<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-25079
MICHIGAN COMMUNITY BANCORP LIMITED
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3390193
(State of incorporation) (I.R.S. Employer Identification No.)
43850 SCHOENHERR ROAD
STERLING HEIGHTS, MI 48313
(Address of principal executive offices)
(810) 532-8000
Registrant's Telephone Number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of March 31 1999, the Registrant had 665,000 shares of Common Stock issued
and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes: No: X
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Michigan Community Bancorp Limited (the "Company" or "MCB") completed an initial
public offering of its Common Stock In December 1998 raising $9,975,000 of gross
proceeds before fees and expenses. The total offering consisted of 665,000
shares which were priced at $15 per share. The net proceeds to the Company after
deducting for underwriting fees and expenses were $9.2 million. The consolidated
financial statements of the Company include its subsidiary banks, Lakeside
Community Bank (LCB) and North Oakland Community Bank (NOCB). In January of
1999, LCB and NOCB received regulatory approval to open and begin operations.
The quarter ending March 31, 1999, is the Company's first full quarter of
operation. All adjustments, which, in the opinion of management, are necessary
in order to ensure the financial statements are not misleading, have been
included.
<PAGE> 3
MICHIGAN COMMUNITY BANCORP LIMITED
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
Assets
<S> <C>
Cash & cash equivalents:
Cash & due from banks, noninterest bearing $ 595
Federal funds sold 11,750
--------------
Cash and cash equivalents 12,345
Loans:
Loans, gross 3,792
Less: allowance for loan losses 252
--------------
Net loans 3,540
Premises and equipment- Net 1,596
Other assets: 294
--------------
Total assets $ 17,775
==============
Liabilities and Stockholders' Equity
Liabilities
Total deposits $ 9,618
Other liabilities 239
--------------
Total liabilities 9,857
Shareholders Equity
Preferred stock, no par value, 1,000,000
shares authorized, none issued. --
Common stock - $5 stated value:
Authorized - 9,000,000 shares
Issued and outstanding - 665,000 shares 3,325
Capital surplus 5,880
Accumulated deficit (1,287)
--------------
Total stockholders' equity 7,918
Total liabilities and stockholders' equity $ 17,775
==============
</TABLE>
<PAGE> 4
MICHIGAN COMMUNITY BANCORP LIMITED
CONSOLIDATED STATEMENT OF EARNINGS
JANUARY 1, 1999 TO MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Operating Income:
Interest & Fee Income $ 151
Interest Expense 38
------------
Net interest income before allowance for loan losses 113
Less allowance for loan losses 252
------------
Net interest income after allowance for loan losses (139)
Other income 12
Other operating expenses:
Salaries and employee benefits 378
Occupancy 61
Equipment expense 34
Advertising 32
Miscellaneous 95
------------
Total other operating expense 600
------------
Loss - Before income taxes $ (727)
Provision for income taxes --
------------
Net loss $ (727)
============
Number of shares outstanding (actual) 665,000
============
Net loss per share (actual) $ (1.09)
============
</TABLE>
<PAGE> 5
MICHIGAN COMMUNITY BANCORP LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
JANUARY 1, 1999 TO MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Total
Common Capital Accumulated Stockholders'
Stock Surplus Deficit Equity
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Balance - December 31, 1998 $ 3,325 $ 5,880 $ (560) $ 8,645
Net loss -- -- (727) (727)
------------------ ----------------- ------------------ ------------------
March 31, 1999 $ 3,325 $ 5,880 $ (1,287) $ 7,918
================== ================= ================== ==================
</TABLE>
<PAGE> 6
MICHIGAN COMMUNITY BANCORP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOW
JANUARY 1, 1999 TO MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Operating activities:
Net loss $ (727)
Adjustments to reconcile net loss to net cash
provided in operating activities
Provision for loan loss 252
Depreciation 21
Increase in other assets (4)
Decrease in other liabilities (79)
----------
Net cash provided by operating activities (537)
Investing activities:
Increase in gross loans (3,792)
Additions to premises and equipment (850)
----------
Net cash used in investing activities (4,642)
Cash flows from financing activities -Increase in Deposits 9,618
----------
Net increase in cash and cash equivalents 4,439
Cash and cash equivalents - December 31, 1998 7,906
----------
Cash and cash equivalents - March 31, 1999 $ 12,345
==========
</TABLE>
<PAGE> 7
MICHIGAN COMMUNITY BANCORP LIMITED
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Michigan Community
Bancorp Limited (the "Company") conform to generally accepted
accounting principles. Management is required to make estimates
and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes.
Actual results could differ from these estimates and assumptions.
Nature of Operations - Michigan Community Bancorp Limited was
incorporated on January 28, 1998 as a Bank holding Company to
establish and operate two new banks, Lakeside Community Bank
(LCB) in Sterling Heights, Michigan and North Oakland Community
Bank (NOCB) in Rochester Hills, Michigan, in December 1998, the
Company completed an initial public offering of 665,000 shares of
its common stock raising $9.2 million, net of offering costs. LCB
and NOCB commended operations in January 1999.
PREMISES AND EQUIPMENT - Premises and equipment are stated at
cost. Depreciation is computed on the straight-line method and
charged to operations over the estimated useful lives of the
properties.
OFFERING COSTS - Costs related to the offering of common stock
have been netted against the offering proceeds from the sale of
the Company's stock.
EARNINGS PER SHARE - Basic earnings per share is based on the
weighted average number of shares outstanding during the period.
STOCK OPTIONS - The Company has two stock option plans . Options
granted to directors and key employees under both plans are
accounted for using the intrinsic value method, under which
compensation expense is recorded at the amount by which the
market price of the underlying stock at grant date exceeds the
exercise price of an option. Under the Company's plans, the
exercise price on all options granted equals or exceeds the fair
value of the stock at the grant date. Accordingly, no
compensation cost is recorded as a result of stock option awards
under the plan.
<PAGE> 8
MICHIGAN COMMUNITY BANCORP LIMITED
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 2 - OPERATING LEASE
The Company has entered into an assignment of a lease for a building to be
utilized for NOCB's branch operations. The assignment required the prepayment of
the lease totaling $250,000 and an on going monthly rental payment of $600. The
prepayment of rent will be expensed over the lease assignment term that expires
on December 31, 2004.
The Company has entered into a lease for a building to be utilized for LCB's
branch operations and the Company's headquarters. During the first five years of
the lease term, the lease requires monthly payments of $8,392, with a monthly
credit of $4,196 for the first sixteen months for tenant improvements. The last
five year term of the lease requires a $8,890 monthly payment. The lease expires
December 1, 2008.
The annual future minimum lease payments required under these non-cancelable
operating leases as of March 31, 1999 are as follows:
<TABLE>
<S> <C>
1999 $ 43,164
2000 95,316
2001 107,904
2002 107,904
2003 108,402
thereafter 535,310
----------
Total $ 998,000
==========
</TABLE>
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Forward - looking statements
The following discussion contains forward-looking statements that involve
substantial risks and uncertainties. These forward - looking statements can be
identified by the use of the words "anticipate" , "believe", "estimate",
"expect", "plan", and similar expressions. They are not guarantees of future
performance and involve certain risks, uncertainties and assumptions that are
difficult to predict with regard to timing, extent, likeliness and degree of
occurrence. Various factors , including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
(A) PLAN OF OPERATION
ORGANIZATION
The Company was incorporated in 1998 as a bank holding company. The Company
operates two wholly owned subsidiary banks, Lakeside Community Bank (LCB) and
North Oakland Community Bank (NOCB) (collectively the "Banks"). LCB and NOCB are
organized as Michigan banking corporations with depository accounts insured by
the Bank Insurance Fund of the Federal Deposit Insurance Corporation. LCB and
NOCB provide a range of commercial and consumer banking services primarily in
the northern communities of Macomb and Oakland Counties.
Market Area
LCB is located on Schoenherr Road in a rapidly growing area of Macomb County,
NOCB is located on Rochester Road in a rapidly growing area of Oakland County.
The communities that comprise the Banks' Primary service area include Sterling
Heights, Clinton Township, Utica, Mt. Clemens, Macomb Township, Washington
Township, Ray Township, Rochester, Rochester Hills, Troy, Auburn Hills, Pontiac,
Oakland Township, Avon Township, Orion Township, and Lake Orion Village.
Management believes that these communities have an expanding and diverse
economic base, which includes a wide range of small to medium sized businesses
engaged in manufacturing, construction, and retail.
Bank Lines of Business
The Banks' core business activities include attracting deposits from the general
public and using such deposits along with equity capital to originate commercial
loans. The Banks also offer installment and home equity loans to consumers. The
Banks' results of operations are dependent primarily upon net interest income,
which is the difference between interest income from interest earning assets and
interest expense on interest bearing liabilities. Results of operation will also
be positively influenced by non-interest income such as fees related to loan
origination and service charges associated with customer deposit accounts which
includes a full array of demand deposit accounts, money market demand accounts,
NOW accounts, savings accounts, individual retirement accounts, certificates of
deposit, and ATM cards.
<PAGE> 10
CASH REQUIREMENTS
MCB's plan of operation for 1999 does not anticipate the need to raise
additional capital funds. Current cash projections indicate adequate cash
balances and MCB does not anticipate substantial additional purchases of
fixtures, equipment or leasehold improvements in 1999.
Number of Employees
At March 31, 1999 the Company employed 21 people on a full time basis, and one
person on a part time basis. Over the next twelve months, MCB does not expect
any significant changes in staffing levels.
(B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Quarter ended March 31, 1999 is the first full quarter of operation for the
company. MCB was incorporated on January 28, 1998 and completed its initial
public offering in December 1, 1998. The proceeds from the public offering were
used to fund the operation and start up of two subsidiary banks (LCB and NOCB).
The subsidiary banks were capitalized and received regulatory approval to
commence operations in January 1999. Total assets at March 31, 1999 were $17. 8
million as compared to $8.9 million at December 31, 1998. The increase in total
assets was funded by a $9.6 million dollar increase in deposits. Total net loss,
year to date, at March 31, 1999 was $727 thousand, of which a significant
portion was attributable to the establishment of a reserve for future possible
loan losses. The build up of loan loss reserves has been made to provide for
funded loans at March 31, 1999 of $3,792,000 and committed, approved but
unfunded loans at March 31, 1999 totaling $15.7 million. There has been no loan
charge-offs or recoveries to date.
The categories of loans outstanding at March 31, 1999, in dollars and as a
percentage of loans outstanding were as follows:
<TABLE>
<CAPTION>
LOAN CATEGORY $ IN THOUSANDS PERCENTAGE OF TOTAL
LOANS
----------------------- -------------------- ----------------------
<S> <C> <C>
Commercial 3,499 92.2%
Installment 252 6.6%
Home Equity 41 1.2%
-------------------- ----------------------
Total Loans 3,792 100.0%
==================== =======================
</TABLE>
At March 31, 1999 there were no non-accrual loans, no loans greater than 30 days
past due, and no watch loans. As a result of substantial start up expenditures
incurred by the Company and the Banks and the time the Banks will take to
develop their deposit bases and loan portfolios, the Company's management
expects that the Banks and thus the Company, will operate at a loss during the
start up period of the Banks. Accordingly, the Company's management expects that
neither the Company or the Banks will be profitable during the first two years
of operations.
<PAGE> 11
PART II.
OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
Exhibit Description
------- -----------
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
No reports on form 8-K have been filed during the quarter for which this
report is filed.
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
organized.
May 14, 1999.
--- Michigan Community Bancorp Limited
By: /s/ David A. McKinnon
---------------------------------
David A. McKinnon, Chairman and Chief
Executive Officer
<PAGE> 13
EXHIBIT INDEX
Exhibit Description
- ------- -----------
27 Financial Data Schedule (EDGAR filing only)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 595
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,792
<ALLOWANCE> 252
<TOTAL-ASSETS> 17,775
<DEPOSITS> 9,618
<SHORT-TERM> 0
<LIABILITIES-OTHER> 239
<LONG-TERM> 0
0
0
<COMMON> 3,325
<OTHER-SE> 4,593
<TOTAL-LIABILITIES-AND-EQUITY> 17,775
<INTEREST-LOAN> 35
<INTEREST-INVEST> 0
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 135
<INTEREST-DEPOSIT> 38
<INTEREST-EXPENSE> 38
<INTEREST-INCOME-NET> 97
<LOAN-LOSSES> 252
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 600
<INCOME-PRETAX> (727)
<INCOME-PRE-EXTRAORDINARY> (727)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (727)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 252
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
