Macatawa Bank Corp. has a market cap of $30.5 million; its shares were traded at around $1.71 with and P/S ratio of 0.3.
Highlight of Business Operations:At September 30, 2010, we had total assets of $1.61 billion, total loans of $1.28 billion, total deposits of $1.28 billion and shareholders' equity of $67.0 million. During the third quarter of 2010, we recognized net income of $703,000 compared to a net loss of $20.9 million in the third quarter of 2009. This represents two consecutive quarters of profitability following six consecutive quarters of net losses. 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 most recent quarter. For the nine month periods ended September 30, 2010 and 2009, we recognized net loss available to common shares of $18.7 million and $57.3 million, respectively. 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, 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. In fact, under certain conditions according to the accounting standards, as we return to sustained profitability it will be possible to reverse the established valuation on our deferred tax assets through earnings. As of September 30, 2010, the Bank was categorized as "adequately capitalized" under applicable regulatory guidelines and the Bank's regulatory capital was below levels required in the Consent Order.
Summary: Net income available to common shares for the quarter ended September 30, 2010 was $703,000, compared to third quarter 2009 net loss of $20.9 million. Net income per common share on a diluted basis was $0.04 for the third quarter of 2010 compared to a net loss per common share of $1.18 for the same period in 2009. Net loss available to common shares for the nine months ended September 30, 2010 was $18.7 million compared to a net loss of $57.3 million for the same period in the prior year. Net loss per common share was $1.06 for the nine months ended September 30, 2010 compared to a net loss per common share of $3.30 for the same period in 2009.
The improvement in earnings in the third quarter of 2010 was due primarily to a lower level of net chargeoffs in the quarter from $11.2 million in 2009 to $4.6 million in 2010 and a decline in non-performing and impaired loan levels, resulting in a decrease of $21.0 million in provision for loan losses. The provision for loan losses was $550,000 and $22.1 million, respectively, for the three and nine months ended September 30, 2010 compared to $21.6 million and $52.7 million, respectively, for the three and nine months ended September 30, 2009.
Operating results in recent periods have been significantly impacted by the cost associated with problem loans and non-performing assets. In addition to the provision for loan losses, costs associated with nonperforming assets were $3.2 million and $11.2 million, respectively, for the three and nine months ended September 30, 2010 compared to $3.1 million and $7.7 million, respectively, for the three and nine months ended September 30, 2009. Lost interest from elevated levels of non-performing assets was approximately $2.3 million and $7.6 million, respectively, for the three and nine months ended September 30, 2010 compared to $2.2 million and $6.8 million, respectively, for the three and nine months ended September 30, 2009. Each of these items is discussed more fully below.
Net Interest Income: Net interest income totaled $12.4 million for the third quarter of 2010 compared to $13.2 million for the third quarter of 2009. For the first nine months of 2010, net interest income totaled $38.3 million compared to $39.4 million for the same period in 2009.
The decrease in net interest income for the third quarter of 2010 was due primarily to a $355.5 million reduction in our average interest earning assets. Significantly offsetting this decrease was strong improvement in our net interest margin. The net interest margin increased to 3.22% for the third quarter of 2010 from 2.83% for the third quarter of 2009. Since the third quarter of 2009, we experienced a 39 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 65 basis point decline in the average cost of interest bearing liabilities. Our average yield on earning assets only declined 23 basis points for the third 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 $1.87 billion for the three months ended September 30, 2009 to $1.52 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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