<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 September 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 September 30, 2000, the Registrant had 790,043 shares of Common Stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one)
Yes No X
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<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.
During September 2000, the Company commenced a private placement of 34,043
shares at $5.875 per share and all shares were sold as of September 30, 2000.
Subsequent to September 30, 2000, the Company sold 25,000 shares of common
stock, in a private offering, at a price of $10.00 per share.
<PAGE> 3
Michigan Community Bancorp Limited - Consolidated Balance Sheet
<TABLE>
<CAPTION>
(In thousands, except share data) September 30 December 31
2000 1999
------------ ------------
Assets
<S> <C> <C>
Cash and due from banks $ 3,580 $ 2,078
Federal funds sold 9,250 6,550
------------- ------------
Cash and cash equivalents 12,830 8,628
Securities available for sale, at fair value 4,984 2,974
Federal Home Loan Bank stock, at cost 103 103
Loans 61,447 46,627
Less: allowance for loan losses 825 715
------------- ------------
Net loans 60,622 45,912
Premises and equipment, net 1,487 1,596
Interest receivable and other assets 566 552
------------- ------------
Total Assets $ 80,592 $ 59,765
============= ============
Liabilities
Deposits
Non-interest-bearing $ 9,280 $ 5,237
Interest-bearing 63,322 46,400
------------- ------------
Total deposits 72,602 51,637
Interest payable and other liabilities 568 340
------------- ------------
Total liabilities 73,170 51,977
Shareholders' equity
Preferred stock, no par value, 1,000,000 shares authorized, -- --
none issued
Common stock, $5.00 par value, 9,000,000 shares authorized,
shares outstanding: 9/30/00: 790,043, 12/31/99: 756,000 3,950 3,780
Capital surplus 6,440 6,410
Accumulated deficit (2,959) (2,392)
Accumulated other comprehensive loss (9) (10)
------------- ------------
Total shareholders' equity 7,422 7,788
------------- ------------
Total liabilities and shareholders' equity $ 80,592 $ 59,765
============= ============
</TABLE>
<PAGE> 4
Michigan Community Bancorp Limited - Consolidated Income Statement
<TABLE>
<CAPTION>
(In thousands, except share data) Quarter Ending
September 30
2000 1999
Interest income
<S> <C> <C>
Loans, including fees $ 1,482 $ 689
Investment securities 73 29
Federal funds sold 130 126
-------------- -------------
Total interest income 1,685 844
Interest expense on deposits 946 430
-------------- -------------
Net interest income 739 414
Provision for loan losses 30 200
-------------- -------------
Net interest income after provision for loan losses 709 214
Non-interest income 45 3
Non-interest expense
Salaries and employee benefits 531 329
Premises and equipment 162 114
Advertising 14 30
Legal and professional 65 44
Other 121 104
-------------- -------------
Total non-interest expense 893 621
Loss before income taxes (139) (404)
-------------- -------------
Income taxes -- --
-------------- -------------
$ (139) $ (404)
============== =============
Average shares outstanding 756,427 665,000
Net loss per share $ (0.18) $ (0.61)
</TABLE>
<PAGE> 5
Michigan Community Bancorp Limited - Consolidated Income Statement
<TABLE>
<CAPTION>
(In thousands, except share data) Year-to-date
September 30
2000 1999
Interest income
<S> <C> <C>
Loans, including fees $ 3,962 $ 1,041
Investment securities 207 43
Federal funds sold 427 368
------------ ------------
Total interest income 4,596 1,452
Interest expense on deposits 2,579 679
------------ ------------
Net interest income 2,017 773
Provision for loan losses 115 560
------------ ------------
Net interest income after provision for loan losses 1,902 213
Non-interest income 109 27
Non-interest expense
Salaries and employee benefits 1,483 1,005
Premises and equipment 480 326
Advertising 61 72
Legal and professional 194 79
Other 360 279
------------ ------------
Total non-interest expense 2,578 1,761
Loss before income taxes (567) (1,521)
Income taxes -- --
Net loss $ (567) $ (1,521)
============ ============
Average shares outstanding 756,497 665,000
Net loss per share $ (0.75) $ (2.29)
</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
Private placement of stock 170 30 200
Cost of private placement
Comprehensive loss
Net loss (567) (567)
Change in unrealized loss on securities
available for sale 1 1
-------------
Total comprehensive loss (566)
----------- ----------- ------------- ------------- -------------
Balance September 30, 2000 $ 3,950 $ 6,440 $ (2,959) $ (9) $ 7,422
=========== =========== ============= ============= =============
</TABLE>
<PAGE> 7
Michigan Community Bancorp Limited - Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year to date September 30
(In thousands) 2000 1999
Operating activities
<S> <C> <C>
Net loss $ (567) $ (1,521)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 193 94
Provision for loan losses 115 560
Loss on sale of securities 2
Net amortization and accretion of securities (9) (1)
(Increase) decrease in interest receivable & other assets (14) 396
Increase (decrease) in interest payable & other liabilities 228 1,009
------------- ------------
Total adjustments 513 2,060
Net cash from operating activities (54) 539
Investing activities
Purchase of available-for-sale securities (3,000) (3,981)
Proceeds from maturities of available-for-sale securities 1,000 -
Proceeds from sales of available-for-sale securities 1,989
Net increase in loans (14,825) (36,093)
Premises and equipment expenditures (84) (1,549)
------------- ------------
Net cash used in investing activities (16,909) (39,634)
Net cash provided from financing activities - net increase in deposits 20,965 43,144
Proceeds from private stock offering 200
------------- ------------
Net change in cash and cash equivalents 4,202 4,049
Beginning cash and cash equivalents 8,628 7,906
------------- ------------
Ending cash and cash equivalents $ 12,830 $ 11,955
============= ============
------------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 2,410 $ 548
Income taxes paid $ - $ -
</TABLE>
<PAGE> 8
MICHIGAN COMMUNITY BANCORP LIMITED
Notes to Consolidated Financial Statements
September 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:
<TABLE>
<CAPTION>
(in thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. government and agencies $ 4,993 $ - $ (9) $ 4,984
========== =========== ============ ===========
</TABLE>
The amortized cost and estimated market value of securities
available-for-sale at September 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.
<TABLE>
<CAPTION>
Amortized Market
Cost Value
----------- ----------
<S> <C> <C>
$ $
Due in one year or less 2,995 2,987
Due after one year through five years 1,998 1,997
Due after five years through ten years - -
Due after ten years - -
----------- ----------
Total $ 4,993 $ 4,984
=========== ==========
</TABLE>
Investment securities with an amortized cost of $2,991,000 and a
market value of $2,982,000 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) September 30
2000 1999
------------- -------------
<S> <C> <C>
Commercial $ 48,839 $ 29,834
Lease financing 299 239
Residential real estate 4,475 2,700
Residential construction 1,032 -
Consumer 6,802 3,320
------------- -------------
Total loans 61,447 36,093
Allowance for loan losses 825 560
------------- -------------
Net loans $ 60,622 $ 35,533
============= =============
</TABLE>
At September 30, 2000 approximately $4,201,000 of loans were outstanding to
executive officers, bank directors, principal shareholders and their
related interests. During 2000, advances totalled $3,707,000 and repayments
were $1,234,000. 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>
September 30
(in thousands) 2000 1999
------------- -------------
Impaired Loans:
<S> <C> <C>
Non-accrual loans $ 1,491 $ -
------------- -------------
Total non-performing loans $ 1,491 $ -
============= =============
Non-performing loans as a percent of total loans 2.4% -
Accruing loans 90 days or more past due - -
</TABLE>
The increase in non-accrual loans in the year-to-year comparison is
primarily due to one loan with a principal balance of $1.45 million.
Subsequent to September 30, 2000 this loan has been paid-off with 100% of
principal, 100% of interest at the original contract rate and 39% of
interest at the default rate collected. Had the aforementioned loan been
paid-off by September 30, 2000, the non-accrual loan total would have been
$41,000.
<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 September 30
(in thousands) 2000 1999
----------- ----------
<S> <C> <C>
Balance beginning of period $ 796 $ 360
Charge-offs - -
Recoveries
Provision charged to operations 29 200
----------- ----------
Balance June 30 $ 825 $ 560
=========== ==========
Nine months ending September 30
(in thousands) 2000 1999
----------- ----------
<S> <C> <C>
Balance beginning of period $ 715 $ -
Charge-offs (4) -
Recoveries
Provision charged to operations 114 560
----------- ----------
Balance September 30 $ 825 $ 560
=========== ==========
</TABLE>
At the end of September, the allowance for loan losses is 1.34% of outstanding
loans.
At September 30, 2000, the Company had a loan concentration of approximately
$13,522,000 in non-residential building operators and approximately $8,351,000
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
<PAGE> 11
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.
(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.
On September 27, 2000 MCB sold 34,043 shares of common stock, in a private
offering, at a price of $5.875 per share.
Subsequent to September 30, 2000, the Company sold 25,000 shares of common
stock, in a private offering, at a price of $10.00 per share.
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 September 30, 2000 the Company and the Banks employed 30 full-time and 4
part-time employees. The Company does not anticipate any significant staffing
increases in the next twelve months.
<PAGE> 12
(B) FINANCIAL CONDITION AND RESULTS OF OPERATION
Year-to-date Balance Sheet Comparison
Total assets at September 30, 2000 were $80.6 million compared to $59.8 million
at December 31, 1999, an increase of 35%. Total loans increased $14.8 million,
or 31.8%, during the first nine months of 2000. Commercial loans increased $10.1
million, or 26.0%, real estate loans increased $1.9 million, or 54.5%, and
consumer and lease financings increased $2.8 million or 65%, year-to-date. Total
deposits increased $21 million during the first nine months of 2000 with
interest-bearing deposits increasing $16.9 million, or 36.4% and
non-interest-bearing deposits increasing $4.0 million, or 77.2%. At September
30, 2000, brokered deposits totaled $8.6 million, or 11.8% of total deposits.
Quarter-to-Quarter Earnings Comparison
For the three months ended September 30, 2000 a net loss of $139,000 was
recorded versus $404,000 in the comparable period of 1999. The improvement in
earnings is primarily attributable to an increase of $495,000 in net interest
income after the provision for loan losses. A decrease in the loan loss
provision of $170,000 as compared to the prior year period is due to a decrease
in the rate of loan growth. Total loans increased $2.6 million during the third
quarter of 2000 as compared to an increase of $14.9 million during the
comparable period of 1999. Non-interest income increased $42,000 over the prior
year quarter primarily due to the increase in deposit accounts and the
associated service charges. Non-interest expense increased $272,000, or 44%,
over the third quarter of 1999 with personnel expenses increasing 61%, premises
and equipment expenditures increasing 42% and professional fees increasing 48%
due to legal fees related to the non-performing loan, which subsequent to
September 30, 2000, has been paid-off.
Year-to-date Earnings Comparisons
Total net loss year-to-date at September 30, 2000 was $567,000 as compared to
the year-to-date September 30, 1999 loss of $1,521,000, a 63% improvement. The
improved earnings resulted from an increase in net interest income of $1.2
million reflecting the continued growth in loans and deposits and the associated
margin. A decrease in the loan loss provision of $445,000 over the prior
year-to-date amount is partially due to a reduction in the rate of loan growth -
$14.8 million in the first nine months of 2000 versus $36.1 million during the
same period of 1999. The reduction in the loan loss provision year-to-date was
also influenced by a continuation of the strong economy, greater strength and
experience in our lending staff, and the quality of the loan portfolios.
Non-interest income increased $82,000, or 303%, due to service charges on
accounts as the deposit base continues to grow. Non-interest expense increased
$817,000, or 46%, in the year-to-date comparison with salaries and benefits
increasing 48% in part due to additional lending and business development
staffing. Professional fees also grew $115,000 with higher legal expenses
attributable to the non-performing loan, which subsequent to September 30, 2000,
has been paid-off.
<PAGE> 13
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> 14
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.
November 10, 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> 15
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
