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CST: 29/03/2020 04:48:37   

Macatawa Bank Corporation Reports Second Quarter 2019 Results

247 Days ago

HOLLAND, Mich., July 25, 2019 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (NASDAQ: MCBC) today announced its results for the second quarter of 2019, reflecting continued strong financial performance.

  • Net income of $8.0 million in second quarter 2019 versus $6.7 million in second quarter 2018 – up 19%
  • Growth in revenue (up 10%) over second quarter of 2018 while expenses were stable (up less than 1%)
  • Strong profitability with return on assets and equity of 1.62% and 15.94%, respectively, in second quarter of 2019
  • Seasonal decline in loan portfolio balances during the quarter
  • Growth in core deposit balances during the quarter of $43.2 million and up 5% from June 30, 2018
  • Asset quality metrics remained strong

Macatawa reported net income of $8.0 million, or $0.24 per diluted share, in the second quarter 2019 compared to $6.7 million, or $0.20 per diluted share, in the second quarter 2018.  For the first six months of 2019, Macatawa reported net income of $15.6 million, or $0.46 per diluted share, compared to $12.5 million, or $0.37 per diluted share, for the same period in 2018.  Macatawa’s 2019 earnings were positively impacted by improving revenues with nominal increases in non-interest expenses.    

"Macatawa Bank Corporation continued its strong performance in the second quarter of 2019,” said Ronald L. Haan, President and CEO of the Company.  “Revenue growth, primarily higher net interest income, increased non-interest revenue and continued expense management resulted in a 19 percent increase in net income compared to the second quarter of 2018.  Continued growth in our balances of interest-earning assets has positively affected our net interest income while our core operating expenses remained well-controlled during the quarter.” 

Mr. Haan concluded:  "In the first half of 2019 our efforts have again resulted in strong and consistent financial performance for our shareholders.  The banking environment in Western Michigan remains highly competitive, yet with the focus of our strong and committed team of professional bankers, we believe that Macatawa Bank Corporation remains well-positioned for continued growth and success in the second half of 2019.”

Operating Results
Net interest income for the second quarter 2019 totaled $16.0 million, a decrease of $65,000 from the first quarter 2019 and an increase of $1.3 million from the second quarter 2018.  Net interest margin was 3.45 percent, down 9 basis points from the first quarter 2019, and up 8 basis points from the second quarter 2018.  Net interest income for the first quarter 2019 benefitted from the collection of $251,000 in prepayment fees on commercial loans, primarily related to one commercial relationship.  Prepayment fees were only $6,000 in the second quarter 2019 and $32,000 in the second quarter 2018.

Average interest earning assets for the second quarter 2019 increased $26.4 million from the first quarter 2019 and were up $103.4  million from the second quarter 2018.  This growth along with increases in yields on interest earning assets were the primary contributors to the improvement in net interest income.  

Non-interest income increased $770,000 in the second quarter 2019 compared to the first quarter 2019 and increased $630,000 from the second quarter 2018.  These changes were largely due to fluctuations in gains on sales of mortgage loans.  Gains on sales of mortgage loans in the second quarter 2019 were up $403,000 compared to the first quarter 2019 and were up $392,000  from the second quarter 2018.  The Bank originated $21.4 million in mortgage loans for sale in the second quarter 2019 compared to $6.8 million in the first quarter 2019 and $8.4 million in the second quarter 2018.  This increase in production is due to a declining mortgage rate environment as well as customer preference for loan types that are typically sold (long-term fixed rate loans).  This resulted in a reduction in the volume of loans originated for portfolio compared to 2018.  The Bank originated $8.8 million in portfolio mortgage loans in the second quarter 2019 compared to $6.8 million in the first quarter 2019 and $18.8 million in the second quarter 2018.  Also positively impacting non-interest income in the second quarter 2019 were increases in trust fee income and debit card interchange income.

Non-interest expense was $11.3 million for the second quarter 2019, compared to $11.2 million for the first quarter 2019 and $11.3 million for the second quarter 2018.  The largest component of non-interest expense was salaries and benefit expenses.  Salaries and benefit expenses were up $135,000 compared to the first quarter 2019 and were down $10,000 compared to the second quarter 2018.  The increase compared to the first quarter 2019 was largely due to higher variable based compensation from mortgage production volume.  The decrease from the second quarter 2018 was attributed to decreases in medical insurance costs due to lower claims experience in 2019. 

Nonperforming asset expenses decreased $38,000 in the second quarter 2019 compared to the first quarter 2019 and decreased $68,000 compared to the second quarter 2018.  Net gains of $34,000 were realized on sales of foreclosed properties in the second quarter 2019, while there were net gains of $45,000 in the first quarter 2019 and net losses of $6,000 in the second quarter 2018.  Other categories of non-interest expense were relatively stable compared to the first quarter 2019 and the second quarter 2018. 

Federal income tax expense was $1.9 million for the second quarter 2019 compared to $1.7 million for the first quarter 2019 and $1.4 million for the second quarter 2018.  The effective tax rate was 19.3 percent for the second quarter 2019, compared to 18.3 percent for the first quarter 2019 and 17.6 percent for the second quarter 2018. 

Asset Quality
The Bank’s asset quality remained strong in the second quarter 2019 and again experienced net loan recoveries in the second quarter.  A negative provision for loan losses of $200,000 was recorded in the second quarter 2019, compared to a negative provision of $250,000 in the first quarter 2019 and a negative provision of $300,000 in the second quarter 2018.  Net loan recoveries for the second quarter 2019 were $194,000, compared to first quarter 2019 net loan recoveries of $266,000 and second quarter 2018 net loan recoveries of $320,000.  The Company has experienced net loan recoveries in seventeen of the past eighteen quarters. Total loans past due on payments by 30 days or more amounted to $360,000 at June 30, 2019, down 47 percent from $674,000 at March 31, 2019 and down 31 percent from $525,000 at June 30, 2018.  Delinquency as a percentage of total loans was a nominal 0.03 percent at June 30, 2019. 

The allowance for loan losses of $16.9 million was 1.26 percent of total loans at June 30, 2019, compared to 1.22 percent of total loans at March 31, 2019, and 1.26 percent at June 30, 2018.  The coverage ratio of allowance for loan losses to nonperforming loans continued to be strong and significantly exceeded 1-to-1 coverage at 58-to-1 as of June 30, 2019.

At June 30, 2019, the Company's nonperforming loans were $293,000, representing 0.02 percent of total loans.  This compares to $409,000 (0.03 percent of total loans) at March 31, 2019 and $125,000 (0.01 percent of total loans) at June 30, 2018.  Other real estate owned and repossessed assets were $3.1 million at June 30, 2019, compared to $3.3 million at March 31, 2019 and $3.9 million at June 30, 2018. Total nonperforming assets, including other real estate owned and nonperforming loans, decreased by $637,000, or 16 percent, from June 30, 2018 to June 30, 2019.

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


Dollars in 000s
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sept 30,
2018
  Jun 30,
2018
 
                               
Commercial Real Estate   $ 102   $ 213   $ 318   $ 121   $ 121  
Commercial and Industrial     ---     ---     873     ---     2  
Total Commercial Loans     102     213     1,191     121     123  
Residential Mortgage Loans     191     195     112     2     2  
Consumer Loans     ---     1     1     ---     ---  
Total Non-Performing Loans   $ 293   $ 409   $ 1,304   $ 123   $ 125  
                                 

Total non-performing assets were $3.4 million, or 0.17 percent of total assets, at June 30, 2019.  A break-down of non-performing assets is shown in the table below.

 
Dollars in 000s
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sept 30,
2018
  Jun 30,
2018
 
                               
Non-Performing Loans   $ 293   $ 409   $ 1,304   $ 123   $ 125  
Other Repossessed Assets     ---     ---     ---     ---     ---  
Other Real Estate Owned     3,067     3,261     3,380     3,465     3,872  
Total Non-Performing Assets   $ 3,360   $ 3,670   $ 4,684   $ 3,588   $ 3,997  
                                 

Balance Sheet, Liquidity and Capital
Total assets were $1.98 billion at June 30, 2019, an increase of $52.5 million from $1.93 billion at March 31, 2019 and an increase of $105.9 million from $1.87 billion at June 30, 2018.  Total loans were $1.34 billion at June 30, 2019, a decrease of $41.1 million from $1.38 billion at March 31, 2019 and an increase of $15.8 million from $1.33 billion at June 30, 2018.

Commercial loans increased by $25.7 million from June 30, 2018 to June 30, 2019, partially offset by decreases of $5.4 million in the residential mortgage portfolio and $4.5 million in the consumer loan portfolio.  Commercial real estate loans increased by $16.9 million while commercial and industrial loans increased by $8.8 million during the same period. 

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

 
Dollars in 000s
  Jun 30,
2019
  Mar 31,
2019
  Dec 31,
2018
  Sept 30,
2018
  Jun 30,
2018
 
                               
Construction and Development   $ 102,516   $ 102,133   $ 99,867   $ 93,794   $ 85,193  
Other Commercial Real Estate     461,427      470,667      468,840      459,146      461,808   
Commercial Loans Secured
by Real Estate
     

563,943
     

572,800
     

568,707
     

552,940
     

547,001
 
Commercial and Industrial     467,222     493,891     513,347     467,703     458,468  
Total Commercial Loans   $ 1,031,165    $ 1,066,691    $ 1,082,054    $ 1,020,643    $ 1,005,469   
                                 

The commercial and industrial portfolio is subject to seasonal fluctuations as the Company typically experiences large paydowns on agricultural credits and loans to automobile, recreational vehicle and boat dealers in the first half of each year. The seasonal paydowns in these loan categories amounted to $38.4 million in the second quarter of 2019.  In addition there were two relationships totaling $7.9 million that paid-off during the second quarter of 2019 resulting from the sale of their businesses.    

Total deposits were $1.66 billion at June 30, 2019, up $43.2 million from $1.62 billion at March 31, 2019 and up $80.6 million, or 5 percent, from $1.58 billion at June 30, 2018.  Demand deposits were up $26.6 million in the second quarter 2019 compared to the first quarter 2019 and were up $7.0 million compared to the second quarter 2018.  Money market deposits and savings deposits were up $10.7 million from the first quarter 2019 and were up $31.5 million from the second quarter 2018.  Certificates of deposit were up $5.9 million in the second quarter 2019 compared to March 31, 2019 and were up $42.1 million compared to June 30, 2018.  As deposit rates have risen, the Bank has experienced some shifting between deposit types, particularly certificates of deposit.  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 June 30, 2019 compared to March 31, 2019 and December 31, 2018 due to earnings growth, and continued 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 June 30, 2019.

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 nine consecutive years as one of “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, 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, 2018.  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   Six Months Ended
            2nd Qtr   1st Qtr   2nd Qtr   June 30
EARNINGS SUMMARY             2019       2019       2018       2019       2018  
Total interest income           $   19,239     $   19,189     $   16,836     $   38,429     $   32,855  
Total interest expense               3,284         3,169         2,183         6,453         4,019  
Net interest income               15,955         16,020         14,653         31,976         28,836  
Provision for loan losses               (200 )       (250 )       (300 )       (450 )       (400 )
Net interest income after provision for loan losses               16,155         16,270         14,953         32,426         29,236  
                             
NON-INTEREST INCOME                            
Deposit service charges               1,078         1,050         1,060         2,128         2,110  
Net gains on mortgage loans               614         211         222         825         363  
Trust fees               1,003         890         945         1,893         1,870  
Other                2,403         2,177         2,241         4,580         4,256  
Total non-interest income               5,098         4,328         4,468         9,426         8,599  
                             
NON-INTEREST EXPENSE                            
Salaries and benefits               6,379         6,244         6,389         12,623         12,583  
Occupancy               996         1,093         973         2,089         2,045  
Furniture and equipment               866         844         773         1,710         1,578  
FDIC assessment               119         120         132         239         264  
Problem asset costs, including losses and (gains)               15         53         83         68         544  
Other               2,959         2,884         2,909         5,844         5,679  
Total non-interest expense               11,334         11,238         11,259         22,573         22,693  
Income before income tax               9,919         9,360         8,162         19,279         15,142  
Income tax expense               1,916         1,714         1,434         3,630         2,659  
Net income           $   8,003     $   7,646     $   6,728     $   15,649     $   12,483  
                             
Basic earnings per common share           $   0.24     $   0.22     $   0.20     $   0.46     $   0.37  
Diluted earnings per common share           $   0.24     $   0.22     $   0.20     $   0.46     $   0.37  
Return on average assets              1.62 %     1.57 %     1.44 %     1.59 %     1.34 %
Return on average equity             15.94 %     15.81 %     15.23 %     15.87 %     14.24 %
Net interest margin (fully taxable equivalent)             3.45 %     3.54 %     3.37 %     3.50 %     3.35 %
Efficiency ratio             53.84 %     55.23 %     58.88 %     54.52 %     60.62 %
                             
BALANCE SHEET DATA                     June 30   March 31   June 30
Assets                     2019       2019       2018  
Cash and due from banks                   $   30,943     $   28,143     $   37,105  
Federal funds sold and other short-term investments                       199,940         115,843         107,416  
Debt securities available for sale                       222,825         224,645         218,770  
Debt securities held to maturity                       79,054         70,336         79,569  
Federal Home Loan Bank Stock                       11,558         11,558         11,558  
Loans held for sale                       1,016         512         61  
Total loans                       1,343,512         1,384,567         1,327,686  
Less allowance for loan loss                       16,886         16,892         16,695  
Net loans                       1,326,626         1,367,675         1,310,991  
Premises and equipment, net                       44,424         44,805         45,907  
Bank-owned life insurance                       41,695         41,433         40,744  
Other real estate owned                       3,067         3,261         3,872  
Other assets                       17,257         17,669         16,548  
                             
Total Assets                   $   1,978,405     $   1,925,880     $   1,872,541  
                             
Liabilities and Shareholders' Equity                            
Noninterest-bearing deposits                   $   476,700     $   466,631     $   496,605  
Interest-bearing deposits                       1,184,406         1,151,233         1,083,856  
Total deposits                       1,661,106         1,617,864         1,580,461  
Other borrowed funds                       60,000         60,000         65,667  
Long-term debt                       41,238         41,238         41,238  
Other liabilities                       10,542         8,812         5,461  
Total Liabilities                       1,772,886         1,727,914         1,692,827  
                             
Shareholders' equity                       205,519         197,966         179,714  
                             
Total Liabilities and Shareholders' Equity                   $   1,978,405     $   1,925,880     $   1,872,541  
                             
                             
                             
                             
MACATAWA BANK CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(Unaudited)
(Dollars in thousands except per share information)
                             
    Quarterly   Year to Date
                             
    2nd Qtr   1st Qtr   4th Qtr   3rd Qtr   2nd Qtr        
      2019       2019       2018       2018       2018       2019       2018  
EARNINGS SUMMARY                            
Net interest income   $   15,955     $   16,020     $   15,628     $   15,162     $   14,653     $   31,976     $   28,836  
Provision for loan losses       (200 )       (250 )       850         -          (300 )       (450 )       (400 )
Total non-interest income       5,098         4,328         4,405         4,499         4,468         9,426         8,599  
Total non-interest expense       11,334         11,238         10,397         11,239         11,259         22,573         22,693  
Federal income tax expense       1,916         1,714         1,743         1,570         1,434         3,630         2,659  
Net income   $   8,003     $   7,646     $   7,043     $   6,852     $   6,728     $   15,649     $   12,483  
                             
Basic earnings per common share   $   0.24     $   0.22     $   0.21     $   0.20     $   0.20     $   0.46     $   0.37  
Diluted earnings per common share   $   0.24     $   0.22     $   0.21     $   0.20     $   0.20     $   0.46     $   0.37  
                             
MARKET DATA                            
Book value per common share   $   6.04     $   5.81     $   5.61     $   5.41     $   5.28     $   6.04     $   5.28  
Tangible book value per common share   $   6.04     $   5.81     $   5.61     $   5.41     $   5.28     $   6.04     $   5.28  
Market value per common share   $   10.26     $   9.94     $   9.62     $   11.71     $   12.14     $   10.26     $   12.14  
Average basic common shares       34,042,886         34,040,380         34,031,454         34,014,319         34,016,679         34,041,628         34,013,555  
Average diluted common shares       34,042,886         34,040,380         34,031,454         34,014,319         34,016,679         34,041,628         34,014,152  
Period end common shares       34,042,331         34,044,149         34,045,411         34,014,319         34,014,319         34,042,331         34,014,319  
                             
PERFORMANCE RATIOS                            
Return on average assets     1.62 %     1.57 %     1.47 %     1.43 %     1.44 %     1.59 %     1.34 %
Return on average equity     15.94 %     15.81 %     15.12 %     15.12 %     15.23 %     15.87 %     14.24 %
Net interest margin (fully taxable equivalent)     3.45 %     3.54 %     3.46 %     3.37 %     3.37 %     3.50 %     3.35 %
Efficiency ratio     53.84 %     55.23 %     51.90 %     57.16 %     58.88 %     54.52 %     60.62 %
Full-time equivalent employees (period end)     338       332       334       332       339       338       339  
                             
ASSET QUALITY                            
Gross charge-offs   $   41     $   157     $   1,179     $   30     $   30     $   198     $   126  
Net charge-offs/(recoveries)   $   (194 )   $   (266 )   $   776     $   (108 )   $   (320 )   $   (460 )   $   (495 )
Net charge-offs to average loans (annualized)     -0.06 %     -0.08 %     0.23 %     -0.03 %     -0.10 %     -0.07 %     -0.07 %
Nonperforming loans   $   293     $   409     $   1,304     $   123     $   125     $   293     $   125  
Other real estate and repossessed assets   $   3,067     $   3,261     $   3,380     $   3,465     $   3,872     $   3,067     $   3,872  
Nonperforming loans to total loans     0.02 %     0.03 %     0.09 %     0.01 %     0.01 %     0.02 %     0.01 %
Nonperforming assets to total assets     0.17 %     0.19 %     0.24 %     0.19 %     0.21 %     0.17 %     0.21 %
Allowance for loan losses   $   16,886     $   16,892     $   16,876     $   16,803     $   16,695     $   16,886     $   16,695  
Allowance for loan losses to total loans     1.26 %     1.22 %     1.20 %     1.25 %     1.26 %     1.26 %     1.26 %
Allowance for loan losses to nonperforming loans     5763.14 %     4130.07 %     1293.18 %     13660.98 %     13356.00 %     5763.14 %     13356.00 %
                             
CAPITAL                            
Average equity to average assets     10.15 %     9.93 %     9.71 %     9.47 %     9.44 %     10.04 %     9.43 %
Common equity tier 1 to risk weighted assets (Consolidated)     13.13 %     12.55 %     12.01 %     12.13 %     11.83 %     13.13 %     11.83 %
Tier 1 capital to average assets (Consolidated)     12.34 %     12.22 %     12.12 %     11.90 %     11.91 %     12.34 %     11.91 %
Total capital to risk-weighted assets (Consolidated)     16.78 %     16.14 %     15.54 %     15.79 %     15.49 %     16.78 %     15.49 %
Common equity tier 1 to risk weighted assets (Bank)     15.27 %     14.66 %     14.09 %     14.28 %     14.01 %     15.27 %     14.01 %
Tier 1 capital to average assets (Bank)     12.01 %     11.90 %     11.78 %     11.56 %     11.58 %     12.01 %     11.58 %
Total capital to risk-weighted assets (Bank)     16.36 %     15.73 %     15.13 %     15.36 %     15.09 %     16.36 %     15.09 %
Common equity to assets     10.40 %     10.29 %     9.67 %     9.59 %     9.60 %     10.40 %     9.60 %
Tangible common equity to assets     10.40 %     10.29 %     9.67 %     9.59 %     9.60 %     10.40 %     9.60 %
                             
END OF PERIOD BALANCES                            
Total portfolio loans   $   1,343,512     $   1,384,567     $   1,405,658     $   1,344,683     $   1,327,686     $   1,343,512     $   1,327,686  
Earning assets       1,856,962         1,809,469         1,849,630         1,804,672         1,751,167         1,856,962         1,751,167  
Total assets       1,978,405         1,925,880         1,975,124         1,919,273         1,872,541         1,978,405         1,872,541  
Deposits       1,661,106         1,617,864         1,676,739         1,617,743         1,580,461         1,661,106         1,580,461  
Total shareholders' equity       205,519         197,966         190,853         183,976         179,714         205,519         179,714  
                             
AVERAGE BALANCES                            
Total portfolio loans   $   1,367,202     $   1,399,464     $   1,363,548     $   1,325,268     $   1,327,408     $   1,383,244     $   1,321,158  
Earning assets       1,860,353         1,833,924         1,806,229         1,799,600         1,756,909         1,847,211         1,743,815  
Total assets       1,978,880         1,948,301         1,918,543         1,915,655         1,872,559         1,963,675         1,859,309  
Deposits       1,667,580         1,646,268         1,618,861         1,614,151         1,575,408         1,656,983         1,556,497  
Total shareholders' equity       200,888         193,463         186,361         181,329         176,749         197,196         175,339  
                             

 

Contact:
Jon Swets, CFO
616-494-7645

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