<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 June 30, 2000
OR
{ } QUARTERLY REPORT PURSUANT TO SECTION 14 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 June 30, 2000, the Registrant had 756,000 shares of Common Stock issued
and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
------ -----
<PAGE> 2
PART 1. 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 underwriting fees were $9.2 million.
During September, 1999, the Company commenced a Private Placement of 91,000
units. Each unit is comprised of one share of common stock and one common stock
purchase warrant which entitles the holder to acquire 1 1/2 shares of common
stock at $11.00 per share. As of October 1, 1999, all units were sold and the
common stock warrants were issued.
<PAGE> 3
Michigan Community Bancorp Limited - Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data) June 30 December 31
2000 1999
---------- --------------
<S> <C> <C>
Assets
Cash and due from banks $ 3,833 $ 2,078
Federal funds sold 10,000 6,550
---------- --------------
Cash and cash equivalents 13,833 8,628
Securities available for sale, at fair value 4,461 2,974
Federal Home Loan Bank stock, at cost 103 103
Loans 58,809 46,627
Less: allowance for loan losses 796 715
---------- --------------
Net loans 58,013 45,912
Premises and equipment, net 1,544 1,596
Interest receivable and other assets 623 552
---------- --------------
Total Assets $ 78,577 $ 59,765
========== ==============
Liabilities
Deposits
Non-interest-bearing $ 9,444 $ 5,237
Interest-bearing 61,376 46,400
---------- --------------
Total deposits 70,820 51,637
Interest payable and other liabilities 413 340
---------- --------------
Total liabilities 71,233 51,977
Shareholders' equity
Preferred stock, no par value, 1,000,000 shares authorized, -- --
none issued
Common stock, $5.00 stated value, 9,000,000 shares authorized,
shares outstanding 756,000 3,780 3,780
Capital surplus 6,410 6,410
Accumulated deficit (2,820) (2,392)
Accumulated other comprehensive loss (26) (10)
---------- --------------
Total shareholders' equity 7,344 7,788
---------- --------------
Total liabilities and shareholders' equity $ 78,577 $ 59,765
========== ==============
</TABLE>
<PAGE> 4
Michigan Community Bancorp Limited - Consolidated Income Statement
<TABLE>
<CAPTION>
(In thousands, except share data) Quarter Ending
June 30
2000 1999
<S> <C> <C>
Interest income
Loans, including fees $ 1,352 $ 302
Investment securities 80 14
Federal funds sold 141 146
---------- ----------
Total interest income 1,573 462
Interest expense on deposits 872 211
---------- ----------
Net interest income 701 251
Provision for loan losses 28 108
---------- ----------
Net interest income after provision for loan losses 673 143
Non-interest income 40 8
Non-interest expense
Salaries and employee benefits 515 298
Premises and equipment 155 117
Advertising 20 10
Legal and professional 63 22
Other 124 94
---------- ----------
Total non-interest expense 877 541
Loss before income taxes (164) (390)
---------- ----------
Income taxes -- --
---------- ----------
Net loss $ (164) $ (390)
========== ==========
Average shares outstanding 756,000 665,000
Net loss per share $ (0.22) $ (0.59)
</TABLE>
<PAGE> 5
Michigan Community Bancorp Limited - Consolidated Income Statement
<TABLE>
<CAPTION>
(In thousands, except share data) Year-to-date
June 30
2000 1999
<S> <C> <C>
Interest income
Loans, including fees $ 2,480 $ 352
Investment securities 134 14
Federal funds sold 297 242
---------- ----------
Total interest income 2,911 608
Interest expense on deposits 1,633 249
---------- ----------
Net interest income 1,278 359
Provision for loan losses 85 360
---------- ----------
Net interest income after provision for loan losses 1,193 (1)
Non-interest income 64 24
Non-interest expense
Salaries and employee benefits 952 676
Premises and equipment 318 212
Advertising 47 42
Legal and professional 129 35
Other 239 175
---------- ----------
Total non-interest expense 1,685 1,140
Loss before income taxes (428) (1,117)
---------- ----------
Income taxes -- --
---------- ----------
Net loss $ (428) $ (1,117)
========== ==========
Average shares outstanding 756,000 665,000
Net loss per share $ (0.57) $ (1.68)
</TABLE>
<PAGE> 6
Michigan Community Bancorp Limited - Consolidated Statement of Changes in
Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Other Total
(In thousands) Common Capital Accumulated Comprehensive Shareholders'
Stock Surplus Deficit Income Equity
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance January 28, 1998 - Inception $ -- $ -- $ -- $ -- $ --
Public stock offering 3,325 6,102 9,427
Cost of stock offering (222) (222)
Net loss (560) (560)
--------- --------- ----------- ------------- -------------
Balance December 31, 1998 3,325 5,880 (560) 8,645
Private placement of stock 455 546 1,001
Cost of private placement (16) (16)
Comprehensive loss
Net loss (1,832) (1,832)
Change in unrealized loss on
securities available for sale (10) (10)
-------------
Total comprehensive loss (1,842)
--------- --------- ----------- ------------- -------------
Balance December 31, 1999 3,780 6,410 (2,392) (10) 7,788
Comprehensive loss
Net loss (428) (428)
Change in unrealized loss on
securities available for sale (16) (16)
-------------
Total comprehensive loss (444)
--------- --------- ----------- ------------- -------------
Balance June 30, 2000 $ 3,780 $ 6,410 $ (2,820) $ (26) $ 7,344
========= ========= =========== ============= =============
</TABLE>
<PAGE> 7
Michigan Community Bancorp Limited - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year to date June 30
(In thousands) 2000 1999
<S> <C> <C>
Operating activities
Net loss $ (428) $ (1,117)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 129 57
Provision for loan losses 85 360
Net amortization and accretion of securities (6) --
(Increase) decrease in interest receivable & other assets (71) (250)
Increase (decrease) in interest payable & other liabilities 73 (130)
--------- ----------
Total adjustments 210 37
Net cash from operating activities (218) (1,080)
Investing activities
Purchase of available-for-sale securities (1,997) (1,990)
Proceeds from maturities of available-for-sale securities 500 --
Net increase in loans (12,186) (21,170)
Premises and equipment expenditures (77) (923)
--------- ----------
Net cash used in investing activities (13,760) (24,083)
Net cash provided from financing activities - net increase in
deposits 19,183 25,212
--------- ----------
Net change in cash and cash equivalents 5,205 49
Beginning cash and cash equivalents 8,628 7,906
--------- ----------
Ending cash and cash equivalents $ 13,833 $ 7,955
========= ==========
-----------------------------------------------------------------------------------------------
Interest paid $ 1,568 $ 142
Income taxes paid $ -- $ --
</TABLE>
<PAGE> 8
MICHIGAN COMMUNITY BANCORP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
Note 1 - Summary of Significant Accounting Policies
The consolidated financial statements of the Company include the
accounts of MCB and its subsidiary banks, Lakeside Community Bank (LCB)
and North Oakland Community Bank (NOCB) after elimination of
significant inter-company transactions. These statements reflect all
adjustments and disclosures which are, in the opinion of management,
necessary for a fair presentation of the results for the interim
periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
Note 2 - Securities
The amortized cost and estimated market value of securities
available-for-sale are as follows:
(in thousands)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. government and agencies $ 4,487 $ - $ (26) $ 4,461
======== ========= ========= ==========
</TABLE>
The amortized cost and estimated market value of securities available-for-sale
at June 30, 2000, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturity because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
(in thousands)
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $ 1,498 $ 1,496
Due after one year through five years 2,989 2,965
Due after five years through ten years - -
Due after ten years - -
--------- ---------
Total $ 4,487 $ 4,461
========= =========
</TABLE>
Investment securities with an amortized cost of $2,983,000 and a market value of
$2,965,000 were pledged to secure the right to participate in the overnight
Federal Funds market and for lines of credit at the Federal Home Loan Bank of
Indiana.
<PAGE> 9
Note 3 - Loans
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
(in thousands) June 30
2000 1999
-------- -------
<S> <C> <C>
Commercial $47,658 $17,194
Lease financing 203 255
Residential real estate 3,583 1,250
Residential construction 1,055 --
Consumer 6,310 2,471
-------- -------
Total loans 58,809 21,170
Allowance for loan losses 796 360
-------- -------
Net loans $58,013 $20,810
======== =======
</TABLE>
At June 30, 2000 approximately $2,108,000 of loans were outstanding to executive
officers, bank directors, principal shareholders and their related interests.
During 2000, advances totalled $989,000 and repayments were $741,000. It is
managements' opinion that such loans were made on the same terms and conditions
as those to other borrowers and did not involve more than the normal risk of
collectibility.
Non-Performing Loans
The accrual of interest on loans is discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to meet
payments as they become due. Upon such discontinuance, all unpaid interest
accrued during the current year is reversed.
<TABLE>
<CAPTION>
June 30
(in thousands) 2000 1999
---------- -------
<S> <C> <C>
Non-accrual loans $ 1,450 --
---------- -------
Total non-performing loans $ 1,450 --
========== =======
Non-performing loans as a percent of total loans 2.5% --
Accruing loans 90 days or more past due $ 43 --
</TABLE>
The increase in non-accrual loans is due to one loan which is considered
impaired under accounting guidance. Management does not anticipate a loss on
this credit due to its collateral value. There are no other non-performing
assets.
<PAGE> 10
NOTE 3 - LOANS, CONTINUED
ALLOWANCE FOR LOAN LOSSES
The reserve for possible loan losses is an amount management believes will be
adequate to absorb losses inherent in existing loans based on evaluations of the
anticipated repayment and prior loss experience. The factors taken into
consideration include changes in the nature, volume and quality of the
portfolio, loan concentrations, specific problem loans and current and
anticipated economic conditions that may affect the borrower's ability to pay.
<TABLE>
<CAPTION>
Three months ending June 30
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Balance beginning of period $ 772 $ 252
Charge-offs (4) --
Recoveries
Provision charged to operations 28 108
-------- --------
Balance June 30 $ 796 $ 360
======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ending June 30
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Balance beginning of period $ 715 $ --
Charge-offs (4) --
Recoveries
Provision charged to operations 85 360
-------- --------
Balance June 30 $ 796 $ 360
======== ========
</TABLE>
At the end of June, the allowance for loan losses is 1.35% of outstanding loans.
At June 30, 2000, the Company had a loan concentration of approximately
$9,500,000 in non-residential building operators and approximately $7,800,000 in
a combination of the land-development and single-family residential construction
industries.
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 can be
identified by the use of the words "anticipate", "believe", "expect", "plan",
and similar expressions. These forward-looking statements are not guarantees of
future performance and involve substantial 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 actual results for future periods to differ
materially from those anticipated or projected. A list of the material risks of
the Company may be found under the caption "Risk Factors That May Effect Future
Results" in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999.
<PAGE> 11
(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 communities of northern Macomb and northern 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 renovated former bank building in a
rapidly growing area of Oakland County. The communities that comprise the
Company's primary service area include Sterling Heights, Macomb, Rochester and
Rochester Hills. Management believes these communities have an expanding and
diverse economic base, which includes a wide range of small to medium-sized
businesses engaged in the manufacturing, construction and retail trades.
BANK LINE 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. LCB recently began offering residential mortgage loans which will
primarily be sold to the Federal Home Loan Mortgage Corporation. 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 may be positively
influenced by non-interest income such as fees related to loan origination and
service charges associated with customer deposit accounts. The Banks offer a
full array of demand deposit accounts, NOW accounts, money market deposit
accounts, savings accounts, individual retirement accounts, certificates of
deposit and ATM cards.
CASH REQUIREMENTS
On October 1, 1999, MCB sold 91,000 common stock units at a price of $11.00 per
unit. Each unit consists of one share of MCB's common stock and one redeemable
common stock purchase warrant. Each warrant entitles the holder thereof to
purchase one and one-half shares of common stock at $11.00 per share subject to
adjustment in certain circumstances for 36 months. The warrants will be
redeemable at five cents per warrant upon 30 days notice mailed within 20 days
after the closing bid price of the common stock has equaled or exceeded $15.00
per share for a period of 20 consecutive trading days. The units constitute
"restricted" securities and cannot be resold or transferred without registration
under the Securities Act of 1933, the Michigan Uniform Securities Act and the
securities law of any other applicable jurisdiction, unless an exception from
registration under each such applicable act is available.
Due to regulatory capital requirements, the Company anticipates the need to
raise additional equity capital over the next six months to fund loan growth at
the Banks and operating expenses at the holding company.
NUMBER OF EMPLOYEES
At June 30, 2000 the Company and the Banks employed 31 full-time and 4 part-time
employees. The Company does not anticipate any significant staffing increases in
the next twelve months.
(B) FINANCIAL CONDITION AND RESULTS OF OPERATION
Total assets at June 30, 2000 were $78.6 million compared to $59.8 million at
December 31, 1999, an increase of 31%. The increase in total assets was funded
by an 80% increase in non-interest-bearing deposits and a 32%
<PAGE> 12
increase in interest-bearing deposits. Total net loss year-to-date at June 30,
2000 was $428,000 as compared to the year-to-date June 30, 1999 loss of
$1,117,000, a 62% improvement. The return on average assets was -1.18% for the
six months ended June 30, 2000 and the return on average equity was -11.37% for
the same period. An increase in net interest income, before the loan loss
provision, of 256% during the first six months of 2000 was the primary
contributor to the improved earnings results. Non-interest income increased
$40,000, or 167%, in the year-to-date comparison while non-interest expense
increased $545,000, or 48% during the same period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Annual meeting of shareholders of Michigan Community Bancorp Limited was
held on June 26,2000.
(b) Election of four (4) directors to serve until the annual meeting of
shareholders in 2003.
<TABLE>
<CAPTION>
For Against Abstain Non-vote
<S> <C> <C> <C> <C>
Phillip T. Hernandez 669,434 8,100 0 78,466
John W. Maelstrom 669,734 7,800 0 78,466
J. William Sumner 669,734 7,800 0 78,466
Gerald A. Tarquinio 668,434 9,100 0 78,466
(c) Ratification of Plante & Moran, LLP
as independent external auditors 664,784 4,750 8,000 78,466
</TABLE>
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.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly organized.
August 11, 2000 Michigan Community Bancorp Limited
By: /s/ David A. McKinnon
--------------------------
David A. McKinnon, President and
Chief Executive Officer
By: /s/ Charlotte Cook
----------------------
Charlotte Cook
Chief Financial Officer &
Principal Accounting Officer
<PAGE> 13
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
