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Macatawa Bank Corporation Reports Second Quarter 2019 Results

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HOLLAND, Mich., July 25, 2019 (GLOBE NEWSWIRE) -- Macatawa Bank Corporation (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