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CST: 29/03/2020 04:36:41   

Macatawa Bank Corporation Reports Fourth Quarter and Full Year 2018 Results

429 Days ago

HOLLAND, Mich., Jan. 24, 2019 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ: MCBC) today announced its results for the fourth quarter and full year of 2018, reflecting continued strong financial performance.

  • Net income of $7.0 million in fourth quarter 2018 versus $2.2 million in the fourth quarter 2017
  • Full year 2018 net income of $26.4 million versus $16.3 million in 2017 – up 62%
  • 2018 earnings positively impacted by tax reform enacted at end of 2017
  • Pretax earnings increased by 32% and 20% for the fourth quarter and full year 2018 compared to the same periods in the prior year, reflecting healthy core earnings improvement
  • Continued trend of increased total revenue while holding expenses flat
    • Full year net interest income up $7.7 million, or 15%, over 2017
    • Full year non-interest expense up $641,000, or 1%, over 2017
  • Loan portfolio balances up by $85.3 million (6%), from a year ago
  • Core deposit balances up by $97.7 million (6%), from a year ago
  • Asset quality metrics remained strong

Macatawa reported net income of $7.0 million, or $0.21 per diluted share, in the fourth quarter 2018 compared to $2.2 million, or $0.06 per diluted share, in the fourth quarter 2017.  For the full year 2018, the Company reported net income of $26.4 million, or $0.78 per diluted share compared to $16.3 million, or $0.48 per diluted share, for the same period in 2017.  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 as a result of tax reform enacted at the end of 2017.  Tax expense for 2018 was positively impacted by the reduction in the corporate tax rate from 35% to 21%.

“We are pleased to report strong operating performance for the fourth quarter and full year of 2018,” said Ronald L. Haan, President and CEO of the Company.  “Earnings improvement has been driven primarily by growth in net interest income.  This was the result of growth in balances of loans and improvement in net interest margin, supported by growth in core deposit funding.  Portfolio loans and core deposits each grew by 6% in 2018.  Net interest margin was up 21 basis points in the fourth quarter of 2018 compared to the fourth quarter of 2017.  At the same time, asset quality remained strong with low levels of past due loans and non-performing assets.  While we did have net loan charge-offs in 2018 after five consecutive years of net loan recoveries, net charge-offs remained at low levels.”

Mr. Haan concluded, “Our focus on profitable growth continues to deliver strong and consistent financial performance for our shareholders.  We remain committed to operating a well-disciplined company in order to produce these kinds of results again in the upcoming year and beyond.”

Operating Results
Net interest income for the fourth quarter 2018 totaled $15.6 million, an increase of $466,000 from the third quarter 2018 and an increase of $2.1 million from the fourth quarter 2017.  Net interest margin was 3.46 percent, up 9 basis points from the third quarter 2018, and up 21 basis points from the fourth quarter 2017.

Average interest earning assets for the fourth quarter 2018 increased $6.6 million from the third quarter 2018 and were up $124.9 million from the fourth quarter 2017 primarily due to growth in portfolio loans.    

Non-interest income decreased $94,000 in the fourth quarter 2018 compared to the third quarter 2018 and decreased $5,000 from the fourth quarter 2017.  In the fourth quarter 2018, the Bank determined it would sell a property it had held for several years as a potential branch location.  The Bank recorded a valuation writedown on this property in the fourth quarter 2018, accounting for most of the decrease in non-interest income from the third quarter 2018 and the fourth quarter 2017.  Gains on sales of mortgage loans continued its downward trend as overall mortgage volume has been down in recent quarters, due primarily to increased market rates as well as a shortage in housing inventory.  The Bank has also continued to experience a shift in more origination volume being held in portfolio as customers choose adjustable rate mortgage loans versus longer term fixed rate products.  The Bank holds adjustable rate mortgages in its portfolio and sells long-term fixed rate mortgages into the secondary market in order to appropriately manage the Bank’s interest rate risk.  Gains on sales of mortgage loans in the fourth quarter 2018 were up $21,000 compared to the third quarter 2018 and down $10,000 from the fourth quarter 2017.  Other categories of non-interest income in the fourth quarter 2018 were relatively flat compared to the third quarter 2018 and the fourth quarter 2017.

Non-interest expense was $10.4 million for the fourth quarter 2018, compared to $11.2 million for the third quarter 2018 and $11.3 million for the fourth quarter 2017.  The largest component of non-interest expense was salaries and benefit expenses.  Salaries and benefit expenses were down $95,000 compared to the third quarter 2018 and were down $175,000 compared to the fourth quarter 2017.  For the full year 2018, salaries and benefits were up $404,000 compared to 2017.  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.  Net nonperforming asset expenses decreased $690,000 compared to the third quarter 2018 and decreased $787,000 compared to the fourth quarter 2017.  During the fourth quarter 2018, the Bank sold a property it had obtained upon default of a loan for a gain of $675,000.  This accounts for most of the variance between quarterly periods. For the full year, net nonperforming asset expenses were just $69,000 in 2018, compared to $65,000 in 2017.  Other categories of non-interest expense in the fourth quarter 2018 were relatively flat compared to the third quarter 2018 and the fourth quarter 2017.

For the full year, total revenue, including both net interest income and non-interest income, grew by $7.8 million compared to 2017 while non-interest expenses increased by $641,000.

Federal income tax expense was $1.7 million for the fourth quarter 2018 compared to $1.6 million for the third quarter 2018 and $4.5 million for the fourth quarter 2017.  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
Overall loan portfolio quality remained strong through 2018.  A provision for loan losses of $850,000 was recorded in the fourth quarter 2018, primarily as a result of net charge-offs of $776,000 for the quarter as well as loan portfolio growth.  The Bank had net loan recoveries in the third quarter 2018 of $108,000 and net loan recoveries of $166,000 in the fourth quarter 2017.  The Company has experienced net loan recoveries in fifteen of the past sixteen quarters and in the five consecutive full years through December 31, 2017.  While net recoveries changed to net charge-offs in 2018, the total for the whole year was $174,000, only 0.01 percent of total loans.  Total loans past due on payments by 30 days or more were negligible and amounted to $877,000 at December 31, 2018, down 12 percent from $995,000 at December 31, 2017.  Delinquency as a percentage of total loans was 0.06 percent at December 31, 2018, down from 0.08 percent at December 31, 2017.

The allowance for loan losses of $16.9 million was 1.20 percent of total loans at December 31, 2018, compared to 1.25 percent of total loans at September 30, 2018, and 1.26 percent at December 31, 2017.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 13-to-1 as of December 31, 2018.

At December 31, 2018, the Company's nonperforming loans were $1.3 million, representing 0.09 percent of total loans.  This compares to $123,000 (0.01 percent of total loans) at September 30, 2018 and $395,000 (0.03 percent of total loans) at December 31, 2017.  Other real estate owned and repossessed assets were $3.4 million at December 31, 2018, compared to $3.5 million at September 30, 2018 and $5.8 million at December 31, 2017.  Total nonperforming assets, including other real estate owned and nonperforming loans, decreased by $1.5 million, or 24 percent, from December 31, 2017 to December 31, 2018.

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

 

Dollars in 000s
  Dec 31,
2018
  Sept 30,
2018
  Jun 30,
2018
  Mar 31,
2018
  Dec 31,
2017
 
                               
Commercial Real Estate   $ 318   $ 121   $ 121   $ 121   $ 385  
Commercial and Industrial     873       ---       2     201     4  
Total Commercial Loans     1,191     121     123     322     389  
Residential Mortgage Loans     112     2     2     2     2  
Consumer Loans     1     ---     ---     ---     4  
Total Non-Performing Loans   $ 1,304   $ 123   $ 125   $ 324   $ 395  

Total non-performing assets were $4.7 million, or 0.24 percent of total assets, at December 31, 2018.  A break-down of non-performing assets is shown in the table below.

 

Dollars in 000s
  Dec 31,
2018
  Sept 30,
2018
  Jun 30,
2018
  Mar 31,
2018
  Dec 31,
2017
 
                               
Non-Performing Loans   $ 1,304   $ 123   $ 125   $ 324   $ 395  
Other Repossessed Assets     ---     ---     ---     ---     11  
Other Real Estate Owned     3,380     3,465     3,872     5,223     5,767  
Total Non-Performing Assets   $ 4,684   $ 3,588   $ 3,997   $ 5,547   $ 6,173  


Balance Sheet, Liquidity and Capital
Total assets were $1.98 billion at December 31, 2018, an increase of $55.9 million from $1.92 billion at September 30, 2018 and an increase of $84.9 million from $1.89 billion at December 31, 2017.  Total loans were $1.41 billion at December 31, 2018, an increase of $61.0 million from $1.34 billion at September 30, 2018 and an increase of $85.3 million from $1.32 billion at December 31, 2017.

Commercial loans increased by $74.9 million from December 31, 2017 to December 31, 2018, while residential mortgage loans increased by $13.7 million and consumer loans decreased by $3.3 million.  Commercial real estate loans increased by $26.8 million while commercial and industrial loans increased by $48.1 million during the same period. 

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

 

Dollars in 000s
  Dec 31,
2018
  Sept 30,
2018
  Jun 30,
2018
  Mar 31,
2018
    Dec 31,
2017
 
                         
                                 
                                 
Construction and Development   $ 99,867   $ 93,794   $ 85,193   $ 81,948   $ 92,241  
Other Commercial Real Estate     468,840     459,146     461,808     447,922     449,694  
Commercial Loans Secured
by Real Estate
     

568,707
     

552,940
     

547,001
     

529,870
     

541,935
 
Commercial and Industrial     513,347     467,703     458,468     477,088     465,208  
Total Commercial Loans   $ 1,082,054   $ 1,020,643   $ 1,005,469   $ 1,006,958   $ 1,007,143  
                                     

Total deposits were $1.68 billion at December 31, 2018, up $59.0 million from $1.62 billion at September 30, 2018 and were up $97.7 million, or 6 percent, from $1.58 billion at December 31, 2017.  The increase in total deposits from December 31, 2017 was across most deposit types.  The increase in interest-bearing checking of $47.4 million was partially offset by a decrease of $5.1 million in non-interest checking.  The other categories of deposits each increased including money market deposits (up $19.6 million), savings (up $1.1 million) and certificates of deposit (up $34.7 million).  The Bank continues to be successful at attracting and retaining core deposit customers.

The Bank's risk-based regulatory capital ratios at December 31, 2018 decreased slightly compared to September 30, 2018 and were up compared to December 31, 2017 due to asset growth and 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, 2018.

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 future levels of earnings and profitability.  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, 2017.  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             2018       2018       2017       2018       2017  
Total interest income           $   18,496     $   17,687     $   15,159     $   69,037     $   57,676  
Total interest expense               2,868         2,525         1,642         9,411         5,732  
  Net interest income               15,628         15,162         13,517         59,626         51,944  
Provision for loan losses               850         -          -          450         (1,350 )
  Net interest income after provision for loan losses               14,778         15,162         13,517         59,176         53,294  
                             
NON-INTEREST INCOME                            
Deposit service charges               1,135         1,132         1,125         4,377         4,466  
Net gains on mortgage loans               291         270         301         924         1,574  
Trust fees               884         889         866         3,643         3,277  
Other                2,095         2,208         2,118         8,559         8,102  
  Total non-interest income               4,405         4,499         4,410         17,503         17,419  
                             
NON-INTEREST EXPENSE                            
Salaries and benefits               6,265         6,360         6,440         25,207         24,803  
Occupancy               948         939         926         3,931         3,864  
Furniture and equipment               787         760         772         3,125         3,050  
FDIC assessment               127         127         135         518         539  
Problem asset costs, including losses and (gains)               (582 )       108         205         69         65  
Other               2,852         2,945         2,775         11,479         11,367  
  Total non-interest expense               10,397         11,239         11,253         44,329         43,688  
Income before income tax               8,786         8,422         6,674         32,350         27,025  
Income tax expense               1,743         1,570         4,480         5,971         10,733  
Net income           $   7,043     $   6,852     $   2,194     $   26,379     $   16,292  
                             
Basic earnings per common share           $   0.21     $   0.20     $   0.06     $   0.78     $   0.48  
Diluted earnings per common share           $   0.21     $   0.20     $   0.06     $   0.78     $   0.48  
Return on average assets              1.47 %     1.43 %     0.49 %     1.40 %     0.93 %
Return on average equity             15.12 %     15.12 %     5.03 %     14.69 %     9.60 %
Net interest margin (fully taxable equivalent)             3.46 %     3.37 %     3.25 %     3.38 %     3.24 %
Efficiency ratio             51.90 %     57.16 %     62.77 %     57.47 %     62.98 %
                             
BALANCE SHEET DATA                     December 31   September 30   December 31
Assets                     2018       2018       2017  
Cash and due from banks                   $   40,526     $   30,837     $   34,945  
Federal funds sold and other short-term investments                       130,758         152,339         126,522  
Debt securities available for sale                       226,986         218,615         219,250  
Debt securities held to maturity                       70,334         71,688         85,827  
Federal Home Loan Bank Stock                       11,558         11,558         11,558  
Loans held for sale                       415         -          1,208  
Total loans                       1,405,658         1,344,683         1,320,309  
Less allowance for loan loss                       16,876         16,803         16,600  
  Net loans                       1,388,782         1,327,880         1,303,709  
Premises and equipment, net                       44,862         45,631         46,629  
Bank-owned life insurance                       41,185         40,996         40,243  
Other real estate owned                       3,380         3,465         5,767  
Other assets                       16,338         16,264         14,574  
                             
Total Assets                   $   1,975,124     $   1,919,273     $   1,890,232  
                             
Liabilities and Shareholders' Equity                            
Noninterest-bearing deposits                   $   485,530     $   500,680     $   490,583  
Interest-bearing deposits                       1,191,209         1,117,063         1,088,427  
  Total deposits                       1,676,739         1,617,743         1,579,010  
Other borrowed funds                       60,000         70,000         92,118  
Long-term debt                       41,238         41,238         41,238  
Other liabilities                       6,294         6,316         4,880  
Total Liabilities                       1,784,271         1,735,297         1,717,246  
                             
Shareholders' equity                       190,853         183,976         172,986  
                             
Total Liabilities and Shareholders' Equity                   $   1,975,124     $   1,919,273     $   1,890,232  
                             
                             
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        
      2018       2018       2018       2018       2017       2018       2017  
EARNINGS SUMMARY                            
Net interest income   $   15,628     $   15,162     $   14,653     $   14,182     $   13,517     $   59,626     $   51,944  
Provision for loan losses       850         -          (300 )       (100 )       -          450         (1,350 )
Total non-interest income       4,405         4,499         4,468         4,132         4,410         17,503         17,419  
Total non-interest expense       10,397         11,239         11,259         11,434         11,253         44,329         43,688  
Federal income tax expense       1,743         1,570         1,434         1,225         4,480         5,971         10,733  
Net income   $   7,043     $   6,852     $   6,728     $   5,755     $   2,194     $   26,379     $   16,292  
                             
Basic earnings per common share   $   0.21     $   0.20     $   0.20     $   0.17     $   0.06     $   0.78     $   0.48  
Diluted earnings per common share   $   0.21     $   0.20     $   0.20     $   0.17     $   0.06     $   0.78     $   0.48  
                             
MARKET DATA                            
Book value per common share   $   5.61     $   5.41     $   5.28     $   5.16     $   5.10     $   5.61     $   5.10  
Tangible book value per common share   $   5.61     $   5.41     $   5.28     $   5.16     $   5.10     $   5.61     $   5.10  
Market value per common share   $   9.62     $   11.71     $   12.14     $   10.27     $   10.00     $   9.62     $   10.00  
Average basic common shares       34,031,454         34,014,319         34,016,679         34,010,396         33,958,992         34,018,259         33,946,520  
Average diluted common shares       34,031,454         34,014,319         34,016,679         34,011,592         33,965,344         34,018,554         33,952,872  
Period end common shares       34,045,411         34,014,319         34,014,319         34,017,525         33,972,977         34,045,411         33,972,977  
                             
PERFORMANCE RATIOS                            
Return on average assets     1.47 %     1.43 %     1.44 %     1.25 %     0.49 %     1.40 %     0.93 %
Return on average equity     15.12 %     15.12 %     15.23 %     13.24 %     5.03 %     14.69 %     9.60 %
Net interest margin (fully taxable equivalent)     3.46 %     3.37 %     3.37 %     3.34 %     3.25 %     3.38 %     3.24 %
Efficiency ratio     51.90 %     57.16 %     58.88 %     62.43 %     62.77 %     57.47 %     62.98 %
Full-time equivalent employees (period end)     334       332       339       332       340       334       340  
                             
ASSET QUALITY                            
Gross charge-offs   $   1,179     $   30     $   30     $   97     $   45     $   1,335     $   266  
Net charge-offs/(recoveries)   $   776     $   (108 )   $   (320 )   $   (175 )   $   (166 )   $   174     $   (988 )
Net charge-offs to average loans (annualized)     0.23 %     -0.03 %     -0.10 %     -0.05 %     -0.05 %     0.01 %     -0.08 %
Nonperforming loans   $   1,304     $   123     $   125     $   324     $   395     $   1,304     $   395  
Other real estate and repossessed assets   $   3,380     $   3,465     $   3,872     $   5,223     $   5,778     $   3,380     $   5,778  
Nonperforming loans to total loans     0.09 %     0.01 %     0.01 %     0.02 %     0.03 %     0.09 %     0.03 %
Nonperforming assets to total assets     0.24 %     0.19 %     0.21 %     0.30 %     0.33 %     0.24 %     0.33 %
Allowance for loan losses   $   16,876     $   16,803     $   16,695     $   16,675     $   16,600     $   16,876     $   16,600  
Allowance for loan losses to total loans     1.20 %     1.25 %     1.26 %     1.26 %     1.26 %     1.20 %     1.26 %
Allowance for loan losses to nonperforming loans     1293.18 %     13660.98 %     13356.00 %     5146.60 %     4202.53 %     1293.18 %     4202.53 %
                             
CAPITAL                            
Average equity to average assets     9.71 %     9.47 %     9.44 %     9.42 %     9.68 %     9.51 %     9.68 %
Common equity tier 1 to risk weighted assets (Consolidated)     12.01 %     12.13 %     11.83 %     11.67 %     11.31 %     12.01 %     11.31 %
Tier 1 capital to average assets (Consolidated)     12.12 %     11.90 %     11.91 %     11.83 %     11.88 %     12.12 %     11.88 %
Total capital to risk-weighted assets (Consolidated)     15.54 %     15.79 %     15.49 %     15.36 %     14.99 %     15.54 %     14.99 %
Common equity tier 1 to risk weighted assets (Bank)     14.09 %     14.28 %     14.01 %     13.87 %     13.54 %     14.09 %     13.54 %
Tier 1 capital to average assets (Bank)     11.78 %     11.56 %     11.58 %     11.50 %     11.56 %     11.78 %     11.56 %
Total capital to risk-weighted assets (Bank)     15.13 %     15.36 %     15.09 %     14.96 %     14.62 %     15.13 %     14.62 %
Tangible common equity to assets     9.67 %     9.59 %     9.60 %     9.42 %     9.15 %     9.67 %     9.15 %
                             
END OF PERIOD BALANCES                            
Total portfolio loans   $   1,405,658     $   1,344,683     $   1,327,686     $   1,325,545     $   1,320,309     $   1,405,658     $   1,320,309  
Earning assets       1,849,630         1,804,672         1,751,167         1,751,315         1,767,752         1,849,630         1,767,752  
Total assets       1,975,124         1,919,273         1,872,541         1,863,780         1,890,232         1,975,124         1,890,232  
Deposits       1,676,739         1,617,743         1,580,461         1,560,872         1,579,010         1,676,739         1,579,010  
Total shareholders' equity       190,853         183,976         179,714         175,376         172,986         190,853         172,986  
                             
AVERAGE BALANCES                            
Total portfolio loans   $   1,363,548     $   1,325,268     $   1,327,408     $   1,314,838     $   1,285,688     $   1,332,878     $   1,265,682  
Earning assets       1,806,229         1,799,600         1,756,909         1,730,576         1,681,297         1,773,608         1,627,330  
Total assets       1,918,543         1,915,655         1,872,559         1,845,911         1,802,386         1,888,441         1,752,303  
Deposits       1,618,861         1,614,151         1,575,408         1,537,376         1,497,213         1,586,748         1,449,393  
Total shareholders' equity       186,361         181,329         176,749         173,913         174,427         179,627         169,776  
                             
Contact:
Jon Swets, CFO
616-494-7645

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