Macatawa Bank Corporation Reports Fourth Quarter and Full Year 2017 Results

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 ResultsNet 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 QualityAs 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 CapitalTotal 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 Securedby 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 BankHeadquartered 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

Source: Macatawa Bank Corporation

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