Document Contents



For Immediate Release
NASDAQ Stock Market:	MCBC

Macatawa Bank Corporation Reports

Fourth Quarter and Full Year 2018 Results

HOLLAND, Mich. (January 24, 2019) – 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.”

Macatawa Bank Corporation 4Q Results / page 2 of 5

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 porffolio 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.

Macatawa Bank Corporation 4Q Results / page 3 of 5

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

Macatawa Bank Corporation 4Q Results / page 4 of 5

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.

Macatawa Bank Corporation 4Q Results / page 5 of 5

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 December 31
	4th Qtr 2018			3rd Qtr 2018			4th Qtr 2017			Twelve Months Ended December 31
EARNINGS SUMMARY	4th Qtr 2018			3rd Qtr 2018			4th Qtr 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 Assets	December 31 2018		September 30 2018		December 31 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 2018			3rd Qtr 2018			2nd Qtr 2018			1st Qtr 2018			4th Qtr 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

Michigan	000-25927	38-3391345
(State or other jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

10753 Macatawa Drive, Holland, Michigan		49424
(Address of principal executive offices)		(Zip Code)

Dated: January 24, 2019	MACATAWA BANK CORPORATION

	By	/s/ Jon W. Swets
		Jon W. Swets
		Chief Financial Officer

Section 1: 8-K (8-K)

Section 2: EX-99.1 (EXHIBIT 99.1)