assets for the fourth quarter 2017 increased $29.3 million from the third quarter 2017 and were up $115.1 million from the fourth quarter 2016 primarily due to growth on the funding side of the balance sheet in core deposits.    

Non-interest income increased $110,000 in the fourth quarter 2017 compared to the third quarter 2017 and decreased $446,000 from the fourth quarter 2016.  These fluctuations were primarily driven by gains on sales of mortgage loans.  Gains on sales of mortgage loans in the fourth quarter 2017 were down $68,000 compared to the third quarter 2017 and down $488,000 from the fourth quarter 2016.  The Bank originated $12.0 million in loans for sale in the fourth quarter 2017 compared to $11.3 million in loans for sale in the third quarter 2017 and $27.3 million in loans for sale in the fourth quarter 2016.  Non-interest income in the third quarter 2017 was also impacted by $172,000 in net loss on sale of a property the Bank had held as a potential branch location. 

Non-interest expense was $11.3 million for the fourth quarter 2017, compared to $10.8 million for the third quarter 2017 and $11.5 million for the fourth quarter 2016.  The largest component of non-interest expense was salaries and benefit expenses.  Salaries and benefit expenses were up $229,000 compared to the third quarter 2017 and were up $95,000 compared to the fourth quarter 2016.  For the full year 2017, salaries and benefits were down $64,000 compared to 2016. Total salaries and benefits expense has remained at a consistent level over the past several quarters and full years 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 $282,000 compared to the third quarter 2017 and increased $105,000 compared to the fourth quarter 2016.  For the full year, nonperforming asset expenses were just $65,000 in 2017, compared to $1.3 million in 2016.  Total net realized losses on sales of other real estate owned properties were $103,000 for the fourth quarter 2017 compared to net realized gains of $190,000 for the third quarter 2017 and net gains of $280,000 for the fourth quarter 2016.  Other categories of non-interest expense in the fourth quarter 2017 were relatively flat compared to the third quarter 2017 and the fourth quarter 2016. 

All in, total revenue, including both net interest income and non-interest income, grew by $2.7 million while non-interest expenses decreased by $2.1 million in 2017. 

Federal income tax expense was $4.5 million for the fourth quarter 2017 compared to $2.2 million for the third quarter 2017 and $1.8 million for the fourth quarter 2016.  Federal income tax expense for the fourth quarter 2017 included a $2.5 million expense to revalue the Company's net deferred tax assets in response to the tax reform law enacted in December 2017.

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 fourth quarter 2017, no provision for loan losses was recorded in the fourth quarter 2017.  Net loan recoveries for the fourth quarter 2017 were $166,000, compared to third quarter 2017 net loan recoveries of $214,000 and fourth quarter 2016 net loan recoveries of $364,000.  The Company has experienced net loan recoveries in each of the past twelve quarters and in the past five consecutive full years. Total loans past due on payments by 30 days or more were negligible and amounted to $995,000 at December 31, 2017, down 31 percent from $1.4 million at December 31, 2016.  Delinquency as a percentage of total loans was 0.08 percent at December 31, 2017, down from 0.11 percent at December 31, 2016.

The allowance for loan losses of $16.6 million was 1.26 percent of total loans at December 31, 2017, compared to 1.30 percent of total loans at September 30, 2017, and 1.32 percent at December 31, 2016.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 42.0-to-1 as of December 31, 2017. 

At December 31, 2017, the Company's nonperforming loans were $395,000, representing 0.03 percent of total loans.  This compares to $521,000 (0.04 percent of total loans) at September 30, 2017 and $300,000 (0.02 percent of total loans) at December 31, 2016.  Other real estate owned and repossessed assets were $5.8 million at December 31, 2017, compared to $6.7 million at September 30, 2017 and $12.3 million at December 31, 2016. Total nonperforming assets, including other real estate owned and nonperforming loans, have decreased by $6.5 million, or 53 percent, from December 31, 2016 to December 31, 2017.

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

                       
 

Dollars in 000s
  Dec 31,
2017
  Sept 30,
2017
  Jun 30,
2017
  Mar 31,
2017
  Dec 31,
2016
 
                               
Commercial Real Estate   $ 385   $ 440   $ 436   $ 252   $ 183  
Commercial and Industrial     4     4     6     127     36  
Total Commercial Loans     389     444     442     379     219  
Residential Mortgage Loans     2     58     206     2     58  
Consumer Loans     4     19     22     20     23  
Total Non-Performing Loans   $ 395   $ 521   $ 670   $ 401   $ 300  
                                 

Total non-performing assets were $6.2 million, or 0.33 percent of total assets, at December 31, 2017.  A break-down of non-performing assets is shown in the table below.

                       
 

Dollars in 000s
  Dec 31,
2017
  Sept 30,
2017
  Jun 30,
2017
  Mar 31,
2017
  Dec 31,
2016
 
                               
Non-Performing Loans   $ 395   $ 521   $ 670   $ 401   $ 300  
Other Repossessed Assets     11     ---     ---     ---     ---  
Other Real Estate Owned     5,767     6,661     7,097     12,074     12,253  
Total Non-Performing Assets   $ 6,173   $ 7,182   $ 7,767   $ 12,475   $ 12,553  
                                 

Balance Sheet, Liquidity and Capital
Total assets were $1.89 billion at December 31, 2017, an increase of $87.2 million from $1.80 billion at September 30, 2017 and an increase of $149.2 million from $1.74 billion at December 31, 2016.  Total loans were $1.32 billion at December 31, 2017, an increase of $60.3 million from $1.26 billion at September 30, 2017 and an increase of $39.5 million from $1.28 billion at December 31, 2016.

Commercial loans increased by $39.8 million from December 31, 2016 to December 31, 2017, partially offset by a decrease of $323,000 in the Company's residential mortgage and consumer loan portfolios.  Commercial real estate loans increased by $23.9 million while commercial and industrial loans increased by $15.9 million during the same period. 

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

                       
 

Dollars in 000s
  Dec 31,
2017
  Sept 30,
2017
  Jun 30,
2017
  Mar 31,
2017
  Dec 31,
2016
 
                               
Construction and Development   $ 92,241   $ 84,659   $ 82,317   $ 78,910   $ 79,596  
Other Commercial Real Estate     449,694     445,703     432,223     429,898     438,385  
Commercial Loans Secured
by Real Estate
     541,935      
530,362
    514,540      
508,808
     
517,981
 
Commercial and Industrial     465,208     418,838     435,218     453,311     449,342  
Total Commercial Loans   $ 1,007,143   $ 949,200   $ 949,758   $ 962,119   $ 967,323  
                                 

Total deposits were $1.58 billion at December 31, 2017, up $72.8 million from $1.51 billion at September 30, 2017 and were up $130.3 million, or 9 percent, from $1.45 billion at December 31, 2016.  The increase in total deposits from December 31, 2016 was across most deposit types.  The increase in interest-bearing checking of $68.2 million was partially offset by a decrease of $10.9 million in non-interest checking.  The other categories of deposits all increased including money market deposits (up $47.1 million), savings (up $8.1 million) and certificates of deposit (up $17.8 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 at December 31, 2017 decreased slightly compared to September 30, 2017 and December 31, 2016 due to asset growth, partially offset by earnings growth.  All categories 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, 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 "anticipates," "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, reduce future tax liabilities, 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     Twelve Months Ended
    4th Qtr     3rd Qtr     4th Qtr     December 31
EARNINGS SUMMARY   2017     2017     2016     2017     2016
Total interest income   $   15,159     $   14,626     $   13,496     $   57,676     $   52,499  
Total interest expense     1,642       1,488       1,204       5,732         4,959  
  Net interest income     13,517       13,138       12,292       51,944       47,540  
Provision for loan losses     -        (350     (250      (1,350      (1,350 )
  Net interest income after provision for loan losses     13,517       13,488       12,542       53,294         48,890  
                                 
NON-INTEREST INCOME                                
Deposit service charges     1,125       1,172       1,113       4,466         4,425  
Net gains on mortgage loans     301       369       789       1,574         3,024  
Trust fees     866       801       810       3,277         3,096  
Other      2,118       1,958       2,144       8,102         8,529  
  Total non-interest income     4,410       4,300       4,856       17,419         19,074  
                                 
NON-INTEREST EXPENSE                                
Salaries and benefits     6,440       6,211       6,345       24,803         24,867  
Occupancy     926       922       1,005       3,864         3,789  
Furniture and equipment     772       797       780       3,050         3,256  
FDIC assessment     135       134       140       539         778  
Problem asset costs, including losses and (gains)     205         (77     100       65         1,295  
Other     2,775       2,769       3,118       11,367         11,797  
  Total non-interest expense     11,253       10,756       11,488       43,688         45,782  
Income before income tax     6,674       7,032       5,910       27,025         22,182  
Income tax expense     4,480       2,157       1,802       10,733         6,231  
Net income   $   2,194     $   4,875     $   4,108     $   16,292     $   15,951  
                             
Basic earnings per common share   $   0.06     $   0.14     $   0.12     $   0.48     $   0.47  
Diluted earnings per common share   $   0.06     $   0.14     $   0.12     $   0.48     $   0.47  
Return on average assets      0.49     1.10     0.97     0.93     0.95 %
Return on average equity     5.03     11.34     10.08     9.60     10.06 %
Net interest margin (fully taxable equivalent)     3.25     3.21     3.17     3.24 %     3.11 %
Efficiency ratio     62.77     61.68     66.99     62.98     68.73 %
                             
BALANCE SHEET DATA                December 31     September 30     December 31
 
Assets               2017     2017     2016  
Cash and due from banks               $   34,945     $   28,318     $   27,690  
Federal funds sold and other short-term investments                 126,522       131,571         62,129  
Securities available for sale                 220,720       214,182         184,433  
Securities held to maturity                 85,827       61,927         69,378  
Federal Home Loan Bank Stock                 11,558       11,558         11,558  
Loans held for sale                 1,208       2,199         2,181  
Total loans                 1,320,309       1,260,037         1,280,812  
Less allowance for loan loss                 16,600       16,434         16,962  
  Net loans                 1,303,709       1,243,603         1,263,850  
Premises and equipment, net                 46,629       46,822         50,026  
Bank-owned life insurance                 40,243       40,042         39,274  
Other real estate owned                 5,767       6,661         12,253  
Other assets                 13,104       16,163         18,241  
                             
Total Assets               $   1,890,232     $   1,803,046     $   1,741,013  
                             
Liabilities and Shareholders' Equity                            
Noninterest-bearing deposits               $   490,583     $   497,310     $   501,478  
Interest-bearing deposits                 1,088,427       1,008,868         947,246  
  Total deposits                 1,579,010       1,506,178         1,448,724  
Other borrowed funds                 92,118       72,118         84,173  
Long-term debt                 41,238       41,238         41,238  
Other liabilities                 4,880       10,048         4,639  
Total Liabilities                 1,717,246       1,629,582         1,578,774  
                                 
Shareholders' equity                 172,986       173,464         162,239  
                             
 Total Liabilities and Shareholders' Equity                $  1,890,232      $  1,803,046      $ 1,741,013  


 
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        
    2017       2017     2017     2017     2016     2017     2016  
EARNINGS SUMMARY                                            
Net interest income   $   13,517       $   13,138     $   12,705     $   12,583     $   12,292     $   51,944     $   47,540  
Provision for loan losses     -          (350 )       (500       (500       (250       (1,350  )       (1,350
Total non-interest income     4,410         4,300       4,478       4,231       4,856       17,419       19,074  
Total non-interest expense     11,253         10,756       10,792       10,888       11,488       43,688       45,782  
Federal income tax expense     4,480         2,157       2,129       1,966       1,802       10,733       6,231  
Net income   $   2,194       $   4,875     $   4,762     $   4,460     $   4,108     $   16,292     $   15,951  
                                             
Basic earnings per common share   $   0.06       $   0.14     $   0.14     $   0.13     $   0.12     $   0.48     $   0.47  
Diluted earnings per common share   $   0.06       $   0.14     $   0.14     $   0.13     $   0.12     $   0.48     $   0.47  
                                             
MARKET DATA                                            
Book value per common share   $   5.10       $   5.11     $   5.01     $   4.89     $   4.78     $   5.10     $   4.78  
Tangible book value per common share   $   5.10       $   5.11     $   5.01     $   4.89     $   4.78     $   5.10     $   4.78  
Market value per common share   $   10.00       $   10.26     $   9.54     $   9.88     $   10.41     $   10.00     $   10.41  
Average basic common shares     33,958,992         33,942,248       33,942,318       33,941,010       33,920,535       33,946,520       33,922,548  
Average diluted common shares     33,965,344         33,947,269       33,948,127       33,948,584       33,923,371       33,952,872       33,922,548  
Period end common shares     33,972,977         33,941,953       33,938,486       33,944,788       33,940,788       33,972,977       33,940,788  
                                             
PERFORMANCE RATIOS                                            
Return on average assets     0.49 %       1.10 %     1.11     1.05     0.97     0.93     0.95
Return on average equity     5.03 %       11.34 %     11.32     10.86     10.08     9.60     10.06
Net interest margin (fully taxable equivalent)     3.25 %       3.21 %     3.24     3.26     3.17     3.24     3.11
Efficiency ratio     62.77 %       61.68 %     62.81     64.76     66.99     62.98     68.73
Full-time equivalent employees (period end)   340       343     344     338     342     340     342  
                                             
ASSET QUALITY                                            
Gross charge-offs   $   45       $   55     $   139     $   26     $   47     $   266     $   205  
Net charge-offs/(recoveries)   $   (166 )     $   (214 )   $   (374 )   $   (234 )   $   (364 )   $   (988 )   $   (1,231 )
Net charge-offs to average loans (annualized)   -0.05 %     -0.07 %   -0.12   -0.07   -0.12   -0.08   -0.10
Nonperforming loans   $   395       $   521     $   670     $   401     $   300     $   395     $   300  
Other real estate and repossessed assets   $   5,778       $   6,661     $   7,097     $   12,074     $   12,253     $   5,778     $   12,253  
Nonperforming loans to total loans     0.03 %       0.04 %     0.05     0.03     0.02     0.03     0.02
Nonperforming assets to total assets     0.33 %       0.40 %     0.44     0.71     0.72     0.33     0.72
Allowance for loan losses   $   16,600       $   16,434     $   16,570     $   16,696     $   16,962     $   16,600     $   16,962  
Allowance for loan losses to total loans     1.26 %       1.30 %     1.32     1.32     1.32     1.26     1.32
Allowance for loan losses to nonperforming loans     4202.53 %       3154.32 %     2473.13     4163.34     5654.00     4202.53     5654.00
                                             
CAPITAL                                            
Average equity to average assets     9.68 %       9.69     9.76     9.63     9.62     9.68     9.47
Common equity tier 1 to risk weighted assets (Consolidated)     11.31 %       11.70 %      11.60     11.28     11.03     11.31     11.04
Tier 1 capital to average assets (Consolidated)     11.88 %       12.04     12.21     12.11     12.01     11.88     12.02
Total capital to risk-weighted assets (Consolidated)     14.99 %       15.50     15.45     15.12     14.88     14.99     14.88
Common equity tier 1 to risk weighted assets (Bank)     13.54 %       13.99     13.89     13.60     13.35     13.54     13.35
Tier 1 capital to average assets (Bank)     11.56 %       11.72     11.87     11.79     11.69     11.56     11.69
Total capital to risk-weighted assets (Bank)     14.62 %       15.10     15.02     14.73     14.49     14.62     14.50
Tangible common equity to assets     9.15 %       9.63     9.70     9.51     9.33     9.15     9.33
                                             
END OF PERIOD BALANCES                                            
Total portfolio loans   $   1,320,309       $   1,260,037     $   1,251,355     $   1,266,128     $   1,280,812     $   1,320,309     $   1,280,812  
Earning assets     1,767,752         1,680,458       1,633,383       1,617,331       1,612,533       1,767,752       1,612,533  
Total assets     1,890,232         1,803,046       1,759,063       1,748,853       1,741,013       1,890,232       1,741,013  
Deposits     1,579,010         1,506,178       1,459,990       1,433,146       1,448,724       1,579,010       1,448,724  
Total shareholders' equity     172,986         173,464       170,175       166,145       162,239       172,986       162,239  
                                             
AVERAGE BALANCES                                            
Total portfolio loans   $   1,285,688       $   1,252,075     $   1,260,051     $   1,264,835     $   1,245,093     $   1,265,682     $   1,219,203  
Earning assets     1,681,297         1,652,028       1,594,849       1,579,758       1,566,238       1,627,330       1,548,192  
Total assets     1,802,386         1,775,302       1,723,575       1,706,643       1,696,007       1,752,303       1,673,584  
Deposits     1,497,213         1,481,539       1,419,775       1,397,596       1,401,186       1,449,393       1,372,898  
Total shareholders' equity     174,427         171,987       168,240       164,317       163,092       169,776       158,566  
                                             

Contact: 
Jon Swets, CFO 
616-494-7645

Primary Logo

View Comments and Join the Discussion!