[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number: 333-63685
CLARKSTON FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
| MICHIGAN (State of other jurisdiction of incorporation or organization) | 38-3412321 (I.R.S. Employer Identification No.) |
15 South Main Street, Clarkston, Michigan 48346
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 625-8585
Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 X No
The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,026,012 shares of the Company’s Common Stock (no par value) were outstanding as of March 31, 2002.
Transitional Small Business Disclosure Format (check one): Yes No X
| Page Number(s) | ||
| Part I. | Financial Information (unaudited): | |
| Item 1. Consolidated Financial Statements............................................................. Notes to Consolidated Financial Statements.............................................. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... | 3-7 8-11 12-14 | |
| Part II. | Other Information: | |
| Item 1. Legal Proceedings........................................................................................ Item 2. Changes in Securities and Use of Proceeds................................................. Item 3. Defaults Upon Senior Securities................................................................. Item 4. Submission of Matters to a Vote of Security Holders................................ Item 5. Other Information....................................................................................... Item 6. Exhibits and Reports on Form 8-K............................................................. | 15 15 15 15 15 15 | |
| Signatures | ..................................................................................................................... | 16 |
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CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
March 31, 2001 (unaudited) and December 31, 2001
(dollars in thousands, except per share data)
March 31, December 31,
2002 2001
-------- --------
(unaudited)
ASSETS
Cash and Cash Equivalents
Total cash and due from banks............................. $ 1,503 $ 1,856
Federal funds sold....................................... 2,872 3,975
-------- --------
Total Cash and Cash Equivalents...................... 4,375 5,831
Securities Held to Maturity...................................... 5,602 5,605
Securities Available for Sale, at fair value..................... 44,565 36,905
Loans, less Loan Loss Reserve
Total loans............................................... 35,658 34,455
Allowance for loan losses................................. (434) (419)
--------- --------
Net Loans................................................. 35,224 34,036
Net Property and Equipment....................................... 776 794
Accrued interest receivable...................................... 619 441
Deferred Tax Asset............................................... 396 140
Other Assets..................................................... 183 168
-------- --------
Total Assets......................................... $ 91,742 $ 83,920
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing....................................... 9,636 9,230
Interest-bearing.......................................... 72,583 64,930
-------- --------
Total deposits....................................... 82,219 74,160
Accrued Expenses and Other Liabilities.................... 1,227 1,093
Shareholders' Equity
Common stock, no par value: 10,000,000
Shares authorized; 1,026,012 shares
issued and outstanding as of March 31,
2002 and December 31, 2001.......................... 4,306 4,306
Capital surplus........................................... 4,306 4,306
Retained Earnings......................................... 213 88
Accumulated other comprehensive income (loss)............. (531) (33)
--------- --------
Total Shareholder Equity............................ 8,294 8,667
-------- --------
Total Liabilities and Shareholders' Equity......... $ 91,742 $ 83,920
======== ========
See accompanying notes to consolidated financial statements
3
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Three Month Periods Ended March 31, 2002 and March 31, 2001
(dollars in thousands, except per share data)
(unaudited)
Three Months Three Months
Ended Ended
March 31, 2002 March 31, 2001
-------------- --------------
Interest Income
Loans, including fees .................................. $ 692 $ 577
Securities.............................................. 663 465
Federal Funds sold...................................... 18 62
--------- ---------
Total interest income.............................. 1,373 1,104
Interest Expense
Deposits................................................ 620 612
Other................................................... 0 0
--------- ---------
Total interest expense............................. 620 612
Net Interest Income............................................ 753 492
Provision for loan losses..................................... 15 17
--------- ---------
Net interest income
After provision for loan losses................................ 738 475
Noninterest income 75
Gains (losses) on sale of securities...................... 20 21
Other income.............................................. 85 54
--------- ---------
Total noninterest income........................... 105 75
Noninterest expense
Salaries and benefits..................................... 343 197
Occupancy expense of premises............................. 63 38
Furniture and equipment expense........................... 46 32
Computer and data processing expenses..................... 60 47
Advertising and public relations.......................... 19 18
Professional fees......................................... 42 36
Amortization of deposit premium
and conversion cost................................... 8 6
Other expense............................................. 65 10
--------- ---------
Total noninterest expense.......................... 646 384
--------- ---------
Profit before federal income tax............................... 197 166
Federal income tax............................................. 72 52
--------- ---------
Net profit .................................................... $ 125 $ 114
========= =========
Basic and diluted profit per share............................. $ .12 $ .11
========= ==========
See accompanying notes to consolidated financial statements
4
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three Month Periods Ended March 31, 2002 and March 31, 2001
(dollars in thousands)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2002 March 31, 2001
-------------- --------------
Net Profit as Reported......................................... $ 125 $ 114
Other Comprehensive Income (Loss), Net of Tax:
Change in unrealized gain / loss on securities
available for sale.................................. (498) 23
---------- ----------
Comprehensive Profit (Loss).................................... $ (373) $ 137
========== ==========
See accompanying notes to consolidated financial statements
5
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months ended March 31, 2002
(dollars in thousands)
(Unaudited)
Accumulated
Other Total
Common Capital Retained Comprehensive Shareholders'
Stock Surplus Earnings Income Equity
--------- ------- -------- ------------------ ----------
Balance December 31, 2001..................... $ 4,306 $ 4,306 $ 88 $ (33) $ 8,667
Net income for three months
Ended March 31, 2002 (unaudited).............. 125 125
Decrease in fair market value of securities
available for sale............................ 0 0 0 (498) (498)
-------- ------- ------- --------- ----------
Balance March 31, 2002........................ $ 4,306 $ 4,306 $ 213 $ (531) $ 8,294
======== ======= ======= ========= ==========
See accompanying notes to consolidated financial statements
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CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months ended March 31, 2002 and March 31, 2001
(dollars in thousands)
(unaudited)
Three Months Three Months
Ended Ended
March 31, 2002 March 31, 2001
-------------- --------------
Net Cash Provided by Operating Activities:
Net cash provided by operating activities................ $ 40 $ 235
Cash Flows from Investing Activities:
Net increase in loans.................................... (1,203) (1,630)
Purchase of held-to-maturity securities.................. 0 0
Proceeds from maturities of held-to-maturity securities.. 0 0
Proceeds from sales of held-to-maturity securities....... 0 5,306
Purchase of available-for-sale securities................ (9,343) (2,394)
Proceeds from sales of available-for-sale securities..... 1,001 3,510
Property and equipment expenditures...................... (10) (242)
--------- ---------
Net cash provided by investing activities................ (9,555) 4,550
Cash Flows from Financing Activities:
Increase in deposits..................................... 8,059 (799)
--------- ---------
Net increase in cash and cash equivalents.................... (1,456) 3,986
Cash and cash equivalents at beginning of year............... 5,831 3,412
--------- ---------
Cash and cash equivalents at March 31, 2002 and 2001......... $ 4,375 7,398
========= =========
See accompanying notes to consolidated financial statements
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CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 (unaudited) and December 31, 2001
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Proxy Statement dated April 1, 2002 containing audited financial statements as of December 31, 2001, 2000 and 1999.
Basic earnings (loss) per share is based on net income (loss) divided by the weighted average number of shares outstanding during the period.
NOTE 3 – PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Clarkston Financial Corporation (the "Company"), and its wholly-owned subsidiary, Clarkston State Bank (the "Bank"). All significant intercompany accounts and transactions have been eliminated in consolidation.
8
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 (unaudited) and December 31, 2001
The amortized cost and fair values of securities were as follows (dollars in thousands):
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
March 31, 2002 (Unaudited)
--------------------------
Taxable variable rate demand
Municipal revenue bonds,
Short term corporate
Commercial paper, and bonds
of government agencies........... $ 45,369 $ 267 $ (1,071) $ 44,565
======== ======== ========= ========
March 31, 2002 (Unaudited)
--------------------------
Taxable variable rate demand
Municipal revenue bonds,
Short term corporate
Commercial paper, and bonds
of government agencies........... $ 5,602 $ 4 $ (93) $ 5,513
======== ======== ========= ========
Contractual maturities of debt securities at March 31, 2002, were as follows. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale Securities
-------------------------------
Amortized Estimated
Cost Market Value
--------- ------------
(dollars in thousands)
Due from 2002 to 2003................................ $ 0 $ 0
Due from 2003 to 2005................................ 0 0
Due from 2005 to 2007................................ 1,316 1,311
Due from 2007 to 2032................................ 44,053 43,254
------- -------
$45,369 $44,565
======= =======
Held-To-Maturity
-------------------------------
Amortized Estimated
Cost Market Value
--------- ------------
Due from 2002-2003................................... $ 0 $ 0
Due from 2003-2005................................... 0 0
Due from 2005-2007................................... 0 0
Due from 2007-2032................................... 5,602 5,513
------- -------
$ 5,602 $ 5,513
======= =======
(Continued)
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CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 (unaudited) and December 31, 2001
NOTE 5 - LOANS
Loans are as follows (dollars in thousands):
March 31, December 31,
2002 2001
------------ ----------
(unaudited)
Commercial............................................. $ 26,993 $ 25,299
Mortgage............................................... 4,819 5,441
Consumer............................................... 3,846 3,715
-------- --------
35,658 34,455
Allowance for loan losses.............................. 434 419
-------- --------
$ 35,224 $ 34,036
======== ========
Activity in the allowance for loan losses is as follows (dollars in thousands):
Three months For the
Ended Year Ended
March 31, 2002 December 31,
(Unaudited) 2001
----------- ----------
Balance at beginning of period......................... $ 419 $ 379
Provision charged to operating expense.......... 15 90
Net loans (charge-offs) recoveries..................... 0 (50)
----- --------
Balance at end of period............................... $ 434 $ 419
===== ========
Allowance for loan losses as a percentage of
loans at end of period.......................... 1.22% 1.21%
===== ========
(Continued)
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CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 (unaudited) and December 31, 2001
Accumulated Carrying
Cost Depreciation Value
---- ------------ -------
March 31, 2002 (unaudited)
- --------------------------
Building and improvements.............................. $ 404 $ 62 $ 342
Furniture and equipment................................ 662 228 434
------- ------- ------
$ 1,066 $ 290 $ 776
======= ======= ======
December 31, 2001
- -----------------
Building and improvements.............................. $ 404 $ 57 $ 347
Furniture and equipment................................ 652 205 447
------- ------- ------
$ 1,056 $ 262 $ 794
======= ======= ======
Interest-bearing deposits are summarized as follows (dollars in thousands):
March 31, December 31,
2002 2001
------------ ----------
Demand deposit accounts....................................... $ 2,755 $ 2,233
Money market accounts......................................... 21,340 17,291
Savings accounts.............................................. 5,935 5,692
Certificates of Deposit....................................... 42,553 39,714
-------- --------
$ 72,583 $ 64,930
======== ========
(Continued)
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| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
General
Clarkston Financial Corporation (the "Company") is a Michigan corporation incorporated on May 18, 1998. The Company is the bank holding company for Clarkston State Bank (the "Bank"). The Bank commenced operations on January 4, 1999. The Bank is a Michigan chartered bank with depository accounts insured by the Federal Deposit Insurance Corporation. The Bank provides a full range of commercial and consumer banking services, primarily in Clarkston, Michigan and the surrounding market area primarily located in north Oakland County, Michigan. The Bank operates five customer service locations including two full service branches.
Financial Condition
Total assets of the Company increased by $7.8 million or 9.3% to $91.7 million at March 31, 2002, from $83.9 million at December 31, 2001. The increase in assets is primarily attributable to the Bank continuing to attract customer deposits. The Company anticipates that the Bank's assets will continue to increase during 2002, which is the Bank's fourth full year of operations.
Cash and cash equivalents, which include federal funds sold and short-term investments, decreased $1.4 million or 24.1% to $4.4 million at March 31, 2002 from $5.8 million at December 31, 2001. The decrease is primarily the result of reinvesting cash into investments in an effort to get better utilization and additional spread income.
Securities increased $7.7 million or 18.1% to $50.2 million at March 31, 2002 from $42.5 million at December 31, 2001. The increase is the result of deposit growth and efforts to increase spread income by keeping less cash in federal funds.
Total loans increased by $1.2 million or 3.5% to $35.7 million at March 31, 2002, from $34.5 million at December 31, 2001. Management believes that total loans will continue to increase over time as economic and local market conditions improve.
The allowance for loan losses as of March 31, 2002 was $434,000, representing approximately 1.22% of total loans outstanding, compared to $419,000 as of December 31, 2001.
As of December 31, 2001, the Company had an accumulated profit of $88,000 and as of March 31, 2002, the accumulated profit was $213,000. The accumulated profit continues to improve as the Bank has increased its net interest and non-interest income while continuing to maintain low operating expenses.
12
Results of Operations
The Company's net profit was $125,000 for the first quarter of 2002 compared to net profit of $114,000 for the first quarter of 2001. The Bank began operations in 1999 and has earned a profit every month since January, 2000. Net profit for the three month period ended March 31, 2002 included a federal income tax provision of $72,000.
Interest income for the first quarter of 2002 was $1.37 million, an increase of 24.5% from interest income of $1.1 for the first quarter of 2001. This increase resulted primarily from the increase in loans and securities. Interest expense was $620,000 for the three months ended March 31, 2002, an increase of 1.3% from interest expense of $612,000 for the three months ended March 31, 2002. This consisted of interest paid on interest bearing deposits.
The Company had an allowance for loan losses of approximately 1.22% of total loans at March 31, 2002. The provision expense for loan loss for the three month period ended March 31, 2002, was $15,000. Management believes the current rate of providing for the loan loss reserve is adequate.
In each accounting period, management evaluates the problems and potential losses in the loan portfolio. Moreover, consideration is also given to off-balance sheet items that may involve credit risk, such as commitments to extend credit. Management's evaluation of the allowance is further based on consideration of actual loss experience, the present and prospective financial condition of borrowers, adequacy of collateral, industry concentrations within the portfolio and general economic conditions. The results of these evaluations are reflected in the allowance and periodic provision for credit losses. Please note, the Bank has no other off-balance sheet liabilities other than commitments to extend credit in the form of letters and lines of credit
The primary risk element considered by management regarding each installment and residential real estate loan is the lack of timely payments. Management has a reporting system that monitors past due loans and has adopted policies to pursue its creditor's rights in order to preserve the Bank's position. The primary risk elements concerning commercial loans are the financial condition of the borrower, the sufficiency of the collateral and lack of timely payment. Management has a policy of requesting and reviewing annual financial statements from its commercial loan customers and periodically reviews the existence and value of collateral for selected loans.
Noninterest expense was $646,000 for the first quarter of 2002, a $262,000 (or 68.2%) increase over the first quarter of 2001, the increase is primarily attributable to increases in salaries and benefits due to the increase of full time equivalents and normal raises given to employees. These increases are consistent with management's plans to grow the balance sheet as noted by the opening of several offices during 2001.
13
Liquidity and Capital Resources
Liquidity is measured by our ability to raise funds through deposits, borrowed funds, capital or cash flow from the repayment of loans and investment securities. These funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and support our operations. Liquidity is primarily achieved through the growth of deposits and liquid assets such as securities available for sale, matured securities, and federal funds sold. Asset and liability management is the process of managing our balance sheet to achieve a mix of earning assets and liabilities that maximizes profitability, while providing adequate liquidity.
Our liquidity strategy is to fund loan growth with deposits and to maintain an adequate level of short- and medium-term investments to meet typical daily loan and deposit activity. Although deposits from depositors located in our market area have consistently increased, there is no assurance that deposit growth alone will be sufficient to fund our loan growth and provide monies for additional investing activities.
Shareholders' equity is a non-interest bearing source of funds that provides support for asset growth. The Company obtained its initial equity capital in an initial public offering of its common stock in November, 1998. The Company's plan of operation for the next twelve months does not contemplate the need to raise additional capital during that period. Management believes that its current capital and liquidity will provide the Company with adequate capital to support its expected level of deposit and loan growth and to otherwise meet its cash and capital requirements for at least the next year.
Forward Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company and the subsidiaries include, but are not limited to, changes in: interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in the Company's market area and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission.
14
PART II - OTHER INFORMATION
| Item 1. | Legal Proceedings. |
| From time to time, we may be involved in various legal proceedings that are incidental to our business. In our opinion, we are not a party to any current legal proceedings that are material to our financial condition, either individually or in the aggregate. | |
| Item 2. | Changes in Securities and Use of Proceeds. |
| None. | |
| Item 3. | Defaults Upon Senior Securities. |
| None. | |
| Item 4. | Submission of Matters to a Vote of Securities Holders. |
| None. | |
| Item 5. | Other Information. |
| None. | |
| Item 6. | Exhibits and Reports on Form 8-K. |
| (a) (b) | Exhibits - Reports on Form 8-K - None. |
15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002, to be signed on its behalf by the undersigned, thereunto duly authorized.
| CLARKSTON FINANCIAL CORPORATION /s/ David T. Harrison David T. Harrison President and Chief Executive Officer /s/ J. Grant Smith J. Grant Smith Chief Financial Officer |
DATE: May 15, 2002
16