Macatawa Bank continues improvement

July 29, 2012
| By Pete Daly |
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Macatawa Bank Corp. in Holland is continuing to recover from the effects of the recession, with the latest good news being first-quarter earnings of $4.5 million, the highest level of earnings since the second quarter of 2007.

The net income on common shares of Macatawa stock was equal to 17 cents per diluted share.

In March, Macatawa announced the consent order it operagted under for two years was being lifted by federal and state bank regulators. It had been in effect since February 2010, the result of a regulatory examination of the bank in the summer of 2009.

“The company’s first-quarter results were strong,” said Richard L. Postma, chairman of the board. “As a result of the termination of the consent order, the bank was categorized as ‘well capitalized’ as of March 31, 2012, and is expected to save approximately $1.2 million annually in FDIC insurance costs. In addition, our ongoing and assertive loan collection efforts yielded significant recoveries on previously charged-off loans in this first quarter. As a result, we had net recoveries of $1.4 million for the quarter compared to net charge-offs of $3.6 million for the same period in 2011, an improvement of $5 million. All key metrics improved during the first quarter of 2012, including capital ratios, liquidity measures and asset quality metrics.”

Postma noted, however, the bank still “must reduce our level of nonperforming assets to acceptable levels. Until we do so, earnings will be held down by the ongoing costs associated with these assets. Further, our recoveries on previously charged-off loans were unusually high in this first quarter and may not recur at this level in future quarters. Nevertheless, these are very positive results that the entire bank is building from.”

Net interest income in the first quarter totaled $11.3 million, a decrease of $138,000 from the fourth quarter of 2011 and a decrease of $317,000 from the first quarter of 2011, due primarily to a reduction in earning assets.

Net interest profit was 3.32 percent, up 4 basis points from 3.28 percent on a consecutive quarter basis, and up 10 basis points from 3.22 percent for the first quarter of 2011. The margin increase from the fourth quarter 2011 and first quarter 2011 was due primarily to increased interest income from investments.

Average interest earning assets for the first quarter decreased $20.9 million from the fourth quarter 2011 and were down $87.4 million compared to the first quarter a year ago, which drove down net interest income. The decreases in assets reflected Macatawa’s continued focus on reduction in credit exposure in certain segments of its loan portfolio.

Non-interest income remained consistent at $3.7 million for the first quarter 2012, fourth quarter 2011 and first quarter 2011.

Non-interest expense was $14.1 million for the first quarter 2012, compared to $14 million for the fourth quarter 2011 and $15.4 million for the first quarter 2011. The largest fluctuations in non-interest expense related to costs associated with the administration and disposition of problem loans and non-performing assets, which were up $118,000 compared to the fourth quarter 2011 and down $1.4 million compared to the first quarter 2011. FDIC insurance assessments declined $102,000 compared to the fourth quarter 2011, due to the termination of the consent order, and were $268,000 lower than the first quarter 2011.

Due to the high loan recoveries in the first quarter, along with the continuing decline in charge-offs, consistent improvement in nonperforming loans and past due loans over the past several quarters, plus continued shrinkage of the loan portfolio, a negative provision for loan losses of $3.6 million was recorded in the first quarter.

Net recoveries in the first quarter were $1.4 million, compared to fourth quarter 2011 net charge-offs of $3.2 million and first quarter 2011 net charge-offs of $3.6 million. Total loans past due on payments by 30 days or more amounted to $8.9 million at March 31, down from $13.1 million on Dec. 31 and $41.2 million on March 31, 2011.

The allowance for loan losses of $29.5 million was 2.78 percent of total loans at March 31, 2012, compared to 2.95 percent of total loans on Dec. 31, and 3.67 percent of total loans on March 31, 2011.

The bank said while this overall loan coverage ratio declined, the more important coverage ratio of allowance for loan losses to nonperforming loans continued to improve, exceeding 1-to-1 coverage at 125.36 percent on March 31, compared to 109.31 percent on Dec. 31 and 75.48 percent on March 31 last year. This ratio was at its highest level since March 2007.

On March 31, Macatawa’s non-performing loans were $23.5 million, representing 2.22 percent of total loans, the lowest level since the second quarter of 2007. This compares to $28.9 million (2.7 percent of total loans) on Dec. 31, and $56.1 million (4.86 percent of total loans) on March 31 last year.

Total nonperforming assets decreased by $31.4 million from March 31, 2011, to March 31, 2012.

Of the nonperforming loans Macatawa held as of March 31, $12.3 million were in commercial real estate, $9.1 million in commercial and industrial loans, $1.5 million in residential mortgages and $446,000 in consumer loans. That total of $23.5 million compares to $56 million in nonperforming loans held on March 31, 2011.

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