SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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 38-3412321
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) 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: 931,600 shares of the Company's Common
Stock (no par value) were outstanding as of March 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes ____ No __X__
INDEX
Page
Number(s)
Part I. Financial Information (unaudited):
Item 1.
Consolidated Financial Statements 3-7
Notes to Consolidated Financial Statements 8-11
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
Part II. Other Information
Item 1.
Legal Proceedings 15
Item 2.
Changes in Securities and Use of Proceeds 15
Item 3.
Defaults Upon Senior Securities 15
Item 4.
Submission of Matters to a Vote of Securities Holders 15
Item 5.
Other Information 15
Item 6.
Exhibits and Reports on Form 8-K 15
Signatures 16
2
Part I Financial Information (unaudited)
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2000 (unaudited) and December 31,
1999 (dollars in thousands, except per share data)
March 31, December 31,
2000 1999
---------- ------------
(Unaudited)
ASSETS
Cash and Cash Equivalents
Total cash and due from banks $ 1,323 $ 867
Federal funds sold 850 1,600
------------ -----------
Total Cash and Cash Equivalents 2,173 2,467
Securities Held to Maturity 5,115 9,604
Securities Available for Sale, at fair value 11,807 9,294
Loans, less Loan Loss Reserve
Total loans 14,969 11,263
Allowance for loan losses 175 140
------------ -----------
Net Loans 14,794 11,123
Net Property and Equipment 318 337
Accrued interest receivable 186 256
Deposit premium and conversion costs,
net of amortization 167 173
Other Assets 11 12
------------ -----------
Total Assets $ 34,571 $ 33,266
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing 2,716 2,671
Interest-bearing 23,806 22,595
------------ -----------
Total deposits 26,522 25,266
Accrued Expenses and Other Liabilities 217 163
Shareholders' Equity
Common stock, par value: 10,000,000
Shares authorized, 931,600 and 931,600 shares
Issued and outstanding as of March 31, 2000
and December 31, 1999, respectively 4,306 4,306
Capital surplus 4,306 4,306
Accumulated deficit (756) (753)
Accumulated other comprehensive income (24) (22)
------------
Total Shareholder Equity 7,832 7,837
------------ -----------
Total Liabilities and Shareholders' Equity $ 34,571 $ 33,266
============ ============
See accompanying notes to consolidated financial statements
3
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
Three months ended March 31, 2000 and March 31,
1999 (dollars in thousands, except per share data)
(unaudited)
Three Months Three Months
ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
Interest Income
Loans, including fees $ 273 $ 7
Securities 296 58
Federal Funds sold 26 66
--------- ---------
Total interest income 595 131
Interest Expense
Deposits 259 25
Other -- --
--------- ---------
Total interest expense 259 25
Net Interest Income 336 106
Provision for loan losses 33 18
--------- ---------
Net interest income after provision for loan losses 303 88
Noninterest income 32 6
Noninterest expense
Salaries and benefits 163 131
Occupancy expense of premises 32 21
Furniture and equipment expense 20 20
Computer and data processing expenses 32 36
Advertising and public relations 34 36
Professional fees 30 23
Amortization of deposit premium and conversion cost 6 2
Other expense 21 13
--------- ---------
Total noninterest expense 338 282
--------- ---------
Loss before federal income tax (3) (188)
Federal income tax 0 0
--------- ---------
Net loss $ (3) (188)
========= =========
Basic and diluted loss per share $ 0 $ (.20)
========= =========
See accompanying notes to consolidated financial statements.
4
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Three months ended March 31, 2000 and March 31, 1999
(dollars in thousands)
(Unaudited)
Three Months Three Months
ended ended
March 31, 2000 March 31, 1999
-------------- --------------
Net Loss as Reported $ (3) $ (188)
Other Comprehensive Income, Net of Tax:
Change in unrealized gain on securities
available for sale (2) 0
---------- -----------
Comprehensive Loss $ (5) $ (188)
========== ===========
See accompanying notes to consolidated financial statements.
5
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 2000
(dollars in thousands)
(Unaudited)
Accumulated
Other Total
Common Capital Accumulated Comprehensive Shareholders'
Stock Surplus Deficit Income Equity
-------- ------- ----------- ------------- --------------
Balance December 31, 1999 $ 4,306 $ 4,306 $ (753) $ (22) $ 7,837
Net income (loss) for three months
Ended March 31, 2000 (unaudited) (3) (3)
Increase (decrease) in fair market value of
securities available for sale ( 2) (2)
--------- --------- --------- -------- ---------
Balance March 31, 2000 $ 4,306 $ 4,306 $ (756) $ (24) $ 7,832
========= ========= ========= ======== =========
See accompanying notes to consolidated financial statements.
6
CLARKSTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Three months ended March 31, 2000
(dollars in thousands)
(unaudited)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
Net Cash Provided by (used in) Operating Activities:
Net cash used in operating activities $ 185 $ (297)
Cash Flows from Investing Activities:
Net increase in loans (3,706) (1,430)
Net (increase) decrease in securities 1,974 (6,371)
Equipment expenditures (3) (70)
------- -------
Net cash used in investing activities (1,735) (7,871)
Cash Flows from Financing Activities:
Increase in deposits 1,256 4,916
------ ------
Net decrease in cash and cash equivalents (294) (3,252)
Cash and cash equivalents at beginning of year 2,467 8,442
------- -------
Cash and cash equivalents at March 31, 2000 and 1999 $ 2,713 $ 5,190
======= =======
See accompanying notes to consolidated financial statements.
7
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (unaudited) and December 31, 1999
NOTE 1 BASIS OF PRESENTATION
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, 2000, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Proxy Statement dated March 20, 2000 containing audited financial
statements for the period from May 18, 1998 (date of inception), through
December 31, 1999.
NOTE 2 COMPUTATION OF EARNINGS PER SHARE
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, 2000 (unaudited) and December 31, 1999
NOTE 4 - SECURITIES
The amortized cost and fair values of securities were as follows (dollars in
thousands):
Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
March 31, 2000 (Unaudited)
Taxable variable rate demand
Municipal revenue bonds,
short term corporate
commercial paper, and bonds
of government agencies $ 5,139 $ 0 $ (24) $ 5,115
======== ========= ========= =======
Held to Maturity
March 31, 2000 (Unaudited)
Taxable variable rate demand
municipal revenue bonds,
short term corporate
commercial paper, and bonds
of government agencies $ 11,807 $ 0 $ (75) $11,732
======== ========= ========= =======
Contractual maturities of debt securities at March 31, 2000, 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
-------------------------------
Estimated
Amortized Market
Cost Value
--------- --------
(dollars in thousands)
Due from 2000 to 2001 $ 5,139 $ 5,115
$ 5,139 $ 5,115
======== ========
Held-To-Maturity
---------------------------
Estimated
Amortized Market
Cost Value
----------- ----------
Due from 2000-2003 $3,834 $3,884
Due from 2004-2006 5,976 5,866
Due from 2006-2020 1,997 1,982
===== =====
11,807 11,732
====== ======
(Continued)
9
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (unaudited) and December 31, 1999
NOTE 5 - LOANS
Loans are as follows (dollars in thousands):
March 31 December 31,
2000 1999
-------------- -------------
(Unaudited)
Commercial $ 8,583 $ 5,936
Mortgage 2,808 2,529
Consumer 3,628 2,798
-------------- -------------
14,969 --
Allowance for loan losses 175 140
-------------- -------------
$ 14,794 $ 11,123
============== =============
Activity in the allowance for loan losses is as follows (dollars in thousands):
Three months For the
Ended Year Ended
March 31 December 31,
2000 1999
---------- ------------
(Unaudited)
Balance at beginning of period $ 140 $ 0
Provision charged to operating expense 33 142
Net loans (charged offs) recoveries 2 (2)
--------- ---------
Balance at end of periods $ 175 $ 140
========= =========
Allowance for loan losses as a percentage of
loans at end of period 1.17% 1.24%
========= ==========
(Continued)
10
CLARKSTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (unaudited) and December 31, 1999
NOTE 6 - PREMISES AND EQUIPMENT - NET
Premises and equipment are as follows (dollars in thousands):
Accumulated Carrying
Cost Depreciation Value
---- ------------ -----
March 31, 2000 (unaudited)
Building and improvements $ 87 $ 6 $ 81
Furniture and equipment 335 98 237
--------- ---------- ----------
$ 422 $ 104 $ 318
========= ========== ==========
December 31, 1999
Building and improvements $ 87 $ 5 $ 82
Furniture and equipment 332 77 255
--------- ---------- ----------
$ 419 $ 82 $ 337
========= ========== ==========
NOTE 7 - DEPOSITS
Interest-bearing deposits are summarized as follows (dollars in thousands):
March 31, December 31,
2000 1999
---------- ------------
Demand deposit accounts $ 3,780 $ 3,111
Money market accounts 1,649 1,908
Savings accounts 5,978 6,170
Certificates of Deposit 12,399 11,406
------------ ------------
$ 23,806 $ 22,595
============ ============
(Continued)
11
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 Company's plan of operation has been to establish its management team
within the first few months of its operations and to grow in a prudent manner,
primarily by providing prompt, quality service. Management believes that it has
been successful in establishing a management team that can administer the
Company's growth in such a manner.
On April 6, 1999, the Bank entered into an agreement with The State Bank,
Fenton, Michigan, to acquire certain assets and assume certain deposit
liabilities with respect to The State Bank's branch office located in the Farmer
Jack (Foodtown at the date of inception of the bank) grocery store at 6555
Sashabaw Road, Clarkston, Michigan. This transaction was consummated on July 16,
1999 and added $1.8 million in deposits to the Bank's totals. A deposit premium
of 9.24% of deposits (as finally adjusted) was paid to The State Bank for these
deposits, along with $17,000 for various fixed assets and equipment. The Bank
leases the branch space from Borman Inc. (which owns the Farmer Jack store) at a
rental rate of $2,750 per month under a lease which runs until July, 2002. The
lease is an arm's length transaction on essentially the same terms as those
previously in place between Foodtown, Inc. and The State Bank.
Financial Condition
Total assets of the Company increased by $1.3 million or 3.9% to $34.6
million at March 31, 2000, from $33.3 million at December 31, 1999. 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 2000, which will be the Bank's second full year of operations.
Cash and cash equivalents, which include federal funds sold and short-term
investments, decreased $0.3 million or 11.9% to $2.2 million at March 31, 2000,
from $2.5 million at December 31, 1999. The decrease is the result of the
increase in the loan portfolios since December 31, 1999.
Securities decreased $2.0 million or 10.5% to $16.9 million at March 31,
2000 from $18.9 million at December 31, 1999. The decrease is the result of
sales of securities to fund the increase in the loan portfolio.
12
The allowance for loan losses as of March 31, 2000 was $174,640,
representing approximately 1.17% of total loans outstanding, compared to 140,000
December 31, 1999. Clarkston Financial Corporation has only experienced one
credit loss as of March 31, 2000, which was fully recovered.
Results of Operations
The net loss for the three months ended March 31, 2000 was $3,000. As of
December 31, 1999, the Company had an accumulated deficit of $753,000 and as of
March 31, 2000, the accumulated deficit was $756,000. The accumulated deficit
and net loss are primarily the results of opening the Bank's main office and its
one branch, wages paid to employees, fees and expenses incurred in forming the
Company and applying for regulator approvals. Management believes that the
Company will generate a net profit for the year even though the first quarter
resulted in a net loss.
Interest income was $595,000 for the three months ended March 31, 2000,
consisting of interest income on federal funds of $26,000, securities of
$296,000 and lending activities of $273,000. Interest expense was $259,000 for
the three months ended March 31, 2000 and relates to interest incurred on
interest bearing deposits.
The Company had an allowance for loan loss of approximately 1.17% of total
loans at March 31, 2000. The provision for loan loss for the three months ended
March 31, 2000 was $33,000. This amount is still expected to grow during 2000,
but not at the same rate as in 1999, due to increases in the loan portfolio.
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. 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.
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.
Other income of $32,000 for the three months ended March 31, 2000 consisted
of income from deposit service charges and other miscellaneous fees.
The main components of other expenses were primarily salaries and benefits.
Other expenses for the three months ended March 31, 2000 was $175,000 consisting
primarily of occupancy and equipment expenses, legal and accounting fees,
marketing expenses, insurance and supplies.
Liquidity and Capital Resources
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 two or three years.
13
Recent Regulatory Developments
Recently enacted federal legislation (the Gramm-Leach-Bliley Act of 1999)
eliminates many Federal and state law barriers to affiliations among banks and
other financial services providers. The legislation, which took effect March 11,
2000, establishes a statutory framework pursuant to which full affiliations can
occur between banks and securities firms, insurance companies, and other
financial companies. The legislation provides some degree of flexibility in
structuring these new affiliations, although certain activities may only be
conducted through a holding company structure. The legislation preserves the
role of the Board of Governors of the Federal Reserve System as the umbrella
supervisor for holding companies, but incorporates a system of functional
regulation pursuant to which the various Federal and state financial supervisors
will continue to regulate the activities traditionally within their
jurisdictions. The legislation specifies that banks may not participate in the
new affiliations unless they are well-capitalized, well-managed and maintain a
rating under the Community Reinvestment Act of 1977 of at least "satisfactory"
among all affiliates.
At this time, the Company is unable to predict the impact this legislation
may have on the Company.
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.
None.
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) Exhibits -
27 Financial Data Schedule
(EDGAR version only)
(b) 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, 2000, 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/ Terry R. Wolf
Terry R. Wolf
Treasurer
DATE: May 12, 2000
16