Michigan Heritage Bancorp, Inc. Reports Second Quarter and Six-Month Results

2008-08-13 13:45:00

    FARMINGTON HILLS, Mich., Aug. 13 /EMWNews/ -- Michigan

Heritage Bancorp, Inc. (OTC Bulletin Board: MHBC), the holding company for

Michigan Heritage Bank, today announced a net loss of $1,315,000 or $0.87

per diluted share for the second quarter of 2008, compared to a net loss of

$12,000 or $0.01 per diluted share for the same quarter of 2007. For the

six-months ending June 30, 2008, the net loss was $1,488,000 or $0.99 per

diluted share compared with net income of $78,000 or $0.05 per diluted

share for the same six-month period of 2007. Total assets as of June 30,

2008 were $180,702,000, representing a decrease of $6,077,000 or 3.25% from

December 31, 2007 and a decrease of $572,000, or 0.3% from June 30, 2007.

    Net income for the six months ended June 30, 2008 was largely impacted

by the increase of loan loss provision of $1,740,000. This provision was

largely centered on three loans to local real estate developers. Net charge

offs for the six-month period ended June 30, 2008 were $1,491,000, compared

to a net recovery of $67,000 for the same six-month period of 2007. The

Bank's allowance for loan losses increased from $1,851,000 or 1.28% of

loans as of June 30, 2007 to $3,687,000 or 2.61% of loans as of June 30,


    The Bank anticipates that future increases to loan loss provisions may

be required in the third and fourth quarters of 2008. While the Bank is

carefully evaluating any potential increases in loan loss provisions, it is

unclear whether such increases would result in a material impact upon the

Bank's overall capital position.

    Raymond A. Biggs, the Bank's President and CEO, commented, "The

challenges MHB faces will likely continue throughout 2008 and into 2009, as

the local economy in Southeastern Michigan suffers from high unemployment,

declining real estate values, and further softness in the auto industry.

The distressed economic environment in Michigan continues to weigh heavily

on general business activity. We are not unique in our situation, as many

banks are experiencing similar stresses. While our challenges are not due

to defaulted residential loans, they are primarily centered on 10 to 12

commercial loan relationship, which all have commercial real estate as the

underlying collateral. With a lack of general economic activity, it is

proving to be very difficult to pursue traditional paths when working out

of these problem loans. We have taken steps to shore up collateral, require

more equity and collateral from our borrowers and look for avenues to sell

problem loans, where appropriate, and are taking additional measures to

ensure the Bank is prepared if the economic stress continues."

    Mr. Biggs continued, "During this time the entire management team has

worked diligently to closely monitor the quality of the loan portfolio and

frequently assess each of our problem loans and take steps to minimize

future losses. Management also consolidated branch locations from five to

four, reduced overall head-count from 45 in 2006 to 34 as of June 30, 2008

and took other steps that it anticipates will reduce future-operating

expenses by over $900,000 annually. Offsetting the cost reductions were

other expenses that increased during this period, primarily due to

professional and other expenses associated with loan issues. Management

expects the full benefit of cost reductions to be realized in the future.

    "We look forward to many years of building our Bank's business and

consumer banking relationships, and being a good corporate neighbor in the

communities in which we serve."


    Total assets as of June 30, 2008 were $180,702,000, compared to

$186,779,000 at December 31, 2007, a decrease of $6,077,000, or 3.25%.

    Total net loans as of June 30, 2008 were $137,568,000, compared to

$149,919,000, at December 31, 2007 a decrease of $12,351,000, or 8.24%.

    Total deposits were $147,558,000 as of June 30, 2008 compared to

$146,386,000 from a December 31, 2007 an increase of $1,172,000, or 0.80%.

    Michigan Heritage Bank is a state chartered, full-service commercial

bank and wholly owned subsidiary of Michigan Heritage Bancorp, Inc. A

member of both the Federal Reserve System and the Federal Home Loan Bank,

deposits are FDIC insured. Michigan Heritage operates from branch offices

in Farmington Hills, Novi, Troy and Wixom. Michigan Heritage Bancorp stock

trades on the over-the-counter (OTC) market and quotations are reported on

the OTC Bulletin Board under the symbol "MHBC".

    Safe Harbor. This press release contains "forward looking statements"

within the meaning of the federal securities law regarding proposed

developments and operations of the Company. These statements represent the

Company's expectations of beliefs concerning future events. Statements

containing expressions such as "believes", "anticipates" or "expects" are

intended to identify such forward-looking statements. All forward-looking

statements involve risks and uncertainties. Although the Company believes

its expectations are based upon reasonable assumptions with the bounds of

its knowledge of its business and operations, there can be no assurance

with the bounds of its knowledge of its business and operations that actual

results will not materially differ from expected results. The Company

cautions that these and similar statements are further qualified by

important factors that could cause actual results to differ materially from

those in the forward- looking statements, 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. The Company does not undertake and

specifically disclaims any obligation to update any forward-looking

statements, to reflect occurrences or unanticipated events of circumstances

after the date of such statements.

(financial schedules follow) Michigan Heritage Bancorp, Inc. Consolidated Statement of Earnings '000 Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Operating income: (Unaudited) (Unaudited) Interest income $2,777 $3,464 $6,083 $6,858 Interest expense 1,503 1,818 3,344 3,637 Net interest income 1,274 1,646 2,739 3,221 Provision for credit losses 1,620 60 1,740 120 Net interest income after provision for credit losses (346) 1,586 999 3,101 Noninterest income: Gain / loss on sale of securities held available for sale 1 (3) 18 (3) Gain on sale of loans and other assets 24 0 40 129 Other income 70 55 156 152 Total noninterest income 95 52 214 278 Noninterest expense: Salaries and employee benefits 684 743 1,408 1,584 Occupancy expense 172 186 351 375 Other expense 808 628 1,532 1,152 Total noninterest expense 1,664 1,557 3,291 3,111 Income before income taxes and minority interest (1,915) 81 (2,078) 268 Minority interest 86 99 184 160 Income taxes (686) (6) (774) 30 Net income $(1,315) $(12) $(1,488) $78 Net income per share: Basic earnings per share $(0.87) $(0.01) $(0.99) $0.05 Diluted earnings per share $(0.87) $(0.01) $(0.99) $0.05 Michigan Heritage Bancorp, Inc. Condensed Balance Sheet '000 June 30, December 31, June 30, 2008 2007 2007 (Unaudited) (Audited) (Unaudited) Assets Cash and cash equivalents $2,986 $2,448 $1,646 Investments 32,812 28,047 30,896 Loans: less deferred fees ($120, $111, $77) 141,255 153,357 144,817 Allowance for loan / lease losses (3,687) (3,438) (1,851) Other assets 7,336 6,365 5,766 Total assets $180,702 $186,779 $181,274 Liabilities and stockholders' equity Deposits $147,558 $146,386 $151,283 Other borrowed funds 19,200 23,600 10,550 Other liabilities 319 1,415 2,661 Stockholders' equity 13,625 15,378 16,780 Total liabilities and stockholders' equity $180,702 $186,779 $181,274 Supplementary data Total loan loss reserve ratio 2.61 % 2.24 % 1.28 % Total loans to asset ratio 78 % 82 % 80 % Net charge-off to total loans ratio 1.05 % 0.45 % -0.05 % Tier 1 leverage ratio 7.28 % 8.03 % 9.35 % Net interest margin 2.88 % 3.36 % 3.70 % Book value per share $9.02 $10.18 $11.00

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