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Washington, DC 20549
 | Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
or
 | Transition report under Section 13 or 15(d) of the Exchange Act |
Commission file number: 333-17317
Michigan (State or other jurisdiction of incorporation or organization) | 38-3318018 (I.R.S. employer identification no.) |
28300 Orchard Lake Road, Suite 200, Farmington Hills, MI 48334
(Address of principal executive offices)
248-538-2525
(Issuer’s telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: No:
At May 7, 2001 there were 1,488,764 shares of Common Stock of the issuer issued and outstanding.
Transitional Small Business Disclosure Format (check one): Yes: No:
TABLE OF CONTENTS
| PART I -- FINANCIAL INFORMATION | ||||||||
| PART II -- OTHER INFORMATION | ||||||||
| SIGNATURES | ||||||||
Table of Contents
Item 1. FINANCIAL STATEMENTS
Michigan Heritage Bancorp, Inc.
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(Unaudited)
| (000s omitted) | |||||||||||
| March 31, 2001 | December 31, 2000 | ||||||||||
| ASSETS | |||||||||||
| Cash and due from banks, noninterest bearing | $ | 1,528 | $ | 1,271 | |||||||
| Interest bearing deposits with banks | 3,009 | 3,981 | |||||||||
| Federal funds sold | 2,900 | 7,400 | |||||||||
| Cash and cash equivalents | 7,437 | 12,652 | |||||||||
| Securities available for sale | 10,750 | 12,078 | |||||||||
| Federal Reserve Bank Stock and other stock | 532 | 419 | |||||||||
| Total investments | 11,282 | 12,497 | |||||||||
| Loans, gross | 98,613 | 95,137 | |||||||||
| Less: allowance for loan losses | 1,856 | 1,887 | |||||||||
| Net loans | 96,757 | 93,250 | |||||||||
| Total earning assets | 113,948 | 117,128 | |||||||||
| Leasehold improvements, net | 276 | 288 | |||||||||
| Furniture & equipment, net | 525 | 554 | |||||||||
| Total fixed assets | 801 | 842 | |||||||||
| Interest receivable | 623 | 704 | |||||||||
| Deferred income taxes | 412 | 412 | |||||||||
| Other assets | 145 | 211 | |||||||||
| Total other assets | 1,180 | 1,327 | |||||||||
| Total assets | $ | 117,457 | $ | 120,568 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Total deposits | $ | 100,054 | $ | 106,660 | |||||||
| Other borrowed funds | 4,000 | 500 | |||||||||
| Other liabilities | 903 | 1,085 | |||||||||
| Total liabilities | 104,957 | 108,245 | |||||||||
| Stockholders’ Equity Preferred stock—no par value; 500,000 shares authorized, none issued and outstanding | 0 | 0 | |||||||||
| Common stock—no par value; 4,500,000 shares authorized, issued and outstanding— | |||||||||||
| 1,488,764 shares | 13,730 | 13,730 | |||||||||
| Accumulated deficit | (1,343 | ) | (1,471 | ) | |||||||
| Accumulated other comprehensive income | 113 | 64 | |||||||||
| Total stockholders’ equity | 12,500 | 12,323 | |||||||||
| Total liabilities and stockholders’ equity | $ | 117,457 | $ | 120,568 | |||||||
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Michigan Heritage Bancorp, Inc.
Consolidated Statement of Earnings
Three Month Periods Ended
March 31, 2001 and March 31, 2000
(Unaudited)
| (000s omitted except per share data) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2001 | 2000 | ||||||||||
| OPERATING INCOME: | |||||||||||
| Interest income | $ | 2,629 | $ | 2,260 | |||||||
| Interest expense | 1,596 | 1,280 | |||||||||
| Net interest income before provision for loan losses | 1,033 | 980 | |||||||||
| Less: provision for loan losses | 30 | 15 | |||||||||
| Net interest income after provision for loan losses | 1,003 | 965 | |||||||||
| Gain on sale of securities held available for sale | 44 | 0 | |||||||||
| Gain on sale of loans and other assets | 117 | 10 | |||||||||
| Other income | 26 | 31 | |||||||||
| Total other operating income | 187 | 41 | |||||||||
| Total operating income | 1,190 | 1,006 | |||||||||
| OTHER OPERATING EXPENSES: | |||||||||||
| Salaries and employee benefits | 578 | 461 | |||||||||
| Occupancy expense | 103 | 93 | |||||||||
| Equipment expense | 55 | 61 | |||||||||
| Data processing expense | 23 | 23 | |||||||||
| Insurance expense | 8 | 10 | |||||||||
| Advertising/promotion expense | 46 | 40 | |||||||||
| Office supplies and printing expense | 5 | 13 | |||||||||
| Professional fees | 80 | 56 | |||||||||
| FDIC assessment | 12 | 6 | |||||||||
| Lien, recording, and other loan fees, net | 15 | (3 | ) | ||||||||
| Michigan single business tax | 15 | 9 | |||||||||
| Other expense | 65 | 44 | |||||||||
| Total other operating expense | 1,005 | 813 | |||||||||
| Net operating income | 185 | 193 | |||||||||
| Provision for federal income taxes | 55 | 63 | |||||||||
| Net income | $ | 130 | $ | 130 | |||||||
Per Common Share Data | |||||||||||
| Net income per primary share | $ | 0.09 | $ | 0.09 | |||||||
| Net income per fully diluted share | $ | 0.09 | $ | 0.09 | |||||||
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Michigan Heritage Bancorp, Inc.
Consolidated Statement of Cash Flow
Three Month Periods Ended
March 31, 2001 and March 31, 2000
(Unaudited)
| (000s omitted) | |||||||||
| Three Months Ended March 31, | |||||||||
| 2001 | 2000 | ||||||||
| Operating activities: | |||||||||
| Net income | $ | 130 | $ | 130 | |||||
| Adjustments to reconcile net income to net cash provided in operating activities | (203 | ) | (559 | ) | |||||
| Net cash used by operating activities | (73 | ) | (429 | ) | |||||
| Investing activities: | |||||||||
| Purchase of U.S. Treasury and agency securities | — | (2,000 | ) | ||||||
| Proceeds from matured or called U.S. Treasury and agency securities | 1,500 | 500 | |||||||
| Purchase of other securities | (2,251 | ) | (1,625 | ) | |||||
| Proceeds from matured or called other securities | 2,250 | 800 | |||||||
| Purchase of Federal Reserve Bank and other stock | (105 | ) | (25 | ) | |||||
| Purchase of leasehold improvements, furniture and equipment | (10 | ) | (91 | ) | |||||
| Net change in gross loans | (3,420 | ) | (1,850 | ) | |||||
| Net cash used by investing activities | (2,036 | ) | (4,291 | ) | |||||
| Financing activities: | |||||||||
| Decrease in deposits | (6,606 | ) | (1,567 | ) | |||||
| Increase in borrowed funds | 3,500 | — | |||||||
| Net cash used by financing activities | (3,106 | ) | (1,567 | ) | |||||
| Decrease in cash and cash equivalents | (5,215 | ) | (6,287 | ) | |||||
| Cash and cash equivalents at beginning of year | 12,652 | 18,188 | |||||||
| Cash and cash equivalents at end of period | $ | 7,437 | $ | 11,901 | |||||
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Michigan Heritage Bancorp, Inc.
Notes to Financial Statements
March 31, 2001
Item 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Michigan Heritage Bancorp, Inc. (the “Company”) was incorporated in the State of Michigan on September 22, 1989. The Company was inactive from that time until its Articles of Incorporation were amended on November 6, 1996 into its current form. The Company is a bank holding company whose primary purpose is to own and operate Michigan Heritage Bank (the “Bank”) as the Bank’s sole stockholder. Organizational and other start-up costs were funded with loans from organizers. Proceeds from the Company’s initial public offering were primarily used to capitalize the Bank which is currently headquartered in Farmington Hills, Michigan. The Company completed an initial public offering of common stock during the first quarter of 1997, realizing a total of $10.9 million (after payment of underwriters’ commissions and offering expenses). During the fourth quarter of 1999, the Company completed a rights offering to existing shareholders raising $1.3 million in additional capital after payment of offering expenses. The consolidated financial statements of the Company include its only subsidiary, the Bank. All adjustments, which in the opinion of management are necessary in order to ensure that the interim financial statements are not misleading, have been included.
Basis of Presentation:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PRELIMINARY NOTE: The Company wishes to caution readers not to place undue reliance on any “forward-looking statements” contained in the following discussion and advises readers that 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. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
Results for the Quarter Ended March 31, 2001 Compared to the Quarter Ended March 31, 2000
The Company had net income of $130,000 for the quarter ending March 31, 2001. Net income for the same quarter last year was also $130,000. Net interest income before allowances for loan losses increased by $53,000 or 5% to $1,033,000 primarily due to a $12,667,000 or 12% increase in average earning assets offset partially by a reduction in net interest margin—3.65% for the first quarter 2001 compared to 3.86% for the first quarter 2000. Provision for loan losses increased by $15,000 to $30,000. As a combined result, net interest income after provision for loan losses increased $38,000 or 4% to $1,003,000.
Other operating income increased by $184,000 or 18% to $1,190,000 due mostly to a $107,000 increase in net gains on sale of loans due to the addition of a new mortgage division and a $44,000 increase on sale of securities held available for sale. Other miscellaneous income decreased by $5,000 from the quarter ended March 31, 2000.
Other operating expenses increased by $192,000 or 24% to $1,005,000. Salaries and employee benefits increased by $117,000 to $578,000 due to additional mortgage salaries and commissions expense. Occupancy expense increased by $10,000 to $103,000 due primarily to the new mortgage center in Farmington, Michigan. Professional fees went up by $24,000 to $80,000 due mostly to additional loan related legal fees. All other remaining expenses increased by a net $41,000 due mostly to increases in advertising, loan fees, FDIC assessments, and the Michigan single business tax.
The resulting income before federal income tax decreased by $8,000 to $185,000 compared to the same quarter last year. Federal income tax was $55,000 for the first quarter of 2001 compared to $63,000 for the same time period last year. The reduction in federal income tax due to tax exempt income was greater in 2001 than in 2000 due to an increase in tax exempt income in 2001.
Net income per average primary share outstanding was $0.09 for both quarters ended March 31, 2001 and 2000. On a fully diluted basis, net income per share was also $0.09 for both quarters ended March 31, 2001 and 2000.
Balance Sheet Change—March 31, 2001 From December 31, 2000
Total assets decreased by $3,111,000 or 3% to $117,457,000 from December 31, 2000 to March 31, 2001. Gross loans for the same 3-month time period increased by $3,476,000 or 4% to $98,613,000. The growth in loans was funded primarily from borrowed funds, investments, and cash and cash equivalents offset partially by a reduction in deposits. Borrowed funds increased by $3,500,000 to $4,000,000 in the form of notes payable to the Federal Home Loan Bank at March 31, 2001—there were only $500,000 in federal funds borrowed at December 31, 2000. Investments decreased by $1,215,000 or 10% to $11,282,000 due to securities maturing. Cash and cash equivalents decreased by $5,215,000 or 41% to $7,437,000 primarily due to a $4,500,000 reduction in federal funds sold. Deposits decreased by $6,606,000 or 6% to $100,054,000 due to the runoff of high yielding certificates of deposit.
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Loans and Allowances for Loan Losses
The categories of loans outstanding at March 31, 2001 in dollars and as a percentage of total loans are as follows:
| (000s omitted for dollars) | |||||||||
| Pct of total | |||||||||
| Loan Category | Amount | loans | |||||||
| Commercial, financial and agricultural | $ | 75,717 | 76.8 | % | |||||
| Real estate-construction | 4,859 | 4.9 | % | ||||||
| Real estate-mortgage | 14,913 | 15.1 | % | ||||||
| Installment loans to individuals | 543 | 0.6 | % | ||||||
| Lease financing | 2,581 | 2.6 | % | ||||||
| Total loans | $ | 98,613 | 100.0 | % | |||||
Note: There were no agricultural loans as of March 31, 2001
The change in mix and size of the loan portfolio from December 31, 2000 to March 31, 2001 has not increased the proportionate level of credit risk in the loan portfolio. Due to current and forecasted economic downturns, the level of risk in the loan portfolio has increased. However, management believes that this increased level of risk is not material relative to the level of risk in the past.
At March 31, 2001 there were $595,000 in non-accruing loans. There were five loans totaling $61,000 charged off against reserves during the first three months of 2001. There were $2,152,000 in accruing loans past due 30 days or more: $782,000 past due 30 to 59 days, $115,000 past due 60 to 89 days and $1,255,000 past due 90 days or more. Management fully expects that diligent servicing of these loans will minimize delinquencies.
Total loan loss reserves of $1,856,000 at March 31, 2001 were 1.88% of total loans, which included $557,000 in specific allowances. The following highlights the allocations of allowances for loan losses as of March 31, 2001.
| (000s omitted for dollars) | |||||||||||||
| Loan loss | Percent of loan | ||||||||||||
| allowance | Loan amounts | loss allowance | |||||||||||
| amount | outstanding | to loan amounts | |||||||||||
| Domestic: | |||||||||||||
| Commercial, financial and agricultural | $ | 1,308 | $ | 75,717 | 1.73 | % | |||||||
| Real estate-construction | 49 | 4,859 | 1.01 | % | |||||||||
| Real estate-mortgage | 131 | 14,913 | 0.88 | % | |||||||||
| Installment loans to individuals | 7 | 543 | 1.29 | % | |||||||||
| Lease financing | 21 | 2,581 | 0.81 | % | |||||||||
| Foreign | — | — | 0.00 | % | |||||||||
| Off-balance sheet items and unallocated | 340 | — | n/a | ||||||||||
| Total | $ | 1,856 | $ | 98,613 | 1.88 | % | |||||||
Note: There were no agricultural loans as of March 31, 2001
In management’s opinion, the total loan reserve position is adequate relative to the overall quality of the loan portfolio.
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Liquidity and Capital Resources
Michigan Heritage Bank’s current cash projections as of March 31, 2001 indicate adequate cash balances. The Bank has additional line of credit facilities with national lending institutions to add funding capacity. Bank management has also established a network of banks that can be used to sell or participate a portion of the Bank’s loan portfolio. These techniques allow the Bank to service its business relationships and generate fee and servicing revenue.
The Company’s liquidity remained adequate during the 3-month period ended March 31, 2001. Michigan Heritage Bancorp had $7,437,000 in cash and cash equivalents as of March 31, 2001 including $3,009,000 in interest bearing deposits in other banks and $2,900,000 in federal funds sold. The Bank has proven its ability to attract deposits and build a stable deposit base from which to fund loans. In addition, the Bank is now a member of the Federal Home Loan Bank of Indianapolis, Indiana and as of March 31, 2001 had $4,000,000 in notes payable to the Federal Home Loan Bank at a weighted average rate of 4.81%.
Michigan Heritage Bank is subject to various regulatory capital requirements. To be considered adequately-capitalized or well-capitalized, Michigan Heritage Bank must maintain a Tier 1 leverage capital ratio of 4.0% and 5.0%, respectively. The Bank’s Tier 1 leverage capital ratios were 9.7% and 9.5% at March 31, 2001 and December 31, 2000, respectively. Michigan Heritage Bank plans to remain well-capitalized on an ongoing basis.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No exhibits have been filed for this report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this report is filed.
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In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MICHIGAN HERITAGE BANCORP, INC. | |||
| By: | /s/ Anthony S. Albanese | ||
| Anthony S. Albanese President and Chief Operating Officer | |||
| And: | /s/ Darryle J. Parker | ||
| Darryle J. Parker Secretary, Treasurer, and Chief Financial Officer (Duly authorized officer) |
DATED: May 7, 2001
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