 HOLLAND, Mich., July 23, 2020 GLOBE NEWSWIRE -- Macatawa Bank Corporation NASDAQ: MCBC today announced its results for the second quarter of 2020. Net income of 7.6 million in second quarter 2020 versus 8.0 million in second quarter 2019 down 5 Loan charge-off of 4.1 million recorded in second quarter 2020 caused increase in provision for loan losses Provision for loan losses of 1.0 million in second quarter 2020, up from negative 200,000 in second quarter 2019 Net interest margin decreased to 2.74 in second quarter 2020 versus 3.45 in second quarter 2019 due to Fed rate decreases since then and high on-balance sheet liquidity Origination of 336 million in Paycheck Protection Program PPP loans in second quarter 2020 Growth in noninterest income of 756,000 15 driven by increased residential mortgage volume Reduction in total non-interest expense down 830,000 7 from second quarter 2019 Loan portfolio balances up by 219.2 million 16 from second quarter 2019, driven by PPP loans Core deposit balances up by 457.2 million 28 from second quarter 2019 Capital and liquidity levels remain strongMacatawa reported net income of 7.6 million, or 0.22 per diluted share, in the second quarter 2020 compared to 8.0 million, or 0.24 per diluted share, in the second quarter 2019. We are pleased to report solid profitability for the second quarter of 2020, said Ronald L. Haan, President and CEO of the Company. The COVID-19 pandemic has had a significant impact on our community, but the Bank has proven resilient and consistent in serving the financial needs of our customers and our community. We were active participants in the Small Business Adminstrations Paycheck Protection Program PPP and originated 1,635 PPP loans totaling 336 million in the second quarter of 2020. The loans were distributed to many local small businesses in order to protect jobs and allow continued paychecks to employees in those companies. Despite the challenging environment in the second quarter of 2020, we produced 7.6 million in earnings for the quarter. Mortgage gains in the second quarter of 2020 were three times higher than a year ago and more than offset the reduction in net interest income caused by the significant decrease in market interest rates in 2020. An increase in provision for loan losses was the primary cause for the reduction in net income in the second quarter of 2020 compared to the second quarter of 2019. We experienced a chargeoff of 4.1 million on a single loan relationship in the second quarter of 2020. This was a bankruptcy liquidation, and the COVID-19 environment significantly impacted the level of bids on the borrowers properties, which were primarily movie theatres. This was our only borrower in that particular industry, so we believe this to be an isolated loss incident. Mr. Haan concluded: We will continue to experience challenges relating to the impact of COVID-19 on our customers and our business. We have actively worked with our borrowers to provide payment relief where possible while protecting the Banks position. We provided short-term modifications on 248.8 million of loans in the second quarter of 2020. Our capital levels significantly exceed regulatory requirements, and our strong balance sheet should ensure the strength and stability to weather these difficult times.Operating Results Net interest income for the second quarter 2020 totaled 15.0 million, a decrease of 256,000 from the first quarter 2020 and an decrease of 908,000 from the second quarter 2019. Net interest margin for the second quarter 2020 was 2.74 percent, down 51 basis points from the first quarter 2020, and down 71 basis points from the second quarter 2019. Net interest income for the second quarter 2020 benefitted from amortization of 938,000 in fees from loans issued under the SBAs Paycheck Protection Program PPP in the second quarter 2020. These fees are amortized over the loans contractual maturity, which is 24 months. Upon SBA forgiveness, the remaining unamortized fees will be recognized into interest income. Forgiveness applications are expected to begin in the third quarter of 2020 and, as such, the Bank expects the related fee income amortization to accelerate in the third and fourth quarters of 2020, positively impacting net interest income. Net interest margin was negatively impacted in the second quarter 2020 by these same loans carrying an interest rate of 1.00 percent. These low-yielding loans caused a six basis point decrease in net interst margin in the second quarter 2020. Even more significant was the impact of the 225 basis point decrease in the federal funds rate between second quarter 2019 and second quarter 2020. Floor rates established by the Bank on its variable rate loans over recent years served to soften the negative impact on net interst income of these Fed rate decreases. Without these floors net interst income would have been lower than stated by approximately 1 million. Higher balances of overnight funds receiving interest at just 10 basis points also negatively impacted net interest margin for the second quarter of 2020. Positively impacting net interest margin for the second quarter 2020 were prepayment fees on commercial loans of 113,000, primarily related to one commercial relationship. Prepayment fees on commercial loans were only 70,000 in the first quarter 2020 and 6,000 in the second quarter 2019.Average interest earning assets for the second quarter 2020 increased 319.0 million from the first quarter 2020 and were up 355.8 million from the second quarter 2019. The addition of 344 million in PPP loans in the second quarter 2020 was the primary reason for the increase in average interest earning assets between quarters. Non-interest income increased 895,000 in the second quarter 2020 compared to the first quarter 2020 and increased 756,000 from the second quarter 2019. These changes were largely due to fluctuations in gains on sales of mortgage loans. Gains on sales of mortgage loans in the second quarter 2020 were up 1.2 million compared to the first quarter 2020 and were up 1.2 million from the second quarter 2019. The Bank originated 50.1 million in mortgage loans for sale in the second quarter 2020 compared to 29.4 million in the first quarter 2020 and 21.4 million in the second quarter 2019. Deposit service charges were down 250,000 in the second quarter 2020 compared to the first quarter 2020 and were down 218,000 compared to the second quarter 2019 due to lower overdraft fees as customers have generally retained higher deposit balances due to uncertaintly related to the COVID-19 pandemic.Non-interest expense was 10.5 million for the second quarter 2020, compared to 11.7 million for the first quarter 2020 and 11.3 million for the second quarter 2019. The largest component of non-interest expense was salaries and benefit expenses. Salaries and benefit expenses were down 925,000 compared to the first quarter 2020 and were down 613,000 compared to the second quarter 2019. The decreases compared to the first quarter 2020 and second quarter 2019 were due to a combination of actions taken to mitigate the negative effects of the COVID-19 shutdown on the economy including personnel freezes, salary reductions for senior management, and halting of 401k matching contributions and bonus accruals. Also causing expense decreases were lower claims experience in the medical insurance plan and higher cost deferrals from commercial loan production of 1,635 PPP loans. The table below identifies the primary components of the changes in salaries and benefits between periods. Q2 2020 Q2 2020 Dollars in 000stoTo Q1 2020Q2 2019 Salaries and other compensation 117 56 Salary deferral from commercial loans 388 310 Bonus accrual 215 228 Mortgage production variable comp 150 202 401k matching contributions 155 120 Medical insurance costs 200 213 Total change in salaries and benefits 925 613 Nonperforming asset expenses remained low in the second quarter 2020 at just 17,000 compared to 61,000 in the first quarter 2020 and 15,000 in the second quarter 2019. There were no sales of foreclosed properties in the first two quarters of 2020, while net gains of 34,000 were incurred on sales in the second quarter 2019. FDIC assessment expense was 76,000 in the second quarter 2020. There was no FDIC assessment expense in the first quarter 2020 as the FDIC assessment credits fully covered the assessment in the first quarter 2020. All of the Banks FDIC assessment credits have been applied in the second quarter 2020, so expense will increase slightly in the third quarter 2020. Other categories of non-interest expense were relatively flat compared to the first quarter 2020 and the second quarter 2019 due to a continued focus on expense management. Federal income tax expense was 1.8 million for the second quarter 2020 compared to 1.4 million for the first quarter 2020 and 1.9 million for the second quarter 2019. The effective tax rate was 18.7 percent for the second quarter 2020, compared to 18.2 percent for the first quarter 2020 and 19.3 percent for the second quarter 2019. Asset Quality A provision for loan losses of 1.0 million was recorded in the second quarter of 2020. There was a negative provision of 200,000 in the second quarter 2019. Net loan chargeoffs for the second quarter 2020 were 4.0 million, compared to first quarter 2020 net loan recoveries of 989,000 and second quarter 2019 net loan recoveries of 194,000. The large provision in the second quarter 2020 was primarily due to a 4.1 million charge-off on a single loan relationship in the movie theater business. 