Macatawa Bank Corp. drops on Q2 profit drop
Shares of Macatawa Bank Corp. (Nasdaq: MCBC) are down to a new 52-week low following news that the Holland, Mich.-based financial holding company reported a decline in second-quarter profit. Also after today’s opening bell, RBC Capital Markets analysts downgraded Macatawa to “underperform” from “sector perform.”
The net income for the second quarter of 2007 was $4.59 million, or $0.26 per share, compared with a net income of $5.76 million, or $0.33 per share, during the same three-month period of 2006, the company announced after Monday’s close.
“We’re clearly disappointed with this decline,” CEO Ben Smith said this morning on a conference call. “These results reflect the environment within which we’re operating – the nature of the economy in Michigan as it relates to residential real estate. It’s putting pressure on our performance.”
Smith blamed a deterioration of residential land development in Michigan, which he said has hurt banks throughout the state.
Terry McEvoy, an analyst with investment bank Oppenheimer & Co., appears to agree.
“The results were similar to those of other Michigan and Western Michigan banks,” he said.
During the second quarter, Macatawa’s non-performing loans climbed to $29 million, an increase of $12 million from the first quarter.
Of the $29 million in non-performing loans, $26 million are real estate loans used for land development or residential construction, Ron Haan, Macatawa’s executive vice president, said.
“Yield on assets was the primary assets for the margin decline,” Smith said on the call. “The primary reason for this decline was the higher average balance on non-performing assets.”
“While we are seeing signs of increased residential real estate activity, we recognize a sustained improvement will take time to fully benefit the businesses involved with land development,” Smith added.
“As I look out into the second half of 2007, I do not see any immediate improvement,” analyst McEvoy said. “While the rate of losses might diminish, the movement is down for the rest of the year with regards to credit losses.”
McEvoy reiterated his “neutral” stock rating.
That aside, Macatawa Bank said that its loan portfolios are performing well. The company opened its 26th branch in the central Michigan city of Cascade and saw its total assets as of June 30 increase $135 million, or 7%, to $2.12 billion, compared with $1.985 billion a year earlier.
At 11:54 a.m. ET shares were down $2.16, or 15%, to $12.56. The previous 52-week low of $14.51 was set on July 16. The 52-week high of $22.84 was achieved on Aug. 30.
Will Atkinson contributed to this report.
