Holland-based Macatawa recorded first quarter net income of $1.5 million, up 39 percent from the $1.1 million in the same period a year ago. The earnings growth was attributed to a strong increase in net interest income during the quarter, primarily through earnings on assets.
Per-share earnings of 29 cents met the expectations of brokerage analysts and reflect a 44 percent increase in outstanding shares issued during the past year.
“Everything seems to be going very well,” Macatawa Chairman and CEO Ben Smith said during an April 16 conference call with brokerage analysts.
Continuing its strong growth rate of the past, Macatawa saw total assets rise to $708.5 million, a 5.7 percent increase over the previous quarter and up 34.1 percent from the first quarter a year ago.
Deposits, driven by a brisk 28 percent increase in the number of new retail and commercial accounts opened since the first quarter of 2001, grew to $561.8 million, up 6.7 percent for the quarter and 34.1 percent from a year earlier. Loans rose to $592.6 million, a record 8.6 percent quarterly increase and up 35.1 percent since last year.
With the strong growth for the quarter came creeping concerns over squeezed margins resulting from low interest rates. Macatawa’s quarterly net interest margin fell from 4.03 percent a year ago to 3.83 percent in the first quarter, as customers preferred floating-rate loans, Chief Financial Officer Steve Germond said.
The bank is working to improve lending margins, such as encouraging more fixed-rate commercial loans, Germond said.
If interest rates don’t move upward in the coming months, providing relief from margin compression, “then it’s going to be a problem for us,” Smith said.
“We certainly are monitoring that,” he told analysts. “We’re not willing to give up the fact that we think that they are going to rebound a little bit here, but if the rates stay low and continue low into the third quarter, then it’s going to be a problem for us.”
Macatawa also saw “modest” deterioration in its loan portfolio as a result of the recession, with non-performing loans going from 0.43 percent of the total lending portfolio at the start of the year to 0.52 percent at the end of the quarter. The loans were concentrated “in just a few large commercial relationships which we are managing very closely,” bank President Phil Koning said.
While the economic recession “has been a challenge” for the bank and the area has seen significant layoffs, particularly in the office furniture industry, Macatawa’s small and medium-sized commercial and industrial customers “express some optimism” about orders and backlogs firming, Koning said. The local automotive and real estate industries are seemingly holding their own, he said.
“On the whole, we feel fairly good about the local economy, although there are pockets of weakness,” Koning said.
Looking forward, the corporation expects to complete the integration of Grand Bank Financial Corp. by June, Smith said. Shareholders and regulators approved the acquisition of Grand Rapids-based Grand Bank last month.
The merger was effective on April 1 and gives Macatawa Bank Corp. assets approaching $1 billion.