Macatawa Bank Corp. has a market cap of $24.8 million; its shares were traded at around $1.4 with and P/S ratio of 0.2.
Highlight of Business Operations:At June 30, 2010, we had total assets of $1.65 billion, total loans of $1.36 billion, total deposits of $1.31 billion and shareholders' equity of $66.2 million. During the second quarter of 2010, we recognized net income of $1.7 million compared to a net loss of $31.3 million in the second quarter of 2009. This is also a significant improvement from our results in the first quarter of 2010, when we recognized a net loss of $21.1 million. This represents our first quarter of profitability in nearly two years. As described more fully below, a meaningful reduction in charge-offs, and nonperforming loans supported by new and more disciplined lending and loan risk management practices led to a significant reduction in loan loss provisions for the quarter. For the year to date periods, we recognized net losses of $19.4 million in 2010 and $36.4 million in 2009. The weak local and national economic conditions that have persisted over the past few years have contributed to the 2010 operating loss and the $38.9 million and $63.6 million of annual operating losses reported by us during 2008 and 2009. The losses for each period were largely attributable to loan losses, lost interest on non-performing assets and costs of administering problem assets associated with problem loans and other real estate assets. We also incurred a non-cash charge of $18.0 million included in federal income tax expense in 2009 associated with a valuation allowance for deferred tax assets and non-cash, and after tax impairment charges for goodwill and intangible assets of $27 million in 2008. There will be no further negative affect on our results of operations associated with deferred tax assets or goodwill, as these assets have been written off in their entirety. As of the date of this report, the Bank was categorized as "adequately capitalized" under applicable regulatory guidelines. However, as of the date of this report, the Bank's regulatory capital was below levels required in the Consent Order.
Summary: Net income available to common shares for the quarter ended June 30, 2010 was $1.7 million, compared to second quarter 2009 net loss of $31.3 million. Net income per common share on a diluted basis was $0.10 for the second quarter of 2010 compared to a net loss per common share of $1.82 for the same period in 2009. Net loss available to common shares for the six months ended June 30, 2010 was $19.4 million compared to a net loss of $36.4 million for the same period in the prior year. Net loss per common share was $1.10 million for the six months ended June 30, 2010 compared to a net loss per common share of $2.12 for the same period in 2009.
The improvement in earnings in the second quarter of 2010 was due primarily to a lower level of net chargeoffs in the quarter from $22.1 million in 2009 to $6.3 million in 2010 and a resulting decrease of $18.0 million in provision for loan losses. Also, positively impacting 2010 earnings was a $2.7 million gain on the sale of securities during the second quarter. The 2009 second quarter included a non-cash charge of $14.9 million included in federal income tax expense to establish a valuation allowance for net deferred tax assets, a $5.5 million one-time charge associated with the settlement of the Trade Partners lawsuit and a $960,000 special FDIC assessment.
Operating results in recent periods have been significantly impacted by the cost associated with problem loans and non-performing assets. The provision for loan losses was $1.8 million and $21.5 million for the three and six months ended June 30, 2010, respectively, compared to $20.6 million and $31.2 million, respectively, for the three and six months ended June 30, 2009. Costs associated with nonperforming assets were $2.5 million and $8.0 million, respectively, for the three and six months ended June 30, 2010 compared to $2.4 million and $4.6 million, respectively, for the three and six months ended June 30, 2009. Lost interest from elevated levels of non-performing assets was approximately $2.7 million and $5.3 million, respectively, for the three and six months ended June 30, 2010 compared to $2.2 million and $4.6 million, respectively, for the three and six months ended June 30, 2009. Each of these items is discussed more fully below.
Net Interest Income: Net interest income totaled $12.8 million for the second quarter of 2010 compared to $13.4 million for the second quarter of 2009. For the first half of 2010, net interest income totaled $25.8 million compared to $26.2 million for the same period in 2009.
The decrease in net interest income for the second quarter of 2010 was due primarily to a $385.0 million reduction in our average interest earning assets. Significantly offsetting this decrease was strong improvement in our net interest margin. Since the second quarter of 2009 we experienced a 50 basis point increase in our net interest income as a percentage of average interest-earning assets (i.e. "net interest margin" or "margin") largely from a 63 basis point decline in the average cost of interest bearing liabilities. Our average yield on earning assets only declined 6 basis points for the second quarter of 2010. As is customary in the banking industry, interest income on tax-exempt securities is adjusted in the computation of the yield on tax-exempt securities and net interest margin using a 35% tax rate to report these items on a fully taxable equivalent basis. Average interest earning assets decreased from $1.94 billion for the three months ended June 30, 2009 to $1.55 billion for the same period in 2010, as a result of our focus on reducing credit exposure within certain segments of our loan portfolio, liquidity improvement and capital preservation.
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