10-Q 1 e10-q.txt FORM 10-Q 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 ------ ----- 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. 3 Michigan Community Bancorp Limited - Consolidated Balance Sheet

4 Michigan Community Bancorp Limited - Consolidated Income Statement

5 Michigan Community Bancorp Limited - Consolidated Income Statement

6 Michigan Community Bancorp Limited - Consolidated Statement of Changes in Shareholders' Equity

7 Michigan Community Bancorp Limited - Consolidated Statement of Cash Flows

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)

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)

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. 9 Note 3 - Loans Major classifications of loans are summarized as follows:

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.

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. 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.

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. 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% 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.

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 13 Exhibit Index -------------

MICHIGAN COMMUNITY BANCORP LTD 10-Q